                NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 14a0806n.06

                                            No. 13-4345                                   FILED
                                                                                     Oct 24, 2014
                          UNITED STATES COURT OF APPEALS                        DEBORAH S. HUNT, Clerk
                               FOR THE SIXTH CIRCUIT


WILLARD C. LIGGETT; RUTH                              )
A. LIGGETT, Co-Trustees Under                         )
10/10/05 Liggett Trusts,                              )             On Appeal from the United
                                                      )             States District Court for the
       Plaintiffs-Appellants,                         )             Northern District of Ohio
                                                      )
               v.                                     )                        OPINION
                                                      )
CHESAPEAKE ENERGY CORPORATION,                        )
                                                      )
       Defendant,                                     )
                                                      )
and                                                   )
                                                      )
CHESAPEAKE EXPLORATION, LLC;                          )
CHK UTICA LLC,                                        )
                                                      )
       Defendants-Appellees.                          )



BEFORE:        BOGGS and DONALD, Circuit Judges; HOOD, District Judge.*

       HOOD, District Judge. Appellants Willard C. Liggett and Ruth A. Liggett, Co-Trustees

Under 10/10/05 Liggett Trusts (collectively, the “Liggett Trustees”), appeal the district court’s

November 5, 2013, findings of fact and conclusions of law and entry of judgment in favor of

Appellees Chesapeake Exploration, LLC and CHK Utica, LLC (collectively, “Chesapeake”).

The district court determined that the Oil and Gas Lease (“Lease”) entered into by the individual

Liggetts was valid and enforceable because the Liggetts warranted title and entered a covenant to
*
The Honorable Denise Page Hood, United States District Judge for the Eastern District of Michigan,
sitting by designation.
Case No. 13-4345
Liggett et al. v. Chesapeake Corp. et al.

defend the Lease. On appeal, the Liggett Trustees argue that the district court erred: (1) by

presuming that the individual Liggetts had agency authority without an evidentiary basis; (2) by

determining that the Liggett Trustees are bound by the Lease that the individual Liggetts signed

because the Lease was made “wholly apart from and without regard for the family trusts”; (3) by

ignoring that there was no “mutual assent or meeting of the minds,” as the individual Liggetts

genuinely believed that they owned the property at issue and were “individually leasing it . . .

without regard for the family trusts”; (4) by failing to consider rescission as a remedy for what they

deem was a mutual mistake of material fact in the formation of the Lease; (5) by wrongfully

awarding damages; and (6) by wrongfully awarding attorney fees. For the reasons stated below,

we AFFIRM the district court’s decision.

                                                  I.

       The individual Liggetts owned Blackacre, real property situated in Dennison, Tuscarawas

County, Ohio. [Opinion and Order, RE 77, Pg ID # 772] In October 2005, the individual

Liggetts conveyed the property to two (2) family trusts through a duly-executed, delivered,

transferred, and recorded general warranty deed. [Stip. of Undisputed Facts, Ex. 3, RE 71, Pg ID

## 716-61] The Liggetts are co-trustees to this trust. [RE 71, Pg ID # 772] The individual

Liggetts claim to have misunderstood that the trusts would “take over” ownership of the property

only after the Liggetts died. [Aff. of Willard C. Liggett, RE 59, Pg ID ## 616-17] The Liggetts

continued to believe that they individually owned the property until shortly before the filing of this

lawsuit. [Id.]




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Liggett et al. v. Chesapeake Corp. et al.

          On August 2, 2008, the individual Liggetts entered into a Lease with Patriot Energy

Partners LLC (“Patriot Energy”) in which the individual Liggetts gave Patriot Energy an oil and

gas interest in the subject property. [RE 71, Pg ID ## 755-58] Pursuant to the Lease, the

individual Liggetts affirmed that they had title to the property, would defend that title, and would

take reasonable actions that they deemed necessary to cure defects in the title. Patriot Energy

issued its lease payments to the Liggetts as individuals, not as trustees, and the Liggetts deposited

all payments into their individual, joint bank account.

          On August 31, 2010, two years after the original Lease was signed, the Liggetts

individually ratified the Lease and amended it to permit lessee assignment. [RE 71, Pg ID # 759]

Appellees Chesapeake Exploration, LLC and CHK Utica LLC (collectively, “Chesapeake”) are

the successor in interest to Patriot Energy and, therefore, acquired and currently hold the rights to

the Lease and its Ratification and Amendment. [Stip. of Undisputed Facts, RE 71, Pg ID #717]

          The trust agreements gave the Liggetts certain “rights, powers, duties, and immunities to

be exercised without court order or other authority upon such terms and conditions and at such

times as the [Liggetts] determine[] in [their] absolute discretion[.]” Specifically, the agreements

stated:

                        b. Sales. To sell or exchange at public or private sale, lease,
                 pledge, mortgage, donate, abandon or otherwise dispose of, deal
                 with, or encumber (for any period of time, whether or not ending
                 during the term of the Trust), any real or personal property
                 comprising part of the trust estate.

                                                 ....

                         e. Nominee. To register and hold trust property in the name
                 of the Trustee, in bearer form, or in the name of a nominee of the

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               Trustee, but the Trustee shall be liable for any wrongful act of any
               such nominee.

[RE 71, Williard C. Liggett Trust Agreement, Pg ID # 725; RE 71, Ruth A. Liggett Trust

Agreement, Pg ID # 738]

       The Lease provided that “[a]ll covenants and conditions between the parties hereto shall

extend to their heirs, personal representatives, successors and assigns, and the Lessor hereby

warrants and agrees to defend the title to the lands herein described.” [RE 71, Pg ID # 757] The

Lease further states that the “Lessor further agrees to sign such additional documents as may be

reasonably requested by Lessee to perfect Lessee’s title to the oil and gas leased herein and such

other documents related to the sale of production of hydrocarbons as may be required by Lessee or

others.” [RE 71, Pg ID # 757]

       After they claimed that the individual Liggetts did not have the authority to enter into a

lease agreement of the property, the Liggett Trustees brought an ejectment action in state court

against Chesapeake Energy Corporation. [Complaint, RE 1, Pg ID ## 10-29] The Liggett

Trustees claim that they filed the action after they realized they had “mistakenly and

unsuccessfully attempted to lease” the property to Chesapeake Energy. [Appellants Br. at 8]

The action was removed to the district court based on diversity of citizenship, and Chesapeake

Exploration and CHK Utica were substituted for Chesapeake Energy.

       Chesapeake filed an Answer, Counterclaims, and a Third-Party Complaint, adding the

Liggetts, in their individual capacities, as third-party defendants. [Answer, Counterclaims, and

Third-Party Complaint, RE 7, Pg ID ## 71-83] Chesapeake claimed that the Liggetts, both in



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Liggett et al. v. Chesapeake Corp. et al.

their individual capacities and in their capacities as co-trustees, breached their warranty of title and

accused the Liggetts of frivolous conduct in filing the suit seeking ejectment. Chesapeake sought

a declaratory judgment from the district court “that the Lease [was] valid and that Chesapeake

retain[ed] all rights therein described.” [RE 7, Pg ID # 78] In response to the counterclaim, the

Liggetts amended their Complaint to add their own “frivolous conduct” claim. [Amended

Complaint, RE 11, Pg ID ## 132-35]

        The matter proceeded in the district court. The parties then entered a joint stipulation of

facts [Stip. of Undisputed Facts, RE 71, Pg ID ## 716-61], and each party moved the court for

summary judgment. On October 11, 2013, the district court entered a Memorandum Opinion and

Order [Opinion and Order, RE 77, Pg ID ## 771-85] that granted Chesapeake’s

summary-judgment motion, dismissed the claims by the Liggett Trustees, and determined that the

Lease was “valid and enforceable, just as Mr. and Mrs. Liggett believed when and after they

signed it until they filed this action.” [Id.]

        The district court held a bench trial on October 21, 2013, to address Chesapeake’s

remaining claims. At that time, Chesapeake withdrew its “frivolous conduct” claim. The

district court found in favor of Chesapeake on its “breach of warranty of title” claim. On

November 5, 2013, it awarded Chesapeake a joint-and-several judgment against the Liggetts, as

trustees and individuals, and damages based on attorney’s fees in the amount of $70,000.

[Findings, RE 93, Pg ID ## 849-54; Judgment, RE 94, Pg ID ## 854-55] The Liggett Trustees filed

a timely appeal.




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                                                 II.

                                                 A.

       This court reviews de novo a district court’s grant of summary judgment. Blackmore v.

Kalamazoo Cnty., 390 F.3d 890, 894 (6th Cir. 2004). Summary judgment is appropriate where

there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter

of law. Fed. R. Civ. P. 56(a). A defendant bears the initial burden of showing the absence of a

genuine dispute of material fact as to at least one essential element of a plaintiff’s claim. Celotex

Corp. v. Catrett, 477 U.S. 317, 323 (1986). The plaintiff must then present sufficient evidence

from which a jury could reasonably find in plaintiff’s favor. Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 249 (1986).      The court must then consider whether, drawing all reasonable

inferences in favor of the plaintiff, defendant must prevail as a matter of law. Harrison v. Ash,

539 F.3d 510, 516 (6th Cir. 2008).

       After a bench trial, we review the district court’s factual findings for clear error and its

legal conclusions de novo. Lincoln Elec. Co. v. St. Paul Fire & Marine Ins. Co., 210 F.3d 672,

683 (6th Cir. 2000). Where there are two ways to view the evidence, a district court’s decision to

view the evidence in one way as opposed to another cannot be considered clear error on review.

Anderson v. City of Bessemer, 470 U.S. 564, 573-74 (1985). This Court reviews a district court’s

award or denial of attorney fees for abuse of discretion. Bowling v. Pfizer, Inc., 102 F.3d 777, 779

(6th Cir. 1996). “Abuse of discretion is defined as a definite and firm conviction that the trial

court committed a clear error of judgment.” Id. at 780 (quoting Logan v. Dayton Hudson Corp.,

865 F.2d 789, 790 (6th Cir. 1989)) (internal quotation marks omitted).


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                                                 B.

       The Liggett Trustees argue on appeal that the district court erred in finding that the

individual Liggetts acted within the scope of their authority for an “undisclosed principal,”

presumably the trusts. The Liggett Trustees claim that just because one has the authority and

power to act as an agent does not necessarily mean that one does so on a given occasion. The

Liggett Trustees assert that the district court presumed an agency relationship between the trusts

and the individual Liggetts without any evidentiary basis and that the burden to show an agency

relationship is on the appellees. The Liggett Trustees also argue that a principal is not bound by

the acts of his agent where the agent is acting on the agent’s behalf.

       Chesapeake argues that the district court correctly held that the individual Liggetts

executed the Lease as agents for the Liggett Trustees for an undisclosed principal, i.e., the trusts.

Chesapeake claims that both the principal and the agent are liable under the Lease and are bound to

the terms in the Lease.

       “A party who claims that a principal is responsible for the acts of an employee is obligated

to prove the agency and scope of his authority.” Brown v. Christopher Inn Co., 344 N.E.2d 140,

143 (Ohio Ct. App. 1975). The common-law rule providing that notice to the agent is notice to

the principal is well settled in Ohio. Finkle v. W. & S. Life Ins. Co., 172 N.E.2d 311, 321 (Ohio

Ct. App. 1960). A principal is chargeable with the knowledge of, or notice to, his agent that is

received by the agent in the due course of the agent’s employment and is related to the matters

within the agent’s authority. State ex rel. Nicodemus v. Indust. Comm’n, 448 N.E.2d 1360, 1362

(Ohio 1983). The exception to this rule arises “when the agent is engaged in committing an


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Case No. 13-4345
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independent fraudulent act on his own account, and the facts sought to be imputed relate to this

fraudulent act.” Am. Export & Inland Coal Corp. v. Matthew Addy Co., 147 N.E. 89, 92 (Ohio

1925) (quoting Allen v. S. Boston R.R. Co., 22 N.E. 917, 919 (Mass. 1889). “[I]t cannot be

presumed that an agent will communicate to his principal acts of fraud which he has committed on

his own account in transacting the business of his principal.” Id. (quoting Allen, 22 N.E. at 919).

“[T]he true reason for the exception is that an independent fraud committed by an agent on his own

account is beyond the scope of his employment, and therefore knowledge of it, as a matter of law,

cannot be imputed to the principal, and the principal cannot be held responsible for it.” Id. at 93

(quoting Allen, 22 N.E. at 919).

       The district court concluded that the individual Liggetts executed the Lease as agents for

the Liggett Trustees, which rendered both the undisclosed principal, the trusts, and the agents, the

individual Liggetts, jointly and severally liable to the Lease. [Findings, DE 93, Page ID # 851]

The district court incorporated its findings from its prior Memorandum Opinion and Order

granting summary judgment in Chesapeake’s favor. [Findings, DE 93, Pg ID ## 849, 851] In its

summary-judgment opinion, the district court had found that, after the individual Liggetts signed

the Lease, the trusts held the property and the mineral rights. [Opinion and Order, DE 77, Pg ID #

783] As such, the district court found that the individual Liggetts were “necessarily acting as

agents” of the trusts. [Id.] The district court noted that the trusts gave the trustees the authority

and power to hold and dispose of property of the trusts. [Id.]

       The district court did not err in presuming that the individual Liggetts were agents of the

Liggett Trustees and the undisclosed principal, the trusts. There has been no allegation by the


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principal in this case, the trusts, or the Liggett Trustees that the individual Liggetts committed

some type of fraud when they executed the Lease that would fall within an exception to the

common-law rule that holds a principal to an agent’s action and knowledge. It is nonsensical to

conclude that the individual Liggetts cannot be the agents of the Liggett Trustees, who are in fact

identified in the trust instruments as the individual Liggetts. The individual Liggetts’ claim that

they did not know or were mistaken that they did not individually own the property cannot be a

basis to void the Lease at issue. The motivation by the Liggett Trustees is evidenced in their reply

brief where they rhetorically state, “what trustee would trade pennies for his beneficiaries’

dollars?” [Reply at 8] The issue in this case does not involve whether the trustees breached their

fiduciary duties, but whether the signatures of the Liggetts as individuals bound the trusts to the

Lease.

         The Liggett Trustees argue that the court must determine the “scope” of what the agent is

employed to do, citing Damon’s Missouri, Inc. v. Davis, 590 N.E.2d 254, 257-58 (Ohio 1992).

The Davis case is distinguishable in that the agent’s “scope” of authority was at issue because the

court had to determine whether the agent was acting as an insurance “broker” or an insurance

“agent” representing a specific insurance company. Id. at 258-60. Here, there is no issue as to

the “scope” of the individual Liggetts’ authority because the Liggett Trustees had the authority to

hold and sell property of the trusts. Acting as agents for the trusts, the scope of the individual

Liggetts’ authority included entering into the Lease.

         The Liggett Trustees note in their reply brief that the trusts’ ownership was a matter of

public record when the Lease was signed, charging the lessees and others with the public-record


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knowledge, yet the individual Liggetts do not charge themselves with the same public-record

knowledge, even when the individual Liggetts themselves created and executed the trusts. [Reply

at 9] The Ohio Supreme Court reasoned in Citizens’ Savings Bank v. Blakesley: “If these trustees

succeeded in keeping themselves profoundly ignorant . . . of what was transpiring . . ., it certainly

was not the fault of [the defendant], and we know of no rule of law or fair dealing that calls upon us

to visit [the trustees’] neglect upon” an unknowing defendant. 42 Ohio St. 645, 653 (Ohio 1885).

“Those who create the trust, appoint the trustee, and clothe him with the power that enables him to

mislead, ought, if there is misleading, to suffer rather than an innocent party.” Id. at 652. The

Blakesley court imputed knowledge of officers to trustees because only the officers were

competent to act for and bind the principal. Id. at 653. In this case, the individual Liggetts

created the trusts, and they are the individuals who can act for the Liggett Trustees. The district

court did not err in concluding that the individual Liggetts were agents of the Liggett Trustees and

the trusts and that the individual Liggetts’ actions bound the trusts.

                                                 C.

       The Liggett Trustees argue that the district court ignored the fact that the individual

Liggetts genuinely believed that they owned the property and were individually leasing it without

regard for the family trusts. The Liggett Trustees claim that the district court blurred the lines

between cognizable legal entities and capacities, citing Cartwright v. Allen, No. CA2011-10-025,

2012 WL 3264268 (Ohio Ct. App. Aug. 13, 2012), and Robert’s Auto Center, Inc. v. Helmick, No.

21073, 2003 WL 294354 (Ohio Ct. App. Feb. 12, 2003). The Liggett Trustees assert that these

cases stand for the proposition that lack of mutual assent—or meeting of the minds—voids the


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Lease and therefore requires reformation or rescission of it.

       Chesapeake argues that, because the principals and agents in this case are the same people,

it would be illogical for us to hold that the Liggetts had a meeting of the minds while wearing their

individual hats but not while wearing their trustee hats.        Chesapeake also argues that the

mutual-intent arguments in Issues Three and Four are “newly coined arguments” not raised below.

       We generally do not review arguments raised for the first time on appeal. United States v.

Henry, 429 F.3d 603, 618 (6th Cir. 2005). The district court, however, addressed the Liggett

Trustees’ argument of mutual mistake in its summary judgment ruling, and found that the Liggett

Trustees had superior knowledge of the ownership of the property that they had warranted. [Pg

ID ## 782-83]

       The Cartwright case cited by the Liggett Trustees is distinguishable because the issue there

was whether a quitclaim deed could convey property where the grantor signed the deed in his

capacity as a trustee and where the grantor had revoked the trust and the trust was never funded.

Cartwright, 2012 WL 3264268 at *1. As the court noted, it is well-settled law that a “quitclaim

deed conveys to the grantee whatever the interest the grantor has in the property.” Id. at *2

(quoting Whitt v. Whitt, No. 02-CA-93, 2003 WL 21384590, at *4 (Ohio Ct. App. June 13, 2003)).

The court found that, because the grantor lacked an interest in the property to convey as a trustee,

the attempted transfer by way of a quitclaim deed was ineffective and conveyed nothing to the

appellants. Id. Here a quitclaim deed was not at issue; the issue is, rather, whether an agent

bound a principal under the terms of a contract. The court in Cartwright did not ignore the status

of the grantor as trustee because a quitclaim deed is a type of deed that conveys only the interest of


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the grantor in the property. As discussed above, the same cannot be said of whether an agent can

bind a principal under a contract.

       The Cartwright case also addressed the issue of mistake, and the court’s discussion of that

issue actually supports a finding that no mistake occurred in this case. “A person seeking

reformation of a written instrument must prove by clear and convincing evidence that the mistake

regarding the instrument was mutual.” Id. at *5. The court held that the appellants failed to

establish that the parties were mutually mistaken as to the capacity in which the grantor owned the

property. Id. Because the appellants who were seeking reformation had knowledge that the

grantor owned the property as an individual, rather than a trustee, the Cartwright court

characterized appellants’ claim that they were mistaken as to the grantor’s ownership of the

property as “disingenuous.” Id. In this case, the individual Liggetts certainly had knowledge

that the trusts owned the property; they created the trusts at issue. The Liggetts cannot succeed on

a claim of mutual mistake; as in Cartwright, their argument that they mistakenly believed that they

owned the property individually is “disingenuous.”

       In Robert’s Auto, the Court of Appeals of Ohio held that the trial court did not abuse its

discretion in finding that the lease agreement at issue was void where the appellee who signed the

lease assignment entered into the lease acting as an agent of her husband, but the appellee actually

was a co-owner of the property. 2003 WL 294354, at *3. The court held that “[s]ince both

parties agree they were under the mistaken belief that [the husband] was the sole owner of the

property,” the lease failed due to a lack of “meeting of the minds” as to ownership because the

appellee signed the lease as an agent of the husband. Id. at n.1. “[A] mutual mistake of fact calls


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into question the very existence of the contract.” Id. (alteration in original) (quoting Reitz v. West,

No. 19865, 2000 WL 1226617, at *6 (Ohio Ct. App. Aug. 30, 2000)) (internal quotation marks

omitted). In this case, as discussed above, there is no mutual mistake because the individual

Liggetts created the trusts and conveyed the property to the trusts. Because there is no mutual

mistake in this case, rescission of the Lease is not required.

                                                  D.

       The Liggett Trustees argue that the district court erred in ruling that they breached the

warranty-of-title provision under the Lease because Chesapeake was not dispossessed of the

property by operation of a superior or paramount title. Because Chesapeake enjoys possession

through a valid and enforceable Lease, the Liggetts argue that there cannot be a breach of warranty

of title. The Liggett Trustees further argue that the district court erred in awarding attorney fees

because the Lease provides for an award of attorney fees only where indemnification is required.

       Chesapeake responds that the district court did not err in finding both that the Liggetts

breached their warranty of title and also that they refused to fulfill their obligation to defend the

title when they commenced and prosecuted the instant action. Chesapeake argues that the district

court did not err in awarding attorney fees because attorney fees are a proper measure of damages

for breach of warranty of title.

       The district court concluded that the “Liggetts’ breach of their title warranty and refusal to

fulfill their obligation to defend that title, including commencing and prosecuting this action

challenging the title they warranted, constitute breaches of the title warranty made as part of the

transfer.” [Findings, DE 93, Pg ID # 852] Courts enforce title warranties and covenants to


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defend that title. Fassnacht v. Bessigner, 172 N.E. 636, 637 (Ohio Ct. App. 1930) (“The deed is

explicit in its terms, and, unless the facts are such as in law would justify a reformation thereof, the

grantors must answer in damages for the injury, if any, resulting to the grantee for the breach of its

covenants.”). The covenant of warranty obligates the grantor to defend and protect the grantee

against rightful claims of others and against defects of title, “whether [the defects] result from

mistakes of law or mistakes of fact.” Morgan v. Reese, 134 N.E.2d 581, 585 (Ohio Ct. App.

1954) (quoting 14 Am. Jur. 521, Covenants, § 51 (1936)) (internal quotation marks omitted).

       There is no dispute that the individual Liggetts agreed in ¶ 17 of the Lease that “the Lessor

hereby warrants and agrees to defend the title to the lands herein described.” [Lease, Pg ID # 757]

In ¶ 18, the individual Liggetts also agreed “to sign such additional documents as may be

reasonably requested by Lessee to perfect Lessee’s title to the oil and gas leased herein and other

documents related to the sale of production of hydrocarbons as may be required by Lessee or

others.” [Lease, DE 71, Pg ID # 757] The district court did not err when it found that the Liggett

Trustees breached the warranty provision when they failed to defend the title that the individual

Liggetts warranted under the Lease. The Liggett Trustees’ action to eject Chesapeake, arguing

that the Lease is invalid, is a breach of the individual Liggetts’ agreement in the Lease to defend

the title to the lands. As discussed above, the individual Liggetts’ promises made under the Lease

bind the Liggett Trustees and the trusts.

       The Liggett Trustees argue that breach of the warranty of title only occurs when the lessee

is dispossessed by one of superior title, citing Wetzell v. Richcreek, 40 N.E. 1004 (Ohio 1895).

This argument is misplaced in that Wetzell also ruled that there exists a claim for constructive


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breach that does not require dispossession from the property. Id. at 1006 (“Such eviction,

however, may be constructive, as well as actual[.]”). In this case, not only did the individual

Liggetts warrant title, but they also agreed to defend title. Filing a lawsuit to eject Chesapeake

and failing to defend the Lease at issue are actions contrary to the express provision of the Lease.

The district court did not err when it found that the Liggett Trustees breached the provisions of the

Lease, warranting that they had title and would defend that title.

       The district court’s award of attorney fees as an element of damages for the breach of the

Lease was not an abuse of discretion. See Carrier v. DeWalt, No. 3-87-32, 1989 WL 36608, at *2

(Ohio Ct. App. April 18, 1989) (reasoning that “recovery of attorney fees in situations where a

grantee is compelled to defend his grantor’s title” is appropriate when “recovery [is] based on a

breach of warranty of title and the grantor’s covenant to defend the title against the claims of

others”). “But for” the breach of warranty and failure to defend the title by the Liggett Trustees

and/or individual Liggetts, attorney fees incurred in defending the suit would not have been

necessary. Kovack v. Ohio Bar Title Ins. Co., No. 2300-M, 1994 WL 721931, at *7 (Ohio Ct.

App. Dec. 30, 1994); McGovern v. Landmark Title Agency, No. 10765, 1988 WL 134884, at *5

(Ohio Ct. App. Dec. 12, 1988). We accordingly hold that the district court’s award of the $70,000

stipulated as damages by the parties was not an abuse of discretion.

                                                III.

           For the foregoing reasons, we AFFIRM the judgment of the district court.




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