Belvedere Condominium Unit Owners' Assn. v. R.E. Roark Cos., Inc. - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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OPINIONS OF THE SUPREME COURT OF OHIO
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The Belvedere Condominium Unit Owners' Association, Appellee, v.
R.E. Roark Companies, Inc. et al., Appellants.
[Cite as Belvedere Condominium Unit Owners' Assn. v. R.E. Roark
Cos., Inc. (1993), Ohio St.3d .]
Real property -- Condominium owners' association may maintain an
action against a condominium developer for breach of
fiduciary duty, when -- R.C. 5311.26 imposes strict
liability for condominium developer's failure to disclose to
prospective relevant financial information concerning the
development purchasers -- Corporations -- Corporate form may
be disregarded and individual shareholders held liable for
wrongs committed by the corporation, when.
1. A condominium owners' association may not maintain an action
against a condominium developer for breach of fiduciary duty
absent an understanding by both parties that special trust
and confidence have been reposed in the developer.
2. R.C. 5311.26 imposes strict liability for a condominium
developer's failure to disclose to prospective purchasers
relevant financial information concerning the condominium
development.
3. The corporate form may be disregarded and individual
shareholders held liable for wrongs committed by the
corporation when (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.
(No. 92-30 -- Submitted April 7, 1993 -- Decided
September 15, 1993.)
Appeal from the Court of Appeals for Hamilton County, No.
C-900581.
This appeal stems from a lawsuit brought by appellee, the
Belvedere Condominium Owners' Association ("the Association"),
against appellants, R.E. Roark Companies, Inc. ("RERC") and
Ronald E. Roark ("Roark"). The Association's complaint alleged

that RERC and Roark had breached alleged fiduciary duties to the
Association and violated the Ohio Condominium Act.
There are four major players in this dispute: the
Association, RERC, Roark, and Bellhill, Ltd. ("Bellhill"). The
Association is composed of the owners of the residential
condominium units in the Belvedere, a Cincinnati building that
contains both residential and commercial space. The building has
a total of eighty-eight residential units. The ground floor of
the Belvedere includes forty-seven hundred square feet of
commercial space. RERC is a Columbus-based real estate developer
and Roark is RERC's majority shareholder. Bellhill, a limited
partnership, was the developer of the Belvedere Condominiums.
RERC was the general partner in Bellhill and held a twenty
percent interest in Bellhill. Roark, individually, was neither a
general nor a limited partner of Bellhill.
In 1981 the original developer of the Belvedere Condominiums
apparently found itself unable to continue the project. In
December 1981, Bellhill was formed to replace the original
developer and finish the development. At that time Bellhill
purchased the sixty-nine residential units that had not been sold
to individual unit owners.
The Association, which was formed as required by Ohio law,
was the owner of all of the common areas in the Belvedere
development. The common areas included the forty-seven hundred
square feet of ground floor commercial space.
In December 1981 the Association leased all of the
Belvedere's commercial space to RERC. Prior to the execution of
the lease, less than one thousand square feet of the commercial
space was occupied. The lease was for a term of five years and
RERC was given renewal option rights for four subsequent
five-year periods at the same price, terms, and conditions. The
rent was fixed at $21,600 per year. Under the lease the
Association was responsible for obtaining and maintaining
insurance coverage, parking facilities, and lighting in all
common areas. The Association was also responsible for general
maintenance and repair of the property. Finally, the Association
agreed to pay all utilities, taxes, and assessments on the common
areas. At trial, an expert witness for the Association testified
that this lease was unfair and one-sided.
At the time of the execution of the lease, Bellhill owned a
majority of the units in the development and, therefore,
controlled the board of the Association. Four of the five
members of the board were employees of one or more companies
owned or controlled by Roark. At trial, Roark testified that
RERC spent approximately $103,400 renovating the commercial space
after the lease was executed. Roark also testified that the
lease was necessary because federal mortgage insurance agencies
would not insure financing of individual residential units unless
the commercial space was covered by a long-term lease.
The existence of the lease was revealed to prospective and
former condominium unit purchasers in a disclosure statement
required by law. The statement mentioned the lease twice. On
the second page it stated that "[t]he Common Areas and Facilities
include approximately 4,712 square feet of commerical space.
This commercial space has been leased on a long term basis by the
R.E. Roark Companies, Inc." On page twenty, the statement
mentioned again that the "Unit Owner's Association has entered

into a lease with The Roark Companies, Inc. of Columbus, Ohio for
all of the commercial space on the first floor of the building."
Roark testified that a copy of the lease was given to the five or
six prospective purchasers who requested one and the disclosure
documents were given to all of the unit owners who had bought
their property prior to the execution of the lease. The
disclosure documents did not reveal that RERC held a twenty
percent interest in Bellhill and was Bellhill's general partner.
Bellhill was unable to sell on the open market all of the
residential units it owned. The remaining units were sold at
auction in 1983. At the same time, Bellhill transferred control
of the Association's board to individual unit owners.
Between 1981 and 1986, RERC sublet portions of the
commercial space to five different sublessees. In May 1986 RERC
assigned its entire leasehold interest to the Superior Title
Agency, Inc. Superior Title paid RERC over $100,000 in
consideration for the assignment.
In 1987, some four years after the individual unit owners
had gained control over the Association's board, the Association
filed this action against RERC and Roark. The complaint charged
that RERC and Roark violated their fiduciary duties to the
Association by causing the original lease to be executed. It
also alleged that they did not adequately disclose the existence
and nature of the lease to prospective purchasers. The
Association sought damages in the amount of the difference
between the rent agreed to in the lease and the value of the
lease had it been negotiated at arm's length.
After hearing evidence from both parties, the trial court
entered judgment in favor of the Association against RERC and
Roark, jointly and severally, for $100,000 plus interest. The
court explained its reasoning in a June 19, 1990 letter to
counsel. It found that RERC and Roark were liable for fraudulent
self-dealing in entering into the lease agreement with the
Association. The court wrote that the "lease on its face is
completely one sided" and that "[c]ommon sense tells one that
there is something 'rotten in Denmark' when a lease such as this
is executed." It focused on the renewal options given to RERC,
RERC's subsequent assignment of the lease for $100,000, the
provisions of the assignment, and the "devious" way in which the
terms of the lease had been disclosed to unit buyers.
The trial court concluded that Roark, individually, was
liable for the acts committed by RERC. In the briefest sort of
way, the court wrote that Roark had "complete domination and
control" over RERC and thus was liable for the company's wrongs.
RERC and Roark appealed and the court of appeals affirmed.
The court first considered whether the trial court's finding of
fraud was supported by sufficient evidence. It analyzed the
Association's fraud claim under the framework of common-law
fraud. It specifically found that the evidence adduced at trial
supported all five elements of common-law fraud: (1) knowledge
of a material fact, (2) concealment of that fact, (3) intent to
induce reliance, (4)actual reliance, and (5) injury resulting
from reliance.
The court then reviewed the trial court's ruling that Roark
was personally liable. Following a three-part test used by the
United States Court of Appeals for the Sixth Circuit in
Bucyrus-Erie Co. v. Gen. Products Corp. (C.A.6, 1981), 643 F.2d

413, it held that the trial court properly disregarded the
corporate fiction in order to reach Roark individually. It was
convinced by the record "that Roark engaged in a series of
transactions which, if taken as a whole, demonstrate that he
acted in his own personal interest to the detriment of the
appellee."
Finally, the court held that RERC and Roark did breach a
fiduciary duty to the Association. The question of whether such
a fiduciary duty exists was not raised or answered by the court.
It seemed to hold only that the lease was one-sided, RERC and
Roark controlled the Association's board when the lease was
executed and, therefore, a fiduciary duty was breached.
RERC and Roark appeal from the judgment of the court of
appeals. The cause is now before this court upon the allowance
of a motion to certify the record.

Manley, Burke & Fischer and Timothy A. Fischer, for appellee.
Griffin & Fletcher and Michael C. Fletcher; H. Fred Hoefle;
Bayh, Connaughton, Fensterheim & Malone, G. David Fensterheim and
Kevin C. Golden, for appellants.
Lee Fisher, Attorney General, Nancy J. Miller, Deputy Chief
Counsel, and Robert A. Zimmerman, Assistant Attorney General,
urging affirmance on behalf of amicus curiae Lee Fisher.
Thompson, Hine & Flory, Kenton L. Kuehnle and Margaret R.
Carmany, urging reversal on behalf of amicus curiae Ohio Home
Builders Association.

Wright, J. This appeal requires the court to construe the
Ohio Condominium Act, R.C. Chapter 5311. It presents three
primary issues: whether a condominium developer owes a fiduciary
duty to a condominium owners' association, whether there is
sufficient evidence in the record to support a finding that RERC
or Ronald E. Roark violated the Condominium Act by failing to
disclose or inadequately disclosing material facts regarding the
lease in question, and whether Ronald E. Roark, as an individual,
can be held liable to the Association.
We hold that condominium developers do not have a fiduciary
duty to condominium owners' associations under the
Act. We also find that the courts below used the wrong
criteria in considering whether RERC or Roark is liable for
failing to adequately disclose information regarding the
lease. Finally, we conclude that the court of appeals erred
in allowing RERC's corporate veil to be pierced. Therefore,
the judgment of the court of appeals is reversed and the cause
remanded to the common pleas court to act in accordance with
this opinion.
I
A
We first must deal with the Association's contention that we
should not decide whether developers owe a fiduciary duty to
owners' associations. The Association argues vigorously that
this issue ought not be considered by this court because it was
not expressly briefed or argued in the courts below. The
Association would have us assume that there is such a duty and go
on to decide whether RERC breached that duty. This we cannot do.
As a general rule, this court will not consider arguments
that were not raised in the courts below. See State v. 1981

Dodge Ram Van (1988), 36 Ohio St.3d 168, 170, 522 N.E.2d 524,
526. The waiver doctrine, however, is not absolute. Id. at
169-170, 522 N.E.2d at 526; In re M.D. (1988), 38 Ohio St.3d 149,
527 N.E.2d 286. When an issue of law that was not argued below
is implicit in another issue that was argued and is presented by
an appeal, we may consider and resolve that implicit issue. To
put it another way, if we must resolve a legal issue that was not
raised below in order to reach a legal issue that was raised, we
will do so.
In this case, the issue of whether condominium developers
owe a fiduciary duty to owners' associations is implicit in the
question whether RERC breached that duty. It would be
irresponsible for us to assume, for the sake of one case, that
such a duty exists. Part of our role in the court system is to
decide cases involving issues of broad public interest in such a
way that the law can be applied in an orderly and predictable
manner. Predictability is highly valued in American
jurisprudence. To assume an answer to an unsettled issue would
be to ignore our responsibilities and intentionally leave the law
unsettled and unpredictable. We therefore choose to decide this
issue, which has been fully briefed in this court.
B
In 1963 the Ohio Condominium Act ("Act") was enacted by the
General Assembly. Am.S.B. No. 18, 130 Ohio Laws 1425. The Act
recognized, for the first time under Ohio law, the condominium as
a form of real property. See 130 Ohio Laws at 1251; Note, Ohio
Amends It's [sic] Condominium Act (1979), 4 U. Dayton L.Rev.
503. It specifically addressed "(1) the creation of a
condomiunium form of cooperative ownership, (2) the respective
interests each unit owner possessed in the common areas, (3) the
condominium administration, (4) the rights of lienors, and (5)
the removal of the property from the Act's provisions."
(Footnotes omitted.) Blackburn & Melia, Ohio Condominium Law
Reform: A Comparative Critique (1978), 29 Case W.Res.L.Rev. 145,
147-149.
One of the Act's new requirements was the creation of unit
owners' associations to administer condominium property. Former
R.C. 5311.08, 130 Ohio Laws 1254. This was a novel development
in Ohio law. An owners' association acts as a "quasi-government
entity paralleling in almost every case the powers, duties, and
responsibilities of a municipal government." Hyatt & Rhoads,
Concepts of Liability in the Development and Administration of
Condominium and Home Owners Associations (1976), 12 Wake Forest
L.Rev. 915, 918. Under the 1963 Act, the developer, as owner of
the majority of units during the infancy of the development,
controlled the unit owners' association for an indefinite period
of time. The effect was "that the developer during the period
[in which it controls the association] has two separate and
distinct loyalties: the operation of the association and the
development and marketing of the project. There is an inherent
conflict of interest in this situation, for some decisions will
of necessity have to be made that benefit one loyalty at the
expense of the other." Id. at 973.
Recognizing this absolutely unavoidable conflict of
interest, the General Assembly took specific steps in 1978 to
protect condominium unit owners by amending the Act. Am.Sub.H.B.
No. 404, 137 Ohio Laws, Part II, 2594. Among other improvements,

the amendments added three new provisions, R.C. 5311.25, 5311.26,
and 5311.27, and amended one existing provision, R.C. 5311.08.
137 Ohio Laws, Part II, 2606-2621. These new and newly amended
sections were intended to protect condominium owners and
purchasers from developer abuse. See Blackburn & Melia, supra,
29 Case W.Res.L.Rev. at 148. "The amendments strike a balance
between preservation of the developer's investment and the
protection of unit owners from unfair management practices. This
is done primarily through the establishment of a time requirement
for the initial owners meeting and a timetable for the gradual
transfer of control from the developer to the other unit
owners." Id. at 182. See, also, Note, supra, 4u. Dayton L.Rev.
at 504 ("[t]he legislation is an attempt to walk the fine line
between providing protection for the potential condominium
purchaser and not unduly restricting the condominium developer's
ability to shape his project as he sees fit").
Even after the 1978 amendments, the developer controls the
owners' association in its infancy. Initially, the developer has
the right to appoint members of the board and to exercise the
powers of the association. R.C. 5311.08(D). Amended R.C.
5311.08, however, imposes a timetable for relinquishing control
of the association to individual unit owners other than the
developer. Pursuant to R.C. 5311.08(C) when units controlling at
least twenty-five percent of the common areas have been sold,
unit owners other than the developer must elect at least
twenty-five percent of the association board. When fifty percent
of the control over the common areas has been sold, unit owners
other than the developer must elect at least one third of the
board. The developer's control of the owners' association ends
and the unit owners are entitled to elect the entire board three
years after the formation of the owners' association or thirty
days after the sale of seventy-five percent of the condominium
instruments, whichever comes first. R.C. 5311.08(D).
The three new sections added by the 1978 amendments, R.C.
5311.25, 5311.26, and 5311.27, are essentially consumer
protection provisions and delimit and describe the authority of
the developer. R.C. 5311.25 requires the developer to place
certain information in the condominium instruments and prohibits
the sale of a condominium unit unless the instruments contain the
required information. Of particular relevence to this case is
R.C. 5311.25(D), which provides:
"Neither the unit owners association nor the unit owners
will be subject to any management contract or agreement executed
prior to the assumption of control required by division (C) of
this section for more than one year subsequent to that assumption
of control unless such a contract or agreement is renewed by a
vote of the unit owners pursuant to the bylaws required by
section 5311.08 of the Revised Code."
We believe, and the parties appear to agree, that this
provision entitles the board of the owners' association, once
fully elected by the individual unit owners, to cancel contracts
entered into by the developer-controlled board. This provision
protects unit owners from inequitable contracts and agreements,
including those similar to the lease that led to this
litigation.
R.C. 5311.26 requires that detailed information regarding
"all material circumstances or features affecting the

development" be disclosed to prospective purchasers. "This
provision attempts to insure that the prospective buyer is fully
aware of those factors that may influence his decision to
purchase." Note, supra, 4 U. Dayton L.Rev. at 513. The
assumptions behind this requirement are that it "will force
developers to proceed more carefully in planning and selling
units and that buyers will be able to make an informed decision
before entering into a purchase." (Footnotes omitted.)
Blackburn & Melia, supra, 29 Case W.Res.L.Rev. at 157.
R.C. 5311.27 provides a statutory remedy for violations of
R.C. 5311.25 and 5311.26. R.C. 5311.27(A) states that "[i]n
addition to any other remedy available," a purchaser may rescind
a sale contract. R.C. 5311.27(B) allows a purchaser to bring an
action against the developer for violating R.C. 5311.25 or
5311.26 and sets forth the damages which may be levied against
the developer. Finally, R.C. 5311.27(C) provides an avenue for
public enforcement of the Act. The Attorney General is permitted
to bring a declaratory judgment action, obtain an injunction,
bring a class action for damages, and request that the court
appoint a receiver or master.
It is clear that the Ohio Condominium Act and the 1978
amendments to the Act created relationships, rights, and remedies
that did not exist at common law. The scope of the Act convinces
us that it was meant to comprehensively define and regulate the
law of condominium development, including the legal relationship
between condominium developers and unit owners' associations.1
C
Both the Association and amicus curiae the Attorney General
argue that there exists some sort of common-law fiduciary duty
which is applicable to the relationship between RERC and Roark
and the Association. We find simply no Ohio authority that
holds, or even suggests, that there is a common-law fiduciary
relationship between condominium developers and unit owners'
associations. Contrary to the apparent position of the Attorney
General, Ohio most certainly has no "ancient and settled system"
of condominium law.
We believe that the relationships at issue in this case were
created by the legislature and are defined in detail by the Ohio
Condominium Act alone. Thus, we arrive at the central issue:
whether the Act creates a fiduciary relationship between
condominium developers and unit owners' associations.2
"A 'fiduciary relationship' is one in which special
confidence and trust is reposed in the integrity and fidelity of
another and there is a resulting position of superiority or
influence, acquired by virtue of this special trust." In re
Termination of Employment of Pratt (1974), 40 Ohio St.2d 107,
115, 69 O.O.2d 512, 517, 321 N.E.2d 603, 609. The person in whom
the "special confidence and trust" are reposed, the fiduciary,
has a "duty to act for someone else's benefit, while
subordinating [his or her] personal interests to that of the
other person." (Emphasis added.) Black's Law Dictionary (6 Ed.
1990) 625. A fiduciary may not possess an interest of any sort
that might conflict with an interest of the person to whom he or
she owes a duty.
Although a number of Ohio statutes expressly create
fiduciary duties,3 nowhere in R.C. Chapter 5311 is a fiduciary
duty mentioned. Instead, we believe that the relationship

between condominium developers and owners or purchasers is not
unlike that which exists between creditors and consumers or
sellers and buyers. Like R.C. Chapter 5311, Ohio's commercial
statutes do not expressly impose a fiduciary duty. As a result,
this court has held that a creditor/consumer relationship is not
fiduciary "absent an understanding by both parties that a special
trust and confidence has been reposed in the creditor." Blon v.
Bank One, Akron, N.A. (1988), 35 Ohio St.3d 98, 519 N.E.2d 363,
paragraph two of the syllabus; Umbaugh Pole Bldg. Co., Inc. v.
Scott (1979), 58 Ohio St.2d 282, 12 O.O.3d 279, 390 N.E.2d 320.
In Layman v. Binns (1988), 35 Ohio St.3d 176, 519 N.E.2d 642, we
upheld the doctrine of caveat emptor in real estate transactions
and recognized that no fiduciary duty exists between buyers and
sellers of real property.
R.C. Chapter 5311 recognizes the condominium as a form of
real property and creates a system of rules to govern the
development, sale, and management of condominium property,
including the requirement that owners' associations be formed.
It recognizes the relationships between condominium developers,
owners' associations, and purchasers, and provides for the
transfer of control from the developer to the owners and for the
continuing government of the condominium property. And, most
important for our purposes, it recognizes that certain conflicts
are inherent in the relationships between the developers and the
owners and purchasers. In response to these conflicts, the
General Assembly added specific provisions intended to limit the
power of the developer and to prevent condominium owners and
purchasers from being deceived by unscrupulous developers.
The Act, however, does not create a fiduciary relationship
between developers and owners, developers and owners'
associations, or developers and purchasers. In fact, we believe
that it does just the opposite -- it plainly recognizes that
developers, owners, and purchasers have different, and often
competing, financial interests.4 Instead of prohibiting such
competing interests by imposing a fiduciary duty on developers,
the legislature adopted specific measures to regulate the
different relationships and to protect the parties in weaker
bargaining positions. These include the consumer protection
provisions in R.C. 5311.08, 5311.25 and 5311.26 and the remedial
provisions in R.C. 5311.27.
If this court imposed a general fiduciary duty on developers
it would literally shatter the statutory scheme. R.C. 5311.08
essentially requires self-dealing by developers during the early
years of the development. The General Assembly, aware of the
inherent dangers of self-dealing, gave owners' associations at
the very least the express right to cancel contracts once the
individual unit owners take control of the owners' association.
R.C. 5311.25(D). The Act also specifically includes the right to
sue developers for violating its provisions. R.C. 5311.27. If
developers had a general fiduciary duty, this statutory right of
action would be superfluous because developers could simply be
sued under the common law for breach of that duty.
Prior to the 1978 amendments to the Act, public policy might
have required us to impose some sort of fiduciary duty on
developers in order to protect owners and purchasers. With the
amendments, however, the intent of the General Assembly to create
a regulated commercial relationship rather than a fiduciary

relationship became clear. Therefore, as we have done in the
context of other types of commercial cases, we hold that a
condominium owners' association may not maintain an action
against a condominium developer for breach of fiduciary duty
absent an understanding by both parties that special trust and
confidence have been reposed in the developer. Because there is
no evidence in the record of such an understanding, the
Association's claim for breach of fiduciary duty must be
dismissed.5
II
Both parties strenuously dispute the nature of the second
issue we must address. The Association contends that its second
claim against RERC and Roark is for a violation of the disclosure
requirement of the Act, R.C. 5311.26. RERC and Roark argue that
the Association's cause of action sounds in common-law fraud. We
accept the Association's characterization of its claim and hold
that a violation of R.C. 5311.26 can be proved without evidence
of intent to induce reliance or actual reliance.
The Association argues that RERC and Roark failed to
disclose material facts regarding the lease in accordance with
the requirements of the Act. In its complaint the Association
specifically alleged that the disclosure instruments did not
adequately reveal the lease or the terms of the lease. In
support of its argument it pointed to the December 1981 lease
between RERC and the Association and the disclosure information
provided to potential purchasers by Bellhill. The Association
did not offer any evidence of actual reliance on the
representations made in the disclosure documents.
The Association asserts, however, that a violation of R.C.
5311.26 can be proved without evidence of actual reliance -- that
the fact of nondisclosure is alone sufficient to prove causation
of damages. It contends that the disclosure requirements under
the Condominium Act are analagous to those under federal
securities law and that the failure to disclose a material fact,
in and of itself, is a basis for liablity. See Section 78j(b),
Title 15, U.S. Code; SEC Rule 10(b)(5); Affiliated Ute Citizens
of Utah v. United States (1972), 406 U.S. 128, 153, 92 S.Ct.
1456, 1472, 31 L.Ed.2d 741, 761.
R.C. 5311.26 provides in part:
"No developer or agent, directly or indirectly, shall sell
or offer to sell a condominium ownership interest in a
condominium development unless he discloses fully and accurately
to each prospective purchaser of the interest all material
circumstances or features affecting the development, by preparing
and providing to each prospective purchaser a readable and
understandable written statement of such circumstances or
features. The statement shall not intentionally omit any
material fact or contain any untrue statement of a material fact
and shall contain all of the following:
"***
"(I) A facsimile of any management contract or other
agreement affecting the operation, use, or maintenance of or
access to all or any part of the condominium development, with a
brief narrative statement of the effect of each agreement upon a
purchaser, including a specification of the services to be
rendered and the charges to be made thereunder, and a statement
of the relationship, if any, between the developer and the

managing agent;"
"***
"(L) The significant terms of any encumberances [sic],
easements, liens, and matters of title affecting the condominium
development;
"***
(N) A statement of any restraints on the free alienability
of all or any part of the condominium development[.]"
As discussed above, this is a consumer protection provision
designed to shield unsophisticated purchasers from overreaching
sellers. As such, we must construe it to effectuate this
purpose. We believe that R.C. 5311.26 imposes strict liability
for a developer's failure to make the proper disclosures. It
imposes an absolute requirement that developers disclose relevant
financial information concerning the condominium development.
To prove a violation of this section, a plaintiff does not
have to prove the five elements of common-law fraud. A plaintiff
must merely prove a failure to disclose material information.
Once this is done, liability attaches and the plaintiff must then
prove damages under R.C. 5311.27.6 As the United States Supreme
Court has stated in the context of securities regulation, the
statutory obligation to disclose combined with the withholding of
a material fact "establish[es] the requisite element of
causation." Affiliated Ute Citizens, supra, 406 U.S. at 154, 92
S.Ct. at 1472, 31 L.Ed.2d at 761. Accordingly, proof of reliance
is not essential to recovery.
The court of appeals erred by analyzing the Association's
claim under the common law. The common pleas court erred by
merging its analysis of the fiduciary duty issue with analysis
suggesting common law fraud or misrepresentation. Accordingly,
we must remand this cause to the common pleas court to consider a
factual issue: whether the information regarding the lease that
was provided to prospective condominium purchasers satisfied the
disclosure requirements of R.C. 5311.26.7 If the trial court
finds that the disclosure was inadequate, damages must be
calculated and proven under R.C. 5311.27(B).
III
The final issue we must consider is whether Ronald E. Roark,
as an individual, can be held jointly and severally liable to the
Association. This requires us to address the alter ego doctrine
and the ability of a plaintiff to "pierce the corporate veil" in
order to reach an individual shareholder.
A fundamental rule of corporate law is that, normally,
shareholders, officers, and directors are not liable for the
debts of the corporation. See Presser, Piercing the Corporate
Veil (1991) 1-4. An exception to this rule was developed in
equity to protect creditors of a corporation from shareholders
who use the corporate entity for criminal or fraudulent
purposes. "That a corporation is a legal entity, apart from the
natural persons who compose it, is a mere fiction, introduced for
convenience in the transaction of its business, and of those who
do business with it; but like every other fiction of the law,
when urged to an intent and purpose not within its reason and
policy, may be disregarded." State ex rel. Atty. Gen. v.
Standard Oil Co. (1892), 49 Ohio St. 137, 30 N.E. 279, paragraph
one of the syllabus. Under this exception, the "veil" of the
corporation can be "pierced" and individual shareholders held

liable for corporate misdeeds when it would be unjust to allow
the shareholders to hide behind the fiction of the corporate
entity. Courts will permit individual shareholder liability only
if the shareholder is indistinguishable from or the "alter ego"
of the corporation itself. See, generally, Presser, supra.
This court has not recently addressed the elements which
must be proved in order to pierce the corporate veil. See
Presser, supra, Section 2.36. North v. Higbee Co. (1936), 131
Ohio St. 507, 6 O.O. 166, 3 N.E.2d 391, involved an attempt to
hold a parent corporation liable for the debts of its subsidiary
on the ground that the subsidiary was an agent of the parent. A
majority of the court flatly rejected the agency theory. It held
that proving a mere agency relationship between the parent and
its subsidiary was insufficient and that absent an affirmative
showing of fraud, the subsidiary's corporate veil could not be
pierced in order to hold the parent liable. The syllabus stated
in part:
"The separate corporate entities of a parent and subsidiary
corporation will not be disregarded and the parent corporation
will not be held liable for the acts and obligations of its
subsidiary corporation, notwithstanding the facts that the latter
was controlled by the parent *** in the absence of proof that the
subsidiary was formed for the purpose of perpetrating a fraud and
that domination of the parent corporation over its subsidiary was
exercised in such manner as to defraud complainant." (Emphasis
added.)
North thus required a party seeking to pierce a corporate
veil to prove two essential facts: (1) that the corporation was
formed in order to perpetrate a fraud, and (2) that the
shareholder's control of the corporation was exercised to defraud
the party.
We believe that the first prong of the North test no longer
reflects the realities of modern corporate life. The requirement
that a corporation be formed in order to perpetrate a fraud is
simply too strict. The ease with which close corporations and
corporate subsidiaries can be created and the ability to transfer
ownership of an existing corporation leads us to believe that
corporations formed for legitimate purposes can easily be later
used to commit fraud or other wrongs. Moreover, it seems that in
practice it would be unreasonably difficult to prove that any
corporation was actually formed in order to perpetrate a fraud.
In finding that RERC's corporate form could be ignored and
Ronald Roark could be held individually liable, the court of
appeals below did not follow North. Instead, it followed the
opinion of the United States Court of Appeals for the Sixth
Circuit in Bucyrus-Erie Co. v. Gen. Products Corp. (C.A.6, 1981),
643 F.2d 413. In Bucyrus-Erie, the Sixth Circuit applied Ohio
law in reviewing jury instructions in a veil-piercing case. It
held that the corporate form may be disregarded when "(1)
domination and control over the corporation by those to be held
liable is so complete that the corporation has no separate mind,
will, or existence of its own; (2) that domination and control
was used to commit fraud or wrong or other dishonest or unjust
act, and (3) injury or unjust loss resulted to the plaintiff from
such control and wrong."8 Id. at 418.
One factor recognized by the Sixth Circuit, that the
shareholder's domination of the corporation was used to commit

fraud or another wrong, was part of the North test. The Sixth
Circuit also explicitly articulated two elements that we believe
were implicit in North: the plaintiff must show that the
corporation is so dominated by the shareholder that it has no
separate mind, will, or existence of its own, and that injury or
unjust loss resulted from the shareholder's control of the
corporation. See North, supra, at 524-527, 6 O.O. at 173-175, 3
N.E.2d at 397-399. The first element is a concise statement of
the alter ego doctrine; to succeed a plaintiff must show that the
individual and the corporation are fundamentally
indistinguishable. The second element is the requirement that
the shareholder's control of the corporation proximately caused
the plaintiff's injury or loss. Both are fairly obvious, but
necessary, preconditions to recovery under the alter ego doctrine.
We feel the Sixth Circuit's approach to piercing the
corporate veil strikes the correct balance between the principle
of limited shareholder liability and the reality that the
corporate fiction is sometimes used by shareholders to protect
themselves from liability for their own misdeeds. Thus, the
corporate form may be disregarded and individual shareholders
held liable for corporate misdeeds when (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.
We hold that the Association did not introduce sufficient
evidence to pierce RERC's corporate veil and reach Roark
individually. The Association did not introduce any evidence
that Roark used his control over RERC in such a manner as to
defraud the Association. Neither the trial testimony presented
by the Association nor the stipulations agreed to by the parties
even suggested that Roark, personally, used his influence to
defraud or injure the Association or its members. The evidence
cited by the court of appeals below clearly shows that Roark did
exercise control over RERC, but mere control over a corporation
is not in itself a sufficient basis for shareholder liability.
The judgment of the court below as to Roark's individual
liability was not supported by competent, credible evidence and,
therefore, must be reversed.9
IV
The judgment of the court of appeals is reversed. This
cause is remanded to the Court of Common Pleas of Hamilton County
with instructions to issue judgment in favor of Ronald E. Roark
on all claims by the Association and in favor of RERC on the
Association's claim for breach of fiduciary duty. The court must
also consider whether RERC, in its capacity as general partner in
Bellhill, complied with R.C. 5311.26(D) by "fully and accurately"
disclosing its interest in the common areas of the condominium
development through "a readable and understandable written
statement of such circumstances." If the court finds against
RERC, it must calculate damages in light of R.C. 5311.27(B) for
those unit owners who purchased condominiums from Bellhill prior
to the time Bellhill sold out of the Belvedere in 1983.
Judgment reversed

and cause remanded.
Moyer, C.J., A.W. Sweeney, F.E. Sweeney and Pfeifer, JJ.,
concur.
Douglas and Resnick, JJ., separately dissent.

FOOTNOTES:
1 We note in passing that the Act is vague in parts and
difficult of interpretation. Our reading of the Act attempts to
give meaning to sometimes ambiguous provisions in light of its
general goals. Any errors on our part, of course, may be
corrected by the General Assembly.
2 The Association argues that this is not the issue. In
addition to its argument that a common-law duty exists, it
characterizes the issue as whether "[a] condominium developer who
is a member of the board of an incorporated condominium owner's
[sic] association owes fiduciary duties to the association under
the Ohio Corporation Code." This appeal, however, does not
require us to decide whether a board member of an incorporated
entity owes fiduciary duties because neither RERC nor Roark was a
member of the Association's board. If RERC or Roark is liable it
is because they owe a duty to the Association in their capacities
as developers, not board members.
3 See, e.g., R.C. 1701.59(B) (codifying duty between
corporation and board of directors), R.C. 1339.03 et seq.
(Uniform Fiduciary Act), R.C. Chapter 2109 (fiduciary duty in
probate context), R.C. 3103.05 (fiduciary duty between spouses).
4 Amicus curiae Ohio Home Builders Association observes
that "[t]he impact of finding a 'fiduciary' responsibility will
be to place individuals who agree to assist in the operation of
such associations during such initial phases in the impossible
position of being sued for any decision which can be interpreted
as benefiting the developer."
5 In response to the dissent's criticism, we must make it
clear that with respect to RERC's liability to the Association we
have not "reweighed the evidence and substituted [our] judgment
for that of the court of appeals." Quite to the contrary, we
simply have found that the courts below utilized incorrect legal
standards in reaching their judgments. That is, of course, why
we remanded the cause to the trial court for further
proceedings. If, as the dissent asserts, we were possessed of a
"predetermined judgment," we would have reversed the court of
appeals and ordered the trial court to issue judgment in all
respect in favor of RERC.
6 In this case R.C. 5311.27(B) would be the proper damages
provision. It provides:
"(B) Any developer or agent who sells a condominium
ownership interest in violation of section 5311.25 or 5311.26 of
the Revised Code shall be liable to the purchaser in an amount
equal to the difference between the amount paid for the interest
and the least of the following amounts:
"(1) The fair market value of the interest as of the time
the suit is brought;
"(2) The price at which the interest is disposed of in a
bona fide market transaction before suit;
"(3) The price at which the unit is disposed of after suit
in a bona fide market transaction, but before judgment. In no
case shall the amount recoverable under this division be less

than the sum of five hundred dollars for each violation against
each purchaser bringing an action under this division, together
with court costs and reasonable attorneys' fees. If the
purchaser complaining of the violation of section 5311.25 or
5311.26 of the Revised Code has brought or maintained an action
he knew to be groundless or in bad faith and the developer or
agent prevails, the court shall award reasonable attorneys' fees
to the developer or agent."
7 It appears from the record that some purchasers may have
received complete disclosure. Roark's testimony was that "five
or six" prospective purchasers asked for and were given an actual
copy of the lease.
8 As a result of Bucyrus-Erie, two irreconcilable lines of
cases have developed in the lower Ohio courts. Some Ohio courts
of appeals have followed North in requiring that fraud in
formation must be established. See Wakefield v. First Bank Natl.
Assn. (1989), 62 Ohio App.3d 737, 577 N.E.2d 434; Talbott v.
Columbus & Southern Ohio Elec. Co. (Oct. 9, 1987), Meigs App. No.
383, unreported; Union Enterprises, Inc. v. Garland (Dec. 11,
1986) Franklin App. No. 86AP-612; Sedgwick v. Kawaski Cycleworks,
Inc. (1985), 24 Ohio App.3d 109, 24 OBR 179, 493 N.E.2d 308;
Suburban Nursing & Mobile Homes, Inc. v. Intra-City Enterprises,
Inc. (Apr. 14, 1983), Franklin App No. 82AP-111, unreported.
Other courts of appeals, however, have relied on Bucyrus-Erie and
held that a finding of fraud in formation is not necessary. See
Pioneer Heating & Air Conditioning, Inc. v. Elbert (June 3,
1987), Lorain App. No. 4027, unreported; Saeks v. Saeks (1985),
24 Ohio App.3d 67, 24 OBR 122, 493 N.E.2d 280; Crownover Lumber
Co. v. Heath Pallet Co. (May 20, 1985), Vinton App. No. 414,
unreported.
9 Again in response to the dissent's criticism that we are
guilty of reweighing the evidence, we must respond by stating
that we have not in any way attempted to balance the evidence for
and against Roark's individual liability. The standard of review
for sufficiency of the evidence was stated in C.E. Morris Co. v.
Foley Constr. Co. (1978), 54 Ohio St.2d 279, 8 O.O.3d 261, 376
N.E.2d 578, syllabus: "Judgments supported by some competent,
credible evidence going to all the essential elements of the case
will not be reversed by a reviewing court as being against the
manifest weight of the evidence." We have found that evidence
supporting one essential element of the test for piercing the
corporate veil is not to be found in the record. The missing
element was a showing that Roark controlled the corporation in
order to defraud the Association. In light of this omission, we
had no choice but to reverse.

Belvedere Condominium Unit Owners' Assn. v. R.E. Roark Cos.
Douglas, J., dissenting. I respectfully dissent. This
case was tried to the court. A distinguished and thoroughly
competent trial court judge, Judge Gilbert Bettman, heard the
case, weighed the evidence, determined issues of law presented
and wrote a well-reasoned, lengthy opinion letter deciding the
case. A thoughtful and also thoroughly competent panel of judges
of the First District Court of Appeals, Presiding Judge Doan,
Judges Klusmeier and Hildebrandt, reviewed the judgment of the
trial court and, in an exhaustive twelve-page opinion,
unanimously affirmed the trial court. A reading of the opinions

of both the trial court and the court of appeals reveals that
both courts carefully reviewed the evidence, met their mandates
to weigh evidence and review alleged errors of law and entered
their judgments accordingly.
Notwithstanding the foregoing, the majority, in a prolix
opinion, reverses the judgment of the court of appeals (and that
of the trial court). In doing so, the majority says such things
as: "It [the court of appeals] specifically found that the
evidence adduced at trial supported all five elements of
common-law fraud * * *"; "* * * the Association did not introduce
sufficient evidence to pierce RERC's corporate veil and reach
Roark individually"; and "[t]he judgment of the court below as to
Roark's individual liability was not supported by competent,
credible evidence * * *."
Clearly, the majority has, in order to arrive at its
predetermined judgment, reweighed the evidence and substituted
its judgment for that of the court of appeals. At best, this
seems strange, given R.C. 2503.43, which provides that "[i]n a
civil case or proceeding, except when its jurisdiction is
original * * *, the supreme court need not determine as to the
weight of the evidence." In Chemical Bank of New York v. Neman
(1990), 52 Ohio St.3d 204, 207, 556 N.E.2d 490, 494, we said that
"[t]his court is not required to determine the weight of evidence
in civil matters, R.C. 2503.43, and ordinarily will not do so.
State, ex rel Kobelt, v. Baker (1940), 137 Ohio St. 337, 18 O.O.
521, 29 N.E.2d 960." (Emphasis added.) There seems to be no
good reason in this case to violate this sound rule.
In addition, and conveniently, the majority misses the whole
point of the opinions and judgments of the court of appeals and
the trial court. That point is that at the time the lease in
question was entered into, the Association was controlled by
Bellhill, which was controlled by RERC, which was controlled by
Roark. This interlocking control and inside dealing, which
resulted in a lease that is generally conceded to be unfair to
the Association, brought both lower courts to their assessments
of individual, joint and several liability. To ignore this
"control" factor is to ignore reality.
Further, the majority announces that for there to be a
fiduciary duty between a developer (builder) and a condominium
owners' association (owners-consumers), there must be an
"understanding" by both parties that special trust and confidence
have been reposed in the developer (builder). It should come as
no surprise that the majority gives no citation for this new and
very broad proposition. Let all who will, henceforth, enter into
a construction agreement with a developer-builder now be aware
that they should get, carved in stone, an "understanding" that
they can have trust and confidence in their builder to be honest
with them.
Finally, the majority says that "[w]hen an issue of law that
was not argued below is implicit in another issue that was argued
and is presented by an appeal, we may consider and resolve that
implicit issue." This is also curious, given the statement that
"[t]his court, however, is constitutionally limited to deciding
only issues directly presented by an individual case." Gallimore
v. Children's Hosp. Med. Ctr. (1993), 67 Ohio St.3d , ,
N.E.2d , (Wright, J., dissenting). It appears that some
would have this court's jurisdiction to decide a question depend

on whose "implicit issue" is being gored.
I respectfully dissent.10

FOOTNOTE:
10 This dissent was written before the majority decided to add
footnotes which are now numbered 5 and 9. The fact that the
majority felt the necessity to respond to the dissent makes the
point even more strongly, perhaps, than the dissent itself. Just
as interesting is the fact that while amending the majority
opinion, the majority did not also respond to the point that it
is deciding an issue that was not decided by the court of appeals
and, thus, is not before this court. Silence, in this case, is
obviously an admission.

Alice Robie Resnick, J., dissenting. I am troubled by the
degree of control appellant Roark exercised in "negotiating" the
lease at issue. Apparently, Roark (acting as lessor through a
partnership he controlled) essentially negotiated a lease,
covering the common commercial areas of the Belvedere, with
himself (acting through a company he controlled) as lessee. It
is not particularly surprising that the lease terms were very
favorable to the lessee Roark, because the Association (not
lessor Roark) was the owner of the common areas. What is
surprising is that the majority apparently sees no problem with
lessor Roark acting in this manner. Through this transaction,
Roark's conduct evinces violations of basic duties of good faith
and fair dealing. Consequently, I dissent.
The relationship between a condominium association and a
developer may not be a general fiduciary one (e.g., when a
developer sells a condominium to a buyer, the sale is clearly an
arm's-length transaction); however, the developer does owe some
fiduciary duty to purchasers of condominiums. To my mind, the
leasing of common areas is one situation where a developer should
not be able to take advantage of his or her status as a developer
to negotiate one-sided terms. A condominium association should
be able to expect that the condominium developer will not seek
self-enrichment by exploiting the members of the association in
this way. The law of caveat emptor, which applies to
arm's-length real estate transactions, should not apply to the
lease of the common areas of a condominium development under the
circumstances presented by this case. I cannot accept the
majority's determination that R.C. Chapter 5311 essentially gave
appellants free rein to set the lease terms however they saw fit.
Although this case has aspects of fraud as well as violation
of a fiduciary duty, it should not really be pigeonholed as
either. It seems unnecessary to force appellee to prove all the
elements of a common-law fraud. Likewise it seems unnecessary to
force appellee to demonstrate that appellants owe the Association
a strict general fiduciary duty before appellants can be found to
have taken unfair advantage of appellee. I cannot believe that
the legislature, when it allowed the condominium developer to
take control of the owners' association in the early stages of
the development by enacting R.C. 5311.08, contemplated that the
developer would self-deal in this way with impunity. Yet the
majority holds that R.C. Chapter 5311 insulates appellants from
common-law liability. Even if the majority is correct in its
assertion that "R.C. 5311.08 essentially requires self-dealing by

developers during the early years of the development" (emphasis
sic), I cannot accept the premise that R.C. Chapter 5311 condones
the type of self-dealing of this case.
Sufficient evidence was presented at trial to demonstrate
that appellants violated some type of fiduciary duty owed to
appellee, regardless of the label attached to that duty.
Appellee, through expert witness testimony, established at trial
that the terms of the lease were grossly unfair to appellee
(particularly in light of the terms of the subleases subsequently
negotiated by appellants). Moreover, a presumption of bad faith
was raised, which appellants have not overcome. Thus, competent,
credible evidence supported the trial court's determination that
(to use the trial judge's words) "there is something 'rotten in
Denmark.'" The trial court also realized that the evidence
indicated conclusively that Roark personally was responsible for
creating the smell. The court of appeals recognized the patent
unfairness engendered by Roark's bad faith and affirmed the trial
court's judgment. I would affirm the judgment of the court of
appeals.