Dana Partners, L.L.C. v. Koivisto Constructors & Erectors, Inc.

[Cite as Dana Partners, L.L.C. v. Koivisto Constructors & Erectors, Inc., 2012-Ohio-6294.]

IN THE COURT OF APPEALS

ELEVENTH APPELLATE DISTRICT

TRUMBULL COUNTY, OHIO

DANA PARTNERS, LLC, : OPINION

Plaintiff-Appellee/ :
Cross-Appellant, CASE NO. 2011-T-0029
:
- vs -
:
KOIVISTO CONSTRUCTORS
& ERECTORS, INC., et al., :

Defendants-Appellants/ :
Cross-Appellees.

Civil Appeal from the Trumbull County Court of Common Pleas, Case No. 2009 CV
03127.

Judgment: Modified and affirmed as modified.

William L. Hawley and Matthew G. Vansuch, Harrington, Hoppe & Mitchell, Ltd., 108
Main Avenue, S.W., Suite 500, P.O. Box 1510, Warren, OH 44482-1510. (For Plaintiff-
Appellee/Cross-Appellant).

Robert F. Burkey, Burkey, Burkey & Scher Co., L.P.A., 200 Chestnut Avenue, N.E.,
Warren, OH 44483-5805 (For Defendants-Appellants/Cross-Appellees).

THOMAS R. WRIGHT, J.

{¶1} This case involves both an appeal and cross-appeal from a final order of

the Trumbull County Court of Common Pleas. In the appeal, appellants/cross-

appellees, Rudolph F. Koivisto and his two construction companies, contest the merits

of the trial court’s decision entering judgment against the two construction companies,
but not Koivisto personally, on appellee/cross-appellant, Dana Partners, L.L.C.’s

“contract” claim. In the cross-appeal, Dana Partners contest the trial court’s separate

ruling that, even though Koivisto’s companies are liable for the sum of $137,115.83,

Koivisto himself is not personally liable because there is no showing that he engaged in

fraudulent behavior.

{¶2} Dana Partners is an Ohio business entity with its principal place of

operations in Warren, Ohio. The managing partner of the entity is Richard Thompson,

who also owns, or has an interest in, other local businesses that engage in some form

of manufacturing. As part of its business interests, Dana Partners owns a building

located on Dana Street in the City of Warren. This building contains facilities for four

separate manufacturing companies.

{¶3} In early 2007, a serious problem developed with the roof of the building in

question. Acting on behalf of Dana Partners, Richard Thompson contacted a consulting

engineer, Kurt Sauer, and Rudolph Koivisto. At that time, Koivisto was the sole owner

of Koivisto Constructors and Erectors, Inc., an Ohio corporation, existing since 1994.

{¶4} After temporary repairs had been finished, Thompson decided to replace

all three sections of the roof. Upon consulting with Engineer Sauer, Thompson chose to

hire two companies to perform the work. The first company was Connell, Inc., a roofing

contractor. Connell was primarily responsible for the actual removal of the old roof and

the installation of the new roof.

{¶5} Thompson also hired Koivisto and his corporation to perform two general

functions at the work site. First, Koivisto contracted to act as construction manager over

the entire project. Under this aspect of their agreement, Dana Partners was required to

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pay Koivisto the sum of $1,500 per week. Second, Koivisto’s company was to provide

“plan protection” regarding the various equipment and facilities inside the building. The

essential purpose of the “plan protection” services was to enable the four manufacturing

companies to continue to use the building while the new roof was installed. As to these

services, the parties’ agreement only stated that Dana Partners’ costs would not exceed

$88,000.

{¶6} Work on the “roof” project officially began in September 2007, and lasted

approximately four months. During the course of the work, Koivisto’s company soon

began to perform certain duties that had not been referenced in the agreement between

it and Dana Partners. For example, Koivisto’s company started to dispose of the scraps

Connell’s workers generated in removing the old roof.

{¶7} Each month during the project, Koivisto’s company sent Dana Partners a

numbers of invoices covering the work performed. These invoices were separated into

one of four categories. For example, the company sent separate invoices for managing

the construction site and for providing the “protection” services. Furthermore, included

in the invoices were statements of the costs of the following expenses: (1) the wages of

Koivisto’s company employees; (2) the wages of subcontractors hired by Koivisto; and

(3) payments for certain rental equipment. Upon receiving each invoice, Dana Partners

promptly paid it, never questioning the legitimacy of the expenses.

{¶8} Connell did not submit any invoices for its work until near the conclusion of

the job. When Thompson reviewed the invoices on behalf of Dana Partners, a dispute

arose concerning whether Connell was overcharging for the work it performed. As a

result of this dispute, Thompson decided to again review the Kiovisto invoices that had

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previously been paid. As part of his investigation into the matter, Thompson asked

Koivisto to personally give information supporting certain charges in the prior invoices.

Kovisto never responded to Thompson’s request.

{¶9} At some point after the completion of the “roof” project on the Dana Street

facility, Koivisto created a new corporation in the state of Arizona. This new entity had

the same name as Koivisto’s Ohio company. In addition, the Arizona entity engaged in

the same type of business as the Ohio company, i.e., construction.

{¶10} When Thompson and Koivisto were not able to settle the dispute as to the

propriety of the charges in the invoices, Dana Partners instituted the underlying action

against Koivisto personally and his two companies. In relation to the Ohio corporation,

Dana Partners asserted claims in breach of contract and fraud. Regarding the Arizona

corporation, the complaint alleged that the new company could be found liable for the

debt of the Ohio corporation because it was merely a successor in interest of the Ohio

entity. As to Koivisto himself, Dana Partners asserted that the corporate veil of both

companies should be pierced so that he could be found personally liable.

{¶11} As part of the allegations in its complaint, Dana Partners stated that it had

been agreed that Koivisto and his company would predicate its work invoices upon its

actual costs and a reasonable markup for profits and overhead. In their answer under

Civ.R. 12, the three defendants maintained that the parties to the underlying agreement

had a prior course of dealing as to the manner in which the charges for the completed

work would be calculated. Moreover, during the course of discovery, Koivisto averred in

a deposition that he had based the charges in the invoices upon a national estimator’s

guide entitled “RSMeans.” Koivisto’s use of the national guide resulted in substantially

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higher charges for the costs of the rental equipment, the wages of the subcontractors,

and the wages of the company employees.

{¶12} A one-day bench trial was held in November 2010. In support of its claims

for relief, Dana Partners primarily relied upon the testimony of Thompson and Engineer

Sauer. In relation to the cost of certain equipment Koivisto used on the project, Dana

Partners presented the testimony of the manager of a local rental entity. In response,

Koivisto testified on behalf of his two companies and himself.

{¶13} In its final judgment, the trial court found in favor of Dana Partners on its

claim for breach of contract. Specifically, the court found that there had been a meeting

of the minds between the parties that the project would be billed at actual costs, plus a

reasonable markup. As to damages, the trial court determined that Koivisto’s Ohio

company overcharged Dana Partners a total of $137,115.83, and entered judgment

against both the Ohio and Arizona companies for that amount. Regarding the fraud

claim, the court concluded that Koivisto himself had not engaged in any fraudulent acts

because RSMeans was an acceptable authority for setting costs. Based upon this, it

was further held that the corporate veils of Koivisto’s companies could not be pierced.

{¶14} In bringing the initial appeal from the foregoing judgment, Koivisto and his

two companies, as appellants/cross-appellees, have raised three assignments of error:

{¶15} “[1.] The trial court erred in finding the parties had a meeting of the minds

for an actual costs plus reasonable mark-up for overhead profit contract but not an RS

Means cost data contract.

{¶16} “[2.] The trial court erred in finding specific percentages for the reasonable

markup and in setting forth a number for actual costs that was inaccurate.

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 {¶17} “[3.] The trial court erred in finding against both the Arizona and the Ohio

corporations when there was no evidence presented that the Arizona corporation was

part of the contract.”

{¶18} Under their first assignment, appellants challenge the trial court’s factual

finding that there was a meeting of the minds that the “actual costs” method would be

employed to determine the amount to be charged for the work performed in accordance

with their “plan protection” agreement. Specifically, appellants contend that no evidence

was presented showing an objective manifestation on their part to agree to that specific

method of calculation. In support of their contention, they note that the parties’ written

correspondences concerning this agreement did not contain any precise language as to

this point.

{¶19} “To prevail on a contract action, the complaining party must prove all of

the essential elements of a contract, including an offer, acceptance, manifestation of

mutual assent, consideration, and certainty as to the essential terms of the contract.

* * *. In order for a party to be bound to a contract, the party must consent to its terms,

the contract must be certain and definite and there must be a meeting of the minds of

the parties. * * *.” (Citations omitted.) Ameritech Publishing, Inc. v. Mayfield, 7th Dist.

No. 10 MA 27, 2011-Ohio-2971, ¶13.

{¶20} As previously discussed, the “roof” contract between Dana Partners and

Koivisto basically had two distinct parts: management of the construction site and “plan

protection.” As to the latter aspect of the contract, the trial evidence readily shows that

the governing terms were not set forth in a single written document. Instead, the

contract was formed through the exchange of two written correspondences in July 2007,

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approximately two months before the installation of the new roof began. The first

correspondence was sent by Koivisto to Thompson and Dana Partners. In addition to

stating a brief description of the “protection” which would be provided, the Koivisto letter

indicated that the total contract price for the protection would be $88,000. His letter also

stated that the extent of the protection coverage would be consistent with a prior bid that

had been submitted by Connell.

{¶21} Approximately three weeks after receiving the Koivisto letter, Thompson

sent a return correspondence on behalf of Dana Partners. Unlike the Koivisto letter, the

Thompson correspondence only referenced the “protection” aspect of their agreement.

Specifically, Thompson indicated that his correspondence was intended to serve as a

purchase order for the protection services. In regard to the price for such services, the

Thompson correspondence had the following sentence: “Said work will be completed at

a not to exceed cost of $88,000.00.”

{¶22} Besides introducing copies of these two correspondences into evidence at

trial, Dana Partners also presented a copy of a contract bid that Connell had mailed to

Thompson in relation to the installation of the new roof. Under the original proposal for

the entire project, Connell had intended to also provide the protection services for Dana

Partners. Ultimately, the parties agreed that the “protection” work would be transferred

from Connell to Koivisto’s company. This switch was referenced and explained as part

of a note in Connell’s contract bid. As to the price for the protection services, Connell’s

bid indicated that Koivisto was to provide the work “at a cost Not-to-Exceed 88,000.00.”

{¶23} Before the trial court, Koivisto did not contest that the language in the

Thompson reply correspondence was controlling as to the calculation of the amount his

7
company could charge for the protection services; i.e., the contract price would be at a

cost “not to exceed” $88,000. However, Koivisto did contend that the phrase “not to

exceed” must be interpreted in light of the parties’ prior course of dealing. As part of his

direct testimony, Koivisto stated that his company had been hired to perform other work

for Thompson and Dana Partners in the years prior to the “roof” project. He also stated

that, in billing Thompson for the prior work, he had always used the “RSMeans” guide to

set his costs, and that Thompson had never questioned the prior bills. Based upon this,

Koivisto indicated that, in determining the amount to be charged under the “protection”

aspect of the “roof” contract, he had merely used the procedure he had followed for the

prior work.

{¶24} In contrast, it was the position of Dana Partners that the disputed phrase

had to be construed in light of the industry standard for construction in Trumbull County,

Ohio: i.e., the usage of trade. At trial, Thompson expressly testified that, in light of his

years of experience in the local construction industry, he was aware that the phrase “not

to exceed” had a specific meaning in a construction contract. According to Thompson,

if a contract stated that the costs of a service would not exceed an exact dollar amount,

it meant that “I will be billed at actual costs plus a reasonable markup” for overhead and

profits. This testimony was collaborated by Engineer Sauer, who also testified that he

had sufficient experience in Trumbull County to know the special meaning given to the

disputed phrase.

{¶25} Under Ohio law, evidence of usage of trade or prior course of dealing can

be admitted for purposes of clarifying an indefinite contractual term. Baldwin v. Rieger,

11th Dist. No. 2001-T-0106, 2002-Ohio-4368, ¶17, quoting Nilavar v. Osborn, 127 Ohio

8
App.3d 1, 14 (2nd Dist.1998). In regard to the admissibility of “usage of trade” evidence

specifically, the Sixth Appellate District has noted:

{¶26} “‘Evidence of a custom or usage existing at the time of a contract is

frequently admitted for the purpose of explaining the contract or ascertaining the

understanding of the parties to it, interpreting the otherwise indeterminate intention and

acts of the parties, explaining words or technical terms, or showing that the mode in

which the contract has been performed is the one customarily followed by others

engaged in the same calling or trade.’ (Footnotes deleted and emphasis added.)”

Marisay v. Perrysburg Machine & Tool, Inc., 37 Ohio App.3d 35, 38 (6th Dist.1987),

quoting 54 Ohio Jurisprudence 2d, Usages and Customs, Section 14, at 453-455

(1962).

{¶27} In order to qualify as a “usage of trade,” the use of the dispute contractual

language must occur so regularly within a vocation or trade “‘as to justify an expectation

that it will be observed with respect to a particular agreement.’” Fidelity Mortgage Corp.

v. Bruno, 2nd Dist. No. 1544, 1981 Ohio App. LEXIS 10437, *9, quoting Restatement of

Contracts 2d, Section 221 (1981). Furthermore, a contract should only be interpreted

consistent with a usage of trade “‘if each party knows or has reason to know of the

usage and neither party knows or has reason to know that the other party has an

intention inconsistent with the usage.” Id. Finally, even though the existence of a usage

of trade must be proven by clear and satisfactory evidence, the ultimate determination

to construe the contract in light of the usage of trade lies within the discretion of the trier

of fact. Id. at *10.

{¶28} In our case, the trial court expressly found that there had been a meeting

9
of the minds between the parties that the protection services would be billed by Koivisto

at actual costs, plus a reasonable markup. The court further found that there had been

no meeting of the minds regarding the use of the “RSMeans” guide. Thus, it is readily

apparent that, in rendering its findings of fact, the court concluded that Dana Partners’

evidence concerning the usage of trade should be accorded greater weight than

Koivisto’s testimony concerning the prior course of dealing.

{¶29} The trial transcript indicates that, during the course of their respective

direct examinations, both Thompson and Engineer Sauer testified that they had over 20

years of experience in the local construction industry. Each man also testified that

whenever he had seen the inclusion of the “not to exceed” language in the

“price” term of a construction contract, it had always meant that the bill of the contractor

would be limited to his actual costs and a reasonable markup for profit and overhead.

Furthermore, our review of the transcript does not reveal any legitimate reason why the

credibility of either witness would be doubted on this particular point. Thus, the record

before this court contains competent, credible evidence upon which the trial court could

justifiably find that the phrase “not to exceed” was a term of art in the Trumbull County

construction industry, and that the “usage of trade” testimony of Thompson and Sauer

helped to explain the meaning of the phrase in the context of the written contract

between Dana Partners and Koivisto.

{¶30} As part of the evidence, it was further established that Koivisto had been

operating his own construction company in Trumbull County for over 12 years when the

contract for the protection services was negotiated; therefore, it could be inferred that he

was also aware of the meaning of the phrase “not to exceed” in the context of a

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construction contract. Based upon this, the trial court was justified in also finding that,

by not objecting to the language in Thompson’s reply correspondence in July 2007, he

was agreeing to only charge Dana Partners for his actual costs and a reasonable

markup in regard to the rental equipment, the wages of his employees, and the wages

of the subcontractors. Accordingly, because the evidence supported the trial court’s

ultimate conclusion that there had been a meeting of the minds as to all terms of the

“plan protection” contract, appellants’ first assignment is without merit.

{¶31} Under their second assignment, appellants assert that the trial court erred

in making specific findings concerning the amount of a reasonable markup for the three

different types of charges under the protection services. They submit that such findings

should not have been made because there was no meeting of minds as to amounts of

the markups. According to them, there was no discussion between the parties as to the

amount of the markups until after Dana Partners had paid all of the invoices.

{¶32} In addition to its finding on the “not to exceed” phrase, the trial court also

found that: (1) a reasonable markup on the wages of the Koivisto company employees

was 20 percent; (2) a reasonable markup on the wages of the subcontractors was 10

percent; and (3) a reasonable markup on the costs of the rental equipment was 18

percent. The trial transcript again shows that these findings were predicated upon the

testimony of Thompson and Engineer Sauer. That is, each man testified, based upon

his general knowledge of the construction industry in Trumbull County, as to what would

be viewed as a reasonable markup under each of the three types of charges. To the

extent that both men relied upon their experience in the local industry, this particular

testimony was essentially a continuation of their respective descriptions of the meaning

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of the phrase “not to exceed” in the context of a construction contract.

{¶33} Given that the purpose of the “markup” testimony was to fully explain the

intent of the parties in relation to the inclusion of the “not to exceed” phrase in the “plan

protection” contract, it was also admissible as evidence of the governing usage of trade

in the local construction industry. Furthermore, since the trial transcript does not show

that the credibility of Thompson or Sauer was successfully challenged, the trial court did

not abuse its discretion in basing his factual findings upon their testimony. Thus, since

there was some competent, credible evidence upon which the trial court could conclude

that there had been a meeting of the minds as to the percentages of the markups for the

three types of charges, appellants’ second assignment also lacks merit.

{¶34} Under their final assignment, appellants contend that the trial court erred

in holding Koivisto’s Arizona company liable for the judgment debt of the Ohio

corporation. Regarding this point, appellants emphasize that the Arizona entity was not

a party to the agreement with Dana Partners, and had not even been formed until after

the work on the roof was completed. In response, Dana Partners assert that the trial

court’s holding was correct because the evidence supported the finding that Koivisto

essentially merged the Ohio company into the new Arizona entity.

{¶35} “The well-recognized general rule of successor liability provides that the

purchaser of a corporation’s assets is not liable for the debts and obligations of the

seller corporation.” Welco Industries, Inc. v. Applied Cos., 67 Ohio St.3d 344, 346

(1993). However, Ohio law also recognizes four exceptions to the basic rule; i.e., there

can be successor liability when: (1) there is an express or implied agreement by the

buyer corporation to assume the liabilities; (2) there is a de facto merger of the two

12
corporations; (3) the buyer corporation is merely a continuation of the seller corporation;

or (4) the sale of the original corporation was entered into fraudulently for the exact

purpose of escaping liability. Id. at 347.

{¶36} In our case, Dana Partners focuses its argument upon the second of the

four exceptions: de facto merger. Generally, in order for the doctrine of de facto merger

to apply, there must exist a sufficient nexus between the two corporate entities to

warrant the imposition of successor liability. Permasteelisa CS Corp. v. The Airolite

Co., S.D.Ohio No. 2:06-cv-569, 2007 U.S. Dist. LEXIS 95860, *31 (Dec. 31, 2007),

quoting Turner v. Bituminous Cas. Co., 397 Mich. 406, 244 N.W.2d 873, 880 (1976).

Under Ohio law, the determination of whether the required nexus is present in a given

case turns upon the consideration of the following four factors: (1) whether there was a

continuation of the prior business activity and corporate personnel; (2) whether there

was continuity of shareholders based upon a sale of assets in exchange for stock; (3)

whether the existing company was immediately dissolved; and (4) whether the new

entity assumed the ordinary liabilities and obligations of the existing company. State ex

rel. H.C.F. Inc. v. Ohio Bur. of Workers’ Comp., 80 Ohio St.3d 642, 648 (1997), quoting

Welco, supra, at 349.

{¶37} The H.C.F. Inc. standard is stated in the conjunctive. In our case, though,

only some of the common features of a de facto merger existed. For example, the

testimony established that the corporate personnel of the two companies, i.e., Rudolph

F. Koivisto as the sole owner, are identical. In addition, there was some testimony

tending to show that Koivisto’s Ohio corporation essentially ceased operations around

the same time that the Arizona entity was formed.

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 {¶38} However, the evidence does not show that the Arizona entity assumed the

day-to-day obligations of the Ohio company. More importantly, there was no showing

that the Arizona entity assumed the actual business activity of the Ohio company. That

is, the Arizona entity will only be engaging in construction work in Arizona, not Ohio.

Thus, this was not a situation in which Koivisto created a second corporation, and then

transferred the existing business opportunities and assets of his original Ohio company

to the new entity. Instead, Koivisto was discontinuing his Ohio business to start a totally

new business in a different state.

{¶39} As part of its argument on the “de facto merger” issue, Dana Partners

makes the general assertion that the Arizona company was simply a continuation of the

Ohio company. As previously mentioned, the continuation of the original corporation by

a purchaser corporation is the third recognized exception to the general rule against

successor liability. Although Dana Partners did employ the word “continuation” in its

appellate brief, it did not cite to the separate standard for this exception and did not

develop a separate argument on this point. Despite this, we will address the question of

whether the third exception is applicable.

{¶40} In describing the “mere-continuation” exception, the Supreme Court of

Ohio has stated:

{¶41} “We have held that the basis of this [exception] is the continuation of the

corporate entity, not the business operation, after the transaction. [Flaugher v. Cone

Automatic Machine Co., 30 Ohio St.3d 60 (1987)]. Such would be the case when ‘one

corporation sells its assets to another corporation with the same people owning both

corporations. Thus, the acquiring corporation is just a new hat for, or reincarnation of,

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the acquired corporation. This is actually a reorganization.’ [Turner v. Bituminous Cas.

Co., 397 Mich. 406, 449 (1976)]. This type of transaction is executed to escape

liabilities of the predecessor corporation. [Cyr v. B. Offen & Co., Inc., 501 F.2d 1145,

1151 (C.A.1, 1974)]. Because the goal is to escape liability, inadequacy of

consideration is one of the indicia of mere continuation. Jackson v. Diamond T.

Trucking Co. (1968), 100 N.J.Super. 186, 196, * * *.” Welco, at 350.

{¶42} Pursuant to the Supreme Court precedent, the “mere-continuation”

exception only applies when the assets of the original corporation are acquired by a

new corporation which has the same owner. The assets of Koivisto’s Ohio company,

such as its heavy equipment, employees, and contracts, were not transferred to the

Arizona company. Regarding the Ohio company’s construction equipment, Koivisto

expressly testified that, before the “roof” project began, he disposed of the Ohio

company’s heavy equipment, and only retained some fabricators, scaffolding, and small

hand tools. In light of this, Koivisto rented equipment needed to perform the required

work on the “roof” job.

{¶43} Similarly, there is no evidence showing that any of the employees of the

Ohio company became employees of the Arizona entity. The evidence shows that

Koivisto already released the majority of his Ohio employees even before he entered

into “roof” contract with Dana Partners. As a result, although Koivisto did hire some of

his former employees to work on the “roof” project, he had to designate them as

subcontractors for purposes of his invoices. In addition, he also hired temporary help to

work as employees for his Ohio company.

{¶44} Given the disposition of the heavy equipment and the release of its

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employees, Koivisto’s Ohio company had minimal assets before it entered into the

contract with Dana Partners for the “roof” job. The rationale supporting the “mere-

continuation” exception is that a corporation cannot move assets that were existing in

the corporation and available to satisfy a potential judgment to a successor corporation

for inadequate consideration in order to avoid liability. Koivisto Ohio did not have any

significant assets at the time it contracted with Dana Partners, and there is no evidence

any retained equipment was transferred to Koivisto Arizona for inadequate

consideration. Absent evidence of an asset transfer, Koivisto Arizona has no assets of

Koivisto Ohio from which Dana Partners could have satisfied a judgment in the event of

breach by Koivisto. See Welco, at 350.

{¶45} Pursuant to Koivisto’s testimony, he intended for his Arizona company to

perform construction work similar in nature to the work his Ohio company had done

through the years. However, in the absence of any transfer of assets between the two

corporations, this single similarity is not sufficient to establish that the Arizona company

was engaged in a continuation of the Ohio company’s business. Cf., Mohammadpour v.

Thomas, 8th Dist. No. 85474, 2005-Ohio- 3853, ¶14. To this extent, Dana Partners

failed to carry its burden of proving that the “mere-continuation” exception is applicable.

{¶46} Finally, since Koivisto’s Ohio company was never sold to his Arizona

company, the fourth exception to the general rule of no successor liability is not

applicable. That is, this is not a situation in which Koivisto Ohio was fraudulently sold to

the Arizona company for the purpose of escaping liability.

{¶47} Taken as a whole, the facts in this case weighed in favor of the finding that

Koivisto did not engage in any “transaction” which resulted in a de facto merger or a

16
continuation of the operations of his Ohio company. Therefore, since the Arizona

company was not a successor in liability for Koivisto’s Ohio entity and was not a party to

the disputed contract between Koivisto and Dana Partners, the trial court erred in

holding that it could be held responsible for the judgment debt. For this reason,

appellants’ third assignment is well taken.

{¶48} Dana Partners filed a timely cross-appeal from the trial court’s final

judgment, and advances two assignments of error for review:

{¶49} “[1.] The finding by the trial court that Koivisto did not commit fraud was

contrary to the manifest weight of the evidence.

{¶50} “[2.] The finding by the trial court that insufficient evidence to pierce the

corporate veil was presented was contrary to the manifest weight of the evidence.”

{¶51} Since the two assignments under the cross-appeal are interrelated, they

will be addressed together. As previously discussed regarding Rudolph F. Koivisto

individually, Dana Partners sought personal liability for the contract overcharges by

piercing the corporate veil of his Ohio company. As the factual foundation for this

distinct claim, Dana Partners alleged that the piercing of the veil was warranted

because Koivisto had acted fraudulently in submitting invoices which were not

consistent with the terms of the “plan protection” agreement.

{¶52} Under the first assignment of its cross-appeal, Dana Partners asserts that

the evidence it presented at trial established fraudulent behavior on the part of Koivisto.

According to Dana Partners, given that there had been an agreement that the protection

services would be billed on actual costs, Koivisto committed fraud by seeking payments

for significantly larger amounts. Building upon this, Dana Partners further asserts that

17
the trial court erred in refusing to pierce the corporate veil and find Koivisto personally

liable on the judgment.

{¶53} Pursuant to well-settled Ohio case law, three basic facts must be proven

before a shareholder/owner of a corporate entity can be found legally responsible for a

corporate debt:

{¶54} “‘The corporate form may be disregarded and individual shareholders held

liable for wrongs committed by the corporation when (1) control over the corporation by

those to be held liable was so complete that the corporation has no separate mind, will,

or existence of its own, (2) control over the corporation by those to be held liable was

exercised in such a manner as to commit fraud or an illegal act against the person

seeking to disregard the corporate entity, and (3) injury or unjust loss resulted to the

plaintiff from such control and wrong.’” Dombroski v. Wellpoint, Inc., 119 Ohio St.3d

506, 2008-Ohio-4827, ¶18, quoting Belvedere Condominium Unit Owners’ Assn. v. R.E.

Roark Cos., Inc, 67 Ohio St.3d 274, paragraph three of the syllabus (1993).

{¶55} In Dombroski, the primary issue before the Ohio Supreme Court involved

whether the piercing of the corporate veil should be allowed when the person exercising

control over the corporation has engaged in an act that, although not illegal, was unjust

or inequitable. In concluding that the general scope of the Belvedere standard should

not be extended beyond fraud, an illegal act, or a similarly unlawful act, the Dombroski

court emphasized that the purpose of the corporate veil would be defeated unless there

was a strict limit to the instances in which the piercing of the veil was permissible. Id. at

¶27. Thus, the Dombroski court continued to follow the guiding proposition that piercing

the corporate veil should only occurred in rare instances of extreme shareholder/owner

18
misconduct. Id. at ¶26.

{¶56} In our case, the evidence presented by Dana Partners was readily

sufficient to establish the first and third prongs of the Belvedere standard. In relation to

the first prong, Koivisto’s own testimony on cross-examination indicated that he was the

sole shareholder in his Ohio company; therefore, he had total control over the operation

of the company. As to the third prong, the testimony of Richard Thompson established

that Dana Partners sustained a financial “injury” as a result of Koivisto’s failure to abide

by the terms of the parties’ agreement regarding the method for calculating the charges

covering the protection services. Accordingly, for purposes of deciding whether Koivisto

could be held personally liable for the overcharges, the sole dispute centered upon the

second prong of the Belvedere standard; i.e., did the evidence of Dana Partners support

a finding that Koivisto had acted fraudulently in submitting invoices that were not based

upon his actual costs, plus a reasonable markup?

{¶57} In essence, Dana Partners’ fraud claim was based upon the allegation that

Koivisto had purposely made false representations in the monthly invoices concerning

the amount due for the services rendered by his company. In order to prove a claim of

fraudulent misrepresentation in a contract action, five basic elements must be satisfied:

“(1) a false representation concerning a fact material to the transaction; (2) knowledge

of the falsity of the statement or utter disregard for its truth; (3) intent to induce reliance

on the misrepresentation; (4) reliance under circumstances manifesting a right to rely;

and (5) injury resulting from the reliance.” Sanfillipo v. Rarden, 24 Ohio App.3d 164,

166 (1st Dist.1985). In regard to the second element of the claim, it has been held that

a finding of fraud cannot be predicated upon an innocent mistake of fact; rather, it must

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be shown that the defendant had actual knowledge or was grossly negligent in failing to

ascertain the truth. Id.

{¶58} Consistent with the foregoing precedent, the Third Appellate District has

indicated that mere negligent behavior is not sufficient to establish fraud for purposes of

piercing the corporate veil; rather, the behavior must either be purposeful or reckless in

nature. Advantage Bank v. Waldo Pub, LLC, 3rd Dist. No. 9-08-67, 2009-Ohio-2816,

¶42.

{¶59} In considering the general elements for fraud as they relate to the second

prong of the Belvedere standard, this court has expressly concluded that the decision to

pierce the corporate veil cannot be based solely upon the failure to comply with a term

of a contract:

{¶60} “A simple breach of contract, in the absence of a more substantial factual

predicate indicative of some corporate malfeasance, with direct bearing on the plaintiff’s

injury, is insufficient to meet the second prong of the Belvedere test. To decide

otherwise, would completely vitiate the holding in Belvedere.” Connolly v. Malkamaki,

11th Dist. No. 2001-L-124, 2002-Ohio-6933, ¶34.

{¶61} As the grounds for its fraud assertion in this case, Dana Partners does not

maintain that Koivisto had acted negligently in his performance of the “plan protection”

contract. Instead, it is the position of Dana Partners that, despite the fact that Koivisto

was aware that the terms of the contract required him to only bill for his actual costs and

a reasonable markup, he still decided to use the RSMeans guide to calculate his costs

and, therefore, overcharged for his company’s services. To this extent, Dana Partners

contends that the overcharges were intentional.

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 {¶62} In concluding that Koivisto had not engaged in any fraud in submitting his

invoices, the trial court provided the following analysis:

{¶63} “It is not disputed that [Koivisto] did use the RS Mean’s calculation as

authority for establishment of his price. Furthermore RS Means is an acceptable

authority. Therefore the Court finds no fraud or attempt to perpetrate a fraud. The

Court also finds there is insufficient evidence in order to pierce the corporate veil as

Dana Partners and managing partner, Dick Thompson, were well aware and had

previously dealt with [Koivisto’s] corporate entities.”

{¶64} Although not expressly stated in the foregoing quote, it is readily apparent

that the trial court’s finding on the fraud issue was based upon Koivisto’s testimony as to

the parties’ prior course of dealing. As previously noted, Koivisto testified that, in billing

Dana Partners for work performed under prior contracts, he had always employed the

“RSMeans” guide to set his company’s costs. He further testified that, since Thompson

had never contested the prior bills, he simply followed the identical procedure in billing

Dana Partners on the “roof” project.

{¶65} As part of our earlier analysis as to the proper interpretation of the “not to

exceed” clause, this court concluded that the trial court could justifiably decide to give

more weight to Dana Partners’ “usage of trade” evidence than Koivisto’s “prior course of

dealing” testimony. Nevertheless, this decision did not necessarily mean that Koivisto’s

testimony was not entitled to any weight. As the trier of fact, the trial court could have

further found that Koivisto’s testimony was entitled to some weight to the extent that it

provided an explanation for his behavior during the performance of the “plan protection”

contract.

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 {¶66} Specifically, in light of the “prior course of dealing” testimony, the trial court

could have inferred that, despite the “meeting of the minds” at the original formation of

the contract, Koivisto had acted in conformity with the parties’ prior course of dealing in

calculating the amount owed for the work performed by his company. In other words,

Koivisto based his behavior upon what had been acceptable under the prior contracts

between the parties. Given that it was shown that the “RSMeans” guide is a legitimate

means for determining costs in the construction industry, the trial court could have also

found that Koivisto had only acted negligently in not calculating his costs in compliance

with the “not to exceed” clause in the contract. That is, while Koivisto acted purposefully

in using the “RSMeans” guide because it was consistent with his prior performance, he

did not expressly intend to breach the governing term of the contract.

{¶67} Based upon the foregoing findings, the trial court could justifiably conclude

that this case involved a simple breach of contract, and that Koivisto did not deliberately

attempt to overcharge Dana Partners for the work his company performed. In turn, this

means that Koivisto could not be held personally liable for the debt of his corporation

because there was some evidence to support the finding that he did not engage in any

fraudulent behavior during his performance of the underlying contract.

{¶68} Pursuant to the foregoing discussion, the trial court’s decision regarding

Dana Partners’ claim to pierce the corporate veil was not against the manifest weight of

the evidence. Thus, both of Dana Partners’ assignments of error in its cross-appeal are

without merit.

{¶69} Based upon our holding under appellants’ third assignment, it is the order

of this court that the judgment of the Trumbull County Court of Common Pleas is

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modified and affirmed as modified. That is, the judgment is hereby modified to state

that Dana Partners is entitled to recover the sum of $137,115.83 only from Rudolph F.

Koivisto’s Ohio corporation, Koivisto Contractors and Erectors, Inc. Koivisto’s Arizona

corporation is no longer liable for the judgment debt.

DIANE V. GRENDELL, J., concurs,

CYNTHIA WESTCOTT RICE, J., concurs in part, dissents in part with
Concurring/Dissenting Opinion.

____________________

CYNTHIA WESTCOTT RICE, J., concurring in part and dissenting in part.

{¶70} I concur with the majority finding Koivisto’s first two assignments of error

are without merit. I also concur with the majority’s decision denying Dana Partners’

cross assignments of error. The trial court did not err when it found there was

insufficient evidence to pierce the corporate veil because there was no evidence of

fraud by Koivisto.

{¶71} However, I disagree with the majority’s decision finding merit in Koivisto’s

third assignment of error alleging that the trial court erred in holding Koivisto’s Arizona

company liable for the debt of Koivisto Ohio. For the reasons that follow, I respectfully

dissent.

{¶72} The trial court found liability under the contract against Koivisto “in its Ohio

and its Arizona forms.” Thus, the trial court found Koivisto to be one business with two

names or “forms.” The trial court does not explain what facts it utilized in making this

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finding. Therefore, it must be determined whether this finding was supported by some

competent, credible evidence. McDonald Indus. Park Prop. Owners Ass’n v. Am. Indus.

Renovation, Inc., 11th Dist. No. 2003-T-0075, 2004-Ohio-3509, ¶9, citing C.E. Morris

Co. v. Foley Constr. Co., 54 Ohio St.2d 279 (1978), syllabus.

{¶73} In Welco Industries, Inc. v. Applied Companies, 67 Ohio St.3d 344 (1993),

the Supreme Court of Ohio held that “a corporation that purchases the assets of another

corporation is not liable for the contractual liabilities of its predecessor corporation

unless 1) the buyer expressly or impliedly agrees to assume such liability; (2) the

transaction amounts to a de facto consolidation or merger; (3) the buyer corporation is

merely a continuation of the seller corporation; or (4) the transaction is entered into

fraudulently for the purpose of escaping liability.” Id. at 349. Successor corporate

liability under any of these theories requires a transfer of assets from the original to the

successor corporation. Cattron, Inc. v. Overhead Crane & Hoist, Inc., 32 Ohio App.3d

80, 81 (1st Dist.1987). However, the case law does not specify the type of transfer

necessary; whether the transfer of proceeds from the sale of assets suffices; whether

the transfer must occur at one time or whether a series of transfers suffices; or how or

when the transfer(s) must occur.

{¶74} There is no evidence in this case that would support a finding that there

was an express or implied agreement by the Arizona company to assume the liabilities

of the Ohio company. Thus, the first prong of Welco does not apply. The second prong

of Welco is also inapplicable here. The majority conducts a thorough analysis of the

facts in this case and correctly determines that there was no de facto merger.

{¶75} The record does not support the majority’s conclusion that “the evidence

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does not indicate that the Arizona entity was created merely to escape potential

liability.” Conversely, there was no factual finding by the trial court that the Arizona

entity was created merely to escape potential liability. I believe the facts presented do

not support a finding either way under the fourth prong of Welco.

{¶76} Mr. Koivisto testified at trial that he lives in Arizona and that he has been

working out of Arizona. Appellants’ counsel stated in trial that Mr. Koivisto moved to

Arizona in 2000 due to his wife’s health and he was “winding down his Ohio operation

and keeping more of his time and business in Arizona.”

{¶77} Mr. Koivisto testified that he formed his Arizona corporation with the same

name as his Ohio corporation in February 2008, after the completion of the disputed

contract with Dana. The Ohio company was an ongoing entity while he was working

construction jobs in Arizona as Koivisto Ohio. He made no initial contribution of assets

or capital to the Arizona corporation. Mr. Koivisto testified that he had power tools,

fabrication equipment, and scaffolding here in Ohio when he started working on the

Dana project. He had previously “got rid of” most of the rolling stock, scissor lifts, dump

trucks, and excavating equipment. The record does not support the majority’s

statement that Koivisto’s Ohio company, including its heavy equipment, employees, and

contracts were not transferred to the Arizona company. Mr. Koivisto stated that he was

the sole owner of both corporations, and exercised complete control over both.

{¶78} Between 2000 and 2008, Koivisto Ohio was operating out of Arizona. Mr.

Koivisto testified concerning a project he worked on in Arizona for Dick’s Sporting

Goods during this period. After Koivisto Arizona was formed in February 2008, the tools

and equipment previously owned by Koivisto Ohio and used in Arizona were obviously

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used by Koivisto Arizona in its business. Mr. Koivisto said that the Arizona company

engaged in the same business that had formerly been performed by the Ohio company.

Following the formation of Koivisto Arizona, all operations of Koivisto Ohio ceased and

were continued by Koivisto Arizona.

{¶79} As a result, the trial court’s finding of liability on the part of Koivisto’s

Arizona company could only be affirmed under the third Welco prong. I believe there

was some competent, credible evidence that Koivisto’s Arizona company was a mere

continuation of his Ohio company.

{¶80} Successor corporation liability can be found if the record would support a

finding of mere continuation, which is the “continuation of the corporate entity, not the

business operation, after the transaction.” Welco Indus., Inc., supra, at 350. An

example of this theory occurs when “one corporation sells its assets to another

corporation with the same people owning both corporations. Thus, the acquiring

corporation is just a reincarnation of the acquired corporation. Id. Inadequate

consideration is indicia of mere continuation. Id.

{¶81} The majority correctly notes that Mr. Koivisto stated that he was the sole

owner of both companies; that the new entity would be engaging in the identical

business as the Ohio company; and that the Ohio company no longer had any assets or

work. Mr. Koivisto testified that he considered shutting down the Ohio company, but

was advised to keep it open in case he might need to do work in Ohio.

{¶82} The exhibits before the trial court reinforced Koivisto’s testimony regarding

his ongoing business activity in Arizona prior to becoming involved with the Dana

contract. He utilized his Arizona address when renting equipment or making materials

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purchases for the Dana contract. This was the same address he used when

incorporating his Arizona company after completion of the Dana contract.

{¶83} Since Koivisto Ohio owned tools and fabrication equipment when it began

working on the Dana project in 2007, and its business is now performed by Koivisto

Arizona, the evidence supported the finding that, upon the incorporation of the Arizona

company in 2008, Koivisto Arizona acquired all assets formerly owned by Koivisto Ohio.

This acquisition constituted a transfer of assets from the Ohio to the Arizona entity.

Further, because Koivisto Ohio now has no assets or funds, the evidence supported the

finding that, in acquiring Koivisto Ohio’s assets, the Arizona company did not pay

adequate or, in fact, any consideration for them. Thus, the evidence supported the

finding that Koivisto Arizona is a mere continuation of Koivisto Ohio as a result of the

foregoing transfer and the same person owning and operating both companies. See

e.g. Mohammadpour v. Thomas, 8th Dist. No. 85474, 2005-Ohio-3853, ¶15.

{¶84} Based upon the testimony and evidence before the court, the trial court’s

finding of liability on the part of Koivisto’s Arizona company is supported by the mere

continuation theory of successor corporate liability. As a result, I cannot find that the

trial court’s finding was against the manifest weight of the evidence. Therefore, I would

affirm the trial court.

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