[Cite as Developers Diversified Realty v. Coventry Real Estate Fund II, L.L.C., 2012-Ohio-1056.]



                    Court of Appeals of Ohio
                                EIGHTH APPELLATE DISTRICT
                                   COUNTY OF CUYAHOGA



                               JOURNAL ENTRY AND OPINION
                                        No. 97231



                 DEVELOPERS DIVERSIFIED REALTY
                                                   PLAINTIFF-APPELLEE

                                                      vs.

           COVENTRY REAL ESTATE FUND II, L.L.C.,
                        ET AL.
                                                   DEFENDANTS-APPELLANTS



                                            JUDGMENT:
                                             AFFIRMED

                                      Civil Appeal from the
                               Cuyahoga County Common Pleas Court
                                      Case No. CV-710372

             BEFORE:           Blackmon, A.J., Celebrezze, J., and Rocco, J.

             RELEASED AND JOURNALIZED:                                March 15, 2012
ATTORNEYS FOR APPELLANTS

Stephen M. Bales
Nicholas C. De Santis, III
Ziegler & Metzger LLP
925 Euclid Avenue
Suite 2020
Cleveland, Ohio 44115-1441


ATTORNEYS FOR APPELLEE

Robert S. Walker
Nicholas B. Wille
Jones Day
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114-1190
PATRICIA ANN BLACKMON, A.J.:

      {¶1} Appellants Coventry Real Estate Fund II, L.L.C., Service Holdings L.L.C.,

Coventry II DDR Buena Park L.L.C., Coventry II DDR Fairplain L.L.C., Coventry II

DDR/Tucker Marley Creek Square L.L.C., Coventry II DDR/Trademark Montgomery

Farm L.P., Coventry II DDR Phoenix Spectrum SPE L.L.C., Coventry II DDR Totem

Lake L.L.C., Thor Gallery at Tri County L.L.C., Coventry DDR II Ward Parkway L.L.C.,

and DDR DB 151 Ventures, L.P. (referred to collectively as “Coventry II”) appeal from

the trial court’s granting of summary judgment in favor of Developers Diversified Realty

Corporation (“DDR”) and assign five errors for our review.1

      {¶2} Having reviewed the record and requisite law, we affirm the trial court’s

decision. The apposite facts follow.

                                         Facts

      {¶3} DDR is an Ohio corporation with its principal place of business in

Beachwood, Ohio. DDR is in the business of development, ownership, management,

leasing, and property management of open air retail shopping centers and is involved with

about 700 properties in 44 states and several countries. Coventry Real Estate Advisors,

L.L.C. (“CREA”) is a real estate investment manager with offices in New York City and

Chagrin Falls, Ohio.

      1
       See appendix.
       {¶4} DDR and CREA have participated together in two investment platforms

over the past 11 years. In each, CREA and DDR contributed capital to acquire retail real

estate properties whose value could be increased through development, redevelopment, or

resale. DDR would invest 20 percent of the capital, while CREA would find other

investors to contribute 80 percent of the remaining capital.        Because of DDR’s

experience and expertise, the deals were structured so that DDR would be retained under

the management and development contracts to supervise the development or

redevelopment of projects and manage the projects that were in operation.

       {¶5} The first of these investment platforms, Coventry Real Estate Fund I

(“Coventry I”), existed from 1998 through 2007. Eventually, the projects in Coventry I

were sold, earning a 30 percent return. In 2003, DDR and CREA desired to continue the

investment success of Coventry I through a different pool of capital (Coventry II).

Similar to Coventry I, each property acquired under the investment agreement became

an asset of a separate limited liability company whose members included DDR and

Coventry II.    Coventry II consisted of 11 limited liability companies, who are all

defendants in the case, owning 10 different properties. Like in Coventry I, under each

project management agreement, DDR was the exclusive property manager and leasing

agent for the properties.

       {¶6}    Each management agreement for the properties contained identical

termination provisions allowing for termination of DDR either “without cause” or “for

cause.” If Coventry II terminated DDR’s services without cause, there was a formula for
the amount of additional unearned fees that DDR would receive upon termination, and a

buy-sell provision was triggered, which gave DDR the right to either buy or sell to

Coventry II the property in question. If DDR was terminated for cause, defined as

willful misconduct, fraud, or gross negligence by a DDR executive officer, DDR was not

entitled to the unearned fees and the buy-sell provision would not be triggered.

       {¶7} On November 4, 2009, Coventry II, without any notice to DDR, issued a

press release asserting that DDR had engaged in a long pattern of willful and fraudulent

behavior designed to intentionally destroy the value of the parties’ various joint ventures

and announced it was terminating the management agreements with DDR “for cause.”

Thereafter, on November 5, 2009, Coventry II filed a breach of contract suit against DDR

in New York.2

       {¶8} On November 6, 2009, DDR received a single-page letter from Coventry II

stating it was terminating the management agreement with DDR “for cause,” effective

December 5, 2009. The letter did not explain what constituted the grounds for the “for

cause” termination but alluded to the allegations in its complaint filed in New York.

       {¶9} On November 18, 2009, DDR filed a complaint for declaratory judgment in

the Cuyahoga County Court of Common Pleas, seeking to have the court declare

Coventry II’s termination for cause invalid because there was no evidence that DDR

engaged in fraud or willful misconduct. DDR also requested a temporary restraining



       Coventry Real Estate Advisors, LLC v. Developers Diversified Realty Corp.,
       2

N.Y. S.Ct. No. 1155909.
order (“TRO”) and a preliminary injunction, requesting the court allow DDR to remain

the property manager while the litigation was pending so that the status quo could be

maintained, especially during the busy holiday shopping season, and to prevent further

harm to its reputation. The trial court conducted a TRO hearing and granted the TRO,

stating in pertinent part:

       DDR is likely to succeed on the merits, that immediate and irreparable
       injury, loss, or damage will result to DDR in the absence of restraint,
       that DDR has no adequate remedy at law, that the balance of equities
       favors injunctive relief in favor of DDR, and that the public interest
       will not be harmed by injunctive relief in favor of DDR.

       {¶10} Coventry II, thereafter, stipulated to the restraining order continuing to be

enforced until the litigation concluded.

       {¶11}     DDR filed a motion for summary judgment regarding its declaratory

judgment.      DDR argued that Coventry II’s sole justification for the “for cause”

termination was its speculation that DDR’s senior management, Executive Chairman

Scott Wolstein and Chief Executive Officer and President Daniel Hurwitz, were

purposely undermining the success of Coventry II. DDR argued that there was no

evidence, beyond speculation, of such a scheme and that Coventry II was not successful

because of the severe economic problems experienced by the entire country. DDR

further argued that it was illogical to argue that DDR wanted the venture to fail when

DDR, itself, was a 20 percent owner of the properties.

       {¶12}     In its brief in opposition, Coventry II argued an injunction should not be

ordered even if DDR was not terminated for cause. It also set forth a new justification
for its “for cause” termination. Coventry II argued that DDR fraudulently concealed its

relationship with Oxford Building Services (“Oxford”). Oxford is a vendor DDR uses to

help manage all of its properties, not just the properties it owns with Coventry II. Oxford

in turn uses a nationwide computer system and DDR’s buying power due to its ownership

of over 700 properties to bid the contracts out to individual vendors for the most cost

effective price. Oxford charges the vendors a 3 percent surcharge fee of which DDR

receives 75 percent.

        {¶13}   Coventry II claimed that DDR’s nondisclosure of its relationship with

Oxford was fraudulent. It also argued, without supporting evidence, that the 3 percent

fee that Oxford charged its vendors increased Coventry II’s maintenance costs. Coventry

II also argued that DDR’s receipt of 75 percent of the 3 percent fees resulted in fraudulent

kick-backs to DDR.

        {¶14}    After conducting a summary judgment hearing, the trial court, in a

15-page opinion, granted summary judgment as a matter of law in favor of DDR,

concluding there was no evidence of fraud or willful misconduct that would support a

termination “for cause.”    The court concluded that the conduct complained of was

governed by the management contract; thus, any alleged wrongdoing by DDR would

constitute a breach of contract and not fraudulent or willful misconduct. The trial court

also denied Coventry II’s motion to stay or dismiss the case in favor of the New York

case.

                                  Summary Judgment
         {¶15}    In its first, second, and third assigned errors, Coventry II argues the trial

court erred by granting summary judgment in favor of DDR.

         {¶16} We review an appeal from summary judgment under a de novo standard of

review. Baiko v. Mays, 140 Ohio App.3d 1, 746 N.E.2d 618 (8th Dist.2000), citing

Smiddy v. The Wedding Party, Inc., 30 Ohio St.3d 35, 506 N.E.2d 212 (1987); N.E. Ohio

Apt. Assn. v. Cuyahoga Cty. Bd. of Commrs., 121 Ohio App.3d 188, 699 N.E.2d 534 (8th

Dist.1997).      Accordingly, we afford no deference to the trial court’s decision and

independently review the record to determine whether summary judgment is appropriate.

Under Civ.R. 56, summary judgment is appropriate when: (1) no genuine issue as to any

material fact exists, (2) the party moving for summary judgment is entitled to judgment as

a matter of law, and (3) viewing the evidence most strongly in favor of the non-moving

party, reasonable minds can reach only one conclusion that is adverse to the non-moving

party.

         {¶17}     In the instant case, the trial court concluded summary judgment was

appropriate as a matter of law because the evidence did not show that DDR’s conduct

constituted fraud or willful misconduct. The court concluded that DDR’s conduct, if

indeed wrong, constituted a breach of the contract, which is not one of the listed bases in

the agreement for termination for cause. In so holding, the trial court cited to Textron

Fin. Corp. v. Nationwide Mut. Ins. Co., 115 Ohio App.3d 137, 684 N.E.2d 1261 (9th

Dist.1996), which held that a breach of a contract could not constitute fraud.
       {¶18}      Coventry II maintains Textron is distinguishable because it is not

attempting to bring a fraud claim as the plaintiff in Textron was. Instead, Coventry II is

contending DDR’s fraudulent conduct constituted grounds for terminating the contract for

cause pursuant to the management agreement. We conclude this is a distinguishment

without a difference. By citing Textron, the court was acknowledging that when a

relationship is contractual and one party fails to perform to the other’s expectations, the

result is a breach of contract; thereby making it difficult, if not impossible, to support an

allegation of fraud.

       {¶19} Although Coventry II on appeal defines fraud and willful misconduct as set

forth in Black’s Law Dictionary, at the summary judgment hearing, Coventry II stipulated

that because the terms were not defined in the agreement that the parties intended to use

the legal meaning of the terms. Thus, the parties agreed that a “for cause” termination

must be founded on conduct that satisfies the legal requirements of an action for fraud or

willful misconduct.

       {¶20}    To prove DDR’s conduct constituted fraud, Coventry II had to show (a) a

representation or, where there is a duty to disclose, concealment of a fact, (b) which is

material to the transaction at hand, (c) made falsely, with knowledge of its falsity, or with

such utter disregard and recklessness as to whether it was true or false that knowledge

may be inferred, (d) with the intent of misleading another into relying upon it, (e)

justifiable reliance upon the representation or concealment, and (f) a resulting injury
proximately caused by the reliance. Gaines v. Preterm–Cleveland, Inc., 33 Ohio St.3d 54,

55, 514 N.E.2d 709 (1987).

      {¶21} To prove “willful misconduct,” it is necessary to show “an intentional

deviation from a clear duty or from a definite rule of conduct, a deliberate purpose not to

discharge some duty necessary to safety, or purposely doing some wrongful acts with

knowledge or appreciation of the likelihood of injury.” Brenner v. Cuyahoga Cty. Dept.

of Children & Family Servs., 8th Dist. No. 91712, 2009-Ohio-1253, 2009 WL 713014, ¶

24.

      {¶22} Coventry II contends DDR committed fraud by entering into an agreement

with Oxford to perform the duties DDR was obligated to provide under the contract. We

agree with the trial court that DDR had no duty to disclose its agreement with Oxford.

The management agreement explicitly gives DDR the ability to delegate management

duties as it deems necessary.     According to the agreement, DDR has the “sole and

exclusive authority to take such actions, and perform such duties as [DDR] deems

necessary and desirable for the care, protection, operation, maintenance, repair,

replacement, and leasing of the Properties.” Management Agreement, Art. II. DDR

may also “enter into such contracts and other agreements for utilities and other services

either required or deemed as desirable by the Property Manager in connection with the

operation of the Properties.” Management Agreement, Section 2.8. The only limitation

to DDR’s power to enter into contracts is that Section 2.8 requires that DDR “respect its
fiduciary duty” owed to Coventry II. Thus, any breach of that duty would constitute a

breach of the contract, not an intentional tort.

       {¶23}     Interestingly, the New York court dismissed Coventry II’s breach of

fiduciary duty claim against DDR, which was based on DDR’s relationship with Oxford.

In refusing to reconsider its dismissal of the claim, the New York court held:

       Although the Management Agreement § 2.8 requires DDR to “respect

       its fiduciary duty” to the Property Owner REIT in the execution of

       contracts for services and supplies, DDR’s failure to do so with respect

       to the contract with Oxford would result in a breach of contract claim,

       not a tort claim for breach of fiduciary duty. New York Journal Entry,

       Dec. 8, 2010.

       {¶24} Coventry II also claimed that DDR acted fraudulently by concealing the

details of its contract with Oxford.         However, as the trial court concluded, the

Management Agreement does not require disclosure of the contracts DDR enters into on

behalf of the property. Any disclosure requirements would be contained in Section 2.5

of the Management Agreement, which basically requires DDR to maintain records of

income and expenses and give Coventry II this information monthly, along with tax

information Coventry II may need. If DDR had a duty pursuant to Section 2.5 to disclose

the details of the Oxford contract, such conduct would amount to a breach of contract, not

tortious conduct.
       {¶25} Coventry II also claimed that DDR committed fraud by leading Coventry II

to believe that the costs of the Oxford program were borne solely by DDR. The evidence

indicated that Oxford charged vendors a 3 percent fee and that DDR was given 75 percent

of these fees. However, there is no evidence that the 3 percent fee resulted in an added

expense to Coventry II or that Coventry II did not receive value by achieving a cost

savings.   Coventry II attached the affidavit of Loren F. Henry, the vice president of

CREA, in which he stated that DDR’s relationship was fraudulent and created additional

costs to Coventry II.     However, as the trial court concluded, Henry’s allegations

constituted breach of contract claims.   As the trial court found:

       There is no record evidence to support an inference that DDR’s

       contract with Oxford amounts to stealing from Coventry. First, DDR

       has entered into the contract with Oxford for all its properties, not just

       those that are co-owned with Coventry. That fact does not allow a

       reasonable inference that the Oxford vendor management program

       amounts to stealing from the property owner, since it would never be

       reasonable to infer that DDR would steal from itself on properties it

       owns. Second, there is no evidence that Coventry did not approve

       budgets for 2008 and 2009, the first two years of the Oxford program.

       Since the disputed 3% surcharge was ultimately included in those

       budgets, Coventry’s approval suggests either that even with the 3%

       surcharge the budgets were reasonable and acceptable to Coventry, or
       that the program achieved the cost savings it was designed for.

       Finally, Coventry has produced no evidence that the 3% charge

       actually increased its property management expense by that amount or

       that it didn’t generate value to the properties that was worth the

       expense.    Indeed, the stated goals fo the Oxford program are “to

       recognize the value of critical mass and purchasing power” of DDR’s

       portfolio to allow “cost savings” —        i.e., to get better deals from

       contractors — and to “enable our property managers to spend more of

       their valuable time” servicing tenants. Judgment Entry, Aug. 2, 2011 at

       11.

       {¶26}      Although Henry claimed the contract with Oxford resulted in more

expenses, Coventry II failed to present evidence of budgets and expenses of prior years to

compare with the current expenses. Instead, Henry alluded to records of Coventry II’s

that were not part of the record.

       {¶27} In addition to the lack of evidence that the Oxford contract or 3 percent

surcharge constitutes stealing, any failure by DDR to give Coventry II part of the rebate

would constitute a breach of contract. Section 2.8 of the Management Agreement states

in pertinent part that DDR “shall attempt to secure for, and credit to, [Coventry II] any

discounts, commissions or rebates obtainable as a result of such contracts or orders.”

Thus, DDR’s failure to give Coventry II a portion of the rebates would constitute a breach

of contract.
      {¶28}     Finally, Coventry II contended that DDR purposefully did not lease

various properties in an effort to sabotage Coventry II’s efforts to be successful.

However, the only evidence of this that Coventry II provides is the statement of Peter

Henkel, the president and chief executive officer of Service Holdings, LLC, in which he

compared the success of the first Coventry venture compared to the poor performance of

the second venture. His comparison did not take into account the fall-out of the real

estate market that occurred during the second venture, which created a difficult market to

obtain retail tenants. Moreover, there was no evidence that the DDR senior executive

officers intended to make the venture unsuccessful. Henkel merely speculates that “this

was a plan carried out under the direction” of the senior management team. In addition,

it is illogical to argue DDR wanted the venture to fail when it was 20 percent invested in

the venture.   Accordingly, Coventry II’s first, second, and third assigned errors are

overruled.

                  Trial Court’s Failure to Stay or Dismiss the Case

      {¶29} In its fourth assigned error, Coventry II argues the trial court erred by

refusing to stay or dismiss the Ohio case. Specifically, Coventry II argues that because

New York acquired jurisdiction first, the Ohio case should have been stayed or dismissed.

      {¶30}    The rule of jurisdictional priority applies only to “actions pending in

different Ohio courts that have concurrent jurisdiction.” Nationwide Mut. Fire Ins. Co.

v. Modroo, 11th Dist. No. 2004-G-2557, 2004-Ohio-4697, 2004 WL 1960087, ¶ 12,

citing Hoppel v. Greater Iowa Corp., 68 Ohio App.2d 209, 210, 428 N.E.2d 459 (9th
Dist.1980). “[I]t does not apply when an action is pending in another state as in this

case.” Nationwide at ¶ 12. See also Carlin v. Mambuca, 96 Ohio App.3d 500, 645

N.E.2d 737 (8th Dist.1994).

       {¶31} In Hoppel, the court stated that “[t]he fact that an action is pending in

another state does not constitute a defense to an action between the same parties over the

same cause of action in Ohio.” Hoppel, 68 Ohio App.2d at 210; see also Long v. Grill,

155 Ohio App.3d 135, 2003-Ohio-5665, 799 N.E.2d 642, at ¶ 27 (10th Dist.) (holding

that “the pendency of the action in California, involving the same subject matter and the

same parties, does not preclude the Ohio trial court’s exercise of jurisdiction to adjudicate

plaintiff’s complaint”). An Ohio trial court in such a situation retains jurisdiction over

the matter and has several options: it can grant a stay in the Ohio proceedings pending the

resolution of the earlier action outside of Ohio, or it can go forward with the action in

Ohio. Hoppel, 68 Ohio App.2d at 210, 428 N.E.2d 459. The Ohio Supreme Court has

also held the court can dismiss the action pursuant to         the doctrine of forum non

conveniens. Chambers v. Merrell-Dow Pharmaceuticals, Inc., 35 Ohio St.3d 123, 519

N.E.2d 370 (1988). The Chambers court stated that the doctrine “allows a court having

proper jurisdiction to dismiss an action when to do so would further the ends of justice

and promote the convenience of the parties * * *.” Id. at 125. Furthermore, Chambers

held that the ability of a court to dismiss an action under forum non conveniens is an

inherent power of the court and within its sound discretion. Id.
      {¶32} We conclude the trial court did not abuse its discretion by refusing to stay

or dismiss the case. The Ohio case was filed within weeks of the New York case.

Therefore, not much discovery had occurred in the New York case. The New York court

also stayed the issues before it that may have been impacted by the Ohio court’s decision.



      {¶33} Also, the New York court seemed to agree that there was not a danger of

inconsistent verdicts. DDR filed a motion in the New York court to dismiss Coventry’s

complaint because of a potential conflict with the Ohio case. However, the New York

court concluded:

      In this action, there in no danger of inconsistent verdicts. The only
      issue in the first Ohio case3 is whether Coventry properly terminated
      DDR’s Management Agreements for cause. Termination for cause
      relates to the fourth cause of action for breach of the Management
      Agreements and the sixth cause of action for fraud, as fraud is a
      ground for termination for cause. The court has contacted the Staff
      Attorney for the Ohio Court of Common Pleas for Cuyahoga County
      and has been advised that the pretrial conference is scheduled for
      August 31, 20[10] and the trial is scheduled for September 27, 20[10].
      As discovery has hardly begun in this action, this court can refrain
      from making decisions on those two causes of action until after the
      Ohio trial is concluded. The second Ohio action has been stayed in
      favor of this one, which eliminates the possibility of inconsistent
      verdicts. New York Journal Entry, June 23, 2010.

      {¶34} The parties also agreed in the management agreements that an Ohio court

would hear and decide all disputes regarding the agreement. See Info. Leasing Corp. v.


      3
        DDR also filed a complaint for payment of management fees, which the trial
court stayed in favor of the New York litigation. Thus, there is a second case in the
Cuyahoga County Court of Common Pleas.
Jaskot, 151 Ohio App.3d, 549, 2003-Ohio-566, 784 N.E.2d 1192 (1st Dist.) (holding that

trial court abused its discretion in dismissing the complaint on forum non conveniens

grounds where contract at issue contained an Ohio Forum selection clause).

Accordingly, we conclude the trial court did not abuse its discretion by denying Coventry

II’s motion to stay or dismiss the case. Coventry II’s fourth assigned error is overruled.

                              Temporary Restraining Order

        {¶35}   In its fifth assigned error, Coventry II argues the trial court erred by

granting DDR’s motion for a TRO.

        {¶36}    “A temporary restraining order makes no final adjudication for any issue.

Such orders merely prevent designated parties from exercising their claimed rights

pending a determination of the merits.”      Gessler v. Madigan, 41 Ohio App.2d 76, 322

N.E.2d 127 (3d Dist.1974). Such is the case here. The order purported to maintain the

status quo until the litigation concluded.      Moreover, once the trial court issued its

judgment on the complaint for declaratory judgment, the restraining order was rendered

moot.    Black v. Hall, 8th Dist. No. 94113, 2010-Ohio-4677, 2010 WL 3814586.

Accordingly, Coventry II’s fifth assigned error is overruled.

        {¶37}   Judgment affirmed.

        It is ordered that appellee recover from appellants costs herein taxed.

        The court finds there were reasonable grounds for this appeal.

        It is ordered that a special mandate be sent to said court to carry this judgment into

execution.
      A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of

the Rules of Appellate Procedure.




PATRICIA ANN BLACKMON, ADMINISTRATIVE JUDGE

FRANK D. CELEBREZZE, JR., J., and
KENNETH A. ROCCO, J., CONCUR
                                APPENDIX

Assignments of Error

      I. The trial court erred by granting plaintiff-appellee’s motion for
      summary judgment as: (a) genuine issues of material fact existed
      warranting a trial of the matter; and (b) plaintiff-appellee was not
      entitled to judgment as a matter of law.

      II. The trial court misconstrued the management and leasing
      agreements as a matter of law.

      III. The trial court erred as a matter of law by determining that
      defendant-appellant’s termination “for cause” of plaintiff-appellee
      under the management and leasing agreements was invalid.

      IV. The trial court erred by denying defendants-appellants’ motion to
      dismiss or alternatively motion to stay proceedings.

      V. The trial court erred by granting plaintiff-appellee’s motion for
      temporary restraining order.
