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Ross Sinclaire & Associates, LLC v. Huntington National Bank

Court of Appeals of Ohio, Tenth District

February 22, 2018

Ross Sinclaire and Associates, LLC, Plaintiff-Appellant,
The Huntington National Bank, Defendant-Appellee.

         APPEAL from the Franklin County Court of Common Pleas C.P.C. No. 15CV-2374

         On brief:

          Flagel & Papakirk, LLC, James Papakirk, and Hallie S. Borellis, for appellant.


          Hallie S. Borellis.

         On brief:

          Porter, Wright, Morris & Arthur LLP, Kathleen M. Trafford, Robert W. Trafford, and Jay A. Yurkiw, for appellee.


          Kathleen M. Trafford.


          SADLER, J.

         {¶ 1} Plaintiff-appellant, Ross Sinclaire and Associates, LLC ("RSA"), appeals from a judgment of the Franklin County Court of Common Pleas in favor of defendant-appellee, The Huntington National Bank ("HNB"). For the reasons that follow, we affirm.


         {¶ 2} RSA is a full-service investment banking, securities brokerage, and asset management firm with a principal office in Cincinnati, Ohio. HNB is a national banking association with its principal place of business located in Columbus, Ohio. The events that have resulted in this appeal began in 1998 when Montgomery County issued approximately $5.8 million in Multifamily Housing Mortgage Revenue Bonds. The county allocated the proceeds from the sale of the bonds to a nonprofit corporation known as the Trinity Foundation, Inc. ("Trinity") to finance the redevelopment of the Squirrel Run Apartments ("Squirrel Run") in Trotwood, Ohio for low-income families. In conjunction with the receipt of the bond revenue, Trinity executed and delivered to HNB, as indenture trustee, a promissory note for each series of the bonds, secured by an Open-End First Mortgage, Assignment of Lease and Rents, and Security Agreement. (Ex. 3 attached to Joint Stipulation of Facts and Exs. (hereinafter "Joint Ex.").) The promissory notes obligated Trinity to fund the principal and interest payments due under the bonds out of the rental income derived from Squirrel Run. The existing 160-unit Squirrel Run apartment complex provided the collateral for the loan to Trinity. In 1998, the Squirrel Run property appraised at $5.5 million using an income approach.

         {¶ 3} On November 8, 2001, HNB's trust administrator and senior vice president, Candada Moore ("Trustee Moore"), issued the first Notice to Holders of an Event of Default. The notice provides, in relevant part, as follows:

As of the date of this notice, the Debt Service Reserve Fund * * * was used to make up the deficiencies in the payments for debt service due November 1, 2001 * * * and all holders of the Series A and Series B have been paid in full for such debt service that was due. To date, the Trinity Foundation, Inc. has not replenished the Debt Service Reserve Fund. Series C has not been paid for debt service due November 1, 2001.

(Joint Ex. 4 at 1.)

         {¶ 4} Trustee Moore subsequently issued a similarly worded Notice to Holders of Continuing Events of Default on May 8, 2002, January 8, July 1, and November 20, 2003. Trustee Moore enclosed with the November 20, 2003 notice audited financial reports received on January 5, 2003. On December 10, 2003, Trinity and Montgomery County executed an agreement whereby Trinity agreed to make installment payments for delinquent property taxes.

         {¶ 5} On February 26, 2004, Trustee Moore notified bondholders as follows:

We are writing to you in our capacity as Trustee * * * to advise you that Trinity * * * as owner of the Project property which serves as collateral for and secures the Bonds, and as the obligor under the Loan Agreement which provides the revenues to pay the Bonds, has contacted Reilly Mortgage Group, Inc. ("Reilly") to apply for FHA mortgage insurance and to place a mortgage loan to retire the Bonds. * * * In order to proceed, Reilly requires an up front payment of $23, 000 to pay for initial fees and expenses [and] has requested your consent to use $23, 000 from the Debt Service Reserve Fund which secures the Bonds, to pay Reilly.

(Joint Ex. 10 at 1.) The notice also advised bondholders that Trinity remained delinquent in its real property taxes and acknowledged that "ongoing routine repair and maintenance items, such as fixing storm drains and downspouts and replacing carpet, have regularly fallen behind as occupancy and revenues have not kept pace. There are frequent roof repair needs, patio dividers and balcony floors and railings have deteriorated wood and fogged up patio doors have been an ongoing problem." (Joint Ex. 10 at 2.)

         {¶ 6} On May 18, 2004, Trustee Moore issued another Notice to Holders of Continuing Events of Default. On May 19, Reilly had the Squirrel Run property appraised in furtherance of its efforts to secure FHA refinancing. The appraiser estimated the fair market value of the property, using a cost-basis approach, between $3.3 and $3.5 million.

         {¶ 7} On November 5, 2004, November 8, 2005, and May 5, 2006, Trustee Moore issued a Notice to Holders of Continuing Events of Default and Partial Interest payment. The November 5, 2004 notice informed bondholders that Reilly was unable to secure refinancing because "it has not been able to obtain FHA mortgage insurance due to receipt of an appraisal that was lower than needed for a full refinancing." (Joint Ex. 13 at 2.) The notice indicated "[o]ther refinancing alternatives are being explored." (Joint Ex. 13 at 2.)

         {¶ 8} In February 2006, RSA made its first purchase of the bonds at issue, by and through RSA employee Philip Lucas. Lucas knew the loan to Trinity was in default status when he made the purchase. Lucas and RSA also had access to all prior notices of default, but Lucas did not recall reviewing any of the notices to bondholders issued prior to the time he purchased the bonds in 2006. In his deposition, Lucas maintained he was not concerned the loan was in default status because he believed the collateral securing the loan and the bonds had value. Lucas testified that over several years he engaged in some direct communications with Trustee Moore regarding the status of the project and the value of the collateral. The parties disagree as to the precise nature and import of RSA's communications with Trustee Moore.

         {¶ 9} RSA did receive some scheduled interest payments associated with the Squirrel Run bonds purchased in 2006, but RSA received no such payments after December 2006. Trustee Moore subsequently issued a Notice to Holders of Continuing Events of Default on December 17, 2006, May 8, and November 8, 2007. A Squirrel Run "Balance Sheet" provided to all bondholders as an attachment to the December 27, 2006 notice shows "Total Assets" of $4, 559, 229.84 and "Total Liabilities" of $5, 909, 991.73 as of December 31, 2005. (Joint Ex. 16.)

         {¶ 10} In February 2007, RSA records show it made a profit of $4, 487.55 when Lucas sold some of the Squirrel Run bonds it had purchased in 2006. Lucas shared in these profits pursuant to a profit-sharing agreement with RSA. The record also shows on January 1, 2009, RSA held Squirrel Run bonds purchased by Lucas with a total face value of $250, 000. From January 1 to March 24, 2009, Lucas purchased additional Squirrel Run bonds on behalf of RSA with a total face value of $530, 000, for which it paid $58, 415, approximately 11 cents on the dollar.

         {¶ 11} On April 2, 2009, HNB, "as Trustee for the Multifamily Housing Mortgage Revenue Bonds, " filed a "Complaint on Notes, Foreclosure, Sale of Collateral, Specific Performance of Assignment of Rents, Appointment of a Receiver, and for an Accounting and Inspection" against Trinity and several other defendants in the Montgomery County Court of Common Pleas. (Joint Ex. 19 at 1, 2.) On April 10, 2009, Trustee Moore issued a Notice of Default and Acceleration notifying bondholders of the action.

         {¶ 12} RSA continued to buy Squirrel Run bonds after HNB filed the foreclosure action. RSA bought Squirrel Run bonds with a total face value of $755, 000 for $80, 865, or 9.3 cents on the dollar. The post-foreclosure purchases increased the total face value of RSAs holdings in Squirrel Run bonds to $1, 535, 000 for which it paid a total of $217, 055, roughly 14 cents on the dollar on average.

         {¶ 13} On August 31, 2009, HNB moved the Montgomery County Court of Common Pleas to appoint a receiver. On that same date, the Montgomery County Court of Common Pleas appointed a receiver to "take charge of, preserve, [and] manage" Squirrel Run. (Joint Ex. 21 at 1.) On November 15, 2010, Trustee Moore issued a Notice of Default and Receiver Sale. On August 8, 2011, Trustee Moore issued an Urgent Request for Immediate Direction to all bondholders, which requested bondholder approval of a proposed sale of the Squirrel Run property for $2.45 million, conditioned on the buyer obtaining tax credit financing to rehabilitate the property. The request also indicates "[t]o date the receiver has received a number of offers in the $1, 600, 000 range and attempted to negotiate them higher." (Joint Ex. 23 at 1.)

         {¶ 14} On August 29, 2012, Squirrel Run sold for $1.6 million. After deducting outstanding expenses, taxes, and fees from the sale proceeds, RSA received a distribution out of the net proceeds of $164, 043.05. HNB received a total of $134, 462 for its services as indenture trustee from November 1998 through December 2012.

         {¶ 15} On July 31, 2013, RSA filed a complaint against HNB in the Montgomery County Court of Common Pleas alleging breach of contract and breach of fiduciary duty. That complaint was dismissed without prejudice, and on September 24, 2014, RSA refiled the complaint against HNB in the Hamilton County Court of Common Pleas. On February 18, 2015, the Hamilton County Court of Common Pleas transferred venue of the case to Franklin County. On April 25, 2015, RSA moved the trial court to amend the complaint to add claims for negligence and breach of trust. The trial court granted the motion on May 19, 2015.

         {¶ 16} On May 29, 2015, HNB moved the trial court to dismiss the complaint pursuant to Civ.R. 12(B)(6). The trial court dismissed RSAs claims for common-law negligence and breach of contract on November 20, 2015 for failure to state a claim on which relief may be granted. On August 19, 2016, HNB filed a motion for summary judgment as to the remaining claims for breach of fiduciary duty and breach of trust. HNB argued the four-year statute of limitations barred RSAs claims because as early as 2007, RSA knew or should have known of the alleged breach of trust. RSA argued its claims for breach of trust and breach of fiduciary duty did not accrue until 2012 when it received the distribution of proceeds from the sale of Squirrel Run. RSA argues, alternatively, there are genuine issues of fact as to what RSA knew and when, precluding summary judgment.

         {¶ 17} The trial court found the only reasonable conclusion to be drawn from the evidence is that RSAs claims for breach of fiduciary duty and breach of trust accrued at the latest in April 2009 when HNB filed the complaint in foreclosure and notified bondholders of the action. Accordingly, the trial court held the four-year statute of limitations barred RSAs claims against HNB because they did not file the complaint in Montgomery County until July 31, 2013. The trial court journalized a final judgment entry in favor of HNB on April 17, 2017.

         {¶ 18} RSA timely appealed to this court from the judgment of the trial court.


         {¶ 19} RSA sets forth the following assignment of error:

The trial court erred in granting summary judgment to Huntington National Bank [] on Ross Sinclaire and Associates, LLC's [] claims for breach of fiduciary duty and breach of trust when substantial questions of material fact exist and HNB is not entitled to judgment as a matter of law.


         {¶ 20} Pursuant to Civ.R. 56(C), summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, written admissions, affidavits, transcripts of evidence, and written stipulations of fact, if any, timely filed in the action, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." "Accordingly, summary judgment is appropriate only under the following circumstances: (1) no genuine issue of material fact remains to be litigated, (2) the moving party is entitled to judgment as a matter of law, and (3) viewing the evidence most strongly in favor of the nonmoving party, reasonable minds can come to but one conclusion, that conclusion being adverse to the nonmoving party." Slane v. Hilliard, 10th Dist. No. 15AP-493, 2016-Ohio-306, ¶ 12, citing Byrd v. Arbors E. Subacute & Rehab. Ctr., 10th Dist. No. 14AP-232, 2014-Ohio-3935, ¶ 6, citing Harless v. Willis Day Warehousing Co, 54 Ohio St.2d 64, 66 (1978).

         {¶ 21} " '[T]he moving party bears the initial responsibility of informing the trial court of the basis for the motion, and identifying those portions of the record before the trial court which demonstrate the absence of a genuine issue of fact on a material element of the nonmoving party's claim.' " Byrd at ¶ 7, quoting Dresher v. Burt, 75 Ohio St.3d 280, 292 (1996). Once the moving party meets its initial burden, the nonmovant must set forth specific facts demonstrating a genuine issue for trial. Byrd at ¶ 7, citing Dresher at 293. Because summary judgment is a procedural device to terminate litigation, courts should award it cautiously after resolving all doubts in favor of the nonmoving party. Byrd at ¶ 7, citing Murphy v. Reynoldsburg, 65 Ohio St.3d 356, 358-59 (1992).

         {¶ 22} Appellate review of summary judgment is de novo. Byrd at ¶ 5. When an appellate court reviews a trial court's disposition of a summary judgment motion, it applies the same standard as the trial court and conducts an independent review, without deference to the trial court's determination. Id., citing Maust v. Bank One Columbus, NA, 83 Ohio App.3d 103, 107 (10th Dist.1992); Brown v. Cty. Commrs., 87 Ohio App.3d 704, 711 (4th Dist.1993).


         {¶ 23} In appellant's sole assignment of error, appellant contends the trial court erred when it granted summary judgment in favor of HNB as to the claims for breach of fiduciary duty and breach of trust because there are genuine issues of fact whether the statute of limitations barred appellant's claims. We disagree.

         {¶ 24} One asserting a claim of breach of fiduciary duty must establish the existence of a fiduciary duty, breach of that duty, and injury proximately caused by the breach. Newcomer v. Natl. City Bank, 6th Dist. No. WM-12-007, 2014-Ohio-3619, ¶ 9, appeal dismissed, 141 Ohio St.3d 1429, 2015-Ohio-12, citing Strock v. Pressnell, 38 Ohio St.3d 207, 216 (1988); Sudnick v. Klein, 11th Dist. No. 2001-G-2356, 2002-Ohio-7341, ¶ 25. Appellant's complaint alleges claims for breach of fiduciary duty under the common law and for breach of trust as defined in R.C. 5810.01 et seq. R.C. 2305.09(D) provides a four-year limitations period for a cause of action seeking recovery for "an injury to the rights of the plaintiff not arising on contract nor enumerated in sections 1304.35, 2305.10 to 2305.12, and 2305.14 of the Revised Code." This court has determined the four-year limitations period in R.C. 2305.09(D) applies to a common-law claim for breach of fiduciary duty. Clemens v. Nelson Fin. Group, Inc., 10th Dist. No. 14AP-537, 2015-Ohio-1232, ¶ 46, citing Wells v. C.J. Mahan Constr. Co., 10th Dist. No. 05AP-180, 2006-Ohio-1831, ¶ 26.

         {¶ 25} Under the common law, a cause of action for breach of fiduciary duty which could be brought prior to the termination of a trust is barred by the statute of limitations if not timely filed. Cundall v. U.S. Bank, 122 Ohio St.3d 188, 2009-Ohio-2523, ¶ 29, citing Paschall v. Hinderer, 28 Ohio St. 568, 576 (1876). When, however, a trustee's misconduct is surreptitious or obscured and remains so until the trustee's death or removal, a cause of action by trust beneficiaries against a trustee accrues and the statute of limitations begins to run when the fiduciary relationship ends. Cundall at ¶ 27, citing State ex rel. Lien v. House, 144 Ohio St. 238 (1944).

         {¶ 26} In this instance, RSA's claims for breach of fiduciary duty and breach of trust are predicated on the same operative facts. The gravamen of the complaint is that Trustee Moore failed to timely file a foreclosure action which, according to RSA, would have preserved a greater portion of trust assets for distribution to the bondholders.[1] RSA alleges that HNB, by and through Trustee Moore, breached a duty it owed to RSA by failing to provide the bondholders with relevant information regarding the financial difficulties experienced by Trinity and the deteriorating condition of the Squirrel ...

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