667 N.E.2d 445 | Ohio Ct. App. | 1995
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *837 Appellant, University Circle Research Center Corporation ("UCRCC"), initiated this action by alleging claims for breach of contract, concealment, bad faith, breach of implied covenant of good faith and fair dealing, and piercing the corporate veil against appellees Research Corporation, The Galbreath Company and Daniel M. Galbreath, individually.
On August 30, 1966, UCRCC subleased the property to Research Corporation for a twenty-five-year term. Under the terms of the sublease, Research Corporation was solely responsible for constructing the building to specifications, maintaining the building and paying the mortgage and taxes.
On July 1, 1968, after Building 1 was fully constructed, Research Corporation entered into a management agreement with The Galbreath Company. Under this agreement, The Galbreath Company assumed responsibility for the management and maintenance of Building 1. This relationship between Research Corporation, UCRCC and The Galbreath Company continued without incident until approximately 1987. In 1987, Research Corporation ordered a structural survey of Building 1. The results of this survey indicated that there were several deficiencies with the original construction and on-going maintenance of Building 1.
On December 11, 1992, UCRCC filed its complaint against Research Corporation and The Galbreath Company. Thereafter, on May 10, 1993, upon leave of court, UCRCC amended its original complaint to add defendant Daniel M. Galbreath as a party to whom liability would attach if Research Corporation's corporate entity were disregarded.1
On September 27, 1993, defendants-appellees Daniel M. Galbreath and The Galbreath Company filed a motion for partial summary judgment seeking to eliminate UCRCC's claim for piercing the corporate veil. In a decision and order dated February 2, 1994, the trial court granted partial summary judgment in favor of defendants-appellees, finding that, as a matter of law, the protection of the corporate veil as it pertains to appellees may not be disregarded.
On September 15, 1994, UCRCC, with leave of court, filed its second amended complaint dismissing all other claims with the exception of the claim relating to piercing the corporate veil alleged against The Galbreath Company and Daniel M. Galbreath. Thereafter, on September 20, 1994, the trial court entered a final appealable order granting appellees' motion for summary judgment on the claim for piercing the corporate veil.
UCRCC has timely appealed the order of the trial court and brings the following assignment of error for our review: *839
"The trial court erred in granting appellee's [sic] motion for summary judgment on appellant's alter ego/`piercing the corporate veil' claim because appellant presented sufficient evidence to create a genuine issue of material fact as to that issue and appellees were not entitled to judgment as a matter of law."
One of the purposes of incorporation is to limit the liability of individual shareholders. Section
In order to survive imposition of summary judgment on the piercing the corporate veil claim, appellant must show that Galbreath and Research Corporation are fundamentally indistinguishable. Belvedere,
In the present case, appellant contends that The Galbreath Company and Daniel M. Galbreath, individually, dominated and controlled Research Corporation in such a manner that Research Corporation had no separate mind, will or existence of its own. In support of this argument, appellant points to the fact that Daniel M. Galbreath was the sole shareholder as well as an officer and director of Research Corporation. While the mere fact that Mr. Galbreath occupied all of these positions does not, per se, signify that he or The Galbreath Company exercised control and domination over Research Corporation, this fact, coupled with the management agreement between The Galbreath Company and Research Corporation as well as the corporate records, formalities and actions of the parties presented within the record by way of sworn affidavits and deposition testimony, clearly shows that summary judgment based upon the first prong of the Belvedere test is improper in this matter. The facts presented in the record clearly show that reasonable minds could come to different conclusions as to the ultimate control and domination of Research Corporation.
Having decided that reasonable minds could find that the first prong of Belvedere could be met, we now turn to consider whether summary judgment in favor of appellees is proper with regard to the two remaining prongs of the Belvedere test.
Appellant's contention that appellees' control of Research Corporation was exercised to "commit a fraud or illegal act" rests upon the purported inadequacy of the construction and maintenance of Building 1. Of utmost importance to our determination of this issue is the structural report and survey of Building 1 done in 1987 by the firm of Barber Hoffman at the behest of Research Corporation. Appellant asserts that this report put Research Corporation on notice as early as 1987 that the construction of Building 1 was improper in some respects. In addition, appellant contends that Research Corporation breached its affirmative duty to repair the defects by failing to correct the defects or inform UCRCC of the presence of the Barber Hoffman report.
Pursuant to the express terms of the lease, we find an affirmative duty upon appellees to repair any known defects to, and properly maintain, Building 1. Appellant contends that appellees' failure in this regard constitutes the necessary "fraud or illegal act" required by the second prong of theBelvedere test.
In Ohio, the elements of fraud include:
"(a) [A] representation or, where there is a duty to disclose, concealment of a fact, (b) which is material to the transaction at hand, (c) made falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether it is true or false that knowledge may be inferred, (d) with the intent of misleading another into relying upon it, (e) justifiable reliance upon the representation or concealment, and (f) a resulting injury proximately caused by the reliance."Gaines v. Preterm-Cleveland, Inc. (1987),
A review of the record reveals that appellant has presented evidence that defects were discovered and made known to the appellees as early as 1987. Further, the record does show that appellees neither corrected the defects nor informed appellant of their existence. Appellees contend that appellant knew of the report in 1987; however, appellant disagrees and contends that it only became aware of the defects when it inadvertently discovered the presence of the report in 1992. Whether the appellees' concealment of the report and repairs did, in fact, occur in 1987 or 1992 is a question of fact which renders summary judgment improper and becomes an issue of determination best reserved for the trier of fact. If the trier of fact determines that appellees did, in fact, conceal this knowledge, then fraud could be determined to be present and/or reasonable minds could conclude that the failure of appellees to repair the defects resulted in *842 sufficient injury and loss to appellant that would satisfy the third prong of the Belvedere test.
Appellant has presented ample evidence upon which reasonable minds could differ whether the control of Research Corporation has caused an inequity or injustice necessary to invoke the imposition of liability upon Daniel M. Galbreath, individually, or The Galbreath Company. Specifically, we find that there exist genuine issues of material fact to be decided regarding whether Building 1 was originally built in the proper manner and whether Building 1 was properly and adequately maintained by Research Corporation. Moreover, we find that there exist questions of material fact to be decided upon the issue of fraud and concealment with regard to the Barber Hoffman report of 1987.
Accordingly, we hold that the trial court's granting of summary judgment in favor of appellees was improper on the claim for piercing the corporate veil as there existed genuine issues of material fact on the three prongs of the test set forth inBelvedere, supra.
The judgment of the trial court is reversed and the cause is remanded.
Judgment reversed and cause remanded.
HARPER, P.J., and MATIA, J., concur.
AUGUST PRYATEL, J., retired, of the Eighth Appellate District, sitting by assignment.