City of Cleveland v. Embassy Realty Invs., Inc.
112 N.E.3d 460
Ohio Ct. App.2018Background
- In 2005 John E. Barnes, Jr. purchased a condemned commercial property in Cleveland and later (2008) transferred title to a corporation he formed, Embassy Realty Investments (Barnes the sole shareholder/officer). Barnes continued to receive lease payments related to the property.
- The city issued repeated building-code violation and condemnation notices; the property was demolished by the city in August 2009. The city later sought demolition costs.
- The city sued Embassy and obtained judgment for demolition costs; it then amended its complaint to pierce Embassy’s corporate veil and hold Barnes personally liable for those costs.
- Barnes moved to dismiss (statute of limitations, scope of the municipal ordinance, failure to join a prior owner) and later opposed the city’s summary-judgment motion seeking veil-piercing liability.
- The municipal court granted summary judgment against Barnes; on appeal the court affirmed denial of dismissal claims but reversed the grant of summary judgment on veil-piercing and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicable statute of limitations for recovery of demolition costs | City: action arises from statutory liability for nuisance abatement; six-year statute (R.C. 2305.07) applies | Barnes: action sounds in fraudulent-transfer statute (R.C. 1336.09), so four-year limit applies | Six-year statute applies; claim timely brought (affirmed) |
| Ordinance scope and joinder of prior owner (C.C.O. 3103.09) | City: action governed by the version of ordinance in effect at demolition; it may pursue costs from owner or other responsible parties | Barnes: post-2011 ordinance language shows owners in chain of title (including prior owner Southeast) are jointly liable; Southeast is indispensable and must be joined; he wasn’t owner at demolition so cannot be liable | Court applied the former ordinance (in effect at demolition), found city could pursue responsible parties and did not err in denying dismissal for failure to join Southeast (affirmed) |
| Sufficiency of amended complaint / motion to dismiss procedural review | City: amended complaint pleads alter-ego/piercing facts to hold Barnes liable | Barnes: complaint should be dismissed for statute of limitations, ordinance limits, and failure to join indispensable party | Court reviewed de novo and rejected Barnes’s dismissal arguments on these grounds (affirmed) |
| Piercing the corporate veil / summary judgment (Belvedere/Dombroski test) | City: Barnes exercised complete control over Embassy, used it as alter ego, and thereby committed unlawful acts leading to demolition; equitable relief permits veil piercing | Barnes: corporation was separate; transfer and corporate form were not fraudulent; insufficient evidence of personal fraudulent or illegal acts by Barnes to justify piercing | Trial court erred to grant summary judgment for city on veil-piercing. Genuine issue of material fact exists whether Barnes personally exercised control to commit unlawful acts; summary judgment reversed and case remanded for trial |
Key Cases Cited
- Belvedere Condominium Owners’ Assn. v. R.E. Roark Cos., 67 Ohio St.3d 274 (Ohio 1993) (three-prong test for piercing corporate veil: complete control, improper use to commit fraud/illegal act, resulting injury)
- Dombroski v. WellPoint, Inc., 119 Ohio St.3d 506 (Ohio 2008) (clarifies second Belvedere prong: control must be exercised to commit fraud, illegal, or similarly unlawful act; apply cautiously)
- Zivich v. Mentor Soccer Club, 82 Ohio St.3d 367 (Ohio 1998) (summary-judgment standard under Civ.R. 56)
- Zion Nursing Home, Inc. v. Creasy, 6 Ohio St.3d 221 (Ohio 1983) (statutory causes of action accrue when the violating event occurs, used to determine accrual for statute of limitations)