Schafer v. RMS Realty
| Decision Date | 23 June 2000 |
| Docket Number | No. 17673.,17673. |
| Citation | 138 Ohio App.3d 244,741 NE 2d 155 |
| Parties | SCHAFER et al., Appellees and Cross-Appellants, v. RMS REALTY et al., Appellants and Cross-Appellees. |
| Court | Ohio Court of Appeals |
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Neil F. Freund and Wayne E. Waite, for appellee and cross-appellant Everett Schafer.
Robert A. Pitcairn, Jr., for appellant RMS Realty.
James M. Hill, for individual defendants-appellants.
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In this case, defendants, RMS Realty ("RMS"), seven partners in RMS, and the managing agent of RMS, appeal from a jury verdict in favor of a minority partner, Everett Schafer. Additionally, Schafer cross-appeals from certain decisions in the trial court.
Schafer's action against the defendants is based on an alleged wrongful capital call by the majority partners of RMS. The capital call was issued to reimburse Sun T.V. (Sun) in the amount of $2,000,000 for a building constructed by Sun on land owned by RMS. At the time of the capital call, Schafer owned a twenty-five percent interest in RMS, and was, therefore, required to contribute $500,000. However, Schafer could not raise that amount of money and the other partners contributed his share. This, in turn, activated a provision in the partnership agreement that diluted the interest of any partner who did not meet a capital call. As a result, Schafer's interest in RMS was reduced by about nineteen percent.
The dilution occurred on May 3, 1995. Subsequently, on September 19, 1995, Schafer and his wife filed a complaint against RMS, the seven other partners in RMS, and the agent/trustee of RMS. In the complaint, Schafer included claims for dissolution and an accounting, breach of contract, promissory estoppel, quantum meruit, conversion, breach of fiduciary duty, fraud, negligence and intentional infliction of emotional distress, and a real estate commission. Before trial, the court granted summary judgment against the Schafers on all claims except conversion, breach of fiduciary duty, and the real estate commission. The case was then tried before a jury for two weeks, beginning on July 14, 1997. At the end of the trial, the court let the jury consider the conversion claim, including damages, with regard to the individual defendants. The court also allowed the jury to consider breach of fiduciary duty claims against the individual defendants and RMS, but did not let the jury decide the damages, if any, resulting from the breach. Additionally, the jury was allowed to decide the issue of the real estate commission.
The jury found in Schafer's favor on the conversion claim and awarded $695,400 in damages. Likewise, the jury found for Schafer on the breach of fiduciary duty claim against both RMS and the individual defendants. Interrogatories were given to the jury concerning these claims, and the jury made several findings. Specifically, the jury found that the individual defendants converted nineteen percent of Schafer's partnership property interest, that the conversion was the proximate cause of damage to Schafer, and that the amount of damages was $695,400. The jury further found that both the individual defendants and RMS breached their fiduciary duty to Schafer and that Schafer was entitled to an accounting. In this regard, the jury said the breach of fiduciary duty occurred due to the wrongful capital call and to a failure to disclose information. The jury did find against Schafer on his claim for a $50,000 real estate commission in connection with the Sun transaction.
In the complaint, Schafer had asked for punitive damages and attorney fees both on the conversion claim and on the breach of fiduciary duty (accounting) claim. At trial, the court rejected punitive damages as a remedy for breach of fiduciary duty but did agree that punitive damages could be recovered on the conversion claim. However, the jury chose not to award punitive damages, and the issue of attorney fees was, therefore, not considered.
After the trial, Schafer filed a motion under R.C. 1775.36 for authority to wind up the partnership. Additionally, Schafer filed a motion for prejudgment interest and a motion for dissolution pursuant to R.C. 1775.31. At that point, the court referred the case to a magistrate. Following the referral, the defendants filed motions for judgment notwithstanding the verdict and for new trial. The magistrate then scheduled hearings on prejudgment interest and accounting/dissolution. Before the hearings took place, the trial judge overruled the defendants' motions for judgment notwithstanding the verdict and new trial. Subsequently, the magistrate held hearings on prejudgment interest and accounting/dissolution on May 26 and 27, 1998, and on June 3, 1998.
Ultimately, in a decision filed on November 20, 1998, the magistrate rejected prejudgment interest because "both parties lacked the compromising spirit necessary for effective negotiations." Concerning dissolution, the magistrate found that Schafer had presented evidence in support of three separate statutory grounds for dissolution: R.C. 1775.31(A)(3), (4), and (6). However, the magistrate also concluded that the evidence on the three factors was not sufficient to justify dissolution. In particular, the magistrate focused on the fact that the defendants' breaches of fiduciary duty did not prejudicially affect the partnership business. Instead, the business itself enjoyed continued success.
As a final matter, the magistrate rejected the plaintiff's "motion for an accounting." In this regard, the magistrate relied on the fact that the jury award had already compensated Schafer for the value of the nineteen percent interest he had lost. Furthermore, no real dispute existed about the fact that Schafer had received and had continued to receive the appropriate profits from his remaining six percent partnership interest. Accordingly, the magistrate decided that an accounting to see if Schafer was entitled to additional damages was unnecessary.
After Schafer objected to the magistrate's decision, the trial court adopted the decision on February 5, 1999. This appeal and cross-appeal then followed.
On appeal, RMS presents three assignments of error, the individual defendants assert ten assignments of error, and the cross appeal contains six assignments of error. Some assignments of error address pretrial rulings, some cover the trial proceedings, and some relate to post-trial decisions. In addition, some assignments of error overlap. As a result, we will consider assignments of error together, where appropriate. We will also include factual discussion relevant to the particular error being discussed.
In the first assignment of error, RMS contends that the trial court erred in refusing to direct a verdict in its favor. Primarily, RMS argues that partners cannot breach a fiduciary duty by voting in favor of action specifically authorized by the partnership agreement. The action in question was a capital call in the amount of $2,000,000, which RMS used to reimburse Sun under a "build-to-suit" agreement. RMS also focuses on this point () in the second assignment of error, which raises trial court error in failing to grant the RMS motion for judgment notwithstanding the verdict. Essentially, RMS contends in these assignments of error that a partner is precluded as a matter of law from maintaining an action for breach of fiduciary duty if the conduct in question, no matter how wrongful, is authorized by a partnership agreement.
Finally, RMS argues in its third assignment of error that the jury verdict on breach of fiduciary duty was against the manifest weight of the evidence. In this regard, RMS claims that even if Schafer could maintain an action for breach of fiduciary duty, no evidence was presented which would allow a jury to rationally find that the capital call was wrongful.
The eight individual defendants rely on a similar legal argument to support their first assignment of error (labeled "A"), which attacks the trial court's failure to grant them a directed verdict and judgment notwithstanding the verdict. The controlling effect of the partnership agreement is also a predicate for the individual defendants' argument in their second assignment of error ("B") that the jury verdict for breach of fiduciary duty is against the manifest weight of the evidence. Alternatively, the individual defendants claim in this assignment of error that the evidence at trial overwhelmingly shows their actions were taken for legitimate reasons.
Due to the overlap of these issues, our discussion here will resolve the first and third assignments of error of RMS and will impact its second assignment of error as well. Likewise, our analysis will resolve assignments of error "A" and "B" of the individual defendants.
We begin by noting the standards for directed verdicts and judgment notwithstanding the verdict. Motions for directed verdict test the legal sufficiency of evidence, not its weight or the credibility of witnesses. As a result, our review of the lower court judgment is de novo. Nichols v. Hanzel (1996), 110 Ohio App.3d 591, 599, 674 N.E.2d 1237, 1242. Further, in evaluating whether directed verdicts are merited, courts decide if " ...
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