COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 68966 : IRVING FRANKLIN, ET AL. : : JOURNAL ENTRY Plaintiffs-Appellants : : and -vs- : : OPINION : NEIGHBORS ORG. FOR ACTION IN : HOUSING : : Defendant-Appellee : : DATE OF ANNOUNCEMENT APRIL 18, 1996 OF DECISION: CHARACTER OF PROCEEDING: Civil appeal from Common Pleas Court Case No. 250117 JUDGMENT: Modified, and as Modified, Affirmed. DATE OF JOURNALIZATION: __________________________ APPEARANCES: For Plaintiffs-Appellants: For Defendant-Appellee: JOHN C. KEALY, ESQ. CRAIG S. MILLER, ESQ. 1100 Illuminating Bldg. JEFFREY BADDELEY, ESQ. 55 Public Square Porter, Wright, Morris & Arthur Cleveland, Ohio 44113 925 Euclid Avenue and Suite 1700 THOMAS L. DETTELBACH, ESQ. Cleveland, Ohio 44115-1405 Kahn, Kleinman, Yanowitz & Arnson The Tower at Erieview, Ste. 2600 Cleveland, Ohio 44114-1824 -3- PATRICIA ANN BLACKMON, P. J.: Irving Franklin, plaintiff-appellant, appeals a decision from the trial court granting summary judgment in favor of Neighbors Organized for Action in Housing, Inc. (NOAH) and Koinonia Village, Inc. (KV), defendants-appellees. Franklin assigns six errors for 1 our review. After reviewing the record and the arguments of the parties, we modify and affirm the decision of the trial court. The apposite facts follow. In 1988, NOAH was looking for land on which to develop an apartment building to be known as Koinonia Village. NOAH's executive director, Bernard Thompkins, spoke to Irving Franklin for assistance in obtaining land in the area of East 81st street in Cleveland. Franklin, a member of NOAH's Board of Trustees and owner of a realty company, had obtained land for NOAH in the past at reduced rates. Franklin owned four parcels of land on East 81st street (Permanent Parcel Nos. 119-14-034 through 119-14-37) for which he paid a total of $18,500. Thompkins expressed interest in purchasing Franklin's land as well as several adjoining parcels of land (Permanent Parcel Nos. 119-14-33 and 119-14-38 through 119- 14-40). Franklin agreed to sell his land to NOAH for $95,000 and told Franklin to "take it or leave it." He also agreed to obtain the four adjoining parcels of land for NOAH. Franklin obtained the 1 See Appendix. -4- adjoining land at the following prices and received the following commissions: Parcel Purchase Price Commission to Franklin 119-14-33 $ 500.00 $2400.00 119-14-38 $4000.00 $2800.00 119-14-39 $ 600.00 $2400.00 119-14-40 $3600.00 $2500.00 -------- -------- TOTALS $8700.00 $10,100.00 On December 9, 1988, Bernard Thompkins, as Executive Director of NOAH, signed a agreement to purchase Franklin's property for $95,000. In a subsequent agreement signed on August 8, 1991, Thompkins also agreed to pay "current taxes and all past taxes from 8/27/88" on the property. The property was transferred on September 27, 1991. In late 1991, NOAH requested an appraisal of the land from Charles M. Ritley Associates, Inc. As of November 11, 1991, Ritley valued Franklin's land at $51,300. A subsequent appraisal completed on May 27, 1992 by Wesley Baker valued the land at $84,000 as of September 23, 1991. NOAH paid $75,301.41 of the purchase price through December 1992. On April 7, 1993, Franklin filed a complaint against NOAH and KV for $19,698.41, an amount he alleged was the balance due from the sale of his property. NOAH and KV later counterclaimed. They alleged Franklin breached his fiduciary duty to NOAH. The counterclaim also included claims for conversion and unjust -5- enrichment. NOAH and KV sought $25,300 in damages, $100,000 in punitive damages, costs and attorney's fees. On January 12, 1995, on a motion for summary judgment, the trial court entered summary judgment against Franklin on the complaint and in favor of NOAH and KV on their counterclaim. NOAH and KV filed a motion for attorney fees under Civ.R. 11 and R.C. 2323.51. After a trial on the issue of damages, the trial court awarded $79,038.88 in damages to NOAH and KV. In computing its damage award, the trial court found that NOAH and KV paid Franklin $75,301.41 in payments on the land as well as $10,680.13 in delinquent real estate taxes for a total of $85,981.54. The trial court added the $10,100.00 in commissions Franklin received from the sale of the adjoining property. Finally, the court added $34,257.34 in attorney fees and costs for a total damage award of $79,038.88. The trial court specifically found that NOAH and KV had not made the requisite showing of malice and denied their claim for punitive damages. The court also found NOAH and KV were not entitled to an award of attorney fees under either Civ.R. 11 or R.C. 2323.51. This appeal followed. In his first assignment of error, Franklin argues the trial court erred in granting NOAH and KV's motion for summary judgment. Summary judgment is properly granted when the pleadings, depositions, answers to interrogatories, written admissions, affidavits, transcripts, and written stipulations of facts show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Civ.R. 56(C). -6- When evaluating a motion for summary judgment, the trial court must construe the evidence most strongly in favor of the non-movant and resolve doubts in his favor. Id. Murphy v. Reynoldsburg (1992), 65 Ohio St.3d 356,358-59. Once the motion for summary judgment is filed, the nonmovant may not rest on his pleadings, but must produce evidence on any issue for which he bears the burden of production at trial. Wing v. Anchor Media, Ltd. (1991), 59 Ohio St.3d 108,111. Franklin argues a material issue of fact remained as to whether NOAH's Board of Trustees approved the challenged transactions. He argues, under R.C. 1702.301, a corporation may not void a transction in which one of its trustees has a financial or personal interest if the trustees authorize the transaction with knowledge of the trustee's involvement. Franklin argues the land sale contracts made it clear that he owned the property and was selling it. He argues NOAH either approved the transaction or must be deemed to have ratified the transaction by virtue of its acceptance and use of the property. Franklin's arguments are unpersuasive. The counterclaim filed by NOAH and LV did not seek to void the land sale transaction. It sought to recover damages from Franklin for the breach of his fiduciary duty to the corporation. Even if, after construing the evidence most strongly in Franklin's favor, the court found that NOAH approved the transaction, Franklin is still liable for a breach of his fiduciary duty to the corporation. -7- As a trustee of NOAH, Franklin was obligated to act in the organization's best interests. Under R.C. 1702.30, a trustee must perform his duties in good faith, "in a manner he reasonably believes to be in or not opposed to the best interests of the corporation and with the care that an ordinarily prudent person in a like position would use under similar circumstances." By his own admission, Franklin was expected to use his real estate expertise to secure land on behalf of the organization at a greatly reduced price. With respect to the four parcels of land he owned and later sold to NOAH, Franklin made no effort to reduce the sale price of the land. NOAH and KV produced evidence that Franklin insisted on a price that was disproportionate to that paid for similar adjacent land and refused to accept a lower price. The sale of his land at $95,000 resulted in a tremendous profit to Franklin. NOAH and KV presented evidence that Charles M. Rittley and Associates, Inc. 2 appraised the land at $51,300 as of the date of conveyance. The evidence presented NOAH and KV clearly indicated that Franklin made a tremendous personal profit at the expense of NOAH, an organization to which he owed a fiduciary duty. Franklin argues NOAH and KV failed to present evidence to show that he breached his fiduciary duty. Summary judgment was properly granted for NOAH and KV because they produced evidence that 2 Although a subsequent appraisal by Wesley Baker valued the land at $84,000, Baker admitted that he was not told that the properties lost money in 1987 and was unaware that the buildings on the land had been condemned and demolished at the City's expense. -8- Franklin acted with either a deliberate intent to cause injury to the corporation or with a reckless disregard for the corporation's best interests. See R.C. 1702.30(D)(1). Additionally, we reject Franklin's argument that the Conflict of Interest Certification signed by Franklin on July 14, 1986 was inapplicable to the challenged transaction. The certification contained the following language: That I have not had and will not have during my term as Officer or Board Member or the date of final loan closing, whichever date is later, any financial interest in any contract, or in any firm or corporation which has such a contract, with [NOAH] in connection with the rendition of services, the provision of goods or supplies, procurement of the site, or other matters whatsoever. The language of the certification indicates that the certification remained in effect so long as Franklin was a trustee of NOAH. Even if the certification was limited to a specific project, Franklin's duty as a trustee, as defined by law, remained intact so long as he served on the organization's Board of Trustees. While we agree with Franklin that a trustee's financial interest in a transaction with his organization does not in and of itself make the transaction void or voidable, the trustee may not escape liability for breach of his fiduciary duty to the organization where his actions result in a benefit to himself and a detriment to the corporation. Based upon the evidence presented in support of the motion for summary judgment, we conclude the trial court properly ruled in -9- favor of NOAH and KV. Franklin's first and second assignments of error are overruled. In his third through seventh assignments of error, Franklin challenges the trial court's determination of damages. He first argues the trial court erred in using a disputed fair market value as a measure of damages. He argues the challenged transaction was fair to NOAH and suggests that NOAH's request for an appraised value of $117,000 indicated its awareness of the material facts surrounding the transaction. At the damages hearing, NOAH presented evidence that it sought an appraisal to support the price it paid for the land in order to facilitate reimbursement from Cleveland's Community Development Dept. We are unable to conclude the request for an appraisal is somehow an admission by NOAH that the price paid for the property was fair. However, as noted above, the question of whether NOAH was aware of the transaction does not resolve the issue of whether Franklin's conduct constituted a breach of his fiduciary duty to NOAH. Franklin also argues the trial court erred in including $10,680.13 in delinquent real estate taxes paid by NOAH on the property purchased from Franklin. The original purchase agreement was signed on December 9, 1988. The final purchase agreement, signed August 8, 1991, required NOAH to pay all current and past due taxes on the property from August 27, 1988. Franklin argues NOAH's delay in acquiring the property caused him to incur additional property taxes. However, until the property was actually transferred to NOAH, the responsibility for the property -10- taxes was Franklin's. The payment of the property taxes conferred an additional benefit upon Franklin for which NOAH was entitled to recover. Franklin also argues the trial court erred in awarding NOAH and KV attorney fees and costs. He argues attorney fees and costs are "punitive or exemplary damages" which cannot be awarded without a finding of actual malice and proof of actual damages. R.C. 2315.21(B). See also Griffin v. Lamberjack (1994), 96 Ohio App.3d 257,266. We agree. Generally, each party involved in litigation must pay his or her own attorney fees. Butler v. Respicare (1987), 39 Ohio App.3d 17. Absent a finding that the losing party has acted in bad faith, or a statutory provision authorizing an award of attorneys fees, a prevailing party may not be awarded attorneys fees as part of the costs of the litigation. Id. In its journal entry, the trial court specifically found that NOAH was not entitled to recover punitive damages. [T]he court finds the evidence fails to prove the requisite malice and other factors required for recovery of [punitive] damages by [R.C. 2315.21]. However, in computing the compensatory damage award to NOAH and KV for Franklin's breach of his fiduciary duty, the court included $34,257.34 ($27,585.06 plus $6672.28) in attorneys fees and legal costs incurred by NOAH and KV. The court's order clearly characterized its award of attorneys fees and costs as compensatory damages caused by Franklin's breach of his fiduciary duty. -11- In Griffin v. Lamberjack (1994), 96 Ohio App.3d 257,266, the court held that attorney fees are recoverable as compensatory damages where punitive damages have been found to be warranted. The award of attorney fees, although seemingly compensatory *** does not compensate the victim for damages flowing from the tort. Rather, the requirement that a party pay attorney fees under these circumstances is a punitive (and thus equitable) remedy that flows from a jury finding of malice and the award of punitive damages. There is no separate tort action at law for the recovery of attorney fees under these circumstances. Without a finding of malice and an award of punitive damages, plaintiff cannot justify an award of attorney fees, unless there is a basis for sanctions under Civ.R. 11. Griffin at 266, citing Digital & Analog Design Corp. v. N. Supply Co. (1992), 63 Ohio St.3d 657,662. As discussed above, the trial court found that the evidence proved by NOAH and KV failed to prove malice. Having denied NOAH and KV's claim for punitive damages, the trial court was precluded from awarding attorneys fees as compensatory damages. The court also found the evidence did not support an award of attorneys fees and monetary sanctions under Civ.R. 11 and R.C. 2323.51(A)(2). Having found that the award of attorneys fees did not constitute compensatory damages, punitive damages, or sanctions and finding no other statutory basis for such award, we conclude the court's award of attorney fees was improper. The trial court's ruling with respect to liability is affirmed. However, having found that NOAH and KV were not entitled to an award of attorney fees, we hereby reduce the trial court's -12- damage award by $34,257.34 and enter a judgment of $44,781.54 in favor of NOAH and KV. Judgment modified, and as modified, affirmed. -13- It is ordered that Appellants and Appellee share the costs herein taxed. The Court finds there were reasonable grounds for this appeal. It is ordered that a special mandate issue out of this Court directing the Common Pleas Court to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. Exceptions. DAVID T. MATIA, J., and PATTON, J., CONCUR. PATRICIA ANN BLACKMON PRESIDING JUDGE N.B. This entry is made pursuant to the third sentence of Rule 22(D), Ohio Rules of Appellate Procedure. This is an announcement of decision (see Rule 26). Ten (10) days from the date hereof this document will be stamped to indicate journaliza- tion, at which time it will become the judgment and order of the court and time period for review will begin to run. -14- APPENDIX I. THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT IN FAVOR OF DEFENDANTS ON THE COMPLAINT AND ON EACH COUNT OF THE COUNTERCLAIM (SUMMARY JUDGMENT ENTRY). II. THE TRIAL COURT ERRED IN FINDING A BREACH OF FIDUCIARY DUTY BY PLAINTIFF AT THE TRIAL AND ENTERING JUDGMENT IN FAVOR OF DEFENDANTS (JUDGMENT ENTRY, PG. 4) III. THE TRIAL COURT ERRED IN FINDING THE FAIR MARKET VALUE OF THE PROPERTY AND UTILIZING THAT FAIR MARKET VALUE AS A BASIS FOR DAMAGES (JUDGMENT ENTRY, PG. 3) IV. THE TRIAL COURT ERRED IN AWARDING DAMAGES TO DEFENDANT CONSISTING OF THE DIFFERENCE OF THE AMOUNT RECEIVED BY PLAINTIFF AND THE PROPERTY'S FAIR MARKET VALUE AS DETERMINED BY THE COURT (JUDGMENT ENTRY, PG. 3). V. THE TRIAL COURT ERRED IN AWARDING AS DAMAGES TO THE DEFENDANTS THE AMOUNT OF DELINQUENT REAL ESTATE TAXES PAID BY DEFENDANTS PURSUANT TO THE CONTRACT BETWEEN THE PARTIES (JUDGMENT ENTRY, PGS. 3,4) VI. THE TRIAL COURT ERRED IN AWARDING AS DAMAGES TO THE DEFENDANTS THE REAL ESTATE COMMISSIONS PAID TO PLAINTFF (JUDGMENT ENTRY, PG. 4). VII. THE TRIAL COURT ERRED IN AWARDING ATTORNEY FEES AND LEGAL COSTS TO DEFENDANTS IN THE ABSENCE OF .