Fifth Third Bank v. Dayton Lodge, LLC, No. 25531.

• Court: United States Court of Appeals (Ohio)
• Writing for the Court: WELBAUM
• Citation: 6 N.E.3d 638
• Parties: Fifth Third Bank, Plaintiff–Appellant v. DAYTON LODGE, LLC, dba Dayton Executive Hotel, et al., Defendant–Appellant and William D. HOFFMAN, Receiver–Appellee.
• Decision Date: 27 December 2013
• Docket Number: No. 25531.

6 N.E.3d 638

Fifth Third Bank, Plaintiff–Appellant
v.
DAYTON LODGE, LLC, dba Dayton Executive Hotel, et al., Defendant–Appellant
and
William D. HOFFMAN, Receiver–Appellee.

No. 25531.

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

Dec. 27, 2013.

[6 N.E.3d 640]

Jared A. Wagner, Jonathan F. Hung, Dayton, OH, for plaintiff-appellant—Fifth Third Bank and for Defendant–Appellant—Dayton Lodge, LLC.

Matthew C. Sorg, Dayton, OH, for receiver-appellee.

Mark Sheriff, Columbus, OH, for defendant-appellee—Auto Owners Insurance.

Thomas Talbot, Dayton, OH, for defendant-appellee—HHP Corporation.

Donald Jordan, Columbus, OH, for defendant-appellee—Huntington National Bank.

Joseph Strines, Dayton, OH, for defendant-appellee—Miami Valley Resources.

Charles Geidner, Dayton, OH, for defendant-appellee—Ohio Department of Taxation.

WELBAUM, J.

{¶ 1} Plaintiff–Appellant, Fifth Third Bank, and Defendant–Appellant, Dayton Lodge, LLC, appeal from a trial court order discharging a receiver and approving the receiver's final account. Appellants contend that the trial court exceeded its jurisdiction when it entered the order because: (1) the order was entered after the trial court had already entered a final appealable order closing the receivership; (2) the order ruled on the receiver's liability, which was not an issue raised in the pleadings or argued by the parties; and (3) the order unconstitutionally released the receiver from liability against nonparties who did not have notice or reason to believe that their claims would be foreclosed.

{¶ 2} In addition, Appellants challenge the order on grounds that the trial court improperly held Fifth Third liable for the receivership estate deficit. Appellants also argue that the trial court's findings were against the preponderance of the evidence.

{¶ 3} We conclude that the trial court did not exceed its jurisdiction when it entered the order discharging the receiver and approving the final account. The prior final appealable order allegedly closing the receivership did not discharge the receiver or approve the final account. Therefore, the receivership was not officially closed, and the trial court retained jurisdiction to complete the actions necessary to close the matter. The trial court also did not exceed its jurisdiction when it ruled on the receiver's liability, because a ruling on liability was necessary to discharge the receiver. Additionally, Appellants do not have standing to assert the claims of unknown nonparties who did not receive notice of the receiver's discharge.

{¶ 4} While the trial court had jurisdiction to enter the order approving the final

[6 N.E.3d 641]

account and discharging the receiver, we conclude that the trial court erred and abused its discretion in failing to articulate specific circumstances that justify holding Fifth Third liable for the receivership estate deficit. Additionally, the trial court abused its discretion in failing to hold a required hearing prior to approving the final account and discharging the Receiver.

{¶ 5} Accordingly, the judgment of the trial court will be affirmed in part, reversed in part, and remanded.

I. Facts and Course of Proceedings

{¶ 6} On March 22, 2007, Fifth Third Bank initiated a foreclosure action on real property located at 2401 Needmore Road, Harrison Township, Montgomery County, Ohio (the Property). The Property is a hotel owned by Dayton Lodge, LLC. At Fifth Third's request, the trial court appointed a receiver to take possession, custody, and control of the Property and its business. By a consent order dated April 11, 2007, Appellee, William D. Hoffman (Receiver), was appointed as receiver.

{¶ 7} The consent order set forth various terms and conditions for the receivership. Pursuant to the consent order, expenses for the management of the Property and the Receiver's compensation were to be paid from revenue generated by the hotel business. The consent order also stated that the receivership was not to take effect unless Dayton Lodge failed to meet certain forbearance conditions. As long as the forbearance conditions were met, Dayton Lodge could manage the Property and make periodic payments to Fifth Third. In that situation, the Receiver's role was limited to monitoring the business finances and management.

{¶ 8} Between April 11, 2007, and February 8, 2008, Dayton Lodge operated the Property in compliance with the forbearance conditions. However, Dayton Lodge eventually breached the conditions and caused the receivership to take effect on February 8, 2008. Thereafter, the Receiver took exclusive possession and control over the Property.

{¶ 9} As the Receiver carried out his duties, he discovered that the Property was in poor condition, needed substantial repairs, and that there was insufficient revenue to operate the business and maintain the Property. Between February 2008, and June 2008, the Receiver filed interim reports summarizing the business revenue, disbursements, and net income. In his report filed on May 28, 2008, the receiver indicated that he had closed the business on April 29, 2008.

{¶ 10} Meanwhile, on April 2, 2008, the trial court entered a final judgment entry and decree of foreclosure in favor of Fifth Third. In lieu of holding a sheriff's sale, the court authorized Bambeck Auctioneers, Inc. to hold a public auction of the Property. The public auction was held on August 7, 2008, and the Property was sold to Salam Said Shaja (Purchaser), who bid $1,150,000. Dayton Lodge objected to the sale on grounds that the Property should not have been sold for less than $1,675,000. In response, Fifth Third filed a motion for an order confirming the sale.

{¶ 11} On July 19, 2009, the parties settled their issues concerning the sale and executed a settlement agreement. The settlement agreement stated that Fifth Third would not execute a deficiency judgment against Dayton Lodge, as long as Dayton Lodge made certain forbearance payments to Fifth Third. In addition, the settlement agreement stated that Dayton Lodge released the Receiver from any and all claims relating “to the Receiver, [or] any act or omission to act by Receiver during the Receivership.” See Exhibit A attached to Receiver's Final Account and

[6 N.E.3d 642]

Report and Motion to Discharge the Receiver (Mar. 4, 2011), Docket No. 143, p. 10, ¶ E(1).

{¶ 12} After the Receiver was notified of the settlement, he filed a motion to close the receivership on August 18, 2009. Dayton Lodge filed a memorandum opposing the closure on grounds that there was a criminal action pending in Vandalia Municipal Court concerning the Property. The criminal action was filed in April 2009, against Dayton Lodge's controller for failing to maintain the Property's fire suppression system in good working order. Dayton Lodge contended that the receivership should remain in effect, because the violation arose during the receivership and was due to the acts and/or omissions of the Receiver. The trial court did not rule on the Receiver's August 18, 2009 motion to close the receivership.

{¶ 13} On May 4, 2010, the Receiver filed a second motion to close the receivership. In that motion, the Receiver indicated that as of May 1, 2009, he had determined that it was not in the best interest of the receivership estate to continue operating the Property. He came to this conclusion because there was no cash flow to cover business operations, and excessive capital expenditures were needed to bring the Property into a condition that was safe for guests and employees. The Receiver also indicated that despite numerous requests, Fifth Third had not advanced sufficient funds to fully repair the Property. Fifth Third filed a memorandum supporting the closure of the receivership and Dayton Lodge once again opposed it on grounds of the criminal proceeding. The trial court did not rule on the Receiver's May 4, 2010 motion to close the receivership.

{¶ 14} Nine months later, the trial court confirmed the sale of the Property to the Purchaser. Thereafter, on March 4, 2011, the Receiver filed a final account and motion to discharge receiver. The final account reported that the receivership's operating account had a balance of $7.53 and a deficit of $39,409.90. The receivership owed $31,991.93 for outstanding accounts payable, $425 for attorney fees, and $7,000 for accrued fees and expenses, which included unpaid receiver fees in the amount of $6,725.¹ The Receiver requested that the court order Fifth Third to pay the entire deficit. Neither Fifth Third nor Dayton Lodge filed objections to the final account. The trial court did not rule on the final account and motion to discharge receiver.

{¶ 15} On October 18, 2012, the Receiver filed another motion to discharge receiver. The motion requested the trial court to adopt the Receiver's final account and proposed order discharging the receiver filed on March 4, 2011. The Receiver's proposed order ratified the Receiver's acts during his administration and released the Receiver from liability as to “any person or entity, including taxing authorities.” See Receiver's Final Account and Report and Motion to Discharge Receiver (Mar. 4, 2011), Montgomery County Common Pleas Court Case No. 2007–CV–2432, Docket No. 143, p. 4–6. The proposed order also instructed Fifth Third to pay the $39,409.90 receivership estate deficit. Id. at 5.

{¶ 16} On November 19, 2012, Fifth Third and Dayton Lodge filed an agreed motion moving the court to withdraw the

[6 N.E.3d 643]

confirmation of sale; vacate the decree of foreclosure; dismiss the foreclosure action; and order the funds on deposit from the sale to be paid to the auctioneers and the Purchaser. In addition, the agreed motion tangentially requested the court to close the receivership. The agreed motion indicated that the Purchaser and auctioneers approved the relief being requested.

{¶ 17} The same day, the trial court entered an order granting all of the requests in the agreed motion, including closing...