Opinion
Case No. 3:98CV7436
August 28, 2001
ORDER
This case involves a claim by plaintiffs that the defendant Huntington Trust Co. ("Huntington") breached an Escrow Agreement which protected plaintiffs' investment in an all-or-nothing stock offering by the defendant Towne Bank ("Towne"). In an order dated November 15, 2000, I granted plaintiffs' motion for summary judgment, in part, and held that Huntington, under the terms of the Escrow Agreement, breached its obligations to the plaintiffs, as third party beneficiaries. (Doc. 305). I also denied both the plaintiffs' and Huntington's motions for summary judgment as to Huntington's affirmative defenses of ratification and waiver, without prejudice, pending ultimate resolution on further development of those defenses.
Pending are Huntington's supplemental memoranda in support of its ratification and waiver defenses and plaintiffs' responses. (Docs. 309 and 314). For the following reasons, I find that Huntington is entitled to present a ratification defense at trial. Huntington may also assert its defense of waiver at trial, subject to enumerated restrictions.
BACKGROUND
On April 28, 1992, Towne filed an S-1 Registration Statement and Prospectus with the Securities Exchange Commission ("SEC"). Towne desired to obtain the $4 million needed to form and operate the bank by selling its own securities in the form of Subscription Agreements for 320,000 shares at $12.50 per share.
Until the successful sale of a minimum of 320,000 shares, the funds obtained from sales of the Subscription Agreements were to held in an Escrow Account established by Towne with Huntington. After selling 320,000 shares, Towne, pursuant to the terms of the Escrow Agreement, would receive the funds from Huntington.
The Escrow Agreement stipulated that if 320,000 shares were not subscribed by December 31, 1992, the funds invested by the initial purchasers would be returned, with accumulated interest.
On June 9, 1992, Towne and Huntington signed the Escrow Agreement, which, in pertinent part, provided:
The Escrow Agent shall act as Escrow Agent hereunder until the earlier to occur of:
(A) The sale of 320,000 shares; or
(B) December 31, 1992, provided, however that the Company may, by letter to the Escrow Agent, extend this Expiration Date by up to one hundred twenty (120) days (i.e., April 30, 1993).
Upon the occurrence of one of the foregoing two events, the Escrow Agent shall remit the balance of monies held in the Escrow Account by issuing its cashiers checks payable to the Company, or if the Company fails to accept subscription agreements representing the sale of at least 320,000 shares prior to the Expiration Date, then, the Escrow Agent shall return the Proceeds with interest for the time such Proceeds were held in escrow equal to the passbook savings rate from time to time in effect at Escrow Agent to each subscriber. . . .
Towne began selling subscription agreements to investors on August, 1992. Plaintiffs purchased Towne shares as follows: Joseph Gomez, 2,000 shares in March, 1994; Read and Dorothy Backus, 2412 shares on May 26, 1993, October 27, 1993, October 28, 1994, and August, 1995; Anne Stahl Crowley, 516 shares in March 1994; and Daniel Whitacre and Linda Whitacre, 2,020 shares in December, 1994.
Plaintiffs received a fifty-two page Prospectus describing, inter alia, Huntington's role as Escrow Agent. In addition, the Prospectus described the Escrow Agreement and its operation, including the retention of initial investments until the offering was fully subscribed, and the prompt return of funds, on December 31, 1992, if the subscription failed to meet its goal. The Prospectus stated that the December 31, 1992, date could be extended to June 30, 1993.
On July 1, 1992, Towne and Huntington, by letter agreement, amended the Escrow Agreement to permit an extension of the date on which funds were to be returned if 320,000 shares had not been subscribed to June 30, 1993.
By June 30, 1993, Towne had not yet sold the requisite number of subscriptions. Towne and Huntington agreed to another amendment extending the subscription period to December 31, 1993. This agreement also permitted Towne "by letter to the Escrow Agent, [to] extend this expiration date to June 30, 1994."
On July 1, 1993, Towne also wrote a Supplement to the Prospectus ("Prospectus Supplement"). Like the original Prospectus and Escrow Agreement, the Prospectus Supplement stated that the Escrow Agent will refund all funds if the minimum shares were not subscribed as of the Expiration Date. The Prospectus Supplement also provided that the Expiration Date of the offering had been extended to December 31, 1993, "with the maximum period of extension to June 30, 1994." In another section, the Prospectus Supplement stated that: "[t]he extended Expiration Date of December 31, 1993 may be extended at the discretion of the Company until not later than June 30, 1994. Finally, "[w]ritten notice of any such extension will be given to all persons who are already subscribers at the time of the extension . . ."
The Prospectus Supplement also provided information to previous investors: "an investor who has previously subscribed will be given an election to renew such Investor's subscription according to the amended escrow provisions or to have such investor's funds refunded." If a pre-June 30, 1993 investor "elect[ed] to extend" his investment, the Prospectus Supplement directed the investor to "complete, date and sign the Amended Subscription Agreement" and return it "immediately to the Company."
Several plaintiffs purchased their subscriptions after July 1, 1993. Huntington's records reveal that $347,125 was returned to fifty-five subscribers requesting a refund between April 8, 1993 and June 28, 1995. At no time, however, did the plaintiffs request a refund for their certificates.
On September 6, 1995, Huntington, mistakenly believing enough funds had accumulated in the escrow account, mailed the certificates to the subscribers. Although some Towne investors sold their shares after receiving them in September, 1995, plaintiffs accepted and retained their shares. Towne eventually reached the 320,000 share minimum by November, 1995.
Towne reported a net loss of over $800,000 for 1996 and a loss of over $1,800,000 for 1997. In December 1997, after examination by state and federal banking regulators, Towne agreed to a cease and desist order. By June 1998, Towne ceased operations.
Plaintiffs allege individual damages totaling $152,820.05. Damages to the putative class are alleged at $6,557,840.90, inclusive of plaintiffs' initial investments and accrued interest.
ANALYSIS
I. Ratification
Huntington argues that the plaintiffs' failure to request a refund after the expiration date described in the original Prospectus, investment (by some of the plaintiffs) after that date, and finally, acceptance and retention of the shares when issued constituted a ratification of Huntington's extension of the expiration date and premature distribution of shares. I find that Huntington has established ratification as a viable defense to be further developed at trial.
Ratification occurs where the principal, with full knowledge of the facts, conducts himself in a way which manifests his intention to approve an earlier act performed by his agent. Meyer v. Klensch, 14 Ohio App. 4, 6-7 (1961). Where ratification is established, the consequences of the original transaction are the same as if it had been authorized by the principal. Id.
A. Ratification Does Not Require A Principal-Agent Relationship
I indicated in my earlier order that, as argued by the plaintiffs, ratification is not available absent an underlying principal-agent relationship. (Doc. 305 at 24). Huntington argues, and I agree that, under Ohio law, the ratification defense is not dependent on the existence of a principal-agent relationship. Tex.-Tenn. Int'l, Inc. v. Marshall C. Rardin Sons, Inc., 1986 Ohio App. LEXIS 7994, *8 (1986) (unpublished) (principal can ratify the "unauthorized acts of a person or agent"); Jim's Car Care; 1989 Ohio App. LEXIS 5084 at *10 ("agency may be established by the principal's ratification of the unauthorized acts of another").
I held in my earlier order that: "Huntington shall, accordingly, address the question of whether the plaintiffs were `parties' to the Escrow Agreement. If so, Huntington can assert a ratification defense. If not, Huntington's defense of ratification is without merit, because it cannot be asserted absent a showing of an agency-principal relationship." (Doc. 305 at 25). Huntington has demonstrated through its subsequent supplemental memoranda that, under Ohio law, ratification does not require a principal-agent relationship. To the extent that my previous order indicates a different understanding of Ohio law, that portion of the earlier order is superceded by this order.
Restatement (Second) of Agency § 82 (1958) indicates that ratification does not require a principal-agent relationship: "Ratification is the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him."
Further, § 85, comment d, explicitly provides: "such a [principal-agent] relation is not necessary to cause the ratification to be effective." The act ratified "may be [either] the act of an agent authorized to do other acts, or it may be the act of a stranger." Id. at § 84, comment a. Therefore, Huntington need not demonstrate a principal-agent relationship between itself and the plaintiffs in order to present its ratification defense.
Citing Hanson v. Kynast, 24 Ohio St.3d 171, ~ syllabus 1 (1986), plaintiffs argue that, because they did not exercise a right of control over Huntington, the plaintiffs could not ratify Huntington's actions. In Hanson, the plaintiff alleged that the defendant was an agent of a university and, thus, the university was liable to the plaintiff under the doctrine of respondeat superior. The court held that an agency relationship "exists only when one party exercises the right of control over another." Id. Ratification was not an issue in Hanson, so that case is not pertinent. Furthermore, although a right of control is necessary for a principal-agent relationship, because I find that ratification does not require a principal-agent relationship, Huntington need not demonstrate a right of control to establish its ratification defense.
1. Towne as a Third Party
Citing Am. Savings Life Ins. Co. v. Riplinger, 249 Ky. 8 (1933), plaintiffs argue that ratification is limited to those situations where a principal ratified an act undertaken by someone purporting to act as an agent. The plaintiffs claim that implicit in an agency relationship is the presence of a third person with whom the purported agent has dealt for the principal. In Am. Savings, the court noted that "an agent negotiates or treats with third parties in commercial matters for another." Id. at 11. According to the plaintiffs, there is no third party present in this case, and plaintiffs could not have ratified any action taken by Huntington on behalf of the plaintiffs.
According to the plaintiffs, Towne should not be considered a third party, in light of Huntington's prior assertions that it had no fiduciary relationship with the plaintiffs. This contention is without merit. Although a fiduciary relationship may be part of an agency relationship, Huntington, as discussed above, does not have to establish a principal-agent relationship with the plaintiffs as a pre-requisite to asserting a ratification defense.
I find that Huntington has established that Towne was a third party with whom Huntington dealt on behalf of the plaintiffs. Huntington's role as the Escrow Agent permitted plaintiffs to subscribe to and ultimately purchase the securities from Towne. Plaintiffs purchased the Towne securities with checks made payable to Huntington. The Escrow Agreement also instructed Huntington to hold the plaintiffs' funds towards the purchase of Towne certificates which were to be released when certain minimum subscriptions were purchased. As such, Huntington dealt with Towne, as a third party, on behalf of the plaintiffs.
2. Plaintiffs' Right to Control Huntington's Actions as Third-Party Beneficiaries
Plaintiffs contend that, as third-party beneficiaries to the Escrow Agreement, they are not parties to the Escrow Agreement, and thus had no right to control either Huntington's actions or the terms of the agreement pursuant to which Huntington was bound to act.
Plaintiffs argue: "Plaintiffs' objection is that only a party to the agreement could have exercised sufficient control over Huntington's actions for Huntington to have been considered its agent. While Huntington is correct in asserting that third party beneficiaries are subject to defenses which arise from their conduct, this does not eliminate the requirement that the party asserting ratification (be it an actual party or a third party beneficiary) have acted as an agent (or, in this case, servant) for the beneficiary." (Doc. 314 at 8).
Citing Chitlik v. Allstate Ins. Co., 34 Ohio App.2d 193, 196 (1973), plaintiffs correctly assert that, under Ohio law, a third party beneficiary is not a party to the contract. However, in light of my ruling that the ratification defense does not require a principal-agent relationship, I find that plaintiffs, as third-party beneficiaries, could ratify Huntington's actions without being parties to the Escrow Agreement.
Allowing Huntington to assert the ratification defense also prevents inequity that might result from allowing the third party beneficiaries to accept the benefits of the contract without its burdens. See Saum v. Moenter, 101 Ohio App.3d 48, 52 (1995) (third party beneficiary assumes the burdens of a contract by accepting its benefits); Ohio Sav. Bank v. H.L. Vokes Co., 54 Ohio App.3d 68, 71 (1989) (third-party beneficiary acquires no greater rights than the parties to the contract). Just as the plaintiffs are allowed to challenge Huntington's breach of the Escrow Agreement, Huntington can defend on the basis that plaintiffs ratified Huntington's breach.
B. Huntington Has Established Elements of Ratification to Proceed to Trial
For its ratification defense, Huntington must establish that: 1) Huntington purported to take action on behalf of the plaintiffs; and 2) plaintiffs ratified Huntington's actions. See Restatement (Second) of Agency §§ 82 and 85(1).
The ratification defense has been raised by brokers claiming that the plaintiff investors unfairly deferred their claims until discovering that the investment was unfavorable on the market. In Hyman v. Gregory Sons, 252 N.Y.S.2d 919 (N.Y.Sup.Ct. 1964), a New York trial court found that the plaintiff investors had ratified a bank's alleged breach of duty by holding onto the stock and gambling on the market. See also Karlen v. Ray E. Friedman Co. Commodities, 688 F.2d 1193, 1197-8 (8th Cir. 1982) (defendant broker argued that plaintiff investors knowingly assented to unauthorized trading and thus ratified the defendant's action); Van Syckle v. C.L. King Assocs., Inc., 822 F. Supp. 98, 104 (N.D.N.Y. 1993) (defendants argued that plaintiffs ratified their conduct by failing to object to trading decisions until plaintiffs evaluated the results of trading); Arioli v. Prudential-Bache Sec., Inc., 792 F. Supp. 1050, 1059 (E.D.Mich. 1992) (defendant argued that the plaintiffs ratified its actions by failing to act immediately on an unauthorized trading claim).
Huntington will be allowed to assert at trial that it was holding plaintiffs' funds for their benefit. Huntington's retention of the plaintiffs' funds arguably benefitted the plaintiffs, who hoped to achieve a successful investment in Towne.
According to Huntington's records, $347,125 was returned to fifty-five subscribers who requested a refund between April 8, 1993, and June 28, 1995. When each of these subscribers asked for his or her funds from Huntington, Huntington returned the funds. Plaintiffs, however, did not request a refund from Huntington.
Plaintiffs also arguably ratified Huntington's act of retaining the funds. An affirmance can be established by "any conduct of the purported principal manifesting that he consents to be a party to the transaction, or by conduct justifiable only if there is ratification." Restatement (Second) of Agency § 93(1) (1958). As noted in the comment: "[t]he affirmance may be expressed by a formal writing, as by a power of attorney, by spoken words, or by any other conduct indicating that the purported principal accepts the original act as having been done on his account." Id. at 240. An affirmance can also consist of "silence from which an inference of acquiescence can be made." Restatement (Second) of Agency § 92 (1958), comment g, page 240.
Huntington had an obligation to return the subscribers' investments until such time as the requisite number of Towne shares were sold. Plaintiffs did not object to Huntington's continued retention of their funds and later accepted and retained the Towne share certificates, while many other investors demanded and received their funds from Huntington.
Plaintiffs also argue that they had to ratify Huntington's action according to formal SEC guidelines. According to the plaintiffs, SEC rules required the investors to receive and affirm reconfirmation offers authorizing Huntington to retain the funds past the expiration date. Because these formal steps were not taken, plaintiffs argue Huntington's ratification defense fails as a matter of law. citing Restatement (Second) of Agency § 93(2) (1958) ("Where formalities are requisite for the authorization of an act, its affirmance must be by the same formalities in order to constitute a ratification").
The SEC rules apply to the seller of the securities, in this case Towne. See Bormann v. Applied Vision Sys., Inc. 800 F. Supp. 800, 808 (D.Ct. Minn 1992) (defendant seller of securities required to meet formal SEC requirements to avoid the refund feature of the offering). The SEC rules did not, therefore, require Huntington, as the Escrow Agent, to make a formal reconfirmation offer to the plaintiffs. Plaintiffs' contention that Huntington failed to demonstrate that the plaintiffs ratified Huntington's actions by the formal requirements, is, accordingly, without merit.
C. Knowledge Element of Ratification
The defense of ratification requires the party ratifying to have "full knowledge of the facts" of the transaction. Meyer, 114 Ohio App. at 6. Plaintiffs contend that ratification requires the principal to have actual knowledge, and not constructive knowledge, of the facts of the transaction. Ratification generally requires actual knowledge by the principal. As noted in 3 Am. Jur. 2d Agency § 189: "[t]he doctrine of constructive knowledge does not [apply in the ratification context], and the principal is charged only on full knowledge, and not because he had notice which should have incited him to an inquiry. . . ." See also NMS Indus., Inc. v. Premium Corp. of Am., Inc., 451 F.2d 542, 545 (5th Cir. 1971) (holding "[r]atification by the principal of the acts of his agent must be based on full, actual knowledge of the facts of the transaction, constructive or imputed knowledge being insufficient to make the principal liable by way of ratification" in suit for refund of sale of frames).
It is unclear whether Ohio courts have adopted the general rule requiring actual knowledge for ratification. One Ohio court held that constructive knowledge is sufficient for ratification of a lease, but another Ohio court required actual knowledge for ratification by the board of directors in a corporate setting. Compare Lithograph Bldg Co. v. Watt, 96 Ohio St. 74, 88 (1917) (holding principal will be deemed to have ratified lease where "he appears to have actual or constructive notice of its terms"), with Campbell v. Hospitality Motor Inns, Inc., 24 Ohio St.3d 54, 57 (1986) (requiring corporate board of directors to have actual knowledge of facts in ratification defense).
Despite a lack of clear indication from Ohio courts regarding acceptance of the general rule requiring actual knowledge, I find that Huntington can establish ratification by constructive knowledge, because I conclude that the present case falls under an exception to the general rule.
That exception to the general rule requiring actual knowledge to establish the ratification defense exists "where ignorance of the facts arises from the principal's own failure to investigate and the circumstances are such as to put a reasonable person upon inquiry, . . ." 3 Am. Jur 2d Agency § 189. In such circumstances, the principal "may be held to have ratified despite lack of full knowledge." Id.
I find that, in light of the policies adopted by federal courts in securities litigation, the above exception applies to the present case. I conclude that, in a breach of contract action based on the sale of securities, constructive knowledge of the contents of the Prospectus and shareholder agreement can suffice to establish the defense of ratification by a broker or Escrow Agent. Federal courts recognize that "financial investment involves attendant risks." Tapia v. Chase Manhattan Bank, 149 F.3d 404, 409 (5th Cir. 1998) (affirming district court decision barring, on the basis of the statute of limitations, plaintiffs' claims for breach of good faith and fair dealing because plaintiff failed to use reasonable diligence to secure his own legal rights). As such, investors are charged with constructive knowledge of the contents of the Prospectus in federal securities litigation. In Zobrist v. Coal-X, Inc., 708 F.2d 1511, 1518 (10th Cir. 1983), for example, the court held that investors had imputed knowledge of a private placement memorandum, and thus reliance on misrepresentations was not justified for securities fraud claim:
[K]nowledge of information contained in a prospectus or an equivalent document authorized by statute or regulation, should be imputed to investors who fail to read such documents. We thus hold that [the investor] must be charged with constructive knowledge of the risks and warnings contained in the Private Placement Memorandum. Charging [the investor] with constructive knowledge does no more than place him in a position equal to that of a cautious investor.
See also Nelson v. Roney Co., 1987 U.S. Dist. LEXIS 15353, *6 (E.D.Mich. 1987) (unpublished) (plaintiff could not allege she had no knowledge of financial risk, because defendant presented subscription agreement signed by plaintiff stating she was told of risk).
The defense of ratification has been applied to federal securities laws. In this context, notice of the facts of the transaction by the investor is deemed sufficient to ratify the broker's actions. Arioli v. Prudential-Bache Sec., Inc., 792 F. Supp. 1050, 1059 (E.D.Mich. 1992) ("[a]n effective ratification requires that a party be put on notice as to the true state of affairs") (citing Nye v. Blyth Eastman Dillon Co., 588 F.2d 1189, 1197 (8th Cir. 1978)).
Plaintiffs acknowledged receiving the Prospectus. By possessing the Prospectus, plaintiffs had constructive knowledge of the original escrow dates contained therein. See Prospectus, July 10, 1992, page 16. Huntington, therefore, has established that the plaintiffs had constructive knowledge of the facts necessary for the ratification defense.
II. Waiver
Huntington argues that plaintiffs waived any claims by not objecting to the extension of the expiration date and by accepting and holding Towne shares without objection for three years.
A. Waiver Under Ohio Law
To establish a waiver claim in Ohio, Huntington must demonstrate that plaintiffs had: (1) an existing right, benefit or advantage; (2) actual or constructive knowledge of the existence of such right, benefit or advantage; and (3) an intention to relinquish this right. Weaver v. Weaver, 36 Ohio App.3d 210, 212 (1987). Where one does not have a duty to speak, "[m]ere silence" will not amount to a relinquishment. White Co. v. Canton Transp. Co., 131 Ohio St. 190, 198 (1936). Relinquishment can be either by "express words or by conduct which renders impossible a performance by the other party, or which seems to dispense with complete performance at a time when the obligor might fully perform." Id.
Waiver "may be enforced by the person who had a duty to perform and who changed his or her position as a result of the waiver." Chubb v. Ohio Bureau of Workers' Compensation, 81 Ohio St.3d 275, 279 (1998); Andrews v. Ohio State Teachers Retirement Sys. Bd., 62 Ohio St.2d 202, 205 (1980); see also City of North Olmsted v. Eliza Jennings, Inc., 91 Ohio App.3d 173, 180 (1993). The party asserting waiver must show "a clear, unequivocal, decisive act by the other party of such a purpose it amounts to an estoppel on that party's part." Id.
Plaintiffs misconstrue Ohio law relating to waiver in several respects. Plaintiffs mistakenly argue that Huntington must demonstrate that plaintiffs had a duty to perform under the contract for Huntington to proceed with its waiver defense. Under the Chubb rule, however, waiver may be enforced by the party who had a duty to perform. In this case, Huntington is seeking to enforce its waiver defense, and thus must demonstrate that Huntington had a duty to perform under the Escrow Agreement.
Next, Ohio law does not require that waiver must be accepted by the party benefitting from the waiver. In Andrews, the Supreme Court of Ohio held that, to be effective, an attempted renunciation, performed by waiver or otherwise, by the creditor of vested rights under an annuity contract must be accepted by the debtor. 62 Ohio St. 2d at ~ syllabus. This holding, however, was limited to waiver of vested rights under an annuity contract. Ohio decisions in other contexts do not require that waiver be accepted to be effective. See Chubb, 81 Ohio St. 3d at 279; Andrews, 62 Ohio St. 2d at 205; City of North Olmsted, 91 Ohio App.3d at 180.
Ohio courts also do not require that the party seeking to enforce waiver to demonstrate reliance on the waiver. As held in Chubb, 81 Ohio St. 3d at 279, waiver may be enforced by the person who "changed his or her position as a result of the waiver." See also Andrews, 62 Ohio St. 2d at 205; City of North Olmsted, 91 Ohio App.3d at 180.
Plaintiffs also argue that, because waiver and equitable estoppel are discussed interchangeably, Huntington must demonstrate reliance on plaintiffs' alleged waiver, because reliance is a consideration for an equitable estoppel claim. I find, however, that waiver and equitable estoppel are distinct claims under Ohio law. Chubb, 81 Ohio St. 3d at 279 ("[a]lthough waiver is typical of estoppel, estoppel is a separate and distinct doctrine"). Thus, Huntington does not have to demonstrate reliance on the waiver, as an additional element, only that it changed its position based on the waiver.
Finally, plaintiffs mistakenly argue that, under Ohio law, a depositor cannot waive escrow rights. Plaintiffs point out that the Supreme Court of Ohio held that waiver of the terms of a written contract and an agreement of new terms amounts to an oral modification of the written contract. White Co., 131 Ohio St. at syllabus ~ 2. Plaintiffs argue that Pippin v. Kern-Ward Bldg. Co., 8 Ohio App.3d 196, 198 (1982), stands for the proposition that a depositor may not do anything to vary the terms of the Escrow Agreement. Piecing these two cases together, plaintiffs argue that a depositor cannot, as a rule, waive escrow rights.
Plaintiffs' contention is without merit. First, the Pippen court held that a depositor may not reach the deposit, or funds held, in the escrow account. Id. (emphasis added). In addition, the court held that the escrow agent could not alter the terms of the agreement based on the request of one party, but instead could alter the Escrow Agreement "by mutual consent of both parties." Id. at 199. The Pippen court did not hold, as plaintiffs suggest, that a depositor may not do anything to vary the terms of the agreement, but held that the escrow agent must get both parties' approval before changing the terms of the Escrow Agreement.
Next, a party's waiver of its rights under an agreement is separate and distinct from a party's attempt to modify the terms an agreement. Although the White Co. holding stated that a waiver of the written terms of a contract has the same effect as an oral modification, this holding does not stand for the proposition that a party must have the right to orally modify the contract before it can waive its rights thereunder. 131 Ohio St. at syllabus ~ 2.
B. Huntington Has Demonstrated Several Elements of Waiver
Huntington met its burden for the first two waiver elements: plaintiffs had an existing right, benefit or advantage; and plaintiffs had actual or constructive knowledge of the existence of such right, benefit or advantage. Weaver, 36 Ohio App.3d at 212. Under the Escrow Agreement, plaintiffs had a right to a return of their funds if the requisite amount of shares had not been sold by the expiration date. As discussed above, plaintiffs also had constructive knowledge of this right by possessing the Prospectus and Escrow Agreement.
In addition, I find that Huntington has demonstrated that it had a duty to perform under the Escrow Agreement. Chubb, 81 Ohio St. 3d at 279. Under the terms of the Escrow Agreement, Huntington had a contractual duty to return plaintiffs' investments by the expiration date, unless the requisite shares had been sold.
C. Remaining Elements of Waiver to Be Determined at Trial
Huntington must demonstrate plaintiffs' intention to relinquish their rights under the Escrow Agreement. Weaver, 36 Ohio App.3d at 212.
Huntington has not provided evidence that the plaintiffs expressly waived their rights under the Escrow Agreement. Instead, Huntington argues that plaintiffs' failure to ask for a refund after each expiration date, and their acceptance and retention of the Towne shares constitutes relinquishment by conduct. White Co., 131 Ohio St. at 198.
According to the plaintiffs, Huntington's argument fails, because a party who does not have a duty to speak cannot relinquish its rights by "mere silence." Id. Plaintiffs also argue that Huntington has not demonstrated relinquishment by "clear, unequivocal, decisive act[s]" of the plaintiffs. City of North Olmsted, 91 Ohio App.3d at 180.
Huntington argues that the plaintiffs' failure to request a refund after each passing expiration date and acceptance and retention of the Towne shares, for a period of three years, constitutes relinquishment by conduct. I disagree. The plaintiffs did not have a duty, under the Escrow Agreement, to request a refund from Huntington. Instead, the terms of the Escrow Agreement were self-executing. Therefore, plaintiffs' "mere silence," without more, is not enough to establish their relinquishment. White Co., 131 Ohio St. at 198. Further, I find that this silence, in light of the fact that the Escrow Agreement was self-executing, does not constitute a "clear, unequivocal, and decisive act." See Saydell v. Geppetto's Pizza and Ribs Franchise Sys., 100 Ohio App.3d 111, 123 (1994) (failure to request refund of franchise fee, where refund clause was self-executing, does not constitute a clear, unequivocal and decisive act amounting to a waiver).
Huntington, however, alleges that some plaintiffs purchased additional Towne shares after some or all of the distribution dates had passed. If this fact is demonstrated at trial, this might well constitute conduct, by that plaintiff, significant enough to meet the "clear, unequivocal and decisive" test for waiver. See Weaver, 36 Ohio App.3d at 212 (appellant's act of entering into new loan arrangement with appellee constituted act of relinquishment of appellant's right that appellee would be solely responsible for car loan).
Huntington also alleges that some plaintiffs attended Towne board meetings and actively participated in Towne's advisory board. (Doc. 286 at 26). During these meetings, the extension of the Towne share offerings was discussed and approved. (attachments to Doc. 286). Huntington can argue at trial that the act of participating in or attending these meetings, coupled with a decision to continue holding onto the Towne shares, establishes relinquishment for waiver.
Finally, at trial, Huntington must demonstrate that it changed its position as a result of plaintiffs' waiver. Chubb, 81 Ohio St. 3d at 279.
Huntington argues that it changed its position by withholding plaintiffs' funds past each amended expiration date. As each expiration date came and went, none of the plaintiffs requested a refund from Huntington. Based on this inaction, Huntington contends that it changed its position under the Escrow Agreement by holding onto the money, and later, releasing Towne shares to the plaintiffs. At trial, Huntington can argue that this demonstrates a change in its position as a result of plaintiffs' waiver.
CONCLUSION
For the following reasons, it is therefore
ORDERED THAT:
1. Huntington be, and hereby is, allowed to assert its defense of ratification at trial; and
2. Huntington be, and hereby is, allowed to assert its defense of waiver at trial, subject to the enumerated restrictions.