Premier Therapy, LLC v. Childs

Decision Date18 November 2016
Docket NumberCASE NO. 15 CO 0028,CASE NO. 14 CO 0048
Citation2016 Ohio 7934
PartiesPREMIER THERAPY, LLC, PLAINTIFF-APPELLEE, v. DAVID E. CHILDS, et al., DEFENDANTS-APPELLANTS.
CourtOhio Court of Appeals
OPINION

CHARACTER OF PROCEEDINGS: Civil Appeal from the Court of Common Pleas of Columbiana County, Ohio Case No. 2013CV293

JUDGMENT Reversed and Vacated in part, Affirmed in part.

APPEARANCES:

For Plaintiff-Appellee:

Atty. Christopher Kuhn

Atty. Robert Pivonka

Rolf Goffman Martin Lang, LLP

30100 Chagrin Boulevard, Suite 350

Cleveland, Ohio 44124

For Defendants-Appellants:

Atty. G. Brenda Coey

Bonezzi Switzer Pliti & Hupp Co. L.P.A.

1300 East 9th Street, Suite 1950

Cleveland, Ohio 44114

JUDGES:

Hon. Carol Ann Robb

Hon. Gene Donofrio

Hon. Mary DeGenaro

ROBB, J.

{¶1} Defendants-Appellants David E. Childs, Management Services Company, and Brewster Parke, Inc. appeal the judgment entered against them in the Columbiana County Common Pleas Court after a jury found in favor of Plaintiff-Appellee Premier Therapy, LLC. Appellants first contend the court erred in requiring them to share three peremptory challenges with another defendant.

{¶2} Appellants next argue they were entitled to directed verdict on the issue of piercing the veil of Holander House, Ltd., claiming: the veil of a limited liability company cannot be pierced; the doctrine cannot be applied to reach a person who is not a member of the limited liability company; and there was insufficient evidence of Appellants' control of Holander House to establish the alter-ego prong of piercing.

{¶3} Appellants' third assignment of error sets forth multiple arguments on the fraudulent transfer and civil conspiracy claims and the damages awarded thereon. As to the transfer of Holander House's realty to Brewster Parke, they argue the real estate does not qualify as an asset under the uniform fraudulent transfer act as it was fully encumbered by a mortgage. They alternatively contend a reasonably equivalent value was provided when Brewster Parke took out a second mortgage on its own property to appease the bank, who was contemplating foreclosure on Holander House.

{¶4} As the transfer of the realty was considered in conjunction with the later sale of the realty and business assets (bed licenses) of Holander House, Appellants argue they never possessed the bed licenses in order to commit a fraudulent transfer. They further assert the transferee of the business assets (also a subsequent transferee of the real estate) was a necessary party.

{¶5} Regarding damages, Appellants argue the jury's award on the fraudulent transfer claim was against the weight of the evidence concerning the fair market value of Holander House. As to the conspiracy claim, Appellants urge there was no evidence as to the additional award, which was based solely on closing arguments.

{¶6} In their final assignment of error, Appellants argue the trial court should not have considered fees for the expert witness who testified at trial in the current action or attorneys' fees incurred in a voluntarily dismissed action that was later refiled as the current action.

{¶7} For the following reasons, a portion of the damage award in the amount of $100,847.88 is reversed and vacated. We also hold the doctrine of veil piercing cannot be applied to Brewster Parke, Inc., who remains liable for fraudulent transfer and civil conspiracy. The remainder of the judgment is affirmed.

STATEMENT OF THE CASE

{¶8} Premier Therapy provided services to patients at Holander House, Ltd., a nursing home in Salem, Ohio. In 2007 and 2008, Holander House failed to pay Premier Therapy, even after Holander House received reimbursement for those services from insurance providers, including Medicare. On February 27, 2009, Premier Therapy filed suit against Holander House. In August 2009, Premier Therapy filed a motion for summary judgment. Holander House sought additional time to conduct discovery, but within weeks, their attorney (who also represented Appellants) withdrew from the case. In December 2009, Premier Therapy obtained judgment against Holander House for nearly $600,000.

{¶9} Attempting to collect on the judgment, Premier Therapy learned there were no assets remaining due to various transactions involving Appellants and the former owners of Holander House. At the time the services were rendered by Premier Therapy, the owners of Holander House were Mr. Childs' daughter, Caroline Childs Hergenrother, and Mr. Childs' son-in-law, Kurt Hergenrother.

{¶10} The Hergenrothers formed Holander House, Ltd. in 2002, after they purchased the former Salem Convalescent Center. This center had been operated by Mr. Childs as the executor of the estate of his mother, Mildred Arfman. Marsha Arfman (the half-sister of Mr. Childs) was the beneficiary of the estate. The Hergenrothers' purchase of the nursing home was funded by a loan of $2.163 million from Unizan Bank secured by a first mortgage and a $500,000 loan from Marsha Arfman secured by a second mortgage. Mr. Childs co-signed the bank loan for the Holander House; he also guaranteed the loan from Marsha Arfman.

{¶11} Mr. Childs was the president and controlling shareholder of Brewster Parke, Inc., another company that owned a senior living facility. Management Services Company was a sole proprietorship owned by Mr. Childs; it provided payroll and accounting services to Holander House, Brewster Parke, and Bel-Air (a sole proprietorship nursing home owned by Mr. Childs). (Tr. 598, 1287). In 2007 and 2008, Mr. Childs and/or Brewster Parke, Inc. provided various loans to Holander House to cover operating expenses. (Tr. 598-608, 1289). At one point, Brewster Parke wrote checks to Holander House employees. (Tr. 1291).

{¶12} Due to various issues including bounced checks and failure to provide financial statements, the bank contacted Mr. Childs. In December 2008, Mr. Childs voiced in a letter that his daughter was no longer fiscally operating the facility but had turned responsibility over to her husband. Mr. Childs said he would be willing to assist Holander House only if he gained control of the assets. He expressed a belief the business was worth more than $2.4 million.

{¶13} On April 28, 2009, Brewster Parke signed a commercial guarantee and granted the bank a (second) mortgage on its own property as additional collateral for the Holander House loan to satisfy the bank's concerns about the condition of Holander House. (Tr. 651, 792, 828-830, 860). At that time, Holander House deeded its real estate to Brewster Parke, Inc. without a written agreement or consideration; the transfer was recorded on May 8, 2009. (Tr. 662); (Pl. Ex. 42-43). The balance on the note secured by the mortgage was over $1.7 million; Holander House remained liable on the note held by the bank. (Tr. 654, 805, 888). Thereafter, Marsha Arfman released the second mortgage on the Holander House real estate, even though it was never repaid. (Tr. 568); (Pl. Ex. 20). In return, Mr. Childs, as president of Brewster Parke, Inc., provided his half-sister with two $250,000 promissory notes.

{¶14} Although the real estate was transferred to Brewster Parke, Inc., ownership of the bed licenses remained with Holander House. In June 2009, an agreement to sell the realty and the bed licenses was entered with an unrelated entity, and the sale was finalized in September 2009. The real estate sold for $1.7 million, and the bed licenses sold for $500,000, for a total purchase price of $2.2 million. (Pl. Ex. 61); (Tr. 872). Premier Therapy argued this sale was more than $600,000 below market value.

{¶15} In July 2011, Premier Therapy filed suit against the Hergenrothers and the three Appellants herein: Mr. Childs, Management Services Company, and Brewster Parke, Inc. The action was voluntarily dismissed. According to Premier Therapy, the decision to dismiss the case was prompted by its discovery of communications between Appellants' law firm and Huntington National Bank, successor by merger to Unizan Bank.

{¶16} Premier Therapy refiled the action in May 2013, suing the three Appellants, the bank (Huntington National Bank and Huntington Bancshares dba Huntington National Bank), and the law firm who previously represented Appellants and the Holander House (Buckingham Doolittle Burroughs, LLP). As to Appellants, Premier Therapy alleged fraudulent transfer (of Holander House assets), unjust enrichment, and conspiracy to commit fraud. The complaint also asked to pierce the corporate veil to hold Appellants liable for the debts Holander House owed to Premier Therapy.

{¶17} The bank and the law firm were named as defendants for conspiracy to commit fraud. (The complaint also contained a claim for aiding and abetting a fraudulent transfer, but the court found there was no such cause of action.) The trial court overruled motions for summary judgment filed by the three sets of defendants (Appellants, the bank, and the law firm). Just prior to trial, Premier Therapy dismissed its case against the law firm due to settlement. The case was tried to a jury over the course of seven days. During trial, directed verdict was granted in favor of the bank.

{¶18} Premier Therapy withdrew the unjust enrichment claim. The jury returned a unanimous verdict in favor of Premier Therapy and against Appellants on the claims of fraudulent transfer and civil conspiracy in the amount $693,776.60. In the general verdict, the jury also found the veil of Holander House could be pierced to reach Appellants. Upon resuming deliberations on bifurcated issues, the jury awarded $10,000 in punitive damages and allowed attorneys' fees.

{¶19} The trial court entered judgment on the verdict on November 26, 2014. Appellants filed a motion for new trial and judgment notwithstanding the verdict. When this was denied, they filed an appeal from the judgment, resulting in 14 CO 0048. The case was remanded by this court in order for the trial court to rule on the amount of...

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