U.S. Demolition Contracting v. O'Rourke Constr.

Citations: 640 N.E.2d 235; 94 Ohio App. 3d 75; 1994 Ohio App. LEXIS 1127Docket: No. 64372.

Court: Ohio Court of Appeals; March 27, 1994; Ohio; State Appellate Court

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O'Rourke Construction Company and Reliance Insurance Company appeal a judgment of $84,416 awarded to U.S. Demolition and Contracting, Inc. (USD), while USD appeals the dismissal of its claims regarding a pattern of corrupt activity (PCA) under Ohio law. O'Rourke and Reliance raise four errors: 1) the trial court erred in granting summary judgment for USD due to disputed material facts, 2) it refused to submit their proposed jury interrogatories, 3) it failed to define "preponderance of the evidence" in jury instructions, and 4) it incorrectly instructed on the measure of damages. Their first assignment has merit, rendering the subsequent assignments moot. Conversely, USD's appeal against the dismissal of its PCA claims lacks merit. The court affirms in part, reverses in part, and remands for further proceedings. 

USD alleged breach of contract against O'Rourke and Reliance, and PCA claims against O'Rourke, Patrick O'Rourke, and Jacquelyn Schurger. O'Rourke counterclaimed for breach of contract, and both parties sought dismissal and summary judgment, which the court granted, dismissing USD's PCA claims while ruling in favor of USD on contract claims. A jury subsequently found USD sustained $215,564 in damages, which was offset, resulting in the awarded amount of $84,416.

USD's PCA claims, citing Ohio Revised Code Sections related to RICO, allege that the defendants engaged in predatory contracting practices against minority contractors. It details how O'Rourke Construction and its executives engaged in corrupt activities, including extortion, coercion, perjury, and fraud, aimed at exploiting minority contractors who are often forced into unfavorable agreements that lead to financial crises and disqualification from contracts. These practices are termed "Majority Predatory Business Practices," commonly observed in public and private contracting scenarios.

Defendants engaged in predatory business practices targeting minority business enterprises (MBEs), including the plaintiff and several others involved in various projects. Their actions contravene Section 2923.32(A) of the Revised Code, which prohibits participation in an enterprise through corrupt activities, and Section 2923.32(A)(3), which prohibits the use of proceeds from such activities. The plaintiff claims damages of $428,000, entitled to triple damages totaling $1,284,000, with interest at 12% per annum and reasonable attorney's fees.

In February 1990, USD discovered a demolition contract bid opportunity in Shaker Heights but recognized its inability to meet the bond requirement. USD proposed that O'Rourke submit the bid and then subcontract the work to USD. O'Rourke accepted, won the contract for $523,700, and the subcontract was executed on April 6, 1990, specifying USD would receive $423,700. The subcontract mandated that USD would perform as if it were the prime contractor, binding it to the terms of the General Contract and granting O'Rourke the same rights against USD as the Owner would have against O'Rourke. The subcontract's provisions are additional to, not a replacement of, the General Contract terms.

Delays in the project caused by the Subcontractor's actions or inactions will result in the Subcontractor compensating O'Rourke and the Owner for any additional costs, expenses, and damages, including liquidated damages as specified in the General Contract. The Subcontractor is required to submit a written requisition for payment twice a month, detailing the value of the work completed and previous payments. Payments approved by O'Rourke and received from the Owner will be paid to the Subcontractor within three days. If the Subcontractor defaults, O'Rourke can withhold payments to cover claims or damages incurred, and can apply retained funds to cover such costs. 

The work began on April 19, 1990, with two buildings released for demolition. Additional buildings were released on April 25, 1990. On May 7, O'Rourke advanced USD $10,000. USD billed O'Rourke $68,639.40 for the first payment period, which reflected 18% of the work completed. Subsequently, Shaker Heights paid O'Rourke $86,103, which was then partially paid to USD. By mid-May, concerns arose regarding USD's ability to meet deadlines, prompting O'Rourke to provide equipment. Shaker Heights later halted progress payments due to O'Rourke's missed deadlines. Notifications of default were exchanged between USD and O'Rourke in late June. On August 1, 1990, Shaker Heights made a payment of $175,352 to O'Rourke covering the third and fourth payment periods.

O'Rourke and Reliance argue that the trial court improperly granted summary judgment to USD, asserting that USD did not meet the burden of proving the absence of genuine issues of material fact. According to Ohio's Civil Rule 56, summary judgment is only appropriate when no material fact is disputed, the moving party is entitled to judgment as a matter of law, and reasonable minds can only reach one conclusion that is adverse to the nonmoving party. USD claimed O'Rourke breached the subcontract by underpayment and failure to provide an on-site supervisor and timely building releases for demolition. However, evidence indicated that USD's calculation of underpayment was incorrect as they had themselves listed the work's value at eighteen percent. Furthermore, the subcontract allowed O'Rourke to withhold payments if it had to advance equipment to USD, and it was unclear when O'Rourke received the second payment from Shaker Heights, making the late payment dispute ambiguous. Additionally, USD's argument regarding the on-site manager was undermined by the subcontract's terms, which bound USD to the demolition contract, not O'Rourke. The reasons for any delays in obtaining building releases were also not clearly established. As a result, O'Rourke and Reliance's first assignment of error was upheld, while their subsequent errors were deemed moot. USD also contended that the court erred in dismissing its PCA claims, which are assessed under Civil Rule 12(C) by accepting the complaint's allegations as true, similar to RICO claims. Ohio courts refer to federal interpretations of RICO in cases involving PCA.

A civil PCA claim can be initiated by any individual who suffers injury or is threatened by a violation of R.C. 2923.32. According to R.C. 2923.32(A), several prohibitions exist: (1) individuals associated with an enterprise cannot engage in its affairs through corrupt activities or unlawful debt collection; (2) no individual may acquire or maintain control over an enterprise or real property through such activities; (3) individuals cannot use proceeds from corrupt activities or unlawful debts to invest in real property or enterprises. "Person" includes corporations, while "enterprise" refers to any group of persons associated in fact, regardless of legal status.

Similarly, a civil RICO claim can be filed by anyone injured in business or property due to violations of section 1962. Section 1962 outlines unlawful acts regarding income from racketeering activities, including the prohibition against using such income to acquire interests in enterprises involved in interstate commerce and conducting an enterprise's affairs through racketeering.

For a claim under R.C. 2923.32(A)(1), it is crucial to note that liability lies with individuals, not the enterprise itself, indicating that the person and enterprise must be distinct entities. This principle is supported by case law, which clarifies that a person must be associated with a separate enterprise to be liable under RICO. Additionally, an enterprise is defined as a separate entity from the racketeering activities it engages in, emphasizing that the two concepts must not be conflated.

A corporation cannot constitute a separate enterprise with its own officers or employees, as established in several case precedents. In the discussed cases, it was determined that an organization cannot form a distinct enterprise by collaborating with its members to perform its usual functions. USD's complaint does not adequately allege the existence of an enterprise, as it either lacked an independent entity or merely involved a corporation acting through its personnel. As a result, USD's claim under R.C. 2923.32(A)(1) is unsuccessful. For claims under R.C. 2923.32(A)(2) and (A)(3), the plaintiff must demonstrate that injuries arise from the acquisition or control of an enterprise through corrupt activities or from the use of proceeds from such activities. USD's complaint fails to establish the necessary injuries for these claims as well. Consequently, the court affirmed part of the judgment, reversed another part, and remanded the cause, with concurrence from judges Sweeney and Dyke. Additionally, the complaint notes that O'Rourke Construction was compensated by the City of Shaker Heights for work done for the plaintiff.