Dart v. Katz

2021 Ohio 1429

GREG DART, et al. Plaintiffs-Appellants v. ELLIOTT KATZ, et al. Defendants-Appellees

Appellate Case No. 28913

COURT OF APPEALS OF OHIO SECOND APPELLATE DISTRICT MONTGOMERY COUNTY

April 23, 2021

Trial Court Case No. 2020-CV-354

(Civil Appeal from Common Pleas Court)

OPINION

JONATHAN F. HUNG, Atty. Reg. No. 0082434, 109 North Main Street, Suite 800, Dayton, Ohio 45402 Attorney for Plaintiffs-Appellants

ERIC E. WILLISON, Atty. Reg. No. 0066795, 4876 Cemetery Road, Hilliard, Ohio 43026 Attorney for Defendant-Appellee, Elliott Katz

CHARLES R. GRIFFITH, Atty. Reg. No. 0031388 and JOSHUA J. FRAVEL, Atty. Reg. No. 0093541, 522 North State Street, Westerville, Ohio 43082 Attorneys for Defendants-Appellees, Journal Herald Building, LLC and Windsor Fire Blocks, LLC

WELBAUM, J.

{¶ 1} Plaintiffs-Appellants, Greg Dart, G.L. Dart General Contracting, Inc., and Intrigue Property Management, LLC,¹ appeal from a judgment dismissing their second amended complaint against Defendants-Appellees, Elliott Katz,² Journal Herald Building, LLC ("JHB"), and Windsor Fire Blocks, LLC ("Windsor"). For the reasons discussed below, the judgment will be affirmed in part and reversed in part, and the matter will be remanded to the trial court for further proceedings.

I. Facts and Course of Proceedings

{¶ 2} Because this case is before us on a dismissal under Civ.R. 12(B)(6), the allegations in the second amended complaint are accepted as true. See Mitchell v. Lawson Milk Co., 40 Ohio St.3d 190, 192, 532 N.E.2d 753 (1988).

{¶ 3} On January 24, 2020, Dart filed a complaint for money damages and declaratory judgment against Katz, JHB, and Windsor. On the same day, Dart filed an amended complaint, which was identical to the first except that certain documents were attached. Both the complaint and amended complaint contained the following claims against Katz and JHB: constructive trust; breach of fiduciary duty (including claims that Katz and JHB acted with malice); breach of trust; breach of contract; and promissory estoppel. Dart also alleged tortious interference against Windsor and unjust enrichment against JHB, and he asked for a declaratory judgment against all parties.

{¶ 4} On January 29, 2020, JHB filed a motion for a temporary restraining orderand a preliminary injunction, asking the court to preclude Plaintiffs from trespassing in the building that was the subject of the action. After a hearing, the court denied the request for a temporary restraining order on February 13, 2020. The court also set a hearing on the preliminary injunction for March 19, 2020, but the injunction request was later withdrawn. On March 13, 2020, Katz filed an answer and a counterclaim against Dart for fraud/forgery and malicious prosecution. Dart filed an answer to the counterclaim on March 20, 2020.

{¶ 5} On March 23, 2020, Dart filed a motion asking the court to allow him to file a second amended complaint to add G.L. Dart General Contracting and Intrigue as plaintiffs. After the court granted the motion, a second amended complaint (hereafter "Complaint") was filed, including these parties. The Complaint alleged that:

9. On January 30, 2015, Dart became the sole owner of the Journal Herald Building. There were no debts on the building. Dart and Katz later agreed that they would jointly develop the Journal Herald Building. Among other things, they intended to develop a nightclub and other businesses in the building. Katz formed and on November 16, 2015 filed JHB's Articles of Incorporation with the Florida Secretary of State. Katz owned and operated JHB through Savion International Limited Partnership (Savion), a Wyoming limited partnership that he and his wife Naomi Katz owned 98% of.

10. Thereafter Katz promised, and Dart and Katz agreed, that Katz and/or JHB would not encumber or transfer the Journal Herald Building if Dart were to transfer the Journal Herald Building to Katz or to an entity that Katz owned or operated. At the time, Dart was indebted to the IRS as a result of a prior employee's embezzlement. Dart agreed to transfer the building to JHB upon Katz's and JHB's agreement not to transfer or encumber the building. Katz and JHB would hold the building for Dart's benefit. Consistent with their agreement, Dart paid Katz $150,000 so that Katz would issue a check for the same amount at closing, with the closing proceeds going to the IRS.

11. On December 15, 2015, per the agreement with Katz, Dart and JHB entered into a Contract to Purchase Real Estate (the Purchase Contract). A copy of the Purchase Contract is attached as Exhibit 1.

12. On February 16, 2016, per the agreement with Katz, Dart transferred the Journal Herald Building to JHB. A copy of the deed is attached as Ex. 2. The net effect of the transaction is that JHB became record title holder of the Journal Herald Building for no money and that JHB and Katz held the building in constructive trust for Dart's benefit.³

13. As a prerequisite for transfer, and after much delay, Dart and Katz memorialized their agreement on June 7, 2016 when they entered into an Agreement (Agreement). A copy of the Agreement is attached as Exhibit 3. Under the Agreement, Katz and JHB agreed not to encumber or transfer the Journal Herald Building.

12. Katz later repeated his promises that Dart was the owner of thebuilding. For example, on June 9, 2016, Katz stated, "The Journal Herald Building is 100% owned by Greg Dart." He added, "It is your building. I'm just a placeholder. That's all I am. On March 27, 2017, at a dinner meeting at the Dayton Club Katz reiterated that Dart owned the Journal Herald Building.

13. Katz kept up his end of the deal, for a while. But then he fell on hard times and changed his mind. For example, non-party DRBC Limited (DRBC) obtained a judgment against Katz's limited partnership Savion for over $1 million. See, Judgment Entry in DRBC, Limited v. Savion International, L.P., et al, Montgomery County Common Pleas Court Case #2018-CV-2382, filed May 31, 2018. Dart had placed mechanics liens on other buildings that Katz controlled in downtown Dayton, Ohio. On June 27, 2018, Katz as owner and agent of JHB, executed a Mortgage Deed to Defendant Windsor wrongfully encumbering the Journal Herald Building. A copy of the Mortgage Deed is attached as Ex. 4.

14. Before entering into the Mortgage Deed, Windsor knew that Katz and JHB were precluded from encumbering the Journal Herald Building without Dart's permission as a result of, among other things, several meetings and phone conversations with Dart during April 2018. Windsor thus knew that Katz and JHB held the building in constructive trust for Dart's benefit.

15. Since he executed the Deed, Dart, individually, and through Dart, Inc., and Intrigue, has continued to occupy, pay for, and maintain the Journal Herald Building. Specifically, the Dart parties have remodeled the building and paid utility bills, fire and security bills, taxes, and insurance. No Defendant has reimbursed the Dart parties for their expenditures.

Complaint, ¶ 9-15.

{¶ 6} The same claims for relief were raised in this complaint as had been previously asserted. On April 25, 2020, Katz filed an answer to the Complaint as well as a counterclaim. Answer and Counterclaims of Defendant Katz to Plaintiffs' Second Amended Complaint ("Answer and Counterclaims of Katz"). In the Answer, Katz admitted that JHB was the record owner of the Journal Herald Building. Id. at ¶ 3 (admitting the allegations in ¶ 5 of the Complaint). Katz further stated that he "operated JHB through Savion International Limited Partnership." Id. at ¶ 8.

{¶ 7} In addition, Katz admitted that "Plaintiff paid Katz $150,000.00 at a closing whereat the Journal Herald Building was transferred to JHB and then Katz provided a check to the IRS in the amount of $150,000.00." Id. at ¶ 9. Further, Katz admitted that "a judgment has been taken against him by a third party unrelated to this case," that "Plaintiff Dart may have placed mechanics liens on some of Defendant Katz's properties," and that "acting as an officer of Defendant JHB, LLC, he encumbered the property in question." Id. at ¶ 14. Katz again asserted a counterclaim against Dart and raised various affirmative defenses. On the same day, Katz filed a motion to dismiss the complaint.

{¶ 8} JHB and Windsor never filed answers but, on May 12, 2020, they filed a motion to dismiss the Complaint.⁴ Following a status conference, Plaintiffs filedmemoranda opposing both motions to dismiss, and all Defendants filed reply memoranda in July 2020.

{¶ 9} On September 2, 2020, the trial court issued two decisions dismissing Plaintiffs' Complaint. In the first decision, the court dismissed the claims against Katz; in the second, the court dismissed the claims against JHB and Windsor. See Orders (Sep. 2, 2020). Both dismissals were for failure to state a claim under Civ.R. 12(B)(6). Id. The court included a Civ.R. 54(B) certification on the order granting dismissal of the claims against JHB and Windsor, but it did not include such a certification on the order granting dismissal of the claims against Katz.

{¶ 10} Plaintiffs then appealed from the trial court's decisions on September 24, 2020. On October 20, 2020, Plaintiffs filed a motion asking to supplement the record to include Katz's dismissal of his counterclaims pursuant to Civ.R. 41(A). Construing the motion as one to amend the notice of appeal, we allowed the appeal to proceed, provided that Plaintiffs filed an amended notice of appeal by November 16, 2020. See Decision and Entry (Nov. 10, 2020), p. 1-2. As instructed, Plaintiffs filed an amended notice of appeal on November 10, 2020.

{¶ 11} With this background in mind, we will consider the parties' arguments.

II. Dismissal of Katz

{¶ 12} Plaintiffs' First Assignment of Error states that:

The Trial Court Erred When It Granted Defendant-Appellee Elliot Katz's Motion to Dismiss Because Plaintiffs-Appellants Alleged Sufficient Facts Demonstrating Their Claims for Relief.

{¶ 13...