Fast Tract Title Servs., Inc. v. Barry

2022 Ohio 1943

• Court: Ohio Court of Appeals
• Decided: June 9, 2022
• Docket: 110939
• Status: Published

Opinion

[Cite as Fast Tract Title Servs., Inc. v. Barry, 2022-Ohio-1943.]

COURT OF APPEALS OF OHIO

EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA

FAST TRACT TITLE SERVICES, INC., :

Plaintiff-Appellee, : No. 110939 v. :

DENVER BARRY, :

Defendant-Appellant. :

JOURNAL ENTRY AND OPINION

JUDGMENT: VACATED RELEASED AND JOURNALIZED: June 9, 2022

Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-18-897291

Appearances:

L. Bryan Carr, for appellee.

Andrew J. Karas, for appellant.

KATHLEEN ANN KEOUGH, P.J.:

Defendant-appellant, Denver Barry (“Barry”), appeals from the trial

court’s judgment, rendered after a jury trial, finding him personally liable for fraud

under a claim of piercing the corporate veil and awarding plaintiff-appellee, Fast Tract Title Services, Inc. (“Fast Tract”), compensatory damages, punitive damages,

and attorney fees. For the reasons that follow, we vacate the trial court’s judgment.

I. Background

On May 7, 2018, Fast Tract filed suit against Barry asserting a fraud

claim in Count 1 of the complaint and, in Count 2, that it was entitled to pierce the

corporate veil of 1129 Summit L.L.C., an entity of which Barry is a member, to find

Barry personally liable on its fraud claim.

Paragraphs one through five of the complaint set forth the fact of Fast

Tract’s corporate entity and its address; Barry’s home address and the fact that he is

a member of 1229 Summit; the propriety of jurisdiction in Cuyahoga County; and

an allegation that on May 22, 2017, Fast Tract was awarded a judgment in the

amount of $16,319.56 against 1229 Summit in Cuyahoga C.P. No. CV-16-860137.

Paragraphs six through nine of the complaint, captioned “Count I,”

set forth Fast Tract’s fraud claim against Barry as follows:

6. Plaintiff re-alleges and re-avers each and every allegation set forth in Paragraphs 1 through 5 above as if fully rewritten herein.

7. The Defendant made multiple representations to Plaintiff and concealed material facts which Defendant knew were false and/or which Defendant made with utter disregard and recklessness as to whether the representations were true or false.

8. The Defendant had the intent of misleading Plaintiff into relying upon his false and misleading representations (and concealment). Plaintiff’s reliance was justifiable.

9. Defendant’s fraud resulted in injury to the Plaintiff. Count II was set forth in paragraphs 10 through 16 of the complaint.

Count 10 realleged the allegations set forth in paragraph one through nine.

Paragraph 11 alleged that “the fiction known as 1229 Summit should be disregarded”

because

(a) it is used, or is being used, as a means of perpetrating a fraud upon Plaintiff; (b) 1229 Summit was organized and operated as a tool or business conduit of Defendant; (c) 1229 Summit is resorted to as a means of evading existing legal obligations; (d) 1229 Summit is used to circumvent a statute; and (e) 1229 Summit is relied upon as a protection to justify a wrong.

Paragraph 12 alleged that “1229 should not shield fraud, evade existing obligations,

circumvent statute and the like. This abuse necessitates disregarding 1229 Summit.

As a result, the ‘corporate veil’ of 1229 Summit should be pierced to provide that

Defendant is liable to Plaintiff in/for its judgment against 1229 Summit.”

Paragraph 13 of the complaint repeated the reasons for piercing the

corporate veil set forth in paragraph 11 of the complaint and added that “1229 was

inadequately capitalized and unable to pay its debts” and again, that “1229

perpetrated fraud.” Paragraph 14 alleged that “[t]he control the Defendant had over

1229 Summit was so complete that 1229 Summit had no separate mind, will or

existence of its own.” Paragraphs 15 and 16 of the complaint asserted that “[t]he

control the Defendant had over 1229 Summit was exercised in such a manner as to

commit fraud and other unlawful acts upon the Plaintiff” and “Defendant’s actions

resulted in damages to Plaintiff.” Barry subsequently filed a motion to dismiss the complaint pursuant

to Civ.R. 12(B)(6), arguing that Fast Tract’s fraud complaint was not pled with

particularity, as required by Civ.R. 9(B), thereby requiring dismissal of the

complaint for failure to state a claim upon which relief could be granted. Fast Tract

filed a brief in opposition to Barry’s motion, arguing that “what is before this court

is not a fraud case” and that “Civil Rule 9 has absolutely no relevance to this case

whatsoever” because Fast Tract was “seeking to pierce the corporate veil/disregard

the corporate entity,” a claim it contended was adequately set forth in its complaint.

The trial court denied Barry’s motion to dismiss. The court also denied Barry’s later-

filed motion for summary judgment.

At trial, the proceedings were bifurcated to allow the jury to consider

liability and punitive damages in separate phases. Following the liability phase, the

jury found Barry liable for fraud and awarded Fast Tract $26,000 in compensatory

damages. The jury also found for Fast Tract on its claim for piercing the corporate

veil but awarded $0 in damages. Following argument and instructions regarding

punitive damages, the jury awarded Fast Tract $10,000 in punitive damages plus

attorney fees in an amount to be determined by the court. After a hearing, the court

awarded Fast Tract $26,952.72 in attorney fees. Later, following post-trial motion

practice, the trial court reduced the compensatory damage award to $21,267.02.

Barry now appeals. II. Civ.R. 12(B)(6) Motion to Dismiss

In his first assignment of error, Barry contends that the trial court

erred in denying his Civ.R. 12(B)(6) motion to dismiss the complaint because Fast

Tract did not plead its fraud claim with particularity, as required by Civ.R. 9(B).

In Hersh v. Grumer, 2021-Ohio-2582, 176 N.E.3d 1135, ¶ 5 (8th

Dist.), this court reiterated the appropriate standard of review regarding Civ.R.

12(B)(6) motions to dismiss as follows:

We review rulings on Civ.R. 12(B)(6) motions to dismiss under a de novo standard. “A motion to dismiss for failure to state a claim upon which relief can be granted in 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.” NorthPoint Props. v. Petticord, 179 Ohio App.3d 342, 2008-Ohio-5996, 901 n.E.2d 869, ¶ 1 (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.’” Graham v. Lakewood, 8th Dist. Cuyahoga No. 106094, 2018-Ohio-1850, 113 N.E.3d 44, ¶ 47, quoting Grey v. Walgreen Co., 197 Ohio App.3d 418, 2018-Ohio-6167, 967 N.E.2d 1249, ¶ 3 (8th Dist.)

The elements of fraud are: (1) a representation of fact (or where there

is a duty to disclose, concealment of a fact); (2) that is material to the transaction at

issue; (3) made falsely, with knowledge of its falsity or with utter disregard and

recklessness as to whether it is true or false; (4) with the intent of misleading another

into relying upon it; (5) justifiable reliance upon the misrepresentation (or

concealment); and (6) resulting injury proximately caused by the reliance. Cohen v.

Lamko, Inc., 10 Ohio St.3d 167, 169, 462 N.E.2d 407 (1984). Civ.R. 9(B) states that “[i]n all averments of fraud * * *, the

circumstances constituting fraud * * * shall be stated with particularity.” The rule

“places a higher burden than is normally required upon the person asserting such a

claim to support general allegations with specific facts.” Reasoner v. State Farm

Mut. Auto. Ins. Co., 10th Dist. Franklin No. 01AP-490, 2002-Ohio-878, 20-21. To

comply with the Civ.R. 9(B) requirement, “‘the pleading must contain allegations of

fact which tend to show each and every element of a cause of action for fraud.’”

Parmatown S. Assn. v. Atlantis Realty Co., 8th Dist. Cuyahoga No. 106503, 2018-

Ohio-2520, ¶ 7, quoting Minaya v. NVR Inc., 2017-Ohio-9019, 103 N.E.3d 160, ¶ 11

(8th Dist.). “This means that a defendant must state ‘the time, place, and content of

the false representation, the fact misrepresented, and the nature of what was

obtained or given as a consequence of the fraud.’” Cord v. Victory Solutions, L.L.C.,

8th Dist. Cuyahoga No. 106006, 2018-Ohio-590, ¶ 14, quoting Carter Jones Lumber

Co. v. Denune, 132 Ohio App.3d 430, 433, 725 N.E.2d 330 (10th Dist.1999). Such

particularity is required to both apprise the opposing party of the act that is the

subject of the fraud claim and to allow the opposing party to prepare an effective

defense. Turner v. Salvagnini Am., Inc., 12th Dist. Butler No. CA 2007-09-233,

2008-Ohio-3596, ¶ 26.

Fast Tract’s fraud claim was clearly not pled with sufficient

particularity. Its vague allegations that Barry made “multiple representations” and

“concealed material facts” with the “intent of misleading” Fast Tract into relying on

the representations are wholly insufficient under the heightened pleading standard of Civ.R. 9(B) to state a fraud claim with particularity. The complaint does not

specify the time, place, and content of the alleged false representations, nor does it

state what was obtained or given as a result of the alleged representations. See

Stancik v. Deutsche Natl. Bank, 8th Dist. Cuyahoga No. 102019, 2015-Ohio-2517,

¶ 51-52 (fraud claim not pled with particularity where complaint did not specify the

time, place, and content of the alleged material false representation). In short, the

complaint does not contain facts that, if true, would establish all the elements of a

fraud claim.

As noted above, in its brief in opposition to Barry’s motion to dismiss,

Fast Tract argued that the motion should be denied because the case was “not a fraud

case,” and instead, it was attempting to pierce the corporate veil to find Barry

personally liable for Fast Tract’s judgment against 1229 Summit, a claim that Fast

Tract asserted was adequately pled in its complaint. The problem with Fast Tract’s

argument is that it was indeed asserting a fraud claim against Barry.

The principle that shareholders of a corporation are generally not

liable for the debts of the corporation is “ingrained in Ohio law.” Dombroski v.

Wellpoint, Inc., 119 Ohio St.3d 506, 2008-Ohio-4827, 895 N.E.2d 538, ¶ 16.

Nevertheless, “in certain circumstances, the corporate form may be disregarded,

and the corporate veil pierced, for the purpose of reaching the assets of the

corporation’s individual shareholders.” Minno v. Pro-Fab, Inc., 121 Ohio St.3d 464,

2009-Ohio-1247, 905 N.E.2d 613, ¶ 8. “Where a shareholder misuses the corporate

form as a shield from liability for their own misdeeds, Ohio law will permit piercing of the corporate veil as a rare exception to the guiding principles of limited

shareholder liability.” Unites States Bank Natl. Assn. v. MMCO, L.L.C., 8th Dist.

Cuyahoga No. 110246, 2021-Ohio-4605, ¶ 58, citing Dombroski at ¶ 17, 26.

Under the three-prong test set forth by the Ohio Supreme Court, a

party seeking to pierce the corporate veil must prove that:

(1) control over the corporation by those to be held liable was so complete that the corporation has no separate mind, will, or existence of its own; (2) control over the corporation by those to be held liable was exercised in such as manner as to commit fraud or an illegal act or a similarly unlawful act against the person seeking to disregard the corporate entity, and (3) injury or unjust loss resulted to the plaintiff from such control and wrong.

Belvedere Condominium Unit Owners’ Assn. v. R.E. Roark Cos., 67 Ohio St.3d 274,

617 N.E.2d 1075 (1963), paragraph three of the syllabus, as modified by Dombroski

at ¶ 29.

Significant to this case, under Ohio law, piercing the corporate veil is

not an independent cause of action. RCO Internatll. Corp. v. Clevenger, 180 Ohio

App.3d 211, 2008-Ohio-6823, 904 N.E.2d 941, ¶ 11 (10th Dist.); Geier v. Natl. GG

Indus., Inc., 11th Dist. Lake No. 98-L-172, 1999 Ohio App. LEXIS 6263, 10 (Dec. 23,

1999). Rather, “it is a remedy encompassed within a claim. It is a doctrine wherein

liability for an underlying tort may be imposed upon a particular individual.” RCO

Internatl. Corp at id.; see also Fifth Third Bank v. Diversified Transp. Servs., C.P.

Lucas No. CI 09-2373, 2010-Ohio-Misc. LEXIS 547 (Jan. 14, 2010), quoting 18 Am.

Jur. 2d Corporations § 47 (“Piercing the corporate veil ‘is not itself an action but is

merely a procedural means of allowing liability on a substantive claim.’”). A plaintiff seeking to recover under the doctrine of piercing the

corporate veil is not required to demonstrate fraud in order to meet the second

prong of the Beveldere-Dombroski test; a plaintiff can also demonstrate that the

defendant committed “an illegal act or a similarly unlawful act.” Dombroski, 119

Ohio St.3d 506, 2008-Ohio-4827, 895 N.E.2d 538, syllabus. However, “a plaintiff

who seeks to satisfy the Belvedere-Dombroski test by alleging fraud must meet the

heightened pleading requirements imposed by Rule 9(B).” Kurtz Bros. v. Ace Demo,

Inc., 11th Dist. Portage No. 2014-P-0027, 2014-Ohio-5184, ¶ 28. Id. at ¶ 29, citing

Southeast Texas Inns, Inc. v. Prime Hospitality Corp., 462 F.3d 666, 672 (6th

Cir.2006) (“When a cause of action seeks to pierce the corporate veil on the basis of

fraud, it is subject to [Rule 9(B)].”).

It is apparent that Fast Tract sought to pierce the corporate veil on the

basis of Barry’s alleged fraud. Paragraphs 9 and 12 of the complaint specifically

stated that Barry’s “fraud” resulted in injury to Fast Tract and that Barry’s control

over 1229 Summit was exercised in such a manner as to “commit fraud” on Fast

Tract.

At trial, Fast Tract’s counsel argued that various exhibits produced by

Fast Tract at trial should be admitted because “all of these documents are relevant

to the issue at hand. The issue at hand is not only piercing the corporate veil, it’s

fraud.” (Emphasis added.) (Tr. 341.) Later, when the trial court was considering

Barry’s renewed motion for a directed verdict at the close of the evidence, Fast

Tract’s counsel told the judge that Barry’s “fraud” consisted of a series of actions related to the sale of real estate and subsequent litigation: “Well, Your Honor, the

fraud with regard to jury instruction number eight, the fraud not only constitutes

what Mr. Barry did in the Cater transaction, it absolutely is the conduct and behavior

that happened when he sued Fast Tract under the guise of 1229 Summit, LLC.” (Tr.

407.) When the judge asked Fast Tract’s counsel “so what is the transaction at hand

in this suit that there’s a fraud,” counsel responded, “It is all of the documents and

agreements and lawsuits that Mr. Barry has executed and signed on behalf of 1229

Summit, LLC, to institute litigation against people, to promise to pay people,

representing that 1229 Summit, LLC, will indemnify parties, innocent parties, if they

breach the agreement.” Id. Continuing, Fast Tract’s counsel explained, “[a]ll of

these documents were bologna and a fraud because in that ─ there was no basis.

1229 Summit, LLC, was a fiction.” (Tr. 410.) After the court denied Barry’s renewed

motion for a directed verdict, the jury was instructed on the elements of a fraud

claim (tr. 421), and it returned a verdict in favor of Fast Tract on its fraud claim

against Barry, as well as its claim for piercing the corporate veil.

It is apparent that Fast Tract asserted a fraud claim against Barry as

the underlying tort in its action to pierce 1229 Summit’s corporate veil and hold

Barry personally liable. Fast Tract was therefore required to plead its fraud claim

with particularity, as required by Civ.R. 9(B). However, even a cursory review of the

complaint demonstrates that the complaint did not set forth with any particularity

the time, manner, and circumstances of Barry’s alleged fraud. Accordingly, the trial court erred in denying Barry’s Civ.R. 12(B)(6) motion to dismiss the complaint for

failure to state a claim upon which relief can be granted.

The first assignment of error is sustained. Because Fast Tract’s failure

to plead fraud with particularity resulted in a defective claim that should have been

dismissed prior to trial, the judgment against Barry in favor of Fast Tract is hereby

vacated.

In light of our resolution of the first assignment of error, the

remaining assignments of error are moot and we need not consider them. App.R.

12(A)(1)(c).

Judgment vacated.

It is ordered that appellant recover from appellee costs herein taxed.

The court finds there were reasonable grounds for this appeal.

It is ordered that a special mandate be sent to said court to carry this judgment

into execution.

A certified copy of this entry shall constitute the mandate pursuant to Rule 27

of the Rules of Appellate Procedure.

KATHLEEN ANN KEOUGH, PRESIDING JUDGE

EILEEN A. GALLAGHER, J., and MARY J. BOYLE, J., CONCUR