Rui He v. Davor Rom ( 2018 )


Menu:
  •                         NOT RECOMMENDED FOR PUBLICATION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.”
    -2-
    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).
    -3-
    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).
    -4-
    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
    -5-
    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.
    -6-
    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
    .
    -7-
    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
    -8-
    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
    -9-
    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
    -10-
    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.”
    -11-
    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
    -12-
    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.
    -13-