Court Opinion

ID: 4247480
Source: CourtListenerOpinion
Date Created: 2018-02-22 20:26:44.522166+00
Date Added: 2024-06-11T07:48:09.169741
License: Public Domain

[Cite as Ross Sinclaire & Assoc., L.L.C. v. Huntington Natl. Bank, 2018-Ohio-661.]

                             IN THE COURT OF APPEALS OF OHIO

                                   TENTH APPELLATE DISTRICT

Ross Sinclaire and Associates, LLC,                    :

                 Plaintiff-Appellant,                  :
                                                                          No. 17AP-355
v.                                                     :               (C.P.C. No. 15CV-2374)

The Huntington National Bank,                          :           (REGULAR CALENDAR)

                 Defendant-Appellee.                   :

                                         D E C I S I O N

                                   Rendered on February 22, 2018

                 On brief: Flagel & Papakirk, LLC, James Papakirk, and
                 Hallie S. Borellis, for appellant. Argued: Hallie S. Borellis.

                 On brief: Porter, Wright, Morris & Arthur LLP,
                 Kathleen M. Trafford, Robert W. Trafford, and Jay A.
                 Yurkiw, for appellee. Argued: Kathleen M. Trafford.

                  APPEAL from the Franklin County Court of Common Pleas
SADLER, J.
        {¶ 1} Plaintiff-appellant, Ross Sinclaire and Associates, LLC ("RSA"), appeals
from a judgment of the Franklin County Court of Common Pleas in favor of defendant-
appellee, The Huntington National Bank ("HNB"). For the reasons that follow, we affirm.
I. FACTS AND PROCEDURAL HISTORY
        {¶ 2} RSA is a full-service investment banking, securities brokerage, and asset
management firm with a principal office in Cincinnati, Ohio. HNB is a national banking
association with its principal place of business located in Columbus, Ohio. The events
that have resulted in this appeal began in 1998 when Montgomery County issued
approximately $5.8 million in Multifamily Housing Mortgage Revenue Bonds.                       The
No. 17AP-355                                                                            2

county allocated the proceeds from the sale of the bonds to a nonprofit corporation known
as the Trinity Foundation, Inc. ("Trinity") to finance the redevelopment of the Squirrel
Run Apartments ("Squirrel Run") in Trotwood, Ohio for low-income families.             In
conjunction with the receipt of the bond revenue, Trinity executed and delivered to HNB,
as indenture trustee, a promissory note for each series of the bonds, secured by an Open-
End First Mortgage, Assignment of Lease and Rents, and Security Agreement. (Ex. 3
attached to Joint Stipulation of Facts and Exs. (hereinafter "Joint Ex.").) The promissory
notes obligated Trinity to fund the principal and interest payments due under the bonds
out of the rental income derived from Squirrel Run. The existing 160-unit Squirrel Run
apartment complex provided the collateral for the loan to Trinity. In 1998, the Squirrel
Run property appraised at $5.5 million using an income approach.
       {¶ 3} On November 8, 2001, HNB's trust administrator and senior vice president,
Candada Moore ("Trustee Moore"), issued the first Notice to Holders of an Event of
Default. The notice provides, in relevant part, as follows:
               As of the date of this notice, the Debt Service Reserve Fund
               * * * was used to make up the deficiencies in the payments for
               debt service due November 1, 2001 * * * and all holders of the
               Series A and Series B have been paid in full for such debt
               service that was due. To date, the Trinity Foundation, Inc. has
               not replenished the Debt Service Reserve Fund. Series C has
               not been paid for debt service due November 1, 2001.

(Joint Ex. 4 at 1.)
       {¶ 4} Trustee Moore subsequently issued a similarly worded Notice to Holders of
Continuing Events of Default on May 8, 2002, January 8, July 1, and November 20, 2003.
Trustee Moore enclosed with the November 20, 2003 notice audited financial reports
received on January 5, 2003. On December 10, 2003, Trinity and Montgomery County
executed an agreement whereby Trinity agreed to make installment payments for
delinquent property taxes.
       {¶ 5} On February 26, 2004, Trustee Moore notified bondholders as follows:
               We are writing to you in our capacity as Trustee * * * to advise
               you that Trinity * * * as owner of the Project property which
               serves as collateral for and secures the Bonds, and as the
               obligor under the Loan Agreement which provides the
               revenues to pay the Bonds, has contacted Reilly Mortgage
No. 17AP-355                                                                              3

               Group, Inc. ("Reilly") to apply for FHA mortgage insurance
               and to place a mortgage loan to retire the Bonds. * * * In order
               to proceed, Reilly requires an up front payment of $23,000 to
               pay for initial fees and expenses [and] has requested your
               consent to use $23,000 from the Debt Service Reserve Fund
               which secures the Bonds, to pay Reilly.

(Joint Ex. 10 at 1.) The notice also advised bondholders that Trinity remained delinquent
in its real property taxes and acknowledged that "ongoing routine repair and maintenance
items, such as fixing storm drains and downspouts and replacing carpet, have regularly
fallen behind as occupancy and revenues have not kept pace. There are frequent roof
repair needs, patio dividers and balcony floors and railings have deteriorated wood and
fogged up patio doors have been an ongoing problem." (Joint Ex. 10 at 2.)
       {¶ 6} On May 18, 2004, Trustee Moore issued another Notice to Holders of
Continuing Events of Default. On May 19, Reilly had the Squirrel Run property appraised
in furtherance of its efforts to secure FHA refinancing. The appraiser estimated the fair
market value of the property, using a cost-basis approach, between $3.3 and $3.5 million.
       {¶ 7} On November 5, 2004, November 8, 2005, and May 5, 2006, Trustee
Moore issued a Notice to Holders of Continuing Events of Default and Partial Interest
payment. The November 5, 2004 notice informed bondholders that Reilly was unable to
secure refinancing because "it has not been able to obtain FHA mortgage insurance due to
receipt of an appraisal that was lower than needed for a full refinancing." (Joint Ex. 13 at
2.) The notice indicated "[o]ther refinancing alternatives are being explored." (Joint Ex.
13 at 2.)
       {¶ 8} In February     2006, RSA made its first purchase of the bonds at issue, by
and through RSA employee Philip Lucas. Lucas knew the loan to Trinity was in default
status when he made the purchase. Lucas and RSA also had access to all prior notices of
default, but Lucas did not recall reviewing any of the notices to bondholders issued prior
to the time he purchased the bonds in 2006. In his deposition, Lucas maintained he was
not concerned the loan was in default status because he believed the collateral securing
the loan and the bonds had value. Lucas testified that over several years he engaged in
some direct communications with Trustee Moore regarding the status of the project and
No. 17AP-355                                                                              4

the value of the collateral. The parties disagree as to the precise nature and import of
RSA's communications with Trustee Moore.
       {¶ 9} RSA did receive some scheduled interest payments associated with the
Squirrel Run bonds purchased in 2006, but RSA received no such payments after
December 2006. Trustee Moore subsequently issued a Notice to Holders of Continuing
Events of Default on December 17, 2006, May 8, and November 8, 2007. A Squirrel Run
"Balance Sheet" provided to all bondholders as an attachment to the December 27, 2006
notice shows "Total Assets" of $4,559,229.84 and "Total Liabilities" of $5,909,991.73 as of
December 31, 2005. (Joint Ex. 16.)
       {¶ 10} In February 2007, RSA records show it made a profit of $4,487.55 when
Lucas sold some of the Squirrel Run bonds it had purchased in 2006. Lucas shared in
these profits pursuant to a profit-sharing agreement with RSA. The record also shows on
January 1, 2009, RSA held Squirrel Run bonds purchased by Lucas with a total face value
of $250,000. From January 1 to March 24, 2009, Lucas purchased additional Squirrel
Run bonds on behalf of RSA with a total face value of $530,000, for which it paid
$58,415, approximately 11 cents on the dollar.
       {¶ 11} On April 2, 2009, HNB, "as Trustee for the Multifamily Housing Mortgage
Revenue Bonds," filed a "Complaint on Notes, Foreclosure, Sale of Collateral, Specific
Performance of Assignment of Rents, Appointment of a Receiver, and for an Accounting
and Inspection" against Trinity and several other defendants in the Montgomery County
Court of Common Pleas. (Joint Ex. 19 at 1, 2.) On April 10, 2009, Trustee Moore issued a
Notice of Default and Acceleration notifying bondholders of the action.
       {¶ 12} RSA continued to buy Squirrel Run bonds after HNB filed the foreclosure
action. RSA bought Squirrel Run bonds with a total face value of $755,000 for $80,865,
or 9.3 cents on the dollar. The post-foreclosure purchases increased the total face value of
RSA's holdings in Squirrel Run bonds to $1,535,000 for which it paid a total of $217,055,
roughly 14 cents on the dollar on average.
       {¶ 13} On August 31, 2009, HNB moved the Montgomery County Court of
Common Pleas to appoint a receiver. On that same date, the Montgomery County Court
of Common Pleas appointed a receiver to "take charge of, preserve, [and] manage"
Squirrel Run. (Joint Ex. 21 at 1.) On November 15, 2010, Trustee Moore issued a Notice
No. 17AP-355                                                                            5

of Default and Receiver Sale.    On August 8, 2011, Trustee Moore issued an Urgent
Request for Immediate Direction to all bondholders, which requested bondholder
approval of a proposed sale of the Squirrel Run property for $2.45 million, conditioned on
the buyer obtaining tax credit financing to rehabilitate the property. The request also
indicates "[t]o date the receiver has received a number of offers in the $1,600,000 range
and attempted to negotiate them higher." (Joint Ex. 23 at 1.)
      {¶ 14} On August 29, 2012, Squirrel Run sold for $1.6 million. After deducting
outstanding expenses, taxes, and fees from the sale proceeds, RSA received a distribution
out of the net proceeds of $164,043.05. HNB received a total of $134,462 for its services
as indenture trustee from November 1998 through December 2012.
      {¶ 15} On July 31, 2013, RSA filed a complaint against HNB in the Montgomery
County Court of Common Pleas alleging breach of contract and breach of fiduciary duty.
That complaint was dismissed without prejudice, and on September 24, 2014, RSA refiled
the complaint against HNB in the Hamilton County Court of Common Pleas.               On
February 18, 2015, the Hamilton County Court of Common Pleas transferred venue of the
case to Franklin County. On April 25, 2015, RSA moved the trial court to amend the
complaint to add claims for negligence and breach of trust. The trial court granted the
motion on May 19, 2015.
      {¶ 16} On May 29, 2015, HNB moved the trial court to dismiss the complaint
pursuant to Civ.R. 12(B)(6). The trial court dismissed RSA's claims for common-law
negligence and breach of contract on November 20, 2015 for failure to state a claim on
which relief may be granted. On August 19, 2016, HNB filed a motion for summary
judgment as to the remaining claims for breach of fiduciary duty and breach of trust.
HNB argued the four-year statute of limitations barred RSA's claims because as early as
2007, RSA knew or should have known of the alleged breach of trust. RSA argued its
claims for breach of trust and breach of fiduciary duty did not accrue until 2012 when it
received the distribution of proceeds from the sale of Squirrel Run.         RSA argues,
alternatively, there are genuine issues of fact as to what RSA knew and when, precluding
summary judgment.
      {¶ 17} The trial court found the only reasonable conclusion to be drawn from the
evidence is that RSA's claims for breach of fiduciary duty and breach of trust accrued at
No. 17AP-355                                                                                6

the latest in April 2009 when HNB filed the complaint in foreclosure and notified
bondholders of the action. Accordingly, the trial court held the four-year statute of
limitations barred RSA's claims against HNB because they did not file the complaint in
Montgomery County until July 31, 2013. The trial court journalized a final judgment
entry in favor of HNB on April 17, 2017.
       {¶ 18} RSA timely appealed to this court from the judgment of the trial court.
II. ASSIGNMENT OF ERROR
       {¶ 19} RSA sets forth the following assignment of error:
               The trial court erred in granting summary judgment to
               Huntington National Bank [] on Ross Sinclaire and
               Associates, LLC's [] claims for breach of fiduciary duty and
               breach of trust when substantial questions of material fact
               exist and HNB is not entitled to judgment as a matter of law.

III. STANDARD OF REVIEW
       {¶ 20} Pursuant to Civ.R. 56(C), summary judgment "shall be rendered forthwith if
the pleadings, depositions, answers to interrogatories, written admissions, affidavits,
transcripts of evidence, and written stipulations of fact, if any, timely filed in the action,
show that there is no genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law." "Accordingly, summary judgment is appropriate
only under the following circumstances: (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 most strongly in favor of the nonmoving party, reasonable minds
can come to but one conclusion, that conclusion being adverse to the nonmoving party."
Slane v. Hilliard, 10th Dist. No. 15AP-493, 2016-Ohio-306, ¶ 12, citing Byrd v. Arbors E.
Subacute & Rehab. Ctr., 10th Dist. No. 14AP-232, 2014-Ohio-3935, ¶ 6, citing Harless v.
Willis Day Warehousing Co, 54 Ohio St. 2d 64, 66 (1978).
       {¶ 21} " '[T]he moving party bears the initial responsibility of informing the trial
court of the basis for the motion, and identifying those portions of the record before the
trial court which demonstrate the absence of a genuine issue of fact on a material element
of the nonmoving party's claim.' " Byrd at ¶ 7, quoting Dresher v. Burt, 75 Ohio St. 3d
280, 292 (1996). Once the moving party meets its initial burden, the nonmovant must set
forth specific facts demonstrating a genuine issue for trial. Byrd at ¶ 7, citing Dresher at
No. 17AP-355                                                                              7

293. Because summary judgment is a procedural device to terminate litigation, courts
should award it cautiously after resolving all doubts in favor of the nonmoving party.
Byrd at ¶ 7, citing Murphy v. Reynoldsburg, 65 Ohio St. 3d 356, 358-59 (1992).
       {¶ 22} Appellate review of summary judgment is de novo. Byrd at ¶ 5. When an
appellate court reviews a trial court's disposition of a summary judgment motion, it
applies the same standard as the trial court and conducts an independent review, without
deference to the trial court's determination. Id., citing Maust v. Bank One Columbus,
N.A, 83 Ohio App. 3d 103, 107 (10th Dist.1992); Brown v. Cty. Commrs., 87 Ohio App. 3d
704, 711 (4th Dist.1993).
IV. LEGAL ANALYSIS
       {¶ 23} In appellant's sole assignment of error, appellant contends the trial court
erred when it granted summary judgment in favor of HNB as to the claims for breach of
fiduciary duty and breach of trust because there are genuine issues of fact whether the
statute of limitations barred appellant's claims. We disagree.
       {¶ 24} One asserting a claim of breach of fiduciary duty must establish the
existence of a fiduciary duty, breach of that duty, and injury proximately caused by the
breach. Newcomer v. Natl. City Bank, 6th Dist. No. WM-12-007, 2014-Ohio-3619, ¶ 9,
appeal dismissed, 141 Ohio St. 3d 1429, 2015-Ohio-12, citing Strock v. Pressnell, 38 Ohio
St.3d 207, 216 (1988); Sudnick v. Klein, 11th Dist. No. 2001-G-2356, 2002-Ohio-7341, ¶
25. Appellant's complaint alleges claims for breach of fiduciary duty under the common
law and for breach of trust as defined in R.C. 5810.01 et seq. R.C. 2305.09(D) provides a
four-year limitations period for a cause of action seeking recovery for "an injury to the
rights of the plaintiff not arising on contract nor enumerated in sections 1304.35, 2305.10
to 2305.12, and 2305.14 of the Revised Code." This court has determined the four-year
limitations period in R.C. 2305.09(D) applies to a common-law claim for breach of
fiduciary duty. Clemens v. Nelson Fin. Group, Inc., 10th Dist. No. 14AP-537, 2015-Ohio-
1232, ¶ 46, citing Wells v. C.J. Mahan Constr. Co., 10th Dist. No. 05AP-180, 2006-Ohio-
1831, ¶ 26.
       {¶ 25} Under the common law, a cause of action for breach of fiduciary duty which
could be brought prior to the termination of a trust is barred by the statute of limitations
if not timely filed. Cundall v. U.S. Bank, 122 Ohio St. 3d 188, 2009-Ohio-2523, ¶ 29,
No. 17AP-355                                                                                              8

citing Paschall v. Hinderer, 28 Ohio St. 568, 576 (1876). When, however, a trustee's
misconduct is surreptitious or obscured and remains so until the trustee's death or
removal, a cause of action by trust beneficiaries against a trustee accrues and the statute
of limitations begins to run when the fiduciary relationship ends. Cundall at ¶ 27, citing
State ex rel. Lien v. House, 144 Ohio St. 238 (1944).
       {¶ 26} In this instance, RSA's claims for breach of fiduciary duty and breach of
trust are predicated on the same operative facts. The gravamen of the complaint is that
Trustee Moore failed to timely file a foreclosure action which, according to RSA, would
have preserved a greater portion of trust assets for distribution to the bondholders.1 RSA
alleges that HNB, by and through Trustee Moore, breached a duty it owed to RSA by
failing to provide the bondholders with relevant information regarding the financial
difficulties experienced by Trinity and the deteriorating condition of the Squirrel Run
property and/or providing RSA with false and misleading information regarding the
status of the project that prevented RSA from discovering the breach of trust.
       {¶ 27} The parties agree the applicable statute of limitations is four years for RSA's
claims.   RSA filed its original complaint in Montgomery County on July 13, 2013.
Consequently, the statute of limitations barred any of RSA's claims that accrued prior to
July 13, 2009. RSA first contends its cause of action accrued in 2012 when HNB "ended
its role as trustee by selling the trust res and distributing the proceeds to the trust
beneficiaries."    (Emphasis sic.)       (Appellant's Brief at 2.)        HNB argues RSA's claims
accrued when RSA either knew or, in the exercise of reasonable diligence, should have
learned of a breach of trust. We agree with HNB.
       {¶ 28} In Cundall, a successor trustee, on behalf of certain trust beneficiaries, sued
a former trustee for fraud, self-dealing, and breach of fiduciary duty. The First District
Court of Appeals affirmed the judgment of the trial court that the cause of action did not

1The amended complaint provides, in relevant part, as follows: "Despite knowing, in 2004, that Trinity was
not protecting the value of the asset underlying the bondholders' security, and knowing that an appraisal of
Squirrel Run Apartments did not support refinancing, [HNB] did nothing to maximize bondholder return.
Instead, [HNB] allowed Squirrel Run Apartments to fall into further disrepair and took no action to
foreclose on Squirrel Run Apartments for another five years. [The trustee's] fiduciary failure is
demonstrated drastically by its failure to take any decisive action to preserve the Trust asset. This delay
ultimately caused the opportunity to be lost to the detriment of the Trust and the bondholders." (Am.
Compl. at 11, 12.)
No. 17AP-355                                                                                9

accrue, and the four-year statute of limitations did not begin to run until the death of the
former trustee.      The Supreme Court of Ohio, in applying the four-year statute of
limitations in R.C. 2305.09, held the First District erred when it determined the cause for
breach of fiduciary duty accrued on the death of the prior trustee because the beneficiaries
knew much earlier, or reasonably should have known, the true value of trust assets sold
had possibly been misrepresented.       In so holding, the Supreme Court adopted the
following rule of law for determining when the cause of action for breach of trust accrues:
" 'If the trustee violates one or more of his obligations to the beneficiary * * *, there
obviously is a cause of action in favor of the beneficiary and any relevant Statute of
Limitations will apply from the date when the beneficiary knew of the breach or
repudiation, or by the exercise of reasonable skill and diligence could have learned of it.' "
(Emphasis sic.) Id. at ¶ 28, quoting George Gleason Bogert, The Law of Trusts and
Trustees, Section 951 at 630-34 (2d Ed.Rev.1995). The court noted under the prevailing
rule of law, "[k]nowledge of the beneficiary is the critical factor because when the
beneficiary knows of the misconduct, he has knowledge that the trustee has repudiated
his trust obligation. Upon learning of the repudiation, the time for the beneficiary to act
begins to run." Cundall at ¶ 27. The Cundall court noted that " '[c]onstructive knowledge
of the facts, rather than actual knowledge of their legal significance, is enough to start the
statute of limitations running.' " (Emphasis sic.) Id. at ¶ 30, quoting Flowers v. Walker,
63 Ohio St. 3d 546, 549 (1992).
       {¶ 29} Consistent with the rule of law in Cundall, R.C. 5810.05(C), effective
January 1, 2007, sets forth the limitation period for actions against a trustee, in relevant
part, as follows:
               [N]otwithstanding section 2305.09 of the Revised Code, a
               judicial proceeding by a beneficiary against a trustee for
               breach of trust must be commenced within four years after
               the first of the following to occur:

               ***

               (3) The termination of the trust;

               (4) The time at which the beneficiary knew or should have
               known of the breach of trust.
No. 17AP-355                                                                                                 10

(Emphasis added.)2
        {¶ 30} Pursuant to Cundall and R.C. 5810.05, contrary to RSA's assertion, the
claims against HNB accrued and the four-year statute of limitations began to run when
RSA either knew or should have known of the breach of trust, not when HNB "ended its
role as trustee by selling the trust res and distributing the proceeds to the trust
beneficiaries."3 (Emphasis sic.) (Appellant's Brief at 2.) To that end, we note R.C.
5801.03(A) provides a general definition of "knowledge" for purposes of trust matters.
Zook v. JPMorgan Chase Bank Natl. Assn., 10th Dist. No. 15AP-750, 2017-Ohio-838,
¶ 38. That provision reads as follows:
                 Subject to division (B) of this section, a person has knowledge
                 of a fact if any of the following apply:

                 (1) The person has actual knowledge of the fact.

                 (2) The person has received notice or notification of the fact.

                 (3) From all the facts and circumstances known to the
                 person at the time in question, the person has reason to know
                 the fact.

(Emphasis added.) R.C. 5801.03(A).
        {¶ 31} HNB argues the only reasonable inference to be drawn from the evidence
presented both in support of and in opposition to the motion for summary judgment is
that RSA either knew or should have known of the alleged breach of trust as early as 2007.
HNB relies primarily on Lucas's deposition testimony in support of its argument.
        {¶ 32} Lucas testified he is an account executive at RSA, and RSA's core specialty is
the purchase and sale of municipal bonds.                   Lucas stated RSA also gets involved in
underwriting bond issues, but he acknowledged RSA had little experience in municipal
revenue bonds for low-income housing.                  Lucas maintained 85 to 90 percent of his
business involves distressed municipal bonds.                     According to Lucas, he considers
2"[W]here   breach of trust claims are not barred by the applicable statute of limitations prior to the time
when [R.C. 5810.05] went into effect, then, in that event, the statute of limitations set forth in [R.C. 5810.05]
applies to the claim, notwithstanding other provisions." Newcomer at ¶ 29.
3 This court issued its decision in Cassner v. Bank One Trust Co., N.A., 10th Dist. No. 03AP-1114, 2004-

Ohio-3484, several years prior to the effective date of R.C. 5810.05 and the decision of the Supreme Court in
Cundall. Thus, RSA's reliance on Cassner is misplaced.
No. 17AP-355                                                                              11

municipal bonds "distressed" when the obligor fails to make debt service payments or a
credit or other event occurs that casts doubt on the obligor's ability to pay. (Lucas Dep. at
103.) Lucas testified he typically does not get involved in the purchase of distressed
municipal revenue bonds until the bonds are selling for 30 cents on the dollar or less.
       {¶ 33} When Lucas purchased the Squirrel Run bonds in 2006, he did not consult
the portion of the "official statement" pertaining to bondholder risks because "I know
what the bondholder risks are." (Lucas Dep. at 190-91.) He did not obtain copies of the
prior notices to bondholders of events of default issued by Trustee Moore when he made
the initial purchase of bonds in 2006, even though he was aware he could obtain them
from Trustee Moore. Lucas acknowledged he knew Trinity was in default when he made
the initial purchase of bonds in 2006, but he could not recall whether he was aware
Trinity had been in default since 2001. Lucas testified he believed there were still funds
left in the debt service reserve fund at that time, and he was aware the Squirrel Run
property was collateral for the underlying indebtedness. Lucas stated the exhaustion of
the debt service reserve fund is a concern for bond holders but "[n]ot a major concern."
(Lucas Dep. at 201.) He did acknowledge that a Notice to Bondholders in May 2006
stated there were no funds left in the debt service reserve fund.
       {¶ 34} According to Lucas, the lack of cash flow was not a big concern to him when
he purchased the Squirrel Run bonds because the collateral was still available for sale.
Lucas testified he "didn't have any reason to believe the [fair market value of the Squirrel
Run property] was extremely low." (Lucas Dep. at 203.) Lucas testified he first visited
the property sometime in 2006 0r 2007, after the initial purchase of bonds. According to
Lucas, he got a look at the buildings and grounds, and Trinity representative John Bojo
permitted Lucas to inspect an unoccupied unit. Lucas testified the property consisted of
well-maintained townhouses with "market grade type finishes." (Lucas Dep. at 159.)
Lucas recalled Squirrel Run was "a good-looking facility; it wasn't run down." (Lucas
Dep. at 162.) Lucas testified that Bojo spoke with him about Trinity's efforts to increase
occupancy and "different methods to try to * * * get it leased up" and that there was "some
competition." (Lucas Dep. at 161.) Lucas noticed a fire had damaged some of the units
that were now empty, but he saw no "broken windows and junk cars." (Lucas Dep. at
161.) Lucas concluded Squirrel Run was a good property.
No. 17AP-355                                                                            12

       {¶ 35} According to Lucas, he drove through the facility on one occasion thereafter,
either in 2007 or 2008, and he observed the property "[l]ooked all right," and he
acknowledged the property was "still well-maintained." (Lucas Dep. at 159, 164.) After
the visit, Lucas telephoned Bart Welprin, the commercial real estate broker who first
alerted him to the availability of Squirrel Run bonds, and he told Welprin that the
property "[l]ooks fine." (Lucas Dep. at 164.) In his deposition, Lucas maintained neither
he nor Welprin expressed an opinion during the conversation regarding the fair market
value of the Squirrel Run property.
       {¶ 36} HNB cites Lucas's deposition testimony as support for its contention RSA
knew or should have known as early as 2007 or 2008 of the operative facts that allegedly
support its claim for breach of trust. In his deposition, Lucas testified as follows:
               Q. Did you think it should get foreclosed on at that time?

               A. I think that I—I would have liked to have seen it happen
               sooner than later. The bonds weren't being paid on, so we
               weren't getting any interest, and I—I thought that it was past
               time that the discussion take place.

               Q. Past time that the discussion about a foreclosure take
               place?

               A. Uh-huh.

               Q. And this is in 2007?

               A. Yeah.

               Q. And it was your feeling that the property should be sold so
               that bondholders could cash out, correct?

               A. Yeah. Right, yes.

               Q. Did you tell Ms. Moore that?

               A. I told Ms. Moore that—and I don't know if it was that
               particular conversation, but I told Ms. Moore on several
               occasions that we should form a bondholder committee and
               discuss the—and see what the other bondholders had to say
               about moving forward with—with some sort of resolution.
No. 17AP-355                                                                               13

               Q. And this is all before Huntington foreclosed?

               A. Correct.

               Q. And what would the purpose of the bondholder committee
               be?

               A. It's a fact-finding mission and weigh the options and—and
               get the—get the trustee to—to act.

               Q. And what did Ms. Moore say in response to that?

               A. Nothing.

               Q. And you say you wanted to get the trustee to act, correct?

               A. Uh-huh.

               Q. What did you want the trustee to do?

               A. You know, enforce their remedies, whatever they are. So if
               they could—if they could—if the obligor had some money or
               they were holding money back, maybe they could come up
               with some money and—and make up some past due
               payments, start marketing the property.

               Q. But none of that happened?

               A. No.

(Lucas Dep. at 174-76.)
       {¶ 37} Concerning Trustee Moore's representation about the efforts to obtain
additional financing in 2008 and the conduct of the trustee, Lucas testified as follows:
               Q. Were you aware of refinancing efforts that were going on
               in 2008?

               A. According to the—to the event notice, the—I didn't believe
               there was any refinance opportunities in '08.

               Q. Did you see any way to get value out of these bonds other
               than through a sale of the Squirrel Run Apartments?

               A. I could—I could put—I could put them up for sale.
No. 17AP-355                                                                      14

               Q. Okay. Other than selling the bonds, was there any way
               that you'd get money—

               A. Extract value?

               Q. Yeah. Extract value from the bonds in 2008?

               A. No. At that point—you know, at that point it's—you know.
               Sell—sell the facility.

               Q. In your view was it time to pull the plug and sell the
               facility?

               A. I thought it was past time.

               Q. Did you tell that to Ms. Moore?

               A. If you tell a trustee's administrator that you don't think
               they're doing their job properly, they're not going to take your
               calls. So no. I didn't.

               Q. But that's what you thought?

               A. What?

               Q. That the trustee's administrator wasn't doing their job
               properly?

               A. There wasn't—there didn't seem to be much happening at
               that point.

               Q. At this point the bonds were seven years in default,
               correct?

               A. When was the first default, '01?

               Q. November of 2001.

               A. 2001, so, yeah, approximately.

               Q. Had you ever seen a default situation go this long?

               A. No.
No. 17AP-355                                                                                       15

                   Q. And in your view it was time for Huntington to move
                   forward with foreclosing on the property or take some
                   attempts at selling the property, correct?

                   A. Yeah, but I wasn't worried. I mean I wasn't worried about
                   it. I'd never gotten an indication that—that there was a—that
                   there was a big problem, that there was—you know, that the
                   facility wasn't worth anything.

                   Q. But in 2008, I mean, there was no other way that the
                   trustee was going to extract any value out of this project other
                   than through selling the property at that point?

                   A. That's correct.

                   Q. And that wasn't happening?

                   A. No. It wasn't happening.

(Lucas Dep. at 238-40.)
           {¶ 38} R.C. 5808.04 imposes a duty on a trustee to "administer the trust as a
prudent person would and shall consider the purposes, terms, distributional
requirements, and other circumstances of the trust. In satisfying this standard, the
trustee shall exercise reasonable care, skill, and caution." Pursuant to R.C. 5808.09, "[a]
trustee shall take reasonable steps to take control of and protect the trust property." R.C.
5810.01 sets out the remedies available to beneficiaries for a breach of trust.                   R.C.
5810.01(B) authorizes the court to issue orders designed to "remedy a breach of trust that
has occurred or may occur," including compelling the trustee to perform the trustee's
duties, enjoining the trustee from committing a breach of trust, removing the trustee, and
ordering any other appropriate relief.4
           {¶ 39} Lucas's deposition testimony establishes at some point in 2008, RSA
became aware of the operative facts that allegedly support its breach of duty claims

4   R.C. 5810.02(A) sets forth the damages for a breach of trust, in relevant part, as follows:

                   A trustee who commits a breach of trust is liable to the beneficiaries
                   affected for the greater of the following:

                   (1) The amount required to restore the value of the trust property and
                   trust distributions to what they would have been had the breach not
                   occurred.
No. 17AP-355                                                                            16

against HNB.     Based on Lucas's deposition testimony, there is no question that by
sometime in 2008, RSA knew Trinity was not meeting its obligations regarding debt
service and alternative financing options had been unsuccessful. Sometime in 2008,
Lucas had formed the opinion the only way the trustee could preserve the assets of the
trust was to file a foreclosure action against Trinity and sell the collateral. Lucas knew
Trustee Moore had no intention of doing so at that time. Lucas also acknowledged
Trustee Moore had failed to respond to his informal request to form a bondholder
committee and had not become engaged in marketing the property. Thus, the only
reasonable conclusion to be drawn from the evidence submitted in connection with the
motion for summary judgment is that RSA's cause of action for breach of trust and/or
breach of fiduciary duty accrued sometime in 2008 when Trustee Moore failed to timely
initiate foreclosure. Because RSA did not file its complaint in Montgomery County until
July 31, 2013, the four-year statute of limitations bars RSA's claims against HNB.
       {¶ 40} In opposition to the motion for summary judgment, RSA claims the notices
to bondholders issued by Trustee Moore combined with Trustee Moore's direct
communications with Lucas misled RSA about Trinity's financial condition and the
market value of the Squirrel Run property, causing RSA to reasonably believe the bonds
remained a sound investment.          The duty to keep the beneficiaries/bondholders
reasonably informed of the administration of the trust is a fundamental duty of a trustee.
Kidd v. Alfano, 2d Dist. No. 26598, 2016-Ohio-7519, ¶ 29, citing R.C. 5807.06. R.C.
5808.13 describes in general terms a trustee's duty to inform and report, in relevant part,
as follows:
               (A) A trustee shall keep the current [bondholders] of the trust
               reasonably informed about the administration of the trust and
               of the material facts necessary for them to protect their
               interests. Unless unreasonable under the circumstances, a
               trustee shall promptly respond to a [bondholder's] request for
               information related to the administration of the trust.

       {¶ 41} The record shows as early as February 26, 2004, Trustee Moore notified
bondholders that "ongoing routine repair and maintenance items, such as fixing storm
drains and downspouts and replacing carpet, have regularly fallen behind as occupancy
and revenues have not kept pace. There are frequent roof repair needs, patio dividers and
No. 17AP-355                                                                             17

balcony floors and railings have deteriorated wood and fogged up patio doors have been
an ongoing problem." (Joint Ex. 10 at 2.) Additionally, on November 5, 2004, Trustee
Moore notified bondholders that Reilly had "not been able to obtain FHA mortgage
insurance due to receipt of an appraisal that was lower than needed for a full refinancing."
(Joint Ex. 13 at 2.) Lucas also visited the site on two occasions, once in 2007 and one
other time in 2007 or 2008. Thus, Lucas had an opportunity to personally observe the
condition of the property securing the bonds in 2007 and 2008. There can be no doubt,
based on this undisputed evidence, RSA either knew or should have known in 2007 or
2008 of Trustee Moore's alleged breach of duty in failing to preserve the real property
securing the bonds.
       {¶ 42} Though Lucas maintained he had several conversations with Trustee Moore
between the years 2007 and 2009 regarding the Squirrel Run property, he acknowledged
Trustee Moore discussed the value of the RSA property with him on only one occasion.
Lucas's testimony regarding the conversation is as follows:
               Q. From Febuary 20—from Febuary 2006 through April
               2009, did you have any communications with anyone
               regarding what the fair market value of the Squirrel Run
               Apartments was?

               A. Yeah I did. I do recall that I had a telephone conversation
               with [Trustee] Moore at one point discussing, you know,
               what—what's the outcome going to be here, you know, what's
               going to happen here. And she—she assured me that, you
               know, that there was a—there was a good appraisal out there
               and that they had some—she had some interested buyers.
               And she didn't enumerate market value, but I got from that
               conversation it wasn't a complete disaster.

               Q. When was this conversation?

               A. Oh, gosh, I'm really bad at dates as I told you. I'm going to
               say it was a couple years prior to foreclosure.

(Lucas Dep. at 168.)
       {¶ 43} The undisputed evidence in the record shows on or about the time Lucas's
conversation with Trustee Moore took place, Lucas had visited the property and had
gotten a look at the buildings and grounds, including a tour of one of the apartment units.
No. 17AP-355                                                                             18

At the time he spoke with Trustee Moore, Lucas also had access to all prior notices sent by
Trustee Moore to the bondholders. Additionally, though Lucas recalled Trustee Moore
told him she had interested buyers for the property, she did not tell him she had received
any offers. Lucas acknowledged Trustee Moore never offered her opinion regarding the
market value of the Squirrel Run property.
       {¶ 44} With regard to the alleged misrepresentations and misinformation
regarding Trinity's financial condition vis-à-vis RSA's investment in the Squirrel Run
property, it is difficult to conceive on this record how RSA could have been unaware of
Trinity's desperate financial condition in light of the information contained in the
numerous notices issued by Trustee Moore, as summarized above. RSA argues Trustee
Moore mislead bondholders in the event notice of November 5, 2004, when she indicated
"[o]ther refinancing alternatives are being explored." (Joint Ex. 13 at 2.) Even if we
accept RSA's contention Trustee Moore mislead bondholders into believing alternative
financing was available, Lucas acknowledged by 2008 he did not believe alternative
financing options existed. Thus, there is no question Lucas harbored no misconceptions
about the refinancing options in 2008. In discussing RSA's claims regarding Trustee
Moore's comments to Lucas, the trial court stated: "On this record, informal and isolated
comments by [Trustee] Moore did not constitute misleading misconduct that legally
delay[ed] [RSA's] obligation to investigate legal action against HNB." (Mar. 30, 2017
Decision at 7.) Based on our review of the record, we agree with the trial court that no
reasonable trier of fact could interpret Trustee Moore's alleged statements to Lucas in the
manner suggested by RSA.
       {¶ 45} Taking the above-cited evidence and RSA's arguments into consideration,
the trial court found RSA's claims for breach of fiduciary duty and breach of trust accrued,
at the latest, in April 2009 when Trustee Moore filed the foreclosure action in
Montgomery County and notified bondholders of that fact. The trial court found it
significant that in addition to all the information contained in the prior notices provided
to bondholders, the April 2, 2009 complaint sought the appointment of a receiver. The
trial court stated the "request was a red flag warning to bondholders" that their
investment was in jeopardy. (Mar. 30, 2017 Decision at 9.) We agree.
No. 17AP-355                                                                             19

       {¶ 46} As noted above, our de novo review of the evidence submitted in connection
with the motion for summary judgment convinces us RSA either knew or should have
known of the breach of trust sometime in 2008 when Lucas formed the opinion that the
only means to preserve the value of the property for later distribution to the bondholders
was to bring a foreclosure action against Trinity and sell the Squirrel Run property. Lucas
believed it was "past time" to "pull the plug and sell the facility." (Lucas Dep. at 239.)
Though Lucas's conduct in continuing to purchase bonds even after Trustee Moore filed
the foreclosure action permits the inference that RSA did not recognize or appreciate the
degree of risk associated with the investment, the evidence in the record does not permit
an inference RSA was without actual or constructive knowledge on or before April 2009 of
the operative facts which gave rise to the claims for breach of trust alleged in their
complaint. Even construing the evidence in RSA's favor, any optimism regarding either
the financial position of Trinity or the value of the Squirrel Run property that was created
by Trustee Moore's statements to Lucas should have been dispelled by the filing of the
foreclosure action and the request for appointment of a receiver in April 2009. It is
impermissible on this record to infer RSA did not have actual or constructive knowledge
of the alleged breach of trust in April 2009.
       {¶ 47} RSA next contends the delayed damages rule applies to its claims for breach
of fiduciary duty and breach of trust. We disagree.
       {¶ 48} Under the delayed damages rule, " 'where the wrongful conduct complained
of is not presently harmful, the cause of action does not accrue until actual damage
occurs.' " Flagstar Bank, F.S.B. v. Airline Union's Mtge. Co., 128 Ohio St. 3d 529, 2011-
Ohio-1961, ¶ 19, quoting Velotta v. Leo Petronzio Landscaping, Inc., 69 Ohio St. 2d 376,
379 (1982). "Unlike the discovery rule, the delayed-damages rule does not just toll the
running of the statute of limitations, it adjusts when the cause of action accrues."
Chateau Estate Homes, L.L.C. v Fifth Third Bank, 1st Dist. No. C-160703, 2017-Ohio-
6985, ¶ 14. "In other words, a cause of action for negligence is not complete, and the
statute of limitations does not begin to run, until there has been an injury." Flagstar at ¶
19.
       {¶ 49} In Union Sav. Bank v. Lawyers Title Ins. Corp., 191 Ohio App. 3d 540,
2010-Ohio-6396 (10th Dist.), this court held a bank's claim against a title company
No. 17AP-355                                                                                             20

alleging negligence and breach of fiduciary duty was time-barred because the cause of
action accrued when the homeowners closed on their loan and the title company failed to
subordinate two mortgages, not when the property went into foreclosure and was sold at a
sheriff's sale. Id. at ¶ 33. In rejecting the homeowners' delayed damages argument, this
court ruled that the plaintiff-bank suffered damages at the time of the closing when it
assumed a second lien position due to the defendant's failure to subordinate two liens.
Id.5
        {¶ 50} Here, RSA alleges that HNB breached a duty to bondholders when Trustee
Moore failed to timely file a foreclosure action against Trinity. RSA claims it suffered
harm as a result of Trustee Moore's breach due to the subsequent decrease in the market
value of the real property securing the bonds.6 Though RSA did not discover the full
extent of its losses until 2012 when the real property securing the investment sold in
foreclosure, RSA suffered a loss and the breach of trust occurred when Trustee Moore
failed to act. Under R.C. 2305.09 and 5810.05, RSA's cause of action against HNB
accrued when RSA either knew or should have known facts which would have alerted it to
Trustee Moore's breach, not when the property securing the investment sold in
foreclosure. Thus, to the extent the delayed damages rule remains viable in Ohio, we find
the rule is inapplicable in this case.
        {¶ 51} For the foregoing reasons, we hold the trial court did not err when it granted
HNB's motion for summary judgment. RSA's claims for breach of fiduciary duty and
breach of trust accrued when, from all the facts and circumstances known to RSA, RSA
either knew or should have known of the breach of trust, not when the trust terminated.
Construing the evidence in RSA's favor, we find RSA knew of or should have known of the
alleged breach of trust on or before April 2009. The statute of limitations barred RSA's
claims against HNB as a matter of law because HNB did not file the complaint in

5 There is considerable doubt as to the continued viability of the delayed damages rule in Ohio. See, e.g.,
LGR Realty, Inc. v. Frank & London Ins. Agency, __ Ohio St.3d __, 2018-Ohio-334, ¶ 32-34 (Dewine,
concurring); Flagstar at ¶ 25-27, citing Investors REIT One v. Jacobs, 46 Ohio St. 3d 176 (1989); Chateau
Estate at ¶ 22.
6 In his deposition, RSA's expert, Robert Irwin Landau, testified "as the months and years went by, the value

of the property went down [and] if the trustee had acted more aggressively, * * * quicker, if they had pulled
the trigger quicker and disposed of the property sooner, the probability of the bondholders receiving more
than they got at finally six or seven years later is significantly higher." (Landau Dep. at 260.)
No. 17AP-355                                                                     21

Montgomery County within four years of the date when it knew or should have known of
the breach of trust.
V. CONCLUSION
       {¶ 52} Having overruled appellant's sole assignment of error, we affirm the
judgment of the Franklin County Court of Common Pleas.
                                                                 Judgment affirmed.

                          TYACK and KLATT, JJ., concur.
                              _________________