Baker v. Conlan

• Decision Date: 14 March 1990
• Docket Number: No. C-880630,C-880630
• Citation: 585 N.E.2d 543,66 Ohio App.3d 454
• Parties: , Blue Sky L. Rep. P 73,606 BAKER et al., Appellees, v. CONLAN et al., Appellants. *
• Court: Ohio Court of Appeals

Page 454

66 Ohio App.3d 454

585 N.E.2d 543, Blue Sky L. Rep. P 73,606

BAKER et al., Appellees, v. CONLAN et al., Appellants. ^*

No. C-880630.

Court of Appeals of Ohio, First District, Hamilton County.

Decided March 14, 1990.

Spraul, Reyering & Cronin and Terrence M. Veith, Cincinnati, for appellees.

Greer & Fisse and Lawrence R. Fisse, Batavia, for appellants.

PER CURIAM.

This cause came on to be heard upon appeal from the Hamilton County Court of Common Pleas.

Defendants-appellants, John Conlan and Shawnee Capital Corporation ("Shawnee"), appeal from the judgment entered against them in the Hamilton County Court of Common Pleas in an action seeking damages for fraud. Conlan and Shawnee assert that the judgment is against the manifest weight of the evidence and claim in addition that the trial court erred by failing to grant their motions for summary judgment and involuntary dismissal. A review of the entire record shows that none of their claims merits reversal of the trial court's judgment.

The fraud alleged in this case concerns the sale of limited-partnership interests to plaintiffs-appellees John Conners, E.G. Frank, Harold M. Saunders, and Dr. Raymond H. Johnson (collectively, the "investors") in a limited partnership known as "Falina Angel Partners." The purpose of Falina Angel Partners was to purchase a mare, Falina Angel, for breeding with a stallion called "State Dinner," so that the offspring could be sold for a return on the investment.

Shawnee and Killarney Breeding Sales, Inc. ("Killarney") were listed as general partners in the limited partnership's prospectus. John Conlan was president of Shawnee and, although the subject of contention, its director. Killarney was closely held by defendants Paul M. LaLonde and his father, Gregory T. LaLonde. Plaintiff-appellee Nancy O. Baker was hired to market limited-partnership shares for the partnership.

The fraud in question arose from the dissemination of the partnership's prospectus, which contained several alleged misrepresentations and omissions that induced the investors to subscribe to the partnership. The prospectus failed to note the existence of various agister's and stud-fee liens placed on Falina Angel prior to the partnership's intended purchase of the horse from her owner, Paul LaLonde. Other information concerning Paul LaLonde that was omitted from the document involved two pages of an attachment to Paul LaLonde's financial statement, which had originally been included in the prospectus when it was approved by the Ohio Division of Securities. Further, the prospectus at no time included any mention that Paul LaLonde had previously been convicted of bank fraud. The plaintiffs also alleged that the prospectus misrepresented Killarney and Paul LaLonde's willingness or ability to purchase any outstanding shares in the partnership if they remained unpurchased after a certain date, and that it further misrepresented the extent of liability faced by the general partners.

The partnership quickly failed when foreclosure proceedings against Paul LaLonde resulted in the Scott County, Kentucky, Sheriff taking custody of Falina Angel, and when Conlan and Shawnee issued a check against insufficient funds in payment of a stallion share in State Dinner which would have allowed Falina Angel to be bred with the stallion.

After learning of the partnership's setbacks, the plaintiffs demanded the return of their investment, and shortly thereafter filed a seven-count complaint alleging fraud and securities violations by Killarney and Paul and Greg LaLonde, and by Shawnee and John Conlan. Before trial, Shawnee and John Conlan filed a joint motion for summary judgment under Civ.R. 56, based on an absence of facts showing their participation in or awareness of the fraud perpetrated by Killarney and LaLonde, and on the lack of specificity with which the fraud counts were pleaded. The motion was overruled and the parties proceeded to trial. After the plaintiffs concluded their case, Conlan and Shawnee moved for and were denied an involuntary dismissal under Civ.R. 41(B)(2) on grounds similar to those underpinning their motion for summary judgment. At the conclusion of the trial, the trial court found that John Conlan and Shawnee Capital were indistinguishable, that they had recklessly failed to exercise due diligence in the preparation of the prospectus, and that the investors were entitled to damages from Conlan and Shawnee, under the Ohio Securities Act, R.C. Chapter 1707, in an amount equal to their original investment of $14,000 each.

In their first assignment of error, Conlan and Shawnee challenge the trial court's failure to grant summary judgment in their favor. Conlan and Shawnee argue that the plaintiff's complaint was insufficient to set forth either a common-law or statutory claim for fraud, and that the claims otherwise failed as a matter of law because no material facts were at issue. We do not agree with either contention.

Under the apparently competing directives of Civ.R. 8(A), which requires that a "pleading which sets forth a claim for relief * * * contain (1) a short and plain statement of the claim showing that the pleader is entitled to relief," and Civ.R. 9(B), which requires that in "all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity," the determination of the appropriate degree of specificity in the assertion of a claim of fraud must be made on a case-by-case basis. See F & J Roofing Co. v. McGinley & Sons, Inc. (1987), 35 Ohio App.3d 16, 518 N.E.2d 1218. The underlying determination in each case is whether the allegation is specific enough to inform the defendant of the act of which the plaintiff complains, and to enable the defendant to prepare an effective response and defense. Id., citing Haddon View Investment Co. v. Coopers & Lybrand (1982), 70 Ohio St.2d 154, 24 O.O.3d 268, 436 N.E.2d 212. The "circumstances constituting fraud" to which Civ.R. 9(B) refers normally include the time, place and content of the false representation, the fact misrepresented, and the nature of what was obtained or given as a consequence of the fraud. F & J Roofing Co., supra, 35 Ohio App.3d at 17, 518 N.E.2d at 1220, citing 2A Moore's Federal Practice (1986), Paragraph 9.03, at 9-20 to 9-24.

Count six of the complaint alleges that Conlan and Shawnee, among others, fraudulently induced each of the investors to invest $14,000 in the partnership, that various misstatements of fact were made by the defendants, that the investors relied on the statements, and that the investors would not have purchased their interests had the statements not been made. Preceding counts of the complaint, restated in the sixth count "as if fully rewritten," allege that plaintiffs Conners, Frank Saunders and Dr. Johnson were investors who purchased limited-partnership units of the partnership; that the partnership's prospectus was registered with the Ohio Division of Securities and stated a specific purpose to acquire Falina Angel and a stallion share in State Dinner; that the defendants fraudulently represented that they were financially able to complete the venture; that Paul LaLonde owned Falina Angel free of any substantial liens; and that they intended to purchase a stallion share in State Dinner. Although the complaint does not allege that the prospectus omitted portions of Paul LaLonde's financial statement or failed to mention his prior convictions, or that the prospectus misstated the nature of the general partners' liability, the complaint was nevertheless sufficient to apprise Conlan and Shawnee of the acts of which the investors complained, and to permit them to prepare an effective response and defense.

Conlan and Shawnee also argue that the complaint was insufficient under Civ.R. 8(A) because it failed to set forth all of the necessary elements of common-law or statutory fraud, under Fancher v. Fancher (1982), 8 Ohio App.3d 79, 8 OBR 111, 455 N.E.2d 1344. As this court stated in Fancher, however, a complaint which does not contain direct allegations on every material point of the legal theory used to sustain a recovery will nevertheless be deemed sufficient if it contains "allegations from which an inference fairly may be drawn that evidence on these material points will be introduced at trial." Fancher, supra, 8 Ohio App.3d at 83, 8 OBR at 116, 455 N.E.2d at 1348. We hold that the allegations noted above supported the inference that evidence would be adduced at trial that Conlan and Shawnee either knowingly or with reckless disregard misrepresented facts that were material to the transaction, in accord with Fancher and the common-law elements of fraud as set forth in Burr v. Stark Cty. Bd. of Commrs. (1986), 23 Ohio St.3d 69, 23 OBR 200, 491 N.E.2d 1101. Similarly, any elements of statutory fraud under R.C. 1707.41 not directly stated in the complaint, such as the identity of the offeror, are fairly susceptible to the inference that evidence of such elements would be adduced at trial. A section or chapter of the Revised Code need not be cited to uphold the formal validity of a complaint based on that statute. Society Natl. Bank v. Kienzle (1983), 11 Ohio App.3d 178, 11 OBR 271, 463 N.E.2d 1261.

Conlan and Shawnee also argued at trial that there existed no genuine issue of material fact to be litigated, and now assert that the trial court erred by refusing them summary judgment. A review of the record, including the various depositions filed with the trial court, shows this contention not to be well taken. Conlan's own deposition indicates that he failed to exercise due diligence in the preparation of the prospectus, and there was an actual dispute on almost all of the major issues between the parties. We therefore cannot say that the trial court erred in refusing summary judgment. See Temple v. Wean United, Inc. (1977), 50 Ohio St.2d 317, 4 O.O.3d 466, 364 N.E.2d 267. Accordingly,...