Case: 5:17-cv-02189-JRA Doc #: 1 Filed: 10/17/17 1 of 18.

PageID #: 1

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

HEALTH AND WELLNESS ) CASE NO. _____________________

LIFESTYLE CLUBS LLC )
1201 Orange Street, Ste. 600 ) JUDGE________________________
Wilmington, Delaware 19801 )
)
Plaintiff, )
)
vs. )
)
RAINTREE GOLF, LLC )
c/o RA Agents, Inc. )
222 South Main Street )
Akron, Ohio 44308 )
)
Also serve at: )
4350 Mayfair Road )
Uniontown, Ohio 44685 )
) COMPLAINT
and )
) Jury Demand Endorsed Hereon
JOHN RANIERI )
4350 Mayfair Road )
Uniontown, Ohio 44685 )
)
Also serve at: )
3751 Glen Eagles Blvd. )
Uniontown, Ohio 44685 )
)
and )
)
NAI CUMMINS REAL ESTATE, INC. )
c/o Jim Cummins Real Estate, Inc. )
787 White Pond Drive )
Akron, Ohio 44320 )
)
and )
)
THOMAS FOX )
789 White Pond Drive, Suite C )
Akron, Ohio 44320 )
)

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and )
)
JERRY FIUME )
3045 Smith Road, Suite 200 )
Akron, Ohio 44333 )
)
and )
)
JOHN DOES 1 through 10 )
)
Defendants. )

Plaintiff Health and Wellness Lifestyle Clubs LLC, a Delaware Limited Liability

Company (“HWLC” or “Plaintiff”), states as follows as and for its Complaint against

Defendants:

PARTIES

1. HWLC is a limited liability company organized and registered in the State of Delaware.

HWLC was the designated HWLC in the real estate transactions described below. HWLC

was represented by Ms. Kathy Bissell as HWLC’s broker for the transactions.

2. Defendant Raintree Golf, LLC (“Raintree”) is a limited liability company organized and

registered in the State of Ohio that owns and operates Ohio Prestwick Country Club and

Raintree Country Club, and the golf course located there. Defendant Raintree was the

designated seller in the real estate transactions described below.

3. Upon information and belief, Defendant John Ranieri (“Ranieri”) is the controlling

member, manager, owner and operator of Defendant Raintree. (Raintree and Ranieri are

collectively referred to herein as “Seller”).

4. Defendants NAI Cummins Real Estate, Inc. (“NAI”), together with Defendants Thomas

Fox (“Fox”) and Jerry Fiume (“Fiume”) (collectively, “Brokers”), served as seller’s

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broker for the transactions, and represented Raintree along with several other outside

consultants and financial advisors.

5. Defendants John Does 1 through 10, inclusive, are persons, corporations or other entities

that were directly or indirectly instrumental in the actions and inaction complained of

herein. Defendants John Does 1 through 10, whether individual, corporate or otherwise,

are unknown to HWLC, who therefore sues such Defendants under fictitious names.

HWLC reserves its rights to amend the Complaint or, as required, seek leave of Court to

amend the Complaint to allege the true names and capacities of such Defendants at such

time as the same have been ascertained.

6. Whenever any allegation is made in this Complaint to “Defendants” doing any act, the

allegation shall mean the act of all the Defendants, including the officers, directors,

agents or employees of the Defendants or third parties acting individually, jointly and

severally, and conspiring to act in the capacities set forth below.

JURISDICTION AND VENUE

7. This Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. 1332, as

HWLC is a citizen of a foreign state and the amount in controversy exceeds $75,000

exclusive of interest and costs.

8. Venue in this District is proper pursuant to 28 U.S.C. 1391 in that a substantial part of the

events giving rise to HWLC’s claims occurred here and the Defendants transact business

and reside here.

SUMMARY OF FACTS AND FACTS COMMON TO ALL COUNTS

9. In or about May of 2015 or soon thereafter, HWLC was contacted by the above-

mentioned brokers about the potential sale of two golf courses, located respectively at

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Prestwick Country Club (“Prestwick Club”) and Raintree Country Club (“Raintree

Club”) (collectively, the “Clubs”). HWLC was in the market for and interested in

purchasing one or more profitable golf courses and country clubs. The above-mentioned

brokers representing the seller of these properties represented to HWLC that the

properties were profitable and were good investment candidates. HWLC was provided

financial statements showing that such properties were operating on attractive profits.

See Exhibit 1, attached hereto and incorporated herein. 1

10. Based on the financial statements and representations referenced above, on or about July

17, 2015 HWLC and Seller executed a letter of intent (“LOI”) for the purchase of the

Clubs. See Exhibit 2, attached hereto and incorporated herein. The LOI, which made

clear that both properties were to be purchased, was based on certain contingencies such

as financing and due diligence acceptable to financier. The LOI was based on the fact that

both properties were operating profitably; in particular HWLC was told that the

Prestwick Club was making at least $528,000 in Earnings before Interest, Taxes,

Depreciation and Amortization (“EBITDA”) or net income, and that the Raintree Club

was making EBITDA or net income of approximately $348,000. Based on these

statements of attractive EBITDA and/or net income, and in reliance thereon, HWLC

proceeded to execute the both the LOI and the Purchase Agreements, as discussed below.

11. On or about August 24, 2015, HWLC and Seller executed the final purchase and sale

agreements regarding these properties. Two (2) agreements were executed – one for each

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The referenced exhibits are being served contemporaneously with this Complaint on Defendants, insofar
as they already have knowledge of the contents thereof. The exhibits, however, contain highly confidential
information, and thus are not attached to the Complaint being filed with the Court. HWLC will be filing a Motion
for leave to file said exhibits under seal shortly after the filing of the Complaint.

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property. The agreements required that HWLC would purchase both properties, albeit not

necessarily contemporaneously. See Exhibits 3 and 4, attached hereto and incorporated

herein. The agreements between the parties (HWLC and Seller) reflected the parties’

understanding that the transactions would close subject to financing, appraisal and due

diligence.

12. The parties discussed at great length the standard requirements needing to be met for

financing the transaction. Seller communicated to HWLC that Seller understood the

requirements needed by a potential Lender to finance the deals. In particular, HWLC

explained that the following standard conditions would be required by a Lender: (1) an

appraisal that is based on stable revenues for the last few years and would not be lower

than the purchase price executed between the parties; (2) a profitable business on the

property that is consistently stable for at least 3 years; (3) strong financial statements; (4)

well run operations; and (5) growth potential.

13. HWLC explained that the financing by HWLC would be sought on these conditions and

would need the cooperation of Seller to accurately provide the necessary information in a

timely manner. HWLC also explained to Seller that to meet these underwriting

conditions, a detailed package to Lender reflecting the satisfaction of all these conditions

would need to be prepared and submitted to the Lender including detailed financials,

warranties, disclosures and guarantees by both Seller and HWLC. These disclosures and

guarantees from Seller would include: (1) guarantees on financial stability, together with

financial statements guaranteed by Seller as to truth and accuracy; (2) statements that the

business was operating profitably; (3) statements that there are no liabilities other than

the existing mortgage; and (4) any other disclosures required by Lender.

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14. After the execution of the Purchase Agreement, HWLC started to work on the

procurement of the financing of the deal, due diligence and working toward seeking

financing of the deal.

REPRESENTATIONS MADE TO HWLC

15. HWLC entered into the LOI and purchase agreements for the properties based on the

representations made by Broker and Seller on record that the properties were operating

profitably with attractive cash flows. HWLC had communicated to Broker and Seller that

HWLC was interested in buying positive cash flowing properties with an attractive rate

of return and that a Lender would only finance if the deals reflected stabilized EBITDA

over the last few years. Brokers and Seller conveyed to HWLC and its broker that the

properties were attractive and good cash flowing candidates as reflected in the statements

given to HWLC. See Exhibit 1.

16. Thus, between May 2015 and the August 2015 execution of the final purchase and sale

agreements, HWLC was lead to believe that the properties experienced attractive cash

flows. In particular, the Prestwick Club, being the larger deal, was represented as making

EBITDA or net income of approximately $528,000, and the Raintree Club was

represented as making EBITDA or net income of approximately $348,000. HWLC was

also told that the properties were well managed, with growth potential and that the area of

the subject property was seeing growth or that the area in which the property was located

was a growing city and that Prestwick Club was a well reputed and popular club. HWLC

was also told by Seller and Broker that the property had a clean bill of title and that it

would suit HWLC's proposed use.

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17. These representations by Seller and Broker stating that Prestwick made the above

referenced amount of net cash flows, was operating at a profit, was well managed, and

had growth potential, all caused HWLC to enter into the purchase and sale of the two

deals. In reality, as discussed below, this property did not make those cash flows as

claimed, did not have stabilized revenues and in fact had been subject to declining

revenues and cash flows.

18. Relying on these representations, HWLC initiated efforts to procure financing. On or

about February 23, 2016 HWLC was able to procure a letter of interest by a Lender for

Prestwick. HWLC then committed to working to meet all Lender guidelines to close the

deal.

19. During the period between May 2015 and August of 2015 to June of 2017, HWLC

initiated the process of compiling all information, disclosures, warranties to be signed by

both Seller and HWLC. Seller started to provide all information demanded by Lender for

HWLC during this period. Due to the nature of the transaction, and the necessity of

permits to be obtained, the transaction escrow was extended by the parties to allow

HWLC and Seller to provide all information required by Lender.

20. On or about late May to June of 2017 when escrow was scheduled to close, Lender

demanded the most recent financial statements by Seller. Escrow was scheduled to close

by June 30, 2017. After all conditions were complied with by HWLC, HWLC proceeded

upon Lender’s demand to seek the most recent financials by seller. Seller submitted the

financial statement ended May 30, 2017 showing only half of the profits originally

submitted to the Lender and HWLC. HWLC received this information only days prior to

close of escrow.

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21. When HWLC received the shocking financial statements ending May 30, 2017 by Seller,

HWLC requested a meeting with Seller to understand why the revenues and profits

suddenly tanked. At the meeting, Seller conveyed that the profits had declined

substantially due to the lack of event booking revenues and due to food and beverage

sales decline. HWLC was also told that no event was booked in the last 8-10 months

causing the decline in revenues, a fact previously concealed by Seller. HWLC was also

told that such decline was the result of failure to book events for at least close to a year, a

fact that was also actively concealed by Seller.

22. This material fact that there were no event bookings and a substantial decline in food and

beverage sales, had and has a material negative impact on the property value of

approximately 25%.

23. Seller had concealed this fact during the period HWLC continued to invest in permits and

spent substantial sums of moneys into the deal, knowing full well that it would cause the

bank to cancel financing. Subsequently the bank did cancel the financing.

HWLC’S RELIANCE ON THESE REPRESENTATIONS

24. Based on the contract executed between the parties (which was based on Seller’s

misrepresentations), HWLC initiated financing applications to various Lenders. HWLC

invested considerable money on consulting and time and effort to seek financing. In or

about March of 2016 or soon thereafter, based on HWLC’s application for financing, a

Lender agreed to finance the acquisition of the Prestwick Club. HWLC submitted the

following information to the Lender based on information provided by Seller:

a. That Prestwick Club had gross revenues of $1,868,529 and Net Operating Income

of $427,560;

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b. That Raintree Club had gross revenues of $1,555,261 and NOI of $520,380;

c. That the growth potential of the properties was based on Seller statements that the

properties had more value than what was reflected in the purchase price of the

properties.

d. That the properties were suitable for HWLCs intended purpose and that the Seller

had clean title to convey.

25. Based on these statements, Lender approved HWLC's application, but required that

HWLC obtain permits for construction and that all statements regarding financial

creditworthiness would be guaranteed by both HWLC and Seller.

26. Based on the above statements and representation by Seller that the properties were

generating attractive gross revenues and EBITDA/net income, as required by the Lender,

HWLC started to invest into permit and pre-development costs on Prestwick Club. Since

the permits application process with the City of Green was an intensive process, requiring

several changes on the application, the parties agreed to extend the escrow to allow

adequate time to close the transaction. Seller provided these two extensions ending in or

about the end of May 2017.

27. Between May 2015 and June 2017, information provided to HWLC did not clearly reveal

or disclose that Prestwick Club was not generating the gross revenues and EBITDA/net

income as claimed by Seller. In reality, the property had declining revenues, and Seller

had made several loans to the property which were not paid back and recognized as “debt

forgiveness” by accounting and financial reporting. For at least three years, the property

had been experiencing declining revenues and EBITDA/net income, with the debt

forgiveness falsely increasing the appearance of gross revenues, cash flows and

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EBITDA/net income. The financial statements were provided in a manner to conceal the

fact that there were loans made by Seller to Prestwick Club (with no notes to the financial

statements being provided to HWLC that would reveal the financial picture of Seller

loaning money to Prestwick Club. Both HWLC and Lender relied on the financial

statements showing the gross revenues and cash flows as reflected in Exhibit 1.

28. Between April 20, 2016 to June of 2017, Lender required several items to be furnished as

conditions of financing, including full and accurate financials of the Seller, business

information, list of employees, inventory, why the Seller was selling the property,

country club memberships, and other details as are normally required during such a

transaction. The commitment letter issued by Lender in early 2016 also required that

HWLC invest substantial money into permits for the construction loan that was part of

the financing. HWLC proceeded to complete all requirements needed by Lender to close

escrow.

29. During the period of executing the purchase and sale agreement to May 30, 2017,

financial information provided to HWLC was inconsistent, incomplete and erroneous.

For example, Seller provided financial information referencing accountant’s reports that

were never provided. Instead, the incomplete records and inconsistent financial

information in fact conveyed that the business was attractive and that some of the

financial adjustments were only one-time adjustments or that they did not affect the asset

value.

30. In or about May of 2017 prior to closing of escrow, HWLC’s Lender requested

authentication by Seller by way of requiring Seller to verify and authenticate that all

information provided to the Lender is accurate and correct. Apparently, this demand

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triggered Seller’s accountant to state that the loan forgiveness was in fact occurring for

more than one year, and that this adjustment decreased the cash flows for Prestwick Club

from $528,000 to about $400,000. This information was supported by Seller and Seller's

accountant’s communications that this was not a continuous trend. This information was

given to HWLC at a time just about 2 weeks prior to expected closing of the transaction.

Thus HWLC was not aware up to this point that the true cash flows were approximately

$400,000.

31. On or approximately about May 2017 (weeks before closing) HWLC's Lender and

HWLC were provided with confirmation that the debt forgiveness adjustments would

cause the cash flows to decrease from $528,000 to about $400,000, for year 2015 and

2016. This was not clearly conveyed to HWLC or disclosed by way of notes to financial

statements before this date. Typically, decrease in revenues are accompanied by notes to

financials and disclosed in financial statement disclosures, as is required in similar

transactions. Since HWLC was never provided any notes to the financials, such

confirmation or explanation was cleverly concealed from HWLC.

32. Next, Lender then demanded that the most recent financial statement (“P&L”) for the

period ended May 30, 2017 would need to be submitted by Seller. Pursuant to the above

demand by HWLC’s Lender, Seller provided these financial statements which showed

that the property had further declined in revenues, now making on a yearly projected

basis only $200,000, a far cry from the $528,000 or the $400,000 as represented to

HWLC.

33. Upon receipt of this information, HWLC demanded a physical face to face meeting with

all parties and advisors. HWLC and Seller and their representatives then met in a

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combined forum, to evaluate the options available to HWLC. This was an open forum

meeting where every advisor was invited to attend and provide their input since many

were involved in the transaction.

34. Seller reported to HWLC that the decrease in revenues was due to the fact that no events

had been booked for the prior 8 to 10 months, which had previously been hidden from

HWLC, while Seller, instead, grossly misrepresented value of the deal.

35. HWLC's Lender was thereafter presented with the financials for 2017 reflecting the

$200,000 value and on that basis Lender issued a “material adverse condition” letter

informing HWLC that Lender would not be financing the deal due to the decreased

financial figures.

36. HWLC has incurred significant costs in closing the transaction and relied to its detriment

on the misrepresentations made by the Seller.

IMPACT OF THE DECREASED REVENUES CONCEALED FROM HWLC ON THE ASSET

VALUE – MATERIALITY OF THE IMPACT OF CONCEALED FACTS

37. At the time of the purchase, Seller provided HWLC with an appraisal from Seller’s

Lender reflecting the value of the Prestwick Club property at approximately $3,500,000.

The appraisal showed revenues of about $1,900,000 without showing any adjustments for

loan forgiveness. This appraisal was done by Wakefield Cushman on behalf of Seller’s

mortgagee, First Merit Bank (nka Huntington Bank) and assumed that no factors such as

declining revenues played a part. In fact, the property has a history of declining revenues

and is only stable if the forgiveness of loan which is recognized as income is added to the

gross revenues. Thus, the appraisal was faulty and based on non-inclusion of the loans

outstanding to the owner which could not be paid off because the business was not

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making money. The appraisals done by Seller’s Lender also did not reflect or explain the

past trend of declining revenues and falling memberships, presumably negatively

impacting the SBA loan guarantee.

38. The decrease in the revenues and EBITDA/net income has caused devaluation in the

asset value of Prestwick Club. This is reflected in HWLC’s valuation report performed by

HWLC’s consultant on the basis of the declining numbers disclosed by seller. This is a

substantial decline in the asset value caused due to the decreased financials. Had HWLC

known of this fact, HWLC would not have proceeded with this transaction because

HWLC would not have been able to obtain financing.

DUTIES AND NEGLIGENCE OF SELLER AND SELLER’S BROKER

39. Seller and Seller’s Broker had a duty to present complete financial statements and to

disclose the truth that the financial status of Prestwick Club was declining. The contracts

for the purchase of the properties provided for Seller warranties that required Seller to

provide disclosures impacting the business and that the statements provided to HWLC

were true and accurate.

40. In reality, the revenues and cash flows were declining and the figures were artificially

inflated by the debt forgiveness amounts, all of which was affirmatively concealed by

inconsistent financial statements provided by Seller and not disclosed to or

comprehended by HWLC. The financial statements provided to HWLC were inconsistent

and erroneous in several ways:

a. The financials provided deliberately omitted any notes to the financial statements

and explanations;

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b. The financials provided were inconsistent throughout the exchange of

information; the first set of documents provided to HWLC revealed that Prestwick

Club was making attractive returns without revealing the debt forgiveness and

later documents submitted revealed debt forgiveness;

c. The financial statements were not prepared in accordance with standard practices

or if they were, the drafts given to HWLC certainly showed inconsistencies in

expenses and income.

d. Weeks before the closing, when Lender required financials to move toward

closing, financial information for period ending May 30, 2017 was provided that

had substantial unreal numbers. For example, there were errors in reporting

income causing artificially inflated revenues and cash flows. Upon questioning,

the bookkeeper for Prestwick Club and Seller acknowledged that there were

errors on the books. These errors and inconsistencies were a direct result of

negligent performance of bookkeeping, and caused grave concern on the part of

the Lender. Ultimately the Lender terminated the financial commitment on the

deal.

41. Seller and his team failed to disclose the true financial information, concealed the fact

that the business was severely declining and exhibited major mistakes on the financial

statements submitted to Lender. The failure to disclose and the negligence on the part of

the seller to accurately present the requisite financial information required by the Lender

caused the Lender to cancel the financial commitment on the deal at a time after HWLC

had invested substantial sums of moneys into the deal. HWLC has suffered severe harm

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on the deal. The failure to close the transaction has substantially harmed HWLC which

relied to its extreme detriment on the representations and warranties by Seller.

DEFENDANT BROKERS NAI, FOX AND FIUME HAD A DUTY TO DISCLOSE

42. Seller’ Broker had a duty to disclose the truth about the financial statements of the Seller.

43. In violation of their duties, NAI, Fox and Fiume conspired and failed to disclose the truth

with regard to the financials. Broker attended most meetings where the transaction was

discussed, had access to the financials, and was given every opportunity to disclose the

truth regarding the financials, but failed to do so.

FIRST CAUSE OF ACTION

BREACH OF CONTRACT; BREACH OF WARRANTY; BREACH OF COVENANT OF
GOOD FAITH AND FAIR DEALING

44. HWLC incorporates the foregoing paragraphs 1 through 43 as though fully rewritten

herein.

45. Seller and HWLC entered into a purchase and sale transaction. Seller represented to

HWLC both through the financial representations and discussions that Prestwick Club

was a good investment property with attractive returns; in particular the representation

made was that the property was making cash flows of $528,000 when in fact the business

was not making that much; in fact, the business was making $400,000. To make matters

worse, prior to scheduled escrow, the business was making only $200,000 on an

annualized basis, a fact concealed by Seller.

46. Seller’s failure to disclose the true financial picture was a violation of the Seller’s

warranties. This was a clear breach of the contract between the parties, Seller’s

warranties, and the implicit and explicit covenant of good faith and fair dealing.

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SECOND CAUSE OF ACTION

NEGLIGENCE

47. HWLC incorporates the foregoing paragraphs 1 through 46 as though fully rewritten

herein.

48. Seller had a duty to provide accurate information to HWLC in its discussions, but failed

to do so in breach of its duties. Specifically, Seller provided HWLC with inconsistent

financial statements.

49. The financial statements provided to HWLC on or about May 30, 2017 had egregiously

inflated income and errors on the submitted P&L. These gross errors caused Lender to be

alarmed, triggering the underwriter to review these documents in a negative light, and

subsequently causing the Lender to cancel the financial commitment, resulting in

substantial harm and loss to HWLC.

THIRD CAUSE OF ACTION

MISREPRESENTATION

50. HWLC incorporates the foregoing paragraphs 1 through 49 as though fully rewritten

herein.

51. Seller represented to HWLC that Prestwick Club was an attractive property when in fact

it was declining in revenues.

52. Seller failed to disclose to HWLC at the time latter entered into the letter of intent and

contract, both: (1) that the revenues and profits were declining; and (2) that the debt

forgiveness was causing the income, EBITDA and gross revenues to be artificially

inflated.

53. These representations and omissions were material and had an impact of more than 20%

on the asset value, could not have been discovered by HWLC by reasonable means, and
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were materially misleading to HWLC, causing HWLC to rely thereon to its detriment and

invest substantial sums of moneys into the deal, and thereby suffering great financial loss.

FOURTH CAUSE OF ACTION

FRAUDULENT CONCEALMENT; FRAUDULENT INDUCMENT; COMMON LAW
FRAUD AND DECEIT

54. HWLC incorporates the foregoing paragraphs 1 through 53 as though fully rewritten

herein.

55. Seller deliberately concealed the true financial picture of the business of Prestwick Club

by disclosing inflated financials, concealing or omitting the notes to the financial

statements or any explanations on the adjustments or decline in the financial performance

of the business at Prestwick Club.

56. These acts caused a substantial impact on the value of the asset and caused Lender to

cancel its financing commitment after HWLC had invested substantial sums of moneys in

reliance on Seller’s misrepresentations and omissions.

57. Seller’s conduct prevented HWLC from discoveing the truth despite HWLC’s exercise of

due diligence.

58. As a result of HWLC’s justified reliance on Seller’s misrepresentations and omissions,

HWLC has suffered substantial loss.

PRAYER

WHEREFORE, Plaintiff prays for the following:

1. Compensatory damages suffered as a result of the actions by the Defendants in breach of

their contractual and common law obligations.

2. Restitution in the form of all costs borne by HWLC as a result of the transaction.

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3. Punitive damages as a result of Defendants’ fraudulent misconduct, misrepresentations,

omissions, fraud and deceit.

4. Specific performance as to the Raintree Club contract.

4. Attorneys’ fees as this Court deems proper.

5. Any other relief that is appropriate under the circumstances.

Respectfully submitted,

/s/ Joseph S. Simms

Joseph S. Simms (0066584)
jsimms@koehler.law
KOEHLER FITZGERALD LLC
1111 Superior Avenue East – Suite 2500
Cleveland, Ohio 44114
216.539.9370-phone
216.916.4369-facsimile
Attorney for Plaintiff

JURY DEMAND

Plaintiff hereby demands a trial by jury of all claims and causes of action so triable.

/s/ Joseph S. Simms

Attorney for Plaintiff

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