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Akerstrom v. 635 W. Lakeside, Ltd.

Court of Appeals of Ohio, Eighth District, Cuyahoga

January 11, 2018


         Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-15-841708

          ATTORNEYS FOR APPELLANTS For 635 W. Lakeside, Ltd. Megan D. Stricker Collins, Roche, Utley & Garner, L.L.C. For Arahova Trust Mark R. Koberna Jennifer L. Speck Sonkin & Koberna Co., L.P.A. Dean C. Williams Janik, L.L.P.

          ATTORNEYS FOR APPELLEE Amanda A. Barreto Steven M. Ott Lindsey A. Wrubel Ott & Associates Co., L.P.A.

          BEFORE: S. Gallagher, J., E.A. Gallagher, A.J., and Laster Mays, J.



         {¶1} 635 W. Lakeside, Ltd., Arahova Trust, Gus Georgalis, Amy Georgalis, and Nicholas Zarnas appeal the $823, 106 judgment, plus $67, 976.25 in attorney fees, entered in favor of Pamela Akerstrom, a unit owner at the Cloak Factory Condominiums ("Cloak Factory"). Despite awarding Akerstrom damages individually, the trial court ordered Akerstrom to "apply any proceeds of this judgment to the benefit of the unit owners" through the Cloak Factory Home Owners Association (the "Association") - a tacit indication that Akerstrom was not the party entitled to the damages awarded. The Association was not a party in the lawsuit, nor were the remaining unit owners who are represented by the Association. The trial court erred in awarding a monetary judgment in favor of Akerstrom upon damages incurred by a nonparty.

         {¶2} Akerstrom is the president of the Association, and has been since April 2015. She purchased a Cloak Factory unit in 2006, and is responsible for maintenance and other expenses based on her 2.48 percent ownership of the Cloak Factory. Individually, she brought a claim for declaratory relief under R.C. 5311.23(B) to oust the previous board members, the Georgalises and Zarnas, all of whom were affiliated with Arahova Trust - the owner of the unsold units at Cloak Factory. Amy Georgalis and Zarnas were appointed to the board in 2010. 635 W. Lakeside, Ltd., is owned by Gus Georgalis, who is also trustee of the Arahova Trust. As of 2014, Arahova Trust owned just over 55 percent of the 28-unit Cloak Factory. The permanent injunction was granted, leading to Akerstrom's ascension to the Association's board.

         {¶3} Akerstrom advanced a claim for breach of fiduciary duty against Zarnas and Amy Georgalis, along with a claim for breach of the Association's Declaration and Bylaws for Arahova Trust's alleged failure to pay the monthly assessment obligations between 2006 and 2014. Both claims were purportedly advanced under R.C. 5311.23. Despite naming herself individually as the sole plaintiff in the action, Akerstrom readily admitted that she was "not seeking any damages personally [and any] damages will go to the Association." Tr. 277:12-13. Indeed, in the complaint, Akerstrom sought "judgment against Defendants in an amount to be determined at trial and that such judgment be paid directly to the Association." (Emphasis added.) Amended complaint ¶ 89. There were no allegations of individual damages relating to Akerstrom.

         {¶4} The Association established two accounts of note, one for the operating and maintenance expenses and another for the reserve account the Association was required to maintain. The operating account was opened in November 2007 and the reserve account in January 2008. There are no records of the expenses and reserves before those dates. Akerstrom claims that Arahova Trust failed to pay its share of the assessment and that of the reserve account to which the unit owners yearly contributed since 2006.

         {¶5} Akerstrom hired Robert Torok, a forensic accountant, to prove the Association's damages. Torok reviewed the monthly bank statements of the two accounts, but did not ascertain the source of the funds deposited. Akerstrom did the same, but her numbers differed from the expert's. Tr. 281:22-282:2. According to Torok, between 2006 and 2014, the unit owners of the Cloak Factory collectively owed $1, 567, 599 for the assessments and $156, 760 for the reserve account based on the Association's budget statements for each year. The total reserve obligation represented a fixed amount equaling 10 percent of the total assessments. Torok conceded that the budgets for 2008 and 2009 were unavailable, so he used the surrounding years as guides. Torok determined that the defendants owed $1, 074, 090 for the operating assessments between 2006 and 2014.

         {¶6} After simply adding the deposits between 2008 and 2014, totaling $805, 395 for the operating account, Torok assumed that the nondefendant unit owners contributed $493, 509 of that amount between January 2007 and December 2014, despite his concession that he only reviewed each unit owner's obligation as a percentage of the budget and did not review based on the actual billing or payments. Tr. 354:3-6. In other words, Torok was asked to assume that the defendants did not meet their obligation, the very fact of consequence Akerstrom was required to prove by a preponderance of the evidence. Akerstrom contended that there was evidence that no unit owner was delinquent on the assessments or reserve contributions, and therefore, it could be inferred that the nondefendant unit owners paid all that was required. Torok, therefore, concluded that the defendants only contributed $311, 886 owed for all the assessments between 2006 and 2014 ($805, 395-$493, 509).

         {¶7} Torok then calculated that the defendants owed $762, 204 for the assessment owed between 2006 and 2014 ($1, 074, 090-$311, 886). Torok did the same for the reserve account and determined that the defendants owed $62, 092 between 2006 and 2014, based on the amount deposited between 2008 and 2014. The trial court accepted Torok's conclusions.

         {¶8} In addition to the unpaid fees issue, Akerstrom alleged that Amy Georgalis and Zarnas breached a fiduciary duty owed to the Association by not ensuring that Arahova Trust paid its share of the assessment. Tr. 451:3-11. Akerstrom did not contest this assertion that the developer or its agents did not owe a fiduciary duty to the individual unit owners of the Cloak Factory. Belvedere Condominium Unit Owners' Assn. v. R.E. Roark Cos., 67 Ohio St.3d 274, 283, 617 N.E.2d 1075 (1993) (R.C. Chapter 5311 comprehensively defines and regulates the law of condominium development and creates no fiduciary obligation between the developer or its agents and the individual unit owners or the condominium associations). The trial court concluded that Zarnas and Amy Georgalis had "breached their fiduciary duty when they individually served as Board members by failing to act as board members and by taking actions that have harmed the unit owners" since they began serving as board members in 2010. According to the trial court, this meant that Zarnas and Amy Georgalis were jointly liable for the damages caused to the Association between 2006 and 2014.

         {¶9} The trial court erred by imposing a judgment in favor of Akerstrom ...

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