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Pointe at Gateway Condominium Owner's Association, Inc. v. Schmelzer

Court of Appeals of Ohio, Eighth District

August 22, 2013

POINTE AT GATEWAY CONDOMINIUM OWNER'S ASSOCIATION, INC. PLAINTIFF-APPELLANT
v.
JEROME H. SCHMELZER, ET AL. DEFENDANTS-APPELLEES.

Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-780002

ATTORNEYS FOR APPELLANT Steven M. Ott Nicole D. Leclair Ott & Associates Co., L.P.A.

ATTORNEYS FOR APPELLEES Edgar H. Boles Moriarty & Jaros, P.L.L. Lee A. Chilcote The Chilcote Law Firm, L.L.P.

BEFORE: Jones, P.J., Kilbane, J., and McCormack, J.

JOURNAL ENTRY AND OPINION

LARRY A JONES, SR, PRESIDING JUDGE.

(¶1} In two appeals, plaintiff-appellant, Pointe at Gateway Condominium Owners' Association, Inc. ("Association"), appeals the trial court's judgments granting the motion to dismiss and the motion for a permanent injunction of defendants-appellees, Jerome Schmelzer, Lawrence Schmelzer, Pointe at Gateway Condominium, L.L.C., and Pointe at Gateway, L.L.C. (collectively "appellees"). The appeals have been consolidated for our review. We affirm.

I. Procedural History and Facts

(¶2} According to the Association's complaint, the Association was organized under R.C. Chapter 5311 for the purpose of administering the property known as Pointe at Gateway Condominium in Cleveland. The property, which is a historic building, consists of condominium units and appurtenant common elements.

(¶ 3} Appellee Pointe at Gateway Condominium, L.L.C. was the developer of the property, and appellees Jerome and Lawrence Schmelzer were board of trustee members of Pointe at Gateway Condominium, L.L.C, and Jerome Schmelzer was its chief executive officer. The complaint alleged that Pointe at Gateway, L.L.C. was the original owner of the property, and the Schmelzers were members of its board of trustees.

(¶ 4} According to the complaint, the Schmelzers "used their complete control over the financial affairs and business decisions" of Pointe at Gateway Condominium, L.L.C, and Pointe at Gateway, L.L.C. to commit the alleged acts. The complaint alleged that in March 2004, Pointe at Gateway subdivided the property so as to separate ownership of the facade of the building from ownership of the rest of the building. Approximately two weeks later, Pointe at Gateway transferred the "facade parcel" to Pointe at Gateway Condominium.

(¶ 5} In May 2004, Pointe at Gateway Condominium created the Association and dedicated the remainder of the property to it, but retained ownership of the facade property. According to the Association's complaint, the appellees orchestrated the lot split so that they could continue leasing the facade for commercial advertising. The Association alleged that the subdivision was improper and unlawful.

(¶ 6} The property was turned over to the member owners of the Association in December 2011. The complaint alleged that from May 2004 until December 2011, the Schmelzers "held a controlling interest in the Association Board of Trustees and ran the day-to-day Association operations, Association management, and handled all Association bookkeeping * * *."

(¶7} In April 2012, the Association filed a complaint against appellees, seeking relief based on the following 12 counts: Count 1, a declaratory judgment stating that the lot split was invalid; Count 2, alternatively, a declaratory judgment stating that the facade parcel was common property of the Association as of May 19, 2009;[1] Count 3, compensatory damages based on the revenues appellees received from the facade parcel, but which belong to the Association; Count 4, failure to perform in a workmanlike manner; Count 5, violations of the Consumer Sales Practices Act; Count 6, breach of fiduciary duty; Count 7, negligence; Count 8, fraudulent concealment; Count 9, breach of contract; Count 10, unjust enrichment; Count 11, conversion; and Count 12, trespass to chattels.

(¶ 8} Appellees filed a motion for a temporary restraining order and preliminary injunction. In the motion, appellees requested the trial court order the Association to (1) stop depleting the condominium's reserve fund with expenditures on attorney fees, accountants' fees and other costs and fees incurred in litigating this action, (2) provide the unit owners with an accounting of the costs and expenditures already incurred in litigating this case and an estimate of future costs and expenditures for continuing the litigation, and (3) assess the specific unit owners who supported the litigation for the costs already incurred and future costs.

(¶ 9} The motion was based on the following facts contained in the record. In July 2010, the Board of Managers of the Association unanimously approved a "Reserve Study" that examined the needs for the reserve fund. The Study indicated that $208, 900 was needed; funding began in 2010. By January 2012, $109, 308 was accumulated in the fund.

(¶ 10} On January 12, 2012, the Association began commingling the reserve funds with the Association's general operating funds account. The commingling continued until March 2012, when a new reserve fund was created. At that time, the fund contained $75, 000. During the time that reserve funds were commingled with operating account funds, the Association used the commingled funds to pay for accounting and legal services arising from this litigation.

(¶ 11} Appellees also filed a Civ.R. 12(B)(6) motion to dismiss the Association's complaint. In their motion, appellees contended that Counts 1, 2, and 3, for declaratory judgment and compensatory damages, were "fictitious claims, unsupported by law * * *." In addition to other reasons, which will be discussed more within, appellees contended that all of the Association's counts were time-barred.

(¶ 12} The trial court granted appellees' motion for a temporary restraining order and preliminary injunction in part and denied it in part. The motion was granted to the extent that the Association was enjoined from depleting the reserve funds with expenditures on attorney fees, accounting fees, and other costs and fees associated with this litigation, but was denied as to appellees' request for an accounting and restoration of funds.

(¶13} Appellee Pointe at Gateway Condominium filed a counterclaim and complaint for permanent injunction. Through these pleadings, Pointe at Gateway Condominium sought to permanently enjoin the Association from the further use of the reserve funds and to restore $34, 308.59 to the reserve fund.

(¶14} In September 2012, a hearing was held on Pointe at Gateway Condominium's counterclaim for a permanent injunction; the court granted judgment in favor of Pointe at Gateway Condominium on the counterclaim. The court also granted appellees' motion to dismiss the Association's complaint.

(¶ 15} The Association now raises the following eight assignments of error for our review:

[I.] The trial court erred in finding that there was no justiciable issue with regard to the subdivision of the facade of a condominium from the rest of the building.
[II.] The trial court erred when it held that Appellant's claims for Failure to Perform in a Workmanlike Manner, Negligence, Fraudulent Concealment, Unjust Enrichment, Conversion, and Trespass to Chattels were barred by the statute of limitations because it failed to consider the actions of the Appellees between May of 2004 and December of 2011 as alleged in the Association's Complaint.
[III.] The trial court erred when it dismissed Appellant's claim for Breach of Fiduciary Duty by failing to consider the allegations asserted against the individual Defendants, J. Schmelzer and L. Schmelzer.
[IV.] The trial court erred when it dismissed Appellant's claim for Fraudulent Concealment by implementing the wrong standard.
[V.] The trial court erred when it dismissed Appellant's claim for Breach of Contract because it failed to consider all allegations in Plaintiff's Complaint as true.
[VI.] The trial court erred when it dismissed Plaintiffs claim for Unjust Enrichment because it failed to consider whether the Defendant[s]-Appellees were legally entitled to separate the facade of the building from the rest of the condominium property.
[VII.] The trial court erred when it dismissed Plaintiff-Appellant's claims for Conversion and Trespass to Chattels without considering all facts as alleged in the Complaint as true.
[VIII.] The trial court erred as a matter of law in determining that Plaintiff-Appellant is prohibited from using reserve funds for non-capital expenses.

II. Law and Analysis

(¶ 16} With the exception of the last assignment of error, all the assignments relate to the trial court's judgment granting appellees' motion to dismiss pursuant to Civ.R. 12(B)(6).

(¶ 17} In Counts 1 and 2 of its complaint, the Association sought declaratory judgments. In Count 1, the Association sought a declaration invalidating the lot split that created the facade parcel and a designation of the area as Association common property. In Count 2, the Association sought, alternatively, a declaration of the facade parcel as Association common property as of May 2009.

(¶ 18} The trial court held that the allegations contained in Counts 1 and 2 failed to demonstrate the existence of a controversy or justiciable issues between the parties. In so finding, the court relied on the Declaration, which it found specifically excluded the facade parcel from the definitions of both condominium property and Association common elements. The court therefore found that the "contractual language is clear and unambiguous, and [the Association] has provided [the] Court with no legal basis to derogate from it."

(¶ 19} In its first assignment of error, the Association contends that the trial court erred by relying solely on the Declaration language and not considering whether, legally, ownership of the facade of a condominium building can be separated from the remainder of the building. According to the Association, under R.C. 5311.01, it can not. Thus, in other words, according to the Association, the Declaration binds the parties to an illegal act.

(¶20} R.C. 5311.01 contains the definitions for R.C. Chapter 5311, governing condominium property. Under subsection (F)(2)(a), common elements includes "[foundations, columns, girders, beams, supports, supporting walls, roofs, halls, corridors, lobbies, stairs, stairways, fire escapes, entrances, and exits of buildings." The Association contends that the facade parcel is "primarily comprised of foundations and supports" and, therefore, must necessarily be part of the common elements. But the Association ignores the beginning language of the subsection of the statute, which states that common elements are defined by the statute "unless otherwise provided in the declaration." Id.

(¶21} The Declaration here specifically provides that "[t]he facades of and the space above the Building shall be expressly excluded from the Condominium Property, including the Common Area and Facilities." Article I, Section (E)(3) of Declaration. Further, the Declaration describes the common areas and facilities as the

entire balance of Condominium Property described in Exhibit 1 and the improvements, structure and fixtures therein and thereon, including but not limited to, those portions of the Building, foundations, roof, main and supporting walls, columns, girders, beams, halls, corridors, stairways not within units, storage spaces, the entrance improvement, including signage, community facilities, if any, pumps, balconies, decks, patios, wires, conduits, utility lines and ducts now or hereafter situated on the Condominium Property, all as hereinbefore more specifically described as "Common Areas and Facilities" in Article I hereof, are hereby declared and established as the Common Areas and Facilities, including all electric fixtures, utility pipes and lines, faucets, shower heads, plugs, connections, or fixtures as defined by the laws of the State of Ohio and all replacements thereof shall be a part of the Common Areas and Facilities, but specifically excluding the exterior facades of and air space above the Building * * *.

(Emphasis added.) Id. at Article II, Section (B)(1).

(¶ 22} The Declaration also defines ...


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