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Hammon v. Huntington National Bank

Court of Appeals of Ohio, Eighth District, Cuyahoga

January 11, 2018


         Civil Appeal from the Cuyahoga County Court of Common Pleas Probate Division Case No. 2014 ADV 195963

          ATTORNEY FOR APPELLANT George J. Argie Dominic Vitantonio Argie, D'Amico & Vitantonio

          ATTORNEYS FOR APPELLEES For Huntington National Bank Franklin C. Malemud Clifford C. Masch Leon A. Weiss Katie Lynn Zorc Reminger Co., L.P.A.

          For First Capital Surety & Trust Co. James A. Marx Brian J. Green Shapero & Green, L.L.C.

          For Jeffrey P. Consolo Steven S. Kaufman Ashtyn N. Saltz Kaufman & Company, L.L.C.

          BEFORE: Kilbane, P.J., S. Gallagher, J., and Laster Mays, J.



         {¶1} Plaintiff-appellant, Zachary Hammon ("Hammon"), appeals from the probate court's decision granting the Civ.R. 12(B)(6) motions to dismiss of defendants-appellees, Huntington National Bank ("Huntington"), First Capital Surety & Trust Company ("First Capital"), and Jeffrey P. Consolo ("Consolo"). For the reasons set forth below, we affirm in part and reverse and remand in part.

         {¶2} On September 25, 2013, Hammon filed a complaint in the General Division of the Cuyahoga County Common Pleas Court against Huntington, First Capital, and Consolo. Hammon's complaint arose out of a monetary settlement of a medical malpractice action that he received as a minor, and the guardianship established to manage those funds in Cuyahoga P.C. No. 1992-GRD-1079707 (the "guardianship"). When Hammon was a minor, the probate court appointed Huntington as guardian of Hammon's estate, and Consolo acted as counsel for Huntington in its capacity as guardian. As we discuss more fully below, Huntington invested the guardianship estate funds in two separate trusts for which First Capital acted as trustee. The general division dismissed Hammon's complaint for lack of subject matter jurisdiction. On February 20, 2014, Hammon refiled his complaint in Cuyahoga P.C. No. 2014-ADV-195963 (the "adversarial proceeding").

         {¶3} In October 2014, the trial court granted Hammon's motion to amend his complaint in response to motions for a more definite statement filed by Consolo and First Capital.[1] That same month, Hammon filed his second amended complaint that is now the subject of the instant appeal.

         {¶4} The following is an overview of the allegations contained in Hammon's second amended complaint. Hammon was born in September 1988. He sustained a birth injury that resulted in cerebral palsy and impairment of his motor skills. In September 1992, the probate court appointed National City Bank ("National City") as guardian of Hammon's estate for the purpose of managing the proceeds of his pending medical malpractice case in the common pleas court. In December 1993, the probate court approved the settlement of Hammon's medical malpractice case for $3, 200, 000.[2]

         {¶5} In July 1997, Hammon's mother, Rita Berardinelli ("Berardinelli"), through her attorney, Consolo, filed an application to remove National City as guardian of her son's estate and to appoint Huntington as successor guardian. In response to this application, National City agreed to step down as guardian. The probate court appointed Huntington as successor guardian of Hammon's estate. Hammon alleges that soon after the appointment of Huntington as guardian, Consolo ceased representation of Berardinelli and began to represent Huntington in its capacity as guardian, at the expense of the estate. Hammon further alleges that at the time Consolo filed the application to remove National City and appoint Huntington as guardian on behalf of Berardinelli, Huntington was also a client of Consolo and his law firm. He asserts this conflict of interest was never waived.

         {¶6} In August 1999, Huntington filed an application for authority to purchase a $1 million annuity to generate an income stream over Hammon's lifetime. In December 1999, the probate court held an initial hearing on this application. Present at the hearing were Huntington representatives, Consolo, Berardinelli, and Hammon's father, David Hammon ("David"). David objected to the idea of an annuity and "advocated for an investment that would create an income stream and that would also protect the principal." The amended complaint further states that David obtained a continuance of the hearing to seek legal representation and consult with financial experts.

         {¶7} At the continued hearing in February 2000, all parties in attendance at the December 1999 hearing were again present in addition to David's counsel, attorney Mark Sullivan ("Sullivan"). The parties met to consider and negotiate investment of guardianship funds so that Hammon would not receive a large sum when he turned 18, but rather to provide him with a stream of income over his lifetime. All parties present at the hearing eventually agreed that $1 million would be invested in a "Settlement Preservation Trust, " with a projected income of "approximately $85, 000 per year" with the $1 million principal being paid back to Hammon when he turned 35. This agreement was reflected in an agreed entry that was executed by a Huntington representative, Berardinelli, Consolo, David, and Sullivan. The agreed entry states, in relevant part:

The parties agree that the sum of [$1, 000, 000] should be invested in what is titled a "Settlement Preservation Trust." [Huntington, ] as guardian of the estate, will be the grantor of the Trust as Guardian and will also be the beneficiary of the Trust until the time [Hammon] reaches the age of majority. Upon reaching the age of majority, [Hammon] will become the beneficiary of the income from the Trust, which is currently projected to be approximately [$85, 000] per year. This income stream will continue until [Hammon] reaches the age of [35] at which time the income will cease and the original principal investment of [$1, 000, 000] will revert to [Hammon].

         {¶8} On June 8, 2000, Consolo filed a motion to accept this undated agreed entry. Attached to the agreed entry was an unsigned schedule of payments sheet that lists a "guaranteed payout" of $1, 950, 745 and "annual benefits" of

$85, 815 per year, guaranteed payable for 23 years. First payment is [November 2, 2000]. Last payment is [November 2, 2022]. This is 23 guaranteed annual payments, and then payments stop.

         {¶9} The payment sheet also notes a "lump sum benefit[] payable [November 2, 2023]" of "$1, 000, 000." The motion to accept this agreed entry was withdrawn by counsel in December 2000.

         {¶10} In July 2000, Huntington entered into a trust agreement with Morgan Chase Trust Company ("Morgan Chase") entitled the "Zachary Hammon Settlement Preservation Trust" ("SPT 1"). This first trust was funded with $1 million. The "schedule of payment instructions" attached as Schedule C to the SPT 1 document is very similar to the payment schedule attached to the agreed entry. It provides for "$84, 815 annually for 23 years. Payments to commence on November 2, 2000" and "$1, 000, 000 lump sum paid on November 2, 2023." However, unlike the payment schedule attached to the agreed entry that provided for "guaranteed" annual and lump sum payments, the SPT 1 document states:

Grantor [HNB] acknowledges that Trustee [First Capital] and the Trust Service Administrator and the custodian [sic] have not made any guarantee with regard to investment return, investment performance of the Trust nor as to the payments set forth in Schedule C attached hereto.

         {¶11} In January 2005, Huntington entered into a second trust agreement with Morgan Chase also entitled the "Zachary Hammon Settlement Preservation Trust" ("SPT 2").[3] SPT 2 was funded with $500, 000. Addendum C attached to the SPT 2 document, captioned "Grantor's Request for Payments" provided:

         {¶12} Periodic Distributions:

$33, 307.89 paid annually to the Beneficiary [Hammon] for 18 years. Payments to commence [May 2, 2008] (age 18) and continue to and including [May 2, 2023] (age 35). * * * $500, 000.00 lump sum payment paid to [Hammon] on [November 2, 2023] (age 35).

         {¶13} SPT 2 contains similar "no guarantee" language to that of SPT 1:

The Beneficiary [HNB] further acknowledges that neither the Trustee [First Capital] nor the Custodian have made any guarantee of investment return, investment performance of the Trust, or of the ability of the Trustee to make a future distributions) contemplated under the Trust.

         {¶14} Addendum C states that "[variations in investment returns from those anticipated may cause the schedule of payments shown above to be higher or lower than those shown."

         {¶15} Hammon turned 18 years old in September 2006. On January 24, 2007, Huntington filed its final account as guardian for the period from October 1, 2003 to September 4, 2006. The account shows assets and receipts totaling $2, 080, 774.52, disbursements of $369, 180.57, and a resulting balance of $1, 711, 594.000. This accounting lists the following assets: Hammon and Berardinelli's home at a market value of $251, 000; SPT 1, with a market value of $509, 038.00; and SPT 2, with a market value of $487, 127.

         {¶16} On January 27, 2007, Hammon signed a ward's receipt acknowledging (1) receipt of $1, 711, 594; (2) approving the Final Account; and (3) "approv[ing] any Guardian or Attorney fees therein, which require [Hammon's] approval." The probate court approved the final account in March 2007 and terminated the guardianship.

         {¶17} Hammon's second amended complaint explains that his father, David, was in prison from February 2000, "shortly after he and his attorney advocated for a guaranteed investment, " until May 2002, and then again from September 2004 until January 2011. His mother, Berardinelli, had issues with drug addiction and died in February 2009. The second amended complaint alleges that despite the termination of the guardianship in March 2007, all defendants continued to act on Hammon's behalf as the bulk of the estate funds were still invested in SPT 1 and SPT 2 after termination of the guardianship.

         {¶18} Hammon alleges that on May 7, 2009, his attorney at the time sent an email to a First Capital representative seeking confirmation as to whether payments under SPT 1 and SPT 2 were fixed or variable and whether there was any return of the principal. He alleges that First Capital did not respond to this inquiry.

         {¶19} In November 2009, Huntington sent a letter to Hammon advising him that "the investment products purchased from First Capital (formerly Morgan Chase) had not performed as anticipated" and recommending that Hammon consult with an attorney. Hammon acknowledges that he did consult with two separate attorneys in 2009 and 2010, but alleges that the efforts of these attorneys to investigate the performance of SPT 1 and SPT 2 were thwarted by the defendants. He asserts that he was finally informed in June 2013, by one or more of the defendants, that neither SPT 1 nor SPT 2 guarantee any specific annual income nor the return of the principal.

         {¶20} Based upon these allegations, Hammon asserted the following claims against Huntington in the second amended complaint: breach of contract (Counts 1 and 8), negligence (Count 2), breach of fiduciary duty (Count 3), fraud (Count 4), civil conspiracy (Count 5), conversion (Count 7), and violations of the Uniform Prudent Investor Act ("UPIA") (Count 9). Hammon also asserted claims of breach of contract, fraud, civil conspiracy, conversion, and violations of the UPIA against First Capital (Counts 4, 5, 6, 8, and 9) and fraud, civil conspiracy, and conversion against Consolo (Counts 4, 5, 6, and 7).

         {¶21} After the filing of the second amended complaint, this matter proceeded on a parallel track with the inactive guardianship case. The trial court's judgment entry explains that in March 2014, Hammon moved the probate court to vacate its March 2007 order approving the final account. In late 2014, all three defendants in the adversarial proceeding separately moved for dismissal under Civ.R. 12(B)(6) of the second amended complaint. Huntington's motion to dismiss was also styled "in the alternative" as a motion for summary judgment. In December 2015, Hammon moved for the funds of SPT 1 and SPT 2 to be released to him. In September 2015, Hammon filed a suggestion of recusal of the judges of the probate court. Both Cuyahoga County Probate Court judges recused themselves, and a visiting judge was appointed over the inactive guardianship case and the present adversarial proceeding.

         {¶22} The trial court denied the motion to vacate the order approving the final account of the guardianship estate in February 2016, but granted the motion to release the trust funds to Hammon in March 2016. Hammon moved the trial court to reconsider its denial of his motion to vacate the order approving the final accounting. The trial court denied his motion to reconsider in May 2016.

         {¶23} In September 2016, the trial court held a hearing on the motions to dismiss, heard oral argument from counsel for all parties, and subsequently issued a judgment entry granting all three motions, dismissing the second amended complaint in its entirety.

         {¶24} It is from this order that Hammon now appeals, raising the following three assignments of error for our review:

         Assignment ...

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