Am.'s Floor Source v. Homes

• Decision Date: 21 December 2010
• Docket Number: No. 09AP–1193.,09AP–1193.
• Citation: 946 N.E.2d 799,191 Ohio App.3d 493
• Parties: AMERICA'S FLOOR SOURCE, L.L.C., Appellee,v.JOSHUA HOMES et al., Appellants.
• Court: Ohio Court of Appeals

191 Ohio App.3d 493

946 N.E.2d 799

2010 -Ohio- 6296

AMERICA'S FLOOR SOURCE, L.L.C., Appellee,

v.JOSHUA HOMES et al., Appellants.

No. 09AP–1193.

Court of Appeals of Ohio, Tenth District, Franklin County.

Decided Dec. 21, 2010.

James E. Arnold & Associates, L.P.A., James E. Arnold, and Damion M. Clifford, for appellee.Freund, Freeze & Arnold L.P.A., Stephen C. Findley, and Richard J. Silk Jr., Columbus, for appellants.

TYACK, Presiding Judge.

{¶ 1} Eric J. Schottenstein and Joshua Homes are appealing the civil judgment entered against them in the Franklin County Court of Common Pleas.

{¶ 2} Jason Goldberg is the CEO of America's Floor Source, L.L.C. (“Floor Source”), which he founded in July 2000 after leaving his family's central Ohio business, Rite Rug. Floor Source is an Ohio limited-liability company that provides retail and wholesale flooring to consumers and builders. Joshua Homes was a central Ohio residential-home builder, founded by Eric Schottenstein. Schottenstein and Goldberg became acquainted around 1997, when Schottenstein went to Rite Rug to acquire special carpet for his luxury vacation home in Colorado. Goldberg and Schottenstein became friends.

{¶ 3} In the summer of 2000, Goldberg decided to leave his family business to start his own flooring business. In September 2000, Schottenstein cosigned a $200,000 line of credit for Floor Source at Bank One.¹ Goldberg also signed a personal guarantee of the debt. To insulate himself from risk, Schottenstein asked Goldberg for a $200,000 cognovit promissory note paying Schottenstein $20,000 per year, and also required Goldberg to carry $200,000 in life insurance, with Schottenstein and his wife as beneficiaries.

{¶ 4} Floor Source's business began to take off within its first year—so much so that Goldberg anticipated that they would need an additional line of credit. Goldberg then approached Schottenstein about cosigning a $300,000 line of credit and proposed that the parties should enter into a consulting agreement whereby Floor Source would pay Schottenstein $3,000 per month. The consulting agreement provided that Schottenstein would serve as a general business advisor to Floor Source, on an as-needed basis. Floor Source's new $300,000 line of credit took effect in January 2002, and although Schottenstein did not sign the consulting agreement until November 2004, in July 2002, Floor Source began paying him a $3,000 monthly fee called for in the agreement. Apparently, unbeknownst to Goldberg, Schottenstein never executed the guarantee for the $300,000 line of credit. Later in 2002, Bank One determined that Goldberg was financially solvent enough to guarantee the loan without Schottenstein, so the bank released Schottenstein from any obligation on the $200,000 line of credit.

{¶ 5} In January 2003, Floor Source regularly provided flooring to Joshua Homes for its new homes. Joshua Homes apparently did a significant amount of such business with Floor Source. However, by November 2005, Joshua Homes's account with Floor Source had become seriously delinquent. At one point, Joshua Homes owed nearly $300,000 to Floor Source for labor and materials. In an effort to save Joshua Homes from bankruptcy, Schottenstein solicited loans from lenders and family alike and came up with a plan to pay off the company's debts by selling assets to pay reduced amounts to its creditors.

{¶ 6} In May 2006, Schottenstein sent a reduction agreement to Floor Source, proposing that he would repay Floor Source $178,838.38, or roughly 60 percent of the balance owed, and that Schottenstein would personally guarantee that amount of payment. Goldberg initially rejected the offer.

{¶ 7} Goldberg claimed that Schottenstein subsequently made a new proposal, whereby Joshua Homes would repay Floor Source $178,000, and Schottenstein would personally pay an additional $96,000. Reference was made to Schottenstein's plan to plow additional capital into Joshua Homes by selling some of his purported $6 million real estate portfolio. Goldberg claimed that he and Schottenstein agreed to this arrangement. Schottenstein later denied that he ever offered to pay $96,000 personally over and above the $178,000 mentioned in the so-called reduction agreement between Joshua Homes and Floor Source. The jury found Goldberg more credible on this point.

{¶ 8} Immediately after entering into this reduction agreement, Joshua Homes incurred an additional $100,000 in debt to Floor Source, and by December 2006, Joshua Homes's account with Floor Source was again delinquent. Having received no payments from Schottenstein personally towards the alleged $96,000 guarantee, in January 2007, Goldberg proposed that he would start applying a $3,000 monthly consulting-fee payment towards the $96,000 debt due under the consulting agreement between Floor Source and Schottenstein personally. Schottenstein did not disagree in writing or contest the claim of a $96,000 personal guarantee in writing.

{¶ 9} Ultimately, Schottenstein failed to make good on any of his debts to Floor Source, both personally and on behalf of Joshua Homes, and the parties retained counsel in anticipation of litigation. The parties were unable to reach any agreement, and in March 2008, Floor Source filed suit against Schottenstein and Joshua Homes for breach of contract and promissory estoppel. Schottenstein filed his answer and counterclaim, denying that he had agreed to personally repay Floor Source for any of Joshua Homes's debt, and alleged that it was Floor Source that had breached the parties' contract(s), not Joshua Homes.

{¶ 10} Initially, Schottenstein was represented by Vorys, Sater, Seymour and Pease, L.L.P. (“Vorys”), but retained Luper, Neidenthal & Logan (“Luper firm”) after Floor Source filed its complaint. About six months later, the Luper firm abruptly withdrew from the case, and Wiles, Boyle, Burkholder & Bringardner Co., L.P.A. (“Wiles firm”) undertook Schottenstein's representation. The Wiles firm, then, abruptly ended its representation of Schottenstein in February 2009, which is when current counsel, Freund, Freeze & Arnold (“Freund”), assumed that role.

{¶ 11} When the Wiles firm withdrew, the discovery cutoff date for the lawsuit had already passed by more than a month. On March 9, 2009, Freund filed a motion on behalf of Schottenstein to modify the case schedule and vacate the trial date, which was set for the following month, April 6, 2009. The trial court did not issue a decision denying Freund's motion until June. However, on March 11, 2009, the trial court confirmed an April 6, 2009 trial date and ordered that the parties submit to mediation. Because of a docketing conflict, the trial court later continued the trial to July 13, 2009. The court also referred the case to a visiting judge.

{¶ 12} A jury trial was conducted. At the end of the trial, the jury found that (1) Schottenstein had made an oral agreement personally to pay $96,000 to Floor Source, (2) Schottenstein had breached the consulting agreement between Floor Source and Schottenstein personally, and that (3) Schottenstein was estopped from denying his promise to pay $96,000 to Floor Source on the personal guarantee. The jury awarded Floor Source $24,000 in damages for Schottenstein's breach of the consulting agreement and $96,000 on the personal-guarantee claim. The jury also sanctioned ending the consulting agreement between Floor Source and Schottenstein personally. The agreement had called for payments to Schottenstein and his wife for the duration of their lives.

{¶ 13} Following the verdict, Schottenstein moved for judgment notwithstanding the verdict, based on the court's denial of his motion to reopen discovery. The court denied Schottenstein's motion, finding, “[I]t appears that [the] records [Schottenstein] sought * * * were actually in [his own hands] prior to the filing of this lawsuit.”

{¶ 14} Schottenstein and Joshua Homes filed a timely notice of appeal and now present six assignments of error for our consideration:

[I.] The trial court erred in overruling Appellants' motion to modify the case scheduling order while continuing the original trial date.

[II.] The trial court erred in entering judgment against Eric Schottenstein individually based upon the actions taken by him in his capacity as president of Joshua Homes.

[III.] The trial court erred in allowing the jury to interpret, without guidance from the trial court, unambiguous contract language.

[IV.] The trial court erred in permitting evidence of, and entering judgment against Eric Schottenstein individually for, an alleged oral promise to pay the debt of Joshua Homes, contrary to the parol evidence rule and the Statute of Frauds.

[V.] The trial court erred in permitting evidence of, entering judgment based upon, and awarding damages for, a claim of frustration of purpose.

[VI.] The trial court erred in permitting the jury to see a photograph and hear evidence related to Eric Schottenstein's personal residence; and other debt-related lawswuits against Appellants.

{¶ 15} The second assigned error essentially argues that the verdict was against the manifest weight of the evidence. This assignment of error requires an in-depth review of the facts and evidence adduced at trial. We will therefore address the second assigned error first, followed by the other alleged errors as is relevant or applicable.

{¶ 16} The jury having found that Schottenstein was not credible when he totally denied personally guaranteeing a payment of $96,000, Schottenstein now argues in the second assigned error that his oral promise to personally pay Floor Source $96,000 for debts incurred by Joshua Homes is unenforceable because of the statute of frauds. Under R.C. 1335.05,² a person's promise to pay the debt of another must be in writing to be enforceable. R.C. 1335.05 reads:

No action shall be brought whereby to charge the defendant, upon a special promise, to answer for the debt, default, or...