Williams v. Schneider
| Decision Date | 21 December 2017 |
| Docket Number | 104206,Nos. 104201,104232,s. 104201 |
| Citation | 107 N.E.3d 581 (Mem),2017 Ohio 9152 |
| Parties | Jacqueline T. WILLIAMS, Director, Ohio Department of Commerce, Plaintiff v. Joanne C. SCHNEIDER, et al., Defendants–Appellants |
| Court | Ohio Court of Appeals |
James R. Small, James L. Ferro, Cleveland Construction, Inc., 8620 Tyler Boulevard, Mentor, Ohio 44060, For Cleveland Construction, Inc.
Richard J. Thomas, Jerry R. Krzys, Henderson Covington Messenger, Newman & Thomas Co., L.P.A., 6 Federal Plaza Central, Suite 1300, Youngstown, Ohio 44503, Charles Richley Raley Jr., Michael J. Sikora, Sikora Law L.L.C., 737 Bolivar Road, Suite 270, Cleveland, Ohio 44115, For Home Savings and Loan Company of Youngstown.
Darrel A. Clay, Robert T. Hunt, Charles T. Riehl, Walter & Haverfield, L.L.P., 1301 East 9th Street, Suite 3500, Cleveland, Ohio 44114, For City of Parma Heights.
M. Colette M. Gibbons, Robert M. Stefancin, Ice Miller, L.L.P., 600 Superior Avenue, East, Suite 1701, Cleveland, Ohio 44114, For Matthew L. Fornshell.
Joseph H. Gutkoski, Harvey Labovitz, Tim L. Collins, Collins & Scanlon L.L.P., 3300 Terminal Tower, 50 Public Square, Cleveland, Ohio 44113, For Parma Heights Land Development, L.L.C.
Michael C. O'Malley, Cuyahoga County Prosecutor, BY: Colleen Majeski, Assistant County Prosecutor, 1200 Ontario Street, 8th Floor, Cleveland, Ohio 44113, For Cuyahoga County Treasurer, W. Christopher Murray, II.
BEFORE: Jones, J., Kilbane, P.J., and E.T. Gallagher, J.
JOURNAL ENTRY AND OPINION
{¶ 1} In the early 2000s, Joanne and Alan Schneider were involved in a Ponzi scheme that cost innocent investors millions of dollars.2 Individual investors were not the only ones affected by the couple's fraud, and litigation resulting from the Schneiders' investment scheme is still ongoing. These consolidated appeals are the culmination of court proceedings that arose from part of the Schneiders' wrongdoings and involved investment in property in Parma Heights, a suburb of Cleveland.
{¶ 2} In 8th Dist. Cuyahoga No. 104201, intervenor-appellant, city of Parma Heights, appeals the trial court's judgment denying its motion for summary judgment and granting summary judgment in favor of appellee, The Home Savings & Loan Company of Youngstown, Ohio ("HSL"). In 8th Dist. Cuyahoga No. 104206, appellant Cleveland Construction, Inc. ("CCI"), also appeals the trial court's judgment denying its motion for summary judgment and granting summary judgment in favor of HSL. In 8th Dist. Cuyahoga No. 104232, appellant HSL challenges the trial court's judgments relating to the distribution of receivership assets. Additional parties to these appeals that filed appellate briefs include the receiver on the case, Matthew Fornshell, and prior owners of the subject property, Parma Heights Land Development, L.L.C., and ATC Realty Sixteen, Inc. Numerous other parties in the underlying cases are not part of this consolidated appeal.
{¶ 3} For the purposes of judicial clarity, we consider the arguments raised in each appeal separately, but issue one consolidated opinion because the resolution of issues raised in one case impact those posed in the others.
{¶ 4} For the reasons set forth below, we affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.
{¶ 5} The assigned errors raised herein concern trial court judgments relating to the priority and validity of various liens filed against parcels of real property in Parma Heights and the court's receivership orders.
{¶ 6} In 2003, Pearl Development Company ("PDC"), an entity controlled by Joanne Schneider, proposed a mixed-use development project funded by private and public sources that could have potentially revitalized a large portion of Parma Heights near the intersection of Pearl Road and West 130th Street; the project was called "Cornerstone" and the involved property, "Cornerstone Properties." The real property compromising Cornerstone Properties consisted of five separate parcels of land: three of the parcels were aggregated into the "Pearl" property and the other two parcels were known as "Garnet" and "Ruby."
{¶ 7} In March 2003, the Schneiders approached CCI, a construction management firm, to discuss the Cornerstone project. Thereafter, CCI entered into a contract with PDC to provide construction management for the project.
{¶ 8} On June 26, 2003, HSL issued a loan in the amount of $3,320,000 to the Schneiders in their personal capacities. To secure the debt, the Schneiders executed a note and an open-end mortgage in favor of HSL encumbering the Garnet property. On July 9, 2003, HSL issued a loan in the amount of $3,700,000 to PDC through its president, Joanne Schneider. In return, PDC executed a note and two separate open-end mortgages in favor of HSL encumbering the Pearl and Ruby properties. The Schneiders used $2,802,627.20 from the proceeds of the loan from HSL to satisfy two pre-existing mortgages that had previously encumbered the Pearl and Ruby properties.3
{¶ 9} In December 2003, Parma Heights City Council passed an ordinance authorizing the city to enter into a "Project Development Agreement" with the Schneiders and their business entities. The city and the Schneiders agreed that all reasonable costs incurred by the city for improvements to the Cornerstone Properties would be paid for by the Schneiders through service payments in lieu of taxes under a Tax Increment Financing Program ("TIF"). The contract also allowed for the collection of special assessments of 40 semi-annual payments over a 20–year period against the Cornerstone Properties if the Schneiders failed to make the payments under the TIF. The Schneiders agreed to file a petition with Parma Heights to levy a special assessment for the construction of the public improvements.
{¶ 10} In May 2004, the city passed a resolution to proceed with construction of the project. In July 2004, CCI provided PDC with a bridge loan in the amount of $2,500,000 so that PDC could continue construction on the project. Unfortunately, the Schneiders' scheme fell apart soon after construction began. When the Ponzi scheme collapsed, so did the funding for the Cornerstone project and by December 2004, construction on the project had completely halted. The Schneiders defaulted on their obligations to make service payments in lieu of taxes under the TIF. Joanne Schneider eventually pleaded guilty to a number of criminal charges and went to prison. Investors and contractors scrambled to recover what they could from the Schneiders' remaining assets, but, as mentioned, litigation resulting from their criminal activities continues to the present day. The property is still not fully developed or in use, and remains the largest undeveloped parcel in the city.
{¶ 11} CCI filed two separate mechanic's liens in the amounts of $720,152.22 and $837,583.50 against the Pearl property pursuant to R.C. 1311.01. The affidavits supporting each mechanic's lien stated that the last day of work on the Pearl property was December 3, 2004. CCI also obtained a judgment lien against PDC for the $2,500,000 bridge loan the construction management firm had provided to the development company.
{¶ 12} More than a dozen separate civil actions were filed in the Cuyahoga County Court of Common Pleas as a result of the project's failure. The actions were consolidated before a single trial judge. On February 4, 2005, the trial court appointed a receiver, appellee Matthew Fornshell, to oversee the assets.
{¶ 13} Parma Heights' work on public improvements to the Cornerstone Properties ceased sometime in 2005 or 2006. On May 22, 2006, Parma Heights passed Ordinance 2006–16 and levied a special assessment in the amount of $2,695,852.55, which was the amount the city had spent "to date" on improvements to the Cornerstone Properties for "construction and installation of public sanitary sewers, storm sewers, water mains, street lighting, concrete curbs, asphalt pavement sidewalks, traffic signals, other public utility lines, and all together with the necessary appurtenances thereto."
{¶ 14} On October 16, 2006, the city certified $3,743,190.74 to Cuyahoga County for collection, which included the $2,695,852.55 in costs and $1,047,338.19 in estimated interest over the 20–year repayment period. The amount did not include $394,366.48 in fees and expenses the city had determined it was owed pursuant to the Project Development Agreement. The city had originally estimated that it would spend about $15 million on improvements to the Cornerstone Properties.
{¶ 15} In the meantime, the receiver moved the court to authorize the sale of the Cornerstone Properties free and clear of any liens, claims, or encumbrances and transfer the interests of the lienholders to the proceeds of the sale. The court set forth the auction procedures and, in doing so, precluded any claims on the property via the following June 2006 order:
The Court further finds that the sales of the properties shall be free and clear of all liens, claims and encumbrances * * *. Accordingly, all such liens, claims and encumbrances which now exist or are hereafter placed of record prior to the date of sale on or against the properties shall be, and they hereby are, extinguished as liens, claims and encumbrances against the properties; rather, the liens, claims and encumbrances against a particular property will attach to the net proceeds of the sale of that property. All such net proceedings from the sale of a Property will be held in a separate interest bearing account until further order of the Court.
{¶ 16} In November 2006, the Cornerstone Properties sold at auction for $7,900,000 to the McGill Property Group, L.L.C. ("McGill"). The court confirmed the sale on January 2, 2007, and, consistent with the terms of the purchase agreement entered into at auction, issued a judgment entry stating, in part:
4. The...
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