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

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

Court: Court of Common Pleas of Ohio

Date published: May 1, 2012

A0902785 (Ohio Com. Pleas May. 1, 2012)

Opinion

A0902785

05-01-2012

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 J&B Steel's Motion for Summary Judgment. J&B withdrew its foreclosure claim as this has previously been decided by the Court. As to the remaining claims, the motion is denied.

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 Heirless 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

1. Unjust enrichment

J&B seeks judgment against KTP, Neyer Holdings, Matt Daniels, Tim Baird, Aubrey Tarply and Bear Creek Construction for unjust enrichment.

In order to state a claim for unjust enrichment, a Claimant must establish that: (1) it conferred a benefit upon the Defendant; (2) the Defendant knew of such benefit; and (3) the Defendant retained the benefit under circumstances where it would be unjust to allow it to do so without payment to the Claimant. Smith v. Vaughn (1^st Dist. 2007), 174 Ohio App.3d 473, 477. See also, Andersons, Inc. v. Consol, Inc. (6^th Cir. 2003), 348 F.3d 496, 501; accord Maverick Oil & Gas, Inc. v. Barberlon City Schools Dist. Bd. of Edn. (9^th Dist. 2007), 171 Ohio App.3d 605, 615; Clapp v. Mueller Elec. Co. (8^th Dist. 2005), 162 Ohio App.3d 810, 820; Hollis Towing v. Greene (2d Dist. 2003), 155 Ohio App.3d 300, 302.

Construing the evidence most strongly in favor of Neyer Holdings, Matt Daniels, Tim Baird, Aubrey Tarply and Bear Creek Construction, J&B cannot show that it conferred a benefit directly upon Matt Daniels, Timothy Baird, Neyer Holdings Corp., Aubrey Tarpley or BCC. Rather, any benefit was to the property owner - KTP. Thus, the motion is denied as to these claims.

As for KTP, KTP argues that it cannot be liable for unjust enrichment because there is a contract that governs the dispute. Under Ohio law, "where a written contract between the parties addresses the matter in dispute, the contract governs the parties' performance" and the equitable principle of unjust enrichment is inapplicable. Saraf v. Maronda Homes, Inc. of Ohio (10^lDist.2002), 2002 Ohio 6741. However, KTP notes that J&B did not contract directly with KTP. Thus, it is appropriate to consider J&B's unjust enrichment claim.

KTP also argues that it cannot be liable for unjust enrichment because KTP paid Bear Creek for the alleged services provided by J&B.

The First District Court of Appeals in Steel Quest, Inc. v. City Mark Construction Services (1^st Dist. 1997), 1997 WL 674614 stated:

Unjust enrichment occurs when a party retains money or benefits that in justice and equity belong to another, Liberty Mut. Ins. Co. v. Indus. Comm. (1988), 40 Ohio St.3d 109-110-11, 532 N.E.2d 124, 125; Hummel v. Hummel (1938), 133 Ohio St. 520, 528, 14 N.E.2d 923-926-27, "As ordinarily defined, the concept of unjust enrichment includes not only loss on one side but gain on the other, with a tie of causation between them." Fairfield Ready Mix v. Walnut Hills Assoc, Ltd (1988), 60 Ohio App.3d 1, 3, 572 N.E.2d 114, 116. The defendant must knowingly retain a benefit conferred by the plaintiff under circumstances where it would be unjust to do so without payment. Hambleton v. R.G. Barry Corp. (1984), 12 Ohio St.3d 179, 183, 465 N.E.2d 3298, 1302.

Courts in various jurisdictions have debated whether a subcontractor should be able to recover against a property owner, with whom there in no privity of contract, under a theory of unjust enrichment. Some courts have concluded that the only legal remedy available to the subcontractor is a mechanic's lien. Banks v. Cincinnati (1986), 31 Ohio App.3d 54, 57, 508 N.E.2d 966, 969; Annotation (1997), 62 A.L.R.3d 288. However, this court has held that a subcontractor may pursue a claim of unjust enrichment against a property owner even if the subcontractor has failed to properly preserve its rights under a mechanic's lien. Banks, supra, at 57, 508 N.E.2d at 969. However, we have also held that if the owner has paid the general contractor in full for all performance rendered at the construction site, the owner has not received a benefit for which it has not paid. Consequently, the owner has not been unjustly enriched, (some citations omitted).

The Court held that because the undisputed evidence established that the owner paid the general contractor everything owed under the contract, the owner received no benefit to which it was not entitled.

Whether K.TP paid Bear Creek in full for all performance rendered at the construction site by J&B is a question of fact. Summary judgment is denied on J&B's unjust enrichment claim.

2. Piercing Corporate Veil

J&B seeks to pierce the corporate veil of the Bear Creek entities and seeks a finding that the Bear Creek entities are liable for debts of Bear Creek Construction under an alter-ego theory. The Bear Creek entities are comprised of Bear Creek Capital, LLC, Bear Creek Capital Group, LLC, Bear Creek Capital Equity, LLC and Bear Creek Construction. J&B does not seek to pierce the corporate veil between KTP and Bear Creek Construction.

"[N]ormally, shareholders, officers, and directors are not liable for the debts of the corporation." Belvedere Condominium Unit Owners' Association, v. R.E. Roark Companies, Inc. (1993), 67 Ohio St.3d 274, 287. With respect to limited liability companies,

neither the members of the limited liability company nor any managers of the limited company are personally liable to satisfy any judgment, decree, or order of a court for, or are personally liable to satisfy in any other manner, a debt, obligation, or liability of the company solely by reason of being a member or manager of the limited liability company.

Tenable Protective Servs., Inc. v. Bit E-Technologies, L.L.C. (Ohio Ct. App. 8^th Dist. Aug. 21, 2008), Case No. 89958, 2008-Ohio-4233, at ¶ 15 (emphasis added) (dismissing claims including misrepresentation and fraud against the company's members and senior managers in their individual capacities); see also In Re ICLNDS Notes Acquisition, LLC, 259 B.R. 289 (Bankr.N.D.Ohio 2001). "The debts, obligations, and liabilities of a limited liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the limited liability company." Tenable Protective Servs., Inc., at ¶ 23.

J&B can reach the Bear Creek entities (the Bear Creek entities are comprised of Bear Creek Capital, LLC, Bear Creek Capital Group, LLC, Bear Creek Capital Equity, LLC and Bear Creek Construction), if it can demonstrate their conduct warrants piercing their limited liability form. To pierce the corporate veil and hold an individual officer or shareholder of a corporation liable, a plaintiff must prove the following: (1) control over the corporation by those to be held liable was so complete that the corporation has no separate mind, will or existence of its own; (2) control over the corporation by those to be held liable was exercised in such a manner as to commit fraud, an illegal act, or some similarly unlawful act against the person seeking to disregard the corporate entity; and (3) injury or unjust loss resulted to the plaintiff from such control and wrong. Dombroski v. Wellpoint, Inc. (2008), 119 Ohio St.3d 506, 510-11, 513. The burden rests with the "party seeking to impose individual liability on the shareholder to demonstrate that the grounds for piercing the corporate veil exist." Univ. Circle Research Ctr. Corp. v. Galbreath Company (Ohio Ct. App. 8 Dist. 1995), 106 Ohio App.3d 835, 840.

In Dombroski, the Supreme Court of Ohio addressed the second prong of the test (control to commit fraud or an illegal act) and held:

Accordingly, we hold that to fulfill the second prong of the Belvedere test for piercing the corporate veil, the plaintiff must demonstrate that the defendant shareholder exercised control over the corporation in such a manner as to commit fraud, an illegal act, or a similarly unlawful act. Courts should apply this limited expansion cautiously toward the goal or piercing the corporate veil only in instances of extreme shareholder misconduct. The first and third prongs of the Belvedere test are not affected by this ruling and must still be met for a piercing claim to succeed.

The Court finds that J&B may be able to establish that the Bear Creek entities exercised control over each other in such a manner as to commit an unlawful act. However, J&B has failed to establish this in its motion for summary judgment. This will be for the trier of fact to determine. To demonstrate improper control over a corporation, a plaintiff must show that the defendant and the company "are fundamentally indistinguishable" and that the company "had no separate mind, will or existence of its own." Univ. Circle Research Center Corp., 106 Ohio App.3d at 840. Ohio courts have used the following factors in making this determination:

(1) grossly inadequate capitalization, (2) failure to observe corporate formalities, (3) insolvency of the debtor corporation at the time the debt is incurred, (4) shareholders holding themselves out as personally liable for certain corporate obligations, (5) diversion of funds or other property of the company property for personal use, (6) absence of corporate records, and (7) the fact that the corporation was a mere facade for the operations of the dominant shareholder(s).

LeRoux's Billyle Supper Club v. Ma (Ohio Ct. App. 6^th Dist. 1991), 77 Ohio App.3d 417, 422-23.

J&B references the free transfer and commingling of funds in support of its claim that the entities are fundamentally indistinguishable.

Construing the evidence most strongly in the Bear Creek entities' favor, the Court finds that J&B may be able to establish that the Bear Creek entities are fundamentally indistinguishable and had no separate mind, will or existence of their own. However, questions of fact exist and summary judgment is denied on this claim.

3. Fraud/misrepresentation

To establish a claim for fraud/intentional misrepresentation, J&B 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 (10^th Dist. 2010) (internal quotation marks omitted).

J&B states that there were specific representations made by Bear Creek Construction to J&B that it would be paid for performing work on the project with the intent of inducing J&B to continue to work on the Project when BCC knew or should have known it did not have the money to pay for the work and did not intend to pay for the work. J&B further claims that KTP owners knew that the fraud was being committed and failed to take action to stop the fraud and that KTP and KTP owners are vicariously liable for the fraud.

The Court finds that the evidence does not establish J& B is entitled to summary judgment on its fraud/misrepresentation claim. Summary judgment is denied.

CONCLUSION

J&B's motion for summary judgment is denied. The parties are referred to Local Rule 17 for preparation of an Entry.