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Yidi, L.L.C v. JHB Hotel, L.L.C.

Court of Appeals of Ohio, Eighth District, Cuyahoga

April 13, 2017

YIDI, L.L.C. PLAINTIFF-APPELLEE
v.
JHB HOTEL, L.L.C., ET AL. DEFENDANTS - APPELLEES Appeal by Historic Preservation Fund, 2012 L.L.C.

         Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-15-850496

          ATTORNEYS FOR APPELLANT Timothy J. Fitzgerald Joseph S. Simms Robert D. Barr Koehler Fitzgerald L.L.C.

          ATTORNEYS FOR APPELLEES For Receiver Mark E. Dottore Tim L. Collins Harvey Labovitz Joseph H. Gutkoski Elizabeth E. Collins Collins & Scanlon, L.L.P.

          For Yidi, L.L.C. Charles A. Nemer Danielle G. Garson Robert R. Kracht Robert T. Glickman McCarthy Lebit Crystal & Liffman Co., L.P.A.

          For JHB Hotel, L.L.C., 3M Realty, L.L.C., 3M Development, L.L.C., Hickory Court, L.L.C. D. Jeffery Rengel Thomas R. Lucas.

          For Dennis Kennedy, Cuyahoga County Fiscal Officer Michael O'Malley Cuyahoga Prosecutor By: Gregory B. Rowinski Assistant Prosecuting Attorney.

          For State of Ohio Development Services Keith O'Korn Assistant Ohio Attorney General State of Ohio Development Services Agency.

          BEFORE: Blackmon, J., Keough, A.J., and Kilbane, J.

          JOURNAL ENTRY AND OPINION

          PATRICIA ANN BLACKMON, JUDGE

         {¶1} Appellant, Historic Preservation Fund 2012, L.L.C. ("Historic" or "Appellant"), appeals from the order of the trial court denying its motion to intervene in a foreclosure action filed by plaintiff Yidi, L.L.C. ("Yidi") arising from Yidi's loans to JHB Hotel, L.L.C. ("JHB"), 3M Realty, L.L.C. ("3M Realty"), 3M Development, L.L.C. ("3M Development"), and Hickory Court, L.L.C. ("Hickory") (collectively "defendants"). Historic assigns the following three errors for our review:

I. The Trial Court erred by denying the timely-filed motion of [Historic] to Intervene and Consolidate, to enable Appellant to protect its rights as an interested party with respect to a receivership estate, and where Appellant's interests were impaired and not adequately represented by the existing parties to the case. (T.d. 76 - Op. and Judg. Entry, dtd. 12/01/2015).
II. The Trial Court erred by denying the motion of [Historic] to intervene and consolidate, where both cases involved common parties and interests arising from the development of property in a receivership estate. (T.d. 76 - Op. and Judg. Entry, dtd. 12/01/2015).
III. The Trial Court erred by granting the Receiver's motion to sell real property free and clear of liens, claims and encumbrances, and to transfer the interest of lienholders to the proceeds of sale, after failing to allow [Historic] to intervene, and failing to recognize Appellant's rights as an intervenor and interested party. (T.d. 155 - Op. and Judg. Entry, dtd. 8/04/2016).

         {¶2} Having reviewed the record and pertinent law, we affirm the trial court's decision. The apposite facts follow.

         {¶3} In 2006, Yidi entered into a series of loans with defendants guaranteed by three properties located on Euclid Avenue in Cleveland.[1] See Yidi, L.L.C. v. JHB Hotel, L.L.C., 8th Dist. Cuyahoga No. 103872, 2016-Ohio-6955, ¶ 2 ("Yidi I "). JHB is the sole title holder of the real property.

         {¶4} The record indicates that Historic owns a "99 percent share of Investor, which is in turn the sole shareholder of JHB; however, the entities are otherwise independent of each other under Ohio law." Id. "It is undisputed that neither Historic nor Investor owns the [guaranteed] properties or were otherwise involved in the loan agreements between Yidi and JHB." Id. The record further demonstrates that:

[Prior to August 31, 2015, or the date of Yidi's filing of a foreclosure action against defendants, ] Historic entered into an escrow agreement for the purpose of providing a $4, 500, 000 capital contribution to Investor. Chicago Title acted as the escrow agent, managing the disbursement of the funds. The terms of the agreement, with the stated intent that Investor anticipated undertaking a business venture at JHB's property, were completed and the funds entirely disbursed before [August 31, 2015]. Despite the stated intent, none of [Historic's] disbursements involved JHB or its loans with Yidi.

Id. at ¶ 3.

         {¶5} On August 31, 2015, Yidi filed a foreclosure action against defendants, alleging that defendants are in breach of the terms of the notes and that $4, 300, 000 in principal, plus interest and penalties, is now due. Yidi also moved for the appointment of a receiver to take control of the property, a provision included in the mortgages that is to occur in the event of a default. The trial court granted this motion and appointed Mark Dottore ("Receiver") as receiver.[2] Receiver subsequently demanded production of all of Chicago Title's information concerning the escrow account between Investor and JHB. Id. at ¶ 4. In response, Chicago Title asserted that it had "no material that could be considered receivership property [and] the only relevant escrow agreement in its possession was between Historic and Investor." Yidi I at ¶ 5. Chicago Title additionally asserted that the escrow agreement between Historic and Investor is privileged and confidential.

         {¶6} On December 1, 2015, the trial court ordered Chicago Title to produce all of the information pertaining to Historic's escrow agreement with Investor. Historic appealed. This court reversed and remanded, stating:

It is undisputed that neither Historic nor Investor owns the disputed properties or were otherwise involved with the loan agreements between Yidi and JHB. Historic's relationship to JHB is based on Historic's ownership of a 99 percent share of Investor, which in turn is the sole shareholder of JHB; however, the entities are otherwise independent of each other under Ohio law. Based on its indirect ownership of JHB, Historic unsuccessfully attempted to intervene in the foreclosure action, although Yidi had not advanced allegations to pierce JHB's corporate veil, which might have made Historic's indirect ownership of JHB's shares relevant.
* * *
* * * The terms of the [escrow agreement providing for Historic's capital contribution to Investor], with the stated intent that Investor anticipated undertaking a business venture at JHB's property, were completed and the funds entirely disbursed before the foreclosure action was initiated. * * *
[R]eceiver and Yidi both claimed that receivership property was being sought because the escrow agreement between Historic and Investor indicated that Investor "plans to undertake the construction, development and operation of a Le Meridian Hotel project" at the properties. According to Yidi and [Receiver's theory, because Historic and Investor's agreement contemplated an association with JHB, the material was somehow relevant to the foreclosure action. We acknowledge the possibility that Yidi and [R]eceiver could demonstrate the relevance of the nonparty's confidential documentation through Investor's status as a shareholder of JHB under the right circumstances, but at this stage of the proceedings, Yidi and [R]eceiver failed to allege, let alone demonstrate, that Historic's capital contribution into Investor is relevant to the underlying action in which Yidi seeks to enforce the loan agreement entered between Yidi and JHB.

Id. . at ¶ 2-5.

         {¶7} The record additionally demonstrates that on April 14, 2015, Investor's shareholders, including Hotelo, Ltd. ("Hotelo") and individual shareholders, filed a shareholder derivative action, in Case No. CV-15-844051, against Hotelo manager Arthur Schamovic ("Schamovic"), Historic, Investor IV, JHB, 3M Realty, 3M Development, and other defendants. The Hotelo plaintiffs alleged, in relevant part, that "Defendants have either swindled Hotelo, Ltd. out of a $1, 350, 000 investment or allowed themselves to be used as a pawn to perpetuate the [s]cheme." See Hotelo, Ltd. v. Investor IV 2010, L.L.C., Cuyahoga C.P. No. CV-15-844051. Yidi is not a party to this action.

         {¶8} On September 17, 2015, Historic moved to intervene in the instant foreclosure lawsuit filed by Yidi, and to transfer and consolidate it with the Hotelo shareholder derivative litigation pending in Case No. CV-15-844051. Hotelo and Schamovic also filed motions to intervene in the instant case. In relevant part, Historic asserted that it "claims an interest in the property that takes priority over all claims insofar as [Historic] now owns 99 percent of [Investor] which is the entity that wholly owns [JHB Hotel] which in turn is the sole owner of the property at issue." Historic also complained that its tax credits are in jeopardy in the foreclosure action, and "the appointment of a receiver is expressly barred and prohibited by the terms of a settlement entered in [Case No. CV-15-844051]."[3] In opposition, the Receiver asserted that Historic is not a proper party to Yidi's foreclosure action because Historic is not the fee title owner of the property, because it owns 99 percent of Investor and Investor owns JHB. Receiver also noted that Historic was not a signatory or guarantor of the loan documents, and does not have a recorded lien on the property.

         {¶9} On October 8, 2015, the trial court denied Historic's motion to intervene, transfer and consolidate. In ...


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