North Valley Bank v. ABC Mfg., Inc.

2017 Ohio 5696

• Court: Ohio Court of Appeals
• Decided: June 29, 2017
• Docket: CT2016-0051
• Status: Published

Opinion

[Cite as North Valley Bank v. ABC Mfg., Inc., 2017-Ohio-5696.]

COURT OF APPEALS MUSKINGUM COUNTY, OHIO FIFTH APPELLATE DISTRICT

NORTH VALLEY BANK : JUDGES: : Hon. W. Scott Gwin, P.J. Plaintiff-Appellee : Hon. John W. Wise, J. : Hon. Earle E. Wise, Jr., J. -vs- : : ABC MANUFACTURING, INC., ET AL. : : Defendants-Appellees : Case No. CT2016-0051 : and : : IMAC ENTERPRISES, LLC : : Intervening Defendant-Appellant : OPINION

CHARACTER OF PROCEEDING: Appeal from the Court of Common Pleas, Case No. CH2013-0496

JUDGMENT: Reversed and Remanded

DATE OF JUDGMENT: June 29, 2017

APPEARANCES:

For Plaintiff-Appellee For Intervening Defendant-Appellant

MICHAEL D. STULTZ PAUL R. HOFFER CHRISTOPHER C. CAMBONI P.O. Box 83 106 East Market Street Clinton, OH 44216 Tiffin, OH 44883 JAMES E. BANAS P.O. Box 172 Clinton, OH 44216 [Cite as North Valley Bank v. ABC Mfg., Inc., 2017-Ohio-5696.]

For Receiver For James Piggot, Jr.

KENNETH R. GOLDBERG J.W. KREUGER & ASSOC., LLC 575 South Third Street P.O. Box 360135 Columbus, OH 43215 Cleveland, OH 44136

For Morgan County For State of Ohio Development Commissioners & Treasurer Services Agency

MARK J. HOWDYSHELL SHANNON W. HUSBAND 19 East Main Street 3030 West Grand Boulevard McConnelsville, OH 43756 Suite 9-600 Detroit, Michigan 48202 For Additional Appellees ANDREW P. COOKE JOHN M. KAHLER 260 Market Street 216 South Washington Street P.O. Box 227 Tiffin, OH 44883 New Albany, OH 43054

JOHN K. CHRISTIE 155 East Main Street Room 230 McConnelsville, OH 43756 Muskingum County, Case No. CT2016-0051 2

Wise, Earle, J.

{¶ 1} Intervening Defendant-Appellant, IMAC Enterprises, LLC, appeals the

August 19, 2016 order of the Court of Common Pleas of Muskingum County, Ohio,

denying its motion to intervene. Plaintiff-Appellee pertinent to this appeal is North

Valley Bank.

FACTS AND PROCEDURAL HISTORY

{¶ 2} On November 27, 2013, appellee filed a complaint in foreclosure against

ABC Manufacturing, Inc. and others, seeking to collect on a debt owed. A receiver was

appointed on same date.

{¶ 3} Appellant became aware of real estate for sale in Malta, Ohio, which was

part of the receiver's estate. On June 11, 2014, appellant and receiver entered into a

lease and purchase agreement for both the real estate and the personal property

therein. By judgment entry filed June 13, 2014, the trial court granted appellee default

judgment as against ABC Manufacturing. On August 8, 2014, receiver filed a motion for

authority to sell the real estate and the personal property. By order file August 19,

2014, the trial court granted the motion.

{¶ 4} Thereafter, appellant took possession of the real estate. Pursuant to the

lease agreement, appellant made rental payments to receiver and made an earnest

money deposit toward the purchase agreement. Subsequently, because appellant

could not obtain financing, appellant and receiver negotiated several modifications to

the closing date for the purchase of the real estate and the personal property, with

appellant making additional earnest money deposits. Appellant made payments totaling

$325,000.00 toward the final purchase price of $1,350,000.00. Muskingum County, Case No. CT2016-0051 3

{¶ 5} Because appellant was unable to complete the purchase agreement by

the agreed date, on May 5, 2015, receiver filed a motion for authority to sell the real

estate and the personal property at public sale. On May 12, 2015, appellant filed a

motion to intervene in the case to protect its interest in the real estate and the personal

property and a motion in opposition to receiver's motion to sell the property. The trial

court set a hearing for June 12, 2015. Prior to the hearing date, the parties reached an

agreement giving appellant until September 15, 2015 to complete the sale; if appellant

did not complete the sale, receiver could sell the real estate and the personal property

at public auction. This agreement was memorialized in a judgment entry approved by

the parties and signed by the trial court and filed on August 13, 2015.

{¶ 6} Appellant failed to complete the purchase by September 15, 2015.

Receiver sold the real estate via a public sale on September 16, 2015. By order filed

September 29, 2015, the trial court approved receiver's report, confirmed the public

sale, and authorized closing.

{¶ 7} On October 5, 2015, receiver filed a report, informing the trial court that he

was proceeding with the sale of the personal property, and made a request for

instructions regarding the $325,000.00 earnest money deposits paid by appellant. On

October 15, 2015, the trial court filed a journal entry directing the parties to submit their

respective positions as to the earnest money deposits. Briefs were filed and appellant

requested a hearing on the issue. On March 28, 2016, appellant again requested a

hearing. A hearing was held on July 22, 2016. During the hearing, the trial court

entertained arguments on appellant being made a party to the case. The trial court Muskingum County, Case No. CT2016-0051 4

denied the motion to intervene which was memorialized by order filed August 19, 2016.

Appellant filed an appeal to the trial court's order.

{¶ 8} On September 20, 2016, the trial court filed findings of fact and

conclusions of law, determining the earnest money deposits paid by appellant were

nonrefundable and appellant lost all interest it had in the property and was therefore not

an interested party to the action.

{¶ 9} This matter is now before this court for consideration. Assignments of

error are as follows:

I

{¶ 10} "THE TRIAL COURT ERRED TO THE PREJUDICE OF APPELLANT BY

ABUSING IT'S DISCRETION IN OVERRULING APPELLANT'S MOTION TO

INTERVENE IN THE CASE AS A PARTY DEFENDANT, PURSUANT TO CIV. R. 24,

THUS DENYING APPELLANT THE OPPORTUNITY TO PROTECT IT'S INTEREST IN

FUNDS HELD BY THE COURT APPOINTED RECEIVER."

II

{¶ 11} "THE TRIAL COURT ERRED TO THE PREJUDICE OF APPELLANT BY

ABUSING IT'S (SIC) DISCRETION IN OVERRULING APPELLANT'S MOTION TO

INTERVENE IN THE CASE AS A PARTY DEFENDANT, PURSUANT TO CIV.R. 24,

THEN MAKING A DETERMINATION IN IT'S (SIC) FINDING OF FACTS AND

CONCLUSION OF LAW THAT APPELLANT WAS NOT ENTITLED TO ANY FUNDS

AS THEY WERE NON-REFUNDABLE." Muskingum County, Case No. CT2016-0051 5

III

{¶ 12} "THE TRIAL COURT ERRED TO THE PREJUDICE OF APPELLANT BY

FAILING TO RULE ON APPELLANT'S OBJECTION TO THE RECEIVER'S MOTION

FOR AUTHORITY TO SELL REAL ESTATE IN WHICH APPELLANT HAD AN

INTEREST, AND LATER GRANTING AUTHORITY WITHOUT ALLOWING AN ORAL

HEARING."

{¶ 13} At the outset, appellee argues the trial court's denial of appellant's motion

to intervene is not a final appealable order. We find the decision is a final appealable

order under R.C. 2502.02(B)(1). The trial court's August 19, 2016 denial affected a

substantial right determining the action and preventing a judgment, and appellant could

not assert its claims in other litigation as discussed later in this opinion. The August 13,

2015 judgment entry did not specifically resolve appellant's motion to intervene as

evidenced by the trial court entertaining argument on the motion during the July 22,

2016 hearing. The trial court denied the motion on August 19, 2016, and appellant filed

its notice of appeal on September 13, 2016. The appeal was timely filed and is properly

before this court.

{¶ 14} Appellant claims the trial court erred in denying its motion to intervene to

protect its interest in the earnest money deposits. We agree.

{¶ 15} Civ.R. 24 governs intervention. Subsection (A) states the following:

(A) Intervention of right Muskingum County, Case No. CT2016-0051 6

Upon timely application anyone shall be permitted to intervene in

an action: (1) when a statute of this state confers an unconditional right to

intervene; or (2) when the applicant claims an interest relating to the

property or transaction that is the subject of the action and the applicant is

so situated that the disposition of the action may as a practical matter

impair or impede the applicant's ability to protect that interest, unless the

applicant's interest is adequately represented by existing parties.

{¶ 16} As explained by this court in Deutsche Bank National Trust Co. v. Hill, 5th

Dist. Perry No. 14 CA 00021, 2015-Ohio-1575, ¶ 25:

In order for a party to intervene as a matter of right, pursuant to

Civ.R. 24(A), all four of the following elements must be met: (1) the

intervenor must claim an interest relating to the property or transaction

that is the subject of [the] action; (2) the intervenor must be so situated

that the disposition of the action may, as a practical matter, impair or

impede the intervenor's ability to protect his or her interest; (3) the

intervenor must demonstrate that his or her interest is not adequately

represented by the existing parties; and (4) the motion to intervene must

be timely. Fairview Gen. Hosp. v. Fletcher, 69 Ohio App.3d 827, 591

N.E.2d 1312 (10th Dist.1990). "Failure to meet any one of the elements in

Civ.R. 24(A) will result in denial of the right to intervene." Id. at 831. Civil

rule 24(A) is to be liberally construed in favor of intervention, but the Muskingum County, Case No. CT2016-0051 7

putative intervenor still bears the burden of establishing each of the

elements to intervene. Grover Court Condominium Unit Owners' Assn. v.

Hartman, 8th Dist. No. 94910, 2011-Ohio-218.

{¶ 17} Our standard of review based on Civ.R. 24(A) is de novo. Deutsche Bank

at ¶ 21. Accord McKinney v. Omni Die Casting, Inc., 5th Dist. Stark No. 2015CV00838,

2017-Ohio-2949, ¶ 22.

{¶ 18} Appellant is claiming an interest in the $325,000.00 earnest money

deposits relating to the lease and purchase agreement governing real and personal

property subject to the receivership and the action sub judice. Appellee argues

because the earnest money deposits were nonrefundable as outlined in the parties'

lease and purchase agreement and subsequent modifications, appellant did not have

any interest in the funds.

{¶ 19} During the July 22, 2016 hearing, appellant acknowledged the agreements

indicated the earnest money deposits were nonrefundable, but argued the following (T.

at 4-5 and 10-13):

MR. HOFFER: * * * However, as I indicated in my brief with the

case law, there's - - there's also equity that has to be taken in to

consideration. The understanding of my client in entering in to those

agreements and the purpose of earnest money down deposit is - - is that if

he's not able to complete the sale and it's to cover - - it's a liquidated

damage, the expenses of - - of the seller and the loss of the benefit of the Muskingum County, Case No. CT2016-0051 8

bargain and the seller, in this case because the property sold for several

hundred thousand dollars more than what the purchase contract actually

was, and because my client occupied the premises, improved the

premises, did repairs with the agreement of the receiver, the receivership

has stayed, actually materially benefited, from the transaction. And we

believe based on the case law that we submitted that the equities would

call for a return of that.

Normally, in an earnest money situation, the buyer puts down a - -

a very modest amount of money to hold the purchase. Here my client

paid almost - - well, actually over 25 percent of the total purchase price

and that is far more than just a - - a normal, nominal earnest money

deposit as a liquidated damage. It's far in excess of what normally

happens in a transaction to purchase real estate.

***

MR. HOFFER: Yes, Your Honor. If you take a look at the various

contracts, Your Honor, there was not - - it was not consideration for an

extension of time. The consideration was - - is that the original contract

was for 1.25 million dollars between the receiver - - the testimony - - if you

were to hear testimony between the receiver and Mr. Petit (sic), was that

he would - - that they agreed to increase the purchase price from 1.25

million dollars to 1.35 million dollars.

And the closing statements clearly show that the money was paid,

they're calling consideration for keeping this contract open, was actually Muskingum County, Case No. CT2016-0051 9

being applied towards the purchase price. So it was not consideration for

any option. They did that by increasing the price of the - - of the purchase

of the realty and the personalty, it was - - but not the - - the individual

payments that were being made.

So the argument that the bank is making does not reflect reality.

They were not a party actually to the transaction between the receiver and

Mr. Petit (sic).

And again, if we were to present testimony, we would clearly show

that - - that the deposits were just that, they were down payment towards

the purchase of the property, not any kind of option or consideration for

anything else.

And again, what we're saying is that - - that the equities in this - - in

this case, because of the amount of money that is involved, because of

the fact that - - of the fact that the property in fact obtained - - obtained

substantially more money from the sale of the property than what the

original contract called for, the purpose of the money is - - was to be a

liquidated damage, not a penalty which is how the bank's argument is,

they should be penalized because of some sort of buyer's remorse when

in fact the bank is seeking a windfall here because my client was not able

to complete the purchase but the estate was able to garner substantially

more money than from anyone else. Muskingum County, Case No. CT2016-0051 10

And I would remind the Court that prior to my client coming in to

this, this property had been for sale for many years. No purchasers

whatsoever.

THE COURT: How many years in the receivership? Not many.

MR. HOFFER: Well, not as many years in the receivership. But my

client was the only person who - - who made an - - a legitimate offer to

buy the property and, in fact, occupied the premises and made, again,

substantial repairs and improvements to the property at the behest of the

receiver because the receiver did not have any money to make those

repairs. And my client made those repair on behalf of the receiver and, I

guess, arguably, on behalf of the Court itself since the Court - - the

receiver is working for the Court here. So we're asking the Court to - - to

do equity in this case and - -

THE COURT: What - -

MR. HOFFER: - - we're going for - -

THE COURT: What do you think the clear language is that it's

nonrefundable means?

MR. HOFFER: I - - I understand that, Your Honor. I will also

indicate to the Court that - -

THE COURT: What did your client think it meant when they entered

in to it? I mean - -

MR. HOFFER: Again, what he understood was is that if the

property did not - - if he did not complete the transaction and the receiver Muskingum County, Case No. CT2016-0051 11

had to sell the property and did not get the purchase price that they

agreed to, that he would lose his money. He was - -

THE COURT: It was only nonrefundable if certain things

happened?

MR. HOFFER: That's correct.

THE COURT: It was refundable if other things happened but - -

MR. HOFFER: He understood that if he - - if they got more money

than that, that he would get his money back.

{¶ 20} In support of its arguments, appellant filed the affidavit of Andrew Petitt, its

managing member. The affidavit is attached to appellant's Brief in Regards to

Disposition of its Down Payment Towards Purchase of Real Estate and Personal

Property filed October 26, 2015. Mr. Petitt averred that appellant paid $86,322.69 for

the maintenance, care, and improvements to the real estate, including mowing and

snow removal, clean-up and repairs to the building, welding and electrical work, and

repairs and trenching of water lines to out buildings. Appellant also paid $10,387.19 to

"put into working order a number of items of equipment and personal property located

on the premises, including but not limited to the paint line, tow motors, HVAC, and

locks, etc." Mr. Petitt averred appellant's members "expended their own personal labor

to clean up, maintain, repair, and improve" the real estate and the personal property, the

fair market value of the labor totaling $31,200.00. The total amount expended by

appellant to significantly benefit the property and the receivership was $127,909.88. Muskingum County, Case No. CT2016-0051 12

{¶ 21} In fact, on October 5, 2015, it was receiver who requested instructions

from the trial court regarding the earnest money deposits, noting the following:

It should be noted by the Court that early in the receivership, the

initial purchase offer for the combined real estate and equipment was

$980,000, the IMAC purchase agreement increased the price to

$1,250,000, and later $1,350,000, and at the Receiver's Public Sale the

real estate, only, was sold for $1,600,000. The auction of the equipment

will likely bring an additional estimated $200,000 to $350,000. Thus, the

final sale price for all receivership assets will likely be almost double the

initial offer, not including the IMAC $325,000 deposit held by the Receiver.

The Receiver acknowledges that IMAC has enhanced the value of

the receivership estate, including the real estate and equipment. IMAC

leased the premises from the Receiver and during that time and has

reportedly spent $200,000 to improve both the equipment and the real

estate. The most recent real estate appraisal valued the real estate at

$1,600,000, significantly higher than the initial $1,100,000 appraised

value. Equipment that was in very poor condition has been cleaned and

repaired and put into good operating condition. The real estate has been

cleaned up enhancing both its appearance and value. The receivership

paid approximately $5,000 to $10,000 less to abate the hazardous waste

situation at the premises because of work performed by IMAC. Although

IMAC is not current on its rent payment to the Receiver, IMAC has paid Muskingum County, Case No. CT2016-0051 13

costs for the receivership estate including maintenance, repairs, insurance

and utilities and has been a positive presence at the premises which

prevents theft and vandalism. The Receiver is still a weekly presence at

the premises, as well.

{¶ 22} In his seventh report filed eight days later on October 13, 2015, receiver

noted there "was an immediate adverse response" to the request for instructions, and

clarified he was not an advocate for appellant and "feels that the $325,000 deposit

towards IMAC's purchase of the real estate and equipment was non-refundable." Even

the receiver questioned appellant's interest in the funds and then did an about-face after

receiving an "immediate adverse response."

{¶ 23} We find appellant has adequately claimed an interest "relating to the

property or transaction that is the subject of [the] action" and has fulfilled the first

requirement.

{¶ 24} Under the second requirement, appellant must establish it is "so situated

that the disposition of the action may, as a practical matter, impair or impede the

intervenor's ability to protect his or her interest." Appellee argues as to any claims for

breach of contract, appellant "would not be collaterally estopped from bringing similar

claims in other litigation," and appellant's claims to recover rents and insurance paid

"could be asserted in other litigation." Appellee's Brief at 6.

{¶ 25} In the Purchase and Sale Agreement at ¶ 20(b), the parties agreed to the

following: Muskingum County, Case No. CT2016-0051 14

(b) It is mutually agreed by and between Seller and Purchaser that

the respective parties hereto shall and do hereby waive any right to a trial

by jury in any action or proceeding to enforce or defend any rights under

this agreement or relating thereto or arising from the relationship which is

the subject of this Agreement and that any such action or proceeding shall

be tried before a court and not before a jury. Each party acknowledges

that it has read and understands this waiver and has been advised by

counsel as necessary or appropriate. This waiver is made knowingly and

voluntarily by the parties hereto. Seller and Purchaser expressly and

exclusively consent to the jurisdiction of the Court in the Receivership

Case and the Muskingum County Common Pleas Court for purposes of

resolving all claims and disputes relating to this Agreement. (Emphasis

added.)

{¶ 26} Appellant argues this language required any dispute involving the receiver

be litigated in the receivership case, and barred appellant "from bringing an action or

proceeding in any other court in another case." Appellant's Reply Brief at 3.

{¶ 27} We find the emphasized language to be unclear. The parties consented

to the jurisdiction of the receivership court AND the Muskingum County Common Pleas

Court to resolve ALL claims and disputes relating to the agreement. In using the

conjunction "and," did the parties agree to the jurisdiction of two separate courts for

different claims? We find this interpretation to be nonsensical. The agreement governs Muskingum County, Case No. CT2016-0051 15

real estate and personal property subject to the receivership. The Muskingum County

Common Pleas Court is also the receivership court.

{¶ 28} We find appellant adequately established its ability to protect its interest

may be impaired or impeded by the disposition in this case, thereby meeting the second

{¶ 29} Appellant's interest is not adequately represented by the existing parties,

as evidenced by the parties' briefs in opposition to appellant receiving any refund of the

earnest money deposits, thereby meeting the third requirement. See Earnest Money

Position of Defendant Morgan County Commissioners filed October 21, 2015; North

Valley Bank's Memorandum Concerning the $325,000 Earnest Money Deposit filed

October 23, 2015; Receiver's Response to Order Directing the Parties to Present

Positions with Regard to the $325,000 Earnest Money Deposit filed October 26, 2015;

and North Valley Bank's Memorandum Opposing IMAC Enterprises, LLC's Claim to

Nonrefundable Earnest Money filed December 3, 2015.

{¶ 30} Receiver filed a motion for authority to sell the real estate and the personal

property at public sale on May 5, 2015. One week later, on May 12, 2015, appellant

filed a motion to intervene in the case to protect its interest in the real estate and the

personal property and a motion in opposition to receiver's motion to sell the property.

We find the motion was timely made, meeting the fourth and last requirement.

{¶ 31} Upon review, we find the trial court erred in denying appellant's motion to

intervene.

{¶ 32} Assignment of Error I is granted. Assignments of Error II and III are moot. Muskingum County, Case No. CT2016-0051 16

{¶ 33} The judgment of the Court of Common Pleas of Muskingum County, Ohio

is hereby reversed, and the matter is remanded to said court for further proceedings

consistent with this opinion.

By Wise, Earle, J.

Gwin, P.J. and

Wise, John, J. concur.

EEW/sg 605