Denny v. Breawick, LLC

137 N.E.3d 578

2019 Ohio 2066

Cheryl DENNY, Plaintiff-Appellee,

v.BREAWICK, LLC, et al., Defendants-Appellants.

NO. 5-18-12

Court of Appeals of Ohio, Third District, Hancock County.

Date of Decision: May 28, 2019

Howard Elliott, Findlay, for Appellant.

William E. Clark Findlay, for Appellee.

WILLAMOWSKI, J.

{¶1} Defendants-appellants Breawick, LLC ("Breawick"); Buren Trace Development, LLC ("Buren Trace"); and Timothy Hunsaker ("Hunsaker") appeal the judgment of the Hancock County Court of Common Pleas, alleging that the trial court should not have allowed the corporate veil to be pierced. For the reasons set forth below, the judgment of the trial court is affirmed.

Facts and Procedural History

{¶2} Hunsaker is a building contractor who is the sole member of two limited liability companies: Breawick and Buren Trace. September 16 Tr. 14, 29. Hunsaker did construction work through Breawick in the Buren Trace Development. Id. at 39. March 1 Tr. 38. On February 24, 2013, Cheryl Denny ("Denny") entered into a contract for the construction of a house. Doc. 1, Ex. A. Denny had nine meetings with Hunsaker before she signed this contract. September 16 Tr. 74. Through these meetings, Denny and Hunsaker worked out the exact specifications of the house that was to be built. Doc. 1, Ex. A. Hunsaker signed the contract on behalf of Breawick and agreed to furnish all labor and materials for this project. Doc. 1, Ex. A. The contract price for the house was $ 397,400.00. September 16 Tr. 26. Construction on the house began on April 26, 2013. Id. at 87.

{¶3} During the course of construction, a number of disagreements arose between Hunsaker and Denny over the work that he was performing. Id. at 83, 86. Denny testified that she never agreed to any alterations to the original building specifications. Id. at 88. However, she said that Hunsaker deviated from the plans, in one instance placing a kitchen wall where an open space was supposed to be. Id. at 88. Denny further testified that she was charged for this work even though she did not approve this change. Id. at 88-89.

{¶4} Denny also stated that Hunsaker made requests for additional payments for "extras" that amounted to around $ 20,000.00. Id. at 85. Denny testified that Hunsaker would threaten to stop working on the house if his requests for these payments were not met. Id. at 86, 91. The change orders and "extras" were not submitted to Denny in writing and were not approved by Denny. Id. at 85. Denny testified that she felt "under pressure" to pay for the "extras" because Hunsaker was behind on the construction schedule and she wanted to end that particular fight. Id. at 86.

{¶5} Denny also testified that several liens were placed on the house during the course of the construction by several suppliers. September 16 Tr. 95. Denny further testified that she had to pay one lien, though she also said that Hunsaker was able to address another lien without her intervention. Id. at 95. At one point, Denny was made a party to a legal action that was filed by a supplier against Hunsaker. Id. Denny testified that she was released from this action but did have to pay some attorney's fees. Id. at 96. She could not pay for these various expenses with funds from her bank loan and had to draw on other lines of credit to cover these costs. Id. at 96.

{¶6} Hunsaker claimed that one of Denny's friends, Clinton Johnson ("Johnson"), functioned as a superintendent of sorts during the course of this project. March 3 Tr. 67. Hunsaker had previously built a house in Buren Trace for Johnson, who was knowledgeable about electrical; plumbing; and heating, ventilation and air conditioning work. Id. at 67. March 1 Tr. 24, 52. Johnson offered to help Denny in the process of building this house and was involved in overseeing various aspects of this project. March 1 Tr. 24. Hunsaker testified that Johnson was very involved with subcontractors and even directed some of their work. March 3 Tr. 10, 69-70. He further blamed Johnson's work on the house for some of the construction defects.¹ Id. at 91.

{¶7} Hunsaker claimed that he was at the construction site on every workday from April to December of 2013, though Denny claimed that Hunsaker worked much less frequently on the house. March 1 Tr. 21, 71. September 16 Tr. 90. On December 30, 2013, Hunsaker quit working on the house. Id. at 34. At that time, the house was not completed, but Denny had paid a total of $ 341,696.27 to the defendants. Doc. 100. See Id. at 47. At trial, Hunsaker said that the house was ninety to ninety-five percent complete at the time that he quit. Id. Claiming he was not getting paid, Hunsaker filed for a mechanic's lien on Denny's house on January 22, 2014.² Doc. 1.

{¶8} On January 5, 2014, Denny compiled a list of contract specifications that had not been finished. September 16 Tr. 99. At this point, the house was not completed to the point that Denny could move into it. Id. at 92. She then hired S.E. Hile General Contracting, LLC, to continue working on the house. Id . Doc. 100. Subsequently, Denny had to spend $ 46,057.48 to make the house habitable, though these improvements still did not complete the house to the point where it satisfied the original contract specifications. Id. at 82.

{¶9} Denny filed a complaint against Breawick, Buren Trace, and Hunsaker on September 17, 2014. Doc. 1. The complaint alleged that the defendants violated the Ohio Consumer Sales Practices Act ("CSPA"); were in breach of contract; converted funds; committed fraud; benefitted from unjust enrichment; and violated provisions of the Home Construction Service Law ("HCSL"). Doc. 1. Denny also alleged that Buren Trace and Breawick were Hunsaker's alter egos and that the trial court should pierce the corporate veil in order to hold Hunsaker personally liable for damages. Doc. 1.

{¶10} At trial, an expert in home construction—Steven E. Hile ("Hile")—testified about the costs of finishing the Denny's home. September 29 Tr. 9, 12. During his testimony, Hile outlined all of the deficiencies in the construction of the home that had to be rectified and the building specifications that had yet to be completed. Id. at 20-78. Altogether, he estimated that the total cost of getting the home to meet the contract specifications would be $ 125,216.00 more than what Denny paid Hunsaker. Id. at 82. He testified that Denny had already spent $ 46,057.00 to make some repairs in order to make the house habitable but that more repairs had to be made. Id.

{¶11} At trial, Denny's husband introduced a video of the premises that documented many of the construction flaws in the house. March 1 Tr. 16. There were issues with the gutters, downspouts, rough grade, drainage system, sidewalk, vinyl siding, ceiling, foyer, crown molding, walls, and trim. September 29 Tr. 20, 24, 31, 40, 57, 58, 72, 74, 75, 78. In particular, Denny mentioned the problem of water leaks in various parts of the house, though Hunsaker claimed that the basement windows were not leaking. March 1 Tr. 74.

{¶12} In its October 20, 2017 judgment entry, the trial court denied Denny's claims for fraud, unjust enrichment, conversion, and violations of the CSPA. Doc. 100. The trial court, however, found that the defendants were in breach of their contract with Denny. Doc. 100. The trial court also found that the defendants had violated provisions of the HCSL by charging the owner for excess costs without approval in violation of R.C. 4722.03(A)(3)(b) and by knowingly failing to perform construction in a "workmanlike manner" in violation of R.C. 4722.03(A)(3)(d). Doc. 100. The trial court sanctioned the defendants for failing to comply with the HCSL and awarded Denny reasonable attorney's fees pursuant to R.C. 4722.08(D)(2). Doc. 100. The trial court also found the Buren Trace and Breawick were alter egos of Hunsaker. Doc. 100. The trial court then determined that the violations of the HCSL were illegal acts that justified piercing the corporate veil. Doc. 100. The trial court then held Hunsaker personally liable pursuant to the doctrine of piercing the corporate veil. Doc. 100.

Assignment of Error

{¶13} Appellants filed their notice of appeal on September 20, 2018. On appeal, appellants raise the following assignment of error:

The trial court erred when it was considering whether a single man LLC was the alter ego of its owner such that the so called corporate veil should be pierced by applying the standards of a corporation and the operating requirements of corporations to the single man LLC so as to impose personal liability to the owner for the LLC's activities.

Appellants argue that Buren Trace and Breawick were not Hunsaker's alter egos and that the violations of the HCSL were not the types of "illegal acts" that justify piercing the corporate veil.

Legal Standard

{¶14} "Under Ohio law, as elsewhere, an LLC is neither a corporation nor a partnership, as those concepts are commonly understood. Instead, an LLC is a hybrid in that it is a form of legal entity that has attributes of both a corporation and a partnership but is not formally characterized as either one." Sutter v. Henkle , 3d Dist. Mercer No. 10-15-14, 2016-Ohio-1143, 2016 WL 1090466, ¶ 24, quoting In re ICLNDS Notes Acquisition, LLC , 259 B.R. 289, 292 (Bankr. N.D. Ohio 2001). Under R.C. 1705.48(B),

No member, manager, or officer of a limited liability company is personally liable to satisfy any judgment, decree, or order of a court for, or is personally liable to satisfy in any other manner, a debt, obligation, or liability of the company solely by reason of being a member, manager, or officer of the limited liability company.

R.C. 1705.48(B). However, a member of a limited liability company may be held personally liable "if the plaintiff demonstrates that the behavior of the members merits disregarding, or piercing, the entity's limited liability structure." Huttenbauer Land Co., L.L.C. v. Harley Riley, Ltd. , 1st Dist. Hamilton No. C-110842, 2012-Ohio-4585, 2012...