U.S. Bank Natl. Assn. v. MMCO, L.L.C.

2021 Ohio 4605, 183 N.E.3d 499

• Court: Ohio Court of Appeals
• Decided: December 30, 2021
• Docket: 110246
• Status: Published

Opinion

[Cite as U.S. Bank Natl. Assn. v. MMCO, L.L.C., 2021-Ohio-4605.]

COURT OF APPEALS OF OHIO

EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA

U.S. BANK NATIONAL ASSOCIATION, : AS TRUSTEE, : Plaintiff-Appellee, : No. 110246 v. : MMCO, L.L.C., ET AL., : Defendant-Appellant.

JOURNAL ENTRY AND OPINION

JUDGMENT: AFFIRMED IN PART, REVERSED IN PART, AND REMANDED RELEASED AND JOURNALIZED: December 30, 2021

Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-16-865052

Appearances:

Calfee, Halter & Griswold L.L.P., Christopher S. Williams, Ronald M. McMillan, and Xin Wen, for appellee.

Porter, Wright, Morris & Arthur, L.L.P., Jeremy A. Mercer, L. Bradfield Hughes, and Syed Ahmadul Huda, for appellants.

MARY J. BOYLE, A.J.:

This case began as a foreclosure action involving the Rose Building, a

381,176-square-foot commercial office building on East 9th Street in Cleveland, Ohio. Medical Mutual of Ohio, the sole tenant of the Rose Building, intervened and

brought numerous claims against three individuals and their various corporate

entities. The foreclosure claim has been resolved, and this appeal involves Medical

Mutual’s claims.

Crossclaim-defendants-appellants (the GFW Trust and MMCO,

L.L.C.) and third-party-defendants-appellants (BFG Holdings 2000, L.L.C.; the

Bentley Forbes Group, L.L.C.; the GFW II Trust; C. Frederick Wehba (“Wehba Sr.”);

Susan D. Wehba (“Ms. Wehba”); and C. Frederick Wehba II (“Wehba Jr.”)) appeal

the trial court’s orders (1) granting summary judgment in favor of Medical Mutual

for fraud, piercing the corporate veil, and Wehba Jr.’s individual liability, (2)

granting Medical Mutual leave to file a summary judgment motion against Wehba

Jr. in his individual capacity, and (3) striking their cross-motion for summary

judgment regarding Wehba Jr.’s individual liability.1 The appellants (collectively,

the “Wehba defendants”) raise four assignments of error for our review:

1. The trial court erred in granting summary judgment to Medical Mutual and denying Appellants’ motion for summary judgment on Medical Mutual’s fraud claim.

2. The trial court improperly pierced the corporate veil because it imposed an adverse inference and applied collateral estoppel instead of applying the Belvedere/Dombrowski three-prong test.

3. The trial court erred in granting Medical Mutual’s motion for leave to file a summary judgment motion against Wehba, Jr. in his individual

1The other parties previously involved in this case were U.S. Bank NA, the Ohio Department of Jobs and Family Services, the Cuyahoga County Treasurer, and Mitsuwa Corporation. These parties are not involved in this appeal. capacity, and further erred in granting the summary-judgment motion in finding Wehba, Jr. individually liable.

4. The trial court erred in striking Wehba, Jr.’s cross-motion for summary judgment and declining to enter judgment in favor of Wehba, Jr..

Finding merit to the first assignment of error, we affirm in part and

reverse in part the trial court’s judgments.

I. Procedural History and Factual Background

In June 2016, U.S. Bank NA filed a foreclosure complaint against

MMCO, the GFW Trust, the Ohio Department of Jobs and Family Services, Mitsuwa

Corporation, and the Cuyahoga County Treasurer. U.S. Bank alleged that in 2005,

MMCO entered a commercial loan with Bank of America for $52,715,219 to

purchase the Rose Building from Medical Mutual. To guarantee MMCO’s payment

of the note, the GFW Trust joined MMCO in executing a loan agreement and

guaranty. The complaint states that Bank of America assigned the loan documents

to Wells Fargo Bank, N.A., who assigned them to U.S. Bank.

U.S. Bank alleged that the loan matured on January 1, 2016, and the

entire balance of the loan became “fully due and payable.” U.S. Bank alleged that

MMCO and the GFW Trust had defaulted on the loan and, as of May 1, 2016, they

owed the principal amount of $47,370,663.31, plus interest, default interest, late

fees, document preparation fees, special servicing fees, attorney fees, “and other

amounts” under the loan documents. U.S. Bank also alleged that MMCO violated

the terms of the loan documents by (1) replacing MMCO’s manager, (2) transferring

100 percent of MMCO’s membership interests in itself to “various” other trusts and limited liability companies, and (3) granting an interest in the Rose Building to

defendant Mitsuwa Corporation, a California company.

U.S. Bank brought claims for (1) the amounts due under the note

against both MMCO and the GFW Trust as the guarantor, (2) foreclosure, (3) the

assignment of rents that MMCO had been collecting, (4) an accounting for all rental

payments that MMCO had collected after it defaulted on the loan, and (5) conversion

for the rents that MMCO had collected and distributed to other entities. U.S. Bank’s

requested relief included (1) amounts due under the loan, (2) a declaratory judgment

that U.S. Bank had a first-priority lien after the Cuyahoga County Treasurer, and (3)

that the court appoint a receiver to collect all rents. The trial court referred the case

to a magistrate, who scheduled a hearing regarding the appointment of a receiver.

The following month, Medical Mutual filed a motion to intervene as a

defendant in the action and for leave to file (1) an answer to U.S. Bank’s complaint,

(2) a counterclaim against U.S. Bank, (3) a crossclaim against MMCO and the GFW

Trust, and (3) a third-party complaint against BFG Holdings, the Bentley Forbes

Group, the GFW II Trust, Wehba Sr., Ms. Wehba individually and as a co-trustee of

the GFW and GFW II Trusts, and Wehba Jr. individually and as a co-trustee of the

GFW and GFW II Trusts. Medical Mutual argued that the court should allow it to

intervene because it should “be permitted to refrain” from making rent payments to

a receiver and instead pay rent to the court or another account. Medical Mutual

maintained that MMCO and its “alter-egos and affiliates” had defrauded Medical

Mutual and owe Medical Mutual over $4 million. Medical Mutual attached to its motion to intervene a copy of its

combined counterclaim, crossclaim, and third-party complaint. Medical Mutual

alleged that in 2000, it engaged in a “sale-leaseback transaction” with MMCO in

which Medical Mutual sold the Rose Building (and two other properties not at issue

here) to MMCO for over $47 million, and MMCO would lease the building back to

Medical Mutual. The pleading states that MMCO financed part of the purchase with

a promissory note in favor of Medical Mutual in the amount of $12,370,000, plus

interest with a rate of 7.25% per year. Wheba Jr. executed the note on behalf of BFG

Holdings, and the following parties guaranteed the note: Ms. Wehba and Wehba Jr.,

as trustees of the GFW Trust (later replaced by the GFW II Trust); Wehba Sr. and

Ms. Wehba individually; and Bentley Forbes. Medical Mutual alleged that in the

guaranty agreement, the guarantors promised Medical Mutual that the GFW Trust

would maintain a net worth of at least $25 million in the trust as long as the note

remained unpaid.

Medical Mutual claimed that MMCO agreed to pay Medical Mutual

the $12,370,000 in monthly installments of $97,769.51 for 20 years. Medical

Mutual would also pay MMCO $419,968.33 per month for rent. The pleading states

that the note was subject to a “lockbox agreement” entered between Medical Mutual

and MMCO. Under the agreement, Medical Mutual would pay its $419,968.33 for

rent into a lockbox, and upon receipt of the rent payment, MMCO (on behalf of BGF

Holdings) would use funds from the rent payment to make the $97,769.51 note

payment to Medical Mutual. In 2006, Medical Mutual and MMCO replaced the “lockbox agreement” with a “standing wire agreement,” under which MMCO agreed

to instruct its bank to wire the note payment to Medical Mutual on the first day of

each month.

Medical Mutual alleged that in April 2016, Wehba Sr. sent an email

informing Medical Mutual that the “lender for the Rose Building[, U.S. Bank,] is

going to put a receiver in the next week or so and that we will not be able to make

any payments on the note.” Medical Mutual attached a copy of the email to its

complaint. Wehba Sr. also states in the email that “we” could “make the note

payments using [t]ax [b]enefits.” Medical Mutual claimed that MMCO made no

note payments after June 2016.

The pleading states that after MMCO defaulted on the note, Medical

Mutual learned that BFG Holdings had been voluntarily dissolved in September

2013 and that in June 2016, Wehba Sr. “sold his Beverly Hills mansion” to settle

litigation with Mitsuwa in California, Mitsuwa Corp. v. Wehba, Los Angeles

Superior Court No. BC 463929.

Medical Mutual alleged that, “based in part on” an opinion in the

Mitsuwa proceeding in California, the Wehba family had consistently “structured

deals to buy properties in which a seller would become the tenant thereof through a

leaseback agreement,” treat the “real estate business as their own without regard for

the distinction between the entities they created and their own personal affairs,” and

“pay themselves millions of dollars from the entities involved with the result that,

eventually, the obligor entities defaulted on the notes in favor of Mitsuwa.” Medical Mutual stated that it believed the Wehba defendants had engaged in “the same type

of misconduct in connection with the Rose Building transaction[.]”

Medical Mutual claimed that it sent notices to BFG Holdings and the

guarantors that BFG Holdings was in default under the note, and Medical Mutual

attached copies of the notices to its complaint. Medical Mutual accelerated the

remaining balance due on the note, demanding payment of $4,422,727.86. Medical

Mutual stated that the guarantors had failed to honor their obligation. Medical

Mutual alleged that “[i]t would work a substantial injustice” if Medical Mutual were

required to continue to pay its $419,968.33 monthly rent to MMCO when MMCO

still owed Medical Mutual over $4 million and had made clear that it would not

make any further note payments.

Medical Mutual asserted seven claims for relief: (1) a declaration that

Medical Mutual was permitted to withhold its rent payments to MMCO; (2) breach

of promissory note; (3) breach of guaranty; (4) fraud and fraudulent concealment;

(5) fraudulent transfers; (6) unjust enrichment; and (7) set-off. Medical Mutual also

demanded a jury trial.

Medical Mutual attached to its pleading a verification executed by a

Medical Mutual employee. The employee stated that the facts in the pleading were

based on his personal knowledge and “the institutional knowledge of Medical

Mutual,” and to the best of his “knowledge, information, and belief, all of the facts

as alleged are true[.]” Medical Mutual also attached 12 exhibits, including the lease

between MMCO and Medical Mutual, the September 2000 promissory note for $12,370,000, the September 2000 guaranty agreement, the lockbox agreement, the

standing wire agreement, and a 2016 news article describing the crash of Bentley

Forbes’s real estate business.

With its pleading, Medical Mutual filed a motion for a temporary

restraining order and preliminary and permanent injunction. It requested one of

the following alternative orders regarding its rental payments: (1) an order that an

account be established into which Medical Mutual could pay its rent and from which

the corresponding note payment would be transmitted back to Medical Mutual, (2)

an order allowing Medical Mutual to pay its rent to the court, (3) an order requiring

the Wehba defendants to pay Medical Mutual the $97,769.51 note payment from

each of Medical Mutual’s $419,968.33 rent payments, (4) an order that Medical

Mutual’s rent payments would each be reduced by $97,769.51 until the note balance

was paid in full, or (5) an order allowing Medical Mutual to stop paying rent until

the amount of its rental payments equaled the total amount of damages that would

be awarded to Medical Mutual from the Wehba defendants.

The trial court granted Medical Mutual’s motion to intervene. After

briefing and a hearing, the trial court appointed a receiver and denied Medical

Mutual’s motion for a temporary restraining order and preliminary injunction. No

party filed an objection.

The following month, in August 2016, Mitsuwa filed an answer to U.S.

Bank’s complaint and a motion for leave to record a mortgage that predated the

receivership. Mitsuwa maintained that pursuant to the terms of a November 2015 settlement agreement in the California proceeding, “Mitsuwa received an interest in

any proceeds from the sale of the [Rose Building] junior only to the mortgage of the

first lienholder, U.S. Bank.” Mitsuwa explained that, to secure its rights to the

proceeds from any sale of the Rose Building, “on November 2, 2015, MMCO

executed the Mitsuwa Mortgage to encumber” the Rose Building. Mitsuwa attached

to its motion a copy of the settlement agreement and the mortgage. The settlement

agreement states that Mitsuwa would not record the mortgage unless the defendants

in that action (which included Wehba Sr. individually, Ms. Wehba individually and

as trustee of the GFW and GFW II Trusts, Wehba Jr. individually and as trustee of

the GFW and GFW II Trusts, Bentley Forbes, and MMCO) defaulted under the

settlement agreement. Mitsuwa maintained that the defendants in the California

action defaulted under the settlement agreement in January 2016, and Mitsuwa

sought leave to record its mortgage.

U.S. Bank opposed Mitsuwa’s motion, arguing that the motion was

untimely and that Mitsuwa was an unsecured creditor because it did not record the

mortgage. Medical Mutual also opposed the motion, emphasizing that Mitsuwa had

notice that U.S. Bank’s mortgage prohibited further mortgages or liens on the Rose

Building. MMCO also filed a motion in opposition to Mitsuwa’s motion,

maintaining that it “is precluded by the terms of the existing receivership order.”

Nearly a year later (in August 2017), the trial court denied Mitsuwa’s motion.

In November 2016, Medical Mutual filed a motion to compel the

Wehba defendants to produce discovery. Medical Mutual maintained that the Wehba defendants had not responded to any of its first sets of interrogatories and

document requests despite two extensions of time. The Wehba defendants’

opposition to the motion to compel states that they served discovery responses

simultaneously with their opposition. Medical Mutual filed a reply, arguing that the

discovery responses were incomplete. Eight months later, the trial court granted the

motion to compel, noting that the discovery had been outstanding since November

2016. The trial court ordered the Wehba defendants to produce the requested

discovery by the following month.

In July 2017, a year after the trial court appointed the receiver,

MMCO and the GFW Trust filed a motion to vacate the appointment of the receiver.

U.S. Bank, Medical Mutual, and the receiver filed oppositions. MMCO and the GFW

Trust also sought leave to file an amended answer to U.S. Bank’s complaint and a

counterclaim against U.S. Bank for breach of contract and declaratory judgments

that R.C. Chapter 2735 is unconstitutional. MMCO and the GFW Trust argued that

they learned the receiver had agreed to sell and Medical Mutual had agreed to

purchase the Rose Building through a receivership sale pursuant to

R.C. Chapter 2735. U.S. Bank filed an opposition. A few weeks later, the receiver

filed a motion for authority to sell the Rose Building to Medical Mutual for

$37,900,000.

In August 2017, the trial court denied MMCO and the GFW Trust’s

motion to vacate the order appointing the receiver, noting that prior counsel for

MMCO and the GFW Trust had consented to the receiver and that the order appointing the receiver was not appealed within 30 days. The trial court also denied

their motion for leave to file an amended answer and counterclaim against U.S.

Bank. The trial court noted that MMCO and the GFW Trust had “ample time” to

amend their pleadings, they failed to attend or retain counsel for three “critical”

court dates between April 2017 and June 2017, and they had “also delayed in the

past” by failing to respond to “basic” discovery requests. The trial court authorized

the receiver sale after briefing and a hearing. The trial court entered a stipulated

entry of in rem judgment and decree of foreclosure.

Also in August 2017, U.S. Bank voluntarily dismissed its claims

against the Ohio Department of Job and Family Services, noting that the lien the

department had recorded against the property had been released in October 2016.

U.S. Bank also filed a motion pursuant to Civ.R. 42(B) to bifurcate Counts 2 through

6 of Medical Mutual’s counterclaim (Medical Mutual’s claims against the Wehba

defendants for breach of the guaranty agreement, fraud and fraudulent

concealment, fraudulent transfers, and unjust enrichment) from the other claims in

the lawsuit. The trial court granted the unopposed motion.

The sale of the Rose Building to Medical Mutual closed in September

2017, and the net proceeds after closing costs and receiver expenses were

$36,501,832.50. The receiver disbursed the net proceeds to U.S. Bank to satisfy, in

part, its in rem judgment. The trial court terminated the receivership the following

month. In December 2017, U.S. Bank filed a motion to dismiss its remaining

claims that had not been resolved by the trial court’s order of in rem judgment and

decree of foreclosure. The trial court granted the motion. The trial court’s judgment

entry states in part that Count 3 of U.S. Bank’s complaint (its claim against Mitsuwa

and the Cuyahoga County Treasurer for foreclosure of mortgage and security

interest) “was resolved by virtue of the Foreclosure Judgment.” Therefore, the only

claims remaining in the action after the trial court granted U.S. Bank’s motion to

dismiss were Medical Mutual’s claims against the Wehba defendants for breach of

the promissory note, breach of the guaranty, fraud and fraudulent concealment,

fraudulent transfers, unjust enrichment, and set-off.

In January 2018, Medical Mutual filed a motion for partial summary

judgment against the “third-party defendants”: Bentley Forbes, the GFW II Trust,

Wehba Sr., Ms. Wehba “individually and in her capacity as Co-Trustee of the GFW

II Trust,” and Wehba Jr. “in his capacity as Co-Trustee of the GFW II Trust.”

Medical Mutual sought summary judgment regarding only its claim for breach of

guaranty. Medical Mutual simultaneously filed a motion for “sanctions and/or to

compel discovery” against the Wehba defendants for failure to comply with the trial

court’s order compelling complete discovery responses to Medical Mutual’s first set

of discovery requests.

Six months later, in June 2018, Medical Mutual filed a second motion

for summary judgment on its claims for breach of promissory note, fraud and

fraudulent concealment, and unjust enrichment against all of the Wehba defendants except for Wehba Jr. in his individual capacity: MMCO, BFG Holdings, Bentley

Forbes, the GFW Trust, the GFW II Trust, Wehba Sr., Ms. Wehba “individually and

in her capacity as Co-Trustee of the GFW II Trust,” and Wehba Jr. “in his capacity

as Co-Trustee of the GFW II Trust. Medical Mutual argued in part that BFG

Holdings breached the promissory note and the “Wehba Enterprise Defendants”

were liable for the breach as alter egos of each other.

In support of its argument that the Wehba defendants are alter egos

of each other, Medical Mutual cited to an April 2016 “Tentative Statement of

Decision” from the California proceeding involving Mitsuwa and attached the

statement as an exhibit to its summary judgment motion. The statement provides

that the case arose from Mitsuwa’s sale of two properties to corporations formed by

members of the Wehba family, the corporations defaulted on the promissory notes,

Mitsuwa obtained default judgments against them, and Mitsuwa was unable to

collect from them. The defendants in the Mitsuwa case included the following

parties that Medical Mutual also named as defendants in the present case related to

the Rose Building: MMCO, Bentley Forbes, Wehba Sr., Wehba Jr. individually and

as trustee of the GFW and GFW II Trusts, and Ms. Wehba individually and as trustee

of the GFW and GFW II Trusts.

The Mitsuwa court explained that the Wehba family conducted its

business “through a number of inter-related entities that the Wehbas commonly

referred to as ‘Bentley Forbes.’” They “structured deals to buy properties in which a

seller would become the tenant thereof through a leaseback agreement.” One of the Bentley Forbes entities would transfer title to an L.L.C. formed by the Wehbas, and

another L.L.C. formed by the Wehbas would receive the rent that the sellers paid for

the lease. The opinion states that Bentley Forbes used this method to acquire the

two properties from Mitsuwa. The Mitsuwa court noted that Mitsuwa presented

substantial testimony and documentary evidence to establish a “unity of interest”

between the Wehbas and their L.L.C.s. The Mitsuwa court found that the “Wehbas

continually and consistently treated their real estate business as their own without

regard for the distinction between the entities they created and their own personal

affairs”:

[T]here was common ownership, direction and governance, common use of employees and premises, a lack of regard for formalities (even when taking into account the less formal nature of LLCs), a lack of consistent accounting, whether periodic or regular, a lack of separation of support services, the common exercise of executive functions and decisions by Wehba family members, the transfer of assets and use of funds regardless of which entity held them, personal use of business assets and the special distributions of funds, often for the use by another of the business entities and, in important instances, leaving an obligor entity without funds to satisfy its obligations.

The Mitsuwa court explained that the disregard for corporate

formalities allowed the Wehbas “to pay themselves millions of dollars from the

entities involved with the result that, eventually, the obligor entities defaulted on the

notes in favor of Mitsuwa.” The Mitsuwa court found that Wehba Sr. individually,

Wehba Jr. in his individual and trustee capacities, Ms. Wehba in her individual and

trustee capacities, Bentley Forbes, and other corporations not parties to the present

case were alter egos of each other and “were part of a single enterprise in relationship to the two transactions for the purchase of property from Mitsuwa[.]” The Mitsuwa

court noted that the parties disputed whether Ohio, Delaware, or California law

should apply to the alter ego analysis, but the court found that the “result would be

the same” regardless of which state’s law applied.

After this decision, the parties entered a stipulated judgment, and the

judge entered a “judgment pursuant to stipulation for judgment.”2 Medical Mutual

attached the judgment pursuant to the stipulation for judgment as an exhibit to its

summary judgment motion with an affidavit stating the exhibit is a true and accurate

copy. The judgment pursuant to the stipulated judgment, signed by the California

trial court judge, states that the court “rules” that “[e]ach and every Defendant is the

agent and alter ego of each and every other Defendant.”

The Wehba defendants filed a joint cross-motion for summary

judgment and “response” to Medical Mutual’s summary judgment motions. The

Wehba defendants explained in their response that they did not oppose summary

judgment in Medical Mutual’s favor on its claim for breach of the guaranty against

the GFW II Trust, Wehba Sr., Ms. Wehba (individually and as her capacity as

trustee), and Bentley Forbes. But they argued that Wehba Jr. was not a guarantor

and therefore could not be individually liable for breach of the guaranty. The Wehba

2 The judgment pursuant to the stipulation for judgment states that the stipulation for judgment was “signed by the Defendants,” which included Wehba Sr. individually, Ms. Wehba individually and as trustee of the GFW and GFW II Trusts, Wehba Jr. individually and as trustee of the GFW and GFW II Trusts, Bentley Forbes, and MMCO. Counsel for Mitsuwa and counsel for “All Defendants” signed the judgment pursuant to the stipulation for judgment “as to form,” and the trial court judge also signed it. defendants also stated that they did not oppose summary judgment against BFG

Holdings for breach of the promissory note, but they maintained that the guarantors

and Wehba Jr. individually could not be liable for breach of the promissory note. In

their response to Medical Mutual’s summary judgment motion, the Wehba

defendants explained that they challenged only Medical Mutual’s arguments related

to fraud, unjust enrichment, and alter-ego liability.

In their summary judgment motion, the Wehba defendants again

argued that Wehba Jr. is not liable for breach of guaranty, only BFG Holdings is

liable for breach of promissory note, and no defendants are liable for fraud,

fraudulent concealment, fraudulent transfers, unjust enrichment, or set off. In

support of their summary judgment motion, the Wehba’s attached exhibits,

including the September 2000 note and affidavits executed by Wehba Jr. and

Ms. Wehba.

The Wehba defendants also filed a motion for a protective order

providing that they do not need to disclose tax returns that Medical Mutual

requested in discovery.

In July 2018, the trial court denied the Wehba defendants’ motion for

protective order and compelled them to produce the requested tax returns under

seal. The Wehba defendants appealed, and the trial court stayed the proceedings.

This court dismissed the appeal for lack of a final, appealable order, and the Ohio

Supreme Court did not accept jurisdiction over the Wehba defendants’ appeal of our

dismissal. In December 2019, in a written opinion, the trial court granted both

of Medical Mutual’s motions for summary judgment and granted the Wehba

defendants’ summary judgment motion in part and denied it in part. The trial court

found that all the Wehba defendants were alter egos of each other, and that Medical

Mutual was entitled to summary judgment in its favor on its claims for breach of

promissory note, breach of guaranty, and fraud and fraudulent concealment. The

trial court found that the Wehba defendants were entitled to summary judgment in

their favor on Medical Mutual’s claim for fraudulent transfers. The trial court

further found that Medical Mutual’s claims for declaratory judgment, unjust

enrichment, and setoff were moot.3

The trial court ordered that Bentley Forbes, the GFW II Trust, Wehba

Sr., Ms. Wehba “individually and as Co-Trustee of the GFW II Trust,” and Wehba

Jr. “as Co-Trustee of the GFW II Trust” were jointly and severally liable for “the

principal sum of $4,351,679.00, plus interest at the [p]romissory [n]ote rate of

7.25% per annum from July 1, 2016 until the judgment is paid in full.”

The trial court also ordered that MMCO, BFG Holdings, Bentley

Forbes, the GFW Trust, the GFW II Trust, Wehba Sr., Ms. Wehba individually and

as trustee of the GFW II Trust, and Wehba Jr. as trustee of the GFW II Trust were

jointly and severally liable for “the principal amount of $4,351,679.00, plus accrued

interest in the amount of $516,031.63, plus interest at the [p]romissory [n]ote rate

3 These claims related to the Medical Mutual’s payment of rent during the receivership. of 7.25% per annum from the date of January 16, 2018 to the present, and costs of

this action.”

In January 2020, Medical Mutual filed a motion for a nunc pro tunc

entry to clarify that the trial court’s summary judgment order included Wehba Jr. in

his individual capacity — not just in his capacity as a trustee for the GFW II Trust.

Medical Mutual requested in the alternative that the trial court modify the order

pursuant to Civ.R. 54(B) or grant Medical Mutual leave to file another summary

judgment motion against Wehba Jr. in his individual capacity. The Wehba

defendants filed an opposition. Before the trial court ruled on the motion, the

Wehba defendants filed a notice of appeal from the trial court’s summary judgment

order. Medical Mutual filed a notice of its cross appeal, noting that its appeal was

“contingent upon a finding that the [o]rder is final and appealable,” which Medical

Mutual disputed because the order did not dispose of the claims against Wehba Jr.

in his individual capacity. This court remanded the matter to the trial court to

“clarify” its judgment as to Wehba Jr.’s individual liability.

The trial court’s hearing on remand was delayed due to Covid-19, and

the trial court held the hearing virtually in August 2020. At the hearing, counsel for

Medical Mutual explained that they made a typographical error in their second

motion for summary judgment when they failed to include Wehba Jr. in his

individual capacity. Counsel for Wehba Jr. argued that Medical Mutual was making

an “after-the-fact attempt” to “remedy” a strategic decision. The trial court denied

Medical Mutual’s motion for a nunc pro tunc order and modification pursuant to Civ.R. 54(B), but the trial court granted Medical Mutual leave to file another

summary judgment motion limited to the issue of Wehba Jr.’s individual liability.

This court then dismissed the appeal for lack of a final, appealable order.

Pursuant to the trial court’s order, Medical Mutual filed a summary

judgment motion regarding Wehba Jr.’s individual liability. Wehba Jr. filed an

opposition and a cross-motion for summary judgment against Medical Mutual.

Medical Mutual moved to strike the motion as untimely and redundant of the

Wehba defendants’ original summary judgment motion. Medical Mutual also filed

an opposition to Wehba Jr.’s cross-motion for summary judgment, to which it

attached excerpts from Wehba Jr.’s tax returns. The trial court granted Medical

Mutual’s motion to strike.

In January 2021, the trial court granted Medical Mutual’s summary

judgment motion and held that Wehba Jr., in his individual capacity, was jointly and

severally liable with the other Wehba defendants.

It is from this judgment that the Wehba defendants timely appeal.

The Wehba defendants’ appeal is limited to the issues of Medical Mutual’s fraud

claim, piercing the corporate veil, and the individual liability of Wehba Jr.

II. Standards of Review

Except for the trial court’s orders (1) granting Medical Mutual leave

to file a third summary judgment motion regarding Wehba Jr.’s individual liability

and (2) striking Wehba Jr.’s cross-motion for summary judgment regarding his

individual liability, the Wehba defendants’ assignments of error pertain to the trial court’s summary judgment orders. We review a trial court’s judgment granting a

motion for summary judgment de novo. Citizens Bank, N.A. v. Richer, 8th Dist.

Cuyahoga No. 107744, 2019-Ohio-2740, ¶ 28. We independently “examine the

evidence to determine if as a matter of law no genuine issues exist for trial.” Brewer

v. Cleveland Bd. of Edn., 122 Ohio App.3d 378, 383, 701 N.E.2d 1023 (8th

Dist.1997). We review the trial court’s order without giving any deference to the trial

court. Citizens Bank at ¶ 28. “On appeal, just as the trial court must do, we must

consider all facts and inferences drawn in a light most favorable to the nonmoving

party.” Glemaud v. MetroHealth Sys., 8th Dist. Cuyahoga No. 106148, 2018-Ohio-

4024, ¶ 50.

Pursuant to Civ.R. 56(C), summary judgment is proper where (1)

“there is no genuine issue as to any material fact,” (2) “the moving party is entitled

to judgment as a matter of law,” and (3) “reasonable minds can come to but one

conclusion, and that conclusion is adverse to the party against whom the motion for

summary judgment is made.” Harless v. Willis Day Warehousing Co., 54 Ohio

St.2d 64, 66, 375 N.E.2d 46 (1978). Trial courts should award summary judgment

only after resolving all doubts in favor of the nonmoving party and finding that

“reasonable minds can reach only an adverse conclusion” against the nonmoving

party. Murphy v. Reynoldsburg, 65 Ohio St.3d 356, 358-359, 604 N.E.2d 138

(1992).

The moving party carries an initial burden of setting forth specific

facts that demonstrate his or her entitlement to summary judgment. Dresher v. Burt, 75 Ohio St.3d 280, 292-293, 662 N.E.2d 264 (1996). If the movant fails to

meet this burden, summary judgment is not appropriate. Id. at 293. If the movant

does meet this burden, the burden shifts to the nonmovant to establish the existence

of genuine issues of material fact. Id.

Regarding the Wehba defendants’ third and fourth assignments of

error, we review for abuse of discretion the trial court’s orders granting Medical

Mutual leave to file a third summary judgment motion and striking Wehba Jr.’s

cross-motion for summary judgment. Sultaana v. Giant Eagle, 8th Dist. Cuyahoga

No. 90294, 2008-Ohio-3658, ¶ 5; Marriott Corp. v. Lerew, 8th Dist. Cuyahoga No.

85551, 2005-Ohio-5336, ¶ 39. An abuse of discretion connotes that the trial court’s

attitude was unreasonable, arbitrary, or unconscionable. Ruwe v. Bd. of Twp.

Trustees, 29 Ohio St.3d 59, 61, 505 N.E.2d 957 (1987).

III. Fraud

In their first assignment of error, the Wehba defendants argue that

the trial court erred in granting summary judgment in favor of Medical Mutual on

Medical Mutual’s fraud claim. They argue that (1) the fraud claim is based on the

same underlying facts as the claim for breach of contract, (2) Medical Mutual did

not produce evidence supporting each element of its fraud claim, and (3) the trial

court improperly imposed an “adverse inference sanction” against them for failing

to meaningfully participate in discovery.

To succeed on its fraud claim, Medical Mutual must establish the

following elements: (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).

In support of its fraud claim, Medical Mutual points to the following

allegations in its complaint:

The Wehba Enterprise Defendants had a duty to disclose that the GFW II Trust no longer had $25 million in assets,4 that they had drained the assets from the GFW Trust for their own personal benefit, and that they had voluntarily dissolved BFG Holdings even though it remained obligated to make the Note Payment.

The Wehba Enterprise Defendants’ representations regarding the GFW II Trust were false, as they had drained the assets from the GFW II Trust. Medical Mutual reasonably relied on the Wehba Enterprise Defendants’ representations, and on their failure to disclose their fraudulent transfers to Medical Mutual, to its detriment by continuing to make the Rent Payment and by refraining from taking earlier action to enforce its rights.

Medical Mutual argues that its complaint was verified, and the Wehba defendants

did not conduct any discovery to rebut these sworn allegations.

The Wehba defendants argue that Medical Mutual produced no

evidence to support its fraud claim and that the trial court improperly put the

burden of proof on them to “disprove” the claim. However, sworn pleadings filed in

4 We note that the guaranty agreement, attached to Medical Mutual’s complaint, required the guarantors to maintain the GFW Trust’s “net worth” at a minimum of $25 million. the action are evidence for purposes of Civ.R. 56(C). State ex rel. Spencer v. East

Liverpool Planning Comm, 80 Ohio St.3d 297, 298, 685 N.E.2d 1251, (1997); see

also Civ.R. 56(C) (including “pleadings” in the list of materials appropriate for

consideration on summary judgment). Medical Mutual properly relied on sworn

allegations from its verified complaint in support of its summary judgment motion.

The burden then shifted to the Wehba defendants to set forth evidence to counter

those allegations. See Dresher, 75 Ohio St.3d at 292-293, 662 N.E.2d 264. Because

the Wehba defendants failed to do so, Medical Mutual had no obligation to produce

additional evidence. See Spencer at 298 (holding that because one party failed to

set forth evidence countering the allegations in the verified complaint, the other

party was not obligated to respond with additional evidence). The trial court did not

err in shifting the burden to the Wehba defendants to establish the existence of

genuine issues of material fact. The court’s shifting the burden to the Wehba

defendants under Civ.R. 56(C) did not constitute an “adverse inference sanction.”

The Wehba defendants also argue that the fraud claim fails because it

is based on the same actions underlying the claims for breach of the guaranty and

promissory note and because Medical Mutual does not seek damages for fraud

beyond the damages it suffered for breach of contract. Medical Mutual maintains

that the Wehba defendants’ failure to disclose that they had depleted the net worth

of the GFW II Trust “did not operate in a vacuum” and that the Wehba defendants

also failed to disclose that BFG Holdings had been dissolved. Medical Mutual

maintains that it suffered damages for fraud because it could not take steps to “exercise[e] [its] guaranty rights against GFW II” or seek additional security for the

note before the Wehba defendants “drained” the GFW II Trust and rendered it

insolvent.

“[T]he existence of a contract action excludes the opportunity to

present the same case as a tort claim.” Stancik v. Deutsche Natl. Bank, 8th Dist.

Cuyahoga No. 102019, 2015-Ohio-2517, ¶ 40, citing Textron Fin. Corp. v.

Nationwide Mut. Ins. Co., 115 Ohio App.3d 137, 684 N.E.2d 1261 (9th Dist.1996).

“‘Where the causes of action in tort and contract are “factually intertwined,” a

plaintiff must show that the tort claims derive from the breach of duties that are

independent of the contract and that would exist notwithstanding the contract.’” Id.,

quoting Cuthbert v. Trucklease Corp., 10th Dist. Franklin No. 03AP-662, 2004-

Ohio-4417, ¶ 44. Furthermore, a plaintiff “must include actual damages attributable

to the wrongful acts of the alleged tortfeasor which are in addition to those

attributable to the breach of contract.” (Emphasis sic) Textron at 151.

Here, Medical Mutual has not alleged actual damages beyond the

breach of guaranty. The claim for breach of guaranty is based only on the draining

of the GFW II Trust. The fraud claim adds the dissolution of BFG Holdings and the

concealment of these actions. However, the damages for both claims are the same.

In its claim for breach of guaranty, Medical Mutual seeks damages “in the principal

amount of $4,422,727.86, plus interest and penalties pursuant to the terms of the

[p]romissory [n]ote.” Likewise, in its fraud claim, Medical Mutual seeks damages

“in the principal amount of $4,422,727.86, plus interest and penalties pursuant to the terms of the [p]romissory [n]ote.”5 Beyond this pleading, Medical Mutual did

not present any other evidence of actual damages for fraud that are in addition to

the damages it claimed for breach of the guaranty.

Accordingly, even if the allegations in the verified complaint satisfied

the elements for fraud, the trial court erred in granting summary judgment in favor

of Medical Mutual on the fraud claim. The Wehba defendants are entitled to

judgment as a matter of law in their favor on Medical Mutual’s fraud claim.

We therefore sustain the Wehba defendants’ first assignment of error.

IV. Piercing the Corporate Veil

In their second assignment of error, the Wehba defendants argue that

the trial court erred when it pierced the corporate veil to impose liability on all the

Wehba defendants as alter egos of each other. They maintain that Medical Mutual

and the trial court treated them as “one undifferentiated group,” did not identify the

conduct of any specific party, and did not cite evidence as to how any of the Wehba

defendants were related to each other. They further contend that the trial court

improperly (1) applied a judgment from the California litigation, (2) imposed

another adverse inference sanction for their lack of participation in discovery, and

(3) ignored the second and third prongs of the “Belvedere/Dombrowski test.”

It is a well-settled principle in Ohio law that shareholders, officers,

and directors of a corporation are generally not liable for the debts of the

5In its complaint, Medical Mutual sought attorney fees and punitive damages for fraud, but these are not “actual” damages in this context. See Cord v. Victory Sols., L.L.C., 8th Dist. Cuyahoga No. 106006, 2018-Ohio-590, ¶ 19. corporation. Dombroski v. WellPoint, Inc., 119 Ohio St.3d 506, 2008-Ohio-4827,

895 N.E.2d 538, ¶ 16 citing Section 3, Article XIII, Ohio Constitution; Belvedere

Condominium Unit Owners’ Assn. v. R.E. Roark Cos., 67 Ohio St.3d 274, 287, 617

N.E.2d 1075 (1963). Shareholders, however, do not hold absolute immunity from

liability for the actions of their corporations. Id. at ¶ 17. The legal fiction of the

corporate form cannot stand if used for a purpose or intent not within its reason and

policy. Id., citing State ex rel. Atty. Gen. v. Std. Oil Co., 49 Ohio St. 137, 30 N.E. 279,

paragraph one of the syllabus. When 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. Id. at ¶ 17, 26, citing Belvedere at 287; Dole Food Co. v. Patrickson, 538

U.S. 468, 475, 123 S.Ct. 1655, 155 L.E.2d 643 (2003). Piercing the corporate veil is

a judicial act that imposes personal liability on otherwise immune corporate officers,

directors, or shareholders for the corporation’s wrongful acts. Denny v. Breawick,

L.L.C., 2019-Ohio-2066, 137 N.E.3d 578, ¶ 15 (3d Dist.), citing Minno v. Pro-Fab,

Inc., 121 Ohio St.3d 464, 2009-Ohio-1247, 905 N.E.2d 613, ¶ 8.

The Ohio Supreme Court has established a three-prong test to

determine whether to pierce the corporate veil:

(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 a 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 at paragraph three of the syllabus, as modified by Dombroski at ¶ 29

(modification is indicated by the bracketed language above).

“The first prong of the Belvedere test is basically the ‘alter ego

doctrine.’” Byars v. Herman, 8th Dist. Cuyahoga No. 83496, 2004-Ohio-3613, ¶ 24,

citing Belvedere. When determining whether an “individual and corporation are

indistinguishable” for purposes of the first prong, courts may consider factors

including, “(1) whether corporate formalities were observed; (2) whether corporate

records were kept; (3) whether corporate funds were commingled with personal

funds; and (4) whether corporate property was used for a personal purpose.” Id.

Medical Mutual argues that the trial court did not need to conduct an

analysis of the three elements from Belvedere, 67 Ohio St.3d 274, 617 N.E.2d 1075,

because the California court in the Mitsuwa litigation already entered a judgment

that Wehba Sr. individually, Ms. Wehba individually and as trustee of the GFW and

GFW II Trusts, Wehba Jr. individually and as trustee of the GFW and GFW II Trusts,

Bentley Forbes, and MMCO (among other parties not named in the present case)

are alter egos of each other. Medical Mutual maintains that this judgment is binding

on this court, or, alternatively, that the judgment is at least evidence to show that

the Wehba defendants are alter egos of each other. Indeed, the trial court relied on

the California judgment to find that the Wehba defendants are alter egos of each

other and to hold all the Wehba defendants jointly and severally liable to Medical

Mutual. However, if the judgment is binding on us, it would satisfy Medical

Mutual’s burden of proof only for the first of the three prongs of the Belvedere test.

Evidence that a corporation and an individual are alter egos of each other alone is

insufficient to pierce the corporate veil; “all three prongs of the Belvedere test must

be met for the court to pierce the corporate veil.” My Father’s House #1, Inc. v.

McCardle, 2013-Ohio-420, 986 N.E.2d 1081, ¶ 29 (3d Dist.) (finding that the trial

court erred in piercing the corporate veil based on the alter ego doctrine alone

without “any evidence regarding the remaining two prongs of the Belvedere test”).

The trial court’s opinion does not mention the Belvedere test or

include analysis of the second and third prongs. Instead, the trial court states that

“alter ego is a separate remedy under Ohio law” and cites to Slone v. Lorenz (In re

Lorenz), S.D.Ohio No. 09-31913, 2011 Bankr. LEXIS 738 (Mar. 8, 2011). Slone

involved the issue of reverse veil piercing, and the bankruptcy court for the Southern

District of Ohio cited other federal cases for the principle that in Ohio, “alter ego is

a distinct remedy.” Id. at 23. Medical Mutual also cites to Brennan v. Slone (In re

Fisher), 296 Fed. Appx. 494, 506 (6th Cir.2008), another case involving reverse veil

piercing, for this principle. However, Ohio state courts have not adopted this

principle, and one state court case acknowledging this federal line of cases has

explicitly criticized it: “if a corporate form could be disregarded for purposes of

imposing personal liability vis-a-vis the alter-ego doctrine alone, then this would

seem to circumvent and, indeed, eviscerate the other two requirements for piercing a corporate veil.” Fifth Third Bank v. Diversified Transp. Servs., C.P. Lucas No. CI

09-2373, 2010 Ohio Misc. LEXIS 547, 30 (Jan. 14, 2010), fn. 18.

Accordingly, we conduct our de novo review under all three prongs of

the Belvedere test.

A. Belvedere Test Prong One: Alter Ego

In support of the first prong of the Belvedere test (whether the Wehba

defendants are alter egos of each other), Medical Mutual points to the judgment

pursuant to the stipulated judgment in the California proceeding. The Wehba

defendants argue that we cannot consider the California judgment at all and, even if

we can, it is not binding on this court.

First, we may consider the California judgment because the judgment

is properly within the record in this case. See Huber Heights Veterans Club, Inc. v.

Grand Voiture D’Ohio La Societe Des 40 Hommes Et 8 Chevaux, 2d Dist.

Montgomery No. 29078, 2021-Ohio-2695, ¶ 34 (“The documents from other

proceedings were properly before the trial court as exhibits in support of the

supplemental motions for summary judgment, and the trial court did not err in

considering them.”). Medical Mutual’s counsel executed an affidavit in support of

Medical Mutual’s June 2018 summary judgment motion. He averred that “[a] true

and accurate copy of the Judgment Pursuant to Stipulation for Judgment in

Mitsuwa Corporation v. C. Frederick Wehba, et al., LASC No. BC 463929

(“Stipulated Judgment”) is attached as Exhibit A to Medical Mutual of Ohio’s

Motion for Summary [Judgment] Against the Wehba Enterprise Defendants for Breach of Promissory Note, Fraud and Fraudulent Concealment, and Unjust

Enrichment.”

The judgment pursuant to the stipulated judgment, dated October 14,

2016, states the following in relevant part:

1. On June 22, 2011, Mitsuwa filed a Complaint against certain of the Wehba Defendants, and thereby commenced Mitsuwa Corporation v. C. Frederick Wehba, et al, Superior Court for the State of California, County of Los Angeles, Case No. BC 463929 (the “Action”), in which it alleged various contract and tort claims, including fraud, conversion, and fraudulent transfers, and made certain allegations against the Wehba Defendants.

2. Throughout the course of the litigation, certain additional Wehba Defendants were added as Defendants by Mitsuwa.

3. Trial of the Action commenced on May 22, 2015, the first day of the Phase 1 trial on the alter ego issues.

4. On April 22, 2015, the Court issued a “Tentative Statement of Decision” (which became final by virtue of Cal. Code of Civil Proc. § 632) finding the Wehba Defendants alter egos of each other.

5. On June 26, 2015, the Court granted Mitsuwa’s motion for judgment on the pleadings on the First and Second Causes of Action in the Complaint against the Wehba Defendants in the amount of $7,901, 291.18, as of June 26, 2015, with interest accruing at 10% thereafter.

6. On November 6, 2015, the parties filed a Stipulation of Conditional Dismissal and to stay the Action until December 16, 2016, which the Court granted.

7. On October 14, 2016, Mitsuwa filed an ex parte application requesting Judgment against Defendants pursuant to a Stipulation for Judgment signed by the Defendants.

8. Mitsuwa suffered damages in the amount of Fifteen Million Dollars ($15,000,000).

9. Each and every Defendant is the agent and alter ego of each and every other Defendant. Based on these findings,

IT IS HEREBY ORDERED, ADJUDGED AND DECREED:

***

3. All the Wehba Defendants, as set forth in Exhibit A hereto, are jointly and severally liable to Plaintiff Mitsuwa for $11,087,397.20.

Exhibit A to the stipulated judgment lists 15 defendants, including

Wehba Sr. individually, Ms. Wehba individually and as trustee of the GFW and GFW

II Trusts, Wehba Jr. individually and as trustee of the GFW and GFW II Trusts,

Bentley Forbes, and MMCO. Exhibit A includes as defendants “Bentley Forbes

Holdings, LLC” and “BF Holdings 2005, LLC,” but these appear to be different

entities from “BFG Holdings 2000, LLC,” which executed the note for the Rose

Building and has since been dissolved.

The parties dispute whether the alter-ego findings in the judgment

pursuant to the stipulated judgment are binding on this court. The parties agree

that California law regarding collateral estoppel, also known as issue preclusion,

guides this analysis. See Holzemer v. Urbanksi, 86 Ohio St.3d 129, 132, 712 N.E.2d

713 (1999) (explaining that the full faith and credit clause of the U.S. Constitution

requires Ohio to give another state’s court proceedings the same “credit” as that

proceeding would carry in the state’s own courts); In re S.K.L., 2016-Ohio-2826, 64

N.E.3d 413, ¶ 23, fn. 2 (8th Dist.), citing Holzemer (“full faith and credit only

requires courts to enforce judgments as the other court would enforce”).

Under California law, issue preclusion “prevents ‘relitigation of

previously decided issues,’ rather than causes of action as a whole.” Samara v. Matar, 5 Cal.5th 322, 327, 419 P.3d 924, 234 Cal.Rptr.3d 446 (2018), quoting DKN

Holdings L.L.C. v. Faerber, 61 Cal.3th 813, 824, 352 P.3d 378, 189 Cal.Rptr.3d 809

(2015). “[I]ssue preclusion applies (1) after final adjudication (2) of an identical

issue (3) actually litigated and necessarily decided in the first suit and (4) asserted

against one who was a party in the first suit or one in privity with that party.” DKN

Holdings at 825.6

As to the first and third elements, the California court held a trial “on

the alter ego issues” on May 22, 2015, and the following month found that many of

the Wehba defendants in that action were alter egos of each other. This decision

“became final by virtue of Cal. Code of Civil Proc. § 632.” The parties then reached

a settlement and submitted to the court a stipulation of judgment. Pursuant to the

stipulation for judgment, the judgment specifically found that each of the

defendants listed in the attached exhibit (including Wehba Sr. individually,

Ms. Wehba individually and as trustee of the GFW and GFW II Trusts, Wehba Jr.

individually and as trustee of the GFW and GFW II Trusts, Bentley Forbes, and

MMCO) is “the agent and alter ego of each and every other [d]efendant.”

Accordingly, the alter-ego issue was actually and necessarily decided and was

subject to a final adjudication.

6 Ohio law regarding issue preclusion is substantively the same as California’s. See Thompson v. Wing, 70 Ohio St.3d 176, 183, 637 N.E.2d 917 (1994) (“Collateral estoppel applies when the fact or issue (1) was actually and directly litigated in the prior action, (2) was passed upon and determined by a court of competent jurisdiction, and (3) when the party against whom collateral estoppel is asserted was a party in privity with a party to the prior action.”). Regarding the second element, the Wehba defendants argue that the

California proceeding was related to two completely different properties than the

Rose Building, so the issue in the judgment pursuant to the stipulated judgment is

not the same as the issue in the present case. We disagree. The specific properties

at issue do not impact the alter-ego analysis. Instead, the relevant issues include

whether the Wehba defendants observed corporate formalities, kept corporate

records, comingled corporate funds with personal funds, or used corporate property

for a personal purpose. These issues are the same in the California case and the

present case. Furthermore, the Wehba defendants who were parties in the

California case stipulated that they were alter egos of each other in October 2016,

the same year that BFG Holdings breached the note and the Wehba guarantors

breached the guaranty agreement with Medical Mutual.

Lastly, Medical Mutual is asserting the alter-ego issue against parties

who were parties in the California case or in privity with those parties. Wehba Sr.,

Ms. Wehba individually and as a trustee of GFW II Trust, Wehba Jr. individually

and as trustee of GFW II Trust, Bentley Forbes, and MMCO were defendants in the

California case. Although BFG Holdings, the GFW Trust, and GFW II Trusts were

not parties in the California case, they are owned by and in privity with the other

Wehba defendants.

The Wehba defendants argue that issue preclusion does not apply

because the judgment was a “consent judgment,” and in California, consent

judgments are “not usually given preclusive effect in subsequent litigation on a different cause of action, unless the parties manifest an intent in the consent

judgment to give it such preclusive effect.” Landeros v. Pankey, 39 Cal.App.4th

1167, 1172 (1995). However, the facts of the cases on which the Wehba defendants

rely for this principle do not support their argument. In Landeros, the appellate

court found that collateral estoppel did not apply to bar an issue that was not

expressly within the stipulated judgment and where the stipulated judgment

contained “no language of comprehensive settlement.” Id. at 1172, 1174. In

Tennison v. California Victim Comp. & Govt. Claims Bd., 152 Cal.App.4th 1164, 1176

(2007), the appellate court found that an administrative body was not bound to find

that a former criminal defendant was “factually innocent” despite an order that he

had been released from prison after a federal court granted his habeas petition. In

Cal. State Auto. Assn. Inter-Ins. Bur. v. Superior Court, 50 Cal.3d 658, 664 (1990),

fn. 2, the California Supreme Court found that “by specifically stipulating to the issue

of liability, the parties intended the ensuing judgment to collaterally estop further

litigation on that issue.”

Unlike the judgments in Landeros and Tennison, and like the

judgment in Cal. State Auto. Ins. Co., Medical Mutual seeks to apply collateral

estoppel to an issue to which the parties specifically stipulated. The judgment

pursuant to the stipulated judgment specifically included the stipulation that “[e]ach

and every [d]efendant is the agent and alter ego of each and every other

[d]efendant.” This specific language shows that the parties intended to be bound on

this issue. See People v. Felix, 1169 Cal.App.4th 607, 615, 87 Cal.Rptr.3d 482 (“A stipulated judgment may properly be given collateral estoppel effect if the parties

manifest an intent to be collaterally bound by the judgment, as by stipulating to a

specific factual finding.”); Cal. State Auto. Assn. Inter-Ins. Bur. at 664, fn. 2 (if the

parties did not intend to “collaterally estop further litigation on that issue,” they

“easily could have expressly restricted the scope of the agreement”). The Wehba

defendants maintain that they did not intend to be bound by the alter ego finding

because they did not admit to liability in the settlement agreement and because the

settlement agreement does not provide for third-party beneficiaries. However, a

general denial of liability to Mitsuwa is separate from the issue of whether the parties

are alter egos of each other. And Medical Mutual is not seeking to be a third-party

beneficiary to the settlement agreement between Mitsuwa and the Wehba

defendants.

Accordingly, we find that issue preclusion applies to the judgment

pursuant to the stipulated judgment, and we are bound by the judgment’s finding

that the Wehba defendants are alter egos of each other. Medical Mutual satisfied its

burden under the first prong of the Belvedere test.

B. Belvedere Test Prongs Two and Three: Control Exercised to Commit an Unlawful Act Resulting in Injury

The Wehba defendants argue that Medical Mutual did not present

evidence to satisfy the second and third prongs of the Belvedere test, that the Wehba

defendants exercised control over the entities (namely, BFG Holdings and Bentley

Forbes) in such a manner as to commit fraud, an illegal act, or a similarly unlawful

act against Medical Mutual, causing Medical Mutual injury or unjust loss. The Wehba defendants maintain that the trial court did not analyze the second and third

prongs, and that breach of contract is insufficient to satisfy the requirement of an

“unlawful act.”

The Wehba defendants argue that the trial court’s failure to

acknowledge the second and third prongs of the Belvedere test “itself warrants

reversal,” citing to RCO Intl. Corp. v. Clevenger, 180 Ohio App.3d 211, 2008-Ohio-

6823, 904 N.E.2d 941 (10th Dist.). However, in Clevenger, although the trial court

did not address two of the Belvedere prongs, the Tenth District considered this “in

light of the fact that” the defendant did not file an appellate brief or oppose the facts

that the plaintiff presented on appeal. Id. at 215. This case does not stand for the

principle that a trial court’s silence regarding part of the Belvedere analysis

automatically requires reversal. As our review is de novo, we analyze the second and

third prongs of the Belvedere test even though the trial court did not.

We agree with the Wehba defendants that breach of contract alone is

insufficient to satisfy the second prong of the Belvedere test. “A simple breach of

contract, in the absence of a more substantial factual predicate indicative of some

corporate malfeasance, with direct bearing on the plaintiff’s injury, is insufficient to

meet the second prong of the Belvedere test.” Connolly v. Malkamaki, 11th Dist.

Lake No. 2001-L-124, 2002-Ohio-6933, ¶ 34.

However, Medical Mutual has established unlawful conduct beyond

mere breach of contract. A judgment on a fraud claim is unnecessary to satisfy the

second prong of the Belvedere test. See Longo Construction, Inc. v. ASAP Tech. Servs., 140 Ohio App.3d 665, 672, 748 N.E.2d 1164 (8th Dist.2000) (explaining that

a finding of fraudulent conduct to satisfy the second Belvedere factor is decided

separately from an independent claim for fraud); Clevenger at ¶ 215 (plaintiff “was

not required to plead fraud in order to seek piercing the corporate veil”). Medical

Mutual alleged in its verified complaint that the Wehba defendants concealed from

Medical Mutual that they dissolved BFG Holdings and defunded the GFW II Trust.

Given this concealment, along with the findings in the California litigation,

reasonable minds can reach only an adverse conclusion against the Wehba

defendants that the Wehba individuals controlled the Wehba entities in such a way

as to commit fraud, an illegal act, or a similarly unlawful act that caused harm to

Medical Mutual.

The Wehba defendants have not produced evidence to the contrary to

create a genuine issue of material fact. They point to Wehba Jr.’s affidavit in support

of his September 2020 opposition to Medical Mutual’s summary judgment motion

on his individual liability, in which Wehba Jr. averred the following: Ms. Wehba, not

Wehba Jr., operated and made the “business and strategic decisions for

GRW/GFWII”; Wehba Jr. resigned as manager of BFG Holdings and the GFW II

Trust in 2012; after January 2012, Wehba Sr. managed BFG Holdings, and Wehba

Jr. held a minority interest in BFG Holdings but had “no involvement in running or

operating” it; and after October 2012, Wehba Jr. was one of four beneficiaries of the

GFW II Trust but had “no involvement in running or operating” it. Medical Mutual argues that Wehba’s affidavit contradicts a document

that Medical Mutual obtained in a separate lawsuit. Medical Mutual points to a

document that states that Wehba Sr. said that the Wehba defendants “went ahead

and put [Wehba Jr.] back as manager” in 2015. The Wehba defendants maintain

that the document obtained in another lawsuit is improper evidence for us to

consider.

Regardless, the extent of Wehba Jr.’s involvement in the GFW II

Trust and BFG Holdings pertains to the first Belvedere prong: whether Wehba Jr.

controlled the Wehba corporations so completely that the corporations had no

separate mind, will, or existence of their own. As previously discussed, the judgment

pursuant to the stipulated judgment in the California case, finding that Wehba Jr. is

an alter ego of the other Wehba defendants, is binding on this court. Thus, Wehba

Jr.’s affidavit and the document Medical Mutual obtained in another lawsuit do not

create a dispute of fact that is material here.

Accordingly, we find that the trial court did not err in piercing the

corporate veil and holding the Wehba defendants jointly and severally liable for

breach of the note and guaranty. We overrule the Wehba defendants’ second

assignment of error.

V. Wehba Jr.’s Individual Liability

In their third assignment of error, appellants argue that the trial court

erred in allowing Medical Mutual to file a motion for summary judgment against

Wehba Jr. in his individual capacity and erred in finding Wehba Jr. individually liable. In their fourth assignment of error, appellants contend that the trial court

erred in striking Wehba Jr.’s cross-motion for summary judgment on the issue of

his individual liability. Appellants assert their arguments for these assignments of

error together, and we will address the third and fourth assignments of error

together for ease of discussion.

The Wehba defendants first argue that the trial court erred in

granting Medical Mutual leave to file a summary judgment motion against Wehba

Jr. individually because the record does not support Medical Mutual’s argument

that it was a “typographical error” to omit reference to Wehba Jr’s individual liability

in its other summary judgment motions. The Wehba defendants maintain that

Medical Mutual could not have committed a “cut and paste” error when it copied the

defendants from its January 2018 summary judgment motion into its list of

defendants in its June 2018 summary judgment motion because Medical Mutual

also added MMCO and BFG Holdings into the June 2018 motion. The Wehba

defendants further argue that counsel for Medical Mutual represented in a status

conference that a ruling on its January and June 2018 summary judgment motions

would resolve all of Medical Mutual’s claims.

“[A] trial court has the inherent power to control its own docket and

the progress of proceedings in its court.” Chou v. Chou, 8th Dist. Cuyahoga No.

80611, 2002-Ohio-5335, ¶ 38. As previously discussed, we review the trial court’s

“docketing decision[s]” and decisions to grant leave to file a summary judgment

motion for abuse of discretion. Id.; Sultaana, 8th Dist. Cuyahoga No. 90294, 2008- Ohio-3658, at ¶ 5. An abuse of discretion connotes that the trial court’s attitude was

unreasonable, arbitrary, or unconscionable. Ruwe, 29 Ohio St.3d at 61, 505 N.E.2d

957.

We find that the trial court’s decision to grant Medical Mutual leave

to file another summary judgment motion addressing Wehba Jr.’s individual

liability was not “unreasonable, arbitrary, or unconscionable.” Medical Mutual

named as a defendant in its third-party complaint Wehba Jr. in both his individual

and trustee capacities. Neither the January nor June 2018 summary judgment

motions included Wehba Jr. in his individual capacity, and the issue if Wehba Jr.’s

individual liability therefore remained pending after the trial court ruled on the

January and June 2018 summary judgment motions. Accordingly, we find that the

trial court did not abuse its discretion in granting Medical Mutual leave to file a

summary judgment motion addressing Wehba Jr.’s individual liability.

Next, the Wehba defendants argue that the trial court erred in

granting Medical Mutual’s summary judgment motion against Wehba Jr.

individually. They maintain that Wehba Jr. had no “managerial role” over BFG

Holdings or GFW II during the relevant time period. As discussed above, we find

that the trial court did not err in piercing the corporate veil to hold Wehba Jr.

individually liable for Medical Mutual’s judgment. But, as previously discussed, we

find that the trial court erred in holding Wehba Jr. (and the other Wehba

defendants) liable for fraud. Accordingly, we sustain the Wehba defendants’ third assignment of

error as it pertains to the trial court’s holding Wehba Jr. liable for fraud, but we

otherwise overrule the third assignment of error.

Lastly, the Wehba defendants argue that the trial court abused its

discretion in striking Wehba Jr.’s September 2020 cross-motion for summary

judgment on the issue of his individual liability. The Wehba defendants maintain

that because the trial court gave Medical Mutual leave to file an additional summary

judgment motion regarding Wehba Jr.’s individual liability, “Wehba Jr. should have

been permitted to do the same.” As previously discussed, we review a trial court’s

decision on a motion to strike for abuse of discretion. Marriott Corp., 8th Dist.

Cuyahoga No. 85551, 2005-Ohio-5336, at ¶ 39. In January 2020, Medical Mutual

sought (along with alternative remedies) leave to file another summary judgment

motion for its apparent mistake of not including Wehba Jr.’s individual liability in

its previous motions. The trial court granted Medical Mutual leave. However,

Wehba Jr. filed his September 2020 cross-motion for summary judgment without

leave and did not request leave until after Medical Mutual moved to strike his

motion. The Wehba defendants also already argued in their June 2018 summary

judgment motion that “Wehba II is not liable for breach of guaranty” and only BFG

Holdings 2000 is liable for breach of the note.

Accordingly, we find that the trial court did not abuse its discretion in

striking Wehba Jr.’s September 2020 summary judgment motion, and we overrule

the Wehba defendants’ fourth and final assignment of error. Judgment is affirmed in part and reversed in part consistent with this

opinion. We reverse in part the trial court’s December 2019 and January 2021

orders granting summary judgment to Medical Mutual as those orders pertain to

Medical Mutual’s fraud claim. We remand with instructions for the trial court to

enter judgment in favor of the Wehba defendants (including Wehba Jr. in his

individual capacity) on Medical Mutual’s fraud claim. We otherwise affirm the trial

court’s judgments.

It is ordered that the appellants and the appellee split the 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.

MARY J. BOYLE, ADMINISTRATIVE JUDGE

EILEEN A. GALLAGHER, J., and EMANUELLA D. GROVES, J., CONCUR