Court Opinion

ID: 4316159
Source: CourtListenerOpinion
Date Created: 2018-09-27 18:00:23.981839+00
Date Added: 2024-06-11T14:44:50.003033
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                               File Name: 18a0485n.06

                                          No. 17-3411

                           UNITED STATES COURT OF APPEALS
                                FOR THE SIXTH CIRCUIT
                                                                                  FILED
 RUI HE, XIAOGUANG ZHENG, and ZHENFEN )                                      Sep 27, 2018
 HUANG, on behalf of themselves and all others )                         DEBORAH S. HUNT, Clerk
 similarly situated,                           )
                                               )
         Plaintiffs-Appellees,                 )
                                               )               ON APPEAL FROM THE
 v.                                            )               UNITED STATES DISTRICT
                                               )               COURT     FOR      THE
 DAVOR ROM, ASSETS UNLIMITED, LLC, )                           NORTHERN DISTRICT OF
 INVESTOR INCOME PROPERTIES, LLC, and IIP )                    OHIO
 OHIO, LLC,                                    )
                                               )
         Defendants-Appellants.                )

BEFORE:        BATCHELDER, KETHLEDGE, and WHITE, Circuit Judges.

       ALICE M. BATCHELDER, Circuit Judge. Davor Rom sold distressed Ohio real estate

and property-management services to Chinese nationals, advertising the properties as highly

lucrative “hands-off” investment opportunities. Plaintiffs purchased the properties and services,

but their investments never produced the promised returns. They brought suit against Rom in the

Northern District of Ohio—under federal diversity jurisdiction—seeking relief under a number of

Ohio tort and consumer protection laws. A jury found Rom and his companies liable for fraudulent

inducement, negligent misrepresentation, and violations of Ohio’s Deceptive Trade Practices Act.

On appeal, Rom argues that the district court erred by denying his motion for judgment as a matter

of law. Many of the arguments Rom raises on appeal were forfeited. Those properly before us

lack merit. We AFFIRM.
No. 17-3411, Rui He, et al. v. Davor Rom, et al.

                                                        I.

        Between 2013 and 2015, Plaintiffs1 Rui He, Xiaoguang Zheng, and Zhenfen Huang bought

Ohio real properties from a number of shell companies established and controlled by Davor Rom.

Rom, along with Assets Unlimited, LLC, Investor Income Properties, LLC (“IIP”), and IIP Ohio,

LLC, are the Defendants-Appellants in this action. Rom owns 100% of Assets Unlimited, LLC,

which in turn owns 100% of IIP and IIP Ohio, LLC. These companies share the same agent,

Shauna Wu, who worked in China and promoted the properties sold by Rom. Rom used the

Chinese website Fang.com (formerly Soufun.com) to advertise properties to Plaintiffs. In those

advertisements, Rom marketed a “hands-off” real estate investment where buyers purchased real

estate from Rom and then Rom managed the properties. The mission statement of Rom’s

companies was to provide “a comprehensive process for the acquisition, stabilization,

management, and performance of investment properties with 10-20% [return on investment].”

        To say the least, none of the Plaintiffs received double-digit returns on their investments.

Instead, when they inquired about minimal or no returns, Rom, through his agents, gave excuses

for payment delays, requested more money, or just ignored their inquiries.

        Plaintiffs brought suit, and argued to a jury that Rom was liable for fraudulent inducement,

negligent misrepresentation, and Ohio Deceptive Trade Practices Act (“DTPA”) violations. A jury

found in favor of Plaintiffs on all counts, pierced the corporate veil of Rom’s LLCs, granted

punitive damages against Rom, and found Plaintiffs entitled to attorney’s fees and costs.

        Rom moved for the judgment to be set aside or amended or, alternatively, for a new trial

altogether. The district court denied Rom’s motion and awarded attorney’s fees and costs to

Plaintiffs after reducing the requested amount by 25%. Rom appeals to this court claiming that

1
 Except where otherwise indicated, we refer to Plaintiffs-Appellees as “Plaintiffs” and to Defendants-Appellants as
“Rom.”

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No. 17-3411, Rui He, et al. v. Davor Rom, et al.

(1) because his transactions with Plaintiffs concerned real estate, they fall outside the ambit of the

DTPA; (2) Plaintiffs failed to prove elements required for fraudulent inducement; (3) Plaintiffs

failed to prove elements required for negligent misrepresentation; (4) Plaintiffs failed to prove

elements required for piercing the corporate veil; (5) Plaintiffs produced insufficient evidence to

warrant punitive damages; and (6) the district court abused its discretion in awarding attorney’s

fees.

                                                 II.

        We review de novo a district court’s denial of a motion for judgment as a matter of law.

Rhinehimer v. U.S. Bancorp Invs., Inc., 787 F.3d 797, 804 (6th Cir. 2015). Such a motion may be

granted only where, “when viewing the evidence in a light most favorable to the non-moving party,

giving that party the benefit of all reasonable inferences, there is no genuine issue of material fact

for the jury, and reasonable minds could come to but one conclusion in favor of the moving party.”

Barnes v. City of Cincinnati, 401 F.3d 729, 736 (6th Cir. 2005). We do not weigh evidence or

evaluate witness credibility; our judgment “should not be substituted for that of the jury.” Balsley

v. LFP, Inc., 691 F.3d 747, 757 (6th Cir. 2012) (citation omitted).

                                                 A.

        Ohio Deceptive Trade Practices Act. Rom argues that Plaintiffs’ DTPA claim fails because

the DTPA only applies to goods and services, not real estate, and the representations made in this

case concerned real estate. Under the DTPA, “[a] person engages in a deceptive trade practice

when, in the course of the person’s business, vocation, or occupation, the person,” as relevant here,

“[r]epresents that goods or services have sponsorship, approval, characteristics, ingredients, uses,

benefits, or quantities that they do not have . . . .” Ohio Rev. Code § 4165.02(A)(7).

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No. 17-3411, Rui He, et al. v. Davor Rom, et al.

        Ohio case law does indeed recognize a “real estate” exception, but in the context of the

Ohio Consumer Sales Protection Act (“CSPA”), not the DTPA. See Brown v. Liberty Clubs, Inc.,

543 N.E.2d 783, 785 (Ohio 1989). No Ohio court has said whether that exception applies to the

DTPA. Typically we have to make our best guess as to what the Ohio Supreme Court would do.2

We need not do so here, though, because even if the real estate exception present in the CSPA

applies to the DTPA, Rom’s transactions do not fall within the exception.

        Brown says that the CSPA has “no application in a ‘pure’ real estate transaction,” but it is

applicable to “the personal property or services portion of a ‘mixed’ transaction that also involves

the sale of real estate.” Id. at 785. The rule established in Brown is that mixed transactions—

transactions that combine services and real estate—can be brought within the ambit of the CSPA.

Id. at 785-86. In mixed transactions, the CSPA can apply either in part (only to the “personal

property or services portion” of the transaction) or in full. Id. at 786. Whether the CSPA applies

in full depends on whether the services and real estate components of the transaction are “so

inextricably intertwined” that it is appropriate to apply the CSPA to the entire transaction. Id.

        The district court found that Plaintiffs’ DTPA claim “was inextricably linked to the

Defendants’ management services” based on the mission statement of Rom’s companies

promoting their “comprehensive process for the acquisition, stabilization, management, and

performance of investment properties.” The district court’s conclusion was warranted. Rom

advertised to the Plaintiffs a seamlessly integrated “full circle buying process.” This “full circle”

is precisely what Plaintiffs testified that they relied on in contracting with Rom. Per Brown, even

if the “pure real estate” exception applied to the DTPA, it would not apply to Rom’s transactions

with Plaintiffs.

2
 Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); In re Darvocet, Darvon, & Propoxyphene Prod. Liab. Litig.,
756 F.3d 917, 937 (6th Cir. 2014).

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No. 17-3411, Rui He, et al. v. Davor Rom, et al.

       Rom next argues that the DTPA claim fails because plaintiffs did not show that his

representations were material, and even if they were, those representations were neither false nor

misleading. But Rom did not raise these arguments regarding the DTPA claim before the district

court. When parties appeal the district court’s judgment and raise arguments not raised before that

court, we generally consider those arguments forfeited and decline to address them. See Singleton

v. Wulff, 428 U.S. 106, 120 (1976) (plurality opinion) (“It is the general rule, of course, that a

federal appellate court does not consider an issue not passed upon below.”); Pinney Dock and

Transp. Co. v. Penn Cent. Corp., 838 F.2d 1445, 1461 (6th Cir. 1988) (holding that the Singleton

rule applies except “in exceptional cases or particular circumstances, or when the rule would

produce a plain miscarriage of justice” (citation and internal quotation marks omitted)). This is

not an exceptional case, nor does application of the rule produce a miscarriage of justice. Rom

has forfeited these arguments.

                                                 B.

       Fraudulent Inducement. Rom argues that Plaintiffs failed to prove the “justifiable reliance”

element of their fraudulent inducement claim because Plaintiffs entered into purchase agreements

in which they disclaimed reliance on anything outside of the terms of the contract. This is not

quite what Rom argued in the district court. There he argued that his statements did not qualify as

fraudulent because they were promises regarding future conduct. While Rom may well have

forfeited this argument, Pinney Dock, 838 F.2d at 1461, we need not resolve that question because

we find that his argument fails on the merits.

       To see if Plaintiffs failed to prove justifiable reliance, we must ask whether the record

permitted a reasonable jury to come to only one conclusion: that Plaintiffs did not justifiably rely

on Rom’s representations. See Barnes, 401 F.3d at 736. The answer is no. Under Ohio law, “[t]he

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No. 17-3411, Rui He, et al. v. Davor Rom, et al.

question of justifiable reliance is one of fact and requires an inquiry into the relationship between

the parties.” Crown Property Dev., Inc. v. Omega Oil Co., 681 N.E.2d 1343, 1349 (Ohio Ct. App.

1996). “Reliance is justifiable if the representation does not appear unreasonable on its face and

if there is no apparent reason to doubt the veracity of the representation under the circumstances.”

Amerifirst Savings Bank of Xenia v. Krug, 737 N.E.2d 68, 87 (Ohio Ct. App. 1999).

        A reasonable jury could conclude on this record that Rom made representations to

Plaintiffs, outside of the terms of the contract, on which they reasonably relied. For example, as

the district court points out:

        Rom personally recommended Plaintiff Zheng purchase a specific property because
        the property had a long-term tenant. Furthermore, Plaintiff He said that he
        purchased his Property on the Defendants’ recommendation. Finally, Plaintiff
        Huang testified that Defendants’ advice led him to purchase a particular property.

Rom does not challenge the district court’s representation of the record.

        Rom cites Ohio case law for the proposition that “[w]here a claim of fraud in the

inducement is based on one party’s failure to tell the other party what was in the contract, the

party’s failure to read the contract ‘drives a stake into the heart’ of their claim.” quoting ABM

Farms v. Woods, 692 N.E.2d 574, 578 (Ohio 1998). This case law is not on point here because

Plaintiffs’ claim is not “based on [Rom]’s failure to tell [them] what was in the contract[.]” Earlier

language from AMB Farms is more apt: “A classic claim of fraudulent inducement asserts that a

misrepresentation of facts outside the contract or other wrongful conduct induced a party to enter

into the contract. Examples include a party to a release misrepresenting the economic value of the

released claim . . . .” Id. Here Plaintiffs claim that Rom fraudulently induced them to enter into

their contracts by “misrepresenting the economic value of” the investments he sold and the services

he promised to perform managing those investments. That was not the case in AMB Farms, where

the plaintiff “ma[de] no allegations about misrepresentations of facts outside the contract.” Id.

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No. 17-3411, Rui He, et al. v. Davor Rom, et al.

       Rom next argues that Plaintiffs failed to prove that they were damaged by Rom’s fraudulent

inducement because they did not offer expert testimony or testimony from the property owners

regarding the actual value (as compared to the represented value) of the properties they purchased

from Rom. Rom argues that under Ohio law only expert testimony or testimony from the property

owner is admissible and that the district court erred by considering any other evidence in finding

that Plaintiffs had provided sufficient evidence for damages.

       But Rom did not make this argument below. Rom argued before the district court that

“[p]laintiffs offered no evidence regarding the ‘actual value’ of the individual properties at the time

of sale.” (emphasis added). In his Reply to Plaintiffs’ Opposition to Defendants’ Memorandum in

Support of Defendants’ Motion for Judgment as a Matter of Law, Rom argued that several kinds

of evidence—such as photographs, internal IIP communications, and the difference between

Defendants’ purchase price and sale price—were insufficient to establish the properties’ actual

values, but not because those kinds of evidence were inadmissible. Simply put, Rom never argued

to the district court what he argues here—that only two kinds of evidence would do. Accordingly,

the district court looked to the evidence presented to the jury and found that the jury had an

adequate basis for determining the actual value of the properties:

       The Properties’ purchase agreements provided an actual value for each property.
       The Defendants double digit ROI projections provided evidence of what the
       Defendants represented as the Properties’ value. The jury also had photos of the
       Properties from near the time of purchase. This evidence was sufficient to give the
       jury a reasonable basis for computation, even though the result is only approximate
       (footnotes and quotation marks omitted).

Rom now argues that the district court was wrong to look at that kind of evidence. Because the

district court was not presented with this argument, and did not rule on it, we will not consider it.

Pinney Dock, 838 F.2d at 1461.

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No. 17-3411, Rui He, et al. v. Davor Rom, et al.

                                                   C.

        Negligent Misrepresentation. Rom argues that under Ohio law “[a] claim for negligent

misrepresentation is barred in an ‘as is’ sale of real property.” The district court acknowledged

that negligent misrepresentation is actionable in the context of real estate sales only when

“defendants [are] in the business of supplying information for the guidance of others and plaintiffs

must rely on false information from the defendants.” The district court correctly held that the jury

had an adequate basis for concluding that Rom and his companies were doing just that, and that

plaintiffs had relied on the information.

        Rom says that the district court came to this conclusion by relying, mistakenly, on Levert-

Hill v. Associated Holding Grp., a case concerning a negligent misrepresentation claim brought

against a realty company and its agent for representing to the plaintiff that the property could be

used as a rental property. 975 N.E.2d 575, 577 (Ohio Ct. App. 2012). In Rom’s view, Levert-

Hill’s facts are distinguishable from the facts in this case, because Rom was merely the

“owner/seller of these properties.” But the record shows that Rom acted as more than an owner

selling a property “caveat emptor.” As noted above, Rom was also in the business of supplying

information concerning the real estate investments. Rom, very much like the defendant in Levert-

Hill, represented to Plaintiffs that the real estate he was selling had certain qualities as investments,

such as, for example, a long-term rental tenant. The jury found he had negligently misrepresented

those qualities and on this record it was entitled to do so.

        Next, Rom repeats his arguments that (1) the jury could not find that Plaintiffs justifiably

relied on Rom’s representations because they did not read their contracts and (2) the jury lacked

an evidentiary basis for calculating the difference between actual value of the properties and the

represented value of the properties. These arguments fare no better as a defense against negligent

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No. 17-3411, Rui He, et al. v. Davor Rom, et al.

misrepresentation than they did against fraudulent inducement, and we reject them for the same

reasons.

       Finally, Rom argues that “Plaintiff’s negligent misrepresentation claim is barred by their

recovery on their fraudulent inducement claim.” This argument was not made below and so it too

is forfeited. Pinney Dock, 383 F.2d at 1461.

                                                 D.

       Piercing the Corporate Veil. Rom argues that Plaintiffs failed to prove any of the elements

necessary to pierce the corporate veil. To pierce the corporate veil under Ohio law, a plaintiff must

show that “(1) control over the corporation by those to be held liable was so complete that the

corporation has no separate mind, will, or existence of its own, (2) control over the corporation by

those to be held liable was exercised in such a manner as to commit fraud or an illegal act against

the person seeking to disregard the corporate entity, and (3) injury or unjust loss resulted to the

plaintiff from such control and wrong.” Dombroski v. WellPoint, Inc., 895 N.E.2d 538, 543 (Ohio

2008) (citation omitted).

       Rom forfeited his challenges to the first and second elements because, as noted by

Plaintiffs, he did not raise them below. Pinney Dock, 838 F.2d at 1461. With respect to the third

element, Rom argues that “Plaintiffs failed to establish a causal connection between Rom’s ability

of control and their alleged injury or loss.” Rom’s challenge to the third element is unavailing.

The first two elements are conceded here, so we evaluate the third element on the assumption that

Rom’s control over his companies was so complete that they had no separate mind, will or

existence of their own and that Rom exercised that control in such a manner as to engage in

fraudulent inducement, negligent misrepresentation, and to violate the DTPA. The only remaining

question is whether Plaintiffs suffered an injury or unjust loss thereby. In Taylor Steel, this Court

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No. 17-3411, Rui He, et al. v. Davor Rom, et al.

found the third element “self-evident[ly]” satisfied when a fact finder had determined that the

defendant failed to pay the plaintiff $88,345.78 for which the defendant was contractually

obligated. 417 F.3d at 608. Here, the jury found that Plaintiffs were each entitled to recover

damages for Rom’s fraudulent inducement, negligent misrepresentation, and DTPA violations.

And the jury had a basis for reaching that conclusion. The jury could reasonably infer from Rom’s

testimony at trial that Plaintiffs’ injury or unjust loss resulted from Rom’s hands-on involvement

with the real estate transactions and his personal direction of his companies’ actions.

                                                 E.

       Punitive Damages. Rom argues that Plaintiffs failed to submit evidence that warranted an

award of punitive damages against him because the jury could not have found that Rom committed

anything beyond “mere negligence.” Punitive damages can be awarded under Ohio law upon a

showing that a defendant acted with “actual malice,” defined as “a conscious disregard for the

rights and safety of other persons that has a great probability of causing substantial harm.” Zoppo

v. Homestead Ins. Co., 644 N.E.2d 397, 402 (Ohio 1994) (citation omitted).

       The jury weighed the evidence and concluded that Rom acted with actual malice. They

did so after doing what we cannot—observing the testimony from Rom and Plaintiffs. The district

court cited numerous evidentiary bases demonstrating, at minimum, that a reasonable juror could

conclude Rom acted with actual malice, such as “target[ing] non-English-speaking investors,

advertis[ing] near-impossible ROIs, and [selling] the investors seedy properties.” (citations

omitted). We will not disturb the jury’s finding.

                                                 F.

       Attorney’s Fees. Rom argues that the district court abused its discretion on two grounds in

awarding attorney’s fees: (1) Plaintiffs’ provided insufficiently detailed records for the district

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No. 17-3411, Rui He, et al. v. Davor Rom, et al.

court to rely on; and (2) the ratio between Plaintiffs’ jury award ($148,549.41), on the one hand,

and the attorney’s fees ($371,865.59) and costs ($23,861.15), on the other, renders the award

unreasonable.

        We review the district court’s award of attorney’s fees for abuse of discretion. Gascho v.

Global Fitness Holdings, LLC, 822 F.3d 269, 294 (6th Cir. 2016). We owe the trial court

“substantial deference because the rationale for the award is predominantly fact-driven.” Imwalle

v. Reliance Med. Prods., Inc., 515 F.3d 531, 551 (6th Cir. 2008). Such deference is especially

appropriate in this context given “the district court’s superior understanding of the litigation and

the desirability of avoiding frequent appellate review of what essentially are factual matters.” Id.

(citation omitted).

        There are two basic measures for evaluating the fairness of an attorney’s award—“work

done and results achieved.” Gascho, 822 F.3d at 279. To determine the “work done,” courts often

employ the “lodestar approach,” which multiplies the number of hours reasonably expended in

litigation by a “reasonable hourly rate,” Bldg Serv. Local 47 Cleaning Contractors Pension Plan

v. Grandview Raceway, 46 F.3d 1392, 1401 (6th Cir. 1995), which the court can then, “within

limits, adjust . . . to reflect relevant considerations peculiar to the subject litigation,” Adcock-Ladd

v. Sec’y of Treasury, 227 F.3d 343, 349 (6th Cir. 2000). This is the method that the district court

used to calculate Plaintiffs’ attorney’s fees. Plaintiffs originally requested $488,815.55 in fees.

The district court reduced that amount by 25%, resulting in a fee award of $371,865.59.

        In response to Rom’s first argument, that Plaintiffs’ counsel provided insufficiently

detailed records in support of the hours they claimed to have worked, the district court found that

the records were detailed enough to allow it to “determine with a high degree of certainty that such

hours were actually and reasonably expended in the prosecution of the litigation.”

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No. 17-3411, Rui He, et al. v. Davor Rom, et al.

        The small sample of Plaintiffs’ counsel’s allegedly inadequate billing entries cited by Rom

does not show that the district court abused its discretion. In fact, we have held that a district

court’s determination of attorney’s fees was sufficiently detailed when the attorney claiming fees

simply “averred under penalty of perjury that the hours expended and costs incurred in the

litigation were reasonably necessary to prosecute the action.” Gascho, 822 F.3d at 281. The

district court in this case came to its conclusion on a much more detailed record than was provided

in Gascho.

        Rom’s second argument is that the attorney’s fees award is unreasonable in light of the

degree of success obtained by Plaintiffs’ counsel.         “[A] fixed proportionality analysis that

mathematically links the fee award to the damages award” is not required. Dean v. F.P. Allega

Concrete Const. Corp., 622 F. App’x 557, 560 (6th Cir. 2015). “What is required is that the district

court offer a reasoned explanation that justifies the award and accounts for [Plaintiffs’] modest

degree of success.” Id.

        Because the district court provided a reasoned explanation for the award, accounting for

Plaintiffs’ degree of success, we find no abuse of discretion. The district court gave a detailed

explanation for attorneys’ hourly rates, looking to the “rate that lawyers of comparable skill and

experience can reasonably expect to command in the Cleveland area.” (citation omitted). The

district court reduced the attorney’s fees in light of Plaintiffs’ failed motions for preliminary

injunction and class certification, and also to reflect the fact that one of Plaintiffs’ counsel had not

yet passed the bar. In addition to those specific reductions, the district court reduced the overall

attorney’s fees by 25% to reflect the fact that Plaintiffs were largely, but not entirely, successful.

As the district court noted, “[t]he jury returned verdicts in the Plaintiffs’ favor on all claims, and

awarded the Plaintiffs punitive damages and attorney’s fees. The Plaintiffs received $149,549.41

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No. 17-3411, Rui He, et al. v. Davor Rom, et al.

in damages and also kept their individual Properties.” The district court also noted that the

discrepancy between the original $5,000,000 demand and the jury award is explained by the fact

that the original demand was presented when Plaintiffs’ counsel thought they were going to be

representing a 140-member class.

                                               III.

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

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