Arts Rental Equipment, Inc. v. Bear Creek Construction, LLC

Full title: ARTS RENTAL EQUIPMENT, INC., Plaintiff. v. BEAR CREEK CONSTRUCTION, LLC et…

Court: Court of Common Pleas of Ohio

Date published: Feb 23, 2012

A0902785 (Ohio Com. Pleas Feb. 23, 2012)

Opinion

A0902785

02-23-2012

ARTS RENTAL EQUIPMENT, INC., Plaintiff. v. BEAR CREEK CONSTRUCTION, LLC et al., Defendants.

Beth A. Myers, Judge.

DECISION

This case is before the Court on Bank of America's Motion for Summary Judgment on the Counterclaims of the Mechanic Lien Defendants. Many of the lienholders have dismissed their counterclaims against BofA. The only remaining claims are those of the Kraft Group. For the reasons discussed below, the Motion is granted in part and denied in part.

STANDARD

Summary judgment is appropriate when there are no genuine issues of material fact that remain to be litigated and the moving party is entitled to judgment as a matter of law. Civ. R. 56(C); Celotex Corp. v. Catrett (1986), 477 U.S. 317. Summary judgment should be granted if the pleadings, depositions, answers to interrogatories, written admissions, affidavits, transcripts of evidence in the pending case, if any, timely filed in the action and construed most strongly in favor of the non-moving party, show that there is no genuine issue as to any material fact. Civ. R. 56(C). The burden of establishing that the material facts are not in dispute, and that no genuine issue of fact exists, is on the party moving for summary judgment. Vahila v. Hall (1997), 77 Ohio St.3d 421, 674 N.E.2d 1164. If the moving party asserts that there is an absence of evidence to establish an essential element of the non-moving party's claim, the moving party cannot discharge this burden with a conclusory allegation, but must specifically point to some part of the record which affirmatively demonstrates this absence of evidence., Dresher v. Burt (1996), 75 Ohio St.3d 280, 662 N.E.2d 264.

The Ohio Supreme Court has established three factors to be considered upon a motion for summary judgment. These three factors are:

(1) That there is no genuine issue as to any material fact; (2) that the moving party is entitled to judgment as a matter of law; and (3) that reasonable minds can come to but one conclusion, and that the conclusion is adverse to the party against whom the motion for summary judgment is made, who is entitled to have the evidence construed most strongly in his favor.

Bostic v. Connor (1988), 37 Ohio St.3d 144, 146 N.E.2d 881 (quoting Herless v. Willis Day Warehousing Co. (1978), 54 Ohio St.2d 64, 375 N.E.2d 46).

Once a motion for summary judgment has been made and supported as provided in Civ. R. 56(C), the nonmoving party then has a reciprocal burden to set forth specific evidentiary facts showing the existence of a genuine issue for trial and cannot rest on the allegations or denials in the pleadings. Wing v. Anchor Media, Ltd. Of Texas (1991), 59 Ohio St.3d 108, 111, 570 N.E.2d 1095.

DISCUSSION

The Kraft Group lienholders bring claims against BofA for fraud, misrepresentation and civil conspiracy. They concede that BofA never made any direct misrepresentations or statements to them. Rather, they claim the representations came through Audie Tarpley, employee of Bear Creek (BCON).

I. Fraud/Misrepresentation

To establish a claim for fraud/intentional misrepresentation, the lienholders must show:

(a) [a] representation or, where there is a duty to disclose, concealment of a fact,

(b) which is material to the transaction at hand, (c) made falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether it is true or false that knowledge may be inferred, (d) with the intent of misleading another into relying upon it, (e) justifiable reliance upon the representation or concealment, and (f) a resulting injury proximately caused by the reliance.

Wells Fargo Bank, N.A. v. Sessley, 188 Ohio App.3d 213, 230 (10th Dist. 2010) (internal quotation marks omitted).

The Kraft Group points to numerous evidence which, when construing the evidence most strongly in the Kraft Group's favor, could support a finding that BofA knew or should have known about problems on the project. See. e.g. p. 2-29 of Kraft's Memorandum in Opposition. These include issues of non-payment, cost overruns, project being out of balance and improper use of funds.

The Kraft Group also points to evidence of Tarpley and other Bear Creek and KTP representatives making false statements regarding the status of the project. These include statements that subcontractors would be paid. The Kraft Group argues it was induced to continue working and did in fact continue working based on these representations. The Kraft Group concedes there is no evidence of any statements directly by BofA to them. The question is whether the claims may proceed in the absence of such evidence.

A. No direct statements

BofA argues that in order to support their fraud and misrepresentation claims, each Kraft Group member must point to a statement made by BofA directly to it. BofA argues that none of the Kraft Group members have pointed to any such evidence. In fact, as stated above, the Kraft Group concedes that BofA made no statements directly to any of them.

The Court agrees that individualized proof of fraudulent statements by BofA to each of the Kraft Group is required. While the Kraft Group has pointed to evidence that BofA knew or should have known of problems, there is no evidence that BofA made any statements, let alone false or misleading statements, to the Kraft Group. Further, there is no evidence that any members of the Kraft Group ever sought information from BofA, with the exception of Jarvis whose calls went unreturned.

B. Special relationship

The Kraft Group argues that Ohio law does not require that the representations be made directly by BofA to members of the Kraft Group. They argue that a special relationship existed between BofA and Bear Creek giving rise to BofA's liability for Bear Creek's statements. The Kraft Group argues that it is not necessary to show a principal/agent relationship between BofA and Bear Creek. It argues that BofA made statements to Bear Creek which it intended for Bear Creek to pass on.

Kraft relies on Kerr v. Parsons (12^th Dist. 1948), 83 Ohio App. 204. In Kerr, the Court held:

th Dist. 2006), 167 Ohio App.3d 120, 123.

As discussed previously, there is no evidence that BofA made any statement to the Kraft Group members or provided any information to them. The claims fail on this basis alone, unless there is some other basis.

The Kraft Group relies on cases that find:

Recently, however, a growing number of courts have demonstrated a willingness to extend liability for negligent misrepresentation in special cases. For example, in the case of Haddon View Investment Co., supra, relied on by the appellate court below, we held in the syllabus that "[a]n accountant may be held liable by a third party for professional negligence when that third party is a member of a limited class whose reliance on the accountant's representation is specifically foreseen." In recognizing such a cause of action in tort we applied the elements contained in 3 Restatement of the Law 2d. Torts (1977) 126, 127. Section 552, which provides in relevant part:

"(1) One who, in the course of his business * * * supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

"(2) * * * the liability stated in Subsection (1) is limited to loss suffered

"(a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and

“(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction. * * *" (Emphasis added.) Haddon View Investment Co., supra at 156, fn. 1. See, also, id, at 156-157.

Gutter v. Dow Jones (1986), 22 Ohio St.3d 286.

The misrepresentations relied on by Kraft relate to statements made by BofA to Prestress, who is not a member of the Kraft Group. They cite to no statements they relied on. Thus, Kraft has failed to meet the elements required.

3. Civil Conspiracy

"To establish a claim for civil conspiracy, a plaintiff must prove (1) a malicious combination (2) involving two or more persons. (3) causing injury to person or property, and (4) the existence of an unlawful act independent from the conspiracy itself." James v. Bob Ross Buick, Inc., 167 Ohio App.3d 338, 345 (2d Dist. 2006) (granting summary judgment for lack of evidence of a malicious combination).

In addition, '"[a] civil conspiracy claim requires an underlying tortious act that causes an injury. Thus, if there is no underlying tortious act, there is no actionable civil conspiracy claim.'" Doane v. Givaudan Flavors Corp., 184 Ohio App.3d 26, 37 (1st Dist. 2009) (granting summary judgment because of absence of evidence of underlying tort and of a conspiracy). See also, Slyman v. Shipman, Dixon & Livingston, Co. (2d Dist. 2009), 2009 Ohio 4126 (because court granted summary judgment on tortious interference claim, civil conspiracy claim failed as a matter of law).

Because the Court grants summary judgment as to the Kraft Group's remaining tort claims (fraud and negligent misrepresentation), the claim for civil conspiracy cannot survive, unless there is some other underlying tortious act to support it.

While there are no remaining direct tort claims against BofA by the Kraft members, the final issue is whether a civil conspiracy claim can survive if the Kraft Group's tort claims survive against BCON, KTP and others, an alleged co-conspirator with BofA. The Court first notes that this raises a different issue than KTP's civil conspiracy claim against BofA. The Kraft Group claims BofA conspired with KTP and the Bear Creek entities, and alleges fraud against these alleged co-conspirators. Thus, while no fraud claim remains against BofA directly, Kraft argues that BofA conspired with KTP and the Bear Creek entities to defraud the subcontractors.

The Court finds this is sufficient. See, Williams v. Aetna Finance Company (1998), 83 Ohio St.3d 464 (those who in pursuance of a common plan or design to commit a tortious act, actively take part in it or further it by cooperation or who lend aid to the wrongdoer are equally liable; the acts of the co-conspirators are attributable to each other).

Construing the evidence most strongly in favor of the subcontractors, questions of fact remain as to whether BofA combined with KTP and/or Bear Creek to injure the subcontractors. Summary judgment is denied as to this claim.

CONCLUSION

Summary judgment is granted in favor of BofA on the. Kraft group's claims of fraud and misrepresentation. It is denied as to the civil conspiracy claim. The parties are referred to. rule 17 of the Local rules for preparation of an entry.

Where a vendor principal knowingly permits an agent to make false representations inducing a sale of land, a cause of action for damages based on fraud arises against the vendor principal, although the agent in making such representations was unaware of their falsity.

Kerr, however, involved principles of agency, which as stated later in this opinion do not apply in this case.

The Court finds that Ohio law does require direct communications between BofA and the Kraft Group members, or a legal theory such as agency to support a claim of fraud.

C. Duty to disclose

The Kraft Group also argues BofA had a duty to disclose to them the fact that the project was over budget and out of money to pay them. In Starinki v. Pace (9, h Dist. 1987), 41 Ohio App.3d 200, 203, the Court discussed the duty to speak. In quoting Miles v. McSwegin (1979), 58 Ohio St.2d 97, the Court stated:

"One of the interests protected by the law of deceit is 'the interest in formulating business judgments without being misled by others * * *' into making unwise decisions which result in financial loss. Fleming & Gray, Misrepresentation - Part I, 37 Maryland L. Rev. 286-287 (1977). It is well established that an action for fraud and deceit is maintainable not only as a result of affirmative misrepresentations, but also for negative ones, such as the failure of a party to a transaction to fully disclose facts of a material nature where there exists a duty to speak. Prosser on Torts (4 Ed. 1971) 695-696, Representation and Nondisclosure, Section 106; 37 American Jurisprudence 2d 197-201, Fraud and Deceit, Sections 144 and 145; Border v. McClung (1949), 93 Cal.App. 2d 692, 697, 209 P.2d 808. * * *"

The duty to speak does not necessarily depend on the existence of a fiduciary relationship. Central States Stamping Co. v. Terminal Equipment Co. (C.A. 6, 1984), 727 F.2d 1405, 1409. ';It may arise in any situation where one party imposes confidence in the other because of that person's position, and the other party knows of this confidence." Id.

Thus, under this theory, the Kraft Group would have to establish that it put a special trust in BofA and that BofA knew of this trust.

In Blon v. Bank One, Akron (1988), 35 Ohio St.2d 98, the Supreme Court of Ohio held that a bank owes no duty to its consumer borrower to speak absent a showing that the parties understand a special trust or confidence has been reposed in the bank. The Court recognized that the relationship of debtor and creditor, without more, is not a fiduciary relationship.

In this case, Kraft is even one step removed - it is not the borrower and had no contracted relationship with BofA. Further, Kraft points to no evidence that any of its members placed a special trust in BofA or that BofA understood that any of the Kraft members were looking to it as in a special position of trust of or confidence. Thus, as a matter of law, BofA is entitled to judgment on the claim of fraudulent non-disclosure.

D. Agency relationship

Despite the fact that the Kraft Group states no agency relationship is required to establish liability, it argues in the alternative that an agency relationship existed between Bear Creek and BofA. The Court finds that construing the evidence most strongly in favor of the Kraft Group, there is no evidence that Bear Creek was acting as BofA's agent. The Court agrees with the Kraft Group that knowledge of BofA employees is imputed to BofA. However, this does not make Bear Creek employees agents of BofA.

Ohio law recognizes two types of agency: actual agency and apparent agency. Actual agency requires a contractual relationship wherein the agent is granted the authority to act on the principal's behalf and bind the principal to contracts with third parties. To trigger this relationship, there must be a '"manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.'" Berge v. Columbus Cmty. Cable Access, 136 Ohio App.3d 281, 301 (10th Dist. 1999).

Apparent agency occurs when, in the absence of actual agency, the principal nevertheless holds out the agent to third parties as his representative. In determining whether such a relationship exists, the sole focus is on the alleged principal's actions: "Under an apparent-authority analysis, an agent's authority is determined by the acts of the principal rather than by the acts of the agent. The principal is responsible only when the principal has clothed the agent with apparent authority and not when the agent's own conduct has created the apparent authority." Ohio State Bar Ass'n v. Martin, 118 Ohio St.3d 119, 126 (2008). Thus, it makes no difference what the alleged apparent agent may have said or done if the alleged principal did not hold "the agent out to the public as possessing sufficient authority to act on his behalf." Id. In addition. Ohio law requires "that the person dealing with the agent[, ] kn[owing] these facts, and acting in good faith [, ] had reason to believe that the agent possessed the necessary authority." Id.

With respect to actual agency, there is no evidence that BofA had any agreement with Bear Creek that Bear Creek would act as BofA's agent. In fact, Tarpley and Baas of Bear Creek testified they were not agents of BofA.

As to apparent agency, there is no evidence BofA held out anyone at Bear Creek as its agent. BofA employees have testified to the contrary and the Kraft Group points to no evidence otherwise. The Kraft Group members' testimony shows they did not view Bear Creek as an agent of the bank. Thus. BofA is entitled to judgment as a matter of law regarding any claim of fraud based on Bear Creek's representations.

2. Negligent Misrepresentation

To establish a claim for negligent misrepresentation, a plaintiff must establish that:

"One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information." Manno v. St. Felicitas Elementary School, 161 Ohio App.3d 715, 2005 Ohio 3122, at ¶ 33, 831 N.E.2d 1071, quoting 3 Restatement of the Law 2d, Torts (1965) 126-127, Section 552(1), applied by the Supreme Court of Ohio in Gutter v. Dow Jones, Inc. (1986), 22 Ohio St.3d 286, 22 OBR 457, 490 N.E.2d 898, and Haddon View Invest. Co. v. Coopers & Lybrand (1982), 70 Ohio St.2d 154, 436 N.E.2d 212. See, also, Martin v. Ohio State Univ. Found. (2000), 139 Ohio App.3d 89, 104, 742 N.E.2d 1198.

"A negligent misrepresentation does not lie for omissions; there must be some affirmative false statement." Manno, at ¶ 34, citing Leal v. Holtvogt (1998), 123 Ohio App.3d 51, 62, 702 N.E.2d 1246. "Liability for negligent misrepresentation is based upon the negligence of the actor in failing to exercise reasonable care or competence in supplying correct information." Marasco v. Hopewell, 10th Dist. No. 03AP-1081, 2004 Ohio 6715, at ¶ 53, citing 4 Restatement of the Law 2d Torts (1977), Section 552, Comment a. "A representation made with an honest belief in its truth may still be negligent, because of lack of reasonable care in ascertaining the facts, or in the manner of expression, or absence of the skill and competence required by a particular business or profession." Marasco, at ¶ 53, quoting Martin, supra, at 103-104. Whether an actor used reasonable care in acquiring or communicating information is a question for the jury, "unless the facts are so clear as to permit only one conclusion." Marasco, at ¶ 53, citing 4 Restatement of the law 2d Torts (1977), Section 552, Comment e; see, also, Gentile v. Ristas, 160 Ohio App.3d 765, 828, 2005 Ohio 2197, at ¶ 78, 828 N.E.2d 1021.

Moffitt v. Auberle (6