Kwon v. J.D. Stone Restaurants, Inc.

2011 Ohio 4649

• Court: Ohio Court of Appeals
• Decided: September 13, 2011
• Docket: 10CAE070054
• Status: Published

Opinion

[Cite as Kwon v. J.D. Stone Restaurants, Inc., 2011-Ohio-4649.]

COURT OF APPEALS DELAWARE COUNTY, OHIO FIFTH APPELLATE DISTRICT

RAMZI O. KWON, ET AL. JUDGES: Hon. William B. Hoffman, P.J. Plaintiffs-Appellees Hon. Sheila G. Farmer, J. Hon. Patricia A. Delaney, J. -vs- Case No. 10CAE070054 J. D. STONE RESTAURANT, INC., ET AL. OPINION Defendants-Appellants

CHARACTER OF PROCEEDING: Appeal from the Delaware County Court of Common Pleas, Case No. 09CVH0336

JUDGMENT: Affirmed in part; Reversed in part; and Remanded

DATE OF JUDGMENT ENTRY: September 13, 2011

APPEARANCES:

For Plaintiffs-Appellees For Defendants-Appellants

ROBERT G. KENNEDY HILLARD M. ABROMS 4924-B Reed Rd. 753 South Front Street Columbus, Ohio 43220 Columbus, Ohio 43206 Delaware County, Case No. 10CAE070054 2

Hoffman, P.J.

{¶1} Defendants-appellants J.D. Stone Restaurants, Inc. and Anthony Torchia

appeal the June 18, 2010 Judgment Entry of the Delaware County Court of Common

Pleas granting judgment in favor of Plaintiffs-appellees Ramzi O. Kwon and Il Sim

Group, LLC.

STATEMENT OF THE FACTS AND CASE

{¶2} This matter arises from litigation in which Appellees Ramzi Kwon and II

Sims Group, LLC. (“Kwon”) sought return of the purchase price they paid for the

purchase of the Hickory House Restaurant North in Powell, Ohio. Appellants J.D. Stone

Restaurants and Anthony Torchia deny they owe Appellees any amount of the purchase

monies paid.

{¶3} The parties entered into an agreement for the purchase of the Hickory

House Restaurant on or around October 13, 2006. At the time, Kwon was represented

by realtor Ben Kahng and Appellants were represented by realtor Kim Lewis.

{¶4} During all times pertinent hereto, Appellants were leasing the restaurant

premises from Your Financial Community, Inc., the landlord herein (“Landlord”). The

lease addendum between Appellants and Landlord contained certain conditions

Appellants agreed they would meet should they decide “to sell the business and to sell,

assign or transfer this leasehold interest…” The conditions included a requirement

certain financial documents be provided to Landlord. Landlord in turn had thirty days to

either consent to the transfer and release Appellants from their obligation under the

lease; refuse to consent specifying the same in writing; or tender their consent subject Delaware County, Case No. 10CAE070054 3

to certain conditions specified in writing. Kwon was not provided with a copy of the

lease agreement between Appellant and Landlord.

{¶5} Instead, Realtor Kim Lewis requested the required documentation from

Kwon in order to provide the same to Landlord. Kwon testified he provided the

documentation to Ms. Lewis telling her he was, at the time, going through a dissolution

of marriage and the financial statement represented the total of his and his wife’s

assets. Kim Lewis did not ask for any further documentation or any updating of Kwon’s

financial documentation.

{¶6} Landlord informed Kim Lewis via Letter of November 6, 2006, of the need

for verified financial documentation and a signed copy of the purchase contract.

{¶7} The petition for dissolution of Kwon’s marriage was filed on September 26,

2006 (before the date of the preparation of his financial statement), and finalized on

November 21, 2006. After the dissolution, Kwon’s assets were reduced by

approximately one-half, but he did not provide any supplemental financial information to

Appellants or Landlord reflecting change of his financial statement.

{¶8} Kim Lewis provided financial documentation from Kwon’s accountant to

Landlord on November 20, 2006, and Landlord failed to respond. On January 27, 2007,

an attorney for Appellant wrote a letter to Landlord indicating that due to Landlord’s

failure to respond, the parties were going to move forward with the sale and transfer of

the restaurant and transfer of the liquor license.

{¶9} Appellants represented to Kwon they had every right to transfer and

assign the lease since Landlord did not respond pursuant to the terms of the lease Delaware County, Case No. 10CAE070054 4

agreement. Kwon independently attempted to negotiate a new lease with Landlord, but

his attempts were unsuccessful.

{¶10} On February 28, 2007, Appellants filed a complaint for declaratory

judgment in the Delaware County Court of Common Pleas, Case No. 07-CVH-02-249,

seeking a declaration by the court Appellants had the right to assign the existing lease

to Kwon.

{¶11} On March 14, 2007, the parties executed a Closing Agreement, an

Assignment of Lease and a Management Contract. In the Closing Agreement signed by

the parties, they mutually agreed:

{¶12} “…This entire transaction is contingent upon the liquor license for said

business being transferred from Seller to Buyer. If the license cannot be transferred

due to Seller’s fault, action or inaction, then this entire transaction at the option of the

Buyer shall be null and void and all monies and documents paid and signed by the

various parties hereto shall be returned to the respective parties from which they came

and all parties shall be released from the obligations of the same…”

{¶13} The Assignment of Lease contained the following language:

{¶14} “…The Assignors do hereby warrant that they have the right to sell,

transfer, assign and set over the aforesaid described leases, and the Assignors further

covenant with the Assignee, his executors, administrators and assigned, that the

assigned premises now are free and clear of any judgments, executions, taxes,

assessments and encumbrances whatsoever. Except: it is understood the lessor has

objected to said assignment, albeit incorrectly. As a result, correspondence has ensued

from both Buyer’s and Seller’s counsel placing landlord on notice of his default and Delaware County, Case No. 10CAE070054 5

waiver of consent to assignment, and the sale is going forward. Additionally,

Seller’s counsel has filed declaratory judgment action in Delaware Common Pleas

Court, which has been served and is pending…”

{¶15} The trial court dismissed Appellants’ declaratory judgment action on

March 18, 2008, due to Appellants’ failure to proceed with the case.

{¶16} On April 18, 2008, Kwon notified Appellants they were exercising their

rights under the Closing Agreement to declare the transaction null and void, and

demanded return of the purchase monies paid and returned control of the restaurant to

Appellants.

{¶17} Appellants demanded a set off of the purchase monies for the losses

incurred during Kwon’s operation of the restaurant until its eventual sale, and damages

in the amount of $373,794.72.

{¶18} The trial court found Appellants’ own inaction caused the failure of the

assignment of the lease, and ordered Appellants return all monies paid by Kwon upon

return of the restaurant. The court further found because the terms of the agreement

did not specifically address any losses or costs to Appellants as a result of the failure of

the purchase agreement, Appellants’ claim for set-off or damages was denied. The trial

court further ordered Appellants pay Kwon “the amount of $175,000.00, plus legal

interest from the date the restaurant was returned (May 1, 2008), plus costs.”

{¶19} Appellants now appeal, assigning as error:

{¶20} “ERROR 1: THE COURT ERRONEOUSLY WENT OUTSIDE THE FOUR

CORNERS OF THE CONTRACT WHERE THE LANGUAGE OF THE CONTRACT

WAS CLEAR AND UNAMBIGUOUS. Delaware County, Case No. 10CAE070054 6

{¶21} “ERROR 2:

{¶22} A. THE TRIAL COURT ABUSED ITS DISCRETION IN FINDING THE

PLAINTIFF DID NOT INTENTIONALLY MISLEAD THE DEFENDANT OR THE

LANDLORD BY CREATING A FALSE IMPRESSION OF HIS FINANCIAL STATUS.

{¶23} B. THE TRIAL COURT ERRED AS A MATTER OF LAW BY FAILING TO

FIND DEFENDANT FAILED TO ESTABLISH ANY FRAUD OR

MISREPRESENTATION IN THE PREPARATION OR SUBMISSION OF HIS

FINANCIAL INFORMATION.

{¶24} C. THE TRIAL COURT ERRED AS A MATTER OF LAW BY NOT

MAKING ANY RULING WHATSOEVER WITH REGARD TO DEFENDANTS’

COUNTERCLAIMS, DUE TO PLAINTIFFS FRAUDULENT MISREPRESENTATION OF

HIS FINANCIAL STATUS.”

{¶25} “ERROR 3: THE COURT ERRED AS A MATTER OF LAW IN

IMPROPERLY IMPLYING OF [SIC] EVEN CONSIDERING THE REMEDY OF

RESCISSION.”

I.

{¶26} In the first assignment of error, Appellants cite to Paragraph 3 of the

parties’ agreement which requires the “Buyer” to “cause the filing of an application for

the transfer of the subject liquor license from Seller to Buyer.” The paragraph provides,

“If the license cannot be transferred due to Buyer’s fault, action or inaction, then the

Buyer shall be responsible for finding another Buyer to whom said business and liquor

license can be transferred.” Appellants maintain the trial court went outside the four

corners of the contract in not finding Kwon’s false financial statements were clearly Delaware County, Case No. 10CAE070054 7

detrimental to the transfer. Appellants assert it was Kwon’s misrepresentation which

caused the Landlord to not permit the assignment.

{¶27} The trial court herein found the liquor license could not be transferred due

to Appellants’ failure to proceed with the declaratory judgment action in the Delaware

County Court of Common Pleas. The trial court did not rule upon whether Kwon

provided a false financial statement to Landlord.

{¶28} Appellants did not present testimony from their realtor Kim Lewis. Rather,

Appellee Kwon testified he told Ms. Lewis he had obtained the financial documents from

his accountants, and he told Lewis he was in the process of dissolution, and the records

he transmitted were the most recent, but were all before his dissolution of marriage.

Ms. Lewis did not ask for updated financial documents. Appellants further did not offer

testimony relative to Ms. Lewis’ or anyone else asking Appellee for updated, post-

dissolution financial documents.

{¶29} We find the trial court did not err in finding the liquor license could not be

transferred due to Appellants’ failure to proceed in the declaratory judgment action,

declaing the lease assignable to Appellees. Further, the original purchase contract and

addendum clearly state the contract was contingent upon the successful transfer of the

liquor license and business permits.

{¶30} The first assignment of error is overruled.

II.

{¶31} In the second assignment of error, Appellants assert the trial court erred in

failing to find Kwon engaged in fraud or misrepresentation in the submission of the

financial documents in this matter. Delaware County, Case No. 10CAE070054 8

{¶32} In Burr v. Stark County Board of Commissioners (1986), 23 Ohio St.3d 69,

491 N.E.2d 1101, paragraph two of the syllabus, the Supreme Court of Ohio found the

elements of fraud to be as follows:

{¶33} “(a) a representation or, where there is a duty to disclose, concealment of

a fact,

{¶34} “(b) which is material to the transaction at hand,

{¶35} “(c) made falsely, with knowledge of its falsity, or with such utter disregard

and recklessness as to whether it is true or false that knowledge may be inferred,

{¶36} “(d) with the intent of misleading another into relying upon it,

{¶37} “(e) justifiable reliance upon the representation or concealment, and

{¶38} “(f) a resulting injury proximately caused by the reliance. (Cohen v. Lamko,

Inc. (1984), 10 Ohio St.3d 167, [10 OBR 500], 462 N.E.2d 407, followed.)”

{¶39} The elements of fraud must be established by clear and convincing

evidence. Clear and convincing evidence is that measure or degree of proof that will

produce in the mind of the trier of facts a firm belief or conviction as to the allegations

sought to be established. Cross v. Ledford (1954), 161 Ohio St. 469, 120 N.E.2d 118.

The burden to prove fraud rests upon the party alleging the fraud. First Discount Corp.

v. Daken (1944), 75 Ohio App. 33, 60 N.E.2d 711, paragraph seven of the syllabus.

{¶40} At the trial herein, Kwon testified:

{¶41} “Q. You were - - when you were asked - - when you were signing this,

were you asked to provide any information by Ms. Lewis or Mr. Kahng regarding your

financial ability?

{¶42} “A. No. Delaware County, Case No. 10CAE070054 9

{¶43} “Q. Did you provide any documents to them to provide to Mr. Costanza?

{¶44} “A. I gave Kim Lewis, she said she’s gonna give all the information - - all

the paperwork and give it to Mr. Costanza.

{¶45} “Q. Okay. Did she tell you what you had to give? To your knowledge, did

she tell you or Mr. Kahng what information they needed to give to Mr. Costanza?

{¶46} “A. Just financial statement.

{¶47} “Q. Okay.

{¶48} “A. And - -

{¶49} “Q. To your knowledge, did you give her everything that she asked for?

{¶50} “A. Yes, I gave her - - I gave to her everything.

{¶51} “Q. And to your knowledge, did she then provide that to Mr. Costanza?

{¶52} “A. Yes.

{¶53} “Q. Okay. Did she ask you for any additional information?

{¶54} “A. No.

{¶55} “* * *

{¶56} “Q. And you were relying on her to provide whatever documentation to the

landlord that was necessary, were you not?

{¶57} “A. Yes.

{¶58} “* * *

{¶59} “Q. Okay. Now, shortly after that you and your wife’s dissolution went

through, did it not?

{¶60} “A. Yes. Delaware County, Case No. 10CAE070054 10

{¶61} “Q. Do you remember telling Ms. Lewis that you were going through a

dissolution at the time?

{¶62} “A. Yes.

{¶63} “* * *

{¶64} “Q. Okay. And I think you testified that you told Ms. Lewis that you were -

- you and your wife were getting a dissolution, too, right?

{¶65} “A. Yes.

{¶66} “Q. Okay. Did she ever ask you for any updated assets?

{¶67} “A. No.

{¶68} “Q. Any updated financials?

{¶69} “A. No.”

{¶70} Tr. at 35-40; 53.

{¶71} Again, Appellants did not present testimony from their realtor Kim Lewis to

rebut any of Kwon’s testimony. Appellants’ attorney, John Hobday, did testify the

landlord was not informed by Ms. Lewis the financial records reflected Kwon’s

predissolution assets.

{¶72} It is for the trial court to hear the evidence and weight the credibility of the

witnesses. We find the trial court’s finding Kwon did not intentionally mislead Appellants

and its failure to find fraud or misrepresentation by Kwon was not erroneous.

{¶73} With regard to Appellants’ argument the trial court erred in failing to rule

on the counterclaims for offset and damages, we find the argument well taken. We do

not find Appellants’ counterclaim(s) for damages due to Appellee’s operation of the

business during the time period at issue precluded by the contract between the parties. Delaware County, Case No. 10CAE070054 11

Therefore, the trial court erred in summarily dismissing the claims based on the

rescission of the contract. Appellant’s argument is sustained with regard to the

counterclaims for damages to offset the award to Appellees and the matter is remanded

to the trial court for further proceedings with respect thereto.

III.

{¶74} In the third assignment of error, Appellants asserts the trial court erred in

granting rescission of the contract herein.

{¶75} Based upon our analysis and disposition of Appellants’ first and second

assignments of error, we find the trial court did not err in finding the transaction null and

void pursuant to the parties’ agreement providing the right to rescind the purchase

contract. The Closing Agreement cited in the Statement of the Facts and Case, supra,

clearly gives Buyer an option to declare the agreement “null and void and all monies

and documents paid and signed by the various parties hereto shall be returned to the

respective parties from which they came and all parties shall be released from the

obligations of the same….”

{¶76} Appellants’ third assignment of error is overruled. Delaware County, Case No. 10CAE070054 12

{¶77} The June 18, 2010 Judgment Entry of the Delaware County Court of

Common Pleas is affirmed, in part, reversed, in part, and remanded for further

proceedings in accordance with the law and this opinion.

By: Hoffman, P.J.

Farmer, J. and

Delaney, J. concur

___________________________________ HON. WILLIAM B. HOFFMAN

___________________________________ HON. SHEILA G. FARMER

___________________________________ HON. PATRICIA A. DELANEY Delaware County, Case No. 10CAE070054 13

IN THE COURT OF APPEALS FOR DELAWARE COUNTY, OHIO FIFTH APPELLATE DISTRICT

RAMZI O. KWON, ET AL. : : Plaintiffs-Appellees : : -vs- : JUDGMENT ENTRY : J D STONE RESTAURANT, INC., ET AL. : : Defendants-Appellants : Case No. 10CAE070054

For the reasons stated in our accompanying Opinion, the June 18, 2010

Judgment Entry of the Delaware County Court of Common Pleas is affirmed in part;

reversed in part; and the matter is remanded for further proceedings in accordance with

the law and our Opinion. Costs divided equally.

___________________________________ HON. PATRICIA A. DELANEY