435 F.3d 560 (6th Cir. 2006), 04-4372, Pavlovich v. National City Bank

Docket Nº:04-4372.
Citation:435 F.3d 560
Party Name:Lauren M. PAVLOVICH, Plaintiff-Appellant, v. NATIONAL CITY BANK, Defendant-Appellee.
Case Date:January 09, 2006
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

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435 F.3d 560 (6th Cir. 2006)

Lauren M. PAVLOVICH, Plaintiff-Appellant,


NATIONAL CITY BANK, Defendant-Appellee.

No. 04-4372.

United States Court of Appeals, Sixth Circuit

January 9, 2006 [*]

Argued Dec. 8, 2005.

Appeal from the United States District Court for the Northern District of Ohio at Cleveland. No. 01-01120—Solomon Oliver, Jr., District Judge.

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[Copyrighted Material Omitted]

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Peter A. Hessler, Wegman, Hessler & Vanderburg, Cleveland, OH, for Appellant.

Geoffrey J. Ritts, Jones Day, Cleveland, OH, for Appellee.


Peter A. Hessler, Angela M. Privitera, Karl R. Wetzel, Wegman, Hessler & Vanderburg, Cleveland, OH, for Appellant.

Geoffrey J. Ritts, James P. Burke, Jones Day, Cleveland, OH, John M. Newman, Jr., Jones Day, Washington, DC, for Appellee.

Before: MERRITT, MARTIN, and COLE, Circuit Judges.


MERRITT, Circuit Judge.

Plaintiff Lauren M. Pavlovich invested a small fortune in Rx Remedy, Inc. ("Rx Remedy"), a privately-held health care company, with a dubious financial record. A half-decade and a million-and-a-half dollars in losses later, Ms. Pavlovich now is trying to blame defendant National City Bank ("the Bank") for following her investment instructions and those of her unscrupulous investment advisor, Cashel Management Company ("Cashel"). The District Court granted summary judgment in favor of the Bank as to all claims and denied Ms. Pavlovich's motion for partial summary judgment. For the reasons set forth below, we affirm.


In 1992, the Mooney family sold its business, Mooney Chemical. Plaintiff Lauren (Mooney) Pavlovich received approximately $2.5 million after taxes from selling her

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share. Her brother, Bob Mooney, advised Ms. Pavlovich, as well as other family members, to invest the proceeds under the direction of Cashel, an investment company led by Bob Mooney's childhood friend Tom Durkin. That same year, Ms. Pavlovich and Cashel executed an Investment Management Contract ("Cashel Contract") giving Cashel "complete discretion with respect to the investments of your funds and the execution of purchase and/or sale orders through one or more broker-dealers and/or registered representatives as [Cashel] deems appropriate."

Since the Cashel Contract precluded Cashel from having custody of her funds, Ms. Pavlovich simultaneously signed a Custody Agreement with the Bank that generally required the Bank to follow her written instructions regarding investment of the funds entrusted to the Bank. Also in 1992, a Trading Letter apparently executed by her granted Cashel "sole trading authority" over her "Fixed Income Account" and directed the Bank "to accept all trades from [Cashel] unless notified to the contrary ...."1

Pursuant to these three documents, in 1995, Cashel began directing the Bank to disburse some of her funds in Rx Remedy. This privately-held company sold health care information from its large database, published a magazine, and, starting in 1997, provided personalized consumer health news on the internet. Ms. Pavlovich's initial disbursement purchased stock in Rx Remedy. As the millennium approached, Rx Remedy became increasingly starved for cash. The company's net losses compounded each year, and its owners' equity decreased over seventy-five-fold in five years to a whopping -$37.8 million by the spring of 1999. Cashel heeded Rx Remedy's calls for cash by, between 1998 until well into 2000, investing the money of Ms. Pavlovich and other clients each month in Rx Remedy promissory notes bearing 12% interest with warrants to buy Rx Remedy stock.2

As she later testified, Ms. Pavlovich understood that this was a risky strategy; but it was one with the potential for a big payoff: by the summer of 1999, the company's management propagated the prospect of an initial public offering (IPO) to capitalize on the booming demand for internet IPOs. That same summer Ms. Pavlovich and her husband agreed with Tom Durkin to increase her investments in Rx Remedy to generate more income.

To prop up Rx Remedy and conceal the true state of Ms. Pavlovich's investment funds, Cashel devised a scheme of "rollover transactions" that eventually depleted her account:

Typically, at the beginning of each month, Cashel requested money to be wired from the Account to Rx Remedy's account; then on the last day of the month, a Cashel representative would hand deliver to NCB a check in the amount of the earlier wire transfer plus "interest" for deposit into the Account. This pattern of transactions would begin again on the first day of the next month. The net effect of these repeated transactions was that even before the funds

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represented by the checks had been deposited into the Account, those same funds had already been wired back to Rx Remedy.

Pavlovich v. Nat'l City Bank, 342 F.Supp.2d 718, 721 (N.D. Ohio 2004). The Bank provided Ms. Pavlovich with monthly statements depicting these transactions. In January of 2000, the Bank instituted a "five day rule" prohibiting the Bank from approving "any wire transfers from Cashel which were dependent on funds that had been deposited by check less than five days earlier." Id. at 722. That same month, Ms. Pavlovich's husband called the Bank to complain about these transactions, but no written correspondence terminated Cashel's management authority until late 2000. By then, Ms. Pavlovich had lost roughly a million-and-a-half dollars once Rx Remedy filed for bankruptcy.

On April 12, 2001, Ms. Pavlovich sued the Bank in state court in Ohio, alleging various claims under state and federal law. The Bank timely removed the case to federal court on the basis of federal question jurisdiction. She subsequently amended her complaint to assert diversity jurisdiction. Approximately a year after that amendment, she again amended her complaint to withdraw those counts presenting federal questions. Ms. Pavlovich now appeals the District Court's grant of the Bank's motion for summary judgment on all claims, and denial of Ms. Pavlovich's motion for partial summary judgment on Counts I and III.


A. Jurisdiction

The District Court had diversity jurisdiction over this case pursuant to 28 U.S.C. § 1332(a)(1) because, when the suit was initiated, Ms. Pavlovich was domiciled in Florida and the Bank was a citizen of Ohio.3 See Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 574 (2004) ("To our knowledge, the Court has never approved a deviation from the rule articulated by Chief Justice Marshall in 1829 that '[w]here there is no change of party, a jurisdiction depending on the condition of the party is governed by that condition, as it was at the commencement of the suit.' ") (quoting Conolly v. Taylor, 27 U.S. 556, 565 (1829)) (emphasis in original). This Court has jurisdiction under 28 U.S.C. § 1291 since the District Court's order at issue here was a final decision.

B. Standard of Review

We review a district court's grant of summary judgment de novo. Nat'l Enters., Inc. v. Smith, 114 F.3d 561, 563 (6th Cir. 1997). Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Id. (quoting Fed.R.Civ.P. 56(c)). We must take the facts in the light most favorable to the non-moving party. Brumbalough v. Camelot Care Ctrs., Inc., 427 F.3d 996, 1000 (6th Cir. 2005).


A. Breach of Contract (Count I)

Ms. Pavlovich argues that the Bank breached the Custody Agreement by following Cashel's purportedly unauthorized instructions to direct money to Rx Remedy. This claim is without merit because

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the Bank's disbursements pursuant to Cashel's written directives were authorized by relevant agreements and, in any event, Ms. Pavlovich ratified the Bank's activities.

Under Ohio law, contract interpretation is a matter of law when a contract's terms are clear and unambiguous. See...

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