After discovering delinquent taxes resulting from the seller’s ongoing dispute with the board of revision’s decision to assign the property a higher valuation than the seller thought should be, the purchaser was told that the tax dispute would not be an issue. The sale was completed and the tax appeals were resolved, after which time the buyer received a significant tax bill. The buyer sued its title agent for failing to provide it information regarding the potential property tax issues.
The case is B&H Resources LLC v. 28925 Lorain Inc., et al., (appeal by Resource Title National Agency Inc. (8th District Court of Appeals of Ohio, No. 105323).
While conducting due diligence for the purchase of property, B&H Resources LLC learned that there were delinquent taxes on the property resulting from the seller’s ongoing dispute with the board of revision’s decision to assign the property a higher valuation than what the seller believed should be assigned. Because B&H thought the tax issues had been resolved, it signed a purchase agreement that prorated taxes and assessments based on the last available tax duplicate. However, the board of revision’s higher valuation of the property had yet to be reflected on the tax duplicate existing at the time of closing and used by Resource Title National Agency Inc. The tax appeals eventually were resolved and B&H received a sizeable tax bill.
B&H filed suit against Resource National, alleging that it breached its contractual and fiduciary duties and that it negligently performed the title exam by failing to provide information relating to potential title issues and property tax liens. Resource National counterclaimed. It alleged that B&H and the seller agreed to hold Resource National harmless for any loss or damage resulting from the exercise of its services and that B&H should compensate it for its costs of litigation.
The trial court found in favor of Resource National on B&H’s complaint and in favor of B&H on Resource National’s counterclaim. Both parties appealed.
The subject property is used as a gas station, which the seller purchased in 2007 for $1.1 million. The seller argued that only $600,000 of that price went to the property itself and that the remaining $500,000 covered inventory, costs associated with the gas station and the purchase of a gas station in Illinois.
The seller objected to Cuyahoga County valuing the property at the $1.1 million price the seller paid in 2007, arguing that the purchase price had been artificially inflated. He contested the valuation to the board of revision in two separate tax appeals. One of the appeals covered tax years 2007 and 2008 and the other appeal covered tax years 2009-2011. The tax appeals were resolved adversely to the seller prior to the closing on the sale and the property was valued at $1.1 million for all relevant tax years. However, this was not reflected in the last available tax duplicate.
The appellate court affirmed the trial court’s motion, addressing first the cross appeal filed by B&H. B&H first argued that the court erred by finding that Resource National did not breach its contract.
The appellate court disagreed with B&H, finding that “the contract plainly required Resource National to use the last available tax duplicate to prorate taxes and assessments without reference to any other requirements in this regard. Stated differently, nothing in the contract required Resource National to do more than use the last available tax duplicate to determine the amount to be withheld from the seller at closing. And to further solidify the point, Section 10(g) of the conditions of escrow expressly states that Resource National would not be responsible for ‘anything not specifically assumed or agreed to’ in the standard conditions of escrow. As a matter of law, the terms and conditions of escrow, coupled with the purchase agreement itself, required Resource National to use the last available tax duplicate to apprise B&H of its tax liability or credits. This it did, so as a matter of law B&H did not breach the contract.”
B&H also argued that it had a viable negligence claim against Resource National for its failure to discover the outstanding tax issues and make those issues known to B&H. The court disagreed.
“The damages that B & H seeks in its negligence claims are based on Resource National’s alleged violation of a contract,” the court stated. “The relationship between the parties was defined solely by contract, and to the extent that Resource National allegedly breached the contract, the breach of contract cause of action would be the sole avenue of recovery for B&H. On this basis we find as a matter of law that the court did not err by granting summary judgment on the causes of action that sounded in negligence.
“Apart from being barred by the doctrine of economic loss, the claims sounding in negligence failed to establish that Resource National breached any duty of care,” the court continued. “(The buyer) insisted that it was his understanding that it was the title agency’s job to ‘dig up these things and bring it to my attention.’ Yet B&H has not cited any authority for the proposition that a title agency has a duty to go beyond what is specifically agreed to in the written documentation. In fact, current standards established by the Ohio State Bar Association ‘except special taxes and assessments not shown on the county treasurer’s public access records’ from those things that title examiners have a duty to report. Again, there is no question of fact that Resource National used the latest tax duplicate consistent not only with its contractual obligations, but in keeping with industry standards.”
The court then turned to Resource National’s appeal, which argued that the court erred by refusing to find that the indemnification clauses contained in the conditions of escrow required that Resource National be reimbursed for all of its costs and expenses.
“We agree with B&H that Section 1 of the conditions of escrow does not provide indemnity for claims relating to title,” the court stated. “That section is titled ‘Escrow Deposits.’ It broadly addresses the termination of escrow and grants Resource National the right, upon termination of escrow, to retain sufficient funds until its ‘fees and costs are paid or secured to its satisfaction or, at its option, deduct such fees and costs from any such funds deposited in escrow.’
“We reach a similar conclusion with respect to the indemnification clause contained in Section 3 of the terms and conditions of escrow,” the court continued. “That section is titled ‘Settlement Charges’ and refers to escrow, settlement, title transfer, and recording of costs and sets forth the manner in which the seller and buyer will be charged. As with Section 1, Section 3 states that ‘Agent shall be paid in full at the settlement for all title, escrow and settlement fees and costs and may withhold settlement and retain all funds and documents held as escrow or settlement agent until such fees and costs are paid or secured to Agent’s satisfaction.’ Read in context, the indemnity portion of Section 3 — that if the escrow agent is required to respond to any court action without fault of the escrow agent, that the escrow agent shall be reimbursed for all his costs and expenses including reasonable attorney fees, all of which shall be charged to the appropriate party — applies only to Resource National’s liability for withholding settlement and retaining all funds and documents held as escrow until it is paid. Resource National does not argue that its right to indemnity in this case exists because it withheld settlement pending payment of its fee.”