STE Invs. v. Macprep, Ltd.

1

2022-Ohio-2614

STE Investments, LLC, et al. Appellants v. Macprep, Ltd., et al. Appellees

No. OT-21-036

Court of Appeals of Ohio, Sixth District, Ottawa

July 29, 2022

Trial Court No. 21CV126

David J. Horvath, for appellants.

D Casey Talbott, Jared J. Lefevre, Nicholas W. Bartlett, Howard B. Hershman, and Bruce S. Schoenberger, for appellees.

DECISION AND JUDGMENT

OSOWIK, J.

{¶ 1} This is an appeal from a judgment by the Ottawa County Common Pleas Court granting a motion to dismiss pursuant to Civ.R. 12(B)(6). For the reasons set forth below this court affirms the judgment of the trial court.

{¶ 2} Plaintiffs-appellants, STE Investments, LLC Marilyn Taylor, and Sandy and Bart Erwin (hereafter "appellants") filed this appeal setting forth one assignment of error: "The trial court committed reversible error in granting, in toto, the Appellees' collective Motion to Dismiss. [Appellants] sufficiently pled facts in support of each cause of action which facts were more than adequate to sustain their pleading obligations under the Ohio Civil Rules."

I. Background

{¶ 3} On April 26, 2021, appellants filed a complaint against defendants-appellees, Macprep, Ltd., Ohio Western Basin Management Group, Ltd., Maclaren Management, Inc., Susan Gottschalk, Kenneth MacLaren, and R. Scott Prephan (hereafter "appellees") claiming four causes of action: conversion, civil theft, breach of fiduciary duty, and an R.C. 2923.34 civil proceeding for a pattern of corrupt activity (also referred to as civil racketeering).

{¶ 4} To support their four causes of action, appellants make 80 factual allegations in their complaint, which are summarized below.

{¶ 5} On unknown dates, appellants purchased condominium units from Macprep, Ltd., which, since 2008, is the owner and developer of the Island House Hotel Condominium in Port Clinton, Ottawa County, Ohio. As condominium unit owners, appellants are members of the Island House Hotel Condominium Association (hereafter "IHHCA"). R. Scott Prephan is one of the owners of Macprep, Ltd. (hereafter "Macprep"), which owns more than two-thirds of the total condo units and "forty-nine percent (49%) of the non-common square footage of the condominium property." In 2016 Macprep, Ltd. hired Ohio Western Basin Management Group, Ltd. (hereafter "Ohio Western") for general condominium services, such as marketing, bookkeeping, rent collection, and housekeeping, and also hired Maclaren Management, Inc. (hereafter "Maclaren Management") for day-to-day condominium operations. Susan Gottschalk is the sole owner and principal of Ohio Western, and Kenneth MacLaren is either the sole owner of, or "exercises complete dominion and control over, Maclaren Management." Macprep, Ohio Western, and Maclaren Management are under the sole and exclusive control of their owners "so that said entity has no free will of its own," and the owners are personally liable for the damages caused by the business entities.

{¶ 6} Maclaren Management collected from appellants IHHCA assessments to be exclusively used for the common area expenses allowed by law and the condominium declarations and bylaws. "Despite owning approximately one-half of the non-common areas (which assumes all other residential units were sold to parties other than Macprep) Macprep maintained an obligation for common area expenses of only nine percent (9%) of the total expenses." (Emphasis sic.) These Macprep responsibilities were "passed off to appellants because the assessments paid were "pooled into the general expense account." Neither Maclaren Management nor Macprep ever caused IHHCA to open and maintain a bank account independently from themselves.

{¶ 7} Two questionable expenses "passed off to appellants are flood insurance and rental fees exclusively the responsibility of Macprep under its loan documents and for the units it owns. While the amounts appellants paid in assessments and when they paid them are not stated, the flood insurance has an "annual cost of approximately $20,000." Another questionable expense "passed off to appellants is, "Ohio Western is allegedly owed large sums of money. No explanation has been given for this account payable." There are "other inappropriate expenditures" appellees "passed off to appellants, such as "the payment of large credit card bills that are associated with one or more the entity Defendants and not IHHCA."

{¶ 8} In the winter of 2020, "without notice or significant discussion," and at the direction of Prephan, Gottschalk, and/or MacLaren, Maclaren Management "locked the unit owners out of their condominiums by refusing them access to the building. The front, rear, and other access doors to the building were locked effectively denying all of the individual condominium unit owners' access to their properties." (Emphasis sic.)

{¶ 9} Appellees control the IHHCA board of directors. "That these directors knowingly and without solicitation of offers entered into contracts for management of the property, as identified above and otherwise, which were at all times known to them to be related entities under their direct control and influence and which entities would profit off of the various business affairs of the condominium." Appellees "failed to keep adequate records of their actions, including the collection of assessments, expenditures, voting, approval, and other minutes of meetings of the Trustees/Board Members for the IHHCA" giving rise to the allegation they "put the interest of same above any interest they may personally have in pecuniary benefit from the operation or ownership of condominium units and any expenditures associated therewith."

{¶ 10} Appellants prayed for compensatory, punitive and treble damages, in addition to equitable relief and any other available relief granted by the trial court.

{¶ 11} On September 13, appellees filed a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Civ.R. 12(B)(6). Appellees argued: (1) conversion cannot lie for money or real property; (2) civil theft cannot prevail where an action is really based on contract; (3) appellants lack standing to bring a fiduciary duty claim; (4) appellants have failed to plead racketeering with particularity required by Ohio law; and (5) that Maclaren Management should be dismissed as an improper party.

{¶ 12} On November 5, over appellants' objections, the trial court granted appellees' motion to dismiss for each of the four causes of action, and appellants timely appealed.

II. Motion to Dismiss for Failure to State a Claim

A. Standard of Review

{¶ 13} Civ.R. 12(B)(6) states, "Every defense, in law or fact, to a claim for relief in any pleading * * * may at the option of the pleader be made by motion: * * * (6) failure to state a claim upon which relief can be granted * * *." Civ.R. 12(B)(6) motions test the sufficiency of the complaint, and any allegations or evidence outside the complaint must be excluded from the analysis. Volbers-Klarich v. Middletown Mgt, Inc., 125 Ohio St.3d 494, 2010-Ohio-2057, 929 N.E.2d 434, ¶ 11.

{¶ 14} We review de novo a trial court's decision on a Civ.R. 12(B)(6) motion to dismiss by accepting as true all factual allegations in the complaint. Alford v. Collins-McGregor Operating Co., 152 Ohio St.3d 303, 2018-Ohio-8, 95 N.E.3d 382, ¶ 10. "'[T]hose allegations and any reasonable inferences drawn from them must be construed in the nonmoving party's favor.' To grant the motion, '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 the relief sought.'" (Citations omitted.) Id. "The focus is strictly upon the complaint, as factual findings are never required." Firstar Bank, N.A. v. Prestige Motors, Inc., 6th Dist. Huron No. H-04-037, 2005-Ohio-4432, ¶ 7. We are mindful that while we are to assume the facts alleged in the complaint are true, we do not assume the legal conclusions alleged to be drawn from those facts are also true and disregard any unsupported conclusions included among the facts alleged in the complaint. O'Loughlin v. Ottawa St. Condominium Assn., 6th Dist. Lucas No. L-16-1128, 2018-Ohio-327, ¶ 22.

{¶ 15} We recognize that Ohio's notice pleading requirements under Civ.R. 8(A) may be sufficient to defeat a Civ.R. 12(B)(6) motion so long as the plaintiff alleges a set of facts that would support the causes of action set forth in the complaint. Skaff v. Khutorsky, 6th Dist. Lucas No. L-15-1249, 2016-Ohio-4903, ¶ 13. Civ.R. 8(A) requires a short and plain statement of the claim showing that the pleader is entitled to relief, and a demand for judgment for the relief to which the pleader deems entitled. State ex rel. Hanson v. Guernsey Cty. Bd. of Commrs., 65 Ohio St.3d 545, 549, 605 N.E.2d 378 (1992). The foregoing pleading requirements are further explained in the 1970 Staff Note to Civ.R. 8(A):

A note of caution to the pleader should be added. Simplified pleading under Rule 8 does not mean that the pleader may ignore the operative grounds underlying a claim for relief. Thus, a pleading which might read "Plaintiff says that defendant owes plaintiff $1,000.00. Wherefore plaintiff demands judgment against defendant in the sum of $1,000.00 and costs," would be subject to a motion to dismiss for failure to state a claim for relief. Does such pleading sound in contract? Tort? What are the operative grounds underlying the claim? In other words, under Rule 8(A) the pleader has failed to state "a short and plain statement of the claim showing that the pleader is entitled to relief."

See Deutsche Bank Natl. Tr. Co. v. Moore, 6th Dist Erie No. E-11-081, 2012-Ohio-5549, ¶ 6; see also Peters v. Child Study Institute, 6th Dist. Lucas No. L-80-16, 1980 WL 351351,...