2020 Ohio 4762
Ohio Ct. App.2020Background:
- Erickson formed Columbus Campus, LLC to develop the 1,745‑unit Hickory Chase continuing care retirement project funded by a $90M revolving Construction Loan arranged by KeyBank and other lenders; Windsor provided $21.35M mezzanine financing and agreed to subordinate to the lenders.
- Braun was general contractor and Eramo a subcontractor; Braun received payments from loan advances totaling over $26M through Feb. 2009; by May 2009 unpaid labor/materials totaled about $9.18M.
- Windsor sent an April 10, 2009 letter declaring an Event of Default and accelerating its loan; KeyBank then suspended/declared default under the Construction Loan Agreement and stopped disbursements while signaling willingness to forbear briefly.
- Windsor rescinded its April 10 letter; parties entered sequential forbearance agreements (through July 2009) but construction stopped on May 11, 2009; lenders foreclosed, sold assets, and subcontractors recovered nothing from sale proceeds.
- Braun and Eramo later asserted counterclaims (constructive fraud, tortious interference, breach of R.C. 1311.14 duties, third‑party beneficiary breach of loan, promissory estoppel); the trial court granted lenders summary judgment on all claims; appeal followed.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Constructive fraud: Did lenders owe fiduciary/confidential duty? | Braun/Eramo: lenders stood in a position allowing unfair advantage; duty existed enabling constructive fraud claim. | Lenders: interactions were arm's‑length; no fiduciary or confidential relationship. | Affirmed for lenders — no special/confidential relationship shown; summary judgment proper. |
| Tortious interference: Did lenders improperly terminate disbursements causing breaches? | Braun: lenders unjustifiably withheld advances, causing contract breaches and damages. | Lenders: Contract (Construction Loan Agmt) allowed suspension/termination on Event of Default; their conduct was justified. | Reversed in part — material questions of fact (timing/grounds for Events of Default; justification) preclude summary judgment; remand. |
| R.C. 1311.14 duties: Does statute impose an absolute duty to disburse mortgage funds? | Braun: mortgagee must disburse entire construction fund to protect mechanics' liens. | Lenders: statute prescribes an order to obtain priority but does not create an absolute payout duty. | Affirmed for lenders — statute conditions priority on prescribed disbursement order; no freestanding duty to pay entire fund. |
| Breach of loan as third‑party beneficiaries: Are contractors intended beneficiaries? | Braun/Eramo: loan proceeds were intended to pay contractors; they are intended beneficiaries with contract enforcement rights. | Lenders: contractors merely incidental beneficiaries; no intent to directly benefit them. | Affirmed for lenders — contractors incidental beneficiaries only; cannot sue for breach. |
| Promissory estoppel: Can plaintiffs rely on lenders' statements apart from the contract? | Braun/Eramo: relied on lenders' representations about funding/administering the $90M loan. | Lenders: the promise is set out in the express written Construction Loan Agreement, barring promissory estoppel. | Affirmed for lenders — promise was in an express contract; promissory estoppel unavailable. |
Key Cases Cited
- Cohen v. Estate of Cohen, 23 Ohio St.3d 90 (Ohio 1986) (constructive fraud defined; requires confidential/fiduciary relationship)
- Perlberg v. Perlberg, 18 Ohio St.2d 55 (Ohio 1969) (law presumes fraud to protect those placing special confidence)
- Ed Schory & Sons, Inc. v. Soc. Natl. Bank, 75 Ohio St.3d 433 (Ohio 1996) (definition of fiduciary/confidential relationship in business context)
- Fred Siegel Co., L.P.A. v. Arter & Hadden, 85 Ohio St.3d 171 (Ohio 1999) (elements of tortious interference and improper interference factors)
- Grant Thornton v. Windsor House, Inc., 57 Ohio St.3d 158 (Ohio 1991) (only party or intended third‑party beneficiary may sue on contract)
- Hill v. Sonitrol of Southwestern Ohio, Inc., 36 Ohio St.3d 36 (Ohio 1988) (adopts Restatement §302 test for intended beneficiaries)
- Olympic Holding Co., L.L.C. v. Ace Ltd., 122 Ohio St.3d 89 (Ohio 2009) (promissory estoppel principles and relation to contract formation)
- Hudson v. Petrosurance, Inc., 127 Ohio St.3d 54 (Ohio 2010) (summary judgment standard)