Amerifirst Savings Bank of Xenia v. Krug

• Decision Date: 10 December 1999
• Docket Number: No. 17349., No. 17345
• Citation: 136 Ohio App.3d 468,737 NE 2d 68
• Parties: AMERIFIRST SAVINGS BANK OF XENIA, Ohio, Appellee, v. KRUG, d.b.a. Krug Auto Sales, et al., Appellants.
• Court: Ohio Court of Appeals

136 Ohio App.3d 468

737 NE 2d 68

AMERIFIRST SAVINGS BANK OF XENIA, Ohio, Appellee, v. KRUG, d.b.a. Krug Auto Sales, et al., Appellants.¹

Nos. .

Court of Appeals of Ohio, Second District, Montgomery County.

Decided December 10, 1999.

Michael L. Scheier and Steven C. Coffaro, for appellee.

Jay F. McKirahan and Deanna L. Stockamp, for appellant Jerry Krug, d.b.a. Krug Auto Sales.

Eugene Robinson, for appellant Theran Alexander.

Daniel J. O'Brien, for appellant Tim Krug.

FREDERICK N. YOUNG, Judge.

In this case, defendants-appellants Jerry Krug, d.b.a. Krug Auto Sales (hereinafter collectively referred to as "Jerry Krug"), Tim Krug, and Theran Alexander appeal from the trial court's judgment entry affirming the jury verdicts and damage awards against them and in favor of Amerifirst Bank of Xenia, Ohio ("Amerifirst"). Each appellant asserts their own respective assignments of error.

The original complaint in this matter was filed on December 21, 1995, by Amerifirst against all three appellants, Jerry Krug, Timothy Krug, and Alexander, with an amended complaint having been filed on May 28, 1997. Amerifirst asserted claims of breach of contract, specific performance, breach of fiduciary duty and negligence against Jerry Krug, and asserted claims of common law fraud and violations of Ohio's RICO statutes against all three appellants. All three appellants filed counterclaims of defamation and intentional infliction of extreme emotional distress against Amerifirst. Jerry Krug asserted an additional claim against Amerifirst for wrongful withholding of dealer reserve funds.

Alexander's original deposition was scheduled for April 11, 1996. On April 10, 1996, Alexander filed a motion for a stay of the deposition proceedings and an order protecting him from the loss of his right against self-incrimination because he was under federal criminal investigation for fraud stemming from the facts underlying this case. The trial judge stayed the proceedings for six days. The motion was never ruled on because no notice of deposition had been filed. On December 30, 1996, Amerifirst issued a notice to depose Alexander on January 23, 1997. On January 17, 1997, Alexander filed a motion for a protective order against testifying at deposition because he was still under federal investigation. After great delay, Alexander's deposition was taken and filed with the trial court on September 9, 1997. In his deposition, Alexander asserted his Fifth Amendment privileges to matters regarding the fraud claim against him.

On March 3, 1997, the trial judge filed an entry setting the jury trial for October 14, 1997, with a back-up trial date scheduled for November 3, 1997. The pretrial order clearly stated that "[u]nder no circumstances will the taking of perpetuation testimony within thirty days of the trial date cause the trial date to be continued." The court filed a revised trial schedule on May 28, 1997, resetting the jury trial for November 10, 1997.

A motion for summary judgment was filed by Amerifirst on September 9, 1997, on the issues of Jerry Krug's breach of fiduciary duty, Alexander and Jerry Krug's fraud claims, and Alexander's and Jerry Krug's defamation counterclaims. Alexander responded on September 26, 1997, by filing a memorandum contra and asserting his own motion for summary judgment. Jerry Krug and Timothy Krug filed a joint memorandum contra and motion for summary judgment on October 10, 1997. On October 20, 1997, the trial court sustained Amerifirst's motion for summary judgment on the issue of appellants' defamation and emotional distress claims. The trial court also granted Amerifirst's motion on the issue that an agency relationship existed between Jerry Krug and Amerifirst; the trial court denied the parties' remaining claims.

On October 30, 1997, Amerifirst filed a motion in limine requesting the trial court to limit Alexander's testimony to matters not previously shielded from discovery through assertion of his Fifth Amendment privilege. This motion was in response to Alexander's request to waive his Fifth Amendment privilege and withdraw his assertion on the eve of trial, six months after asserting the privilege. Alexander filed a memorandum contra on November 5, 1997, however the trial court granted Amerifirst's motion on November 6, 1997, based on Alexander's timing and the "unfair tactical advantage" Alexander would gain by waiving the privilege at that late date.

The jury trial commenced on November 10, 1997. Immediately prior to the start of trial, Alexander filed a motion for continuance and to postpone continuation of depositions of his experts pending the production or reconstruction of Amerifirst's 1995 lending guidelines. The trial court denied the motion for continuance based on Amerifirst's reproduction of the lending guidelines just prior to trial.

The testimony at trial is summarized briefly as follows:

Jerry Krug is the sole proprietor of Krug Auto Sales, a used car dealership located in Beavercreek, Ohio. Tim Krug, Jerry Krug's son, was in charge of Krug Auto Sales' day-to-day business affairs in 1995. Alexander was a sales representative who was an independent contractor for the dealership.

In 1994, Amerifirst developed its indirect consumer lending department and Peter C. Williams was appointed the loan officer in charge of processing indirect loan applications. Under this program, Amerifirst would not have direct contact with the potential borrower, but instead Amerifirst would receive the application from the third-party automobile dealer who would deal directly with the potential borrower.

Amerifirst and Williams initiated contact with Jerry Krug to begin such a program, and Krug Auto Sales began participating in the program in April of 1995. Amerifirst and Jerry Krug entered into a Dealer Agreement on April 19, 1995. The Dealer Agreement provided that Jerry Krug was an "agent for taking loan applications and completing loan documents." In addition, the Dealer Agreement provided that "nothing in this agreement shall be construed to obligate dealer to offer Bank financing to Buyers or to obligate Bank to accept any loan application." Scott Powers, Asset Quality Coordinator for Amerifirst during 1995, testified that Amerifirst provided a "fee" to Krug Auto Sales for serving as Amerifirst's "agent" and booking the loans through Amerifirst. This money went into a Dealer Reserve account, and between May and August of 1995 the account accrued to $142,437.46.

Despite Jerry Krug's oral agreement with Williams to submit approximately fifty applications per month, Krug Auto Sales submitted an average of over eight hundred applications per month for the period of May through August of 1995, totaling approximately three thousand applications. Williams testified that his lending department was understaffed to handle the volume of applications, and that he was responsible for approving or denying the vast majority of Krug Auto Sales' customers' loan applications. To determine which applications to approve and which to deny, Williams analyzed the potential customers' applications and credit reports using the Amerifirst lending guidelines. Williams testified that each application had to be considered on a case-by-case basis, but that he had a lot of leeway in his decision making. He further testified that the lending guidelines did not allow Amerifirst to rely solely on the customers' applications if their credit reports did not supply the needed information. Two hundred fiftyeight applications submitted through the program with Krug Auto Sales were approved. Williams was eventually terminated from Amerifirst, in part based on his performance with this program.

In August of 1995, Amerifirst began an internal investigation into the increased rate of defaults from its consumer loans, in particular, those approved through the program with Krug Auto Sales. The investigation uncovered inaccuracies on the applications from Krug Auto Sales. These inaccuracies included false information on employment data, including length of time at employment, amount of compensation, and whether or not the customer was even employed; length of time at residence; whether the customer rented or owned their residence; number of dependents; and trade-in and down payment information.

Jerry Krug testified that he personally handled few of the Amerifirst applications. He stated that his salespeople, who were independent contractors, would obtain information from the potential customers, complete the application, and then fax the application to Amerifirst. He instructed all salespeople to accept all applications, explaining that he did not want to discriminate between potential buyers.

Jerry Krug did realize that Amerifirst was approving applications which were not of the quality usually accepted for loan approval by a bank. He stated that Amerifirst was approving so many loans that he could not keep up with the demand for cars. Jerry Krug also testified that he recommended to other car dealers that they deal with Amerifirst because they were "buying bad paper" and that they could increase their sales by dealing with Amerifirst. Fourteen of the approved borrowers testified at trial. The majority of the customers testified that they supplied truthful information to the salesperson at Krug Auto Sales (usually Alexander), who would fill out their applications. Angela Wolford, one approved customer, testified that she provided truthful information to Alexander as he filled out her loan application, but he entered false information on her application. Wolford, who was unemployed at the time of applying for a loan, testified that Alexander called another individual in the midst of filling out her application, and offered this individual "another $1,000 check" if this person would state to Amerifirst that Wolford worked as his secretary. As a result of that conversation, Wolford stated that her Amerifirst application indicated...