Court of Appeals of Ohio, Eighth District, Cuyahoga
YIDI, L.L.C. PLAINTIFF-APPELLEE
JHB HOTEL, L.L.C., ET AL. DEFENDANTS - APPELLEES Appeal by Historic Preservation Fund, 2012 L.L.C.
Appeal from the Cuyahoga County Court of Common Pleas Case
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.
Yidi, L.L.C. Charles A. Nemer Danielle G. Garson Robert R.
Kracht Robert T. Glickman McCarthy Lebit Crystal &
Liffman Co., L.P.A.
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.
Dennis Kennedy, Cuyahoga County Fiscal Officer Michael
O'Malley Cuyahoga Prosecutor By: Gregory B. Rowinski
Assistant Prosecuting Attorney.
State of Ohio Development Services Keith O'Korn Assistant
Ohio Attorney General State of Ohio Development Services
BEFORE: Blackmon, J., Keough, A.J., and Kilbane, J.
JOURNAL ENTRY AND OPINION
PATRICIA ANN BLACKMON, JUDGE
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,
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).
Having reviewed the record and pertinent law, we affirm the
trial court's decision. The apposite facts follow.
In 2006, Yidi entered into a series of loans with defendants
guaranteed by three properties located on Euclid Avenue in
Cleveland. 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.
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.
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. 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.
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
* * *
* * * 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.
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.
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]." 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.
On October 8, 2015, the trial court denied Historic's
motion to intervene, transfer and consolidate. In ...