Home Sav. & Loan Co. of Youngstown v. Evergreen Land Dev., CASE NO. 12 MA 215

CourtUnited States Court of Appeals (Ohio)
Writing for the CourtDeGENARO, J.
Citation2016 Ohio 1248
Docket NumberCASE NO. 12 MA 215
Decision Date24 March 2016

2016 Ohio 1248


CASE NO. 12 MA 215


March 24, 2016


CHARACTER OF PROCEEDINGS: Civil Appeal from Court of Common Pleas of Mahoning County, Ohio Case No. 08 CV 2876

JUDGMENT: Affirmed in part. Reversed in part and modified.

For Plaintiff-Appellee

Attorney Douglas DiPalma
Attorney Komlavi Atsou
Cavitch, Familo & Durkin Co., LPA
1300 East Ninth Street, Twentieth Floor
Cleveland, Ohio 44114

For Defendants-Appellants

Attorney David Detec
Manchester Newman & Bennett, LPA
Atrium Level Two
The Commerce Building
201 East Commerce Street
Youngstown, Ohio 44503


Hon. Mary DeGenaro
Hon. Frank D. Celebrezze, Jr.
Judge of the Eighth District Court of
Appeals, sitting by assignment
Hon. Kathleen Ann Keough
Judge of the Eighth District Court of
Appeals, sitting by assignment

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{¶1} Defendants-Appellants, Evergreen Land Development and Alfonso Valdes appeal the judgment of the Mahoning County Court of Common Pleas in favor of Appellee, Home Savings and Loan Company of Youngstown. On appeal, Evergreen and Valdes assert that the trial court made multiple errors regarding discovery: Evergreen's and Valdes' separate defenses and counterclaims, specifically the timeliness of Valdes' asserted status as an accommodation maker and both appellant's claims of promissory estoppel and negligent misrepresentation; the amount of judgment and damages; and finally the award of attorney fees against Evergreen and their assigned priority. Defendant-Appellant Thomas Zebrasky filed a separate appeal asserting the same accommodation argument raised by Evergreen and Valdes. For the reasoning below, all of Evergreen, Valdes and Zebrasky's arguments are meritless, except for the amount of attorney's fees and costs awarded to Home Savings against Evergreen. Accordingly, the judgment of the trial court is affirmed in part, reversed in part and modified. The judgment entered in favor of Home Savings against Evergreen for reasonable attorney fees and costs of $378,938.02 is reduced by $3,146.60 and modified to $375,791.42.

Factual History

{¶2} Valdes and Zebrasky had been friends since the 1980's. In 1998 Zebrasky took Valdes to a 100 acre property known as Pine Lake Reserve and the two men decided to purchase the property and develop an approximate 300 multi/duplex residential unit project in four phases. In June 2003 Valdes and Zebrasky entered into an operating agreement to establish Evergreen Land Development, LLC for this purpose. Phase 3 of the four phases was the most critical; it encompassed the majority of the lakefront and lake view properties and had the highest profit margin. Valdes had served as a director of a bank in Puerto Rico and had prior real estate development experience in Florida and Puerto Rico; he had a net worth between 14 and 21 million dollars at the time. Zebrasky lived in Ohio and was self-employed restoring and selling collectable cars.

{¶3} To begin the development process Valdes purchased the Phase 4

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parcel using his own funds and loans from lenders in Puerto Rico. After obtaining the necessary permits, Evergreen targeted Phase 1 as the next step in the development of Pine Lake, and Valdes inquired about a loan from Home Savings. From the beginning, Home Savings was aware of Evergreen's plans to purchase the property from Aqua Ohio, a water supply company, and develop the Phase 1, 2, and 3 parcels, with Phase 3 having the greatest potential profit.

{¶4} In April 2003, Home Savings approved two separate loans for the purchase and development of the Phase 1 parcel, $1,750,000.00 and $1,200,000.00, which Valdes and Zebrasky signed personally and on behalf of Evergreen. Both loans were secured by mortgages on the Phase 1 and 4 parcels, the personal guarantees of Valdes and Zebrasky, a $150,000 certificate of deposit by Valdes, and a second mortgage on Zebrasky's home. The loan documents were signed June 17, 2003, by Valdes and Zebrasky individually and on behalf of Evergreen, and consisted of cognovit notes, mortgages, a construction loan agreement, and a revolving line of credit. As Evergreen developed Phase 1, Zebrasky was responsible for daily supervision of the project.

{¶5} Because the municipal authority refused to issue building permits until a pump station and pipes were in place, in March 2004 Evergreen requested an additional loan to construct a pump station and 2.5 miles of pipe, for which Home Savings approved a third loan of $485,000. On April 23, 2004, Valdes and Zebrasky signed the loan documents personally and on behalf of Evergreen; the loan was secured by their personal guarantees and a mortgage on the Phase 1 and 4 parcels.

{¶6} By January 2005, Evergreen had pre-sold a number of units and had used all of the available line of credit for home construction. Evergreen requested another loan from Home Savings to construct a four-plex on speculation, which Home Savings approved for $825,600. This fourth loan was secured by mortgages on the Phase 1 and 4 parcels and by the personal guarantees of Valdes and Zebrasky. On January 7, 2005, Valdes and Zebrasky signed the loan documents personally and on behalf of Evergreen. The grand opening of Pine Lake Reserve occurred in May 2005. In June 2005, Evergreen began construction of the four-plex,

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which was subsequently completed.

{¶7} Also in June 2005 Home Savings approved a $6,215,000 loan as well as an increase in the line of credit to $5,000,000. The new loans consolidated and refinanced Evergreen's initial two loans for 1.75 and 1.2 million dollars, the $485,000 for the pump station, as well as provided additional financing for the purchase and development of the Phase 2 parcel and the purchase of the Phase 3 parcel. Home Savings also released Valdes' $150,000 certificate of deposit and the second mortgage on Zebrasky's home. The $825,000 loan for the four-plex built on speculation remained as a separate loan.

{¶8} On August 5, 2005, Valdes and Zebrasky signed the $6,215,000 loan documents personally and on behalf of Evergreen. Valdes signed the $5,000,000 loan personally and both Valdes and Zebrasky signed on behalf of Evergreen. The loan documents included cognovit notes, mortgages, security agreements, construction loans, the A&D loan and revolving line of credit. The loans were secured by first mortgages on the Phase 1 and 4 parcels, by Valdes and/or Zebrasky's personal guarantee, and by the Phase 2 parcel after it was purchased, which occurred shortly thereafter.

{¶9} After the refinancing documents were signed, Valdes removed Zebrasky from his role overseeing the development of Pine Lake and replaced him with Jamie Garayua to manage the project; Garayua had no prior experience in construction, lending or residential development. That, and other changes not pertinent to this appeal, resulted in a lawsuit separate from this case between Zebrasky and Valdes.

{¶10} In May 2006, Valdes asked Home Savings to approve a shift in the Pine Lake development from multi-family units to single-family units. However, in August 2006, Valdes began construction of a single-family home without Home Savings' approval on a parcel that had been designated for a four-plex. Although he had been removed from his position as the project manager, Zebrasky continued to own 49% of Evergreen and did not approve of the change in plans and filed an unsuccessful lawsuit in an attempt to stop construction of this single family unit.

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{¶11} In November 2006, Home Savings completed its evaluation of Valdes' request which revealed that housing values were declining, the $6,215,000 loan exceeded the value of the collateral by $898,271, and Evergreen needed $305,657 more than was originally allocated to complete Phase 1. Home Savings proposed a loan reconfiguration in order to proceed with Valdes' proposal to shift the project to single family homes and an agreement was ultimately reached. Pertinent to this appeal, the terms of the reconfigured loan included using funds originally designated for the development of Phase 2 and also to purchase the Phase 3 parcel, and instead using those funds to complete the construction of the single family units in Phase 1 as revised per Valdes' request, and the balance of $151,354 would be allocated to increase Evergreen's interest reserve account.1 Home Savings also agreed to reimburse Valdes for the single-family home he built without prior approval; Valdes drew those funds from the line of credit on November 21, 2006.

{¶12} In January 2007, first Garayua and then Valdes each sent a letter to Home Savings which between them raised two concerns pertinent to this appeal: why $151,354 had not been added to the interest reserve account per the agreement and why funds for the Phase 3 parcel, which Valdes still wanted to purchase, had been removed as part of the restructure. After a series of discussions the reserve account issue was resolved and there was agreement to prepare a separate proposal for another loan to purchase the Phase 3 parcel.

{¶13} On April 16, 2007, a loan request was made for $1,610,662 for the purchase and development of the Phase 3 parcel, including allocating $125,000 of the funds for the interest reserve account. The loan committee approved the loan request for only $1,485,662 and required Valdes to deposit $100,000 into the interest reserve account.

{¶14} On April 17, 2007, Home Savings sent Valdes a memo which enumerated four conditions on the new loan: a contract to purchase the Phase 3 parcel from Aqua, the seller of the Pine Lake parcels; a satisfactory appraisal; a cash

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deposit of $100,000; and, assurances that Zebrasky could not interfere with the project.

{¶15} In June 2007, Home Savings received and accepted the appraisal for the Phase 3 parcel and also received assurances from...

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