Paul Cheatham IRA v. Huntington Nat'l Bank
| Decision Date | 22 December 2017 |
| Docket Number | No. L–16–1292,L–16–1292 |
| Citation | 2017 Ohio 9234,102 N.E.3d 597 |
| Parties | PAUL CHEATHAM IRA, Appellant v. The HUNTINGTON NATIONAL BANK, Appellee |
| Court | Ohio Court of Appeals |
Ronald R. Parry, Cincinnati, for appellant.
J. Philip Calabrese, Cleveland, Jay A. Yurkiw, Robert W. Trafford and Ryan L. Graham, Columbus, for appellee.
DECISION AND JUDGMENT
{¶ 1} This is an appeal from the judgment of the Lucas County Court of Common Pleas, denying appellant's, Paul Cheatham IRA, motion to certify a class. For the reasons that follow, we reverse.
{¶ 2} The facts for purposes of this appeal are not in dispute. On May 19, 2015, appellant filed this class action lawsuit against appellee, The Huntington National Bank, on behalf of itself and other bondholders who invested funds into a municipal bond issue described as "$6,590,000 COUNTY OF LUCAS OHIO HOSPITAL FACILITIES REFUNDING REVENUE (NON–TAXABLE) BONDS, SERIES 1998 (VILLA NORTH PROJECT) CUSIP 54309 BP6, 549309 BQ4, 549309 BR2, 549309 BS0." The complaint alleged that Lucas County was the technical obligor on the bonds for tax purposes, but in reality, Foundation for the Elderly, Inc. ("Foundation") was the obligor and lessee of the Villa North nursing home project. Appellee served as the trustee for the bondholders and as lessor of the project pursuant to a Trust Indenture entered into between appellee and Lucas County.
{¶ 3} Sometime before June 2003, Foundation went into default, and West Toledo Healthcare became the substitute obligor. By December 2003, Benchmark Healthcare of Toledo, Inc. ("Benchmark") had become the obligor in place of West Toledo Healthcare, and had defaulted on the bond payments. Notably, appellee provided notices to the bondholders of the defaults and changes in obligors. In May 2004, Benchmark filed for reorganization under Chapter 11 of the Bankruptcy Code, and in December 2007, filed its First Amended Plan of Reorganization. After the bondholders voted in favor of the plan, the bankruptcy court approved the plan. Relevant here, appellant began purchasing these bonds for a fraction of the face value on November 3, 2003, and continued to purchase them through June 7, 2007.
{¶ 4} By July 2009, Benchmark had failed to implement the amended reorganization plan. Thus, the bankruptcy was dismissed, and appellee filed a foreclosure action against Benchmark. In November 2014, the Villa North project was sold and a final distribution was made to the bondholders. In the final distribution, the bondholders only received approximately $350,000 of the $6,590,000 initial bond issue.
{¶ 5} Within the class action complaint, appellant asserted claims for breach of fiduciary duty, breach of trust under R.C. 5801.01 et seq., negligence, breach of contract, and liability for mismanagement of the Villa North nursing home project. In general, appellant alleged that appellee "did virtually nothing to protect the interest of the Bondholders, while collecting substantial sums of Bondholder money as its compensation." Upon motion of appellee, the trial court dismissed all of the claims except the breach of contract claim as being barred by the statute of limitations.
{¶ 6} Thereafter, appellant moved to certify a class on the remaining breach of contract claim, describing the class as "All persons or entities who own bonds." Appellee opposed the motion for class certification, arguing, inter alia, that appellant had not satisfied the requirement under Civ.R. 23(B)(3) that, "the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." In particular, appellee argued that the class is comprised of bondholders who purchased the bonds at different times and after different key events. Thus, the facts, evidence, and related legal issues of liability would differ among class members based on when the members acquired the bonds, or whether the members approved the bankruptcy reorganization plan. Appellant, on the other hand, argued that the issue of whether appellee breached the Trust Indenture was common to all current bondholders because under R.C. 1308.16(A), "[A] purchaser of a certificated or uncertificated security acquires all rights in the security that the transferor had or had power to transfer." Appellant concluded, therefore, that the right to sue for breach of contract that was held by bondholders at the time of the breach transferred to subsequent purchasers of the bonds.
{¶ 7} On November 16, 2016, the trial court entered its judgment denying appellant's motion to certify a class. The trial court reasoned that the term "rights in the security" under R.C. 1308.16(A) does not include a claim against a third party for breach of contract, such as appellant's claim in the current action. Consequently, because appellant has alleged numerous breaches over a significant period of time, and because the claims do not transfer to subsequent purchasers, different class members would have different potential damages and would emphasize different potential breaches. Therefore, the trial court determined that appellant had not satisfied the requirement under Civ.R. 23(B)(3). Further, because the trial court found the predominance issue in Civ.R. 23(B)(3) to be determinative, it did not consider any of the other Civ.R. 23 requirements for bringing a class action.
{¶ 8} Appellant has timely appealed the trial court's November 16, 2016 judgment, asserting one assignment of error for our review:
1. The trial court incorrectly interpreted the provisions of R.C. 1308.16(A) ( § 8–302 of the Uniform Commercial Code (UCC)) in ruling that the transferors' right to file a lawsuit was not one of the rights that was transferred when a municipal bond (an investment security) was acquired by the transferee, the Plaintiff–Appellant.
{¶ 9} We review the trial court's decision in determining whether a class action may be maintained for an abuse of discretion. State ex rel. Davis v. Pub. Emps. Retirement Bd. , 111 Ohio St.3d 118, 2006-Ohio-5339, 855 N.E.2d 444, ¶ 18. An abuse of discretion connotes that the trial court's attitude was unreasonable, arbitrary, or unconscionable. Blakemore v. Blakemore , 5 Ohio St.3d 217, 219, 450 N.E.2d 1140 (1983).
{¶ 10} "[A]ppellate courts overwhelmingly, if not universally, give trial courts broad discretion in deciding whether to certify a class." Davis at ¶ 18, quoting Hamilton v. Ohio Savs. Bank , 82 Ohio St.3d 67, 70, 694 N.E.2d 442 (1998). "[T]he appropriateness of applying the abuse-of-discretion standard in reviewing class action determinations is grounded not in credibility assessment, but in the trial court's special expertise and familiarity with case-management problems and its inherent power to manage its own docket." Id. "Therefore, ‘while a trial court's determination concerning class certification is subject to appellate review on an abuse-of-discretion standard, due deference must be given to the trial court's decision’ and any ‘finding of abuse of discretion, particularly if the trial court has refused to certify, should be made cautiously.’ " Id. , quoting Marks v. C.P. Chem. Co. , 31 Ohio St.3d 200, 201, 509 N.E.2d 1249 (1987).
{¶ 11} The Ohio Supreme Court has recognized seven requirements that must be satisfied before an action may be maintained as a class action under Civ.R. 23 :
{¶ 13} In its appellate brief, appellant frames the issue we must decide as "whether the purchaser of a bond acquires causes of action that arose, under the terms of a Trust Indenture, prior to the time that the bondholder acquired the bonds." Appellant acknowledges that if we determine that a subsequent purchaser does not acquire those causes of action, then certification of the class is not appropriate. However, appellant takes the position that the subsequent purchaser of a bond does acquire the cause of action pursuant to R.C. 1308.16, which is Ohio's version of U.C.C. § 8–302.
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...rule on the issue of general personal jurisdiction for the first time on appeal. App.R. 12(A)(1)(c)(2); see Paul Cheatham IRA v. Huntington Natl. Bank, 2017-Ohio-9234, 102 N.E.3d 597, ¶ 29 (6th Dist.), rev'd on other grounds, Paul Cheatham IRA v. Huntington Natl. Bank, Slip Opinion No. 2019......
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Cheatham I.R.A. v. Huntington Nat'l Bank
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