06-2328On Appeal from the Franklin CountyCourt of Appeals, Tenth AppellateDistrict
Court of AppealsCase No. 05 AP-1318
APPELLANTS' MEMORANDUM IN SUPPORT OF JURISDICTION
James R. DouglassS.Ct. No. 0022085John A. HuettnerS.Ct. No. 003947920521 Chagrin Blvd., Suite 200Shaker Heights, Ohio 44122-9736(216) 991-7640(216) 991-7641 FAX
Attomeys for Defendants-Appellants
Timothy S. RanklnRobert E. WilliaznsBenjamin W. Ogg266 North Fourth Street, Suite 100Columbus, Ohio 432 1 5-25 1 1
Attomeys for PlainfifF-Appellee Ron Matthews^•
Gregory H. MelickMelick Law Firm2404 Kenilworth RoadCleveland Heights, Ohio 44106
PROOF OF SERVICE .......................................................................................................11
APPENDIX
1. MATTHEWS v. D'AMORE, JUDGMENT ENTRY, CASE NO. 05-AP-1318 .............1
2. MATTHEWS v. D'AMORE. OPINION, CASE NO. 05-AP-1318 ................................3
3. Arlicles of Organization and Original Appoinbment of Agent,Parkwood Place, Ltd .......... .......... ... ........ .... . ..... ............. .. .... ...........................33
a
1. THIS CASE IS OF PUBLIC OR GREAT GENERAL INTEREST
This declaratory action presents cruciai questions of jurisdiction, venue, and the
interpretation of Ohio's limited flability company ("LLC") statute, R.C. §§ 1705.01, et sag. The
core issue is the identity of the members of an Ohio LLC, Parkwood Place, Ltd. ("Parkwood").
Appellants are the only members identified in its Articles of Organization and Original
Appointment of Agent filed with the Ohio Secretary of State in May, 1998. See Appx. 3. Yet, by
merging the definitions of "member" and "membership interest" in an LLC to create a two-part
membeiship test, the Court here upheld summaty judgment fmding Appellees, not Appellants,
are Parkwood's members.
Days ago, this Court distinguished between a"member" and a"membership interest" in
an LLC under the statute, and reaffirmed the poficy that LLCs are voluntary, contractual
organizations created by their members' consent; but govemed by the plain language of the LLC
statute. See Holdeman v. Ennersor; 111 Ohio St. 3d 551, 2006-Ohio-6209.
Both Holdeman and this case tum on the meaning of "member" and "membership
interest" found in Ohio Revised Code §§ 1705.01(G) and (H), respectively. The principal issue
in Holdeman was the extent to which an executor of an estate of a deceased LLC member may
exercise the member's rights. An executor may so act only for the limited time and purposes
delineated in R.C. § 1705.21. Id. That section is an exception to the few statutorily defined
procedures for becoming a member of an LLC after the filing of its Articles of Organization and
Original Appointment of Agent, all of which require th e consent of the LLC's existing members.
Id.; R.C. § 1705.14.
It follows under the LLC statute and as a matter of contract that a court cannot -- in the
guise of a declaratory judgment -- refonn an LLCs records and substitute new "members" for
those aheady identified in its fomiation documents filed with the Ohio Secretary of State in
compliance with the LLC statute.
However, rather ffian accepting the plain meaning of Parkwood's formation documents,
the Court of Appeals relied on a purported operating agreement signed later by Appellee
MacDonald and Appellee Matthews' Decedent, former attomey J. Harvey Crow, in early 1999,
and upon Appellees' asserted capital contribution to the company. The agreement was not signed
by Appellants, Parkwood's existing members of record under R.C. § 1705.01(J), and fails to
idenfify the members in any manner let alone that prescribed in Article 2.1 therein. Opinion, ¶ 6.
On the other hand, Crow prepared and filed Parkwood's Articles of Organization and Original
Appointment of Agent. Opinion, ¶ 4. He signed the latter only as its statutory agent, while
Appellants signed as Parkwood's members and are identified as "at least a majority of the
members" of Parkwood. Appx. 3. Those documents were never amended under Ohio Revised
Code § 1705.08 to reflect some change in membership begmning in 1999, when Appellees
allegedly became Parkwood's members.
The Court found the purported operating agreement to be controlling by ignoring the
statutory distinction between members and membership interests in LLCs, finding that §§
1705.01(G) and (H) must be merged together in pard material such that an LLC's members must
not only be called "members" in the "records of the company" as required under R.C. §
1705.01 G); but also that the records themselves must prove a right to share in profits and losses
and to`receive distributions from the company. Opinion at ¶ 34, 45-46, 49. The Court thus
' The Court of Appeals also misapplied this doctrine. Reading statutes in pari materia does notmean daisy chaining their language together, as the court did here. Rather, it means that statutesrelating to the same general subject matter must be read together as a whole to achieve thesingular spirit and policy sunounding the legislation. Johnson's Markets. Inc., v. New CarlisleDeparhnent of Health 58 Ohio St.3d 28 (1991); Cuvahoea Ctv. Support Enforcement Agency v.Lozada, 102 Ohio App.3d 442,450 (1995). If anything, the Court of Appeals' decision in thiscase is offensive to the spirit and policy of Ohio's LLC statute.
2
repeatedly refers to "members" as defined in R.C. 1705.01(G) and (H). See Opinion at ¶ 31-2,
44, 46, 49.
T'his two-part membership test informed all of the Court's fact-finding and legal
conclusions. Opinion at ¶ 33, 44, 46, 49. For example, the Court specifically found that
"Parkwood Place's fomiation documents, to the extent they qualify as company records, do not
include language satisfying the defmition of'member' set forth in R.C. 1705.01(G) and (H)."
Opinion at ¶ 46 (emphasis added). The Court therefore refused to acknowledge that Appellants
are Parkwood's members according to the company's own records, even though it "confirmed
that, pursuant to R.C. 1705.14(A), a person may become a member either at the time the limited
liability is formed or at any tixne that is specified in the records of the company for becoming a
member." Opinion at ¶ 39.
The decision is diametrically opposed to Holdeman, where this Court stated that Ohio
Revised Code §§ 1705.01(G) and (H), respectively "are distinguishable in that a'member' [of an
LLC] possesses management rights, and one holding merely a'membenhip interest' possesses
limited, economic rights." Id. at ¶ 15 (emphasis added). The result here swings open the door to
court challenges over membership in LLCs. Of course, no two-part membership test exists under
R.C. § 1705.01(G). Moreover, this Court in Holdeman found no ambiguity in R.C. §§
1705.01(G) and (H), and thus no reason to parse their meanings. The two must be kept separate
because of the crucial distinction between a member of, and a membership interest in, an LLC.
A member of an LLC owns a membership interest, but even a large capital or 12ersonal
contribution does not itself confer membership. Landskroner v. Landskroner, 154 Ohio App. 3d
471, 797 N.E.2d 1002 (8th Dist. App. 2003) (alleged "member" of LLC who had previously
resigned was not "member" of LLC as a matter of law, regardless of equitable claims for prior
and subsequent capital and personal contnbution to the LLC).
3
Ironically, the Court here agreed that only "members" under RC. § 1705.01(B) may
make capital contributions to an LLC. Opinion at ¶ 49. But the Court also found at ¶ 5 of its
Opinion that Crow transferred real property to Parkwood in June, 1998 -- months before
February 5, 1999, when Crow and MacDonald signed their purported operating agreement.
Opinion, ¶ 6. Accordingly, by the same poor logic the Court used to dismiss Appellants' correct
assertions that their promise of future services constitutes consideration for their membership in
Parkwood as a "binding obligation. .. to perfonn services. . . " under R.C. § 1705(B)(1) (Opinion
at ¶ 49), the land Mr. Crow caused to be deeded to Parkwood could not have been a capital
contribution to Parkwood Place, because Crow was not a member when the alleged capital
contribution was made. The Court of Appeals' holding should be overtumed. Courts simply do
not have authority to look beyond unambiguous statutory ]anguage in the guise of interpretation,
but must give effect to the words used. Wray v. Wvmer. 77 Ohio App.3d 122, 131-132 (1991).
Further, both the concurruig and dissenting opinions in Holdeman agree that limited
liabiliry companies are voluntary associations like partnerships, arising out of contraot among the
members. Id. at ¶ 12, 18, 35. This is entirely correct, as R.C. § 1705.01(H) is clearly based on
Ohio Revised Code § 1782.01(L) (defining "partnership interesP' for purposes of the lunited
partnership statute), not corporations law. The Ohio legislature has consistently treated LLCs
like partnerships, not corporations. Section 1705.04, governing articles of organization of LLCs,
was even automatically amended in 1996 along with § 1782.08 to effechively ovemrle a decision
of this Court conceming the entity statos of limited partnerships upon their formation. See Ohio
2 Further, § 1705.04, though similar to R.C. § 1701.04, more closely follows R.C. § 1782.08,goveming the general partners' filing of a cerlificate of limited partnership.
4
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The lone rationale for literally placing the cart before the horse was the Court's belief that
it would be "unreasonable or absurd" to interpret R.C. 1705.01(G) to exclude Appellees from
having an interest in Parkwood. Opinion at ¶ 35. Yet, the Court of Appeals' decision is equally
as "unreasonable or absurd." Appellants are at least identified as members in Parkwood's
records; but Appellees are not.
The Court simply ignores the plain contractual language chosen by the parties thenvselves
in Parlcwood's Articles of Organization and Original Appointment of Agent. The holding
therefore not only offends rules of statutory constmction; but also the rules of contract,
regardless of what was filed with the Secretary of State, and regardless of whether a 1996 change
in the law years before Parkwood was ever forrned merely permitted an LLC's articles to be
signed by its members or other "authorized persons."
Both courts below summarily inferred that Appellants were mere authorized persons
because Parkwood was formed using 1994 forms, the statute was amended in 1996, and
Parkwood was formed in 1998. Opinion at ¶ 42-44. But there was no evidence that the words
used in these documents were ever imbued with anything other than their plain meaning.3 The
term "member" means what it says, and it was reversible error for the Court of Appeals to look
beyond the language of Parkwood's Articles of Organization and Original Appointment of
Agent, when those documents are susceptible to only one interpretation. Watkins v. Williams,
Slip Op., 9th Dist. Case No. 22162, 2004 Ohio 7171, at 124 (2004); United States Fidelity &
Guaranty Company v. St. Elizabeth Medical Center, 129 Ohio App. 3d 45 (1998). Indeed, any
ambiguity should have been construed against Appellees, successors to J. Harvey Crow, who
' Appellee MacDonald tesflfied that the forms were "not current" Opinion at ¶ 47-48. Crow, anattorney who formed numerous Ohio entities between 1994 and his death, should have beenpresumed to know the law. Further, Evidence Rule 804(B)(5) only permits an estate to introducehearsay to rebut tes6mony by an adverse party; not to rebut the plain language of its ownexhibits, Mr. Crow's non-hearsay writings made before his death.
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5
drafted Parkwood's Ariicles and Original Appointment of Agent and formed other companies
between 1994 and his death. McKay Machine Co. v. Rodman, 11 Ohio St. 2d 77, 80 (1967).
What the Court of Appeals here actually found "unreasonable or absurd" was mt
Appellants' correct statutory and contractual interpretation; but the ostensibly inequitable result.
Faced with a choice between offending the law or its own sense of equity, the Court of Appeals
offended both. A jury should be permitted to decide the contested factual issues presented.
II. STATEMENT OF THE CASE AND OF PERTINENT FACTS
Parkwood was formed in May, 1998 and a month later became the owner of 90 acres of
real property located in Brecksville, Ohio. Opinion, ¶ 4-5. Once Parkwood was formed, neither
the Decedent Crow; nor Appellee MacDonald, ever became members, in conipHance with a valid
operating agreement under Ohio Revised Code § 1705.01(J); nor were they ever admitted as
members upon the written consent of Parkwood's existing members under Ohio Revised Code §
1705.14. Nor were any amended or restated articles of organization ever filed with the Secretary
of State, as specifically required; because a change in Parkwood's membersbip would have made
its Articles of Organization and Original Appointment of Agent "materially inaccuuate." Ohio
Revised Code § 1705.08. Anybody reading those documents would conclude that Appellants are
the members; but could not conclude that Appellees are the members.
From August 1999 until 2004, the Parkwood project was stalled by foreclosure litigation
in Cuyahoga County (Case No. CV-99-389186), which Matthews recently purported to settle
even though the outcome of this fltigation is still at issae. After Mr. Crow's death in the fall of
2004, Appellees sued Appellants for declaratoryjudgment in Franklin County, claiming that
Appellees are Parkwood's real members. The sole basis for hearing the case in Franklin County
was Appellants' filing of a substitution of agent for Parkwood Place with the Ohio Secretary of
State upon Mr. Crow's death. Opinion, ¶ 10. Parkwood's offices and all of the land are or were
6
located in Cuyahoga County, the events giving rise to the litigation all took place there, and
virtually all of the actors were residents of Cuyahoga County at the time of those events.
Opinion, ¶ 2-9. Moreover, after August, 1999, Parkwoo(Ts real property was locked in the
Cuyahoga County foreclosure litigation. An apportionment action filed in 2002 where the issue
of Parkwood's members had already been raised (Case No. 2002 ADV 0062199) was also
already pending in Cuyahoga County Probate Court when this case was filed.
Though both courts below considered it somehow irrelevant, Appellee Matthews
adnutted under oath that he had nothing to do with Parkwood Place before August 18, 2004, and
that any knowledge he has about its formation would be hearsay. Injunction Hearing Transciipt
("Injunction Hrg. Tr.") at 280-81.
Appellee MacDonald gave the only testimonial basis for the Courts' Snding that
Appellants were allegedly never contemplated as members of Parkwood Place. Yet, moments
afler so testifying, he offered into evidence a draft operating agreement prepared by his own
attomey in May of 1998, identifying Appellants as the members of Parkwood Place. Injunction
Hrg. Tr. at 110-111; Plaintiffs' Injunction Ex. 14 (Ex. `A'). Though the Courts below tried to
sidestep this issue by finding that this document was excluded by the Magistrate at Appellants'
objection (Opinion at ¶ 45, n. 1), MacDonald's testnnony -- including his admission under oath
that his attorney prepared a draft operating agreement naming all tbree of Appellants as members
-- is part of the record. Moreover, the Trial Court never adopted the Magistrate's
recommendations. Accordingly, the records before both Courts below demonstrated Appellants•
are Parkwood's members, and Appellees' only testimony to the contrary was contradictory and
insufficient to demonstrate the absence of genuine issues of material faot.
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III. ARGUMENT
The Court of Appeals errors were legion. It afffamed jurisdiction and venue of this case
in Franklin County based solely upon Appellants' filing of a substitution of agent with the Ohio
Secretary of State in Franklin County, even though venue was proper in Cuyahoga County under
Civil Rule 3(B) and the issue of the identity of Parkwood's members had already been raised in
Case No. 2002 ADV 0062199 pending in Cuyahoga County.
The Court purported to assess the case de novo with an "independent review of the
record. . ." Opinion at ¶ 27, 30. However, it analyzed the decision to strike virtually all of
Appellants' evidence under an abuse of discretion standard; most significantly Appellant
D'Amore's affidavit and a 1995 agreement handwritten by Crow where he promised to pay her
$100,000 per year beginning in 1995, plus a fifleen percent interest in the cbmpany they later
formed, for assisting him in developing the land later deeded to Parkwood Place. Opinion at ¶
20-27. The flimsy basis for excluding the docranents was that the 1995 agreement failed to
name the entity that was only envisioned at that time, and that Ms. D'Amore's affidavit was
somehow not based on personal knowledge, even though she and Crow were the only parties to
the 1995 agreement. Id. This was clearly contrary to well settled case law. Nationwide Mutual
Fire hisurance Co. v. Guman Brothers Farm, 73 Ohio St. 3d 107, 108, 652 N.E.2d 684, 686
(1995); Bank One, N.A. v. Swarty 2004 Ohio 1986, Slip Op., Case No. 03CA008308 (9th Dist.
App. 2003) ("mere assertion" of personal knowledge satisfies requirement of Civil Rule 56(E));
Countrvwide Home Loans, Inc., v. Rodrieue^ 2004 Ohio 4723, Slip Op., Case Nos.
03CA008345 & 03CA008417 (9th Dist. App. 2003) (averments regarding business records in the
immediate control of atliant are admissible under Evidence Rule 803(6)).
In fact, all of Appellants' exhibits and affidavits were either improperly shicken or
ignored in the rush to judgtnent. However, summary judgment is inappropriate where the
8
outcome depends upon the testimony of competing witnesses on both sides. Perez v. Scripps-
Howard Broadcasting Co., 35 Ohio St. 3d 215, 218-219, 520 N.E.2d 198 (1988). It is reversible
error to grant summary judgment in favor of a party whose affidavit contradicts a recorded
writing such as a deed as well as the opponenfs affidavits. Welsh v. Estate of Cavin, 2004 Ohio
Further, Evid. R. 804(B)(5) only pemiits an estate to introduce hearsay to rebut testimony by an
adverse party. Mr. Crow's estate is not a party here, and Appellees' case consisted of hearsay
improperly "rebutting" the language of its own eadnbits, Mr. Crow's non-hearsay statements
made in writmgs before his death. No hearsay exception pennits a party to impeach its own
decedent's clear prior written statements.
The Court also interpreted two of its earlier decisions to support the claim that "it is the
language of the operating agreement, not the Articles of Organization or the Original
Appointment of Agent, that confers legal memberslrip on a person." Opinion, ¶ 40; citing
McDonald v. Miller, 2001 Ohio App. LEXIS 1446, Slip Op., Case No. OOAP-994 (10th Dist.
App., Mar. 29, 2001); McConnell v. Hunt Sports Enterprises, 132 Ohio App. 3d 657, 725 N.E.2d
1193 (1999). However, the validity of the operating agreements was not at issue in those cases.
Further, McConnell specifically declined to decide the issue here, whether one is a member of an
LLC (or has a"menibership interesf' for that matter) where a capital contribution is alleged; but
a person is not listed as a member in the records of the LLC. Id, n. 2.
Under Ohio Revised Code § 2721.03, a court cannot render a declaratory judgment in
favor of a non-party to a contract (like Parkwood's Articles and Original Appointment of Agent);
or in favor of a party to a non-contract (like the invalid purported operating agreement relied on
by Appellees and the Court). Landskroner v. Landskroner. 154 Ohio App. 3d 471, 797 N.E.2d
1002 (8th Dist. App. 2003). Appellees were thus not entitled to any declaratory relief.
9
Further, the LLC statute does not authorize rescission or reforniation of Parkwood's
founding documents, and equitable refomiation would have been improper. Refonnation of any
claimed unilateral mistake by Crow as to some basic assumption in drafting Parkwood's Arflcles
and Original Appointment of Agent would be conclusively barred by his own negligence, if not
by normal rules of conshuction. Marshall v. Beach. 143 Ohio App. 3d 432,437 (2001);
Convenient Food Mart, Inc. v. Con., Inc., Case No. 3-007, Lake App. No. 95-L-093 (Sept. 30,
1996); Aviation Sales. Inc. v. Select Mobile Homes. 48 Ohio App. 3d 90, 93-94 (1988) citin 1
Restatement of the Law 2d. Contracts, 394 at § 153 (1981)). In any event, Appellees never asked
for reformation; but that is precisely what the Trial Court and Court of Appeals accomplished,
quite improperly.
In all, Appellants noted 14 assignments of error from the Trial Court, which the Appeals
Court either ignored or compounded. However, most of the error arose from the all or nothing
nature of the litigation as frmned by Appellees, who failed to request any equitable relief in their
complaint; but instead made the untenable argument that they and not Appellants are Parkwood's
members. The Court of Appeals' decision so finding is bad law and should be reversed.
IV. CONCLUSION
Appellants respectfully request that the Court of Appeals' Decision be reversed.
Respectfully submitted,
4 411^ES-R. DOUGLASS (00220$5)PAN A. HUETTNER (0039479)
Shaker Heights, Ohio 44122(216) 991-7640
0521 Chagrin Blvd., Suite 200
Attomeys for Defendants-Appellants
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CERTIFICATE OF SERVICE
A copy of the foregoing Memorandum in Support of Jurisdiction has been sent via
ordinary mail, postage pre-paid, this 18th day of December, 2006 to the following:
Timothy S. RankinRobert E. WilliarnsBenjanvn W. Ogg266 North Fourth Street, Suite 100Columbus, Ohio 43215-2511
Attorneys for PlauitiffAppellee Ron Matthews
Gregory H. MelickMelick Law Fimi2404 KenilworW RoadCleveland Heights, Ohio 44106
Attomey for Plaintiff-Appellee John MacDonald
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^-.+
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
Ronald E. Matthews et al.,
Plaintiffs-Appellees,
V.
Regina D. D'Amore et al.,
Defendants-Appellants.
No. 05AP-1318(C. P.C. No. 04CVH 12-12864)
(REGULAR CALENDAR)
J ID M NT NTRY
For the reasons stated in the opinion of this court rendered herein on
November 2, 2006, appellants' assignments of error are overruled, and it is the judgment
and order of this court that the judgment of the Franklin County Court of Common Pleas
is affirmed. Costs assessed against appellants.
KLATT, P.J., McGRATH & TRAVIS, JJ.
ByJudge William A. Klatt, Presiding Judge
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
Ronald E. Matthews et al.,
Plaintiffs-Appellees,
V.
Regina D. D'Amore et al.,
Defenda nts-Appel la nts.
O P I N I O N
No. 05AP-1318(C.P.C. No. 04CVH12-12864)
(REGULAR CALENDAR)
Rendered on November 2, 2006
Onda, Labuhn & Rankin Co., L.P.A., Timothy S. Rankin andBenjamin W. Ogg, for appellee Ronald E. Matthews, Trustee.
Melick Law Firm, LLC, and Gregory Hall Melick, for appelleeJohn L. MacDonald.
James R. Douglas and John A. Huettner, for appellants.
APPEAL from the Franklin County Court of Common Pleas.
KLATT, P.J.
{q1} Defendants-appellants, Regina D'Amore, Christine Dabramo and Rebecca
Keith-Jones appeal from a judgment of the Franklin County Court of Common Pleas
which denied their motion for summary judgment, granted the summary judgment motion
of plaintiffs-appellees, Ronald E. Matthews, Trustee of the J. Harvey Crow Trust u/a dated
December 13, 2003 ("Crow Trust"), and John MacDonald, and granted plaintiffs' motion
to strike defendant D'Amore's affidavit in support of defendants' motion for summary
No. 05AP-1318 2
judgment. Because the trial court properly granted summary judgment to plaintiffs,
properly denied defendants' motion for summary judgment, and properly granted plaintiffs'
motion to strike D'Amore's affidavit, we affirm.
{¶2} For decades prior to 1998, J. Harvey Crow owned approximately 90 acres
of mostly undeveloped land near the city of Brecksville, in Cuyahoga County, Ohio
("Property"). Crow and MacDonald met in 1992. Between 1996 and 1998, MacDonald
and Crow met 30-40 times to discuss ways in which they might develop the Property with
residential and commercial construction. The two ultimately decided that they would fonn
a limited liability company ("LLC") to develop the Property, that Crow would contribute the
Property to the LLC, and that MacDonald would contribute capital to the LLC, obtain
investors and tenants, and procure financing to pay off the Property's debts. According to
MacDonald, he and Crow were to be the only members of the LLC.
{1[3} D'Amore was Crow's friend, and the two sometimes resided together.
Keith-Jones was a commercial realtor. D'Amore and Keith-Jones attended only one of
the Crow-MacDonald meetings conceming the formation of the LLC. Dabramo (the
nature of whose relationship to Crow was not clearly established) did not attend any of
the meetings. According to MacDonald, the defendants' only role regarding the Property
was to procure tenants in exchange for a commission; defendants were not to obtain any
membership interest in the LLC.
{1[4} On May 7, 1998, defendants signed and filed Articles of Organization for an
LLC named Parkwood Place with the Ohio Secretary of State. Therein, defendants
stated that they were "desiring to form a limited liability company, under Chapter 1705 of
the Ohio Revised Code." The preprinted instructions accompanying the Articles of
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No. 05AP-1318 3
Organization state, in part, that "[a]rticles will be returned unless accompanied by a
written appointment of agent signed by all or a majority of the members of the limited
liability company "*." Also, on May 7, 1998, defendants signed and filed an Original
Appointment of Agent with the Ohio Secretary of State, naming Crow as statutory agent
for Parkwood Place. The Original Appointment of Agent states that defendants, as the
"undersigned," are "at least a majority of the members" of Parkwood Place. The
preprinted word ("member") appears beneath each of defendants' signatures. The
preprinted instructions accompanying the Original Appointment of Agent state, in part,
that "[a]n original appointment of agent form must be signed by at least a majorfty of the
members of the limited liability company." Crow prepared both the Articles of
Organization and the Original Appointment of Agent.
{¶5} In June 1998, Crow transferred the property, by general warranty deed, to
the LLC. Since that time, Parkwood Place has owned the property.
{16} On February 5, 1999, MacDonald and Crow executed a document entitled
"Operating Agreement of Parkwood Place, Ltd." Article 2, Section 2.1 of the operating
agreement states that the names and addresses of the members are set forth on
"Schedule A" attached to the operating agreement. "Schedule A" provides spaces for the
members' names, addresses, and capital contributions; however, the spaces are left
blank. Article 2, Section 2.2 states that all of the authority of the LLC will be exercised by
or under the direction of a management company consisting initially of two managers,
Crow and MacDonald.
{q7} Article 3, Section 3.2 of the operating agreement states that MacDonald
entered into a separate agreement, "Exhibit B" (which is incorporated by reference into
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No. 05AP-1318 4
the operating agreement), setting forth the duties and responsibilities of "each of the two
members" of the LLC. "Exhibit B" sets forth a detailed outline of Crow's and MacDonald's
interests in, and obligations to, Parkwood Place. More particularly, "Exhibit B" provides
that MacDonald initially contributed $25,000 in cash to Parkwood Place and in exchange
received 1,000 membership units. "Exhibit B" further provides that MacDonald had
procured a 1.35 million dollar bank loan to pay off liens on the property, secured by a
mortgage on the property and a promissory note signed by Parkwood Place, MacDonald,
and Crow. According to "Exhibit B," MacDonald was to secure investors to pay off the
loan for which he would receive an additional 6,000 membership units. "Exhibit B" also
provides that Crow initially contributed the property to Parkwood Place and in exchange
received 300,000 membership units. "Exhibit B" also sets forth how the LLC's profits
would be distributed between Crow and MacDonald. Crow and MacDonald signed the
operating agreement as "Members." The operating agreement does not list defendants
as members nor is it signed by defendants.
{¶8} The financing arrangement referenced in "Exhibit B" was memorialized in
an agreement dated April 24, 1999, which is signed by Crow and MacDonald as
"Managing Member[s]" of Parkwood Place. The promissory note was signed by
MacDonald and Crow in their individual capacities, and by Crow as "Managing Member"
of Parkwood Place. The mortgage was signed by Crow as "Managing Member" of
Parkwood Place. `
{¶9} On December 13, 2003, the Crow Trust was created. Matthews, Crow's
grandson, was named trustee. Crow transferred his entire interest in Parkwood Place to
the trust. Crow passed away on August 18, 2004.
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No. 05AP-1318 5
{¶10} On August 23, 2004, at defendants' direction, defendants' attorney filed a
"Statutory Agent Update" with the Ohio Secretary of State naming himself as the new
statutory agent for Parkwood Place. On September 28, 2004, defendants' attomey wrote
to Patrick Flanagan, counsel for Parkwood Place, asserting that defendants were the only
members of the LLC and that Crow had taken certain actions with regard to Parkwood
Place that he was without authority to perform, as he was not a member of the LLC.
{¶11} On December 8, 2004, plaintiffs filed a "Verified Complaint for Monetary
Damages, Declaratory Relief, and Injunctive Relief' in the Franklin County Court of
Common Pleas, asserting three causes of action. First, plaintiffs sought a declaratory
judgment that they, and not defendants, are the only members of the Ohio limfted liability
company known as Parkwood Place, Ltd. ("Parkwood Place" or "LLC"). Second, plaintiffs
sought monetary damages resulting from defendants' alleged fraudulent conduct in
holding themselves out to be members of the LLC. Third, plaintiffs sought monetary
damages resulting from defendants' alleged tortious interference in plaintiffs' contracts
and business relationships arising out of plaintiffs' membership in the LLC. Plaintiffs
contemporaneously filed a motion for an ex parte temporary restraining order ("TRO") and
a preliminary injunction.
{q12} Pursuant to plaintiffs' motion, the trial court issued a TRO against
defendants, enjoining them from: (1) interfering with plaintiffs' ownership interest in the
LLC; (2) interfenng with any business of the LLC; (3) interfering in an; pending or future
legal proceedings involving the LLC; (4) interrering with any agreements or business
relationships of the LLC; and (5) taking any actions or otherwise representing to any third
8
No. 05AP-1318 6
party that defendants possess any ownership interest in the LLC. The trial court set
plaintiffs' motion for preliminary injunction for hearing before a magistrate.
{¶13} Thereafter, defendants filed a motion to change venue to Cuyahoga
County. Via judgment entry filed February 3, 2005, the trial court denied the motion,
finding venue to be proper in Franklin County.
{¶14} Following a three-day evidentiary hearing on plaintiffs' motion for a
preliminary injunction, the magistrate, on January 31, 2005, filed a decision denying the
motion. Plaintiffs filed timely objections to the magistrate's decision.
{1[15} The parBes filed cross-motions for summary judgment, and defendants filed
a Civ.R. 12(B)(6) motion to dismiss plaintiffs' verified complaint. By decision and entry
filed April 19, 2005, the trial court denied the cross-motions for summary judgment as well
as defendants' motion to dismiss.
(¶16) Thereafter, plaintiffs and defendants filed renewed motions for summary
judgment. The parties agreed that there are no disputed factual issues and that either
plaintiffs or defendants are entitled to judgment as a matter of law on the determinative
issue in the case, i.e., the identity of the members of Parkwood Place. The pleadings
establish that the Property owned by Parkwood Place is valued in excess of $7 million.
Plaintiffs supported their motion with the transcript from the January 2005 preliminary
injunction hearing and the trial transcript from a 2003 action filed by Crow against
D'Amore in the Summit County Court of Common Pleas. Defendants supported ^their
motion with, inter alia, D'Amore's affidavit and a 1995 agreement that is the. subject of the
affidavit. Plaintiffs moved to strike D'Amore's affidavit and the 1995 agreement.
9
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No. 05AP-1318 7
{¶17} By decision and entry filed November 17, 2005, the trial court granted
plaintiffs' motion to strike D'Amore's affidavit and the attendant 1995 agreement, granted
plaintiffs' motion for summary judgment, and denied defendants' motion for summary
judgment. The trial court found that plaintiffs were entitled to judgment as a matter of law
on the determinative issue in the case, i.e., the identity of the members of Parkwood
Place. In so finding, the court considered only the pleadings and the transcript of the
evidence at the preliminary injunction hearing.
{¶18} In accordance wfth R.C. 2721.01 and Civ.R. 57, the court declared that
plaintiffs are the only members of Parkwood Place and that defendants, individually
and/or collectively, possess no rights or membership interest therein. The trial court's
judgment entry included Civ.R. 54(B) language. Thereafter, on February 2, 2006,
plaintiffs, pursuant to Civ.R. 41(A), voluntarily dismissed their remaining claims of fraud
and tortious interference.
{¶19} Defendants have timely appealed the trial court's November 17, 2005
judgment, advancing the following 14 assignments of error:
1. The trial court erred in striking the affidavit of ReginaD'Amore, which was made upon personal knowledge; while atthe same time relying upon inadmissible testimony of theplaintiffs as to the intentions of the decedent, J. Harvey Crow.
2. The trial court erred in striking a 1995 agreement betweenD'Amore and the decedent on the basis of relevance when,by its terms, the agreement was specifically entered into inanticipation of the formation of Parkwood Place, LLC.
3. The trial court erred in relying on an older version of theOhio LLC statute goveming formation of LLCs which ismaterially different than that actually in effect at the timeParkwood Place, LLC was formed.
10
No. 05AP-1318 8
t
4. The trial court erred in finding that defendants onlyexecuted Parkwood Place, LLC's Articles of Organization andoriginal Appointment of Agent as "authorized persons" whenthey were clearly identified in the original Appointment ofAgent as its "members," merely because the statute in effectat the time permitted members or their authorized agents toform an LLC.
5. The trial court erred in analogizing "membership" in anLLC with being an "incorporator" of a corporation, forpurposes of assessing the legal significance of the LLC'sArticles of Organization and original Appointment of Agent.
6. The trial court erred in inferring without any evidence thatdefendants were designated as "members" in the originalAppointment of Agent of Parkwood Place solely because thedecedent, Mr. Crow apparently misunderstood the forms hewas using, when all of the admissible documentary evidenceshowed that Mr. Crow well understood the legal significanceof his actions.
7. The trial court erred in finding that defendants made "nocontribution" to Parkwood Place, LLC when the record isreplete with evidence of their contributions.
8. The trial court erred in finding that defendants made "nocontribution" to Parkwood Place, LLC, because - unlike underOhio corporations law - the form of contribution to an LLCmay be in property, services rendered, or future services.
9. The trial court confused the concept of owning amembership interest in an LLC with the concept ofmembership in the LLC.
10. The trial court erred in finding that plaintiff RonaldMatthews is "trustee" of a trust formed by the decedent J.Harvey Crow months prior to his death, without everpresenting the original - or even a copy - of pny declaration oftrust, trust agreement or other instrument demonstrating thisalleged "fact" to be true.
11. The trial court erred by resolving a credibility disputebetween the parties to the case and awarding ownership ofParkwood Place, LLC (and thus of its 94 acres of real estate)to plaintiffs.
11
No. 05AP-1318 9
12. The trial court erred in denying defendants' motion todismiss because the complaint failed to state a claim forwhich relief may be granted.
13. The trial court erred in acquiring jurisdiction of the casebased solely upon the fact that Parkwood Place LLC's Articlesand Original Appointment of Agent were filed there.
14. The trial court erred in failing to rule on the parties'objections to the magistrate's decision, as is required underCivil Rule 53.
{120} As defendants' first and second assignments of error are interrelated, we
will address them together. Defendants contend the trial court erred in striking D'Amore's
affidavit, along with the 1995 agreement attached thereto, which were submitted in
support of defendants' renewed motion for summary judgment. We disagree.
{121} Defendants maintain that the 1995 agreement, which was handwritten by
Crow, anticipates the later formation of Parkwood Place and describes D'Amore's
contribution, compensation, management and ownership interest in that entity both before
and after its formation.
{122} The 1995 agreement provides as follows:
J. Harvey Crow has a controlling interest in certain parcels ofland and hereby agrees with Regina D. D'Amore as follows:
1. Regina D. D'Amore shall be executive vice president of anyand all legal entities that own, control, operate and developthe real estate described in Exhibit "A" attached hereto, madea part hereof as if fully rewritten herein.
2^ Regina D. D'Amore shall spend her entire time beginningSept 15-1995 until the projects set out in Exhibit A arecompleted and shall contribute $300,000 in property, cash orservices.
3. Regina's compensation for her services shall be hercontribution of her services amounting to $300,000.00 for the
12
No. 05AP-1318 10
first three years and any continuance shall be at the samerate.
4. Regina shall be in charge of sales and other services as tobe outlined by J. Harvey Crow who is the primary consultantof these projects. She shall aid and assist in the promotion ofall projects.
5. The [$]300,000 contribution shall be paid to her when everall other contributions including J. Harvey Crow is paid and inaddition Regina shall have a vested interest in the profits thatare derived from the operation in equal amounts with J.Harvey Crow which shall not be less than 15%. Said profitsshall be distributed when each project is completed anddistribution is made to others and similar profit sharing is paidto them.
6. Regina, J. Harvey Crow and others shall be reimbursed forout of pocket expenses made for the promotion of theseprojects whenever the cash flow justifies this payment.
7. Regina shall make decisions for the benefit of the projectsubject to the approval of J. Harvey Crow.
{q23} "Exhibit A," attached to the agreement, delineates the "projects" referenced
in the agreement. One of those "projects" is "[t]he sale or development of 59 acres zoned
for retail or commercial along and North of Miller Road, both in Brecksville, Ohio."
{q24} D'Amore avers in paragraph 2 of her affidavit that she and Crow executed
the agreement on September 15, 1995. In paragraph 3, D'Amore states that the
document reflects her understanding of the agreement with Crow, i.e., that she was to be
"executive vice president" of any entities that would own various real property, including
the Property now owned by Parkwood Place, and that Crow intended that she operate
those entities. In paragraph 4, D'Amore avers that she, Dabramo and Keith-Jones are
the "original and only members" of Parkwood Place. Paragraph 5 states that MacDonald
was never admitted as a member of Parkwood Place and that his only involvement with
13
i
No. 05AP-1318 11
the LLC was to assist Crow in obtaining financing in order to remove a lien against the
Property.
{125} Civ.R. 56(E) mandates that affidavits be made upon the personal
knowledge of the afflant and set forth facts that would be admissible in evidence.
Stamper v. Middletown Hosp. Assn. (1989), 65 Ohio App.3d 65, 69; Tolson v. Triangle
Real Estate, Franklin App. No. 03AP-715, 2004-Ohio-2640, at ¶10. Affidavits that are not
based upon personal knowledge or that set forth legal conclusions or opinions without
stating supporting facts are insufficient to meet the requirements of Civ.R. 56(E).
Stamper, Tolson; at ¶12; Szkatulski v. Bank One, N.A., 158 Ohio App.3d 189, 2004-Ohio-
3981, at ¶10; Niermeyer v. Cook's Termite & Pest Control, Inc., Franklin App. No. 05AP-
21, 2006-Ohio-640, at ¶32. A trial court's decision to grant a motion to strike will not be
overtumed on appeal absent an abuse of discretion. Samadder v. DMF of Ohio, Inc., 154
Ohio App.3d 770, 2003-Ohio-5340, at ¶17; Niermeyer.
{¶26} The trial court granted plaintiffs' motion to strike the affidavit on the basis
that it failed to set forth facts that would be admissible in evidence. More particularly, the
court characterized the 1995 agreement as a "personal-services" contract between Crow
and D'Amore that does not constitute evidence of D'Amore's membership in Parkwood
Place, as the agreement pre-dated the formation of the LLC by three years and did not
even mention Parkwood Place. Thus, the court struck paragraphs 2 and 3 of the affidavit
on relevancy grounds. The court struck'paragraph 3 for the additional reason that it
consists of inadmissible hearsay in the form of D'Amore's statements about what Crow
agreed or intended. The court struck paragraphs 4 and 5 on the basis they both set forth
only legal conclusions without supporting facts.
.
14
No. 05AP-1318 12
{527} We cannot find that the trial court abused its discretion in striking the
affidavit and the 1995 agreement. The agreement is irrelevant to the issues involved in
this litigation, as it does not constitute evidence of D'Amore's (or the two other
defendants') membership in Parkwood Place. The agreement pre-dates the formation of
Parkwood Place by three years, does not mention Parkwood Place, and does not include
the words "member" or "membership interest." Indeed, D'Amore is identified only as
"executive vice president." Further, paragraph 3 of the affidavit constitutes inadmissible
hearsay regarding Crow's statements and intentions, and paragraphs 4 and 5 contain
only unsupported legal conclusions as to the determinative issue in the case, i.e., the
identity of the members of Parkwood Place. Accordingly, the trial court did not abuse its
discretion by granting plaintiffs' motion to strike. The first and second assignments of
assignments of error challenge, on various grounds, the trial court's grant of summary
judgment to plaintiffs on the substantive issue in the instant case, i.e., the identity of the
members of the LLC known as Parkwood Place. As such, we will consider them jointly.
{¶29} Civ.R. 56(C) provides, in part, that:
i
Summary judgment shall be rendered forthwith if thepleadings, depositions, answers to interrogatories, writtenadmissions, affldavits, transcripts of evidence, and writtenstipulations of fact, if any, timely filed in the action, show thatthere is no genuine issue as to any material fact and that themoving party is entitled to judgment as a matter of law. Noevidence or stipulation may be considered except as stated inthis rule. A summary judgment shall not be rendered unless itappears from the evidence or stipulation, and only from theevidence or stipulation, that reasonable minds can come tobut one conclusion and that conclusion is adverse to the partyagainst whom the motion for summary judgment is made, that
15
No. 05AP-1318 13
party being entitled to have the evidence or stipulationconstrued most strongly in the party's favor.
{130} Thus, pursuant to Civ.R. 56(C), summary judgment is appropriate only
where the evidence demonstrates that: (1) no genuine issue of material fact remains to
be litigated; (2) the moving party is entitled to judgment as a matter of law; and (3)
viewing the evidence mostly strongly in favor of the nonmoving party, reasonable minds
can come to but one conclusion, and that conclusion is adverse to the nonmoving party.
State ex rel. Grady v. State Emp. Relations Bd. (1997), 78 Ohio St.3d 181, 183. An
appellate court reviews a summary judgment disposition de novo and we apply the same
standard as that used by the trial court. Grafton v. Ohio Edison Co. (1996), 77 Ohio St.3d
102, 105. As a result, this court stands in the shoes of the trial court and conducts an
independent review of the record. Welsh v. Estate of Cavin, Franklin App. No. 02AP-
1328, 2004-Ohio-62, at ¶21.
{1131} As noted previously, the dispositive issue presented in the parties' cross-
motions for summary judgment is the identity of the members of the LLC known as
Parkwood Place. Limited liability companies are governed by R.C. Chapter 1705. R.C.
1705.01(G) provides that a"member" of a limited liability company is "a person whose
name appears on the records of the limited liability company as the owner of a
membership interest in that company." "Membership interest" is defined by R.C.
1705.01(H) as "a member's share of the profits and losses of a limited liability company
and the right to receive distributions from that company."
{1[32} It is well-settled that "[t]he paramount consideration in determining the
meaning of a statute is legislative intent." State v. Jackson, 102 Ohio St.3d 380, 2004-
Ohio-3206, at ¶34, citing State ex rel. Asberry v. Payne ( 1998), 82 Ohio St.3d 44, 47. To
16
No. 05AP-1318 14
determine such intent, a court must first look at the words of the statute itself. "It is a
cardinal rule that a court must first look to the language of the statute itseff to determine
the legislative intent. If that inquiry reveals that the statute conveys a meaning which is
clear, unequivocal and definite, at that point the interpretative effort is at an end, and the
statute must be applied accordingly." Provident Bank v. Wood (1973), 36 Ohio St.2d 101,
105-106, citing Sears v. Weimer (1944), 143 Ohio St. 312. A court must also bear in
mind that "[s]tatutes concerning the same subject matter must be construed in pari
materia:" In re C.W., 104 Ohio St.3d 163, 2004-Ohio-6411, at'p7, citing In re Hayes
(1997), 79 Ohio St.3d 46, 48. With these principles in mind, we conclude, reading R.C.
1705.01(G) and (H) in pad materia, that to be a "member" of a limited liability company, a
person's name must appear on the company records as one who shares in the
company's profits and losses and has a right to receive distributions from the company.
{133} Here, the evidence submitted on the parties' cross-motions for summary
judgment establishes that the only persons whose names appear on Parkwood Place's
company records as sharing in the company's profits and losses and having a right to
receive distributions from the company are Crow and MacDonald. As noted previously,
the February 5, 1999 operating agreement sets forth a detailed outline of Crow's and
MacDonald's interests in, and obligations to, Parkwood Place. More particularly, the
operating agreement reveals that MacDonald received 1,000 membership units in the
company in exchange for his $25,000 cash contribution, and that Crow received 300,000
membership units in exchange for his contribution of the property. The operating
agreement also provides that MacDonald would receive an additional 6,000 membership
units if he was successful in securing investors to pay off the property's debts. In
17
No. 05AP-1318 15
e
addition, the operating agreement sets forth a detailed discussion of how Crow and
MacDonald would share in Parkwood Place's profits and losses as well as their right to
receive distributions from the company.
{1[34} Defendants assert that the evidence establishes at least a genuine issue of
material fact as to the identity of the members of Parkwood Place. Defendants point to
the Articles of Organization and the Original Appointment of Agent form, both of which
were signed by defendants (with the Original Appointment of Agent form signed by
defendants as "members"), as company records evidencing their membership interest in
Parkwood Place. While those documents might arguably qualify as company records,
neither of them state that defendants have a right to share in Parkwood Place's profits
and losses or receive distributions from the LLC. Defendants' contention that one
becomes a "member" of a limited liability company just by signing the Articles of
Organization and/or the Original Appointment of Agent form completely ignores the
definition of "membership interest" set forth in R.C. 1705.01(H):
{q35} Moreover, pursuant to defendants' argument, neither Crow, who owned and
transferred the property (valued at over $7 million) nor MacDonald, who made a cash
contribution of $25,000, would be considered "members" of the LLC. Defendants'
contention is unreasonable. It is well-settled that statutes should not be construed to yield
an unreasonable or absurd result. Delahoussaye v. Ohio State Racing Comm., Franklin
App. No. 03AP-954, 2004-Ohio-3388, at 114.
{1[36} Our conclusion is bolstered by recent decisions from this court, which have
concluded that a limited liability company's operating agreement-and not the Articles of
Organization and/or the Original Appointment of Agent-determine the actual
18
No. 05AP-1318 16
membership in, and other rights, responsibilities, and/or liabilities of, an Ohio limited
liability company.
{¶37} For example, in McConnell v. Hunt Sports Ents. (1999), 132 Ohio App.3d
657, 688-689, this court discussed the importance of the operating agreement in Ohio's
limited liability company statutory scheme:
"Operating agreement" is defined in R.C. 1705.01(J) as all ofthe valid written or oral agreements of the members as to theaffairs of a limited liability company and the conduct of its
`business :R.C 1705;03,(CLsets forth the various activities,x....,- ^ .^.limited liability co
.n---mpanies mayengage ihand-indicates-that-,".
such are subject to the company's articles of organization and ^operating agreement. Indeed, many of the statutoryprovisions in R.C. Chapter 1705 goveming limited tiabilftycompanies indicate that they are, in various ways, subject toand/or dependent upon related provisions in an operatingagreement. See, for example, R.C. 1705.11, 1705.12,1705.13, 1705.15, 1705.16, 1705.18, 1705.22, 1705.24,1705.25, 1705.26, 1705.29, 1705.31, 1705.40, 1705.43,1705.44, and 1705.46.
Id. at 688-689. (Emphasis added.)
{¶38} The McConnell court also confirmed that it is a person's name appearing on
the records of the limited liability company, such as the operating agreement, as the
owner of a membership interest in the company that confers legal "membership" upon
that person, and not merely having been named in the Articles of Organization, or
otherwise having been named on or omitted from a"Member" schedule to an operating
agreement:
As a preliminary matter, we note that the trial court erred inconcluding appellant was not a member of CHL prior toexecuting the operating agreement. R.C. 1705.01(G) statesthat a member of a limited liability company is a person whosename appears on the records of the company as the owner ofa membership interest in that company. * * *
19
No. 05AP-1318 17
xww
Appellant is identified on Schedule A and is credited with acapital contribution of $25,000 and as having twenty-fiveunits. Appellant made such capital contribution on November12, 1996. Therefore, pursuant to the Ohio Revised Code andthe operating agreement, appellant was a member of CHLfrom its inception even though appellant did not execute acopy of the operating agreement until June 6, 1997. * * *
Id. at 684-685.
{139} This court also confirmed that, pursuant to R.C. 1705.14(A), a person may
become a member either at the time the limited liability is formed or at any time that is
specified in the records of the company for becoming a member. In the instant case, that
time specified in the company records for becoming a member is dearly February 5,
1999, when Crow and MacDonald executed the operating agreement, which delineated
their right to share in the profits and losses and receive distributions.
{¶40} Further, in McDonald v. Miller (Mar. 29, 2001), Franklin App. No. OOAP-994,
this court confirmed that it is the language of the operating agreement, not the Articles of
Organization or the Original Appointment of Agent, that confers legal membership on a
person:
The narrow issue we address is whether appellant was amember of METSS. * * *
A review of the operating agreement for METSS shows thelanguage to be clear and unambiguous. * * *
w*w
[T]he plain language of the operating agreement establishedthat appellant was a member of METSS at some point in time.
Id.
20
No. 05AP-1318 18
{1[41} Having determined that the evidence of record fails to demonstrate a
genuine issue of material fact as to the dispositive issue in this case, i.e., the identity of
the members of Parkwood Place, and that plaintiffs are entitled to judgment as a matter of
law on this issue, we need only briefly address the various arguments raised by
defendants in support of their contention that they are the sole members of Parkwood
Place.
{¶42} Several of defendants' arguments concern the trial court's alleged errors
involving the Articles of Organization and the Original Appointment of Agent. For
instance, defendants assert in the third assignment of error that the trial court erred in
citing the wrong version of R.C. 1705.04, the statute governing the Articles of
Organization. The version cited by the trial court stated, in pertinent part, that "(tJwo or
more persons * * * may form a limited liability company. The entity is formed when one or
more persons or their authorized representative signs and files with the secretary of state
articles of organization that set forth all of the following ***." R.C. 1705.04(A); (emphasis
added). However, the version applicable on May 7, 1998 (the date on which defendants
signed and filed the Articles of Organization and Original Appointment of Agent),
provided, in relevant part, that "one or more persons * * * may form a limited liability
company. The company is formed when one or more persons or their authorized
representative signs and files with the secretary of state articles of organization that set
forth all of the following ***. R.C. 1705.04(A); (emphasis added). ^
{¶43} There are only two differences in the version cited by the trial court and the
version in effect on May 7, 1998: (1) one, rather than two or more persons, may form a
limited liability company, and (2) use of the term "company" rather than "entity." As the
21
No. 05AP-1318 19
version cited by the trial court is only slightly different from the version actually in effect on
May 7, 1998, the trial court's error was harmless. Civ.R. 61.
{144} Further, regardless of which version of R.C. 1705.04(A) applied, the
pertinent analysis centers on the statutory definitions of "member" (R.C. 1705.01[G]) and
"membership interest" (R.C. 1705.01[H]). We have already determined that in the instant
case, it is the operating agreement, and not the Articles of Organization, that confer
"member" status to plaintiffs pursuant to R.C. 1705.01(G) and (H). Indeed, neither
version of R.C. 1705.04(A) provides that the person or persons who "form" the limited
liability company must be, or necessarily are, "members" of the company. In fact, both
versions of the statute provide that the person who signs and files the Articles of
Organization may be an "authorized representative" of the company.
{¶45} Similarly, defendants' fourth, fifth, sixth, and eleventh assignments of error
take issue with the trial court's rulings with regard to Parkwood Place's formation
documents. In the fourth assignment of error, defendants maintain that the trial court
erred in determining that defendants executed the formation documents only as
"authorized representatives" when they were "clearly identified" as "members" in those
documents.' In the fifth assignment of error, defendants contend that the trial court erred
in analogizing the legal effect of filing Articles of Organization with the legal effect of filing
Articles of Incorporation. In the sixth assignment of error, defendants argue that the trial
i
I Defendants also argue, citing plaintiffs' preliminary injunction hearing Exhibit 14, that defendants wereintended to be members of Parkwood Place because they were identified as "members" in an unexecuted"potential operating agreemenf' prepared by MacDonald's attomey at the same time the formationdocuments were filed with the Secretary of State. However, the magistrate sustained defendants' objectionto that exhibit, and it was not admitted. The exhibit was never thereafter made part of the trial court record.Thus, the exhibit is not a part of the record on appeal. A reviewing court cannot consider material that wasnot part of the trial court proceedings. Sanders v. Webb (1993), 85 Ohio App.3d 674.
22
No. 05AP-1318 20
court erred in failing to consider certain evidence submitted by defendants, i.e., certified
copies of formation documents from other Ohio business entities for which Crow had filed
documents with the Secretary of State. Defendants suggest that this evidence
establishes that Crow intended to confer membership status to defendants by having
them sign the formation documents. In the eleventh assignment of error, defendants
contend the trial court erred by resolving a credibility dispute in favor of plaintiffs in the
face of documentary evidence, i.e., the formation documents, which favors defendants.
{¶46} As we have previously discussed, to determine the identity of the members
of a limited liability company, one must read R.C. 1705.01(G) and (H) in pari materia.
Taken together, these two statutes establish that to be a"member" of a limited liability
company, a person's name must appear on the company records as one who shares in
the company's profits and losses and has a right to receive distributions from that
company. Parkwood Place's formation documents, to the extent they qualify as company
records, do not include language satisfying the definition of "member" set forth in R.C.
1705.01(G) and (H).
{147} Further, MacDonald's testimony, along with a review of the Articles of
Organization and the Original Appointment of Agent forms and the applicable version of
the statutes goveming those documents, supports the trial court's finding that the forms
utilized in forming the LLC were not current. As such, those documents do not create a
g'enuine issue of material fact as to defendants' alleged membership In the LLC.
{4148} MacDonald testified that the formation documents utilized to form the LLC
were not current. A review of both the Articles of Organization and Original Appointment
of Agent forms reveal that they were prescribed by the Secretary of State in July 1994. In
23
No. 05AP-1318 21
addition, both forms include instructions stating that the Original Appointment of Agent
must be signed by at least a majority of the members of the LLC. In 1994, neither R.C.
1705.04 (the statute goveming the Articles of Organization), nor R.C. 1705.06 (the statute
goveming the Original Appointment of Agent), permitted an "authorized representative" to
sign and file the documents. Defendants rely upon the fact that they signed the Original
Appointment of Agent as "members" to create at least a genuine issue of material fact as
to their alleged membership in the LLC. However, the versions of those statutes in effect
at the time Parkwood Place was formed permitted an "authorized representative" to sign
and file the formation documents. Thus, the trial court did not err in its rulings related to
Parkwood Place's formation documents.
{1[49} Defendants' seventh, eighth, and ninth assignments of error challenge the
trial court's finding that defendants made no "contribution" to Parkwood Place.
"Contribution" is defined as "any cash, property, services rendered, promissory note, or
other pending obligation to contribute cash or property or to perPomi services that a
member contributes to a limited liability company in the capacity as a member." R.C.
1705.01(B). Thus; pursuant to R.C. 1705.01(B), "contributions" are made by "members"
of the limfted liability company. As we have previously stated, defendants have set forth
no evidence establishing that any of them meet the definition of "member" set forth in
R.C. 1705.01(G) and (H). Further, the evidence upon which defendants refy in asserting
their claim of "contribution;' i.e., the 1995 agreement between Crow and D'Amore, is not
a part of the record, having been properly stricken by the trial court. For the foregoing
{550} By the tenth assignment of error, defendants argue that the trial court erred
in finding that Matthews is the trustee of the Crow Trust absent evidence to support such
a finding. Matthews' status as trustee is uncontroverted through his own sworn testimony
provided at the preliminary injunction hearing. Defendants have offered no evidence, as
required by Civ.R. 56(C), to raise an issue of fact as to Matthews' status as trustee.
Defendants appear to suggest that this court (and the trial court) should "weigh"
Matthews' testimony and find it to be incredible. However, such an exercise is not
permitted in summary judgment proceedings. The tenth assignment of error is overruled.
{¶51} Defendants assert in their twelfth assignment of error that the trial court
erred in denying their Civ.R. 12(B)(6) motion to dismiss. When reviewing a judgment on a
Civ.R. 12(B)(6) motion to dismiss for failure to state a claim upon which relief can be
granted, an appellate court's standard of review is de novo. Penysburg Twp. v. Rossford,
103 Ohio St.3d 79, 2004-Ohio-4362, at ¶5. A Civ.R. 12(B)(6) motion to dismiss for failure
to state a claim upon which relief can be granted is procedural and tests the sufficiency of
the complaint. State ex rel. v. Hanson v. Guemsey Cty. Bd. of Comm. (1992), 65 Ohio St.
3d 545, 548, citing Assn. for the Defense of the Washington Loc. School Dist. v. 14ger
(1989), 42 Ohio St.3d 116, 117. A trial court must presume all factual allegations
contained in the complaint to be true and must make all reasonable inferences in favor of
the nonmoving party. Garofalo v. Chicago Title Ins. Co. (1995), 104 Ohio App.3d 95,
104, citing Perez v. Clevetand (1993), 66 Ohio St.3d 397, Mitchell v. Lawson Milk Co.
( 1988), 40 Ohio St.3d 190, and Phung v. Waste Mgt., Inc. (1986), 23 Ohio St.3d 100.
"[A]s long as there is a set of facts, consistent with the plaintiffs complaint, which would
25
No. 05AP-1318 23
allow the plaintiff to recover, the court may not grant a defendants motion to dismiss."
York v. Ohio State Hwy. Patrol (1991), 60 Ohio St.3d 143, 145.
{152} In this case, plaintiffs sought a declaration that they are the only members
of Parkwood Place and that defendants possess no rights or membership interests
therein. Defendants argued in their motion to dismiss that there was no controversy
entitling plaintiffs to declaratory relief because it is clear from plaintiffs' complaint that
defendants are the only members of Parkwood Place and that plaintiffs are not members.
{4153} To be entitled to declaratory relief, a plaintiff must demonstrate that (1) a
real controversy exists between the parties; (2) the controversy is justiciable in character;
and (3) the situation requires speedy relief to preserve the rights of the parties.
Landskroner v. Landskroner, 154 Ohio App.3d 471, 2003-Ohio-4945, at ¶8, citing Herrick
v. Kosydar (1975), 44 Ohio St.2d 128. A court may dismiss a deGaratory judgment action
pursuant to Civ.R. 12(B)(6) only when: (1) no real controversy or justiciable issue exists
between the parties, or (2) the declaratory judgment will not terminate the uncertainty or
controversy. McConnell, supra, at 681, citing AEI Group, tnc. v. Ohio Dept. of Commerce
(1990), 67 Ohio App.3d 546, 550, citing Fioresi v. State Farm Mut. Auto. Ins. Co. (1985),
26 Ohio App.3d 203, 203-204.
{1[54} In their verified complaint, plaintiffs allege that they own the membership
units in Parkwood Place and that defendants never owned and/or acquired any
membership interest in that entity. Accepting the allegations contained in the complaint
as true, as we must in reviewing a decision to grant or deny a motion to dismiss under
Civ.R. 12(B)(6), we find that a justiciable controversy exists between the parties and that
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No. 05AP-1318 24
declaratory judgment will terminate the controversy. The trial court, therefore, did not err
in denying defendants' motion in this regard. The twelfth assignment of error is overruled.
{155} In their thirteenth assignment of error, defendants contend the trial court
erroneously denied their motion for a change of venue to Cuyahoga County. According
to defendants, Cuyahoga County is the proper venue for the action under Civ.R. 3(B)(1),
(2), (3), (5), and (6). Plaintiffs argue that venue properly fies in Franklin County pursuant
to Civ.R. 3(B)(3), (6), and (7).
{156} Venue is a procedural matter and connotes the locality where the lawsuit
should be heard. Glover v. Glover (1990), 66 Ohio App.3d 724, 727, citing Morrison v.
Steiner (1972), 32 Ohio St.2d 86, paragraph one of the syllabus. At the time plaintiffs
commenced the instant action, Civ.R. 3(B) provided, in relevant part, as follows:
Any action may be venued, commenced and decided in anycourt in any county. * * * Proper venue Iies in any one or moreof the following counties:
(1) The county in which the defendant resides;
(2) The county in which the defendant has his or her principalplace of business;
(3) A county in which the defendant conducted activity thatgave rise to the claim for relief;
**.
(5) A county in which the property, or any part of the propertyis situated if the subject of the action , is real property ortangible personal property;
(6) The county in which all or part of the claim for relief arose***.
(7) In actions described in Civ.R. 4.3, in the county whereplaintiff resides[.]
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No. 05AP-1318 25
{157} "The first nine provisions of Civ.R. 3(B) are on an equal status, and any
court specified therein may be a proper and initial place of venue." Morrison, supra, at
89; see, also, Varketta v. General Motors Corp. (1973), 34 Ohio App.2d 1, 6 ("The first
nine provision of 3[B] are alternatives, and each may be a proper basis for venue, but
they do not have to be followed in any order"). "Plaintiff has a choice where the action will
be brought if any of the counties specified in C'rv.R. 3(B)(1) through (9) are a proper forum
under the facts of the case." Id. Thus, "'the plaintiff is not restricted to one specific
county under Rules 3(B)(1) through (9) but may choose the county in which he prefers to
commence the action.' " Berarducci v. State Teachers Retirement Sys. (1984), 21 Ohio
App.3d 195, 197, quoting General Motors Acceptance Corp. v. Jacks (1971), 27 Ohio
Misc. 115, 119.
{158} Further, Civ.R. 3(C)(1) states that a "court shall transfer the action to a
county stated to be proper in division (B) of this rule" but only when the "action has been
commenced in a county other than stated to be proper in division (B) of this rule."
Accordingly, in order to change venue from Franklin County to Cuyahoga County,
defendants must establish that Franklin County is an improper venue pursuant to Civ.R.
3(B), while demonstrating Cuyahoga County to be a proper venue under Civ.R. 3(B).
{¶59} Venue is proper in Franklin County pursuant to both Civ.R. 3(B)(3) and (6),
as defendants conducted activities in Franklin County that gave rise to plaintiffs' claim for
relief and bedause all or part of the daim for relief arose in Franklin County. More
particularly, plaintiffs' verified complaint seeks monetary damages, declaratory relief, and
injunctive relief related to defendants' activities on August 23, 2004, in directing or
causing their attomey to fraudulently execute and file a Statutory Agent Update for
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No. 05AP-1318 26
Parkwood Place with the Secretary of State's office, which is located in Franklin County.
Therefore, Franklin County is a proper venue for this action. The trial court also found
venue to properly lie in Franklin County pursuant to Civ.R. 3(B)(7). Having found venue
to be proper in Franklin County pursuant to Civ.R. 3(B)(3) and (6), we need not consider
the trial court's finding with regard to Civ.R. 3(B)(7). The thirteenth assignment of error is
overruled.
{4f60} Defendants' fourteenth assignment of error contends that the trial court
erred in failing to rule on "the parties" objections to the magistrate's decision in
contravention of Civ.R. 53(E)(4)(b). Preliminarily, we note that a review of the record
reveals that only plaintiffs filed objections to the magistrate's decision. Contrary to their
assertion, defendants did not file objections to the magistrate's decision; indeed,
defendants moved the court for an order adopting the magistrate's decision without
waiting for or ruling upon objections.Z
{¶61} Moreover, the trial court was not required to rule upon objections to the
magistrate's decision prior to determining the parties' cross-motions for summary
judgment. A magistrate obtains authority to hear and make recommendations only on
those matters referred to it by the trial court. See Civ.R. 53(C). "A magistrate's authority
is subject to the specifications and limitations stated in the order of reference." Flynn v.
Flynn, Franklin App. No. 03AP-612, 2004-Ohio-3881, at ¶11, citing Civ.R. 53(C)(2).
Further, "[a] trial court retdins its authority to decide an issue independent of the
2 We note that on April 5, 2006, defendants filed a response to the plaintiffs' objections to the magistrate'sdecision in which they asserted that one of the factual findings in the magistrate's decision was"incomplete." Defendants' averment does not constitute an "objection" to the magistrate's decision, as itdoes not comport with Civ.R. 53(E)(3)(a), (b), or (c).
29
!
No. 05AP-1318 27
magistrate, as the grant of authority to a magistrate does not affect a trial court's
jurisdiction." Id. at 112.
{1[62} Here, the sole issue referred to the magistrate was plaintiffs' motion for
preliminary injunction. The trial court thus retained jurisdiction to decide all issues
pertaining to the parties' cross-motions for summary judgment. Accordingly, Civ.R.
53(E)(4)(b) does not apply. See, e.g., Ford Motor Credit v. Foster, Cuyahoga App. No.
85623, 2005-Ohio-6091 ("The record reflects that Judge Keith Belkins, an acting judge,
not a magistrate, granted Ford's motion for summary judgment; therefore, Civ.R. 53 does
not apply).
{¶63} Defendants' reliance upon In re J.V., Franklin App. No. 04AP-621, 2005-
Ohio-4925 and Ludwick v. Ludwick, Fayette App. No. CA2002-08-017, 2003-Ohio-2925,
is misplaced. In those cases, the order underlying the appeal was a trial court judgment
specifically related to the magistrate's decision. Here, defendants appeal from the trial
court's summary judgment decision, not a decision related to the proceedings before the
magistrate. The fourteenth assignment of error is overruled.
{q64} Also before this court is plaintiffs' motion to strike certain exhibits and
statements offered in support of defendants' brief. Plaintiffs first challenge defendants'
references to the transcript of the Summit County litigation. Contrary to defendants'
assertions in its response to plaintiffs' motion to strike, the transcript was ordered stricken
by the trial court. Defendants argue as'much on page 9, footnote 8 of their merit brief.
("Interestingly, the Trial Court also ordered stricken the transcript from the trial of the
Akron Litigation.") The court indicated that it reviewed that transcript and found it
contained no evidence relevant to the instant action; the court further stated that it
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No. 05AP-1318 28
considered only the pleadings and the transcript of the preliminary injunction hearing in
determining the parties' cross-motions for summary judgment. Thus, it is not part of the
record in the trial court. Further, the transcript is not proper Civ.R. 56(C) evidentiary
material. Accordingly, defendants' citations to the transcript are technically improper;
however, given our finding that summary judgment is appropriate for plaintiffs as a matter
of law, we cannot find that defendants' citations to the transcript are prejudicial.
{165} Plaintiffs next take issue with defendants' references to "Plaintiffs Injunction
Exhibit 14," the draft Parkwood Place operating agreement that was never executed. We
have already determined that this evidence is not properly before this court, as it was not
admitted at the preliminary injunction hearing and was never thereafter made part of the
trial court record. Thus, defendants' references thereto are technically improper,
however, given our disposition of the case, we cannot find defendants' reference to the
exhibit to be prejudicial.
{¶66} Plaintiffs next challenge defendants' citations to the magistrate's decision.
Although defendants purport on page 5, footnote 6 of their brief that they "do not argue
that the Trial Court was bound by the Magistrate's factual findings or legal conclusions,"
defendants reference the magistrate's findings later in that same footnote and again on
page 10 of their brief. A magistrate's decision (including the findings contained therein), is
not proper Civ.R. 56(C) evidentiary material. Accordingly, defendants' references thereto
° are technically improper, however, as noted previously, given our determination in this
case, defendants' references do not prejudice plaintiffs.
{167} Plaintiffs next complain about defendants' citations to case dockets from
unrelated litigation and various Articles of Organization and Appointment of Agent forms
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No. 05AP-1318 29
filed by Crow pertaining to other Ohio entities. Defendants submitted certified copies of
these documents in support of their renewed motion for summary judgment; however, the
trial court apparently determined that they were not proper Civ.R. 56(C) evidentiary
materials. Assuming arguendo that the materials comply with Civ.R. 56(C), defendants'
citation to them was technically not improper. However, contrary to defendants'
assertions, those materials do not create a genuine issue of material fact as to the central
issue in this case, i.e., the identity of the members of Parkwood Place.
{168} Finally, plaintiffs contend that several of the averments made by defendants
in their brief are irrelevant and must be stricken pursuant to Civ.R. 12(F). While no
appellate rule specifically governs motions to strike, Civ.R. 12(F) permits a court to strike
"any redundant, immaterial, impertinent or scandalous matter." We agree that
defendants' statements are irrelevant to the issue to be determined and are thus subject
to a motion to strike; however, given our ultimate determination in this case, defendants'
references do not prejudice plaintiffs.
{169} For the foregoing reasons, defendants' 14 assignments of error are
overruled and the judgment of the Franklin County Court of Common Pleas is hereby
affirmed. Plaintiffs' motion to strike is overruled.
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