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City of Cleveland v. Embassy Realty Investments, Inc.

Court of Appeals of Ohio, Eighth District, Cuyahoga

June 28, 2018

CITY OF CLEVELAND PLAINTIFF-APPELLEE
v.
EMBASSY REALTY INVESTMENTS, INC., ET AL. DEFENDANTS-APPELLANTS

          Civil Appeal from the Cleveland Municipal Court Case No. 2014 CVH 010418

          ATTORNEY FOR APPELLANTS Richard H. Drucker

          ATTORNEYS FOR APPELLEE Barbara Langhenry City of Cleveland Law Director David M. Douglass Thomas A. Marino Douglass & Associates Co., L.P.A. Lawrence J. Roach

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

          JOURNAL ENTRY AND OPINION

          MARY EILEEN KILBANE, P.J.

         {¶1} Defendant-appellant, John E. Barnes, Jr. ("Barnes"), appeals from the Cleveland Municipal Court's decision granting summary judgment in favor of plaintiff-appellee, the city of Cleveland ("the city"). For the reasons set forth below, we affirm in part, reverse in part and remand.

         {¶2} In October 2005, Barnes registered the trade name Embassy Realty Investments ("Embassy") and purchased a vacant commercial building located at 3902 Lee Road in Cleveland, Ohio ("the property"). Barnes purchased the property from the Southeast Cleveland Church of Christ ("Southeast") for $15, 000. Seven years before Barnes purchased the property from Southeast, the city's director of building and housing determined the property was a public nuisance and issued notices of condemnation and demolition to Southeast. The city sent these same notices to Barnes at his tax mailing address after he acquired the property.

         {¶3} Less than six months after Barnes purchased the property from Southeast, he entered into a 12-year lease agreement with Clear Channel Outdoor, Inc. ("Clear Channel"), which allowed Clear Channel to maintain a billboard on the property. The lease provided for an initial one-time advance payment of $45, 000 upon execution of the lease agreement and annual rent of $1, 250, paid in monthly installments of $104.17.

         {¶4} In January 2007, the city issued notice to Barnes of various building code violations existing on the property and for conducting work without the necessary permits. The city subsequently issued a notice of condemnation to Barnes and posted the notice at the property.

          {¶5} In December 2008, Barnes incorporated Embassy and transferred the property to Embassy by quitclaim deed. The deed recorded with the Cuyahoga County Auditor reflects that Embassy paid no consideration for the property. Barnes claims, however, that Embassy issued a cognovit note to him in the amount of $150, 000 as consideration. The cognovit note identifies Barnes as president, secretary, and treasurer of Embassy; it further lists Barnes and his father, John Barnes, Sr., as the only two members of Embassy's board of directors. Barnes acknowledges he is Embassy's sole shareholder. After transferring his interest in the property to Embassy, Barnes remained lessor to Clear Channel and continued to personally receive monthly lease payments from Clear Channel.

         {¶6} In August 2009, the city's contractor began demolition of the building on the property. Demolition was temporarily halted when the common pleas court issued a temporary restraining order to Barnes in a separate matter. A few days after issuing the restraining order, the common pleas court granted the city's request to dissolve the restraining order, and the city's contractor completed demolition.

         {¶7} In July 2011, Barnes and Embassy filed a complaint against the city in federal district court, alleging various constitutional violations related to demolition of the property. Embassy Realty Invests., Inc. v. Cleveland, 976 F.Supp.2d 931 (N.D.Ohio 2013). The district court granted summary judgment in favor of the city on Barnes and Embassy's claims, but declined to exercise jurisdiction over the city's counterclaim for demolition costs. Id. at 945.

         {¶8} In July 2014, the city filed its initial complaint in the present matter, seeking its costs for demolition of the property from both Embassy and Barnes. In December 2015, the municipal court granted the city's motion for partial summary judgment as to Embassy, entering judgment against it in the amount of $14, 036, plus collection costs and $3, 509 in attorney fees, with statutory interest from the date of demolition.

         {¶9} In April 2016, the trial court granted the city's request to amend its complaint against Barnes. In the amended complaint, the city alleges that Barnes had complete control over Embassy and used its corporate form to "commit fraudulent and/or unlawful acts against [the city]." The city's amended complaint sought to pierce the corporate veil of Embassy to hold Barnes liable for the city's judgment against Embassy for the cost of demolition. Barnes subsequently moved to dismiss the city's amended complaint. In May 2016, the trial court denied Barnes's motion to dismiss.

         {¶10} Later in May 2016, the city filed partial summary judgment as to Barnes. In September 2016, the municipal court granted the city's motion for summary judgment, and entered judgment against Barnes identical to that it previously rendered against Embassy.

         {¶11} It is from this order that Barnes appeals, raising the following five assignments of error for review:

Assignment of Error One
The trial court erred when it denied [Barnes's] motion to dismiss on the ground that [the city] failed to commence its causes of action within the [four-year statute of limitations] as mandated by [R.C.] 1336.09.
Assignment of Error Two
The trial court erred when it denied [Barnes's] motion to dismiss on the ground that sections 3103.09(k) and 367.08(b) of the [Cleveland Codified Ordinances] only authorized [the city] to collect demolition costs from the named property owner on the date of the demolition of August 7, 2009[, ] and thus, [the city] cannot collect demolition costs from [Barnes] and this matter should have been dismissed against him.
Assignment of Error Three
The trial court erred when it denied [Barnes's] motion to dismiss on the ground that [the city] failed to join a necessary party to the action herein, [Southeast], which is jointly and severally liable for demolition costs pursuant to sections 3103.09(k) and 367.08(b) of the [Cleveland Codified Ordinances] only authorized [the city] in that it was an owner in the chain of title of the subject realty after the service of the notice of condemnation, and thus, this case should be dismissed.
Assignment of Error Four
The trial court erred when it granted summary judgment against [Barnes] on the ground that [Barnes] committed fraud by transferring his interest in the subject premises to [Embassy] pursuant to the doctrine established in Belvedere Condominium Owners' Assn. v. RE. Roark Cos.,67 Ohio St.3d 274');">67 Ohio St.3d 274, [1993-Ohio-119, 617 N.E.2d 1075], but failed to commence its ...

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