Schlenker Ents., L.P. v. Reese

[Cite as Schlenker Ents., L.P. v. Reese, 2010-Ohio-5308.]

IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
AUGLAIZE COUNTY

SCHLENKER ENTERPRISES, LP,
PLAINTIFF-APPELLEE,

v.

DONALD K. REESE, ET AL., CASE NO. 2-10-16
DEFENDANTS-APPELLEES,
-and-

MICHAEL J. STUBBS,
DEFENDANT/THIRD-PARTY
PLAINTIFF-APPELLANT, OPINION

v.

IDC OHIO HOLDINGS, LLC, ET AL.,
THIRD-PARTY DEFENDANTS -
APPELLEES.

SCHLENKER ENTERPRISES, LP,
PLAINTIFF-APPELLEE,

v.

DONALD K. REESE, ET AL., CASE NO. 2-10-19
DEFENDANTS-APPELLEES,
-and-

MICHAEL J. STUBBS,
DEFENDANT/THIRD-PARTY
PLAINTIFF-APPELLANT, OPINION

v.

IDC OHIO HOLDINGS, LLC, ET AL.,
THIRD-PARTY DEFENDANTS -
APPELLEES.
Case No. 2-10-16, 2-10-19

Appeals from Auglaize County Common Pleas Court
Trial Court No. 08-CV-0044

Judgments Affirmed in Part, Reversed in Part and Cause Remanded

Date of Decision: November 1, 2010

APPEARANCES:

John A. Poppe for Appellant Michael J. Stubbs

Matthew J. Kentner for Appellee Schlenker Enterprises, LP

Eric K. Combs for Appellees IDC Holding and John Slack

Nelson Genshaft for Appellee Tom Slack

PRESTON, J.

{¶1} Defendant-appellant, Michael J. Stubbs (hereinafter “Stubbs”),

appeals the judgments of the Auglaize County Court of Common Pleas, which

granted partial summary judgment in favor of plaintiff-appellee, Schlenker

Enterprises (hereinafter “Schlenker”), and dismissed all of Stubbs’ claims under

the Ohio Corrupt Practices Act (hereinafter “OCPA”) against Schlenker and third-

party defendants-appellees, IDC Ohio Holdings, L.L.C. (hereinafter “IDC”), John

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Slack, and Tom Slack. For the reasons that follow, we affirm, in part, and reverse,

in part.

{¶2} Stubbs is the current tenant and operator of a Dairy Queen franchise

located in Wapakoneta, Ohio, on real estate that was originally owned by

Schlenker Enterprises. The issues in this appeal concern Stubbs’ liability for past

rent due to Schlenker, which was decided on a motion for partial summary

judgment; and Schlenker’s subsequent sale of its real estate and building to IDC

and the Slacks, which Stubbs claims was the result of a pattern of corrupt activity,

and which issues were decided through Civ.R. 12(B)(6) dismissals.

The Facts

{¶3} On October 18, 1993, Schlenker Enterprises executed a lease

agreement with defendants Donald and Paula Reese, in which Schlenker

Enterprises agreed to construct and lease a building to the Reeses for a period of

fifteen (15) years. In return, the Reeses agreed to only use the leased premises for

the operation of a Dairy Queen restaurant. The Reeses eventually executed a

franchise operating agreement with Dairy Queen, and they were given the right to

conduct a Dairy Queen business on the Schlenker’s premises. Additionally, on

May 27, 1994, the parties executed an addendum to the lease agreement where

they agreed to an increased monthly rent payment of $4,314.00 for the first two

years, and then $4,614.00 for the remainder of the lease.

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{¶4} On May 28, 1996, the Reeses, with Schlenker’s and Dairy Queen’s

approval, assigned their interests in the lease agreement and in the Dairy Queen

franchise operating agreement to defendant Stubbs. In the agreement, Stubbs

assumed and agreed to perform all of the obligations under the original lease

agreement (and subsequent addendum), and agreed to indemnify the Reeses in the

event that Stubbs failed to perform any of the original obligations.

{¶5} After the Reeses assigned their interests to Stubbs, Stubbs began

operating the Dairy Queen business and made his monthly rent payments

($4,614.00) to Schlenker. Everything proceeded smoothly until sometime in 1999

when it is undisputed that Stubbs began to get behind on his monthly rent

payments. It is also undisputed that instead of claiming the lease agreement in

default for Stubbs’ failure to pay rent, Schlenker worked with Stubbs and took

whatever Stubbs could give it as far as rent payments were concerned.

Nevertheless, Schlenker kept a record of Stubbs’ partial rent payments and tallied

the total amount he owed in past rent payments, which it periodically sent to

Stubbs and the Reeses.

{¶6} Ultimately, after several years of mounting back rent payments,

sometime in 2006, Stubbs and Schlenker discussed the possibility of selling their

respective interests (Stubbs’ interest in the Dairy Queen franchise, plus his

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equipment, and Schlenker’s real estate and building) to an outside third-party.1

Eventually, IDC, through its representatives John and Tom Slacks, expressed

interest in buying both the real estate and Stubbs’ equipment and franchise

agreement. IDC signed a letter of intent with Stubbs in which it expressed in

writing that it intended to buy the property and business for a total of $730,000.00,

apportioned as follows: $535,000.00 to Schlenker for the land and building, and

$195,000.00 to Stubbs for the Dairy Queen business. Moreover, IDC drafted,

signed, and gave to Stubbs a sales contract in which it again stated that IDC would

buy the property, building, and business for a total of $730,000.00, apportioned as

follows: $535,000.00 to Schlenker for the land and building, and $195,000.00 to

Stubbs for the Dairy Queen business.

{¶7} The parties’ dispute the specific facts as to what happened after

Stubbs obtained the letter of intent and purchase agreement from IDC.

Nevertheless, it is undisputed that on June 22, 2006, Schlenker sold its real estate

and building to IDC for $535,000.00 and assigned its leaseholder interest to IDC

on July 5, 2006. In addition, it is also undisputed that on July 5, 2006, the same

day it obtained Schlenker’s leaseholder interest, IDC sold the property to an

1
There is some debate as to whether Schlenker and Stubbs entered into an oral agreement in which they
agreed to sell their respective interests together. Stubbs claims that he was given authority to act for
Schlenker in terms of finding and negotiating a deal with a third-party buyer. However, Schlenker claims
that it never gave Stubbs authority, but rather merely expressed that it would consider selling its interest if
an opportunity presented itself.

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Oregon limited liability company, Timberline River Ranch, L.L.C., and Norman

and Roberta Pickett. It is clear that IDC did not purchase, and ultimately has

never purchased from Stubbs his Dairy Queen business assets. In addition, IDC

has never acquired the right to operate a Dairy Queen franchise on that property;

although Stubbs claims that IDC represented to Timberline and the Picketts that it

owned the Dairy Queen business assets and franchise operating agreement, and he

claims that IDC sold these assets and the franchise operating agreement to

Timberline River Ranch and the Picketts as well as the property.

Procedural History

{¶8} Procedurally, this case started on January 31, 2008, when Schlenker

filed suit against Stubbs for past due rent.2 Stubbs filed an answer and

counterclaim on March 18, 2008, denying the allegations made by Schlenker and

claiming that the parties had orally modified the lease agreement. In his

counterclaim, Stubbs asserted claims of breach of oral contract, unjust enrichment,

and fraud. On July 1, 2008, Schlenker filed a motion for summary judgment

against Stubbs, and Stubbs filed a motion for summary judgment against

2
We note that Schlenker also sued the Reeses for Stubbs’ past due rent under the provision of the
assignment in which the Reeses agreed to remain liable under the terms of the original lease for any
defaults committed up until June 1, 2001. The Reeses filed a cross-claim against Stubbs under the
assignment’s indemnification provision. Ultimately, the trial court found that the Reeses were only
responsible for the past due rent that was owed on the date of June 1, 2001, and while the trial court entered
a judgment against the Reeses for that specified amount, it also granted a judgment for indemnification for
the Reeses against Stubbs for that specified amount as well. The Reeses did not appeal, so their judgments
are not at issue on this appeal.

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Schlenker, which he subsequently withdrew on September 30, 2008. During this

time, Stubbs also filed a motion to join IDC Ohio Holdings and filed a third-party

complaint on September 16, 2008.

{¶9} Ultimately, on October 23, 2008, the trial court granted Schlenker’s

motion for summary judgment finding that there were no genuine issues of

material fact and that Stubbs owed Schlenker past rent due.3 In addition, the trial

court allowed Stubbs to amend his counterclaim and third-party complaint.

{¶10} On December 12, 2008, Stubbs filed an amended counterclaim

against Schlenker and a third-party complaint against IDC, John Slack, and Tom

Slack.4 In his amended counterclaim, Stubbs asserted that Schlenker had

committed OCPA violations, had breached its fiduciary relationship with Stubbs,

had been unjustly enriched by its transaction with IDC, and had breached its

contract with him. In his third-party complaint, Stubbs alleged that IDC and the

Slacks had also committed OCPA violations, had been unjustly enriched, and

additionally sought punitive damages on the basis of their conduct.

3
We note that in its October 23, 2008 judgment entry the trial court failed to include Civ.R. 54(B)
language, and because there were other claims pending, its entry was not a final, appealable order.
However, in its March 3, 2010 judgment entry the trial court stated that as to Schlenker’s motion for
summary judgment which it had granted on October 23, 2008, it “finds that said summary judgment of
October 23, 2008, is a final judgment, as there is no just reason for delay.” (Mar. 3, 2010 JE).
4
Stubbs also filed a third-party complaint against David Berry, who also filed a counterclaim against
Stubbs. Eventually, Berry and Stubbs entered into a stipulation dismissing all their claims against one
another, with prejudice. The trial court issued a judgment entry recording the parties’ stipulation and
dismissing their claims against one another with prejudice. (Mar. 12, 2010 JE).

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{¶11} Tom Slack filed a pro se answer to Stubbs’ third-party complaint. In

addition, IDC and John Slack filed a joint answer denying all of the allegations

made in Stubbs’ third-party complaint, and filed a counterclaim against Stubbs for

breach of contract as a result of Stubbs’ alleged failure to make timely rent

payments. Subsequently, IDC and John Slack, and eventually Schlenker, all filed

motions to dismiss the OCPA claims on the basis that Stubbs had failed to state a

claim upon which relief could be granted pursuant to Civ.R. 12(B)(6). Stubbs

thereafter filed a motion contra to all of the motions to dismiss.

{¶12} On December 24, 2009, the trial court granted Schlenker’s motion to

dismiss the OCPA claims pursuant to Civ.R. 12(B)(6). However, the trial court

allowed Stubbs time to amend his third-party complaint as to IDC and the Slacks

with respect to the OCPA violations, stating that his complaint needed to be pled

with more particularity with respect to the parties’ conduct that allegedly gave rise

to these violations. Stubbs filed his amended third-party complaints against IDC

and the Slacks, and in addition, filed an amended counterclaim against Schlenker

on March 1, 2010.

{¶13} Despite Stubbs’ amended third-party complaints and counterclaim,

on March 3, 2010, the trial court dismissed all of the OCPA claims as to all of the

parties (excluding Tom Slack, who at that time had yet to file a Civ.R. 12(B)(6)

motion). In its judgment entry, the trial court reasserted that any violations of the

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OCPA as asserted against Schlenker were dismissed because even if Schlenker

had known that the purchase money for the real estate “was derived from a pattern

of corrupt activity,” this was simply insufficient to state a cause of action pursuant

to R.C. 2923.32 and R.C. 2923.34. With respect to IDC and John Slack, the trial

court found that even construing the allegations most strongly in favor of Stubbs,

the OCPA claims could not stand because he had failed to allege how he directly

had been injured by IDC and John Slack’s pattern of corrupt activity.

{¶14} Subsequently, on March 23, 2010, Tom Slack filed a motion to

dismiss the OCPA claim pursuant to Civ.R. 12(B)(6), and the trial court, for the

exact same reasons that it had dismissed the OCPA claims against IDC and John

Slack (failure of Stubbs to allege an injury resulting from their pattern of corrupt

activity), likewise dismissed the OCPA claim against Tom Slack.

{¶15} Stubbs now appeals and raises five assignments of error for our

review.

ASSIGNMENT OF ERROR NO. I

THE TRIAL COURT ERRED IN GRANTING APPELLEE-
PLAINTIFF SUMMARY JUDGMENT AGAINST
APPELLANT.

{¶16} In his first assignment of error, Stubbs argues that the trial court

erred in granting Schlenker’s motion for summary judgment when there were

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genuine issues of material fact regarding whether Schlenker had waived its right to

collect any past due rent.

{¶17} We review a decision to grant summary judgment de novo. Doe v.

Shaffer (2000), 90 Ohio St.3d 388, 390, 738 N.E.2d 1243. Under this standard of

review, we review the appeal independently, without any deference to the trial

court. Conley-Slowinski v. Superior Spinning & Stamping Co. (1998), 128 Ohio

App.3d 360, 363, 714 N.E.2d 991. A motion for summary judgment will be

granted only when the requirements of Civ.R. 56(C) are met. Thus, the moving

party must show: (1) that there is no genuine issue of material fact, (2) that the

moving party is entitled to judgment as a matter of law, and (3) that reasonable

minds can reach but one conclusion when viewing the evidence in favor of the

non-moving party, and the conclusion is adverse to the non-moving party. Civ.R.

56(C); State ex rel. Cassels v. Dayton City School Dist. Bd. of Edn. (1994), 69

Ohio St.3d 217, 219, 631 N.E.2d 150.

{¶18} The party asking for summary judgment bears the initial burden of

identifying the basis for its motion in order to allow the opposing party a

“meaningful opportunity to respond.” Mitseff v. Wheeler (1988), 38 Ohio St.3d

112, 116, 526 N.E.2d 798. The moving party must also demonstrate the absence

of a genuine issue of material fact as to an essential element of the case. Dresher

v. Burt (1996), 75 Ohio St.3d 280, 292, 662 N.E.2d 264. Then the moving party

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must demonstrate that they are entitled to summary judgment as a matter of law, at

which time, the burden then shifts to the non-moving party to produce evidence on

any issue which that party bears the burden of production at trial. Deutsche Bank

Trust Co. v. McCafferty, 3d Dist. No. 1-07-26, 2008-Ohio-520, ¶9, citing

Civ.R.56(E).

{¶19} Here, Schlenker filed a motion for summary judgment claiming that

it was entitled to back rent from Stubbs in the amount of $111,028.81 as a matter

of law. The trial court agreed and found that, based on the language of the lease

agreement, the addendum, and the assignment, it was clear that Stubbs had an

obligation to make monthly rent payments to Schlenker and that Schlenker had a

right to collect the past due rent Stubbs owed it. We agree.

{¶20} The original lease signed by the Reeses and Schlenker specifically

provided that:

In the event Lessee shall be in default with respect to any of the
Lessee’s covenants or obligations under this Lease, including the
payment of rent, Lessor shall give written notice thereof to
Lessee. If Lessee shall fail to cure such default within thirty (30)
days from the receipt of such notice, or if the default is of such
character as to require more than thirty (30) day period,
commenced with reasonable diligence to remedy the default,
then Lessor may, at its option, terminate this Lease by written
notice to Lessee.

(Plaintiff’s Ex. 1). In addition, the lease went on to provide that:

The failure of either Lessor or Lessee to insist upon a strict and
prompt performance of any of the covenants and conditions of

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Case No. 2-10-16, 2-10-19

this Lease to be performed by the other party shall not be
construed as a waiver or relinquishment of the future right to
insist upon performance of such covenants and conditions by
such other party, but such right shall remain in full force and
effect.

(Id.). Moreover, the assignment, which was signed by Stubbs, the Reeses, and

Schlenker, specifically stated that “[a]ssignee accepts this assignment and assumes

and agrees to perform all of the obligations of Assignors arising or accruing under

this Lease on or after the date of this Agreement.” (Plaintiff’s Ex. 4). One of the

obligations Stubbs agreed to assume and perform was the obligation to pay

Schlenker monthly rent payments in the amount of $4,614.00, which he failed to

do consistently for the leasehold period. Rather than suing Stubbs immediately for

past rent due, Schlenker decided to work with Stubbs and took what Stubbs could

give as far as rent. However, Schlenker’s right to collect past due rent pursuant to

the terms of the lease agreement remained in full force and effect despite the fact

that Schlenker failed to sue Stubbs immediately.

{¶21} Nevertheless, on appeal Stubbs claims that there were genuine issues

of material fact as to whether Schlenker had waived its right to seek back rent

payments from him directly. In particular, Stubbs claims that when Schlenker

transferred its leaseholder’s interest over to IDC, it worked out a deal with IDC in

which instead of giving Stubbs the entire amount of the purchase money, IDC

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would instead give Schlenker $111,028.81 of the purchase money owed to Stubbs,

which represented the amount Stubbs owed Schlenker in back rent.

{¶22} We note that below Stubbs only argued that he and Schlenker had

“orally modified” the lease agreement and did not specifically raise the issue of

waiver arising as a result of Schlenker and IDC’s transaction. As such, we find

that Stubbs has waived this argument by failing to raise it in the trial court.

Dibert v. Watson, 3d Dist. No. 8-09-02, 2009-Ohio-2098, ¶15, citing State ex re.

Zollner v. Indus. Comm. (1993), 66 Ohio St.3d 276, 278, 611 N.E.2d 830.

Nonetheless, even if we were to find that Stubbs has not waived the issue, we find

that there are no genuine issues of material fact regarding whether Schlenker had

waived its right to collect past due rent directly from Stubbs, because even

considering the evidence in a light most favorable to Stubbs, it is clear that

Schlenker never waived its right to sue Stubbs directly for past rent due.

{¶23} The particular section of the purchase agreement between IDC and

Schlenker that Stubbs cites to in support of his argument specifically provided:

Past due account. Purchaser acknowledges that Seller has
notified them that Mike Stubbs, (dba Wapakoneta Dairy
Queen), has a past due account of approximately $111,000.00
and has agreed to have this amount paid directly to Schlenker
Enterprises LP by the Purchaser from the proceeds due to them
from the sale of the operating assets. Seller will forward an
updated statement of account to Purchaser at the closing. This
amount is to be paid at the later closing with Mike Stubbs and
deducted from the Stubbs proceeds.

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(Plaintiff’s Ex. 5). In addition, Stubbs claims that even Philip Schlenker believed

that Schlenker and Stubbs had had a deal in which they would both sell their

respective interests to IDC, and Schlenker would then collect the back rent from

Stubbs’ portion of the sale proceeds. At his deposition, Philip Schlenker

acknowledged that he and Stubbs had agreed to work together to sell both the

business and the real estate together, and that such a deal would result in

Schlenker getting paid back whatever lease money it was owed. (Schlenker Dep.

at 31). Stubbs claims that this provision in its purchase agreement with IDC,

along with Philip Schlenker’s personal understanding that Schlenker would get

paid by IDC when IDC bought out Stubbs, raises a question of fact as to whether

Schlenker waived its right to go after Stubbs directly for past due rent. We

disagree.

{¶24} It is very clear Schlenker never waived its right to sue Stubbs

directly for past rent due. All the provision in the real estate agreement and Philip

Schlenker’s testimony illustrate is Schlenker’s attempt at guaranteeing its payment

for the past due rent owed to it by Stubbs. Despite Stubbs’ arguments to the

contrary, this arrangement was merely an alternative payment plan that was solely

conditioned on IDC purchasing Stubbs’ assets, which for whatever reason, never

occurred. It in no way amounted to a waiver of its right to collect past rent due

from Stubbs directly. In fact, Schlenker’s arrangement with IDC just further

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demonstrates that Schlenker never had any intention of waiving its right to collect

the past due rent. Therefore, we find that the trial court did not err in granting

summary judgment to Schlenker against Stubbs for the amount of the past rent due

because there was no genuine issue of material fact as to whether Stubbs owed

Schlenker past due rent.

{¶25} Stubbs’ first assignment of error is, therefore, overruled.

ASSIGNMENT OF ERROR NO. II

THE TRIAL COURT ERRED IN THE OHIO CIVIL RULE
12(B)(6) DISMISSAL

ASSIGNMENT OF ERROR NO. III

THE TRIAL COURT ERRED BY FINDING THAT THE
PLAINTIFF IN COUNTER-CLAIM HAD NO DAMAGES
FROM THE PATTERN OF CORRUPT ACTIVITY SIMPLY
BECAUSE HE WAS NOT THE TARGET

{¶26} In his second and third assignments of error, Stubbs argues that the

trial court erred in dismissing his OCPA claims against Schlenker, IDC, and the

Slacks on the basis that his complaint and counterclaim failed to state claims upon

which relief could be granted under Civ.R. 12(B)(6).

{¶27} “A motion to dismiss for failure to state a claim upon which relief

can be granted is procedural and tests the sufficiency of the complaint.” State ex

rel. Hanson v. Guernsey Cty. Bd. of Commrs. (1992), 65 Ohio St.3d 545, 548, 605

N.E.2d 378, citing Assn. for the Defense of the Washington Local School Dist. v.

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Kiger (1989), 42 Ohio St.3d 116, 117, 537 N.E.2d 1292. For that reason, a trial

court may not rely upon evidence or allegations outside the complaint when ruling

on a Civ.R. 12(B)(6) motion. State ex rel. Fuqua v. Alexander (1997), 79 Ohio

St.3d 206, 207, 680 N.E.2d 985. “Dismissals under Civ.R. 12(B)(6) are proper

where the language of the writing is clear and unambiguous.” Keenan v. Adecco

Employment Services, Inc., 3d Dist. No. 1-06-10, 2006-Ohio-3633, ¶9.

{¶28} To sustain a Civ.R. 12(B)(6) dismissal, “it must appear beyond

doubt that the plaintiff can prove no set of facts in support of the claim that would

entitle the plaintiff to relief.” LeRoy v. Allen, Yurasek, & Merklin, 114 Ohio St.3d

323, 2007-Ohio-3608, 872 N.E.2d 254, ¶14, citing Doe v. Archdiocese of

Cincinnati, 109 Ohio St.3d 491, 2006-Ohio-2625, 849 N.E.2d 268, ¶11.

Additionally, the complaint’s allegations must be construed as true, and any

reasonable inferences must be construed in the nonmoving party’s favor. Id.,

citing Maitland v. Ford Motor Co., 103 Ohio St.3d 463, 2004-Ohio-5717, 816

N.E.3d 1061, ¶11; Kenty v. Transamerica Premium Ins. Co. (1995), 72 Ohio St.3d

415, 418, 650 N.E.2d 863.

{¶29} When reviewing a Civ.R. 12(B)(6) decision, this Court must

determine whether the complaint’s allegations constitute a statement of a claim

under Civ.R. 8(A). Keenan, 2006-Ohio-3633, at ¶7. “All that the civil rules

require is a short, plain statement of the claim that will give the defendant fair

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notice of the plaintiff’s claim and the grounds upon which it is based.” Patrick v.

Wertman (1996), 113 Ohio App.3d 713, 716, 681 N.E.2d 1385, citing Kelly v. E.

Cleveland (Oct. 28, 1982), 8th Dist. No. 44448. See, also, Civ.R. 8(A)(1). When

filing a claim pursuant to Civ.R. 8(A), “[a] party is not required to “plead the legal

theory of recovery”; furthermore, “a pleader is not bound by any particular theory

of a claim but that the facts of the claim as developed by the proof establish the

right to relief.” Illinois Controls, Inc. v. Langham (1994), 70 Ohio St.3d 512, 526,

639 N.E.2d 771. Indeed, “that each element of [a] cause of action was not set

forth in the complaint with crystalline specificity” does not render it fatally

defective and subject to dismissal. Border City Sav. & Loan Ass’n v. Moan

(1984), 15 Ohio St.3d 65, 66, 472 N.E.2d 350. See, also, Parks v. Parks (Mar. 5,

1998), 3d Dist No. 1-97-60, at *2. However,

the complaint must contain either direct allegations on every
material point necessary to sustain a recovery on any legal
theory, even though it may not be the theory suggested or
intended by the pleader, or contain allegations from which an
inference fairly may be drawn that evidence on these material
points will be introduced at trial.

Fancher v. Fancher (1982), 8 Ohio App.3d 79, 83, 455 N.E.2d 1344, citing 5

Wright & Miller, Federal Practice & Procedure: Civil (1969), at 120-123, Section

1216.

{¶30} This Court reviews de novo a trial court’s decision to grant or deny a

Civ.R. 12(B)(6) motion. RMW Ventures, L.L.C. v. Stover Family Invest., L.L.C.,

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Case No. 2-10-16, 2-10-19

161 Ohio App.3d 819, 2005-Ohio-3226, 832 N.E.2d 118, ¶8, citing Hunt v.

Marksman Prod. (1995), 101 Ohio App.3d 760, 762, 656 N.E.2d 726. This Court

may substitute, without deference, its judgment for that of the trial court when

reviewing de novo. Castlebrook, Ltd. v. Dayton Properties Ltd. Partnership

(1992), 78 Ohio App.3d 340, 346, 604 N.E.2d 808.

{¶31} Here, Stubbs alleged in his complaints that Schlenker, IDC, and the

Slacks had, in some manner, committed OCPA violations, pursuant to R.C.

2923.32 et seq. The OCPA was modeled on the federal Racketeer Influenced and

Corrupt Organizations Act (“RICO”), Section 1961, Title 18, U.S. Code.

Generally, as part of the OCPA, R.C. 2923.32(A), makes it unlawful for any

person employed by or associated with any enterprise to “conduct or participate in,

directly or indirectly, the affairs of the enterprise through a pattern of corrupt

activity or the collection of an unlawful debt.” R.C. 2923.33 grants a civil remedy

to a person injured or threatened with injury by a violation of R.C. 2923.32. In

order to allege a civil claim under the OCPA, generally a plaintiff must allege with

specificity:

(1) that conduct of the defendant involves the commission of
two or more specifically prohibited state or federal criminal
offenses, (2) that the prohibited criminal conduct of the
defendant constitutes a pattern of corrupt activity, and (3) that
the defendant has participated in the affairs of an enterprise or
has acquired and maintained an interest in or control of an
enterprise.

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Kondrat v. Morris (1997), 118 Ohio App.3d 198, 209, 692 N.E.2d 246, citing

Universal Coach, Inc. v. New York City Transit Auth., Inc. (1993), 90 Ohio

App.3d 284, 291, 629 N.E.2d 28. However, “failure of a plaintiff to plead any of

the elements necessary to establish a RICO violation results in a defective

complaint which cannot withstand a motion to dismiss as based upon a failure to

state a claim upon which relief can be granted.” Universal Coach, Inc., 90 Ohio

App.3d at 291.

{¶32} We note that the trial court dismissed the OCPA claims with respect

to Schlenker for a different reason than with respect to IDC and the Slacks.

Therefore, we will address each of the Civ.R. 12(B)(6) dismissals separately.

{¶33} Nevertheless, our review of the record demonstrates that Stubbs’

third-party complaint and amended counterclaim alleged the same following set of

facts: that he and Schlenker were tenant and landlord, respectively, of a building in

which he operated a licensed franchise of Dairy Queen; that Stubbs’ was the

owner of the Dairy Queen business assets at that location; that he and Schlenker

had entered into some kind of an oral contract in which they agreed to sell both the

real estate and the business assets of Stubbs’ business together to an outside third-

party; that Stubbs found IDC and the Slacks and began negotiating the sale of the

real estate and the business assets on behalf of himself and Schlenker; that Stubbs

signed a “Letter of Intent to Purchase’ submitted to him by IDC through its agent

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Tom Slack on or about March 29, 2006; that Stubbs learned of problems with IDC

through his negotiations; that Stubbs did not sign the ‘Purchase & Sales

Agreement’ signed by Tom Slack on behalf of IDC dated May 30, 2006, tendered

by IDC through its agent Tom Slack; that Schlenker proceeded to sell its real

estate to IDC separately; that IDC immediately sold the real estate to another

investor for an amount much greater than what IDC had paid to Schlenker; that

IDC’s scheme was to hold out properties to prospective investors as if IDC was

the franchise owner of Dairy Queen, as if they owned the properties before they

did, and as if the investors would be able to own the operating Dairy Queen

franchise when Dairy Queen had not approved such transactions and ‘was not

allowing the franchise to be transferred’; that the buyers of the real estate from

IDC were led to believe that IDC also owned the business assets belonging to

Stubbs even though they had never purchased such business assets; that the

investors were the ones who were directly injured by IDC and the Slacks’ pattern

of corrupt activity. (Dec. 17, 2008 Counterclaim & Third-Party Complaint at 10);

(Mar. 1, 2010 Amended Counterclaim and Third-Party Complaint).

Schlenker

{¶34} On December 24, 2009, the trial court issued a judgment entry

dismissing the OCPA claim against Schlenker finding that Stubbs had failed to

allege with particularity “all three prongs of [the] test,” and as such, found that

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there were not sufficient pleadings to support an OCPA claim against Schlenker.

(Dec. 24, 2009 JE at 2). Consequently, Stubbs attempted to file an amended

counterclaim against Schlenker, on March 1, 2010. In its March 3, 2010 judgment

entry, the trial court noted that it had already granted a motion to dismiss as to all

claims arising under OPCA alleged against Schlenker. (Mar. 3, 2010 JE at 2).

Nevertheless, the trial court still addressed Stubbs’ amended counterclaim, and

ultimately found that he had once again failed to allege all of the elements for a

OCPA cause of action under R.C. 2923.32(A)(3). (Id.). We agree.

{¶35} First of all, we note that it is difficult to determine what specific

causes of action Stubbs is alleging against Schlenker. Nevertheless, our review of

the record demonstrates that Stubbs’ counterclaim alleged the following:

“Schlenker’s conduct violated Ohio Revised Code §2923.32 by receiving proceeds

derived directly or indirectly from an enterprise which conducted criminal activity,

to wit, theft by deception, and by said deception took control of property beyond

the scope of authority or implied authority of Stubbs.” (Dec. 17, 2008

Counterclaim & Third-Party Complaint at 10). Furthermore, Stubbs’ amended

counterclaim goes on to allege: “Specifically Ohio Revised Code §2923.32(A)(3)

which does not require that the person be a participant in the conspiracy, rather

just requires that the person received proceeds derived directly or indirectly from a

pattern of corrupt activity.” (Mar. 1, 2010 Amended Counterclaim). As a result,

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taking all of Stubbs’ allegations as true and construing all inferences in his favor,

the only OCPA cause of action this Court can determine from Stubbs’ pleadings is

a claim pursuant to R.C. 2923.32(A)(3).5 However, a review of the record

demonstrates that Stubbs’ counterclaim only alleged that Schlenker was

“knowingly receiving money derived from a pattern of corrupt activity, when it

sold its real estate to IDC knowing that it was engaging in a pattern of corrupt

activity.” R.C. 2923.32(A)(3) states that:

No person, who knowingly has received any proceeds derived,
directly or indirectly, from a pattern of corrupt activity or the
collection of any unlawful debt, shall use or invest, directly or
indirectly, any part of those proceeds, or any proceeds derived
from the use or investment of any of those proceeds, in the
acquisition of any title to, or any right, interest, or equity in, real
property or in the establishment or operation of any enterprise.

(emphasis added). Thus, even when taking all of Stubbs’ allegations as true and

construing all inferences in his favor, it is clear that Stubbs’ failed to allege with

particularity a cause of action for R.C. 2923.32(A)(3). Nowhere in Stubbs’

amended counterclaim does he allege that Schlenker used or invested those

proceeds in the acquisition of any title to real estate or the operation of any

enterprise. Just knowingly receiving proceeds from a pattern of corrupt activity is

5
At oral arguments, Stubbs’ counsel stated that they had only alleged that Schlenker had conspired to
engage in a corrupt activity with IDC and the Slacks pursuant to the separate conspiracy statute. However,
as we will discuss below in his fifth assignment of error, Stubbs’ counterclaim failed to assert a conspiracy
allegation. Rather, based on his pleadings, this Court can only find that Stubbs’ counterclaim attempted to
raise a R.C. 2923.32(A)(3) cause of action against Schlenker.

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not sufficient to give rise to a cause of action under R.C. 2923.32(A)(3). The

plaintiff must allege that that party actually used or invested those proceeds in the

acquisition of title, right, interest or equity in real estate or in the establishment or

operation of any enterprise. Therefore, we find that the trial court did not err in

dismissing the OCPA claim against Schlenker since Stubbs’ failed to allege all of

the elements for an OCPA cause of action.

IDC and the Slacks

{¶36} In his December 17, 2008 third-party complaint, Stubbs alleged that

IDC and the Slacks had violated OCPA by engaging in “acts of mail fraud, wire

fraud, and criminal infringement of a copyright in regards to the sale and re-

leasing of the DQ Properties.” (Dec. 17, 2008 Counterclaim & Third-Party

Complaint at 15). On December 24, 2009, the trial court noted in its judgment

entry that while the pleadings did put the defendants on notice as to which

criminal violations they were accused of committing, the pleadings failed to allege

with particularity what conduct of the defendants amounted to mail fraud, wire

fraud, criminal infringement of a copyright. (Dec. 24, 2009 JE). As a result, the

trial court granted Stubbs leave to amend his complaint as to those defendants, and

warned him that “[f]ailure to set forth with particularity such matters as are

vaguely referred to in the Complaint will result in the Court issuing a decision

consistent with this opinion.” (Id. at 2).

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{¶37} Accordingly, Stubbs filed an amended third-party complaint against

IDC and the Slacks on March 1, 2010. Nevertheless, on March 3, 2010, the trial

court dismissed the OCPA claims against IDC and John Slack pursuant to Civ.R.

12(B)(6) for failure to state a claim on which relief can be granted, and similarly

dismissed the OCPA claims against Tom Slack on March 23, 2010. Even though

it had given Stubbs time to amend his complaint to further specify the particular

conduct that IDC and the Slacks had allegedly committed, the trial court

ultimately found that Stubbs had failed to allege how he had been injured by IDC

and the Slacks’ wrongful conduct under OCPA. (Mar. 3, 2010 JE at 3-5), (Mar.

23, 2010 JE). Consequently, because Stubbs had failed to allege facts showing

how he had standing to bring the claim, the trial court dismissed the OCPA claims

against IDC and the Slacks pursuant to Civ.R. 12(B)(6). We agree.

{¶38} Taking all of Stubbs’ allegations as true and construing all

inferences in his favor, all Stubbs alleged was that IDC and the Slacks engaged in

a pattern of corrupt activity that resulted in injuries to investors who had

purchased properties from IDC. A civil OCPA claim only can be brought by

persons who are injured or threatened with injury from an OCPA violation.

Samman v. Nukta, 8th Dist. No. 85739, 2005-Ohio-5444, ¶26 (“Appellant was not

injured or threatened with injury by this activity, so he cannot maintain a civil

RICO claim on this basis”); U.S. Demolition & Contracting, Inc. v. O’Rourke

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Case No. 2-10-16, 2-10-19

Constr. Co. (1994), 94 Ohio App.3d 75, 85-86, 640 N.E.2d 235 (affirming the

dismissal of OCPA claims that failed to allege injury). On the face of his third-

party complaint, Stubbs only alleged that IDC and the Slacks had defrauded

“unsuspecting investors” into buying Dairy Queen properties, business assets, and

franchises that they did not own. Because he failed to show how he had been

injured from the OCPA violations, the trial court was correct in dismissing his

OCPA claims against IDC and the Slacks for lack of standing.

{¶39} Overall, we find that the trial court was correct to dismiss the OCPA

claims against Schlenker, IDC, and the Slacks pursuant to Civ.R. 12(B)(6),

because for the reasons stated above Stubbs failed to state claims upon which

relief could be granted.

{¶40} Stubbs’ second and third assignments of error are, therefore,

overruled.

ASSIGNMENT OF ERROR NO. IV

THE TRIAL COURT ERRED IN TREATING THE OHIO
CIVIL RULE 12(B)(6) DISMISSAL TO BE ON THE MERITS.

{¶41} In his fourth assignment of error, Stubbs claims that the trial court

erred by treating the Civ.R. 12(B)(6) dismissals as “with prejudice,” or on the

merits, as opposed to “without prejudice,” or not on the merits.

{¶42} In this particular case, the trial court was silent as to whether the

Civ.R. 12(B)(6) dismissals were with or without prejudice. However, while the

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Case No. 2-10-16, 2-10-19

trial court’s ruling did not specify whether the dismissals were with prejudice, “[a]

trial court’s silence as to the effect of a dismissal is treated as a ruling that the

dismissal is with prejudice.” Ballreich Bros., Inc. v. Criblez (July 12, 2010), 3d

Dist. No. 5-09-36, 2010-Ohio-3263, ¶8 fn.3, quoting Parker v. Giant Eagle, Inc.,

7th Dist. No. 01 C.A. 174, 2002-Ohio-5212, ¶37, citing Civ.R. 41(B)(3). As such,

we must determine whether the trial court erred in treating any of the Civ.R.

12(B)(6) dismissals as being on the merits.

{¶43} With respect to Schlenker, we believe that the trial court’s dismissal

should have been treated as being without prejudice. “A motion to dismiss for

failure to state a claim upon which relief can be granted is procedural and tests the

sufficiency of the complaint.” State ex rel. Hanson v. Guernsey Cty. Bd. of

Commrs. (1992), 65 Ohio St.3d 545, 548, 605 N.E.2d 378, citing Assn. for the

Defense of the Washington Local School Dist. v. Kiger (1989), 42 Ohio St.3d 116,

117, 537 N.E.2d 1292. Moreover, this Court just recently found that a trial court’s

Civ.R. 12(B)(6) dismissal for a plaintiff’s failure to allege with particularity a

negligence cause of action against the defendants should have been treated as a

dismissal without prejudice, because we found that the claim could have

presumably been pleaded in a way that did state a cause of action for relief.

Ballreich Bros., Inc., 2010-Ohio-3263, at ¶¶12-13.6 Similarly, Stubbs failed to

6
We note that judges from the 2nd District Court of Appeals were sitting by assignment on this case.

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Case No. 2-10-16, 2-10-19

allege with particularity all of the elements of an OCPA cause of action against

Schlenker. Presumably, Stubbs could plead the OCPA cause of action in another

way that does state a claim for relief. As such, the trial court’s dismissal should

have been without prejudice insofar as its dismissal concerned failing to allege

with particularity all of the elements of an OCPA cause of action.

{¶44} We also find that the trial court’s Civ.R. 12(B)(6) dismissals against

IDC and the Slacks should have been without prejudice as well. Generally, a

dismissal that is premised on jurisdiction “operate[s] as a failure other than on the

merits” and should be a dismissal without prejudice. Wells Fargo Bank, N.A. v.

Byrd, 178 Ohio App.3d 285, 2008-Ohio-4603, 897 N.E.2d 722, ¶18, citing Civ.R.

41(B)(4). A dismissal of an action because one of the parties does not have

standing is not a dismissal on the merits. Id., citing State ex rel. Coles v.

Granville, 116 Ohio St.3d 231, 2007-Ohio-6057, 877 N.E.2d 968, ¶51. As a

result, the Civ.R. 12(B)(6) dismissals against IDC and the Slacks were not

dismissals on the merits insofar as the trial court’s dismissals concerned Stubbs’

failure to demonstrate how he had standing to bring an OCPA action against IDC

and the Slacks.

{¶45} Therefore, while we agree that the trial court was correct in

dismissing the OCPA claims in Stubbs’ third-party complaint and counterclaim

against Schlenker, IDC, and the Slacks for failing to state claims upon which relief

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could be granted, the ultimate reasons for dismissing those OCPA claims were

procedural in nature (i.e., standing and failing to allege with particularity), and as

such, they should have been considered as dismissals without prejudice.

{¶46} Stubbs’ fourth assignment of error is, therefore, sustained.

ASSIGNMENT OF ERROR NO. V

THE COURT FAILED TO CONSIDER THAT
APPELLEE/PLAINTIFF COMMITTED CONSPIRACY TO
COMMIT A PATTERN OF CORRUPT ACTIVITY

{¶47} In his fifth assignment of error, Stubbs claims that the trial court

erred by failing to consider his conspiracy claim against Schlenker pursuant to

R.C. 2923.01(A)(1). Stubbs claims that he had alleged in his counterclaim that

Schlenker had committed conspiracy to commit a pattern of corrupt activity. In

particular, Stubbs claims that he had alleged this conspiracy claim in his

counterclaim when he alleged that Schlenker had conspired “with IDC in the scam

by selling its real estate knowing it was to be used by IDC in a questionable

business practice,” pursuant to R.C. 2923.01(A)(1). (Appellant’s Brief at 13). As

a result, Stubbs claims that the trial court’s dismissal of his OPCA claims against

Schlenker was in error.

{¶48} First of all, as we noted above, it is extremely difficult to determine

what exactly Stubbs alleged in his counterclaim and amended counterclaim against

Schlenker. Nevertheless, after reviewing Stubbs’ counterclaim and his subsequent

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Case No. 2-10-16, 2-10-19

amended counterclaim, this Court cannot find any allegations of conspiracy

against Schlenker. From what can be gathered from Stubbs’ pleadings, the only

OCPA theory he raised against Schlenker was pursuant to R.C. 2923.32(A)(3),

which as discussed above was not pled with particularity. “‘A complaint has an

obligation to assert all theories of recovery for a single debt owed in the same

cause of action. Failure to do so results in that remedy being forever waived.’”

Maverick Oil & Gas, Inc. v. Barberton City School Dist. Bd. of Edn., 171 Ohio

App.3d 605, 2007-Ohio-1682, 872 N.E.2d 322, ¶23, quoting Fort Jennings State

Bank v. Roof (Aug. 2, 1988), 3d Dist. No. 12-86-5, at *4. While the trial court did

not consider the claim of conspiracy to commit a pattern of corrupt activity, it was

not required to consider the claim as it was not adequately raised by Stubbs in his

pleadings.

{¶49} Furthermore, we note that Stubbs’ amended counterclaim in fact

directly contradicts his argument that he had alleged a conspiracy theory against

Schlenker:

39. Stubbs does not assert that he has a claim against Schlenker
as a co-conspirator of an Ohio Pattern of Corrupt activity.
However, the following first Claim is asserted as it is not
relevant to the RICO charge for which the Court granted
summary judgment in its Entry, dated December 21, 2009.

(Mar. 1, 2010 Amended Counterclaim and Third-Party Complaint at 11).

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Case No. 2-10-16, 2-10-19

{¶50} Therefore, based on the above, we find that the trial court did not err

when it failed to consider Stubbs’ allegations that Schlenker had conspired to

commit a pattern of corrupt activity since Stubbs failed to adequately allege a

separate conspiracy claim against Schlenker.

{¶51} Stubbs’ fifth assignment of error is, therefore, overruled.

{¶52} Having found no error prejudicial to the appellant herein in the

particulars assigned and argued with respect to appellant’s first, second, third, and

fifth assignments of error, we affirm the judgments of the trial court as it pertains

to those assignments of error. However, having found error prejudicial to the

appellant herein in the particulars assigned and argued with respect to appellant’s

fourth assignment of error, we reverse the judgments of the trial court as it pertains

to that assignment of error and remand for further proceedings consistent with this

opinion.

Judgments Affirmed in Part,
Reversed in Part and
Cause Remanded

WILLAMOWSKI, P.J. and SHAW, J., concur.

/jlr

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