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B&H Resources, L.L.C. v. 28925 Lorain Inc.

Court of Appeals of Ohio, Eighth District, Cuyahoga

August 17, 2017

28925 LORAIN INC., ET AL. DEFENDANTS Appeal By Resource Title National Agency, Inc. Defendant-Appellant/Cross-Appellee

         Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-13-819069

          ATTORNEY FOR APPELLANT/CROSS-APPELLEE David M. Cuppage Climaco, Wilcox, Peca & Garofoli Co., L.P.A.


          For 28925 Lorain Inc., et al. John Chirayil Statutory Agent

          BEFORE: Stewart, J., Kilbane, P.J., and Celebrezze, J.



         {¶1} While conducting due diligence for the purchase of real property, plaintiff-appellee/cross-appellant B&H Resources, L.L.C. (through its sole shareholder, Tanios Bougebrayel), learned that there were delinquent taxes resulting from the seller's ongoing dispute with the board of revision's decision to assign the property a higher valuation than what the seller believed should be assigned. Believing that the tax issues had been resolved, Bougebrayel signed a purchase agreement that prorated taxes and assessments based on the last available tax duplicate. Unknown to Bougebrayel was that the ongoing tax appeals meant that the board of revision's higher valuation of the property had yet to be reflected on the tax duplicate existing at the time of closing and used by defendant-appellant/cross-appellee Resource Title National Agency ("Resource National"), the escrow agent. When the tax appeals were finally resolved, B&H received a sizable tax bill.

         {¶2} B&H brought this action against Resource National, [1]alleging that it breached its contractual and fiduciary duties, and that it negligently performed the title exam by failing to provide information relating to potential title issues and property tax liens. Resource National counterclaimed, alleging that B&H and the seller agreed to hold Resource National harmless for any loss or damage resulting from the exercise of its services and that B&H should compensate it for its costs of litigation. Ruling without opinion on cross-motions for summary judgment, the court found in favor of Resource National on B&H's complaint and in favor of B&H on Resource National's counterclaim. Both parties appeal.

         {¶3} The underlying facts are largely undisputed. The subject property is used as a gas station. The seller purchased the property in 2007 for $1.1 million, but claimed that only $600, 000 of that price went to the property itself - the remaining $500, 000 covered inventory, costs associated with the gas station, and the purchase of a gas station in Illinois.

         {¶4} When Cuyahoga County valued the property for tax purposes at the $1.1 million price payed by the seller in 2007, the seller objected on grounds that $1.1 million purchase price had been artificially inflated. He contested the valuation to the board of revision in two separate tax appeals: one appeal covered tax years 2007 and 2008; the other appeal covered tax years 2009-2011.

         {¶5} As these tax appeals were progressing, Bougebrayel and the seller began negotiations for the sale of the gas station. Bougebrayel learned that there were delinquent taxes owed on the property. He was referred to the seller's attorney who told him that the matter had been "taken care of and Bougebrayel only had to worry about future taxes because "back taxes will be on [the seller]" and come out of the seller's proceeds. Bougebrayel said that the seller's attorney did not give him any "detail" about the tax issue, and he conceded that he did not request any documentation, nor did he make further inquiry into the tax matter.

         {¶6} In fact, the tax appeals had been resolved adversely to the seller prior to closing on the sale, with the board of revision valuing the property at $1.1 million for all relevant tax years. This valuation was not, however, completely reflected in the tax duplicate available at the time of closing: the tax duplicate showed only that the property had been valued at $1.1 million for tax year 2011. Consistent with the parties' agreement to adjust outside of escrow any change in taxes resulting from a change in property valuation as reflected on the last available tax duplicate, the seller assumed the additional tax debt for tax year 2011. After closing, the new valuation caused B&H to incur tax liabilities of $53, 308.12 for tax years 2007 and 2008, and $55, 592.94 for tax years 2009 and 2010.

         I. The Cross-Appeal

         {¶7} We first address the cross-appeal filed by B&H because its resolution could potentially render Resource National's appeal moot. Two issues are presented: (1) that the court erred by finding that Resource National did not breach its contract and (2) notwithstanding any alleged breach of contract, B&H had a viable negligence claim against Resource National for its failure to discover the outstanding tax issues and make those issues known to B&H.

         A. Breach of Contract

         {¶8} B&H chose Resource National to provide title exams, settlement, and closing services. The "standard conditions of appointment of settlement agent and acceptance of escrow" stated that "prorations of taxes or assessments shall be on the basis of the amount shown on the last available Tax Duplicate/Municipal Tax Invoice when required by the instructions ...

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