SMDK Wins $28 Million Fraud Appeal

Michael R. Stavnicky and the SMDK litigation team won a $28 million fraud case in the Ninth District Court of Appeals. SMDK successfully represented and defended the seller in a lawsuit relating to the sale of a multi-million dollar mixed-use student housing complex.

Following the sale, the Plaintiff filed suit alleging breach of contract. SMDK filed a motion for judgment on the pleadings. In response thereto, the Plaintiff attempted to change the nature, type and name of its claim to survive the pending motion. Plaintiff sought to amend its simple breach of contract claim multiple times, to add the individual owners or agents and add various tort claims for fraud, negligent misrepresentation, and negligent concealment (a claim which is not recognized in Ohio). SMDK opposed Plaintiff’s efforts to amend and moved to dismiss the new claims explaining that it is not a tort to breach a contract. The trial court dismissed all tort claims. The Plaintiff appealed to the Ninth District Court of Appeals.

The Ninth District Court of Appeals affirmed the trial court’s dismissal of all fraud and negligence claims. Moreover, the Court of Appeals affirmed the denial of Plaintiff’s motion for leave to file a second amended complaint. During oral arguments to the Court of Appeals, Michael R. Stavnicky successfully argued that the Plaintiff had become a moving target changing its claims and arguments each time it was faced with a dispositive motion or negative ruling.

In a unanimous decision, the Ninth District Court of Appeals found in favor of SMDK’s client and affirmed the decision and actions of the trial court in their entirety. The Court noted that Plaintiff’s attempt to amend its complaint following the filing of a dispositive motion “raises the spectre of prejudice” and thus the trial court’s refusal to allow further amendment was proper. Finally, the Court of Appeals held that, “a breach of contract does not create a tort claim … to hold otherwise would be to convert every unfulfilled contractual promise, i.e., every alleged breach of a contract, into a tort claim.” The ruling affirmed the decision of the trial court in its entirety and barred Plaintiff from asserting tort claims. The case currently remains pending solely as to the breach of contract claim.