Cantlin v. Smythe Cramer Co.

Citations: 2018 Ohio 4607; 114 N.E.3d 1260Docket: 106697

Court: Ohio Court of Appeals; November 14, 2018; Ohio; State Appellate Court

Original Court Document: View Document

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Smythe Cramer Co. (HHSC) appeals the trial court's decision to grant class certification to plaintiffs Rita Noall, Cindy Miller, Patrick Cantlin, and Elizabeth Hong in a case concerning fraud and unjust enrichment related to a $225 fee charged by HHSC during real estate transactions. The plaintiffs allege that this fee was unearned, claiming it was essentially a covert increase in sales commissions disguised as an administrative fee. The trial court found sufficient evidence suggesting HHSC may have implemented a scheme to impose this fee without providing additional services. The appellate court, after reviewing the record and relevant law, affirmed the trial court's judgment, rejecting HHSC's argument that serious obstacles existed to class certification regarding predominance, identifiability, and typicality. The plaintiffs' agreements with HHSC and their HUD settlement statements indicated the payment of this fee, substantiating their claims.

On July 27, 2009, Miller entered into an "Exclusive Right to Sell Agreement" with HHSC, agreeing to pay an Administrative Fee of $225. This was also documented in a Purchase Agreement which stated that both the seller and buyer would pay HHSC a $225 fee. The HUD settlement statement confirmed this payment as a "Broker Service Fee." On September 6, 2012, the plaintiffs filed a lawsuit alleging fraud, unjust enrichment, and fraudulent inducement, seeking class certification for all individuals in Ohio who paid similar fees between September 18, 2005, and the present. The trial court granted class certification on July 10, 2015, but HHSC appealed, leading to a reversal by the appellate court. The court found that the class definition did not meet the predominance requirement of Civ. R. 23(B)(3), noting that while the HUD-1 form indicates whether a fee was paid, it does not provide generalized evidence necessary to resolve the claims of fraud and unjust enrichment on a class-wide basis. The court emphasized the need to consider the HUD-1 alongside the specific purchase agreements signed by class members. Upon remand, the plaintiffs submitted a revised class definition, splitting it into two groups: the Administrative Fee Class and the Brokerage Services Fee Class. The trial court approved this redefined class on December 19, 2017, determining it met the Civ. R. 23 requirements, including the predominance requirement, as the elements of fraud and unjust enrichment could be established through common proof.

HHSC appeals an order, asserting that the Plaintiffs do not meet the requirements of Civ. R. 23(B) concerning identifiability, typicality, and predominance for the redefined subclasses. Civ. R. 23 outlines seven criteria for class action maintenance, including the necessity for an identifiable and unambiguous class, representative membership, numerosity, common questions of law or fact, typical claims of representatives, proper representation of class interests, and satisfaction of one Civ. R. 23(B) requirement. Of these, subsection (3) is relevant, necessitating that common questions predominate over individual issues and that class action is the superior method for resolving the controversy. Key considerations for this determination include class members' interests in individual litigation, existing litigation concerning the controversy, the desirability of litigation concentration in a specific forum, and management challenges of a class action. Plaintiffs must demonstrate all seven criteria by a preponderance of the evidence, but HHSC contests only three: identifiability, typicality, and predominance. The trial court must conduct a "rigorous analysis" of evidence when considering class certification, potentially examining the merits of the claims to ensure Civ. R. 23 requirements are met. Appellate courts review these determinations under an abuse of discretion standard, focusing on the trial court's expertise in case management. The identifiability requirement mandates a clear, administratively feasible class definition to ascertain membership, supported by relevant case law.

The test for class membership certification involves specifying the means of identification at the time of certification. HHSC contends that the trial court overlooked evidence indicating that class members could not be identified without a detailed review of individual transactions. HHSC presents three main arguments: (1) the use of varying forms by agents, some referencing a $225 fee and others a "hybrid commission," which contradicts the claims in the plaintiffs' complaint; (2) significant challenges in identifying allegedly injured buyers; and (3) the need for individualized inquiries to verify whether a class member actually paid the fee. However, these reasons essentially reiterate that individualized fact-finding would be necessary for class membership, which could hinder certification if stemming from an overly broad class definition.

The trial court determined that class members are identifiable, asserting that HHSC could reasonably identify transactions via the relevant form documents. The court described the task of filtering out non-qualifying individuals as clerical and noted that class members could identify themselves by referencing specific lines on their HUD-1 settlement statements. The court also concluded that new class definitions appropriately excluded sellers who paid the "hybrid fee." 

HHSC’s claim that its forms are too complex to identify who paid what is deemed unfounded. Ohio courts generally support class certification in fraud cases involving form contracts, as such cases allow for collective claims based on common misrepresentations. Once common fraud is established across the class, individual reliance need not be proved, as it can be inferred from the overarching misrepresentations. Thus, the need for individual proof is diminished when common evidence supports the fraud claims.

Specialized inquiries into reliance should not impede class certification. While differences in remedies can influence the predominance of individual questions over common questions, they do not prohibit a trial court from certifying a class action. Each class member may receive varying damages if the appellants are found liable, but the injuries stem from the same operative facts. The trial court’s analysis of class members’ identifiability was thorough, and its determination was within its discretion.

Regarding typicality, HHSC challenges the standing of named-plaintiff Noall, who signed a General Release of All Claims against HHSC in exchange for a payment related to a property sale. HHSC contends this release precludes Noall from seeking redress and thus from being a typical representative. Conversely, plaintiffs argue Noall qualifies as a typical representative because she incurred the same administrative fee as other class members and asserts no claims related to the property, making the release inapplicable.

The Ohio Supreme Court mandates that plaintiffs must have standing to pursue a class action. HHSC also questions the typicality of plaintiffs Cantlin and Hong based on their HUD-1 categorization, but the court has indicated that HUD-1 forms alone do not provide sufficient evidence regarding fraud elements. The release is treated as an affirmative defense rather than a standing issue. The typicality requirement is satisfied when there is no conflict between the class representatives and the class. A unique defense does not undermine typicality unless it significantly distracts the representative from the interests of other class members.

The focus during class certification should be on the defendant’s conduct and the claims stemming from it. Any uncertainties about representation or potential conflicts should favor class certification, with the trial court having the authority to adjust the certification as needed. The Ohio Supreme Court asserts that defenses against a class representative do not render their claims atypical; they may influence individual recovery but do not affect the liability presentation for the class. Ultimately, Noall's claim meets the typicality requirement for class certification, as there is no conflict between her claim and the class-wide claim.

HHSC's defense of release of claims relates to the merits of Noall's allegations of fraud and unjust enrichment and should not prevent class certification. Under Civ. R. 23(B)(3), a class action can proceed if common legal or factual questions among class members predominate over individual issues and if class action is the superior method for adjudication. Key considerations include: a) the interests of class members in individually managing their claims; b) any existing litigation related to the controversy; c) the desirability of concentrating litigation in a specific forum; and d) potential management difficulties of a class action. The Ohio Supreme Court emphasizes that common questions must significantly impact the case and be resolvable for all members in a single adjudication. 

The court's previous ruling in Cantlin I noted that common issues would result in unified outcomes for class members. While class certification does not evaluate case merits, it requires consideration of what will be proven at trial and whether that evidence can be presented collectively. Cantlin I also indicated that the alleged fraud was not standardized across the entire class. On remand, the trial court established two subclasses based on four HHSC forms, allowing individuals to qualify as class members if they were real property buyers or sellers in Ohio, represented by HHSC after certain dates, and had paid the relevant fees under the specified documents.

The central issue identified is whether the fee charged by HHSC is a 'sham fee' that should be returned. Since the misrepresentations are found in the contract and settlement statements common to both subclasses, a single resolution can address the entire class's concerns. The court also recognized that "inferences or presumptions of inducement and reliance" can support fraud claims in class actions. The analysis of whether common questions predominate requires understanding what the plaintiffs need to prove for their fraud and unjust enrichment claims, with the elements of fraudulent inducement aligning closely with those of fraudulent misrepresentation, concealment, and nondisclosure. The components of fraud include: a) misrepresentation or concealment of fact; b) materiality; c) knowledge or disregard of falsity; d) intent to mislead; e) justifiable reliance; and f) resulting injury from that reliance.

Plaintiffs must demonstrate several elements to establish their claims against HHSC: 1) HHSC misrepresented or concealed the nature of the $225 Fee; 2) the Fee is material to the transaction; 3) HHSC was aware of or ignored its falsity; 4) HHSC intended to mislead class members; 5) class members justifiably relied on the misrepresentation or concealment; and 6) class members suffered injury. Common evidence, such as HHSC’s form documents and HUD statements, may be used to support claims related to misrepresentation (elements a, c, and f). The court references Amato v. Gen. Motors Corp., stating that reliance can be inferred from circumstantial evidence, allowing cases involving common omissions to be certified as class actions without requiring direct evidence of reliance from each class member.

Unjust enrichment claims rely on showing that: 1) the plaintiff conferred a benefit on the defendant; 2) the defendant was aware of the benefit; and 3) the defendant unjustly retained the benefit. This theory applies in the absence of an express contract, but recovery is not possible when a signed contract exists. Given that both subclasses in this case are tied to HHSC’s form documents, and a signed contract is required for class membership, plaintiffs can pursue a claim for unjust enrichment through common proof.

HHSC contends that not all class members understood the Fee similarly, citing evidence that some believed it was part of the brokerage commission. However, the subclasses exclude those charged a "hybrid commission," focusing instead on those with a separate fee. The presumption of reliance for class certification does not transfer the burden of proof but merely the burden of production. Defendants can present rebuttal evidence, and it is noted that the trial court has significant discretion in class certification and issue determination. The court is not assessing the merits of the case or prescribing proof strategies at this stage.

HHSC contends that the trial court overlooked various oral explanations from real estate agents and independent non-parties, along with multiple versions of HUD-1 forms and other HHSC documents related to the Fee. However, the trial court's analysis was thorough, and its decision meticulously addressed both parties’ arguments. It acknowledged that alleged misrepresentations were evident in HHSC forms, regardless of other explanations, asserting that even if a plaintiff received oral assurances regarding the Fee, they could still recover if the fee was deemed fraudulent. The trial court emphasized that if fraud is established, all class members may recover, but if not, the class action would fail. This analysis aligns with the principle that a successful fraud should not go unpunished, as it contradicts justice.

HHSC further argues that individual issues overwhelm class-wide issues due to the variety of forms utilized. Yet, the court certified subclasses based on four specific forms, allowing plaintiffs who signed these forms and paid the Fee to participate in the class action. HHSC also draws parallels to Young v. FirstMerit Bank, where class treatment was rejected due to lack of predominance, citing that each plaintiff’s individual circumstances varied significantly. In contrast, the current case involves a clear, standardized misrepresentation in specific HHSC forms, making it fundamentally different from the Young case, where the fraud was individualized and not contained within standard documentation.

Initial investors experienced high returns; however, all putative class members were charged a Fee during real estate transactions, which is claimed to be fraudulent. Common issues among class members outweigh individual concerns regarding separate actions, as established under Civ. R. 23(B)(3)(a). A previously filed federal suit was dismissed, which supports class certification per Civ.R. 23(B)(3)(b). The Ohio Supreme Court indicates that the absence of parallel lawsuits favors certification. Under Civ.R. 23(B)(3)(c), consolidating this litigation in state court is deemed efficient due to the predominance of common issues and the local nature of the transactions and alleged violations of Ohio law. Per Civ.R. 23(B)(3)(d), managing these claims as a class action is not expected to present significant difficulties compared to individual lawsuits. Consequently, the trial court's decision to certify the class action is affirmed, and HHSC’s assigned error is overruled. The judgment is affirmed, and costs are taxed to the appellant. A special mandate is to be sent to the Cuyahoga County Common Pleas Court for execution of this judgment, with a certified copy constituting the mandate per Rule 27 of the Rules of Appellate Procedure. Judges Patricia Ann Blackmon, Tim McCormack, and Sean C. Gallagher concur.