[Cite as Schlenker Ents., L.P. v. Reese, 2010-Ohio-5308.]
IN THE COURT OF APPEALS OF OHIO THIRD APPELLATE DISTRICT AUGLAIZE COUNTY
SCHLENKER ENTERPRISES, LP, PLAINTIFF-APPELLEE,
v.
DONALD K. REESE, ET AL., CASE NO. 2-10-16 DEFENDANTS-APPELLEES, -and-
MICHAEL J. STUBBS, DEFENDANT/THIRD-PARTY PLAINTIFF-APPELLANT, OPINION
IDC OHIO HOLDINGS, LLC, ET AL., THIRD-PARTY DEFENDANTS - APPELLEES.
DONALD K. REESE, ET AL., CASE NO. 2-10-19 DEFENDANTS-APPELLEES, -and-
MICHAEL J. STUBBS, DEFENDANT/THIRD-PARTY PLAINTIFF-APPELLANT, OPINION
IDC OHIO HOLDINGS, LLC, ET AL., THIRD-PARTY DEFENDANTS - APPELLEES. Case No. 2-10-16, 2-10-19
Appeals from Auglaize County Common Pleas Court Trial Court No. 08-CV-0044
Judgments Affirmed in Part, Reversed in Part and Cause Remanded
Date of Decision: November 1, 2010
APPEARANCES:
John A. Poppe for Appellant Michael J. Stubbs
Matthew J. Kentner for Appellee Schlenker Enterprises, LP
Eric K. Combs for Appellees IDC Holding and John Slack
Nelson Genshaft for Appellee Tom Slack
PRESTON, J.
{¶1} Defendant-appellant, Michael J. Stubbs (hereinafter “Stubbs”),
appeals the judgments of the Auglaize County Court of Common Pleas, which
granted partial summary judgment in favor of plaintiff-appellee, Schlenker
Enterprises (hereinafter “Schlenker”), and dismissed all of Stubbs’ claims under
the Ohio Corrupt Practices Act (hereinafter “OCPA”) against Schlenker and third-
party defendants-appellees, IDC Ohio Holdings, L.L.C. (hereinafter “IDC”), John
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Slack, and Tom Slack. For the reasons that follow, we affirm, in part, and reverse,
in part.
{¶2} Stubbs is the current tenant and operator of a Dairy Queen franchise
located in Wapakoneta, Ohio, on real estate that was originally owned by
Schlenker Enterprises. The issues in this appeal concern Stubbs’ liability for past
rent due to Schlenker, which was decided on a motion for partial summary
judgment; and Schlenker’s subsequent sale of its real estate and building to IDC
and the Slacks, which Stubbs claims was the result of a pattern of corrupt activity,
and which issues were decided through Civ.R. 12(B)(6) dismissals.
The Facts
{¶3} On October 18, 1993, Schlenker Enterprises executed a lease
agreement with defendants Donald and Paula Reese, in which Schlenker
Enterprises agreed to construct and lease a building to the Reeses for a period of
fifteen (15) years. In return, the Reeses agreed to only use the leased premises for
the operation of a Dairy Queen restaurant. The Reeses eventually executed a
franchise operating agreement with Dairy Queen, and they were given the right to
conduct a Dairy Queen business on the Schlenker’s premises. Additionally, on
May 27, 1994, the parties executed an addendum to the lease agreement where
they agreed to an increased monthly rent payment of $4,314.00 for the first two
years, and then $4,614.00 for the remainder of the lease.
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{¶4} On May 28, 1996, the Reeses, with Schlenker’s and Dairy Queen’s
approval, assigned their interests in the lease agreement and in the Dairy Queen
franchise operating agreement to defendant Stubbs. In the agreement, Stubbs
assumed and agreed to perform all of the obligations under the original lease
agreement (and subsequent addendum), and agreed to indemnify the Reeses in the
event that Stubbs failed to perform any of the original obligations.
{¶5} After the Reeses assigned their interests to Stubbs, Stubbs began
operating the Dairy Queen business and made his monthly rent payments
($4,614.00) to Schlenker. Everything proceeded smoothly until sometime in 1999
when it is undisputed that Stubbs began to get behind on his monthly rent
payments. It is also undisputed that instead of claiming the lease agreement in
default for Stubbs’ failure to pay rent, Schlenker worked with Stubbs and took
whatever Stubbs could give it as far as rent payments were concerned.
Nevertheless, Schlenker kept a record of Stubbs’ partial rent payments and tallied
the total amount he owed in past rent payments, which it periodically sent to
Stubbs and the Reeses.
{¶6} Ultimately, after several years of mounting back rent payments,
sometime in 2006, Stubbs and Schlenker discussed the possibility of selling their
respective interests (Stubbs’ interest in the Dairy Queen franchise, plus his
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equipment, and Schlenker’s real estate and building) to an outside third-party.1
Eventually, IDC, through its representatives John and Tom Slacks, expressed
interest in buying both the real estate and Stubbs’ equipment and franchise
agreement. IDC signed a letter of intent with Stubbs in which it expressed in
writing that it intended to buy the property and business for a total of $730,000.00,
apportioned as follows: $535,000.00 to Schlenker for the land and building, and
$195,000.00 to Stubbs for the Dairy Queen business. Moreover, IDC drafted,
signed, and gave to Stubbs a sales contract in which it again stated that IDC would
buy the property, building, and business for a total of $730,000.00, apportioned as
follows: $535,000.00 to Schlenker for the land and building, and $195,000.00 to
Stubbs for the Dairy Queen business.
{¶7} The parties’ dispute the specific facts as to what happened after
Stubbs obtained the letter of intent and purchase agreement from IDC.
Nevertheless, it is undisputed that on June 22, 2006, Schlenker sold its real estate
and building to IDC for $535,000.00 and assigned its leaseholder interest to IDC
on July 5, 2006. In addition, it is also undisputed that on July 5, 2006, the same
day it obtained Schlenker’s leaseholder interest, IDC sold the property to an
1 There is some debate as to whether Schlenker and Stubbs entered into an oral agreement in which they agreed to sell their respective interests together. Stubbs claims that he was given authority to act for Schlenker in terms of finding and negotiating a deal with a third-party buyer. However, Schlenker claims that it never gave Stubbs authority, but rather merely expressed that it would consider selling its interest if an opportunity presented itself.
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Oregon limited liability company, Timberline River Ranch, L.L.C., and Norman
and Roberta Pickett. It is clear that IDC did not purchase, and ultimately has
never purchased from Stubbs his Dairy Queen business assets. In addition, IDC
has never acquired the right to operate a Dairy Queen franchise on that property;
although Stubbs claims that IDC represented to Timberline and the Picketts that it
owned the Dairy Queen business assets and franchise operating agreement, and he
claims that IDC sold these assets and the franchise operating agreement to
Timberline River Ranch and the Picketts as well as the property.
Procedural History
{¶8} Procedurally, this case started on January 31, 2008, when Schlenker
filed suit against Stubbs for past due rent.2 Stubbs filed an answer and
counterclaim on March 18, 2008, denying the allegations made by Schlenker and
claiming that the parties had orally modified the lease agreement. In his
counterclaim, Stubbs asserted claims of breach of oral contract, unjust enrichment,
and fraud. On July 1, 2008, Schlenker filed a motion for summary judgment
against Stubbs, and Stubbs filed a motion for summary judgment against
2 We note that Schlenker also sued the Reeses for Stubbs’ past due rent under the provision of the assignment in which the Reeses agreed to remain liable under the terms of the original lease for any defaults committed up until June 1, 2001. The Reeses filed a cross-claim against Stubbs under the assignment’s indemnification provision. Ultimately, the trial court found that the Reeses were only responsible for the past due rent that was owed on the date of June 1, 2001, and while the trial court entered a judgment against the Reeses for that specified amount, it also granted a judgment for indemnification for the Reeses against Stubbs for that specified amount as well. The Reeses did not appeal, so their judgments are not at issue on this appeal.
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Schlenker, which he subsequently withdrew on September 30, 2008. During this
time, Stubbs also filed a motion to join IDC Ohio Holdings and filed a third-party
complaint on September 16, 2008.
{¶9} Ultimately, on October 23, 2008, the trial court granted Schlenker’s
motion for summary judgment finding that there were no genuine issues of
material fact and that Stubbs owed Schlenker past rent due.3 In addition, the trial
court allowed Stubbs to amend his counterclaim and third-party complaint.
{¶10} On December 12, 2008, Stubbs filed an amended counterclaim
against Schlenker and a third-party complaint against IDC, John Slack, and Tom
Slack.4 In his amended counterclaim, Stubbs asserted that Schlenker had
committed OCPA violations, had breached its fiduciary relationship with Stubbs,
had been unjustly enriched by its transaction with IDC, and had breached its
contract with him. In his third-party complaint, Stubbs alleged that IDC and the
Slacks had also committed OCPA violations, had been unjustly enriched, and
additionally sought punitive damages on the basis of their conduct.
3 We note that in its October 23, 2008 judgment entry the trial court failed to include Civ.R. 54(B) language, and because there were other claims pending, its entry was not a final, appealable order. However, in its March 3, 2010 judgment entry the trial court stated that as to Schlenker’s motion for summary judgment which it had granted on October 23, 2008, it “finds that said summary judgment of October 23, 2008, is a final judgment, as there is no just reason for delay.” (Mar. 3, 2010 JE). 4 Stubbs also filed a third-party complaint against David Berry, who also filed a counterclaim against Stubbs. Eventually, Berry and Stubbs entered into a stipulation dismissing all their claims against one another, with prejudice. The trial court issued a judgment entry recording the parties’ stipulation and dismissing their claims against one another with prejudice. (Mar. 12, 2010 JE).
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{¶11} Tom Slack filed a pro se answer to Stubbs’ third-party complaint. In
addition, IDC and John Slack filed a joint answer denying all of the allegations
made in Stubbs’ third-party complaint, and filed a counterclaim against Stubbs for
breach of contract as a result of Stubbs’ alleged failure to make timely rent
payments. Subsequently, IDC and John Slack, and eventually Schlenker, all filed
motions to dismiss the OCPA claims on the basis that Stubbs had failed to state a
claim upon which relief could be granted pursuant to Civ.R. 12(B)(6). Stubbs
thereafter filed a motion contra to all of the motions to dismiss.
{¶12} On December 24, 2009, the trial court granted Schlenker’s motion to
dismiss the OCPA claims pursuant to Civ.R. 12(B)(6). However, the trial court
allowed Stubbs time to amend his third-party complaint as to IDC and the Slacks
with respect to the OCPA violations, stating that his complaint needed to be pled
with more particularity with respect to the parties’ conduct that allegedly gave rise
to these violations. Stubbs filed his amended third-party complaints against IDC
and the Slacks, and in addition, filed an amended counterclaim against Schlenker
on March 1, 2010.
{¶13} Despite Stubbs’ amended third-party complaints and counterclaim,
on March 3, 2010, the trial court dismissed all of the OCPA claims as to all of the
parties (excluding Tom Slack, who at that time had yet to file a Civ.R. 12(B)(6)
motion). In its judgment entry, the trial court reasserted that any violations of the
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OCPA as asserted against Schlenker were dismissed because even if Schlenker
had known that the purchase money for the real estate “was derived from a pattern
of corrupt activity,” this was simply insufficient to state a cause of action pursuant
to R.C. 2923.32 and R.C. 2923.34. With respect to IDC and John Slack, the trial
court found that even construing the allegations most strongly in favor of Stubbs,
the OCPA claims could not stand because he had failed to allege how he directly
had been injured by IDC and John Slack’s pattern of corrupt activity.
{¶14} Subsequently, on March 23, 2010, Tom Slack filed a motion to
dismiss the OCPA claim pursuant to Civ.R. 12(B)(6), and the trial court, for the
exact same reasons that it had dismissed the OCPA claims against IDC and John
Slack (failure of Stubbs to allege an injury resulting from their pattern of corrupt
activity), likewise dismissed the OCPA claim against Tom Slack.
{¶15} Stubbs now appeals and raises five assignments of error for our
review.
ASSIGNMENT OF ERROR NO. I
THE TRIAL COURT ERRED IN GRANTING APPELLEE- PLAINTIFF SUMMARY JUDGMENT AGAINST APPELLANT.
{¶16} In his first assignment of error, Stubbs argues that the trial court
erred in granting Schlenker’s motion for summary judgment when there were
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genuine issues of material fact regarding whether Schlenker had waived its right to
collect any past due rent.
{¶17} We review a decision to grant summary judgment de novo. Doe v.
Shaffer (2000), 90 Ohio St.3d 388, 390, 738 N.E.2d 1243. Under this standard of
review, we review the appeal independently, without any deference to the trial
court. Conley-Slowinski v. Superior Spinning & Stamping Co. (1998), 128 Ohio
App.3d 360, 363, 714 N.E.2d 991. A motion for summary judgment will be
granted only when the requirements of Civ.R. 56(C) are met. Thus, the moving
party must show: (1) that there is no genuine issue of material fact, (2) that the
moving party is entitled to judgment as a matter of law, and (3) that reasonable
minds can reach but one conclusion when viewing the evidence in favor of the
non-moving party, and the conclusion is adverse to the non-moving party. Civ.R.
56(C); State ex rel. Cassels v. Dayton City School Dist. Bd. of Edn. (1994), 69
Ohio St.3d 217, 219, 631 N.E.2d 150.
{¶18} The party asking for summary judgment bears the initial burden of
identifying the basis for its motion in order to allow the opposing party a
“meaningful opportunity to respond.” Mitseff v. Wheeler (1988), 38 Ohio St.3d
112, 116, 526 N.E.2d 798. The moving party must also demonstrate the absence
of a genuine issue of material fact as to an essential element of the case. Dresher
v. Burt (1996), 75 Ohio St.3d 280, 292, 662 N.E.2d 264. Then the moving party
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must demonstrate that they are entitled to summary judgment as a matter of law, at
which time, the burden then shifts to the non-moving party to produce evidence on
any issue which that party bears the burden of production at trial. Deutsche Bank
Trust Co. v. McCafferty, 3d Dist. No. 1-07-26, 2008-Ohio-520, ¶9, citing
Civ.R.56(E).
{¶19} Here, Schlenker filed a motion for summary judgment claiming that
it was entitled to back rent from Stubbs in the amount of $111,028.81 as a matter
of law. The trial court agreed and found that, based on the language of the lease
agreement, the addendum, and the assignment, it was clear that Stubbs had an
obligation to make monthly rent payments to Schlenker and that Schlenker had a
right to collect the past due rent Stubbs owed it. We agree.
{¶20} The original lease signed by the Reeses and Schlenker specifically
provided that:
In the event Lessee shall be in default with respect to any of the Lessee’s covenants or obligations under this Lease, including the payment of rent, Lessor shall give written notice thereof to Lessee. If Lessee shall fail to cure such default within thirty (30) days from the receipt of such notice, or if the default is of such character as to require more than thirty (30) day period, commenced with reasonable diligence to remedy the default, then Lessor may, at its option, terminate this Lease by written notice to Lessee.
(Plaintiff’s Ex. 1). In addition, the lease went on to provide that:
The failure of either Lessor or Lessee to insist upon a strict and prompt performance of any of the covenants and conditions of
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this Lease to be performed by the other party shall not be construed as a waiver or relinquishment of the future right to insist upon performance of such covenants and conditions by such other party, but such right shall remain in full force and effect.
(Id.). Moreover, the assignment, which was signed by Stubbs, the Reeses, and
Schlenker, specifically stated that “[a]ssignee accepts this assignment and assumes
and agrees to perform all of the obligations of Assignors arising or accruing under
this Lease on or after the date of this Agreement.” (Plaintiff’s Ex. 4). One of the
obligations Stubbs agreed to assume and perform was the obligation to pay
Schlenker monthly rent payments in the amount of $4,614.00, which he failed to
do consistently for the leasehold period. Rather than suing Stubbs immediately for
past rent due, Schlenker decided to work with Stubbs and took what Stubbs could
give as far as rent. However, Schlenker’s right to collect past due rent pursuant to
the terms of the lease agreement remained in full force and effect despite the fact
that Schlenker failed to sue Stubbs immediately.
{¶21} Nevertheless, on appeal Stubbs claims that there were genuine issues
of material fact as to whether Schlenker had waived its right to seek back rent
payments from him directly. In particular, Stubbs claims that when Schlenker
transferred its leaseholder’s interest over to IDC, it worked out a deal with IDC in
which instead of giving Stubbs the entire amount of the purchase money, IDC
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would instead give Schlenker $111,028.81 of the purchase money owed to Stubbs,
which represented the amount Stubbs owed Schlenker in back rent.
{¶22} We note that below Stubbs only argued that he and Schlenker had
“orally modified” the lease agreement and did not specifically raise the issue of
waiver arising as a result of Schlenker and IDC’s transaction. As such, we find
that Stubbs has waived this argument by failing to raise it in the trial court.
Dibert v. Watson, 3d Dist. No. 8-09-02, 2009-Ohio-2098, ¶15, citing State ex re.
Zollner v. Indus. Comm. (1993), 66 Ohio St.3d 276, 278, 611 N.E.2d 830.
Nonetheless, even if we were to find that Stubbs has not waived the issue, we find
that there are no genuine issues of material fact regarding whether Schlenker had
waived its right to collect past due rent directly from Stubbs, because even
considering the evidence in a light most favorable to Stubbs, it is clear that
Schlenker never waived its right to sue Stubbs directly for past rent due.
{¶23} The particular section of the purchase agreement between IDC and
Schlenker that Stubbs cites to in support of his argument specifically provided:
Past due account. Purchaser acknowledges that Seller has notified them that Mike Stubbs, (dba Wapakoneta Dairy Queen), has a past due account of approximately $111,000.00 and has agreed to have this amount paid directly to Schlenker Enterprises LP by the Purchaser from the proceeds due to them from the sale of the operating assets. Seller will forward an updated statement of account to Purchaser at the closing. This amount is to be paid at the later closing with Mike Stubbs and deducted from the Stubbs proceeds.
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(Plaintiff’s Ex. 5). In addition, Stubbs claims that even Philip Schlenker believed
that Schlenker and Stubbs had had a deal in which they would both sell their
respective interests to IDC, and Schlenker would then collect the back rent from
Stubbs’ portion of the sale proceeds. At his deposition, Philip Schlenker
acknowledged that he and Stubbs had agreed to work together to sell both the
business and the real estate together, and that such a deal would result in
Schlenker getting paid back whatever lease money it was owed. (Schlenker Dep.
at 31). Stubbs claims that this provision in its purchase agreement with IDC,
along with Philip Schlenker’s personal understanding that Schlenker would get
paid by IDC when IDC bought out Stubbs, raises a question of fact as to whether
Schlenker waived its right to go after Stubbs directly for past due rent. We
disagree.
{¶24} It is very clear Schlenker never waived its right to sue Stubbs
directly for past rent due. All the provision in the real estate agreement and Philip
Schlenker’s testimony illustrate is Schlenker’s attempt at guaranteeing its payment
for the past due rent owed to it by Stubbs. Despite Stubbs’ arguments to the
contrary, this arrangement was merely an alternative payment plan that was solely
conditioned on IDC purchasing Stubbs’ assets, which for whatever reason, never
occurred. It in no way amounted to a waiver of its right to collect past rent due
from Stubbs directly. In fact, Schlenker’s arrangement with IDC just further
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demonstrates that Schlenker never had any intention of waiving its right to collect
the past due rent. Therefore, we find that the trial court did not err in granting
summary judgment to Schlenker against Stubbs for the amount of the past rent due
because there was no genuine issue of material fact as to whether Stubbs owed
Schlenker past due rent.
{¶25} Stubbs’ first assignment of error is, therefore, overruled.
ASSIGNMENT OF ERROR NO. II
THE TRIAL COURT ERRED IN THE OHIO CIVIL RULE 12(B)(6) DISMISSAL
ASSIGNMENT OF ERROR NO. III
THE TRIAL COURT ERRED BY FINDING THAT THE PLAINTIFF IN COUNTER-CLAIM HAD NO DAMAGES FROM THE PATTERN OF CORRUPT ACTIVITY SIMPLY BECAUSE HE WAS NOT THE TARGET
{¶26} In his second and third assignments of error, Stubbs argues that the
trial court erred in dismissing his OCPA claims against Schlenker, IDC, and the
Slacks on the basis that his complaint and counterclaim failed to state claims upon
which relief could be granted under Civ.R. 12(B)(6).
{¶27} “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.” State ex
rel. Hanson v. Guernsey Cty. Bd. of Commrs. (1992), 65 Ohio St.3d 545, 548, 605
N.E.2d 378, citing Assn. for the Defense of the Washington Local School Dist. v.
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Kiger (1989), 42 Ohio St.3d 116, 117, 537 N.E.2d 1292. For that reason, a trial
court may not rely upon evidence or allegations outside the complaint when ruling
on a Civ.R. 12(B)(6) motion. State ex rel. Fuqua v. Alexander (1997), 79 Ohio
St.3d 206, 207, 680 N.E.2d 985. “Dismissals under Civ.R. 12(B)(6) are proper
where the language of the writing is clear and unambiguous.” Keenan v. Adecco
Employment Services, Inc., 3d Dist. No. 1-06-10, 2006-Ohio-3633, ¶9.
{¶28} To sustain a Civ.R. 12(B)(6) dismissal, “it must appear beyond
doubt that the plaintiff can prove no set of facts in support of the claim that would
entitle the plaintiff to relief.” LeRoy v. Allen, Yurasek, & Merklin, 114 Ohio St.3d
323, 2007-Ohio-3608, 872 N.E.2d 254, ¶14, citing Doe v. Archdiocese of
Cincinnati, 109 Ohio St.3d 491, 2006-Ohio-2625, 849 N.E.2d 268, ¶11.
Additionally, the complaint’s allegations must be construed as true, and any
reasonable inferences must be construed in the nonmoving party’s favor. Id.,
citing Maitland v. Ford Motor Co., 103 Ohio St.3d 463, 2004-Ohio-5717, 816
N.E.3d 1061, ¶11; Kenty v. Transamerica Premium Ins. Co. (1995), 72 Ohio St.3d
415, 418, 650 N.E.2d 863.
{¶29} When reviewing a Civ.R. 12(B)(6) decision, this Court must
determine whether the complaint’s allegations constitute a statement of a claim
under Civ.R. 8(A). Keenan, 2006-Ohio-3633, at ¶7. “All that the civil rules
require is a short, plain statement of the claim that will give the defendant fair
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notice of the plaintiff’s claim and the grounds upon which it is based.” Patrick v.
Wertman (1996), 113 Ohio App.3d 713, 716, 681 N.E.2d 1385, citing Kelly v. E.
Cleveland (Oct. 28, 1982), 8th Dist. No. 44448. See, also, Civ.R. 8(A)(1). When
filing a claim pursuant to Civ.R. 8(A), “[a] party is not required to “plead the legal
theory of recovery”; furthermore, “a pleader is not bound by any particular theory
of a claim but that the facts of the claim as developed by the proof establish the
right to relief.” Illinois Controls, Inc. v. Langham (1994), 70 Ohio St.3d 512, 526,
639 N.E.2d 771. Indeed, “that each element of [a] cause of action was not set
forth in the complaint with crystalline specificity” does not render it fatally
defective and subject to dismissal. Border City Sav. & Loan Ass’n v. Moan
(1984), 15 Ohio St.3d 65, 66, 472 N.E.2d 350. See, also, Parks v. Parks (Mar. 5,
1998), 3d Dist No. 1-97-60, at *2. However,
the complaint must contain either direct allegations on every material point necessary to sustain a recovery on any legal theory, even though it may not be the theory suggested or intended by the pleader, or contain allegations from which an inference fairly may be drawn that evidence on these material points will be introduced at trial.
Fancher v. Fancher (1982), 8 Ohio App.3d 79, 83, 455 N.E.2d 1344, citing 5
Wright & Miller, Federal Practice & Procedure: Civil (1969), at 120-123, Section
1216.
{¶30} This Court reviews de novo a trial court’s decision to grant or deny a
Civ.R. 12(B)(6) motion. RMW Ventures, L.L.C. v. Stover Family Invest., L.L.C.,
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161 Ohio App.3d 819, 2005-Ohio-3226, 832 N.E.2d 118, ¶8, citing Hunt v.
Marksman Prod. (1995), 101 Ohio App.3d 760, 762, 656 N.E.2d 726. This Court
may substitute, without deference, its judgment for that of the trial court when
reviewing de novo. Castlebrook, Ltd. v. Dayton Properties Ltd. Partnership
(1992), 78 Ohio App.3d 340, 346, 604 N.E.2d 808.
{¶31} Here, Stubbs alleged in his complaints that Schlenker, IDC, and the
Slacks had, in some manner, committed OCPA violations, pursuant to R.C.
2923.32 et seq. The OCPA was modeled on the federal Racketeer Influenced and
Corrupt Organizations Act (“RICO”), Section 1961, Title 18, U.S. Code.
Generally, as part of the OCPA, R.C. 2923.32(A), makes it unlawful for any
person employed by or associated with any enterprise to “conduct or participate in,
directly or indirectly, the affairs of the enterprise through a pattern of corrupt
activity or the collection of an unlawful debt.” R.C. 2923.33 grants a civil remedy
to a person injured or threatened with injury by a violation of R.C. 2923.32. In
order to allege a civil claim under the OCPA, generally a plaintiff must allege with
specificity:
(1) that conduct of the defendant involves the commission of two or more specifically prohibited state or federal criminal offenses, (2) that the prohibited criminal conduct of the defendant constitutes a pattern of corrupt activity, and (3) that the defendant has participated in the affairs of an enterprise or has acquired and maintained an interest in or control of an enterprise.
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Kondrat v. Morris (1997), 118 Ohio App.3d 198, 209, 692 N.E.2d 246, citing
Universal Coach, Inc. v. New York City Transit Auth., Inc. (1993), 90 Ohio
App.3d 284, 291, 629 N.E.2d 28. However, “failure of a plaintiff to plead any of
the elements necessary to establish a RICO violation results in a defective
complaint which cannot withstand a motion to dismiss as based upon a failure to
state a claim upon which relief can be granted.” Universal Coach, Inc., 90 Ohio
App.3d at 291.
{¶32} We note that the trial court dismissed the OCPA claims with respect
to Schlenker for a different reason than with respect to IDC and the Slacks.
Therefore, we will address each of the Civ.R. 12(B)(6) dismissals separately.
{¶33} Nevertheless, our review of the record demonstrates that Stubbs’
third-party complaint and amended counterclaim alleged the same following set of
facts: that he and Schlenker were tenant and landlord, respectively, of a building in
which he operated a licensed franchise of Dairy Queen; that Stubbs’ was the
owner of the Dairy Queen business assets at that location; that he and Schlenker
had entered into some kind of an oral contract in which they agreed to sell both the
real estate and the business assets of Stubbs’ business together to an outside third-
party; that Stubbs found IDC and the Slacks and began negotiating the sale of the
real estate and the business assets on behalf of himself and Schlenker; that Stubbs
signed a “Letter of Intent to Purchase’ submitted to him by IDC through its agent
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Tom Slack on or about March 29, 2006; that Stubbs learned of problems with IDC
through his negotiations; that Stubbs did not sign the ‘Purchase & Sales
Agreement’ signed by Tom Slack on behalf of IDC dated May 30, 2006, tendered
by IDC through its agent Tom Slack; that Schlenker proceeded to sell its real
estate to IDC separately; that IDC immediately sold the real estate to another
investor for an amount much greater than what IDC had paid to Schlenker; that
IDC’s scheme was to hold out properties to prospective investors as if IDC was
the franchise owner of Dairy Queen, as if they owned the properties before they
did, and as if the investors would be able to own the operating Dairy Queen
franchise when Dairy Queen had not approved such transactions and ‘was not
allowing the franchise to be transferred’; that the buyers of the real estate from
IDC were led to believe that IDC also owned the business assets belonging to
Stubbs even though they had never purchased such business assets; that the
investors were the ones who were directly injured by IDC and the Slacks’ pattern
of corrupt activity. (Dec. 17, 2008 Counterclaim & Third-Party Complaint at 10);
(Mar. 1, 2010 Amended Counterclaim and Third-Party Complaint).
Schlenker
{¶34} On December 24, 2009, the trial court issued a judgment entry
dismissing the OCPA claim against Schlenker finding that Stubbs had failed to
allege with particularity “all three prongs of [the] test,” and as such, found that
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there were not sufficient pleadings to support an OCPA claim against Schlenker.
(Dec. 24, 2009 JE at 2). Consequently, Stubbs attempted to file an amended
counterclaim against Schlenker, on March 1, 2010. In its March 3, 2010 judgment
entry, the trial court noted that it had already granted a motion to dismiss as to all
claims arising under OPCA alleged against Schlenker. (Mar. 3, 2010 JE at 2).
Nevertheless, the trial court still addressed Stubbs’ amended counterclaim, and
ultimately found that he had once again failed to allege all of the elements for a
OCPA cause of action under R.C. 2923.32(A)(3). (Id.). We agree.
{¶35} First of all, we note that it is difficult to determine what specific
causes of action Stubbs is alleging against Schlenker. Nevertheless, our review of
the record demonstrates that Stubbs’ counterclaim alleged the following:
“Schlenker’s conduct violated Ohio Revised Code §2923.32 by receiving proceeds
derived directly or indirectly from an enterprise which conducted criminal activity,
to wit, theft by deception, and by said deception took control of property beyond
the scope of authority or implied authority of Stubbs.” (Dec. 17, 2008
Counterclaim & Third-Party Complaint at 10). Furthermore, Stubbs’ amended
counterclaim goes on to allege: “Specifically Ohio Revised Code §2923.32(A)(3)
which does not require that the person be a participant in the conspiracy, rather
just requires that the person received proceeds derived directly or indirectly from a
pattern of corrupt activity.” (Mar. 1, 2010 Amended Counterclaim). As a result,
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taking all of Stubbs’ allegations as true and construing all inferences in his favor,
the only OCPA cause of action this Court can determine from Stubbs’ pleadings is
a claim pursuant to R.C. 2923.32(A)(3).5 However, a review of the record
demonstrates that Stubbs’ counterclaim only alleged that Schlenker was
“knowingly receiving money derived from a pattern of corrupt activity, when it
sold its real estate to IDC knowing that it was engaging in a pattern of corrupt
activity.” R.C. 2923.32(A)(3) states that:
No person, who knowingly has received any proceeds derived, directly or indirectly, from a pattern of corrupt activity or the collection of any unlawful debt, shall use or invest, directly or indirectly, any part of those proceeds, or any proceeds derived from the use or investment of any of those proceeds, in the acquisition of any title to, or any right, interest, or equity in, real property or in the establishment or operation of any enterprise.
(emphasis added). Thus, even when taking all of Stubbs’ allegations as true and
construing all inferences in his favor, it is clear that Stubbs’ failed to allege with
particularity a cause of action for R.C. 2923.32(A)(3). Nowhere in Stubbs’
amended counterclaim does he allege that Schlenker used or invested those
proceeds in the acquisition of any title to real estate or the operation of any
enterprise. Just knowingly receiving proceeds from a pattern of corrupt activity is
5 At oral arguments, Stubbs’ counsel stated that they had only alleged that Schlenker had conspired to engage in a corrupt activity with IDC and the Slacks pursuant to the separate conspiracy statute. However, as we will discuss below in his fifth assignment of error, Stubbs’ counterclaim failed to assert a conspiracy allegation. Rather, based on his pleadings, this Court can only find that Stubbs’ counterclaim attempted to raise a R.C. 2923.32(A)(3) cause of action against Schlenker.
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not sufficient to give rise to a cause of action under R.C. 2923.32(A)(3). The
plaintiff must allege that that party actually used or invested those proceeds in the
acquisition of title, right, interest or equity in real estate or in the establishment or
operation of any enterprise. Therefore, we find that the trial court did not err in
dismissing the OCPA claim against Schlenker since Stubbs’ failed to allege all of
the elements for an OCPA cause of action.
IDC and the Slacks
{¶36} In his December 17, 2008 third-party complaint, Stubbs alleged that
IDC and the Slacks had violated OCPA by engaging in “acts of mail fraud, wire
fraud, and criminal infringement of a copyright in regards to the sale and re-
leasing of the DQ Properties.” (Dec. 17, 2008 Counterclaim & Third-Party
Complaint at 15). On December 24, 2009, the trial court noted in its judgment
entry that while the pleadings did put the defendants on notice as to which
criminal violations they were accused of committing, the pleadings failed to allege
with particularity what conduct of the defendants amounted to mail fraud, wire
fraud, criminal infringement of a copyright. (Dec. 24, 2009 JE). As a result, the
trial court granted Stubbs leave to amend his complaint as to those defendants, and
warned him that “[f]ailure to set forth with particularity such matters as are
vaguely referred to in the Complaint will result in the Court issuing a decision
consistent with this opinion.” (Id. at 2).
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{¶37} Accordingly, Stubbs filed an amended third-party complaint against
IDC and the Slacks on March 1, 2010. Nevertheless, on March 3, 2010, the trial
court dismissed the OCPA claims against IDC and John Slack pursuant to Civ.R.
12(B)(6) for failure to state a claim on which relief can be granted, and similarly
dismissed the OCPA claims against Tom Slack on March 23, 2010. Even though
it had given Stubbs time to amend his complaint to further specify the particular
conduct that IDC and the Slacks had allegedly committed, the trial court
ultimately found that Stubbs had failed to allege how he had been injured by IDC
and the Slacks’ wrongful conduct under OCPA. (Mar. 3, 2010 JE at 3-5), (Mar.
23, 2010 JE). Consequently, because Stubbs had failed to allege facts showing
how he had standing to bring the claim, the trial court dismissed the OCPA claims
against IDC and the Slacks pursuant to Civ.R. 12(B)(6). We agree.
{¶38} Taking all of Stubbs’ allegations as true and construing all
inferences in his favor, all Stubbs alleged was that IDC and the Slacks engaged in
a pattern of corrupt activity that resulted in injuries to investors who had
purchased properties from IDC. A civil OCPA claim only can be brought by
persons who are injured or threatened with injury from an OCPA violation.
Samman v. Nukta, 8th Dist. No. 85739, 2005-Ohio-5444, ¶26 (“Appellant was not
injured or threatened with injury by this activity, so he cannot maintain a civil
RICO claim on this basis”); U.S. Demolition & Contracting, Inc. v. O’Rourke
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Constr. Co. (1994), 94 Ohio App.3d 75, 85-86, 640 N.E.2d 235 (affirming the
dismissal of OCPA claims that failed to allege injury). On the face of his third-
party complaint, Stubbs only alleged that IDC and the Slacks had defrauded
“unsuspecting investors” into buying Dairy Queen properties, business assets, and
franchises that they did not own. Because he failed to show how he had been
injured from the OCPA violations, the trial court was correct in dismissing his
OCPA claims against IDC and the Slacks for lack of standing.
{¶39} Overall, we find that the trial court was correct to dismiss the OCPA
claims against Schlenker, IDC, and the Slacks pursuant to Civ.R. 12(B)(6),
because for the reasons stated above Stubbs failed to state claims upon which
relief could be granted.
{¶40} Stubbs’ second and third assignments of error are, therefore,
overruled.
ASSIGNMENT OF ERROR NO. IV
THE TRIAL COURT ERRED IN TREATING THE OHIO CIVIL RULE 12(B)(6) DISMISSAL TO BE ON THE MERITS.
{¶41} In his fourth assignment of error, Stubbs claims that the trial court
erred by treating the Civ.R. 12(B)(6) dismissals as “with prejudice,” or on the
merits, as opposed to “without prejudice,” or not on the merits.
{¶42} In this particular case, the trial court was silent as to whether the
Civ.R. 12(B)(6) dismissals were with or without prejudice. However, while the
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trial court’s ruling did not specify whether the dismissals were with prejudice, “[a]
trial court’s silence as to the effect of a dismissal is treated as a ruling that the
dismissal is with prejudice.” Ballreich Bros., Inc. v. Criblez (July 12, 2010), 3d
Dist. No. 5-09-36, 2010-Ohio-3263, ¶8 fn.3, quoting Parker v. Giant Eagle, Inc.,
7th Dist. No. 01 C.A. 174, 2002-Ohio-5212, ¶37, citing Civ.R. 41(B)(3). As such,
we must determine whether the trial court erred in treating any of the Civ.R.
12(B)(6) dismissals as being on the merits.
{¶43} With respect to Schlenker, we believe that the trial court’s dismissal
should have been treated as being without prejudice. “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.” State ex rel. Hanson v. Guernsey Cty. Bd. of
Commrs. (1992), 65 Ohio St.3d 545, 548, 605 N.E.2d 378, citing Assn. for the
Defense of the Washington Local School Dist. v. Kiger (1989), 42 Ohio St.3d 116,
117, 537 N.E.2d 1292. Moreover, this Court just recently found that a trial court’s
Civ.R. 12(B)(6) dismissal for a plaintiff’s failure to allege with particularity a
negligence cause of action against the defendants should have been treated as a
dismissal without prejudice, because we found that the claim could have
presumably been pleaded in a way that did state a cause of action for relief.
Ballreich Bros., Inc., 2010-Ohio-3263, at ¶¶12-13.6 Similarly, Stubbs failed to
6 We note that judges from the 2nd District Court of Appeals were sitting by assignment on this case.
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allege with particularity all of the elements of an OCPA cause of action against
Schlenker. Presumably, Stubbs could plead the OCPA cause of action in another
way that does state a claim for relief. As such, the trial court’s dismissal should
have been without prejudice insofar as its dismissal concerned failing to allege
with particularity all of the elements of an OCPA cause of action.
{¶44} We also find that the trial court’s Civ.R. 12(B)(6) dismissals against
IDC and the Slacks should have been without prejudice as well. Generally, a
dismissal that is premised on jurisdiction “operate[s] as a failure other than on the
merits” and should be a dismissal without prejudice. Wells Fargo Bank, N.A. v.
Byrd, 178 Ohio App.3d 285, 2008-Ohio-4603, 897 N.E.2d 722, ¶18, citing Civ.R.
41(B)(4). A dismissal of an action because one of the parties does not have
standing is not a dismissal on the merits. Id., citing State ex rel. Coles v.
Granville, 116 Ohio St.3d 231, 2007-Ohio-6057, 877 N.E.2d 968, ¶51. As a
result, the Civ.R. 12(B)(6) dismissals against IDC and the Slacks were not
dismissals on the merits insofar as the trial court’s dismissals concerned Stubbs’
failure to demonstrate how he had standing to bring an OCPA action against IDC
and the Slacks.
{¶45} Therefore, while we agree that the trial court was correct in
dismissing the OCPA claims in Stubbs’ third-party complaint and counterclaim
against Schlenker, IDC, and the Slacks for failing to state claims upon which relief
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could be granted, the ultimate reasons for dismissing those OCPA claims were
procedural in nature (i.e., standing and failing to allege with particularity), and as
such, they should have been considered as dismissals without prejudice.
{¶46} Stubbs’ fourth assignment of error is, therefore, sustained.
ASSIGNMENT OF ERROR NO. V
THE COURT FAILED TO CONSIDER THAT APPELLEE/PLAINTIFF COMMITTED CONSPIRACY TO COMMIT A PATTERN OF CORRUPT ACTIVITY
{¶47} In his fifth assignment of error, Stubbs claims that the trial court
erred by failing to consider his conspiracy claim against Schlenker pursuant to
R.C. 2923.01(A)(1). Stubbs claims that he had alleged in his counterclaim that
Schlenker had committed conspiracy to commit a pattern of corrupt activity. In
particular, Stubbs claims that he had alleged this conspiracy claim in his
counterclaim when he alleged that Schlenker had conspired “with IDC in the scam
by selling its real estate knowing it was to be used by IDC in a questionable
business practice,” pursuant to R.C. 2923.01(A)(1). (Appellant’s Brief at 13). As
a result, Stubbs claims that the trial court’s dismissal of his OPCA claims against
Schlenker was in error.
{¶48} First of all, as we noted above, it is extremely difficult to determine
what exactly Stubbs alleged in his counterclaim and amended counterclaim against
Schlenker. Nevertheless, after reviewing Stubbs’ counterclaim and his subsequent
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amended counterclaim, this Court cannot find any allegations of conspiracy
against Schlenker. From what can be gathered from Stubbs’ pleadings, the only
OCPA theory he raised against Schlenker was pursuant to R.C. 2923.32(A)(3),
which as discussed above was not pled with particularity. “‘A complaint has an
obligation to assert all theories of recovery for a single debt owed in the same
cause of action. Failure to do so results in that remedy being forever waived.’”
Maverick Oil & Gas, Inc. v. Barberton City School Dist. Bd. of Edn., 171 Ohio
App.3d 605, 2007-Ohio-1682, 872 N.E.2d 322, ¶23, quoting Fort Jennings State
Bank v. Roof (Aug. 2, 1988), 3d Dist. No. 12-86-5, at *4. While the trial court did
not consider the claim of conspiracy to commit a pattern of corrupt activity, it was
not required to consider the claim as it was not adequately raised by Stubbs in his
pleadings.
{¶49} Furthermore, we note that Stubbs’ amended counterclaim in fact
directly contradicts his argument that he had alleged a conspiracy theory against
Schlenker:
39. Stubbs does not assert that he has a claim against Schlenker as a co-conspirator of an Ohio Pattern of Corrupt activity. However, the following first Claim is asserted as it is not relevant to the RICO charge for which the Court granted summary judgment in its Entry, dated December 21, 2009.
(Mar. 1, 2010 Amended Counterclaim and Third-Party Complaint at 11).
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{¶50} Therefore, based on the above, we find that the trial court did not err
when it failed to consider Stubbs’ allegations that Schlenker had conspired to
commit a pattern of corrupt activity since Stubbs failed to adequately allege a
separate conspiracy claim against Schlenker.
{¶51} Stubbs’ fifth assignment of error is, therefore, overruled.
{¶52} Having found no error prejudicial to the appellant herein in the
particulars assigned and argued with respect to appellant’s first, second, third, and
fifth assignments of error, we affirm the judgments of the trial court as it pertains
to those assignments of error. However, having found error prejudicial to the
appellant herein in the particulars assigned and argued with respect to appellant’s
fourth assignment of error, we reverse the judgments of the trial court as it pertains
to that assignment of error and remand for further proceedings consistent with this
opinion.
Judgments Affirmed in Part, Reversed in Part and Cause Remanded
WILLAMOWSKI, P.J. and SHAW, J., concur.
/jlr
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