The First Appellate District of Ohio has issued a mixed ruling in a case where clients sued two individuals, Mark Reder and Mark Picard, after they allegedly failed to provide accounting services for which a $5,000 retainer was paid to their company, Sheldon Reder CPA’s Inc. (SRC). The appellate court affirmed the dismissal of the breach of contract claim against the individuals but reversed the dismissal of claims alleging fraud, civil theft, and unjust enrichment, sending those issues back to the trial court for further action.
The Initial Dispute and Dismissal
Greg Vandemark and Patrick Hanley (the Appellants) sued Reder, Picard (the Appellees), and their firm, SRC, after paying a $5,000 retainer for accounting services that were never rendered, nor was the money returned. The Appellants claimed they had a contract with Reder, Picard, and SRC.
However, Reder and Picard moved to dismiss the suit against them personally, arguing that the contract was exclusively with SRC, the corporate entity. The trial court agreed and dismissed the case against the individuals. The Appellants then voluntarily dropped SRC from the suit and appealed the dismissal of claims against Reder and Picard.
Contract Claim Fails: Corporate Veil Holds
The core of the contract dispute centered on whether Reder and Picard signed the agreement in their individual capacities or solely as agents of SRC.
The appellate court reviewed the letter of engagement—the contract document—attached to the complaint. The court noted that standard practice for avoiding individual liability involves clearly identifying the corporation, the individual’s signature, and the individual’s title (e.g., “Company Name, by Individual’s Name, Title”).
In this case, the signature block listed “Mark Picard & Mark Reder, CPA,” with “Sheldon Reder CPAs” written underneath. The court found that this format, combined with the body of the letter explicitly naming SRC as the contracting party, unambiguously showed the intent was to bind only the corporation, SRC, and not the individuals personally.
The Appellants also tried to argue that the corporate structure should be disregarded—a legal concept known as “piercing the corporate veil”—to hold the individuals liable for SRC’s debts. To pierce the veil under Ohio law, plaintiffs generally must show the individuals exercised such complete control that the corporation lacked an independent existence, and this control was used to commit fraud or an illegal act resulting in injury.
The appellate court found the complaint lacked the necessary allegations to support this. While the complaint stated Reder and Picard were owners/members, it provided no facts suggesting the level of control required to strip the corporation of its separate legal identity. Therefore, the appellate court affirmed the trial court’s decision to dismiss the breach of contract claim against Reder and Picard.
Claims for Fraud, Theft, and Unjust Enrichment Survive
Despite the failure of the contract claim, the appellate court found that the Appellants successfully pleaded actionable claims for fraud, civil theft, and unjust enrichment against the individual Appellees.
Promissory Fraud Allowed
The Appellants alleged that Reder and Picard misrepresented their intention to use the retainer for services, knowing they planned to convert the funds for their own use. The Appellees argued that fraud cannot be based on future promises, but the court disagreed.
The court cited the exception for “promissory fraud,” which occurs when a promise is made with a present intention *not* to perform. The complaint alleged that at the time of the promise, the Appellees already knew they would convert the funds. This alleged misrepresentation of their *present state of mind* is actionable fraud, independent of the subsequent contract breach. Furthermore, since the individuals were not parties to the contract, any duty they had not to defraud the Appellants existed outside of the contract itself.
Civil Theft Supported by Allegations
The Appellants also brought a claim under Ohio’s civil theft statute (R.C. 2307.60), alleging the Appellees knowingly obtained their $5,000 through deception. The court determined that the allegations supporting the fraud claim—that the Appellees used false promises to obtain the money—were sufficient to establish the “deception” element required for civil theft. The court also rejected the argument that the existence of a contract automatically bars a civil theft claim if the underlying act involved deception preceding the contract formation.
Unjust Enrichment Survives Due to Bad Faith
Finally, the court addressed the unjust enrichment claim, which seeks restitution when one party retains a benefit that rightfully belongs to another. Generally, a claim for unjust enrichment cannot stand when an express contract covers the subject matter.
However, this general rule has exceptions, notably when there is evidence of “fraud, illegality, or bad faith.” Because the Appellants successfully pleaded claims for fraud and civil theft, the court reasoned that the allegations of bad faith and illegality were sufficient to allow the equitable claim for unjust enrichment to proceed against the individuals who allegedly received the benefit improperly.
Conclusion and Mandate
In summary, the First Appellate District ruled that while the Appellants failed to establish individual liability for the contract signed by the corporation, they adequately pleaded that Reder and Picard engaged in independent wrongdoing—fraud, theft, and unjust retention of funds. The judgment was affirmed regarding the contract claim but reversed for the tort and equity claims, remanding the case for further proceedings against Reder and Picard on those grounds. Costs were apportioned 25% to the Appellants and 75% to the Appellees.