text:
    Edward GRAHAM, et al., Plaintiffs-Appellants v. CITY OF LAKEWOOD, et al., Defendants-Appellees
    No. 106094
    Court of Appeals of Ohio, Eighth District, Cuyahoga County.
    RELEASED AND JOURNALIZED: May 10, 2018
   A. Steven Dever, A. Steven Dever Co., L.P.A., 13363 Madison Avenue, Lakewood, Ohio 44107, Christopher M. Devito, Morganstern Macadams & Devito Co., 623 West St. Clair Avenue, Cleveland, Ohio 44113, ATTORNEYS FOR APPELLANTS

Tracy K. Stratford, Mariam Keramati, James R. Wooley, Katie M. McVoy, Jones Day, 901 Lakeside Avenue, Cleveland, Ohio 44114, For the Cleveland Clinic Foundation and Delos Cosgrove, M.D.

Kevin M. Butler, Law Director, Jennifer L. Swallow, Chief Assistant Law Director, 12650 Detroit Avenue, Lakewood, Ohio 44107, Robert E. Cahill, Sutter O'Connell Co., 1301 East 9th Street, 3600 Erieview Tower, Cleveland, Ohio 44114, For the City of Lakewood and Michael Summers

Lindsey M. Grant, Assistant Attorney General, 615 W. Superior Avenue, 11th Floor, Cleveland, Ohio 44113, Kristine L. Hayes, Joseph E. Schmansky, Associate Assistant Attorneys General, 150 East Gay Street, 23rd Floor, Columbus, Ohio 43215, For Ohio Attorney General Mike DeWine

Jennifer D. Armstrong, Ann Hunt, McDonald Hopkins, 600 Superior Avenue, East, Suite 2100, Cleveland, Ohio 44144, Sara E. Jodka, O. Judson Scheaf, McDonald Hopkins, L.L.C., 250 West Street, Suite 550, Columbus, Ohio 43215, For Lakewood Hospital Association and Thomas Gable

Thomas M. Ehrnfelt, Walter F. Ehrnfelt, Waldheger Coyne Co., L.P.A., 1991 Crocker Road, Suite 550, Westlake, Ohio 44145, For Lakewood Hospital Foundation, Inc., and Kenneth Haber

Aaron M. Bernay, Katherine A. Klaeren, David C. Olson, Frost Brown Todd, L.L.C., 3300 Great American Tower, 301 East Fourth Street, Cincinnati, Ohio 45202, For Subsidium Healthcare, L.L.C.

BEFORE: Blackmon, J., Boyle, P.J., and Laster Mays, J.

JOURNAL ENTRY AND OPINION

PATRICIA ANN BLACKMON, J.:

{¶ 1} Edward Graham, Marguerite Harkness, William Grulich, Deborah Meckes, and Amy Dilzel ("Plaintiffs") filed this lawsuit alleging several causes of action concerning the closing of Lakewood Hospital. The trial court dismissed Plaintiffs' complaint against all Defendants, which included the following: the city of Lakewood ("the City"); Lakewood's Law Director, Kevin Butler; Lakewood's Mayor, Michael Summers; the Cleveland Clinic Foundation ("CCF"); CCF's former president and CEO Delos Cosgrove, M.D.; the Lakewood Hospital Association ("LHA"); LHA's Chairman, Thomas Gable; the Lakewood Hospital Foundation ("LHF"); LHF's president, Kenneth Haber; Subsidium Healthcare, L.L.C.; and Ohio Attorney General Mike DeWine (collectively "Defendants"). On appeal, Plaintiffs assign eight errors for our review.

{¶ 2} Having reviewed the record and pertinent law, we affirm the trial court's dismissal of Plaintiffs' complaint.

I. Introduction

{¶ 3} Plaintiffs are five residents of the City who take issue with Defendants' agreement to close Lakewood Hospital and replace it with a CCF family health center ("the FHC"). Plaintiffs filed an 18-count complaint, attacking this issue from various angles and requesting various forms of relief.

{¶ 4} In counts 1A, 1B, and 1C, Plaintiffs, acting as taxpayers, allege a derivative action brought on behalf of the City to ensure that its officers do not abuse the municipality's corporate powers. In these taxpayer claims, the Plaintiffs stand in the shoes of the City, and their "rights or claims are no greater than the rights or interests of the municipality." Cincinnati ex rel. Ritter v. Cincinnati Reds , 150 Ohio App.3d 728, 2002-Ohio-7078, 782 N.E.2d 1225, ¶ 20 (1st Dist.). Upon review, we find that Plaintiffs' taxpayer claims have been resolved to the point that they are moot and no longer justiciable.

{¶ 5} Plaintiffs' remaining claims are unrelated to their status as taxpayers. We agree with the trial court that Plaintiffs have either failed to state a claim upon which relief can be granted or lack standing to bring these claims. The apposite facts and our analysis of the law follows.

II. Facts and Procedural History

{¶ 6} In 1930, the City took ownership of Lakewood Hospital and the real estate upon which it sits. In 1987, the City and LHA entered into an agreement in which the City leased Lakewood Hospital to LHA ("the Lease"). This changed the status of Lakewood Hospital from a public hospital to a private, nonprofit hospital. The Lease was renewed in 1996. Also in 1996, LHA and CCF entered into an agreement for the purpose of "integration of [LHA] and the CCF health care system" ("the Agreement"). Additionally, as part of the Agreement, CCF became the sole member of LHA. The practical result of the Lease and the Agreement was that CCF operated and managed Lakewood Hospital.

{¶ 7} The term of the Lease is 30 years, which ends January 2, 2027, although the Lease can be terminated under various conditions. There is no term for the length of the Agreement. However, the Agreement can be terminated by mutual consent of the parties.

{¶ 8} Plaintiffs allege that, beginning in 2005, Defendants "terminated * * * services offered by Lakewood Hospital" in violation of the Lease and the Agreement. For example, Plaintiffs allege that CCF was "turning away patients or sending them to other CCF wholly-owned hospitals [and] regional private ambulatory and public EMS services reportedly had been directed to transport patients to Fairview Hospital instead of Lakewood Hospital." Plaintiffs further allege that "[b]y terminating these services, CCF has been able to pursue its strategy of crippling Lakewood Hospital to the point that CCF would have leverage when bargaining alongside LHA with the City to close Lakewood Hospital, prematurely exit its [Agreement] and Lease obligations, and build a new hospital in Avon, Ohio, of which CCF will have complete ownership and control."

{¶ 9} Plaintiffs also allege that, beginning in 2012, CCF "specified that medical services, equipment, and employees would be transferred gradually from Lakewood Hospital to Fairview Hospital * * * in preparation for the closure and razing of Lakewood Hospital as an inpatient acute care medical/surgical hospital." On January 14, 2015, CCF proposed closing Lakewood Hospital and building the FHC at the same location. This was memorialized in a public letter of intent signed by Cosgrove, Gable, and Haber.

{¶ 10} On April 12, 2015, Plaintiffs, as taxpayers pursuant to R.C. 733.59, sent notice to the City requesting "an injunction to enjoin abuses of corporate power; specific performance regarding express rights and public duties stated in the [Lease and the Agreement]; and a writ of mandamus to compel the City officials to perform their duties and obligations" under the Lease and the Agreement.

{¶ 11} On May 1, 2015, the City responded and refused to pursue a taxpayer suit as Plaintiffs requested. On May 28, 2015, Plaintiffs, acting on behalf of the City, filed this lawsuit, and on August 5, 2015, Plaintiffs filed an amended complaint alleging 18 causes of action. Plaintiffs generally allege that Defendants' actions violate the Lease and the Agreement's "express and implied terms to manage and operate Lakewood Hospital through 2026 * * *" and return the property to the City at that time. Defendants filed multiple motions to dismiss, arguing that Plaintiffs' claims should be dismissed for failure to state a claim upon which relief can be granted under Civ.R. 12(B)(6), lack of standing, failure to plead fraud with specificity under Civ.R. 9, mootness, and lack of subject matter jurisdiction under Civ.R. 12(B)(1).

{¶ 12} A summary of the time line in this case, which will be explained in detail throughout the remainder of this opinion, follows.

{¶ 13} On May 28, 2015, Plaintiffs filed their complaint. On December 21, 2015, the City passed an ordinance and entered into an agreement with CCF and LHA to close Lakewood Hospital. On February 6, 2016, Lakewood Hospital was closed. In September and October 2016, parts of Lakewood Hospital were demolished. On November 23, 2016, the City voters ratified the December 21, 2015 ordinance. In April 2017, construction began on the FHC.

{¶ 14} On July 11, 2017, the court, in a 38-page decision, granted Defendants' motions and dismissed Plaintiffs' complaint in its entirety. It is from this order that Plaintiffs appeal.

III. Motion to Partially Dismiss Appeal

{¶ 15} Before reviewing Plaintiffs' arguments, we address Defendants' motions to partially dismiss this appeal. Defendants argue that Plaintiffs' first three causes of action, each styled "Taxpayers Suit," along with their claims for injunctive relief and mandamus, are moot. To support this argument, Defendants attach various affidavits to their motion to partially dismiss. This court has held that

[n]ormally, an appellate court can only consider what is in the record on appeal. When it comes to deciding whether an event has caused an issue to be moot, however, it may 'be proved by extrinsic evidence outside the record.' State ex rel. Cincinnati Enquirer, Div. of Gannett Satellite Info. Network, Inc. v. Dupuis , 98 Ohio St.3d 126, 2002-Ohio-7041, 781 N.E.2d 163, ¶ 8.

Gajewski v. Bd. of Zoning Appeals , 8th Dist. Cuyahoga No. 91101, 2008-Ohio-5270, 2008 WL 4519190, ¶ 14.

{¶ 16} Defendants argue that Plaintiffs' appeal, as it relates to counts 1A, 1B, 1C, 7, and 8, which seek an injunction, specific performance, and a writ of mandamus, should be dismissed, because it is impossible for this court to grant the relief requested. Defendants further argue that Plaintiffs "never attempted to enjoin the demolition of Lakewood Hospital's [parking] garage and professional office building or the commencement of construction of the Family Health Center further rendering their claims moot."

{¶ 17} Plaintiffs, on the other hand, argue that this case is not about stopping the demolition of a parking garage or the construction of a family health center. Rather, according to Plaintiffs, this case is about stopping "the abuse of corporate powers by elected officials regarding express contract terms to operate, manage, and then return in 2026 the City-owned Lakewood Hospital * * * to the citizens of the City of Lakewood." In the alternative, Plaintiffs argue that even if this case involves a "construction matter," Lakewood Hospital "is admittedly still in existence" and could be used as a hospital again. According to Plaintiffs, the "remedy of monetary relief still exists to hold [Defendants] accountable for their breaches and to allow for the reopening of an inpatient medical care facility on the city-owned land and building comprising the Hospital."

{¶ 18} Upon review, we deny Defendants' motion to partially dismiss this appeal. In the interest of justice, we consider the parties' arguments on the merits.

IV. Claim 1A-Taxpayer Suit under R.C. 733.59

{¶ 19} A plaintiff who ordinarily may not have standing concerning a City's "abuse of corporate powers" may seek equitable remedies as a taxpayer under R.C. 733.56 - 733.59. "A taxpayer action is properly brought only when the right under review in the action is one benefitting the public." State ex rel. Fisher v. Cleveland , 109 Ohio St.3d 33, 2006-Ohio-1827, 845 N.E.2d 500, ¶ 10. Taxpayers must first request that the City's law director take action, and if this is unsuccessful, "the taxpayer may institute suit in his own name, on behalf of the municipal corporation." R.C. 733.59. Plaintiffs must allege "abuse of corporate powers" by the political subdivision, including, 1.) unlawful exercise of powers and, 2.) assumption of powers not conferred. See Elyria Gas & Water Co. v. Elyria , 57 Ohio St. 374, 49 N.E. 335 (1898).

{¶ 20} Taxpayers may seek equitable relief under R.C. 733.59, limited to the following forms: 1.) pursuant to R.C. 733.56, "an order of injunction to restrain * * * the abuse of [municipal] corporate powers, or the execution or performance of any contract made [o]n behalf of the municipal corporation in contravention of the laws or ordinance[s] governing it, or which was procured by fraud or corruption"; 2.) pursuant to R.C. 733.57, "the specific performance [of] an obligation or contract made on behalf of a municipal corporation"; and 3.) pursuant to R.C. 733.58, "a writ of mandamus to compel the performance of [a] duty * * * expressly enjoined by law or ordinance."

{¶ 21} In this case, it is undisputed that Plaintiffs made a written demand to the City's law director requesting that the City file suit under R.C. 733.56, 733.57, and 733.58. This demand was unsuccessful, and Plaintiffs filed the instant action, requesting the following relief: 1.) "a temporary and permanent injunction to enjoin the abuses of corporate powers by the City and prohibit the execution or performance of any resolution or contract in contravention of the existing" Agreement and Lease; 2.) specific performance of the Lease and the Agreement; and 3.) writ of mandamus compelling the City to operate under the Lease and the Agreement.

{¶ 22} The trial court dismissed the taxpayer claims for the following reasons: The statutory taxpayer claims for an injunction and a writ of mandamus were dismissed for failure to state a claim upon which relief can be granted under Civ.R. 12(B)(6) ; and the statutory taxpayer claim for specific performance was dismissed for lack of subject matter jurisdiction based on mootness under Civ.R. 12(B)(1). We first address whether the court retained subject matter jurisdiction over the taxpayer claims based on mootness, because we find this dispositive.

A. Lack of Subject Matter Jurisdiction and Mootness

{¶ 23} Courts of common pleas' jurisdiction is limited to "justiciable matters." Morrison v. Steiner , 32 Ohio St.2d 86, 290 N.E.2d 841 (1972). "If what were once justiciable matters have been resolved to the point where they become moot, the courts of common pleas no longer have subject matter jurisdiction to hear the case." Hirsch v. TRW, Inc. , 8th Dist. Cuyahoga No. 83204, 2004-Ohio-1125, 2004 WL 444552, ¶ 11. "The lack of subject-matter jurisdiction is not a waivable defense and may be raised for the first time on appeal." In re Claim of King , 62 Ohio St.2d 87, 89, 403 N.E.2d 200 (1980). Where mootness is concerned, "an actual controversy must exist at stages of appellate or certiorari review, and not simply at the date the action is initiated," unless the issue is "capable of repetition, yet evading review." Roe v. Wade , 410 U.S. 113, 125, 93 S.Ct. 705, 35 L.Ed.2d 147 (1973).

{¶ 24} "One commentator has defined mootness as 'the doctrine of standing set in a time frame: The requisite personal interest that must exist at the commencement of the litigation (standing) must continue throughout its existence (mootness).' " United States Parole Comm. v. Geraghty , 445 U.S. 388, 398, 100 S.Ct. 1202, 63 L.Ed.2d 479 (1980), quoting Monaghan, Constitutional Adjudication: The Who and When , 82 Yale L. J. 1363, 1384 (1973).

{¶ 25} In the case at hand, on December 21, 2015, the City passed Ordinance 49-15, which authorized the City to enter into the Master Agreement with CCF and LHA. The same day, the parties entered into the Master Agreement, in which the City and LHA sold certain Lakewood Hospital assets, including real property, to CCF, with proceeds paid to the City. The Master Agreement also provided that ownership of other Lakewood Hospital property "revert back" to the City. Furthermore, according to Defendants, the Master Agreement "terminated the Agreement, significantly modified the Lease, and included a mutual waiver of all claims arising from the Agreement, the Lease, and the operation and management of Lakewood Hospital * * *."

{¶ 26} Per the terms of the Master Agreement, Lakewood hospital was closed on February 6, 2016. Additionally, the parties agreed that CCF would construct the new $34,000,000 FHC in its place. In September and October 2016, CCF demolished Lakewood Hospital's parking garage and professional office building. In April 2017, CCF began construction of the FHC at the site where Lakewood Hospital's parking garage and professional office building used to stand.

{¶ 27} On November 23, 2016, the City's voters passed Issue 64, which ratified Ordinance 49-15. The City's voters also adopted the Third Amended Charter for the City, which "eliminates all references to Lakewood Hospital and the City owning, leasing, or operating a hospital."

{¶ 28} In dismissing Plaintiffs' taxpayer claims, the court found that, subsequent to the filing of this suit, the parties agreed to 1.) terminate the Agreement; 2.) amend/modify the Lease and eventually terminate the Lease when the FHC is complete; and 3.) waive and release any claims the City may have against CCF and LHA under the Lease and the Agreement. The court concluded that "[t]he release and waiver of claims, combined with the amendment and imminent termination of the [L]ease and the [A]greement, have made the Plaintiffs' taxpayers claims-which, it is worth repeating, are really Lakewood's claims-moot and there is no case or controversy for me to decide."

B. Statutory Taxpayer Claim for Specific Performance

{¶ 29} The extraordinary remedy of specific performance may be awarded for breach of contract when the following conditions have been met:

The contract must be concluded, certain, unambiguous, mutual, and based upon a valuable consideration; it must be perfectly fair in all its parts; it must be free from any misrepresentation or misapprehension, fraud or mistake, imposition or surprise; it cannot be an unconscionable or hard bargain; its performance must not be oppressive upon the defendant; and finally, it must be capable of specific execution through a decree of the court.

Hotel Burnet Co. v. Union Cent. Life Ins. Co. , 72 Ohio App. 453, 458, 52 N.E.2d 754 (1st. Dist.1943) (citing 4 Pomeroy's Equity Jurisprudence 1040, Section 1404 (5th Ed.) ).

{¶ 30} In the case at hand, Plaintiffs seek specific performance of the Lease through the conclusion of its term in 2026. However, the parties to the Lease agreed to amend, modify, and eventually terminate the Lease by entering into the Master Agreement. City council enacted an ordinance to authorize this and the voters ratified it by passing Issue 64. Therefore, the Lease is no longer "capable of specific execution."

[T]he contracts of a municipal corporation * * * are governed by the same principles as apply to contracts between individuals. As between the latter, parties competent to contract are competent to modify or to abrogate the contracts, so far as executory, between them made, the consideration therefor being found in the mutual waivers of rights thereunder.

Phelps v. Logan Natural Gas & Fuel Co. , 101 Ohio St. 144, 148, 128 N.E. 58 (1920). Furthermore, Ohio courts have held that "in the exercise of its plenary power, the General Assembly may enact remedial and retrospective legislation to cure and render valid that which it could have authorized in the first instance." Washington Cty. Taxpayers Assn. v. Peppel , 78 Ohio App.3d 146, 156, 604 N.E.2d 181 (4th Dist.1992).

{¶ 31} Accordingly, we find that the statutory taxpayer claim for specific performance is moot.

C. Statutory Taxpayer Claim for an Injunction

{¶ 32} An injunction is a preventative remedy "usually employed to prevent future injury, * * * to restrain motion and to enforce inaction * * *."

Fischer v. Damm , 36 Ohio App. 515, 520-521, 173 N.E. 449 (8th Dist.1930).

{¶ 33} "To state a claim for injunctive relief, a litigant must show that (1) it is likely to succeed on the merits of the case, (2) the issuance of the injunction will prevent irreparable harm, (3) the potential injury that may be suffered [if the injunction is granted] will not outweigh the potential injury suffered * * * if the injunction is not granted, and (4) the public interest will be served by the granting of the injunction." Cleveland v. Cleveland Elec. Illuminating Co. , 115 Ohio App.3d 1, 684 N.E.2d 343 (8th Dist.1996).

{¶ 34} Although somewhat unclear from Plaintiffs' 150-page amended complaint, it appears that they are trying to "enjoin the abuses of corporate powers by the City and prohibit the execution or performance of" the Master Agreement, on the grounds that it is "in contravention of" the Agreement and the Lease.

{¶ 35} The trial court found that Plaintiffs failed to allege a claim "for an injunction to restrain the abuse of Lakewood's corporate powers." Rather, the court found that the allegations against the City fell "within the wide range of discretionary lawful conduct conferred on the mayor by virtue of his position as the City's executive." The trial court further found that Plaintiffs failed to allege a claim "for an injunction to restrain the execution or performance of any contract made on behalf of Lakewood in contravention of its laws and ordinances." Rather, the court found that Plaintiffs sought to restrain the City from performing under a contract (the Master Agreement) that essentially supersedes two previous contracts (the Lease and the Agreement). The court concluded that "[t]here is no provision allowing a taxpayer to seek to restrain the performance or execution by the City of one contract on the basis that to do so would violate a different contract."

{¶ 36} Regardless of the court's reasoning behind dismissing Plaintiffs' statutory taxpayer claim for an injunction, upon review, this court finds that the issue is moot. City council has passed, and the voters have approved, the parties entering into the Master Agreement. The City cannot now enjoin what the voters have approved. See Skindell v. Madigan, 8th Dist. Cuyahoga No. 103976, 2017-Ohio-398, 2017 WL 448940 (dismissing as moot appeal challenging the adoption of Lakewood Codified Ordinance 49-15, which approved the closing of Lakewood Hospital, because the voters of Lakewood approved the ordinance by way of referendum). Compare Garverick v. Hoffman , 23 Ohio St.2d 74, 81, 262 N.E.2d 695 (1970) ("the adoption by the City council of an ordinance accepting annexation renders moot a case seeking to enjoin annexation").

D. Statutory Taxpayer Claim for a Writ of Mandamus

{¶ 37} Plaintiffs' amended complaint requests a "writ of mandamus to compel the City to perform [its] official duties" under the City's charter and ordinances to "ensure the preservation and operation of Lakewood Hospital" per the terms of the Lease and conditions of the Agreement.

{¶ 38} The Ohio Supreme Court has held that "to be entitled to a writ of mandamus, relator must show (1) that he has a clear legal right to the relief prayed for, (2) that respondents are under a clear legal duty to perform the acts, and (3) that relator has no plain and adequate remedy in the course of ordinary law." State ex rel. Harris v. Rhodes , 54 Ohio St.2d 41, 42, 374 N.E.2d 641 (1978).

{¶ 39} As to the first prong, the "relief prayed for" is to compel the City to perform its official duties concerning Lakewood Hospital. Although unclear from Plaintiffs' 150-page amended complaint, the trial court concluded that, in essence, Plaintiffs' aim was to compel the enforcement of the Lease and the Agreement.

{¶ 40} As to the second prong, the issue is whether the City has a "clear legal duty" to enforce the Lease and the Agreement. The City is not a party to the Agreement; therefore, we find that the City has no duty to enforce it. The City is, however, a party to the Lease. A basic tenant of contract law is that a party to a contract has a duty to perform under that contract. "Accompanying every contract is a common-law duty to perform * * * the thing agreed to be done * * *." 38 American Jurisprudence, Section 20, at 662 (1936). However, a basic defense to failure to perform under a contract is the doctrine of accord and satisfaction. "An accord and satisfaction is a method of discharging a contract by substituting another contract or agreement, the execution of which satisfies the original duty. Four elements must be present to an accord and satisfaction: proper subject matter, competent parties, mutual assent and consideration." Warner Storage, Inc. v. Systemation, Inc., 64 Ohio App.3d 1, 4, 580 N.E.2d 490 (8th Dist.1989).

{¶ 41} As to the third prong, Plaintiffs must show that they have no other plain and adequate remedy at law. Interestingly, to succeed on this claim, Plaintiffs would necessarily have to fail on all other nonequitable causes of action they set forth in their amended complaint.

{¶ 42} For the same reasons noted in parts IV(B) and (C) of this opinion, we find that Plaintiffs' claim for a writ of mandamus is moot.

E. Taxpayer suit under the Lakewood Charter

{¶ 43} According to Plaintiffs, the Second Amended Charter of Lakewood, Article VII, Sections 1(D) through 1(G), sets forth the procedure for taxpayer actions. These procedures and requirements are substantially similar, if not identical, to the procedures and requirements set forth in R.C. Chapter 733. Furthermore, the allegations in Plaintiffs' claim 1B are identical to the allegations in Plaintiffs' claim 1A.

{¶ 44} The trial court stated that "the same analysis applies and a separate discussion is not needed." We agree, and find that the trial court properly dismissed this count.

F. Taxpayer Suit under Common Law

{¶ 45} In this claim, Plaintiffs allege the same facts as in claims 1A and 1B, and they request the same relief-an injunction, specific performance, and a writ of mandamus. However, they seek this relief "[p]ursuant to the common law of the State of Ohio." The Ohio Supreme Court has held that "where statutory relief is afforded and clearly applies to the circumstances giving rise to the action, the statute constitutes the exclusive avenue for seeking redress." Westbrook v. Prudential Ins. Co. , 37 Ohio St.3d 166, 170, 524 N.E.2d 485 (1988).

{¶ 46} Accordingly, the trial court properly granted Defendants' motion to dismiss this count.

V. Standard of Review- Civ.R. 12(B)(6) Motion to Dismiss

{¶ 47} An appellate court's standard of review on a Civ.R. 12(B)(6) motion to dismiss is as follows:

Our standard of review on a Civ.R. 12(B)(6) motion to dismiss is de novo. A motion to dismiss for failure to state a claim upon which relief can be granted is procedural and tests the sufficiency of the complaint. Under a de novo analysis, we must accept all factual allegations of the complaint as true and all reasonable inferences must be drawn in favor of the nonmoving party.

(Citations omitted.) NorthPoint Props v. Petticord , 179 Ohio App.3d 342, 2008-Ohio-5996, 901 N.E.2d 869, ¶ 11 (8th Dist.). For a trial court to grant a motion to dismiss for failure to state a claim upon which relief can be granted, it must appear "beyond doubt from the complaint that the plaintiff can prove no set of facts entitling her to relief." Grey v. Walgreen Co. , 197 Ohio App.3d 418, 2011-Ohio-6167, 967 N.E.2d 1249, ¶ 3 (8th Dist.).

{¶ 48} Particular to this case, however, we note that under Civ.R. 12(B)(6), the court does not have to accept Plaintiffs' legal conclusions as true. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ("the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice").

{¶ 49} For example, in paragraph 16 of Plaintiffs' amended complaint, it states the following: "The intended beneficiaries of the Lease are City Taxpayers and residents and Lakewood Hospital employees." This is a legal conclusion that may or may not be supported by the facts of this case. We do not have to accept this as true for the purpose of analysis under Civ.R. 12(B)(6).

{¶ 50} The trial court dismissed claims 2, 4, 5, 10, 11, and 14 for failure to state a claim upon which relief can be granted.

A. Claim 2-Breach of Contract as Intended Third-party Beneficiary

{¶ 51} In the case at hand, Plaintiffs argue that they are intended third-party beneficiaries of the Lease and the Agreement because of various provisions in these two documents stating that Lakewood Hospital serves to benefit and provide healthcare for Lakewood residents and the general public.

{¶ 52} "[P]rivate citizens have no right to enforce government contracts on their own behalf, unless a different intention is 'clearly manifested' in the contract." Duncan v. Cuyahoga Community College , 8th Dist. Cuyahoga No. 101644, 2015-Ohio-687, 29 N.E.3d 289, ¶ 32. Ohio law differentiates an "intended" third-party beneficiary from an "incidental" third-party beneficiary. "If the promisee has no intent to benefit a third party, then any third-party beneficiary to the contract is merely an 'incidental beneficiary' who has no enforceable rights under the contract." Hill v. Sonitrol of Southwestern Ohio, Inc., 36 Ohio St.3d 36, 40, 521 N.E.2d 780 (1988) (citing Norfolk & W. Co. v. United States , 641 F.2d 1201, 1208 (6th Cir.1980).

{¶ 53} Furthermore, the Ohio Supreme Court has held that "[g]enerally, the parties' intention to benefit a third party will be found in the language of the agreement." Huff v. FirstEnergy Corp. , 130 Ohio St.3d 196, 2011-Ohio-5083, 957 N.E.2d 3, ¶ 12. When the terms of a contract are unambiguous, courts look to the plain meaning of the language and apply it as a matter of law. State ex rel. Parsons v. Fleming , 68 Ohio St.3d 509, 511, 628 N.E.2d 1377 (1994).

{¶ 54} Our review of the Lease and the Agreement shows no express intent to benefit Plaintiffs. The stated purpose of Lakewood Hospital, as evidenced by the Lease and the Agreement, is to provide medical services to "residents of the City and all members of the general public." As the trial court noted, this can "likely be said for any other hospital in the United States and * * * does not reveal an intent to make the general public-much less Lakewood taxpayers alone-beneficiaries of the lease with legally enforceable rights under it."

{¶ 55} Upon review, we find that Plaintiffs have failed to state a claim upon which relief can be granted as intended third-party beneficiaries of the Lease and the Agreement. A plain reading of these contracts shows that the parties did not intend Plaintiffs to be beneficiaries of the agreements beyond the incidental benefit of medical service they may-or may not-receive from Lakewood Hospital. Compare Jackson v. Cleveland Clinic Found. , N.D.Ohio No. 1:11 CV 1334, 2011 WL 4007732, 2011 U.S. Dist. LEXIS 101768 (Sept. 9, 2011) (dismissing Cleveland and Mayor Frank Jackson's breach of contract claim against CCF under Fed.R.Civ.P. 12(b)(6) for the closure of Huron Hospital and rejecting the argument that accepting state funding "requires the Cleveland Clinic to continue to provide for the fair and equitable deliver[y] of essential medical services to the citizens of * * * Cleveland").

B. Claim 4-Breach of Express Trust

{¶ 56} The Ohio Supreme Court held the following in Miller v. Stokely , 5 Ohio St.194, 1855 WL 62, 1855 Ohio LEXIS 132 (1855), at paragraphs one and two of the syllabus:

To establish an express trust * * *, it is requisite that the evidence should be clear, certain and conclusive, in proof not only of the existence of the trust, and that, too, at the time of the conveyance, but also as to its terms and conditions.
It is not sufficient that circumstances should be in proof calculated to excite a suspicion, or even a probability, in the minds of some persons, that there might have been a trust; but the proof must show the existence of the trust affirmatively, and so conclusively as to remove all reasonable and well-founded doubt.

{¶ 57} Plaintiffs argue that LHA was holding Lakewood Hospital in trust for the benefit of Lakewood taxpayers and residents, as well as the public, and that LHA is a "trustee" rather than a "lessee." However, there is simply no evidence in the amended complaint or any of its attachments to support this argument. In fact, the plain language of the documents at issue refers to a "lease" and identifies LHA as a "lessee." Plaintiff offers nothing more than legal conclusions that an express trust exists, and as noted previously, we are not required to accept these conclusions as true. Accordingly, Plaintiff fails to state a claim for breach of an express trust upon which relief can be granted.

C. Claim 5-Breach of Constructive Trust

{¶ 58} A constructive trust is a remedy, not a cause of action. "A constructive trust is, in the main, an appropriate remedy against unjust enrichment. This type of trust is usually invoked when property has been acquired by fraud" or the acquisition of property "is against the principles of equity." Ferguson v. Owens , 9 Ohio St.3d 223, 226, 459 N.E.2d 1293 (1984). Accordingly, there can be no "claim" for breach of a constructive trust, and the trial court properly dismissed this claim under Civ.R. 12(B)(6).

D. Claim 10-Unjust Enrichment

{¶ 59} Plaintiffs allege that the City conferred a benefit on CCF and LHA, and it is unjust for CCF and LHA to retain this benefit. "[A]n equitable action for unjust enrichment cannot exist where there is a valid and enforceable written contract." Kwikcolor Sand v. Fairmount Minerals Ltd. , 8th Dist. Cuyahoga No. 96717, 2011-Ohio-6646, 2011 WL 6775580, ¶ 14.

{¶ 60} In this case, there are two valid and enforceable written contracts: the Lease and the Agreement. In fact, the gist of Plaintiffs' case is that the City abused its power by breaching the Lease and the Agreement. Plaintiffs fail to allege that these two contracts are invalid or unenforceable, which would be the scenario giving rise to a claim for unjust enrichment. Accordingly, this claim was properly dismissed for failure to state a claim upon which relief can be granted under Civ.R. 12(B)(6).

E. Claim 11-Promissory Estoppel

{¶ 61} Plaintiffs allege promissory estoppel against LHA and CCF only and request relief by standing in the shoes of the City as taxpayers. "[T]he existence of an enforceable contract between the parties bars recovery under a promissory estoppel claim." Americana Inv. Co. v. Natl. Contr. & Fixturing, L.L.C. , 10th Dist. Franklin No. 15AP-1010, 2016-Ohio-7067, 2016 WL 5627714, ¶ 13. Similar to our analysis of unjust enrichment, this claim was properly dismissed for failure to state a claim upon which relief can be granted under Civ.R. 12(B)(6).

F. Claim 14-Alter Ego Liability (Piercing the Corporate Veil)

{¶ 62} Piercing the corporate veil or alter ego liability is a remedy, not an independent cause of action. Geier v. Natl. GG Indus. , 11th Dist. Lake No. 98-L-172, 1999 WL 1313640, 1999 Ohio App. LEXIS 6263 (Dec. 23, 1999). Accordingly, there can be no "claim" for alter ego liability, and the trial court properly dismissed this allegation under Civ.R. 12(B)(6).

VI. Standard of Review-Dismissal for Lack of Standing

{¶ 63} "Whether a party has established standing to bring an action before the court is a question of law," which is reviewed de novo. Moore v. Middletown , 133 Ohio St.3d 55, 2012-Ohio-3897, 975 N.E.2d 977, ¶ 21. To have standing to file suit, a plaintiff must show that he or she "suffered (1) an injury that is (2) fairly traceable to the defendant's allegedly unlawful conduct, and (3) likely to be redressed by the requested relief." Id. at ¶ 22.

{¶ 64} In general, standing to enforce a public right as a taxpayer is conferred through R.C. Chapter 733. In State ex rel. White v. Cleveland , 34 Ohio St.2d 37, 40, 295 N.E.2d 665 (1973), the Ohio Supreme Court held that when Plaintiffs "have enforced a right of action on behalf of and for the benefit of the general public * * * [t]his action is properly categorized as a 'taxpayer's action' " pursuant to R.C. 733.59.

{¶ 65} Outside of this statutory scheme, a taxpayer may have standing to sue a branch of the government based on two legal theories: "First, he has standing if he is in a particular class of people, more narrow than the class of taxpayers generally, that has contributed the funds of out which the expenditures are made." Brinkman v. Miami Univ. , 139 Ohio Misc.2d 114, 2005-Ohio-7161, 861 N.E.2d 925, ¶ 24 (C.P.). See also State ex rel. Masterson v. State Racing Comm. , 162 Ohio St. 366, 368, 123 N.E.2d 1 (1954) (finding that the plaintiff lacked standing to sue because he had not paid any of the "special taxes" that made up the State Racing Commission Fund).

{¶ 66} Second, a person "has standing as a general taxpayer if he has suffered some individual injury-if he can 'allege and prove damage to [himself] different in character from that sustained by the public generally.' " Brinkman at ¶ 24 (quoting Masterson ). As will be explained in the following sections of this opinion, Plaintiffs made no allegations that they paid "special taxes" or suffered unique individual injuries concerning the closing of Lakewood Hospital. Therefore, they have no standing to sue as taxpayers outside of the realm of R.C. Chapter 733 et seq.

{¶ 67} The trial court dismissed claims 3, 12A, 12B, 13, and 15 for lack of standing.

A. Claim 3-Breach of Fiduciary Duty

{¶ 68} Plaintiffs argue that the City owes the taxpayers a fiduciary duty to act in their best interest and, in this case, the City breached that duty by closing Lakewood Hospital.

{¶ 69} "To maintain a claim of breach of fiduciary duty, the plaintiff must prove (1) the existence of a duty arising from a fiduciary relationship; (2) a failure to observe the duty; and (3) an injury resulting proximately therefrom." Harwood v. Pappas & Assocs. , 8th Dist. Cuyahoga No. 84761, 2005-Ohio-2442, 2005 WL 1177877, ¶ 26.

{¶ 70} "[P]rivate citizens may not restrain official acts when they fail to allege and prove damage to themselves different in character from that sustained by the public generally." Masterson at 368, 123 N.E.2d 1.

{¶ 71} Under this cause of action, Plaintiffs fail to allege that they are in a class of "special" taxpayers, and they fail to allege an injury unique to themselves; therefore, they do not have standing to sue for breach of fiduciary duty-outside of the aforementioned statutory taxpayers suit-and this claim was properly dismissed.

B. Claims 12A and 12B-Fraud

{¶ 72} Plaintiffs allege in Claim 12A that CCF made certain misrepresentations to LHA and the City regarding the Lease and the Agreement with the intent of misleading the City to rely on them. Plaintiffs allege in Claim 12B that all Defendants knew they were going to "cripple" then close Lakewood Hospital.

{¶ 73} The elements of fraud are: (a) a misrepresentation or concealment of fact; (b) that is material to the transaction at hand; (c) made falsely, with knowledge of its falsity or with utter disregard and recklessness as to whether it is false; (d) with the intent of misleading another into relying upon it; (e) justifiable reliance upon the misrepresentation or concealment; and (f) resulting injury proximately caused by the reliance. Cohen v. Lamko, Inc. , 10 Ohio St.3d 167, 169, 462 N.E.2d 407 (1984).

{¶ 74} Plaintiffs allegations are that Defendants committed fraud against the City; therefore, Plaintiffs must necessarily stand in the City's shoes to bring this claim. However, this is not one of the causes of action contemplated by R.C. Chapter 733, Plaintiffs fail to allege that they are in a class of "special" taxpayers, and they fail to allege an injury unique to themselves. Furthermore, Plaintiffs fail to allege how they (as opposed to the City) were misled or harmed or how they relied on Defendants' misrepresentations. Therefore, they do not have standing to sue Defendants for fraud allegedly committed upon the City.

C. Claim 13-Conspiracy

{¶ 75} Plaintiffs allege that Defendants engaged in a conspiracy by accepting CCF's proposal, which recommended closing Lakewood Hospital, and rejecting MetroHealth's proposal.

{¶ 76} The elements of a civil conspiracy are: "1) a malicious combination; 2) two or more persons; 3) injury to person or property; [and] 4) existence of an unlawful act independent from the actual conspiracy." Scanlon v. Gordon F. Stofer & Bro. Co. , 8th Dist. Cuyahoga Nos. 55467 and 55472, 1989 WL 69400, 1989 Ohio App. LEXIS 2528 (June 22, 1989).

Conspiracy, in and of itself, furnishes no cause of civil action. The gist of the civil action for conspiracy is the damage caused by acts committed pursuant to a formed conspiracy, rather than the conspiracy itself; and unless something is actually done by one or more of the conspirators which proximately results in damage, no civil action lies against anyone.

10 Ohio Jurisprudence 2d 60, Conspiracy, Section 3. Plaintiffs attempt to "stand in" for the Defendants and allege no damages unique to themselves. The trial court properly dismissed this claim for lack of standing.

D. Claim 15-Tortious Interference

{¶ 77} Plaintiffs allege that CCF tortiously interfered with the Lease. The elements of tortious interference with a contract are: "(1) the existence of a contract, (2) the wrongdoer's knowledge of the contract, (3) the wrongdoer's intentional procurement of the contract's breach, (4) the lack of justification, and (5) resulting damages." Fred Siegel Co., L.P.A. v. Arter & Hadden , 85 Ohio St.3d 171, 176, 707 N.E.2d 853 (1999).

{¶ 78} "Only a party to a contract or an intended third-party beneficiary of a contract may bring an action on a contract in Ohio." Thornton v. Windsor House, 57 Ohio St.3d 158, 161, 566 N.E.2d 1220 (1991). Plaintiffs attempt to "stand in" for the Defendants here and allege no damages unique to themselves. The trial court properly dismissed this claim for lack of standing.

VII. App.R. 12(A)(2) and 16(A)(7)

{¶ 79} Plaintiffs have not appealed the court's dismissal of claims 6, 7, 8, 9. Therefore, we need not address these claims on appeal. See App.R. 12(A)(2) and 12(A)(7).

VIII. Leave to File Second Amended Complaint

{¶ 80} Plaintiffs' final assigned error in this case concerns the court's denial of their motion for leave to file a second amended complaint. Pursuant to Civ.R. 15(A), Plaintiffs in this case needed either Defendants' written consent or leave of court to file a second amended complaint. "The court shall freely give leave when justice so requires." Id. We review a trial court's decision to deny or grant a motion for leave to file an amended complaint for an abuse of discretion. Wilmington Steel Prods., Inc. v. Cleveland Elec. Illum. Co. , 60 Ohio St.3d 120, 122, 573 N.E.2d 622 (1991).

{¶ 81} Plaintiffs requested leave on April 1, 2016, to amend their complaint to add "newly discovered facts from a recently obtained third-party affidavit and ongoing discovery * * *." The new facts Plaintiff alleged are the Defendants council's enacting ordinance 49-15 and the approval of the Master Agreement. All of the facts surrounding these events, as well as the voters' November 2016 ratification of the ordinance, were placed into record and taken into consideration by the trial court regarding the motions to dismiss and the doctrine of mootness.

{¶ 82} Plaintiffs also purported to allege "new causes of action" in their second amended complaint labeled counts 16 through 22. However, a review of Plaintiffs' proposed second amended complaint quickly reveals that no new causes of action were set forth. Rather, Plaintiffs added the "new" facts noted above to their causes of action for taxpayers lawsuit; breach of contract; breach of fiduciary duty; tortious interference; breach of express trust; unjust enrichment; and fraud.

{¶ 83} Accordingly, because Plaintiff did not allege any additional facts not already in the record, nor did they allege any new causes of action, we find that the court did not abuse its discretion by denying their motion for leave to file a second amended complaint.

IX. Conclusion

{¶ 84} In conclusion, while Plaintiffs have standing to sue as taxpayers under the statutory scheme, their claims were rendered moot by a series of events culminating in the majority of the Defendants' residents voting in favor of closing Lakewood Hospital. This deprives the court of subject matter jurisdiction to hear these claims. We wish to note that prior to the Defendants, CCF, and LHA entering into the Master Agreement, prior to the City council enacting the ordinance, and prior to the voters ratifying the ordinance, Plaintiffs' taxpayer claims may have survived a motion to dismiss. However, this is an issue for another day.

It has been long and well established that it is the duty of every judicial tribunal to decide actual controversies between parties legitimately affected by specific facts and to render judgments which can be carried into effect. It has become settled judicial responsibility for courts to refrain from giving opinions on abstract propositions and to avoid the imposition by judgment of premature declarations or advice on potential controversies.

Fortner v. Thomas , 22 Ohio St.2d 13, 14, 257 N.E.2d 371 (1970).

{¶ 85} Additionally, Plaintiffs lack standing to bring the claims alleging rights other than as taxpayers, and they failed to state various claims upon which relief can be granted. While dismissing a complaint at the pleading stage of the proceedings may appear severe, this court, as well as the trial court, is bound by the letter of the law. Lack of standing and mootness are more than pleading deficiencies; rather, they are legal doctrines that prohibit resolution of this case on its merits. Accordingly, all of Plaintiffs' assigned errors are overruled.

{¶ 86} Judgment affirmed.

MARY J. BOYLE, P.J., and ANITA LASTER MAYS, J., CONCUR

APPENDIX

Assignments of Error

I. The trial court erred as a matter of law by dismissing Relators' statutory taxpayers law suit claims under Counts 1A, 1B, and 1C.
II. The trial court erred as a matter of law by dismissing Plaintiffs' breach of contracts claims under Count 2.
III. The trial court erred as a matter of law by dismissing Plaintiffs' breach of fiduciary duty claims under Count 3.
IV. The trial court erred as a matter of law by dismissing Plaintiffs' express and constructive charitable trust claims under Counts 4 and 5.
V. The trial court erred as a matter of law by dismissing Plaintiffs' unjust enrichment claim under Count 10.
VI. The trial court erred as a matter of law by dismissing Counts 11, 12A, 12B, 13, and 15 for alleged lack of standing.
VII. The trial court erred as a matter of law by dismissing Plaintiffs' alternative claim of CCF's alter ego under Count 14.
VIII. The trial court abused its discretion by not allowing Relators to file a second amended complaint pursuant to Civ.R. 15.

      See appendix


source: Caselaw Access Project

author: KATHLEEN ANN KEOUGH, J.:

license: Public Domain

text:
    WOODS COVE III, L.L.C., Plaintiff-Appellee v. AMERICAN GUARANTEED MANAGEMENT CO., L.L.C., et al., Defendants-Appellants
    Nos. 105494 105901
    Court of Appeals of Ohio, Eighth District, Cuyahoga County.
    May 10, 2018
    Joseph Bancsi, The Goodwin Bryan Building, 22050 Mastick Road, Cleveland, Ohio, 44126, Michael F. Westerhaus, 362 Arbour Garden Avenue, Las Vegas, Nevada 89148, ATTORNEYS FOR APPELLANTS
    David T. Brady, Austin B. Barnes, III, Suzanne M. Godenswager, Brian Steven Gozelanczyk, Manbir S. Sandhu, Andrew M. Tomko, Sandhu Law Group, L.L.C., 1213 Prospect Avenue, Suite 300, Cleveland, Ohio 44115, ATTORNEYS FOR APPELLEE
    Awatef Assad, Cuyahoga County Law Department, Assistant Director of Law, 2079 E. 9th Street, 7th Floor, Cleveland, Ohio 44115, Michael C. O'Malley, Cuyahoga County Prosecutor, By: Michael A. Kenny, Gregory B. Rowinski, Assistant County Prosecutors, 310 W. Lakeside Avenue, Suite 300, Cleveland, Ohio 44113, For Cuyahoga County Treasurer
    BEFORE: Keough, J., McCormack, P.J., and Blackmon, J.
    JOURNAL ENTRY AND OPINION
   KATHLEEN ANN KEOUGH, J.:

{¶ 1} In these consolidated appeals, defendants-appellants Nick Papadelis ("Papadelis") and American Guaranteed Management Co., L.L.C. ("American Guaranteed") (collectively, "appellants") appeal from the trial court's judgments adopting the magistrate's decisions that granted summary judgment in favor of plaintiff-appellee Woods Cove III, L.L.C. ("Woods Cove") and denied appellants' motions for summary judgment. For the reasons that follow, we affirm.

I. Background

{¶ 2} This case concerns tax certificates purchased by Woods Cove from the Cuyahoga County Treasurer and the ensuing foreclosure actions.

Ohio's tax certificate legislation, R.C. 5721.30 through 5721.43, allows a county government to sell tax certificates to private investors. A tax certificate entitles the certificate holder to the first lien on the real property. R.C. 5721.32. A property owner can redeem the certificate and remove the lien by paying the certificate holder the purchase price plus interest, penalties, and costs. R.C. 5721.38. If the property owner fails to redeem the certificates, the tax certificate holder may initiate foreclosure proceedings on the real property after complying with certain statutory requirements.

Woods Cove II, L.L.C. v. Am. Guaranteed Mgmt. Co., L.L.C. , 8th Dist. Cuyahoga No. 103652, 2016-Ohio-3177, 2016 WL 3018701, ¶ 2.

{¶ 3} American Guaranteed owed property taxes on property located on Torwood Court in Cleveland, and Papadelis owed property taxes on property located on Orchard Boulevard in Parma Heights. Woods Cove purchased tax certificates representing the tax liens on the properties from the county treasurer. When Papadelis and American Guaranteed failed to redeem the certificates, Woods Cove filed foreclosure actions pursuant to R.C. Chapter 5721. The cases were assigned to the same trial court judge.

{¶ 4} Papadelis and American Guaranteed filed identical answers to the complaints, and both asserted a counterclaim seeking a declaratory judgment that Ohio's tax certificate legislation is unconstitutional.

{¶ 5} Woods Cove subsequently filed identical motions for summary judgment in both cases. In its motions, Woods Cove asserted that there were no genuine issues of material fact that (1) it was the holder of the tax certificates, (2) the amount and nonpayment of the taxes as shown on the tax certificates was presumptively valid, (3) it had not received any payment on the assessments referred to in the tax certificates, (4) it had filed a notice of intent to foreclose with the county treasurer, and (5) the treasurer had certified that the properties had not been redeemed. Accordingly, Woods Cove argued that it was entitled to judgment as a matter of law.

{¶ 6} In their identical motions for summary judgment and responses to Woods Cove's motion, Papadelis and American Guaranteed did not dispute Woods Cove's arguments regarding their liability on the tax certificates, or the amount and validity of the taxes, assessments, charges, penalties, and interest due and unpaid. Instead, they argued they were entitled to summary judgment on their counterclaims that Ohio's tax certificate legislation is unconstitutional.

{¶ 7} Papadelis and American Guaranteed argued that the tax certificate legislation violates the equal protection requirements of the United States and Ohio Constitutions because the statute treats similarly situated property owners (i.e., those on the delinquent land list) differently by allowing the treasurer to arbitrarily select which tax certificates will be sold, thereby requiring the property owners chosen for tax certificate foreclosure to pay interest and fees to redeem their property that property owners subject to a noncertificate foreclosure are not required to pay.

{¶ 8} They argued further that Ohio's tax certificate legislation violates due process protections of the United States and Ohio Constitutions because under R.C. 5721.40, after two unsuccessful attempts to sell the tax certificate property, the tax certificate holder obtains an "incontestable" title to the parcel. Appellants argued that because the title obtained by the tax certificate holder is "incontestable," a property owner is precluded from appealing any mistakes in the foreclosure process, in violation of the property owner's due process rights.

{¶ 9} Last, appellants argued that Ohio's tax certification legislation is unconstitutional because it violates the doctrine of separation of powers by allowing the county treasurer, instead of the judiciary, as trier of fact, to decide the amount of attorney fees related to tax certificate foreclosures. They argued further that R.C. 5721.37(F), which provides that the tax certificate is "presumptive evidence" in all courts "of the amount and validity of the taxes, assessments, charges, penalties * * * and interest" is a legislative intrusion into the court's rule-making authority to regulate court procedure.

{¶ 10} In its identical journal entries regarding the respective motions for summary judgment, the trial court noted that in light of the "ever-present disparity in the application of fees and costs associated with the treasurer's tax foreclosures and those of private investors like Woods Cove," it was "no surprise" that appellants had raised a constitutional challenge to Ohio's tax certificate legislation. Nevertheless, without addressing Papadelis's and American Guaranteed's specific constitutional challenges, the trial court found that the tax certificate statute was presumptively valid and granted Woods Cove's motion for summary judgment and denied appellants' motions.

{¶ 11} This court dismissed appellants' subsequent appeals of the trial court's ruling for lack of a final, appealable order because the trial court's judgment entries had not made a determination as to the priority of liens or the amount of the judgment. Woods Cove III, L.L.C. v. Papadelis, 8th Dist. Cuyahoga No. 104756 (Nov. 10, 2016); Woods Cove III, L.L.C. v. Am. Guaranteed, 8th Dist. Cuyahoga No. 104758 (Nov. 10, 2016).

{¶ 12} On December 16, 2016, upon remand, the magistrate issued decisions in both cases granting foreclosure and setting forth the lien priorities and judgment amounts. The trial court subsequently denied appellants' motions for an extension of time to file objections to the magistrate's decisions and issued journal entries in both cases adopting the magistrate's decisions. Papadelis and American Guaranteed both appealed, and the cases were consolidated for briefing, argument, and disposition.

II. Analysis

A. Constitutionality of Ohio's Tax Certificate Statute

{¶ 13} In their first assignment of error, appellants contend that the trial court erred in denying their motions for summary judgment after finding that Ohio's tax certificate legislation is constitutional.

{¶ 14} We review summary judgment rulings de novo, applying the same standard as the trial court. Grafton v. Ohio Edison Co. , 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996). We accord no deference to the trial court's decision and independently review the record to determine whether summary judgment is appropriate. Id.

{¶ 15} As an initial matter, we conclude that the trial court was without jurisdiction to decide the constitutionality issue because the record reflects that the Ohio attorney general was not served with appellants' answers requesting declaratory judgment regarding the constitutionality of Ohio's tax certificate legislation.

{¶ 16} R.C. 2721.12(A) requires service of a copy of the pleadings on the attorney general when a party challenges the constitutionality of a statute in a declaratory judgment action. If the service requirement is not met, a trial court lacks subject matter jurisdiction to determine the constitutionality of the statute. Woods Cove II, L.L.C. , 8th Dist. Cuyahoga No. 103652, 2016-Ohio-3177 at ¶ 10, fn. 2.

{¶ 17} In Cicco v. Stockmaster , 89 Ohio St.3d 95, 728 N.E.2d 1066 (2000), the Ohio Supreme Court held that a party who is challenging the constitutionality of a statute must assert the claim in the complaint (or other initial pleading), and must serve the pleading upon the attorney general in accordance with the methods set forth in Civ.R. 4.1 in order to vest a trial court with jurisdiction to decide the constitutional challenge. The Supreme Court subsequently employed an expansive interpretation of Cicco to dismiss an appeal sua sponte where the constitutionality of a statute had been raised in a motion to dismiss filed in an ordinary civil action. George Shima Buick, Inc. v. Ferencak , 91 Ohio St.3d 1211, 741 N.E.2d 138 (2001).

{¶ 18} In subsequent pronouncements regarding the duty imposed by R.C. 2721.12(A) to notify the attorney general, the Supreme Court limited Cicco and the application of R.C. 2721.12(A) to those cases in which a party challenges the constitutionality of a statute in a declaratory judgment action. Cleveland Bar Assn. v. Picklo , 96 Ohio St.3d 195, 2002-Ohio-3995, 772 N.E.2d 1187 ; Pinchot v. Charter One Bank, F.S.B. , 99 Ohio St.3d 390, 2003-Ohio-4122, 792 N.E.2d 1105, ¶ 6, fn. 1. Where the constitutionality of a statute is raised in a motion filed in an ordinary civil action, R.C. 2721.12(A) does not apply. Tonti v. Tonti , 10th Dist. Franklin Nos. 03AP-494 and 03AP-728, 2004-Ohio-2529, 2004 WL 1109840, ¶ 136.

{¶ 19} Here, the constitutionality of Ohio's tax certificate legislation was raised in appellants' answer to Woods Cove's complaint by way of a counterclaim that specifically requested a declaratory judgment that the statute is unconstitutional. Accordingly, the service requirement of R.C. 2721.12(A) was applicable. Grover v. Bartsch , 170 Ohio App.3d 188, 2006-Ohio-6115, 866 N.E.2d 547, ¶ 30 (2d Dist.). Because the attorney general did not receive notice as required by R.C. 2721.12, the trial court was without jurisdiction to render a declaratory judgment regarding the constitutional issue, and its pronouncement regarding the constitutionality of Ohio's tax certificate legislation is therefore void.

{¶ 20} The trial court did have jurisdiction, however, to decide the foreclosure issue because that issue was separate from the constitutional issue. Ohioans for Fair Representation v. Taft, 67 Ohio St.3d 180, 183, 616 N.E.2d 905 (1993) ("a jurisdictional failure regarding one cause of action in a complaint does not taint the entire complaint"); Osborne v. Mentor , 133 Ohio App.3d 22, 26-27, 726 N.E.2d 1027 (11th Dist.1999) (the failure to comply with R.C. 2721.12 does not deprive the court of subject matter jurisdiction over the case; it precludes the court from entering declaratory relief).

{¶ 21} Under Civ.R. 56, summary judgment is appropriate when (1) there is no genuine issue as to any material fact, (2) the moving party is entitled to judgment as a matter of law, and (3) viewing the evidence most strongly in favor of the nonmoving party, reasonable minds can reach only a conclusion that is adverse to the nonmoving party. The moving party has the initial burden of setting forth specific facts that demonstrate its entitlement to summary judgment. Dresher v. Burt , 75 Ohio St.3d 280, 292-293, 662 N.E.2d 264 (1996). If the moving party fails to meet this burden, summary judgment is not appropriate. If the moving party meets this burden, the nonmoving party has the reciprocal burden to point to evidence of specific facts in the record demonstrating the existence of a genuine issue of material fact for trial. Id. at 293, 662 N.E.2d 264. Summary judgment is appropriate if the nonmoving party fails to meet this burden. Id.

{¶ 22} In its motions for summary judgment, Woods Cove presented evidence that it was the holder of the tax certificates and entitled to foreclose on them, as well as evidence regarding the amounts due on the certificates. Thus, Woods Cove met its initial burden under Civ.R. 56(C). In their motions for summary judgment and responses to Woods Cove's motions, appellants presented no evidence whatsoever disputing Woods Cove's entitlement to foreclose or the amounts due. Accordingly, appellants did not meet their reciprocal burden of demonstrating there was any genuine issue of material fact for trial, and the trial court therefore properly granted summary judgment in favor of Woods Cove on its complaints for foreclosure. The first assignment of error is overruled.

B. Attorney Fees

{¶ 23} In their second assignment of error, appellants assert that the trial court erred in adopting the magistrate's decision that awarded attorney fees to Woods Cove because the decision did not determine the reasonableness of the attorney fees, and did not state the basis for the fee amount determination, such as the number of hours expended on the litigation and the hourly rate.

{¶ 24} Civ.R. 53(D)(3)(b)(iv), regarding objections to a magistrate's decision, prohibits a party from "assign[ing] as error on appeal the court's adoption of any finding of fact or conclusion of law unless the party has objected to that finding or conclusion under this rule." Appellants did not file objections to the magistrate's decision and thus have waived all but plain error. Glendell-Grant v. Grant , 8th Dist. Cuyahoga No. 105895, 2018-Ohio-1094, 2018 WL 1445977, ¶ 17. In applying the plain error doctrine in a civil case, "reviewing courts must proceed with the utmost caution, limiting the doctrine strictly to those extremely rare cases where exceptional circumstances require its application to prevent a manifest miscarriage of justice." Id. , citing Goldfuss v. Davidson , 79 Ohio St.3d 116, 121, 679 N.E.2d 1099 (1997). We do not find such exceptional circumstances in these cases.

{¶ 25} Contrary to appellants' argument, the magistrate stated the basis for the award of attorney fees- R.C. 5721.371(B)(1) -which provides that attorney fees less than or equal to $2,500 are presumed reasonable. Appellants' reliance on TCF Natl. Bank FBO Aeon Fin., L.L.C. v. Bors , 5th Dist. Stark No. 2009CA00122, 2010-Ohio-1403, 2010 WL 1235599, is misplaced. That case held that in awarding attorney fees under R.C. 5721.371, a trial court must state the factors it used in calculating the award (e.g., the number of hours, the hourly fee, the difficulty of the litigation) to demonstrate the reasonableness of the award. However, Bors was decided before the 2016 amendment to R.C. 5721.371, which added Section B to the statute. Under R.C. 5721.371(B)(1), attorney fee awards less than or equal to $2,500 are presumptively reasonable.

{¶ 26} The magistrate's decision awarded attorney fees less than $2,500. The fees were thus presumptively reasonable, and there was no requirement the magistrate set forth specific findings to demonstrate the reasonableness of the fees. Furthermore, appellants presented no evidence rebutting the presumption of reasonableness. Accordingly, we find no plain error, and the second assignment of error is overruled.

C. Extension of Time

{¶ 27} On December 16, 2016, the magistrate issued decisions in both cases granting foreclosure and setting forth the lien priorities and judgment amounts. On December 30, 2016, counsel for Papadelis and American Guaranteed filed in both cases a notice of appearance and a motion for a 30-day extension of time to file objections to the magistrate's decision, asserting that he was newly retained and needed additional time to analyze and prepare objections.

Woods Cove opposed the motion, arguing that although counsel had newly made a formal appearance in the cases, he was in fact not newly retained because he had been working with Woods Cove's counsel since October 2016 to resolve the matter. Woods Cove pointed out that appellants' "new" counsel had entered an appearance on October 11, 2016, in their appeals of the trial court's judgment, and had filed motions to consolidate the cases for appeal and to extend the time for filing the appellate brief. Thus, Woods Cove argued that counsel had actually been working on the case for at least two months prior to his notice of appearance in the trial court cases. The trial court subsequently denied the motion for extension of time.

{¶ 28} In their third assignment of error, appellants contend that the trial court erred in denying their request for an extension of time to file objections to the magistrate's decision.

{¶ 29} Pursuant to Civ.R. 53(D)(3)(b)(i), a party may file objections to a magistrate's decision within 14 days of the filing of the decision. However, Civ.R. 53(D)(5) permits the trial court to grant a reasonable extension of time for a party to file objections outside the 14-day period "for good cause shown." "The definition of good cause is without precise parameters and varies according to the facts presented in each individual case." Woodruff v. Concord City Discount Clothing Store , 2d Dist. Montgomery No. 10072, 1987 WL 6827, *3 (Feb. 19, 1987).

{¶ 30} A trial court has broad discretion in determining whether to grant a motion for an extension of time, and the court's decision will not be reversed on appeal absent an abuse of discretion. Bedi-Hetlin v. Hetlin , 3d Dist. Seneca No. 13-14-08, 2014-Ohio-4997, 2014 WL 5803045, ¶ 49. A discretionary act that is "clearly against reason and evidence" is an abuse of discretion. In re Guardianship of S.H. , 9th Dist. Medina No. 13CA0066-M, 2013-Ohio-4380, 2013 WL 5519847, ¶ 9. We find no abuse of discretion here.

{¶ 31} First, appellants waited to file their motion for an extension until the day the objections were due. Moreover, they asked for an additional 30 days to prepare their objections to the magistrate's decision, a period well beyond the normal time allocated for responding to a magistrate's decision. Furthermore, although appellants' counsel asserted he needed more time because he was newly retained, the record reflects that counsel had been working on the cases since October 11, 2016, when he entered appearances in this court in appellants' appeals of the trial court's decisions granting Woods Cove's motions for summary judgment. Appellants did not dispute Woods Cove's assertion that appellants' counsel had been working with Woods Cove since October 2016 to resolve the matter. Accordingly, appellants did not demonstrate good cause for an extension of time to file their objections to the magistrate's decision, and the trial court did not abuse its discretion in denying the motion. The third assignment of error is overruled.

D. Motion to Reconsider

{¶ 32} After the trial court denied Papadelis's motion for extension of time to file his objections to the magistrate's decision, but before the trial court had adopted the magistrate's decision, Papadelis filed a motion in Cuyahoga C.P. No. CV-14-836666 asking the court to reconsider its judgment granting Woods Cove's motion for summary judgment, and to reconsider its judgment denying the motion for extension, or in the alternative, to vacate the magistrate's decision. The trial court denied the motion to reconsider. In the fourth assignment of error, Papadelis argues that the trial court erred in denying his motion to reconsider.

{¶ 33} The Ohio Rules of Civil Procedure do not provide for a motion for reconsideration after a final judgment in the trial court, and thus any judgment or order regarding such a motion is a nullity. Cleveland Bd. of Zoning Appeals v. Abrams , 186 Ohio App.3d 590, 2010-Ohio-1058, 929 N.E.2d 509, ¶ 23 (8th Dist.). A trial court has inherent authority, however, to revise its interlocutory orders prior to its entry of a final order. Miller v. Gen. Motors Corp. , 8th Dist. Cuyahoga No. 55200, 1989 WL 30547, *3 (Mar. 30, 1989). Here, because the trial court had not yet adopted the magistrate's decision granting summary judgment and setting forth the judgment amount, there was no final judgment, and the court could properly reconsider its interlocutory orders. Nevertheless, we find no error in the trial court's denial of the motion for reconsideration.

{¶ 34} In his motion for reconsideration, Papadelis argued, as he does on appeal, that the trial court improperly granted summary judgment to Woods Cove because (1) the affidavit of Woods Cove's agent attached to its motion for summary judgment fraudulently failed to disclose payments Papadelis had made to Woods Cove; (2) Woods Cove incorrectly calculated the interest due on Papadelis's property; and (3) Woods Cove's calculation of attorney fees was unlawful.

{¶ 35} Papadelis's motion for reconsideration raised new defenses to Woods Cove's motion for summary judgment that were not raised in either his answer to the complaint or his motion for summary judgment and response to Woods Cove's motion for summary judgment. Papadelis's answer and motion for summary judgment raised only constitutional objections to Woods Cove's foreclosure complaint; he did not dispute his liability on the tax certificates, and made no arguments regarding alleged payments to Woods Cove, the improper calculation of interest by Woods Cove, or attorney fees. As the trial court stated in its journal entry denying the motion, Papadelis's motion for reconsideration was "an attempt to restructure the litigation" at a late date without filing a proper pleading seeking to amend his answer to the complaint and counterclaim. Accordingly, the trial court properly overruled the motion. The fourth assignment of error is therefore overruled.

{¶ 36} Judgment affirmed.

TIM McCORMACK, P.J., and PATRICIA ANN BLACKMON, J., CONCUR


author: TIM McCORMACK, J.:

text:
    Paul NEEL, et al., Plaintiffs-Appellants v. A. PERRINO CONSTRUCTION, INC., et al., Defendants-Appellees
    No. 105366
    Court of Appeals of Ohio, Eighth District, Cuyahoga County.
    RELEASED AND JOURNALIZED: May 10, 2018
    Daniel J. Myers, Samantha A. Vajskop, Myers Law, L.L.C., 600 East Granger Road, Second Floor, Cleveland, OH 44113, ATTORNEYS FOR APPELLANTS.
    Andrew J. Natale, Aaron S. Evenchik, Hahn, Loeser & Parks, L.L.C., 200 Public Square, Suite 2800, Cleveland, OH 44114, ATTORNEYS FOR APPELLEES.
    BEFORE: McCormack, J., E.A. Gallagher, A.J., and Celebrezze, J.
    JOURNAL ENTRY AND OPINION
   TIM McCORMACK, J.:

{¶ 1} Plaintiffs-appellants Paul and Stephanie Neel ("the Neels") appealed the trial court's decision granting a motion to stay pending arbitration. For the reasons that follow, we affirm in part the trial court's decision but remand for the limited purpose of staying all claims against all parties pending arbitration.

Factual and Procedural History

{¶ 2} The Neels filed a complaint on August 16, 2016, against defendant-appellee A. Perrino Construction, Inc. ("Perrino"), along with defendants Pat Perrino, Greenwalt Architects, Inc., and Christopher E. Greenwalt. The complaint alleged breach of contract, fraudulent misrepresentation, negligent misrepresentation, civil conspiracy, and violations of R.C. 4722.02, et seq., the Home Construction Service Suppliers Act ("the HCSSA").

{¶ 3} The Neels had contracted with the defendants to construct a new home in Hinckley, Ohio. Pursuant to a restrictive covenant in the Neels' deed, the home was required to be at least 2,800 square feet. The Neels entered into a contract with Perrino by which Perrino was to construct a custom home for them for a contract price of $364,900. The contract was six pages long. It included an arbitration provision in paragraph 13, which stated:

Aside from warranty claims that shall be processed in accordance with the Limited Warranty procedure described in paragraph 8 above, should any dispute arise between the parties with respect to the completion of any stage of construction, the completion of the entire construction, or any other matter involved in the construction, disbursement of funds, amounts due and payable, said dispute shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association. The cost of the Arbitration shall be paid by the parties in equal shares. Further, the Contractor and Owner do hereby agree to abide by the decision of the American Arbitration Association and the judgment of the American Arbitration Association shall be final and not appealable. The parties further agree and consent to the application of the Ohio Rules of Civil Procedure to govern the scope and extent of discovery in preparation for such arbitration. Contractor and Owner hereby acknowledge that by agreeing to binding arbitration, they are waiving their right to a trial by jury.

{¶ 4} In addition to the various allegations described above, the Neels' complaint alleged that the parties had agreed that the home would be at least 3,000 square feet, but the home's actual footprint was several hundred feet smaller.

{¶ 5} On September 19, 2016, Perrino filed an answer and counterclaim. In this pleading, Perrino expressly stated that it was not waiving its right to insist upon arbitration. Perrino also filed a new party complaint asserting claims against the Neels' counsel for defamation, tortious interference with contract, and tortious interference with business relationships. While these claims stem from counsel's representation of the Neels in the underlying case, they are unrelated to the contract between the Neels and Perrino and they are not subject to arbitration.

{¶ 6} On November 17, 2016, counsel for all parties participated in a pretrial conference. The parties discussed ongoing discovery. In its journal entry, the trial court stated, "A. Perrino Construction (D1) is ordered to file with the court its intention to pursue private arbitration with [plaintiffs] or waive its rights under the arbitration clause no later than the end of business on 11/28/2016."

{¶ 7} On November 28, 2016, in accordance with the trial court's instruction, Perrino filed a motion to stay all proceedings pending arbitration.

{¶ 8} On January 5, 2017, the trial court granted Perrino's motion to stay pending arbitration. The court's journal entry stated, in part:

The court carefully reviewed the [plaintiffs'] causes of action and the very broad scope of the arbitration clause within the contract between the [plaintiffs] and [defendant] Perrino Construction. All of [plaintiffs'] claims include [defendant] Perrino Construction as a party. The scope of the arbitration clause is clearly broad enough to cover-without question-all of the [plaintiffs'] claims against this single [defendant.] Therefore the court grants the motion to stay proceedings as against [defendant] Perrino Construction. All proceedings by and between [plaintiffs] and [defendant] Greenwalt Architects Inc. are not stayed and litigation and discovery shall continue unabated between them. The court ignores the existence of the two individual [defendants] Pat Perrino and Christopher Greenwalt as it is not clear that [plaintiffs] enjoy any cause of action under Ohio law against the principals of their corporations that are [codefendants] in the litigation. The court will determine the existence of causes of action against the latter two individual [defendants]. Notice issued.

{¶ 9} It is from this decision that the Neels appeal, presenting three assignments of error for our review.

Law and Analysis

I. Assignment of Error No. 1

{¶ 10} In their first assignment of error, the Neels argue that the trial court committed reversible error when it granted Perrino's motion to stay. Within this assignment of error, the Neels argue that the arbitration clause was substantively and procedurally unconscionable, that the arbitration clause was so ambiguous as to be unenforceable, and that Perrino waived its right to demand arbitration by participating in litigation.

{¶ 11} Appellate review of issues surrounding arbitration can involve various standards of review, depending on the precise questions raised challenging the applicability of the arbitration provision. McCaskey v. Sanford-Brown College , 8th Dist. Cuyahoga No. 97261, 2012-Ohio-1543, 2012 WL 1142880, ¶ 7. In general, "when addressing whether a trial court has properly granted a motion to stay litigation pending arbitration, this court applies an abuse of discretion standard." U.S. Bank, N.A. v. Wilkens , 8th Dist. Cuyahoga No. 96617, 2012-Ohio-1038, 2012 WL 892898, ¶ 13, citing Carter Steel & Fabricating Co. v. Danis Bldg. Constr. Co. , 126 Ohio App.3d 251, 710 N.E.2d 299 (3d Dist.1998).

{¶ 12} Under R.C. 2711.02, a court may stay the trial of an action upon application of a party " 'if (1) the action is brought upon any issue referable to arbitration under a written agreement for arbitration, and (2) the court is satisfied the issue is referable to arbitration under the written agreement.' " Seyfried v. O'Brien , 2017-Ohio-286, 81 N.E.3d 961, ¶ 17 (8th Dist.), quoting Austin v. Squire , 118 Ohio App.3d 35, 691 N.E.2d 1085 (9th Dist.1997), citing Jones v. Honchell , 14 Ohio App.3d 120, 122, 470 N.E.2d 219 (12th Dist.1984).

A. Unconscionability

{¶ 13} The Neels argue that the arbitration clause at issue here was unconscionable. We are not persuaded. Unconscionability, as a ground for revocation of a contract, can be procedural or substantive. "These two concepts create what is, in essence, a two-prong test of unconscionability" in which "[o]ne must allege and prove a 'quantum' of both prongs in order to establish that a particular contract is unconscionable." Martin v. Byke , 8th Dist. Cuyahoga No. 88878, 2007-Ohio-6816, 2007 WL 4442738, ¶ 28, quoting Collins v. Click Camera & Video , 86 Ohio App.3d 826, 834, 621 N.E.2d 1294 (2d Dist.1993), citing White & Summers, Uniform Commercial Code, Section 4-7, 219 (3d Ed.1988).

{¶ 14} When undertaking a review of the unconscionability of an arbitration clause, courts should employ a de novo standard of review, "but any factual findings of the trial court must be accorded appropriate deference." Taylor Bldg. Corp. of Am. v. Benfield , 117 Ohio St.3d 352, 2008-Ohio-938, 884 N.E.2d 12, ¶ 2.

{¶ 15} Substantive unconscionability concerns the terms of the contract and "requires a determination of whether the contract terms are commercially reasonable in the context of the transaction." Sikes v. Ganley Pontiac Honda, Inc. , 8th Dist. Cuyahoga No. 82889, 2004-Ohio-155, 2004 WL 67224, ¶ 11, citing Collins at 834, 621 N.E.2d 1294. The Neels argue that the incorporation of a loser-pays provision for attorney fees, as well as the oppressive costs of arbitration, render the arbitration clause substantively unconscionable.

{¶ 16} As an initial matter, we note that the third assignment of error is specifically concerned with the validity of the loser-pays provision. To the extent that the validity of this provision is encompassed in the first assignment of error, we will address these arguments in our discussion of the third assignment of error.

{¶ 17} We disagree that the arbitration clause is substantively unconscionable for the reasons that follow.

{¶ 18} There is a point at which the costs of arbitration could render a clause unconscionable as a matter of law. Arnold v. Burger King , 2015-Ohio-4485, 48 N.E.3d 69, ¶ 89 (8th Dist.), citing Taylor Bldg., 117 Ohio St.3d 352, 2008-Ohio-938, 884 N.E.2d 12, at ¶ 60. While there is no fixed cost that renders a clause unconscionable, it is generally accepted that "if the costs associated with the arbitration effectively deny a claimant the right to a hearing or an adequate remedy in an efficient and cost-effective manner," the clause is invalid. Felix v. Ganley Chevrolet, Inc. , 8th Dist. Cuyahoga Nos. 86990 and 86991, 2006-Ohio-4500, 2006 WL 2507469, ¶21, citing Sikes , 8th Dist. Cuyahoga No. 82889, 2004-Ohio-155, 2004 WL 67224.

{¶ 19} As the party complaining of the costs of arbitration, the Neels bear the burden of showing the likelihood they will incur oppressive costs. Id. ; Green Tree Fin. Corp.-Alabama v. Randolph , 531 U.S. 79, 92, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000). To meet this burden, the Neels must provide more than unsupported allegations of prohibitive costs, because "the mere risk that a plaintiff would be forced to pay exorbitant costs is too speculative to justify invalidation of the arbitration agreement." Taylor Bldg. at ¶ 57.

{¶ 20} The Neels have attempted to provide evidence of the costs associated with arbitration, submitting affidavits from themselves and their attorney, along with the relevant American Arbitration Association ("AAA") Construction Industry Arbitration Rules and fee schedule. However, we have very little information regarding the Neels' financial situation that would inform a determination of whether the cost of arbitration would be prohibitively expensive in this case. Beyond the statements made by the Neels in their affidavits, the record reflects that the Neels engaged Perrino to construct a custom-built home costing $364,900.

{¶ 21} In an appeal concerning the validity of an arbitration rider to a mortgage agreement, this court was not persuaded by similar arguments made by the defendants-appellants in that case. Wilkens, 8th Dist. Cuyahoga No. 96617, 2012-Ohio-1038, 2012 WL 892898. The Wilkenses argued that a $2,450 filing fee for their $300,000-$500,000 claim rendered arbitration unconscionable. Id. at ¶ 39. This court found the asserted estimate of their claims was "highly speculative." Id. at ¶ 38. Further, beyond providing a fee schedule, the Wilkenses made no attempt to provide evidence regarding the costs of arbitration beyond the filing fee, and this court declined to speculate as to what those costs were. Id. at ¶ 39. Similarly, the Neels assert that the amount of their claim is potentially in excess of $1 million, with little explanation for that figure beyond the potential for punitive damages for fraud and anticipated cover costs in the hundreds of thousands of dollars. While the Neels mentioned some of the other costs involved in arbitration, they made no attempt to quantify them. We note that, like in Wilkens , even if this court were to accept the $1 million claim amount, their speculative estimation of the costs of arbitration could be easily exceeded by litigation expenses. The Neels are therefore unable to establish substantive unconscionability.

{¶ 22} Procedural unconscionability "involves the specific circumstances surrounding the execution of the contract." Id. at ¶ 12. Where the circumstances are such that no voluntary meeting of the minds was possible, a contract is procedurally unconscionable. Here, the Neels argue that the fact that the contract was preprinted and drafted by Perrino and was never explained to them renders the clause procedurally unconscionable. They also argue that they were rushed through Perrino's sales presentation, Perrino was more knowledgeable about the subject of the contract and the arbitration clause, the arbitration clause was not brought to their attention or explained to them, Perrino was dishonest, the clause contained a loser-pays provision, and the Neels were unfairly surprised by a high filing fee.

{¶ 23} There are a number of factors courts consider in analyzing procedural unconscionability. Among these factors, courts should consider the circumstances surrounding the contracting parties' bargaining, such as the parties' " 'age, education, intelligence, business acumen and experience, who drafted the contract, whether alterations in the printed terms were possible.' " Collins, 86 Ohio App.3d at 834, 621 N.E.2d 1294, quoting Johnson v. Mobil Oil Corp. , 415 F.Supp. 264, 268 (E.D.Mich. 1976).

{¶ 24} Considering these factors, we do not find the arbitration clause at issue here procedurally unconscionable. We note first that a showing that a contract is preprinted is insufficient to render it procedurally unconscionable.

Taylor Bldg. at ¶ 45. Similarly, "inequality of bargaining power alone is insufficient to invalidate an otherwise enforceable arbitration contract." Id. at ¶ 44, citing Vanyo v. Clear Channel Worldwide , 156 Ohio App.3d 706, 2004-Ohio-1793, 808 N.E.2d 482, ¶ 19 (8th Dist.), citing Gilmer v. Interstate/Johnson Lane Corp. , 500 U.S. 20, 33, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991).

{¶ 25} This court has previously rejected a similar argument made by consumers in a similar context. Conte v. Blossom Homes L.L.C. , 2016-Ohio-7480, 63 N.E.3d 1245, ¶ 23 (8th Dist.). In Conte , this court found that the consumer was unable to establish procedural unconscionability where he alleged that his meeting with a builder was hurried, he had no knowledge of construction contracts or regulations, he did not understand what arbitration was, he was otherwise unable to understand the terms of the agreement, and he was pressured to sign the contract. Id. at ¶ 20-23.

{¶ 26} Here, we do not dispute that Perrino was likely more knowledgeable than the Neels regarding home construction and arbitration. However, the record does not support the Neels' assertion that they could not possibly have had any idea what they were agreeing to under the circumstances. While the Neels claim they were rushed through the signing of the contract, the record shows that they met with Perrino several times before ultimately signing the contract. The Neels did not ask for more time to review the contract, and nothing in the record indicates that they could not have done so. Similarly, the Neels argue that Perrino failed to explain the arbitration clause to them. Although they concede that they had the opportunity to ask questions, they apparently did not do so. Additionally, nothing in the record indicates that the Neels were pressured to sign the contract, or that Perrino was the only builder with whom they could have contracted. Finally, the Neels' claim that no one pointed out the arbitration clause to them is not persuasive to establish procedural unconscionability. The Neels were entering into a contract for a custom-built home worth over $300,000. Their status as consumers does not free them of their duty to read the contract they signed. As such, we do not find the arbitration clause substantively or procedurally unconscionable.

B. Ambiguity and Scope

{¶ 27} The Neels also assert that the arbitration clause is unenforceable because the clause is so ambiguous that no meeting of the minds occurred. In support of this assertion, the Neels point to the absence of financial liability information from the clause. To the extent the financial liability argument concerns the overall costs of arbitration, this has been addressed in the foregoing analysis. To the extent this argument concerns the loser-pays provision, it will be addressed in our discussion of the third assignment of error.

{¶ 28} The Neels also argue that the arbitration clause is too ambiguous to enforce because it excludes "warranty claims" without defining that phrase. We disagree.

{¶ 29} The first sentence of the arbitration provision references a Limited Warranty procedure that is described in an earlier paragraph of the contract, stating: "[a]side from warranty claims that shall be processed in accordance with the Limited Warranty procedure described in paragraph 8 above * * *." Paragraph 8 of the contract describes a one-year limited warranty agreement "which shall be executed by Contractor and Owner at closing." The paragraph goes on to state that the limited warranty agreement "shall be governed by the 'Construction Standards' set forth in the Registered Builder Construction Standards & Maintenance Guide & Limited Home Warranty Agreement (the Builders Guide), which Owner hereby acknowledges receipt of and which is incorporated herein by reference." As described in paragraph 8, the limited warranty agreement obligated Perrino to make any repairs or replacements to the home within one year of the date the Neels occupied the home, and it covered the materials as specified in the contracts plans and specifications and provided that all work was to be completed in a workmanlike manner according to standard construction practices. Further, paragraph 9 of the contract specified six items that would not be covered by the limited warranty agreement.

{¶ 30} Although "warranty claims" are not a defined term in the agreement, paragraph 8 provides a detailed explanation of the limited warranty agreement. Therefore, we do not find the arbitration clause so ambiguous as to be unenforceable.

C. Waiver

{¶ 31} The Neels also argue that the trial court erred in granting Perrino's motion to stay because Perrino waived its right to enforce the arbitration clause by participating in the underlying litigation. We disagree.

{¶ 32} In determining whether a party waived its right to arbitration, "the essential question is whether, based on the totality of the circumstances, the party seeking arbitration has acted inconsistently with the right to arbitrate." Phillips v. Lee Homes , 8th Dist. Cuyahoga No. 64353, 1994 WL 50696, 3, 1994 Ohio App. LEXIS 596, 8 (Feb. 17, 1994). "The question of waiver is usually a fact-driven issue, and an appellate court will not reverse the trial court's decision absent a showing of abuse of discretion." Ohio Bell Tel. Co. v. Cent. Transport, Inc. , 8th Dist. Cuyahoga No. 96472, 2011-Ohio-6161, 2011 WL 5998847, ¶ 17, citing Featherstone v. Merrill Lynch, Pierce, Fenner & Smith, Inc. , 159 Ohio App.3d 27, 2004-Ohio-5953, 822 N.E.2d 841, ¶ 10 (9th Dist.).

{¶ 33} Because of the strong public policy in favor of arbitration, the heavy burden of proving waiver of the right to arbitration is on the party asserting waiver, and waiver is "not to be lightly inferred." Griffith v. Linton , 130 Ohio App.3d 746, 751, 721 N.E.2d 146 (10th Dist.1998), citing Harsco Corp. v. Crane Carrier Co. , 122 Ohio App.3d 406, 415, 701 N.E.2d 1040 (3d Dist.1997).

{¶ 34} In determining whether a party has acted consistently with the right to arbitrate, relevant factors for consideration include: (1) whether the party seeking arbitration invoked the jurisdiction of the trial court by filing a complaint, counterclaim, or third-party complaint without asking for a stay of proceedings; (2) the delay, if any, by the party seeking arbitration in requesting a stay of proceedings or an order compelling arbitration; (3) the extent to which the party seeking arbitration participated in the litigation, including the status of discovery, dispositive motions, and the trial date; and (4) any prejudice to the nonmoving party due to the moving party's prior inconsistent actions. Phillips 8th Dist. Cuyahoga No. 64353, 1994 WL 50696, 1994 Ohio App. LEXIS 596.

{¶ 35} We acknowledge that Perrino filed a new party complaint and participated to some extent in the litigation. We find that these factors are outweighed, however, by the totality of the circumstances. First, we note that Perrino's participation in the litigation was relatively limited. We also note that the Neels make no argument that they were prejudiced by the passage of time-approximately three months-between their initiation of litigation and Perrino's filing of a motion to stay pending arbitration. Finally, Perrino consistently reserved its right to arbitration. Therefore, the Neels have not met their burden to establish an unequivocal waiver of Perrino's right to arbitration.

{¶ 36} Because we do not find the arbitration agreement unconscionable or ambiguous, and we do not find that Perrino waived its right to arbitrate, the Neels' first assignment of error is overruled.

II. Assignment of Error No. 2

{¶ 37} In their second assignment of error, the Neels argue that if the trial court's order granting Perrino's motion to stay proceedings was otherwise correct, the court erred in failing to stay the entire case pending arbitration, including claims involving other parties. Perrino essentially concedes this error. Upon review, we agree.

{¶ 38} Ohio courts have consistently held that when a trial court grants a motion to stay proceedings, the entire action must be stayed, not only the arbitrable claims between parties to the arbitration agreement. Maclin v. Greens Nursing , 8th Dist. Cuyahoga No. 101085, 2014-Ohio-2538, 2014 WL 2612666, ¶ 9, citing Cheney v. Sears, Roebuck & Co. , 10th Dist. Franklin No. 04AP-1354, 2005-Ohio-3283, 2005 WL 1515388, ¶ 12 ; Pyle v. Wells Fargo Fin. , 10th Dist. Franklin No. 05AP-644, 2005-Ohio-6478, 2005 WL 3304098, ¶ 12 ; Marquez v. Koch , 4th Dist. Ross No. 11CA3283, 2012-Ohio-5466, 2012 WL 5928196, ¶ 11.

{¶ 39} Therefore, the Neels' second assignment of error is sustained.

III. Assignment of Error No. 3

{¶ 40} In the Neels' third assignment of error, they assert that even if the trial court properly granted Perrino's motion to stay pending arbitration, the trial court erred in failing to strike Rule 48 of the American Arbitration Association ("AAA") Construction Industry Arbitration Rules because it is procedurally and substantively unconscionable.

{¶ 41} The arbitration clause in the agreement here provides that the cost of arbitration shall be paid by the parties in equal shares. It also provides, however, that the AAA Construction Industry Arbitration Rules govern arbitration between the parties. Rule 48(d)(ii) of the rules states that the arbitrator's award may include "an award of attorneys' fees if all parties have requested such an award or it is authorized by law or their arbitration agreement."

{¶ 42} One count of the Neels' complaint against Perrino alleged that Perrino had committed violations of the HCSSA, codified as R.C. 4722.01, et seq. The fee-shifting provision in Rule 48 conflicts with the HCSSA. Specifically, R.C. 4722.08(D) provides that "the court may award to the prevailing party a reasonable attorney's fee limited to the work reasonably performed" if either the owner filed an action in bad faith or the home construction service supplier knowingly committed an act that violates the HCSSA.

{¶ 43} In light of this conflict, similar "fee-shifting" or "loser-pays" provisions have been found unconscionable and against public policy by this court. In DeVito v. Autos Direct Online, Inc. , 8th Dist. Cuyahoga No. 100831, 2015-Ohio-3336, 37 N.E.3d 194, this court found that the "built-in, grossly imbalanced unfairness of the loser-pays terms * * * renders [Auto Direct Online, Inc.'s] arbitration agreement substantively unconscionable, when the loser-pays provision is embedded." Id. at ¶ 31. Similarly, in Conte, this court concluded that the loser-pays provision "effectively nullifies the OCSPA and HCSSA

provisions that allow the imposition of such fees only where a consumer acts in bad faith and files a groundless complaint." Conte , 2016-Ohio-7480, 63 N.E.3d 1245, at ¶ 34, citing R.C. 4722.08(D)(1) ; 1345.09(F).

{¶ 44} We agree with our precedent and find that, to the extent Rule 48(d)(ii) governs arbitration between the parties here, it is unenforceable. This is conceded by Perrino. We note that unlike the agreements at issue in Conte and DeVito , though, the loser-pays provision is not expressly included in the agreement between the Neels and Perrino. Therefore, this assignment of error is overruled.

{¶ 45} We affirm the decision of the trial court granting the motion to stay pending arbitration; however, we remand to the trial court for the limited purpose of staying all claims against all parties.

{¶ 46} This cause is affirmed in part, reversed in part, and remanded to the lower court for further proceedings consistent with this opinion.

EILEEN A. GALLAGHER, A.J., and

FRANK D. CELEBREZZE, JR., J., CONCUR