.. .. IGINAL

IN THE SUPREME COURT OF OHIO

FV 1 INC. ) On Appeal from the Mahoning

)Plaintiff, ) County Court of Appeals

)V. ) Seventh Appellate District

)GERALD GOODSPEED AND ) 12 - 1 2SUSANNE GOODSPEED ^

Court of AppealsAppellants, ) Case No. 10 MA 170

KEYROCK FINANCIAL, LTD ANDROY ROOT

Appellees.

MEMORANDUM IN SUPPORT OF JURISDICTION OFAPPELLANTS GERALD GOODSPEED AND SUSANNE

GOODSPEED

CHERIE H. HOWARD (0025093) (COUNSEL OF RECORD)

JAMES B. CALLEN (0013517)Northeast Ohio Legal Services11 Central Square, Suite 800Youngstown, Ohio 44503Telephone: (330) 744-3198 X 2559Fax No. (330) 744-4820E-Mail Address: ehoward re,^neols.org

Counsel for Appellants Gerald Goodspeed and Susanne Goodspeed

WILLIAM JACK MEOLA ( 0022122) (COUNSEL OF RECORD)

Davis & Young, L.P.A.Gibson-Governor Building972 Youngstown-Kingsville RoadP.O. Box 740Vienna, Ohio 44473Telephone: (330) 539-6111E-Mail Address: Jmeola(didavisyoun^.com

Counsel for Appellees Keyrock Financial and Roy Root

F ^ L EDAUG0a2012

RK OE COURTCLESUPREME COURT OF OHIO

TABLE OF CONTENTS

Page

EXPLANATION OF WHY THIS CASE IS A CASE OF PUBLIC OR GENERALINTEREST . .... . . . ... .. ... . ... .. . .. . .. . .. . .. ... . ... ... .. ... . .. ... . ... .. ... . .. . .. .... .. ... ..........1

STATEMENT OF THE CASE .......................................:.........................4

STATEMENT OF FACTS . .... .. .... .. .... .. .... .. .... .. . ... .. ... . .. . .. ... . ... .. .... ..... ... . ..5

ARGUMENT IN SUPPORT OF PROPOSITIONS OFLAW ..................................................................................................10

Proposition of Law No. I

To prove that defendants were engaged in a civil conspiracy, a plaintiff is notrequired to prove those same defendants actually formed an expressagreement or understanding among themselves to harm theplaintiffs .. .. .... .. .... ... ... .. .... .. ... ... .... .. ...... .... .. ....... .. . .. .... .. ... ... ......10

Proposition of Law No. II

Defendants' denial that they were aware of the other defendants' fraudulentacts is not a sufficient basis for refusing to allow a jury to infer a civilconspiracy from circumstantialevidence . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .. . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . .14

CONCLUSION . . .. ... . .. . ... .. . ... .. .... .. . ..... . .. .... .. .... ... .. ... . ... .. ... .... ..... ... .... ..15

CERTIFICATE OFSERVICE .... . ... .. . ... .. ... ... . .. .... .. .... .. ... . .. .... .. . ... .. ... .... .. ... . ... .. ... .... ... .. ... ..16

Appx. Page

APPENDIX

Opinion of the Mahoning County Court of Appeals(June 20, 2012) ..................................................................

Judgment Entry of the Mahoning County Court of Appeals(June 20, 2012) ............................................................... 22

ii

EXPLANATION OF WHY THIS CASE IS A CASE OF PUBLIC OR GREATGENERAL INTEREST

This case involves three important issues. First, whether in order to prove the

defendants were engaged in a civil conspiracy, a plaintiff is required to show the

defendants actually formed an express agreement or understanding among themselves to

harm the plaintiff; second, whether a civil conspiracy may be infen•ed from

circumstantial evidence; and third, whether a plaintiff must prove the perpetrators of the

civil conspiracy were motivated by ill will or spite toward the plaintiff. This case creates

a case of public or general interest by providing the opportunity for this Court to clarify

the standards lower courts must apply for determining civil conspiracy under Ohio law.

As late as 2009, Ohio was among the top ten states for mortgage fraud as

documented by an FBI report which defines the term as "the intentional misstatement,

misrepresentation or omission by an applicant or other interested parties, relied on by a

lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan." 1

Mortgage fraud has been called "bank robbery without a gun."2 Unfortunately, mortgage

fraud remains widespread in the current depressed housing market, with perpetrators

motivated by high profits and little risk of getting caught. Fraud continues unabated as

the housing market remains in distress, providing ample opportunity for schemes.3 When

measured by financial loss claimed by lenders in civil and criminal prosecutions, losses to

1 FBI - 2010 Mortgage Fraud Report, Year in ReviewhLtg-://www.scribd,coni,,,62273145/FBI-2010-Niortgage-Fr-aud Report-Year-in-Review

(accessed on August 3, 2012).z Ann Fulmer, Working Paper: Burning Down the House: Mortgage Fraud and the

Destruction ofResidential Neighborhoods,https //www gav'pdff 1es11nijlUrants1229912.pdf (accessed August 1, 2012).

3 Id.

mortgage fraud stood at $5.4 billion at the end of 2008, with an additional $3.1 billion

reported in the first half of 2009.4

According to a 2006 report by BasePoint Analytics LLC, leading fraud software

and services firm which completed a study of more than 3 million loans, "the most

serious fraud in mortgage lending today appears to be broker facilitated."5 "A mortgage

broker assists a buyer with fmding a lender who will finance the purchase of a residence,

and oversees the processing and execution of all documents necessary to take a home

loan from application to closing." See Opinion at {T 9}. The BasePoint study suggests

that these mortgage brokers help unqualified borrowers obtain loans by submitting

falsified information. The fraud occurs when a broker materially misrepresents,

misstates, or omits information that a lender relies on to make the decision to extend

credit to a borrower. Brokers, often with the aid of unethical appraisers, sellers and others

use their experience in the banking and mortgage-related industries to exploit

vulnerabilities in the mortgage and banking sectors to conduct multifaceted mortgage

fraud schemes. 6

There is a startling correlation between mortgage fraud, loan delinquencies,

defaults and foreclosures. States with the highest levels of mortgage fraud correlates

4 Id.

5 BasePoint Analytics LLC, Broker-Facilitated Fraud-The Impact on Lenders: A White Paper(2006), www basepointanalvtics com/mortqaaewhitepapers.html. (accessed August 3, 2012)

6 FBI - 2010 Mortgage Fraud Report , Year in Review,http'iwww scribd cozn16227`i3451FBI-2010-Vlort aagc-Fraud Report-Year-in-Review

(accessed August 3, 2012).

2

closely to the states with the highest levels of foreclosure and underwater borrowers.7

One study found that more than 50 percent of the loans submitted for certain brokers

went into default.8 In Ohio last year, there were nearly 85,500 new foreclosure filings, a

4 percent drop from the year before, after a fourteenth consecutive annual increase. The

foreclosures amount to one filing for every 59 housing units in the state. The figure is up

about 140 percent from 2000, when Ohio began experiencing a surge in foreclosure.9

The number of foreclosures can be reduced by cracking down on perpetrators of

mortgage fraud and holding them criminally and financially liable. However, the FBI's

annual report indicated that mortgage scammers are particularly resilient and their frauds

hard to discover.10 Moreover, the FBI lacks the financial resources to investigate most

claims. "Mortgage fraud is a relatively low-risk, high- yield criminal activity which is

accessible to many." ii

The case before this Court involves a foreclosure triggered by mortgage fraud

perpetrated by a mortgage broker and seller. The Seventh District Court of Appeals has

placed insurmountable hurdles in front of any plaintiff seeking to prove a civil conspiracy

in connection with mortgage fraud. These hurdles include: (1) a requirement that the

plaintiff prove the alleged perpetrators actually formed an express agreement or

7 Interthinx, Inc., 2010 Annual Mortgage Fraud Risk Report,.bttp2/wwvV nij gov/toics/etime/foreclosure-crime-meetin gmortage. (accessed on

August 4, 2012).Ibid.Supreme Court & Judicial System News,

h^:!/www.sut^ramecoartohio^ovJPIO/news^2011/foreclosureStats 021011.asp.(access

ed August 3, 2012).10 FBI - 2010 Mortgage Fraud Report, Year in Review,http•//www scribd.com/62273345/FBI-20l0-MortgaQe-Fraud Report-Year-in-Review

(accessed August 3, 2012).11 Id.

3

understanding among themselves to harm the plaintiff; (2) that the civil conspiracy

cannot be inferred from. circumstantial evidence; and (3) a requirement that a plaintiff

must show that the alleged perpetrators were motivated by ill will or spite.

1. STATEMENT OF THE CASE

In the judgment entry from the Mahoning County Common Pleas Court, the trial

court granted summary judgment in favor of Third-Party Defendants-Appellees Keyrock

Financial Ltd. ("Keyrock) and Roy Root ("Root"), a niortgage broker and its loan officer.

On appeal, Plaintiffs-Appellants Gerald Goodspeed and Susanne Goodspeed (the

"Goodspeeds") argued that summary judgment in favor or Keyrock and Root was

improper because there remauied genuine issues of material facts regarding their claim.s

for breach of fiduciary duty, vi.olations of Ohio's Mortgage Broker Act ("OMBA") and

for civil conspiracy arising out of a residential real estate transaction in which the

Goodspeeds were the buyers and Third-Party Defendants Damon Petrich and Tammy

Wayland-Petrich, who were not parties to the appeal, were the sellers and Keyrock and

Root acted as the mortgage brokers.

The Seventh District Coui-t of Appeal.s afBnned in part, reversed in part and

remanded the case to the trial court for lurther proceedings. See Judgment Entry

(appended hereto). The appellate court found there were genuine issues of material fact

precluding summary judgment for Keyrock and Root on the breach of fiduciary duty and

OMBA claims based on their alleged failures to perfoim certain functions required of a

mortgage broker during the loan process. However, the appeals court held that summary

judgment in favor of Keyrock and Root on the civil conspiracy claim was proper because

"there is no evidence they acted maliciously or formed an agreement to harm the

4

Goodspeeds..." The court further stated that a claim for civil conspiracy must be based

on actual evidence and not supposition. See Opinion (appended hereto). It is from this

latter finding of the appeals court that the Goodspeeds seek review by this Court.

fI. STATEMENT OF FACTS

This case began as a residential mortgage loan foreclosure filed in mid-2006

against Gerald and Susanne Goodspeed, husband and wife, by FV 1 Inc. which alleged the

Goodspeeds had defaulted on a $63,000.00 residential mortgage loan.12 The property

involved is a 944 square foot, frame home built in 1920, owned by Tammy Wayland-

Petrich. The property owner's husband, Damon Petrich, assertect his authority to sell the

property on his wife's behalf See Opinion at {¶5}.

In the spring of 2005, the Goodspeeds toured the house and noticed a number of

glaring, material defects on the premises. Id., at {l(6}. Mr. Petrich promised to completely

renovate the property and sell it to the Goodspeeds for $63,000. He also offered to help

the Goodspeeds obtain financing and assured the Goodspeeds that they would not be

required to provide any of their own money for the purchase. Id., at {1[7}.

In May 2005, Mr. Goodspeed signed a purchase agreement drafted by Mr.

Petrich. Mr. Goodspeed was unaware the contract contained a purchase price of $70,000.

Id., at p. {¶l'1}. County auditor records indicate that Mr. Petrich purchased the

property in 1996 for $17,000 and later had transferred the property to Mrs. Petrich in

2001 for $22,100. In October 2005, the Mahoning County Auditor appraised the

property at $37,700 just after the sale to the Goodspeeds. Id., at p. {¶21}.

12 Plaintiff FV 1 Inc. was not a party to the appeal. By agreement of the parties, theforeclosure complaint and the Goodspeeds' counterclaim were settled and dismissed byentry dated October 21, 2010. (R. 130).

5

Mr. Petrich was a mortgage industry insider having worked as an apprentice

appraiser which meant a fully licensed appraiser always had to sign off his work. As an

apprentice, he had established a business relationship with Roy Root, a loan officer for

Keyrock Financial Ltd., a mortgage broker. Id., at {1(118, 67}. Apart from their

professional association, Petrich and Root enjoyed a personal and social relationship

away from work which included their wives. (R. 95, at pp. 30-33). 13

After obtaining Mr. Goodspeed's signature on. the sales contract, Petrich asked

Root to find a lender to finance the purchase of the property. Id., at {T 8}. At the time of

the transaction, it was a matter of public record that Petrich had been sued by several

Maboning County homeowners for allegedly providing false appraisals and that he had

been disqualified to sit for state real estate appraisal exam due to dishonest conduct. Id.,

at {,11^ 9, 47 }. Root admitted he was aware that Petrich still was an unlicensed appraiser

and that Petrich's name appeared on a list of unacceptable appraisers which had been

complied by certain mortgage lenders. (R. 95, Deposition of Roy Root, October 14, 2009,

at p. 27, 34-36). In addition, Root knew that several lenders refused to accept mortgage

loans packaged by Petrich. (R. 95, at 34.)

In the Goodspeeds' transaction, evidence establisbed that Keyrock and Root as

their mortgage brokers were responsible for having the property appraised, for obtaining

financial information directly from. the Goodspeeds' bank and landlord, and for ensuring

the latter information was sent directly to the lender. Id. The Broker Retention

Agreement that governed the transaction and signed by Mr. Goodspeed and Root

mandated that Root maintain "[c]ommunication with Borrower and Lender throughout

13 "R" denotes reference to record on appeal before the Seventh District Court of

Appeals.

6

the approval process." Id., at {¶ 36}. That requirement notwithstanding, at no time

during the loan application process did Root ever meet or speak with the Goodspeeds.

Rather, he permitted Petrich to act as the intermediary for the completion of application

documents and faxed requisite forms to Petrieli, some of which Root initialed and dated

in blank beforehand. Petrich would then. fax the completed documents back to Root or

send them to the lender directly. Id., at {,( 13).

Two documents that Root entrusted to Petrich for completion, contrary to the

express instnictions on the fonns, were a Requ.est for Verification oi'Deposit fonn and a

Verification of Rent form, both of which were promulgated by the federal govetnment

and were key to the underwriting process. Id., at { j(¶ 15, 18}. One underwriting

requirement was for the loan applicant to maintain a bank account and contribute at least

$1000 to the loan transaction. The instructions on the Verification of Deposit form

required Root to send it directly to the borrower's bank for completion. The form i.s

clearly designed. to ensure that the loan applicant is credit worthy. Id., at {115}. The

Verification of Rent form is intended to confirm that a prospective borrower has a

history of paying his rent on time. The express instructions contained in the fonn

mandated that Root send the form to the Good speeds' landlord who then was required to

forward the form to the lender and not through the applicant or other party. Root

delegated the responsibility for completing both forms to Petrich rather than processing

them himself. Id., at {¶ 18}.

At the time of the loan application, the Goodspeeds did not have a bank account

of any kind. But, two days before the loan closing, Petrich accompanied Mrs. Goodspeed

to a bank where she opened an account with $50. The appellate court found that

7

immediately thereafter, $3500 was deposited in Mrs. Goodspeed's account. The sum was

then immediately withdrawn and a check in the same amount was issued in the name of

the closing agent for the transaction. Petrich's own bank account records reveal a

withdrawal of $3500 from his personal account on the same day as Mrs. Goodspeed's

deposit. Evidence also establishes that as part of the sale of the property, Petrich and his

wife became holders of a second mortgage in the amount of $3500. Id., at {^(j j[ 16-17}.

After the foreclosure was filed, the Goodspeeds discovered that the Verification

of Rent form had been falsified, by listing a landlord from whom the Goodspeeds had

never rented; Eldridge Hilton Realty & Management. The Goodspeeds averred they had

always provided Petrich with truthful information and had never heard of Eldridge Hilton

Realty & Management. Although Petrich denied knowing Eldridge, the record

established that the president of Eldridge had submitted a letter in support of Petrich's

application to become a real estate appraiser. Root admitted that he did not provide the

information on the form but had sent it to Petrich for completion contrary to the form's

express written instructions. Id., at 11118). Although the Broker Retention form specified

that arranging an appraisal of the property was one of Keyrock's key responsibilities,

Root never ordered. one. He accepted Petrich's explanation that he would take care of the

appraisal but acknowledged at a deposition that it was unusual for a seller to exclude a

loan officer from the process. (R. 95, at 47-48). Although the actual. appraisal is not part

of the record, it can be infelred that the property niust have been appraised :for at least

$63,000, the amount of the eventual loan. Id., at {11 18}.

8

The Goodspeed loan closed in June 2005. Mr. Goodspeed executed a note and

adjustable rate first mortgage in favor of the New Century Mortgage Corporation14 for

$63,000 and a second mortgage to Mrs. Petrich for $3,500. He was presented with

numerous other documents to sign, including a U.S. Department of Housing and Urban

Development Settlement Statement which disclosed $3,339.54 in borrower settlement

charges, a $945 yield spread premium paid outside of closing ("POC") to Keyrock, and

a $661 broker fee to Keyrock financed as part of the loan. (R. 98, Deposition of Gerald

Goodspeed, at 57-63, Keyrock Exhibit 23; R. 96, Deposition of Roy Root, November 18,

2009, at 42-48, Keyrock Exhibit 23). In addition, there was evidence that Ms. Petrich

realized a financial benefit of at least $61,026.39 from the sale of the property to the

Goodspeeds. (R. 111, Susanne Goodspeed Affidavit ¶ 38, Ex. 3 attached thereto; (R. 98,

Deposition of Gerald Goodspeed, June 18, 2009, at 69, Ex. 26). Personally, Root

collected 60 percent of the yield spread premium and broker's fee, or about $963, as his

commission for arranging the loan. (R 96, at 48).

Root confirmed that neither he nor anyone else from Keyrock attended the

closing. (R. 96, at 61-62). In the end, Mr. Petrich never fulfilled his promise to deliver a

fully renovated house. (R. 111, Ex. 3, at ¶¶ 40-45; Ex. 18, at ¶¶ 33-35). One contractor

estimated that it would cost over $40,000 to complete the renovations on the property as

promised by Petrich. See Opinion, at {¶ 22}.

After the foreclosure was filed, the Petrichs filed their motion for summary

judgment against the Goodspeeds which the magistrate denied in its entirety. Id., at {¶

26}. Specifically, the magistrate found evidence of breach of contract, fraudulent

14 New Century was the original lender and mortgage holder which later transferred its

interest to FV 1, Inc. See Opinion, at {¶ 22}.

9

inducement and that "on at least two occasions Damon Petrich may have conspired to

falsify underwriting documents." (R. 129, at 15). No objections were filed and, to date,

the trial court has not ruled on the magistrate's decision. See Opinion, at Id., at {126}.

In its decision a,ffirming the trial court's ruling that Keyrock and Root had not engaged in

a civil conspiracy, the court of appeals made three errors: (1) it held that appellants had to

prove that Keyrock and Root formed an agreement or understanding with the Petrichs to

harm the Goodspeeds; (2) it held that there was no evidence that Keyrock and Root acted

maliciously to haizn the Goodspeeds; and (3) it held that there was no evidence that

Keyrock and Root knew about Petrich's alleged fraudulent scheme against the

Goodspeeds.

III ARGU N'I' IN SUPPORT OF PROPOSITIONS OF LAW

Proposition of Law No I. To prove that defendants were engaged in a civilconspiracy, a plaintiff is not required to prove those same defendants actuallyformed an express agreement or understanding among themselves to harm the

plaintiffs.

The tort of civil conspiracy has been defined as "a malicious combination of two

or more persons to injure another in person or property, in a way not competent for one

alone, resulting in damages." Williams v. Aetna Finance Co., 83 Ohio St. 3d 464, 475,

1998 Ohio 294, 700 N.E. 2d 859 (1998), quoting Kenty v. Transamerica Premium Ins.

Co., 72 Ohio St. 3d 415, 1995 Ohio 61, 650 N. E. 2d 863,866 (1995), quoting LeFort v.

Century 21-Maitland Realty Co., 32 Ohio St. 3d, 512 N.E. 2d 640, 645 (1997). In this

case, the court of appeals found that appellants' civil conspiracy failed because "there

was no evidence that Keyrock and Root formed an agreement or understanding with the

Petrichs to harm the Goodspeeds." See Opinion at {¶ 68}. In so finding, the appellate

court wrongly imposed a more onerous burden on the Goodspeeds than has been

10

generally accepted as the rule by Ohio courts. In this instance, Keyrock and Root's

conduct in coordination with that of Petrich satisfies the elements of a civil conspiracy.

This element of two or more persons "does not require a showing of an express

agreement between defendants but only a common understanding or design" to commit

the underlying unlawful act. Gosden v. Louis, 116 Ohio App. 3d 195, 219, 687 N.E. 2d

481, 496 (9th Dist. 1996), citing Pumphrey v. Quillen, 102 Ohio App. 173, 177-178, 141

N.E. 2d 675 (9th Dist. 1955), citing Prosser on Torts (Hornbook Series), Section 109, at

1094, and cases cited, affirmed, 165 Ohio St. 343, 135 N.E. 2d 328 (1956).

In Pumphrey, the court made clear that not even a meeting is necessary and that

"it is sufficient that the parties in any manner come to a mutual understanding that they

will accomplish the unlawful design." Id. at 178, citing Houston v. Avery, 19 Ohio L.

Abs. 142, 147 (1935). The "malice" in "malicious combination" is legal or implied

malice, "which the law infers from or imputes to certain acts," and is defined as

"that state of mind under which a person does a wrongful act purposely, without a

reasonable or lawful excuse, to the injury of another." See Pickle v. Swinehar, 170 Ohio

St. 441, 443, 166 N.E. 2d 227 (1960), (defining "malice" for purposes of "malicious

prosecution"). Therefore, "malice," may be inferred from or imputed to a common design

by two or more persons to cause harm to another by means of an underlying tort, and

need not be proven separately or expressly. It is not necessary for a plaintiff to show that

the intentional, wrongul act was motivated by malice, spite, ill will, hatred or

malevolence. Proh V. Whitney, 62 N.E. 2d 744, 43 Ohio L. Abs. 417 (8"` Dist. 1945).

For the tort of civil conspiracy to succeed, there must be an underlying unlawful

act. Williams, at 475. This unlawful act must be something that without the conspiracy

11

would still give a cause of action against one or more of the defendants. Gosden v. Louis,

116 Ohio App. 3d at 497. In this instance, Petrich committed the tort of fraudulent

inducement in connection with the sale of the property. Fraudulent inducement occurs

when a party is induced to enter into an agreement through fraud or misrepresentation.

ABM Farms, Inc. Wood, 81 Ohio St. 3d 498, 1998 Ohio 612 ( 1998). "The fraud relates

not to the nature or purport of the [contract] but with the facts inducing its execution * *

*." Id., quoting Haller v. Borror Corp., 50 Ohio St. 3d 10, 14 (1990). In order to succeed

on a claim of fraudulent inducement, "a plaintiff must prove that the defendant made a

knowing, material misrepresentation with the intent of inducing the plaintiff's reliance,

and that the plaintiff relied upon that misrepresentation to her detriment." Id., citing Beer

v. Griffith, 61 Ohio St. 2d 119, 123 (1980).

Here, there is evidence to support a finding that Petrich fraudulently induced the

Goodspeeds into buying the property with promises to fully renovate it and then failing to

do so, resulting in at least $40,000 in damages to the Goodspeeds. Although they may

not have been involved in this specific fraud, Keyrock and Root nevertheless may be held

liable for the Petrichs' conduct. "All those who, in pursuance of a common plan or

design to commit a tortuous act, actively take part in, further it by cooperation or request,

or who lend aid or encouragement to a wrongdoer, or ratify and adopt the wrongdoer's

act for their benefit, are equally liable." Williams v. Aetna Fin. Co. , supra at 446 citing

Prosser and Keeton on Torts (5 Ed. 1984) 323, Section 46. In a conspiracy, the acts of

co-conspirators are attributable to each other. Id.

Before the appellate court, the Goodspeeds argued that the facts of Williams are

analogous to those in the instant matter. In Williams tbe lender continued to finance

12

home improvement loans when it knew or had reason to know from complaints from

disgruntled homeowners that the contractor had failed to complete work on home

iinprovement contracts ITT Financial Services financed. Id. This Court affirmed the

verdict in favor of Williams, finding that ITT's role in the conspiracy was to allow the

contractor to have access to loan money that was crucial to ftirther his fraudulent actions

against homeowners such as Williams. Id., at 476. This Court found that the finance

company continued to provide the contractor with "access to loan money that was

necessary to further his fraudulent actions against customer." Id., at 476. The Court

found the lender had benefited from high interest, low risk loans generated by the

contractor. Id.

Here, Keyrock and Root, like the finance company in Williams, continued to do

business with Petrich and benefit from his business by assisting him in getting access to

money even after they knew or should have known that he had been sued by homeowners

for fraudulently inflating appraisals, had actually been blackballed by certain mortgage

lenders who refused to package loans for him, and had been denied the opportunity to

take the appraiser's exam because of serious character issues. Despite all of this, the court

of appeals decided the Goodspeeds' claim for civil conspiracy failed because there was

no evidence that Keyrock and Root actually knew of the Petrichs' fraudulent acts based

on their denials. See Opinion, at {¶ 67}. This finding ignores the standard set by this

court in Williams for analyzing the elements of a civil conspiracy.

13

Proposition of Law No II. Defendants' denial that they were aware of the otherdefendants' fraudulent acts is not a sufficient basis for refusing to allow a,jury toinfer a civil conspiracy from circumstantial evidence.

The court of appeals found evidence that Keyrock and Root entrusted the property

appraisal and the processing of certain blank loan documents to Petrich in complete

disregard of underwriting and federal loan requirements and continued to deal with him

in the face of actual or constructive knowledge about previous fraud and his disfavored

status with certain lenders. See Opinion, at {¶¶ 47, 66}. However, the appellate court said

while this conduct might be "negligent or a breach of fiduciary duty," it did not constitute

evidence of malice because there was no evidence that Keyrock and Root had knowledge

of Petrich's alleged fraudulent acts and no evidence that there was an agreement to hat2n

the Goodspeeds. "[T]he civil conspiracy claim as it relates to Keyrock and Root is

largely based upon suppositions, not actual evidence." See Opinion, at {¶ 67}. In other

words, the cowl of appeals held that appellants could not prevail on the civil conspiracy

claim. because appellants denied that they formed a civil conspiracy. The appellate court

refused to permit a jury to infer a civil conspiracy from circumstantial evidence.

In considering claims of civil conspiracy, federal courts have adopted a more

realistic approach and recognized that conspiracies "are rarely explicit agreements" and

"almost always must be proven by `inferences that may be fairly drawn from the behavior

of the alleged conspirators.' " Weber v. iUat'l Football League, 112 F. Supp. 2d 667, 671

(N.D. Ohio 2000).; City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365, 396

(1991), n. 10 (Stevens, J., dissenting) ("There are many obstacles to discovering

conspiracies. ..[P] rice-fixers and similar miscreants seldom admit their conspiracy or

agree in the open."'; Esco Corp. v. United States,, 340 F. 2d 1000, 1007 (1965) ("[I]t is

14

well. recognized law that any conspiracy can ordinarily only be proved by inferences

drawn from relevant and competent circtnnstantial evidence, including the conduct ol'the

defendants charged."). As the Ninth Circuit has observed, "it remains a question for the

trier of fact to consider and determine what inference appeals to the (the jury) as most

logical and persuasive, after it has heard all the evidence . .." Esco Corp., 340 F. 2d at

1007.

This Court has held that the question of whether a conspiracy was formed is a

question for the trier of fact. "The ultimate fact of conspiracy is solely a question for the

jury, unless the court can say, as a matter of law, that there is no proof tending to

establish a conspiracy." LeFort v. Century 21-Maitland Realty Co. (1987), 32 Ohio St.

3d 121, 126, 512 N.E. 2d 640 (citing Liston v. Statler (1917), 9 Ohio App. 398, 401).

Here, the jury will never have an opportunity to draw inferences from circumstantial

evidence presented with respect to the Goodspeeds civil conspiracy claim.

IV. COINCLiTSIOh1

Based upon the foregoing, the Goodspeed respectfully request that this Court

accept jurisdiction, review this case on the inerits, and pass upon the important issues of

public and general interest presented herein..

H WCHERIE H .11 Central Square, uite 800Youngstown, Ohi 44503Telephone No.: (330) 744-3198 X 2559Facsimile No.: (330) 744-4820E-Mail: choward neols.orff

Counsel for Gerald and Susanne Goodspeed

15

CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing was sent via regular U.S. mail,

postage prepaid, on this 6th day of August 2012 to: William Jack Meola, Davis and

Young, Gibson-Governor Building, Suite G, 972 Youngstown-Kingsville Road, P.O. Box

740, Vienna, Ohio, 44473, Counsel for Third-Party Defendants-Appellants Key Rock

Financial and Roy Root; Kerry L. Limbian, 21 W. Boardman Street, 6h Floor,

Youngstown, Ohio 44503, Counsel for Mahoning County Treasurer; and Donald P.

Leone, 5361 Market Street, Youngstown, Ohio 44512, Counsel for Third Party

Defendants Damon and Tami Wayland Petrich.

Cherie H. Howardl(0Counsel for Appellan^ Gerald Goodspeedand Susanne Goodspe d

16

APPENDIX

1

^^%il'i ♦ ^^^.^'1 JV^JA..sI! N^S^

STATE OF OHIO, MAHONING COUNTY ^ I

t1RT OF APPEALS©

JUN 2 e ziJ12

IN THE C AKpHox:^

SEVENTH DISTRICT

FV 1 INC.,PLAINTIFF, CASE N0. 10 MA 170

-V^-

GERALD GDODSPEED, et al„DEFENDANT/THIRD PARTYPLAINTIFFS-APPELLANTS,

.. VS .,

KEYROCK FINANCIAL LTD., et al.,THIRD PARTY/DEFENDANTS-APPELLEES.

CHARACTER OF PROCEEDINGS:

JUDGMENT:

APPEARANCES:For Defendant/Third-PartyPlaintiffs-Appellants:

For Third Party/Defendants-Appel lees:

JUDGES:Hon. Mary DeGenaroHon. Cheryl L. WaiteHon, Joseph J. Vukovich

OPINION

Civil Appeal from Common PleasCourt, Case No, 05 CV 234.

Affirmed in part;Reversed and Remanded in part.

Attomey Cherie H. HowardNortheast. Ohio Legal Services11 Central Square, Suite 800Youngstown, OH 44503

Attorney William Jack MeolaDavis & Young, L.P.A.Gibson-Governor Building972 Youngstown=KingsvilleRoadP.U. Box 740Vienna, OH 44473

Dated: June 20, 2012

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DeGenaro, J,{11} Third-Parry Plaintiffs-Appellants, Gerald and Suzanne Goodspeed, appeal

the September 22, 2010 judgment of the Mahoning County Courk of Common Pleas

granting summary judgment in favor of Third-Party Defendants-Appellees, Keyrock

Financial L.L.C., and Roy Root. The Goodspeeds argue that summaryjudgment in favor

of Keyrock and Root, who were mortgage brokers, was improper, because there remain

genuine issues of material fact regarding their claims for breach of fiduciary duty,

violations of the Ohio Mortgage Broker Act and civil conspiracy, arising out of a real

estate transaction in which the Goodspeeds were the buyers and Third-Party Defendants

Damon Petrich and Tammy Wayland-Petrich were the sellers.

{12} The Goodspeeds' first and second assignments of error are meritorious in

part, and their third assignment of error is meritiess in its entirety, Summary judgment in

favor of Keyrook and Root on the breach of fiduciary duty and OMBA claims based upon

the yield spread premium issue was proper because that information was disclosed to the

Goodspeeds, and this judgment is affrrmed. Further, summary judgment in favor of

Keyrock and Root on#he civil conspiracy claim was proper because there is no evidence

they acted malioiously or formed an agreement to harm the Goodspeeds, and this

judgment is affirmed.{13} However, there are genuine issues of material fact precluding summary

judgment in favor of Keyrock and Root on the breach of fiduciary duty and OMBA claims

based upon their alleged failure to perform certain functions required of a mortgage

broker during the loan appiication process. There is evidence inthe record that Keyrock

and Root, instead of performing these functions, entrusted Petrich, the seller in the

transaction with procuring an appraisal of the subject property; obtaining alrnostallofthe

financial information from the Goodspeeds, their bank and landlord; and processing the

loan documents,{¶4} Accordingly, the judgment of the trial court is affirmed in part, reversed in

part and the cause remanded for trial on the Goodspeeds' claims against Keyrock and

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application process.Facts

{15} During the spring of 2005, the Goodspeeds noticed a house for sale at 28

South Osborn Avenue in Youngstown. At that time, the property, a 944 square foot, two-

bedroom, one-bath, frame home built in 1920, was undergoing renovations. The

Goodspeeds expressed interest in the property to Damon Petrich, husband of property

owner, Tammy Wayland-Petrich. Damon Petrich asserted his authority to negotiate the

sale of the property on behalf of his wife.{16} Petrich took the Goodspeeds on a tour of the house. The Goodspeeds

noticed a number of obvious defects on the premises including deteriorated wooden

porch pillars; dilapidated gutters and down spouts, a leaking roof, a sinking foundation,

damaged ceilings, uneven and slanted flooring, a damaged bathtub and toiiet; a hole in a

closet floor, no heat in the rear bedroom, inoperable electrical outlets, a basement door

that needed replacing, and collapsing basement walls.

{17} Petrich offered to completely renovate the property and to sell it to the

Goodspeeds for $63,000. In addition, Petrich promised that the Goodspeeds would not

be required to provide any out-of-pocket money for the purchase, and that he would help

them find financing.{¶8} Petrich was familiar with the real estate business, having worked as an

apprentice appraiser in the past. Through this work he met Root, a loan officer for

Keyrock, a mortgage brokerage. A mortgage broker assists a buyer with finding a lender

who will finance the purchase of a residence, and oversees the processing and execution

of all documents necessary to take a home loan from application to closing. Pertinent to

this appeal, through the loan application process the mortgage broker is to procure an

appraisal of the subject property, and also obtain financial information directlyfrom the

buyers, their bank and their landlord. The mortgage broker is to ensure that this

information is then directly sent to the lender. Keyrock, through Root, was able to obtain

financing for the Goodspeeds from New Century Mortgage Corporation.

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{¶9} According to a letter of recommendation written by Root in support of

Petrich's attempt to obtain a full real estate appraisal license, Petrich had performed over

300 appraisals for Root-affiliated companies. Since Petrich was only ever an apprentice

appraiser, a fully licensed appraiser always had to "sign off" on Petrich's appraisals.

Eventually Root had to stop using Petrich for appraisals because some lenders would no

longer approve appraisals from Petrich. Petrich testified that he was never permitted to

sit for the state real estate appraiser exam due to dishonest conduct. Further, Petrich

admitted he been sued by several homeowners for performing allegedly inflated

appraisals, but stated those suits had settled out of court. Root claimed he never asked

Petrich about the status of his license and never inquired as to why Petrich was on the

"unapproved" appraiser list for several lenders. Root and Petrich also had a social

relationship.{110} After the Goodspeeds expressed serious interest in the property, Petrich

contacted Root to assist the Goodspeeds in obtaining financing for the purchase.

{111} On May 3, 2005, Mr. Goodspeed executed a purchase agreement, drafted

by Petrich. Mr. Goodspeed did not read the contract before signing it. It turned out that

the contract contained a purchase price of $70,000 and did not include any promises on

the part of Petrich to renovate the property. To the contrary, the purchase agreement

stated that the purchaser agreed to buy the property in "as is" condition.

{¶12} On May 11, 2005, Mr. Goodspeed met with Petrich, not Root, to execute

various documents that established his relationship as a client of Keyrock, including a

Mortgage Loan Origination Disclosure Statement and a Broker Retention Agreement.

That same date, Mr. Goodspeed executed a Uniform Residential Loan Application and

either executed or received related loan documents including a Good Faith Estimate

which contained a purchase price for the property of $70,000 and a request for loan

amount of $59,500. These documents included information about Appellees' fees,

including broker fees and a yield spread premium.

{113} Throughout the loan application process, the Goodspeeds never met with

l

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Root. Instead, Root would fax necessary documents to Petrich, who then had the

Goodspeeds complete them. Then Petrich would fax or send the documents back to

Root or directly to the lender, as applicable. Petrich always acted as an intermediary

between the Goodspeeds and Root. Root never even spoke to the Goodspeeds about

the loan during the application process. Root testified that Mr. Goodspeeds' loan was

considered a subprime loan. At the time of his loan application, Mr. Goodspeed had a

FICO credit score of 549.{114} In early June 2005, the amount requested in the loan was changed and Mr.

Goodspeed executed a second set of loan application documents. Mr. Goodspeed did

not read most of these documents before signing them. These documents also included

information about Appellees' fees, including broker fees and a yield spread premium.

{115} One of the underwriting requirements for the loan was that the buyers have

a bank account and contribute at least $1000 toward the down payment. A Request for

Verification of Deposit form is used in furtherance of this requirement. This federally

promulgated form contained instructions that it should be sent by the mortgage broker

directly to the borrower's bank for completion. Once the bank completed the form, it was

then to be sent directly to the lender. Root did not follow these instructions; instead he

forwarded the form to Petrich to ensure its completion. Root testified it was fair to say he

initialed the Request for Verification of Deposit form and faxed it to Petrich in blank.

{116} The Goodspeeds did not have any savings prior to applying for the loan.

According to Mrs. Goodspeed, on June 7, 2005, Petrich accompanied herto National City

Bank in Boardman, where she opened an account with $50. Immediately thereafter, bank

records show that $3500 was deposited into the account, and then withdrawn and a

check issued to Foundation Title, the closing agent for the transaction, for that same

amount. Although Petrich did not admit he provided the $3500 for this purpose, his own

National City Bank records show a withdrawal of $3500 from his personal account on that

same day. Like the other pertinent loan documents, Root had faxed the Request for

Verification of Deposit form to Petrich who had it completed and then faxed it back to

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Root. This action was contrary to the express instruction on the form admonishing that it

not be transmitted through the applicant or any other party.

{¶17} Regarding the source of the $3500 that flowed through the savings account

set up by the Goodspeeds two days before the closing, the record reveals that, as part of

the sale of the property, Petrich and his wife became holders of a second mortgage in the

amount of $3500. Mr. Goodspeed stated it was his understanding that this second

mortgage was to cover the good-faith money that Petrich had provided for the transaction.

Notably, there is no evidence that Keyrock and Root were aware of this occurrence at the

bank.{118} A Verification of Rent form was also required as part of the loan application

process. This form contained the borrower's landlord and rental history and confirmed

that the borrower had a history of paying rent in a timely fashion, an underwriting

requirement. As the mortgage broker, Root was to send this form to the Goodspeeds'

landlord. The instructions on this form required that it be transmitted directly from the

landlord to the lender and not through the applicant or any other party. Root entrusted

Petrich with processing this form, rather than processing it himself. After the foreclosure

was filed, the Goodspeeds discovered false information listed on the form, specifically the

name of a landlord that the Goodspeeds never rented from; Eldridge Hilton Realty &

Management. Mr. Goodspeed averred that he did not complete that part of the form and

that he provided Petrich with accurate rental history information, which did not include

Eldridge Hilton Realty & Management. Petrich claimed during depositions that he had

never heard of Eldridge, and maintained this position even when confronted with a letter

written by Eldridge president Jason Scarnecchia in support of Petrich's application to

become a real estate appraiser. Root testified he did not complete the landlord

information, but rather sent the form either to Petrich or Eldridge directly.

{¶19} Finally, a property appraisal was required as part of the underwriting

process. The Broker Retention form states that one of Keyrock's responsibilities included

arranging the appraisal. Root testified that Petrich told him he had the property appraised

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already and that he would take care of that. Root conceded that it was unusual for a

seller to take responsibility for obtaining an appraisal. According to Petrich, Tim Corey of

Corey Appraisal Services performed the appraisal and this was forwarded on to the

lender, New Century. Root testified that he never saw the actual appraisal and that

ultimately it is the lender's responsibility to approve or deny it. Root admitted he "should

have" seen the appraisal but did not recall ever seeing one for this particular transaction.

{120} The actual appraisal is not part of the record. Although the Goodspeeds

had the right to request a copy of the appraisal at the time, they did not do so. Mr.

Goodspeed testified that Petrich told him he had appraised the property himself.

Appellees did not retain a copy of appraisal, and the original lender, New Century, went

bankrupt. We can glean from the record that the appraisal must have valued the property

for at least $63,000, the amount of the loan.{121} The Goodspeeds point to county auditor records to suggest that the

appraisal was grossly inflated. The transfer history of the property indicates that Mr.

Petrich purchased the property in 1996 for $17,000.00, and that on July 5, 2001, the

property was transferred to Mrs. Petrich for $22,100.00. The Goodspeeds did not check

these records prior to closing. On October 17, 2005, just months after the sale to the

Goodspeeds, the Mahoning County Auditor appraised the property at $37,700.00.

{¶22} The closing took place on June 9, 2005, at Mrs. Goodspeed's place of

employment. Mr. Goodspeed testified that he did not read most of the documents before

signing them. After the Goodspeeds took possession of the property, Petrich never

completed the repairs as he had promised. The Goodspeeds discovered other serious

defects in the house. One contractor estimated that it would cost over $40,000 to

complete the renovations as envisioned. New Century was the original iender and

mortgage holder, which subsequently transferred its interest to FV1, Inc.

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Procedural History

{¶23} The instant lawsuit originated as a foreclosure action by FV1, Inc. against

the Goodspeeds in mid-2006. The Goodspeeds filed an answer along with a third-party

complaint against Keyrock and Root for breach of fiduciary duty, violations of the OMBA,

and civil conspiracy, which Appellees answered. The third-party complaint also alleged

claims against New Century, Damon and Tami Petrich, which are not at issue in this

appeal.{1124} The entire case was stayed July 18, 2007 when New Century filed for

bankruptcy. The case was reactivated on February 9, 2009, and subsequently, the

Goodspeeds dismissed all claims against New Century with prejudice. By agreement of

the parties, the foreclosure complaint and the Goodspeeds' counterclaim against FVI

were dismissed with prejudiceon October 21, 2010.

{125} After the completion of discovery, Keyrock and Root filed a motion for

summary judgment as to all claims, which the Goodspeeds opposed; and the magistrate

issued a decision sustaining the motion. The Goodspeeds filed timely objections which

were overruled; and the trial court adopted the magistrate's decision granting summary

judgment in favor of Keyrock and Root on September 22, 2010.

{¶26} The Petrichs filed a separate motion for summary judgment against the

Goodspeeds which the magistrate overruled in its entirety on October 6, 2010. There are

no objections to that decision in the record, and to date, the trial court has not ruled on

the magistrate's decision. Thus, the Goodspeeds' claims against the Petrichs remain

pending in the trial court.{¶27} Because the September 22, 2010 judgment contained the Civ.R. 54(B) "no

just cause for delay" language, it is a final, appealable order even though claims against

the Petrichs remain pending in the trial court.

Standard of Review

{¶28} Each of the Goodspeeds' assignments of error deal with the trial court's

decision to grant summary judgment to Keyrock and Root. When reviewing a trial court's

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decision to grant summary judgment, an appellate court applies the same standard used

by the trial court and, therefore, engages in de novo review. Parenti v. Goodyear Tire &

Rubber Co., 66 Ohio App.3d 826, 829, 586 N.E.2d 1121 (9th Dist.1 990). Under Civ.R.

56, summary judgment is only proper when the movant demonstrates that, viewing the

evidence most strongly in favor of the nonmovant, reasonable minds must conclude no

genuine issue as to any material fact remains to be litigated and the moving party is

entitled to judgment as a matter of law. Doe v. Shaffer, 90 Ohio St.3d 388, 390, 738

N.E.2d 1243 (2000). A fact is material when it affects the outcome of the suit under the

applicable substantive law. Russell v. Interim Personnel, Inc., 135 Ohio App.3d 301, 304,

733 N.E.2d 1186 (6th Dist.1999).{129} When moving for summaryjudgment, a party must produce some facts that

suggest a reasonable fact-finder could rule in her favor. Brewer v. Cleveland Bd. of Edn.,

122 Ohio App.3d 378, 386, 701 N.E.2d 1023 (8th Dist.1 997). "[T]he moving party bears

the initial responsibility of informing the trial court of the basis for the motion, and

identifying those portions of the record which demonstrate the absence of a genuine

issue of fact on a material element of the nonmoving party's claim." Dresher v. Burt, 75

Ohio St.3d 280, 296, 662 N.E.2d 264 (1996). The trial court's decision must be based

upon "the pleadings, depositions, answers to interrogatories, written admissions,

affidavits, transcripts of evidence, and written stipulations of fact, if any, timely filed in the

action." Id., citing Civ.R. 56(C). The nonmoving party has the reciprocal burden of

specificity and cannot rest on the mere allegations or denials in the pleadings. Id. at 293.

Breach of Fiduciary Duty

{130} In their first of three assignments of error, Appellants assert:

{131} "The trial court erred in granting Appellees' motion for summary judgment

because genuine issues of material fact remained in dispute as to whether they violated

their fiduciary duty of full disclosure and good faith and loyalty to Appellants."

{132} "'The elements for a breach of fiduciary duty claim are: " (1) the existence of

a duty arising from a fiduciary relationship; (2) a failure to observe the duty; and (3) an

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injury resulting proximatelytherefrom."'(Citations omitted.)" Camp St. Mary'sAssn. of W.

Ohio Conference of the United Methodist Church, Inc. v. Otterbein Homes, 176 Ohio

App.3d 54, 2008-Ohio-1490, 889 N.E.2d 1066, ¶19 (3d Dist.), quoting Thomas v.

Fletcher, 3d Dist. No. 17-05-31, 2006-Ohio-6685, ¶13, quoting Werthmann v. DONet, 2d

Dist. No. 20814, 2005-Ohio-3185, ¶42. See also Strock v. Pressnell, 38 Ohio St.3d 207,

216, 527 N.E.2d 1235 (1998). Thus, a claim for breach of fiduciary duty is similar to an

ordinary negligence claim, the difference being that the standard of care is higher. Camp

St. Mary's at ¶19.{133} Keyrock and Root did owe a fiduciary duty to the Goodspeeds. "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." Stone v. Davis, 66 Ohio St.2d 74, 419 N.E.2d1094 (1981),

quoting, In re Termination of Employment of Pratt, 40 Ohio St.2d 107, 115, 321 N.E.2d

603 (1974).{134} "A mortgage broker has a fiduciary duty to his or her client. 'The liabilities of

a broker to his [principal] are those of an agent. The relation of principal and agent is

always regarded by the court as a fiduciary one, implying trust and confidence' " Swayne

v. Beebles, 176 Ohio App.3d 293, 891 N.E.2d 1216 (10th Dist.2008), quoting Myer v.

Preferred Credit, Inc., 117 Ohio Misc.2d 8, 2001-Ohio-4190, 766 N.E.2d 612, ¶19 (C.P),

quoting 10 Ohio Jurisprudence, Brokers, Section 116, at 96 (1995). The duties owed by

fiduciaries to their principals are "the basic obligations of agency: loyalty and obedience."

Guth v. Allied Home Mtg. Capital Corp., 12th Dist. No. CA2007-02-029, 2008-Ohio-3386,

¶63, quoting Restatement of the Law 2d, Agency, Section 14N.

{135} The Mortgage Loan Origination Disclosure Statement, signed by Mr.

Goodspeed and Root, sets forth contractual duties Keyrock and Root owed to the

Goodspeeds. Specifically it states that the broker:

for the purposes of assisting "' * the applicant in obtaining the mortgage

loan will provide the following brokerage services: '''[1] collecting

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financial information, (2) processing the loan file, [3] reviewing credit

history, [4] preparing the file for submission, [5] verifying financial

information, [6] submitting files for lender approval, [6] assessing lender

availability, and [7] counseling [the borrower] about [his or her] application."

{136} In addition, the Broker Retention Agreement, also signed by Mr. Goodspeed

and Root, indicated that the broker's responsibilities included "[a]rrang[ing] for appraisal of

the home, title work and survey," and "[c]ommunication with Borrower and Lender

throughout the approval process."{¶37} In their third-party complaint and the summary judgment proceedings, the

Goodspeeds alleged that Keyrock and Root breached their fiduciary duties to them in two

ways. First, by failing to properly disclose their relationship with New Century and the

existence of a yield spread premium, a tool which allowed Keyrock and Root to profit by

increasing the interest rate on the Goodspeeds' loan. Second, that Keyrock and Root

"overall fail[ed] to act as the Goodspeeds' fiduciary agent to protect them from the self-

serving inclinations of Damon Petrich." Specifically, that Keyrock and Root breached their

fiduciary duty by improperly delegating to Petrich the responsibility of furnishing the

Goodspeeds' financial documents, and selecting an appraiser.

{138} Regarding the yield spread premium issue, the Sixth District explained, "[a]

yield-spread premium occurs when a broker causes a borrower to accept an interest rate

higher than the rate a lender is willing to offer. In return, the broker receives a payment

from the lender (usually a percentage of the difference), sometimes without the

knowledge or consent of the borrower." Residential Funding Co., L.L. C. v. Thorne, 6th

Dist. No. L-09-1324, 2010-Ohio-4271, 1150.

{¶39} However, the yield spread premium here was disclosed to the Goodspeeds

both before and during the closing. The Broker Retention Agreements, signed by Mr.

Goodspeed on May 11, 2005, and June 3, 2005, both stated: "In addition to the Broker

Fee paid to the Broker by the applicant, Broker may also receive certain amounts from

the Lender, such as servicing release or yield spread premiums based on the difference

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between the Lender's wholesale rate and the retail note rate paid by the Applicant on the

loan." The Mortgage Loan Origination Disclosure Statements dated May 11, 2005 and

June 3, 2005 both identified a specified sum that Keyrock and Root were to receive from

the loan proceeds for their services. The documents go on to state: "We may also

receive additional compensation from the lender or investor of the loan." The Good Faith

Estimates dated May 11, 2005 and June 3, 2005 also specifically reference the amount of

the yield spread premium that would be paid to the broker. Mr. Goodspeed failed to read

any of these documents before signing them.{¶40} In addition, the HUD-1 Settlement Statement, which was part of the packet

of documents signed at closing on June 9, 2005, included the yield spread premium,

which Mr. Goodspeed also failed to read prior to signing it. The Closing Instructions,

which Mr. Goodspeed also signed at closing, specified a mortgage brokerfee of $661.00

paid to Keyrock, and a yield spread premium of $945.00. Specifically the Closing

Instructions provided: "add yield premium to Broker (Paid by Lender) (1.500%)." Mr.

Goodspeed testified that he did not know whether these fees were unreasonable or

excessive.{141} Based on all of the above, the Goodspeeds were adequately informed

about the yield spread premium from the beginning of the transaction. This case is

factually distinguishable from Myer, supra, cited by the Goodspeeds. In Myer, 117 Ohio

Misc.2d 8, 2001-Ohio-4190 766 N.E.2d 612, there was no advance disclosure of the yield

spread premium; the interest rate for the Myer's loan was increased from 11.6% to

13.35%immediately before closing, with no explanation as to the reason for the increase.

Id. at ¶5, 35, 45.

{¶42} Lashua v. Lakeside Title & EscrowAgency, 5th Dist. No. 2004CA00237,

2005-Ohio-1728, is also factually distinguishable. There the settlement statement did not

explicitly mention a yield spread premium, instead designating the money the broker

would receive from the lender as "P.O.C," which the court found was "cryptic" and did not

put the buyers on notice of the payment. Further there was evidence that the loan

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origination disclosure statement was never provided to the buyers. Lashua at ¶38-39. By

contrast, the settlement statement here designated the $945 fee as a yield spread

premium, and other documents signed by Mr. Goodspeed prior to closing reference and

explain the yield spread premium.{143} In sum, there is no genuine issue of material fact regarding this branch of

the Goodspeeds' breach of fiduciary duty claim. Summary judgment in favor of Keyrock

and Root was proper as it relates to the yield spread premium issue.

{144} However, turning to the second issue, there is a genuine issue of material

fact as to whether Keyrock and Root breached their fiduciary duty to the Goodspeeds by

delegating so many responsibilities to Petrich, including processing the various financial

documents, loan applications and the appraisal. Although there is no evidence that

Keyrock and Root had actual knowledge that the appraisal was inflated or the loan

documents falsified, reasonable minds could differ as to whether they should have

known.{145} Turning first to the loan documents, Root entrusted Petrich to ensure the

completion of several key forms, despite express instructions on those forms that the

mortgage broker was to send them directly to the designated recipient. The Verification of

Rent form provided that the applicant's landlord complete information about the

applicant's rental history and that "[t]he form is to be transmitted directly to the lender and

is not to be transmitted through the applicant or any other party." Similarly, the Verification

of Deposit form provided that the depository bank complete information about the

applicant's account; again this form admonished that "[t]he form is to be transmitted

directly to the lender and is not to be transmitted through the applicant or any other party."

Despite these instructions, Root permitted Petrich to act as an intermediary between the

Goodspeeds and the lender with regard to completing these forms.

{146} Compounding these errors is the fact that Root knew that Petrich was the

seller in the transaction, and therefore not a disinterested party. This creates a genuine

issue of material fact as to whether Root's use of Petrich as an intermediary between

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Keyrock and the Goodspeeds to ensure the completion of nearly all the financial

documents required for the loan, most notably the Verification of Rent and Deposit forms,

constitutes a breach of fiduciary duty.{¶47} Regarding the appraisal, Root admitted it was "unusual" for the seller to

procure an appraisal. Moreover, the Broker Retention Agreement listed "arrangement of

the appraisal" as Keyrock's responsibility. Further, Root knew that Petrich had a personal

stake in the transaction as the seller as well as a questionable history as an apprentice

appraiser. Also, the fact that Petrich was sued by several Mahoning County homeowners

for allegedly providing inflated appraisals, and was later disqualified to sit for the state real

estate appraisal exam due to dishonest conduct are matters of public record. Root claims

to have no knowledge of these problems, yet admitted to having both a business and

personal relationship with Petrich, and, in fact, wrote Petrich a letter of recommendation

to the Ohio real estate appraisal board. Taken together, these facts also create a

genuine issue of material fact as to whether Root's decision to rely on Petrich to obtain

the appraisal constitutes a breach of fiduciary duty.

{¶48}Construing the evidence in favor of the Goodspeeds, there remain genuine

issues of material fact regarding whether Root should have known that entrusting Petrich

with the responsibility for obtaining the Goodspeeds' application and other financial

documents, along with the appraisal, could cause financial harm to the Goodspeeds.

Accordingly, the Goodspeeds' first assignment of error is meritorious in part. The trial

court's summary judgment in favor of Keyrock and Root on the Goodspeeds' claim of

breach of fiduciary duty on the yield spread premium issue is affirmed. The trial court's

summary judgment in favor of Keyrock and Root on the Godspeeds' claim of breach of

fiduciary duty for the failure to perform certain functions required of a mortgage broker

during the loan application process is reversed and the cause remanded for trial on that

claim.Mortgage Broker Act

{¶49} In their second assignment of error, Appellants assert:

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{¶50} "The trial court erred in granting Appellees' motion for summary judgment

because genuine issues of material fact remained in dispute as to whether they violated

the Mortgage Brokers Act."{151} The Ohio Mortgage Broker Act, R.C. Chapter 1322, "is designed in part to

protect mortgage borrowers from wrongful conduct by mortgage brokers." Equicredit

Corp. of America v. Jackson, 7th Dist. No. 03 MA 191, 2004-Ohio-6376, ¶65. The Act

prohibits mortgage brokers from, inter alia:

(B) Mak[ing] false or misleading statements of a material fact,

omissions of statements required by state law, or false promises regarding

a material fact, through advertising or other means, or engage in a

continued course of misrepresentations;(C) Engag[ing] in conduct that constitutes improper, fraudulent, or

dishonest dealings; * "'(E) Knowingly mak[ing], propos[ing], or solicit[ing] fraudulent, false,

or misleading statements on any mortgage document or on any document

related to a mortgage, including a mortgage application, real estate

appraisal, or real estate settlement or closing document. For purposes of

this division, "fraudulent, false, or misleading statements" does not include

mathematical errors, inadvertent transposition of numbers, typographical

errors, or any other bona fide error. R.C. 1322.07(B), (C) and (E).

{752} The Goodspeeds argue that the trial court erred by granting summary

judgment on its OMBA claims. It is undisputed that Keyrock and Root were considered

mortgage-brokers pursuant -to -the OMBA-when-they assisted the Goodspeeds in

obtaining financing to purchase the property. See R.C. 1322.07(G)(1) and (2) (now

codified as R.C. 1322.07(G)(1)(a) and (b)):

As used in sections 1322.01 to 1322.12 of the Revised Code:

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(G) "Mortgage broker" means any of the following:

(1) A person that holds that person out as being able to assist a

buyer in obtaining a mortgage and charges or receives from either the

buyer or lender money or other valuable consideration readily convertible

into money for providing this assistance;

(2) A person that solicits financial and mortgage information from the

public, provides that information to a mortgage broker, and charges or

receives from the mortgage broker money or other valuable consideration

readily convertible into money for providing the information[.] "*

{153} The Goodspeeds assert they have provided evidence that Keyrock and

Root violated the OMBA in three ways: by realizing undisclosed profits by virtue of the

yield spread premium; by improperly executing and handling the financing documents;

and by permitting an improper appraisal.

{154} First, the yield spread premium issue has been discussed in the context of

the first assignment of error. A yield spread premium is not a per se violation of the

OMBA, but could be a violation if not properly disclosed to the buyer. See Lashua, 2005-

Ohio-1728, at 139; Myer 117 Ohio Misc.2d 8, 2001-Ohio-4190, 766 N.E.2d 612, at 145,

51. Because the yield spread premium here was adequately disclosed in the Broker

Retention Agreement, Mortgage Loan Origination Disclosure Statement, Good Faith

Estimate, and the HUD Settlement Statement, there was no violation of the OMBA, and

summary judgment on this claim was proper.

{¶55} Second, the Goodspeeds claim that Keyrock and Root improperly

processed the financing documents, some of which contained incorrect financial and

other data about the Goodspeeds essential to the underwriting of the loan. Keyrock and

Root correctly counter that the Goodspeeds presented no evidence that they had any

knowledge that there was incorrect information in those documents; thus, there could be

no liability. R.C. 1322.07(E), as it read in 2005, prohibited mortgage brokers from

"knowingly mak[ing], propos[ing], or solicit[ing] fraudulent, false, or misleading statements

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on any mortgage document or on any document related to a mortgage, including a

mortgage application, real estate appraisal, or real estate settlement or closing document.

***." (Emphasis added.)' Further, there is no evidence that Root and Keyrock engaged

in a "continued course of misrepresentations" as prohibited by R.C. 1322.07(B).

{¶56} However, R.C. 1322.07(C) prohibits "improper" conduct by a mortgage

broker, although the word improper is not defined by the statute. Accordingly, "undefined

terms are to be accorded their common, everyday meaning." MP Star Financial, Inc. v.

Cleveland State Univ., 107 Ohio St.3d 176, 2005-Ohio-6183, 837 N.E.2d 758, ¶8, citing

State v. Dorso, 4 Ohio St.3d 60, 62, 446 N.E.2d 449 (1983); R.C. 1.42. The Merriam

Webster Online Dictionary defines "improper" as "not in accord with fact, truth, or right

procedure." http://www.merriam-webster.com/dictionary/improper.

{¶57} Based on our conclusion in the first assignment of errorthat genuine issues

of material fact remain regarding whether Keyrock and Root breached their fiduciary

duties to the Goodspeeds because they permitted the loan documents to be processed

by the seller, there is also a genuine issue of material fact as to whether entrusting the

completion of the loan documents to the seller was "improper" conduct in violation of R.C.

1322.07(C). Conduct that breaches a fiduciary duty is improper.

{¶58} Turning to the appraisal issue, like the yield spread premium issue, the

appraisal has also been discussed in the context of the first assignment of error above.

Keyrock and Root's conduct did notviolate section (E), because there is no evidence that

they knowingly submitted a false or inflated appraisal in violation of that subsection. R.C.

1322.07(E). Root testified that he never saw the appraisal; and further that it was up to

the lender to approve or deny it. In addition, the actual appraisal is not part of the record

which creates a proof problem.{¶59} However, the fact that Keyrock and Root entrusted the selection of the

' The current version of R.C. 1322.07(E) is substantially similar, prohibiting mortgage brokers from:"[k]nowingly mak[ing], propos[ing], or solicit[ing] fraudulent, false, or misleading statements on any mortgageloan document or on any document related to a mortgage loan, including a mortgage application, real estate

appraisal, or real estate settlement or closing document. '""

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appraiser to Petrich, the seller, constitutes "improper" conduct under the OMBA. R.C.

1322.07(C). As explained in the first assignment of error, there is a genuine issue of

material fact as to whether this constitutes a breach of fiduciary duty. As a corollary,

there is also a genuine issue of material fact as to whether this also constitutes

"improper" conduct by a mortgage broker under the OMBA.

{¶60} Construing the evidence in favor of the Goodspeeds, there remain genuine

issues of material fact regarding whether Keyrock and Roots' entrustment of the appraisal

and the loan documents to Petrich, who was the seller in the transaction, was improper

conduct. Accordingly, the Goodspeeds' second assignment of error is meritorious in part.

The trial court's summary judgment in favor of Keyrock and Root on the Goodspeeds'

claim of a violation of the OMBA regarding the yield spread premium is affirmed. The trial

court's summary judgment in favor of Keyrock and Root on the Godspeeds' claim of a

violation of the OMBA for entrusting obtaining the appraisal and processing the loan

documents to Petrich is reversed and the cause remanded for trial on that claim.

Civil Conspiracy

{¶61} In their third and final assignment of error, the Goodspeeds assert:

{162} "The trial court erred in granting Appellees' motion for summary judgment

because genuine issues of material facts remained in dispute as to whether they engaged

in a civil conspiracy."

{163} "A civil conspiracy is 'a malicious combination of two or more persons to

injure another in person or property, in a way not competent for one alone, resulting in

actual damages.' Equicredit, quoting LeFort v. Century 21-Maitland Realty Co. (1987),

32 Ohio St.3d 121, 126, 512 N.E.2d 640. "An underlying unlawful act is required before a

civil conspiracy claim can succeed." Williams v. Aetna Fin. Co., 83 Ohio St.3d 464. "The

malice involved in the tort is 'that state of mind under which a person does a wrongful act

purposely, without a reasonable or lawful excuse, to the injury of another.'" Id., quoting

Pickle v. Swinehart (1960), 170 Ohio St. 441, 443, 166 N.E.2d 227. "Civil conspiracy is

considered an intentional tort." Equicredit 2004-Ohio-6376, at¶74, quoting USX Corp. v.

-18-

Penn Cent. Corp., 137 Ohio App.3d 19, 26, 738 N.E.2d 13 (8th Dist.2000).

{¶64} The Goodspeeds assert that Keyrock, Root and the Petrichs unlawfully and

maliciously conspired to conceal information from the Goodspeeds which they were

under a duty to disclose; induce Mr. Goodspeed to enter into the purchase contract and

loan contracts to obtain profits forthemselves while injuring the Goodspeeds; make false

statements in connection with the loan; commit mail fraud by knowingly causing a

fraudulent loan document to be sent, delivered or moved; commit various violations of

Ohio federal and criminal statutes involving real estate transactions, mortgage loans and

consumer protection; and misrepresent the terms of the real property purchase.

{165} Although there is some evidence that the Petrichs may have committed

some of these acts, and in fact the magistrate separately found that the conspiracy

claims as they relate to the Petrichs alone should survive summary judgment, there is no

evidence that Keyrock and Root took part in any conspiracy.

{166} The Goodspeeds assert that this court should infer a conspiracy existed

between Keyrock, Root and Petrich because they "knew or should have known there

were serious questions in [Petrich's] background regarding appraisals and loan

packaging," including that Petrich, while an apprentice appraiser, was on the

"disapproved" list for several lenders, and that Petrich was denied the privilege of sitting

for the state real estate appraisal boards due to a history of dishonesty. According to the

Goodspeeds, because Keyrock and Root continued to deal with Petrich despite actual or

constructive knowledge of his checkered history, this demonstrates the existence of a

conspiracy.{¶67} However, the civil conspiracy claim as it relates to Keyrock and Root is

largely based upon suppositions, not actual evidence. While there is evidence that

Petrich and Root were long-time acquaintances, and, as mentioned, there is some

evidence of unlawful acts by Petrich, there is no evidence that Keyrock and Root

conspired with Petrich to harm the Goodspeeds. The evidence in the record of Keyrock

and Root's conduct, specifically their entrustment of the appraisal process and

-19-

processing the relevant loan documents to Petrich, could be considered negligent or a

breach of fiduciary duty, as discussed in the context of the first assignment of error.

However, there is neither evidence of malice on the part of Keyrock and Root, nor

evidence that they had knowledge of Petrich's alleged fraudulent acts with regard to the

loan documents and the appraisal. Similarly, there is no evidence that Keyrock and Root

formed an agreement or understanding with the Petrichs to harm the Goodspeeds.

{168} In fact, when questioned at his deposition, Mr. Goodspeed conceded that

he had no evidence that Keyrock and Root acted maliciously towards him with respect to

the transaction, acted in concert with anyone to deprive him of anything. Nor did Mr.

Goodspeed believe that Keyrock and Root knowingly took advantage of him.

{169} This case is distinguishable from Williams v. Aetna Fin. Co., 83 Ohio St.3d

464, 700 N.E.2d 859 (1998), cited by the Goodspeeds. In Williams, the plaintiff, an

elderly, low-income homeowner alleged, inter alia, that Blair, a home improvement

"pitchman," conspired with Aetna, a lender, to defraud her and others similarly situated by

convincing her to take out a series of high-interest, low-risk loans for home improvement

work that Blair never intended to have fully performed. Williams claimed that Aetna

benefitted by making these loans when it knew that the work contracted for by Blair would

never be done. The Ohio Supreme Court upheld the jury verdict in favor of Williams on

her civil conspiracy claim, concluding it was supported by ample evidence, specifically:

testimony from Aetna's former managers that Blair's financial problems were well known

among Aetna's employees for a significant time before the loan was made to Williams;

that the term "Blair loan" had developed a specific, highly negative connotation among

employees; and that there was a close relationship between Aetna employees and Blair.

Williams at 476.{170} By contrast, here there is simply no evidence in this record that Keyrock

and Root knew about Petrich's alleged scheme against the Goodspeeds. This case is

similar to Equicredit, 2004-Ohio-6376, at ¶77, where this court concluded there was no

evidence of a conspiracy because the mortgage broker was a separate company from

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the home improvement company that assisted the buyers in obtaining the loan, and the

mortgage broker did not know about false information in the loan application.

{¶71} The Goodspeeds cite several federal district court cases to support their

position regarding the existence of a conspiracy, however, those cases are unhelpful as

they arose in the context of motions to dismiss, not motions for summary judgment.

Matthews v. New Century Mortg. Corp., 185 F.Supp.2d 874 (S.D.Ohio 2002); Eva v.

Midwest Natl. Mortgage Banc, Inc., 143 F.Supp.2d 862 (N.D.Ohio, 2001).

{¶72} The Goodspeeds did not meet their reciprocal Dresher burden to put forth

evidence of a conspiracy. Accordingly, the Goodspeeds' third assignment of error is

meritless, and the trial court's summary judgment in favor of Keyrock and Root on the

Goodspeeds' civil conspiracy claim is affirmed.

Conclusion

{¶73} The Goodspeeds' first and second assignments of error are meritorious in

part, and their third assignment of error is meritless in its entirety. Summary judgment in

favor of Keyrock and Root on the breach of fiduciary duty and OMBA claims based upon

the yield spread premium issue was proper because that information was disclosed to the

Goodspeeds, and this judgment is affirmed. Further, summary judgment in favor of

Keyrock and Root on the civil conspiracy claim was proper because there is no evidence

they acted maliciously or formed an agreement to harm the Goodspeeds, and this

judgment is affirmed.{774} However, there are genuine issues of material fact precluding summary

judgment in favor of Keyrock and Root on the breach of fiduciary duty and OMBA claims

based upon their alleged failure to perform certain functions required of a mortgage

broker during the loan application process. There is evidence in the record that Keyrock

and Root, instead of performing these functions, entrusted Petrich, the seller in the

transaction, with procuring an appraisal of the subject property; obtaining almost all of the

financial information from the Goodspeeds, their bank and landlord; and processing the

loan documents.

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{¶75} Accordingly, the judgment of the trial court is affirmed in part, reversed in

part and the cause remanded for trial on the Goodspeeds' claims against Keyrock and

Root for breach of fiduciary duty and violation of the Ohio Mortgage Broker Act for their

alleged failure to perform certain functions required of a mortgage broker during the loan

application process.

Waite, P.J., concurs.

Vukovich, J., concurs.

APPENDIX

22

STATE OF OHIO } IN THE COURT OF APPEALS OF OHIO

MAHONING COUNTY ) SS: SEVENTH DISTRICT

FV I INC.,PLAINTIFF,

-VS-

CASE NO. 10 MA 170

GERALD GOODSPEED, et al.,DEFENDANT/THIRD PARTYPLAINTIFFS-APPELLANTS,

JUDGMENT ENTRY

IMAH.)Ai lNIt= :CC:: Uh;T"_FJHlU

Jl.)N 2 0 2012KEYROCK FINANCIAL LTD., et al.,

THIRD PARTY/DEFENDANTS-APPELLEES.

I - F3^Ea=I AN"rFiC'ril'V9VQCL,L3L

For the reasons stated in the opinion rendered herein, Appellants' first and

second assignments of error are meritorious in part and their third assignment of

error is meritless. It is the final judgment and order of this Court that the judgment of

the Common Pleas Court, Mahoning County, Ohio, is affirmed in part, reversed in

part and remanded to the trial court for further proceedings according to law and

consistent with this Court's opinion. Costs taxed against Third-Party Defendants-

Appellees, Keyrock Financial L.L.C., and Roy Root.

/1'Jq,a ^r0

4JUDGES.