Ronald Scherer, Sr. v. JP Morgan Chase & Co , 508 F. App'x 429 ( 2012 )


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  •                 NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
    File Name: 12a1281n.06
    No. 12-3120                                    FILED
    Dec 11, 2012
    UNITED STATES COURT OF APPEALS                        DEBORAH S. HUNT, Clerk
    FOR THE SIXTH CIRCUIT
    RONALD E. SCHERER, SR.,                                  )
    )         ON APPEAL FROM THE
    Plaintiff-Appellant,                              )         UNITED STATES DISTRICT
    )         COURT     FOR     THE
    v.                                                       )         SOUTHERN DISTRICT OF
    )         OHIO
    JP MORGAN CHASE & COMPANY,                               )
    ZIEGER, TIGGES & LITTLE, LLP, and                        )                           OPINION
    STEVEN WALTER TIGGES,                                    )
    )
    Defendants-Appellees.                             )
    )
    BEFORE: BOGGS, McKEAGUE, Circuit Judges, and CARR, District Judge.*
    McKEAGUE, Circuit Judge. Ronald E. Scherer, Sr. sued JP Morgan Chase and its
    attorneys, alleging violations of the Fair Debt Collection Practices Act, abuse of process, and civil
    conspiracy. The district court dismissed Scherer’s claims pursuant to Fed. R. Civ. P. 12(b)(6) on the
    ground that the underlying basis for the claims had previously been litigated and decided by an Ohio
    probate court and thus the collateral estoppel doctrine precluded Scherer from relitigating those
    issues. In a separate order, the district court also denied a motion filed by defendants seeking to
    impose sanctions against Scherer’s counsel for filing a frivolous action. Scherer appealed the
    dismissal of his claims. For the reasons set forth below, we AFFIRM the district court’s order
    *
    The Honorable James G. Carr, United States District Judge for the Northern District of Ohio,
    sitting by designation.
    No. 12-3120
    Scherer v. JP Morgan Chase & Co., et. al.
    dismissing Scherer’s claims and ORDER Scherer’s counsel to show cause why he should not be
    sanctioned for filing a frivolous appeal pursuant to 28 U.S.C. § 1927 or Fed. R. App. P. 38.
    I. FACTUAL AND PROCEDURAL BACKGROUND
    A. The Family Business
    Bank One Trust Company, N.A. (“Bank One”), now known as JP Morgan Chase Bank, N.A.,
    was trustee under a trust agreement with Roger L. Scherer, dated 1979 and restated in 1981. Roger
    Scherer funded the trust with the stock of the family’s wholesale magazine distribution business
    (hereinafter the “family business”). After Roger Scherer died in April 1982, the Scherer trust was
    divided into three subtrusts: (1) a trust for Roger’s son, Appellant Ronald E. Scherer, Sr. (“Scherer”),
    (2) a trust for Roger’s daughter, Linda Scherer Talbott, and (3) a “wife and mother trust” for Roger’s
    surviving spouse and his mother.         By 1998, the collective value of the trusts exceeded
    $26,000,000.00.
    After his father died, Scherer became the chief executive in charge of day-to-day operations
    of the family business. Between 1990 and 2003, while Scherer was the executive in charge, his
    relationship with Bank One deteriorated as a result of Scherer’s failure to provide financial
    information about the family business to the trustee.
    Consequently, in 1994, Bank One filed a lawsuit against Scherer in the Franklin County,
    Ohio, Probate Court for Scherer’s alleged refusal to turn over the relevant information about the
    family business. Bank One Trust Co., N.A. v. Ex’r of Roger L. Scherer Estate, No. 430379A. That
    litigation was settled in 1995 when the parties entered into a Non-Disclosure Agreement, which
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    required Scherer to disclose the information previously requested by Bank One, and to do so on “an
    ongoing basis and in a timely manner.” (Settlement Agt., Page ID #153).
    By November 2003, the relationship between Bank One and Scherer had further eroded,
    Bank One retained litigation counsel and sought to prepare a final trust accounting, obtain probate-
    court approval, and resign as trustee. In response, in April 2004, Scherer attempted to remove Bank
    One as trustee.
    B. The 2004 Probate Action and Appeals
    In September 2004, Bank One filed a lawsuit against Scherer in the Franklin County, Ohio,
    Probate Court (the “probate action”) in an effort to compel Scherer to produce the information
    needed to prepare a final trust accounting, wind up Bank One’s trusteeship, and appoint a successor
    trustee.1 The bank also alleged Scherer breached the 1995 Non-Disclosure Agreement by not
    providing information to the trustee, and that he had engaged in wrongful and unauthorized dealings
    with trust assets. On December 10, 2004, Bank One served Scherer with a document-production
    request, but Scherer did not respond.
    Accordingly, on two separate occasions in 2005, Bank One filed motions to compel discovery
    from Scherer but did not receive the requested documents. On December 20, 2005, the probate court
    entered an order finding Scherer had failed to comply with discovery requests and ordered Scherer
    to comply by January 13, 2006. The court also warned Scherer that failure to comply would result
    1
    As noted by the district court, probate Judge Lawrence A. Belskis originally presided over
    the probate action but ultimately recused himself after discovering a conflict. Judge Richard
    Sheward was assigned to the case in January 2006.
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    in a contempt charge and a fee of $250 per day until he complied. (12/20/2005 Order, Page ID
    #166).
    In January 2006, Scherer filed a counterclaim against Bank One, asserting eight separate
    causes of action, including breach of fiduciary duty, breach of trust agreement, defamation, and
    fraudulent concealment. (Scherer Counterclaim, Page ID #184-94). In February 2006, Bank One
    filed a “Further Claim and/or Third-Party Complaint” alleging Scherer breached his fiduciary duty
    as the person in charge of the family business by failing to provide required information and by
    mismanaging trust-owned assets. Further, they alleged that he breached his fiduciary duty as “trust
    advisor” by abusing his power and acting in his own best interests. (Third Party Compl., Page ID
    #218-219).
    By April 2006, Scherer had still failed to comply with the discovery order.2 The court gave
    him another chance to produce certain specific categories of documents by April 27, 2006. Scherer
    again did not comply. In June 2006, the court reminded Scherer that he remained in contempt and
    that the daily fine was continuing. Bank One filed another motion to compel on July 25, 2006. In
    granting the motion to compel, the court stated: “Defendants are blatantly flouting the discovery
    process and are failing to act in good faith . . . .” (08/31/2006 Order, Page ID #268). The court
    further ordered that Scherer fully comply with all discovery requests by September 21, 2006. On
    2
    In its Findings of Fact and Conclusions of Law, the probate court found that in early 2006,
    Scherer had turned over tax returns and summary financial statements but that he still refused to turn
    over all of the requested information or answer interrogatories—all in violation of the court’s order.
    (05/14/2008 Findings, Page ID #470-71).
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    October 5, 2006, the court held a hearing on the discovery issues. It issued its findings and
    conclusions from that hearing on January 4, 2007.
    The court concluded that Scherer’s failure to comply was willful and in bad faith.
    (01/04/2007 Findings, Page ID #287). The court explained: “The continued discovery misconduct
    of Defendants and disobedience of the Court’s orders in the face of lesser discovery sanctions
    previously imposed by this Court, is so reprehensible, irresponsible, and contumacious that more
    warnings and further similar discovery sanctions would be futile. More drastic discovery sanctions
    are therefore necessary and appropriate.” (01/04/2007 Findings, Page ID #287). As sanctions, the
    court dismissed Scherer’s January 2006 counterclaim with prejudice, held Scherer in contempt, and
    ordered him to pay the $250 per day fine that had been accumulating since December 2005, plus an
    additional $250 per day that the judgment went unpaid. (01/04/2007 Findings, Page ID #288).
    Scherer appealed the order and it was upheld by the Ohio Tenth District Court of Appeals. Bank
    One Trust Co., N.A. v. Scherer, 
    893 N.E.2d 542
    , 548 (Ohio Ct. App. 2008).
    On August 10, 2007, in the ongoing probate action, Scherer filed a request for leave of the
    court to file additional counterclaims against Bank One for fraudulent misrepresentation and abuse
    of process. (Mot. for Leave, Page ID #405). Specifically, Scherer alleged that Bank One’s
    “accounting contains numerous entries and information that are incorrect and it misrepresents
    numerous transactions,” and that Bank One’s “misrepresentations were made knowingly” and with
    the “ulterior purpose” of “obtain[ing] a release for its administration of the Trust.” (Mot. for Leave,
    Page ID #408).
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    The case was tried to the probate court in August 2007. The court issued its 60-page decision
    on May 14, 2008. Bank One Trust Co., N.A. v. Scherer, No. 430379-C. It found that beginning in
    1999, Scherer had misappropriated $6,202,623.00 of trust assets over the course of seven years.
    Specifically, the court found that Scherer “stymied all of [Bank One’s] efforts to obtain information
    in order to more effectively administer the assets of the . . . Trusts, [and thus] began the process of
    resigning as Trustee . . . .” Further, in the face of repeated discovery requests, Scherer “failed to put
    a hold on his document destruction policy,” and “refused to provide [Bank One] with any of the
    requested information.” (05/14/08 Findings, Page ID #469-70).
    Moreover, the court found that Scherer, “without [Bank One’s] knowledge or consent,
    systematically began liquidating the remaining assets of the Scherer Family Business and otherwise
    engaging in transactions outside the usual course of business.” (05/14/08 Findings, Page ID #472).
    These transactions “depleted the value of the Scherer Family Business and diverted millions of
    dollars of cash and other assets that should have been paid to the Trustee on behalf of [the Trusts].”
    (05/14/08 Findings, Page ID #472). Additionally, Scherer “knowingly impeded [Bank One’s] ability
    to perform the very functions that [he] alleges [Bank One] failed to fulfill despite its diligent efforts
    to do so: to actively manage the assets of the [Trusts], to monitor or diversify trust assets, to discover
    sooner Mr. Scherer’s . . . misappropriation of Trust assets, to prepare full and accurate trust
    statements and accountings, and to prepare accurate trust tax returns.” (05/14/08 Findings, Page ID
    #481).
    With respect to Scherer’s late counterclaims for misrepresentation and abuse of process, the
    court stated, “[c]ontrary to [Scherer’s] allegations, [Bank One’s] final accountings do not contain
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    Scherer v. JP Morgan Chase & Co., et. al.
    misrepresentations, and [Bank One’s] preparation and filing of the final accountings was not done
    with an ulterior purpose or in an effort to use court procedures to accomplish a purpose for which
    they were not designed.” Further, “[e]ach of [Bank One’s] final accountings, as supplemented, is
    true, accurate, and complete. Even if . . . the final accountings are inaccurate and incomplete . . any
    such deficiencies were caused by the repeated refusal of [Scherer] . . . to provide information to
    [Bank One] despite its repeated and diligent efforts to obtain the information . . . .” (05/14/08
    Findings, Page ID #485-86).
    The court held that Scherer breached his fiduciary duties as an officer and director of the
    family business and entered judgment against Scherer for $6,202,623.00 plus interest. It also held
    that “[a]ny further objections to [Bank One’s] final accountings, and any and all claims against
    [Bank One] arising from or relating to its final accountings, its administration of the Trusts, or any
    other matters pertaining to the Trusts and Trust Agreement are hereby adjudicated and hereafter
    barred.” (05/14/08 Findings, Page ID #496, 499).
    Scherer appealed the judgment against him. On November 24, 2009, the Ohio court of
    appeals unanimously affirmed both the $6,202,623.00 judgment against Scherer for improper
    diversion of trust assets and the dismissal of Scherer’s January 2006 counterclaims as a discovery
    sanction. Bank One Trust Co., N.A. v. Scherer, 
    2009 WL 4049123
    (Ohio Ct. App. Nov. 24, 2009).
    The court also reversed the probate court’s decision as to Scherer’s family’s counterclaims and their
    objections as to the final accounting. The court remanded the case to the probate court to address
    the family’s counterclaims and objections, but the court specifically stated this did not include
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    Scherer v. JP Morgan Chase & Co., et. al.
    Scherer’s counterclaim or the monetary judgment against him. Bank One Trust Co., 
    2009 WL 4049123
    , at *1.
    After remand, the probate court held a trial on the remaining issues. It issued its decision on
    December 1, 2011. Bank One Trust Co., N.A. v. Ronald E. Scherer, No. 430379-C.3                  In the
    meantime, Scherer filed his federal action on the first day of the probate court’s proceedings, July
    18, 2011. The federal district court issued its decision on December 29, 2011, but did not discuss
    the probate court’s decision in detail.
    C. Scherer’s Federal Claims
    Scherer’s federal complaint asserts three claims. First, he alleges that defendants violated
    the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., by “[m]aking false statements of
    fact during the course of the 2004 Franklin County Probate Action” in pursuit of a “False Debt
    Claim” in order to harass Scherer, and using false, misleading, or unconscionable means to collect
    a debt. Second, he claims that defendants committed “abuse of process” by perverting the 2004
    probate action through the “use of false, deceptive or misleading representations and evidence”
    submitted during that lawsuit in pursuit of the bank’s “ulterior motive of attempting to avoid liability
    . . . with respect to the Bank’s failure to properly administer the [Trusts]; its failure to properly
    3
    On remand, the trial court once again concluded that “Bank One accurately accounted for
    . . . the unauthorized transactions and that Scherer, Sr. did in fact, misappropriate and wrongfully
    divert $6,202,623 of Trust assets . . .” (12/01/2011 Probate Findings, Appellees’ Appx. at A73).
    Additionally, in response to accusations that the bank committed fraud on the court in order to get
    the judgment against Scherer, the court asserted the accusations were “factually baseless,” and that
    “Bank One and its representative did not make any false statements to the Court.” (12/01/2011
    Probate Findings, Appellees’ Appx. at A75).
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    account for the administration of such trusts; and the loss of more than $26,000,000 in value from
    such trusts as a consequence of the Bank’s acts or omissions.” Finally, Scherer brings a civil
    conspiracy claim alleging defendants conspired to “knowingly and intentionally misrepresent
    material facts . . . to the Franklin County Probate Court during the 2004 Franklin County Probate
    Action, all for the purpose of attempting to insulate the Bank from liability for its misconduct.”
    On October 3, 2011, defendants filed a motion to dismiss for failure to state a claim under
    Federal Rule of Civil Procedure 12(b)(6). Prior to the district court’s decision on the motion to
    dismiss, defendants also filed a motion for sanctions under Rule 11 of the Federal Rules of Civil
    Procedure. Scherer filed responses to both motions. On December 29, 2011, the district court
    granted defendants’ motion to dismiss and denied their motion for sanctions.
    In deciding defendants’ motion to dismiss, the district court held that all of Scherer’s claims
    were barred by the collateral estoppel doctrine because the underlying factual basis for each of the
    claims, defendants’ alleged false statements about Scherer’s refusal to provide defendants with
    required information, had already been litigated and decided against Scherer in the 2004 probate
    action. Scherer v. JP Morgan Chase & Co., 
    2011 WL 6884237
    , at *4 (S.D. Ohio 2011).
    With respect to defendants’ motion for sanctions, the court stated that it was “a very close
    call,” but that it was “not inclined to grant the sanctions,” because even though Scherer’s counsel
    “should have been more familiar with preclusion law and, perhaps, more careful with the wording
    utilized in the complaint, it does not appear to the Court that counsel filed this action for the
    improper purpose of harassing Defendants and increasing the cost of litigation.” (12/29/2011 Opn
    on Mot. for Sanctions, Page ID #3657-58).
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    Scherer timely appealed the district court’s decision granting defendants’ motion to dismiss.4
    STANDARD OF REVIEW
    We review de novo a district court’s ruling on a motion to dismiss a claim, Jones v. City of
    Cincinnati, 
    521 F.3d 555
    , 559 (6th Cir. 2008), and a district court's application of collateral estoppel.
    Hammer v. INS, 
    195 F.3d 836
    , 840 (6th Cir. 1999). Collateral estoppel is properly raised in a Rule
    12(b)(6) motion to dismiss. See Evans v. Pearson Enter., Inc., 
    434 F.3d 839
    , 849-50 (6th Cir. 2006)
    (affirming 12(b)(6) dismissal because all elements of collateral estoppel were satisfied); see also
    Palmer v. Manor Care, Inc., 11 F. App’x 567, 569 (6th Cir. 2001) (“We conclude that the district
    court properly relied on collateral estoppel to grant defendant’s motion to dismiss.”).
    Generally, in order to defeat a motion to dismiss:
    [T]he complaint must contain either direct or inferential allegations respecting all
    material elements to sustain a recovery under some viable legal theory. We need not
    accept as true legal conclusions or unwarranted factual inferences, and conclusory
    allegations or legal conclusions masquerading as factual allegations will not suffice.
    [T]he complaint's [f]actual allegations must be enough to raise a right to relief above
    the speculative level, and state a claim to relief that is plausible on its face.
    Terry v. Tyson Farms, Inc., 
    604 F.3d 272
    , 275–76 (6th Cir. 2010) (citations and internal quotation
    marks omitted).
    4
    Scherer filed an opening brief to this Court, and defendants filed a response, but Scherer did
    not file a reply brief.
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    ANALYSIS
    A. Collateral Estoppel
    Generally, “[f]ederal courts must give the same preclusive effect to a state-court judgment
    as that judgment receives in the rendering state.” Abbott v. Michigan, 
    474 F.3d 324
    , 330 (6th Cir.
    2007) (citing 28 U.S.C. §1738). Accordingly, federal courts must look to the law of the rendering
    state to determine whether and to what extent the prior judgment should receive preclusive effect in
    a federal action. Migra v. Warren City Sch. Dist. Bd. of Educ., 465 US. 75, 81 (1984). Thus, in this
    case we look to Ohio law to determine the preclusive effect of the judgment entered against Scherer
    in the 2004 probate action.
    Under Ohio law, “issue preclusion precludes the relitigation of an issue that has been actually
    and necessarily litigated and determined in a prior action,” McKinley v. City of Mansfield, 
    404 F.3d 418
    , 428 (6th Cir. 2005), “whether the cause of action in the two actions be identical or different.”
    Fort Frye Teachers Ass’n v. State Emp’r Relations Bd., 
    692 N.E.2d 140
    , 144 (Ohio 1998); see also
    Whitehead v. Gen. Tel. Co., 
    254 N.E.2d 10
    , 13 (Ohio 1969) (“[E]ven where the cause of action is
    different in a subsequent suit, a judgment in a prior suit may nevertheless affect the outcome of the
    second suit.”).
    Thus, in Ohio, collateral estoppel applies when the fact or issue: (1) was actually and directly
    litigated in the prior action, (2) was passed upon and determined by a court of competent jurisdiction,
    and (3) when the party against whom collateral estoppel is asserted was a party in privity with a party
    to the prior action. Daubenmire v. City of Columbus, 
    507 F.3d 383
    , 389 (6th Cir. 2007). Where
    collateral estoppel is invoked defensively, only the party against whom issue preclusion is applied
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    must have been a party to the underlying action. McCrory v. Children’s Hosp., 
    501 N.E.2d 1238
    ,
    1244 (Ohio Ct. App. 1986); see also Schroyer v. Frankel, 
    197 F.3d 1170
    , 1178 (6th Cir. 1999)
    (reasoning that Ohio law allows the use of non-mutual defensive collateral estoppel if the plaintiff
    was afforded the opportunity to litigate the issue); McAdoo v. Dallas Corp., 
    932 F.2d 522
    , 525 (6th
    Cir. 1991) (“We do not read Ohio law as insisting on mutuality in defensive collateral estoppel cases
    . . . .”).
    In the district court, Scherer contested each of the collateral-estoppel elements, but his
    briefing to this Court only contests the first element—whether the issues were actually and directly
    litigated in the prior action. His main argument on this point is that the district court erred when it
    concluded that Ohio law does not require that the issue adjudicated in the prior action be completely
    identical to the issue in the subsequent action. Scherer argues that the Ohio Supreme Court cases
    relied upon by the district court, in particular Fort Frye, are inapplicable, and that a more recent Ohio
    Supreme Court case holds that, for collateral estoppel to apply, the issues in the prior and subsequent
    actions must be “identical.” Scherer believes that in this case, the issues are not “identical” because
    “[n]othing in the Prior State Court Proceeding involved whether the manner of Appellees’
    prosecution of the claims against Scherer violated, or did not violate, the FDCPA,” and the record
    “is devoid of any evidence that there was an actual or necessary adjudication of the issues pertaining
    to Scherer’s abuse of process claim.” Appellant Br. at 24-25. Scherer is mistaken.
    The district court did not err in its discussion or application of the Ohio collateral-estoppel
    doctrine. Scherer primarily relies upon two Ohio cases to support his assertion that the doctrine
    requires complete identity of the issues in order for estoppel to apply, Olmsted Falls Bd. of Educ.
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    v. Cuyahoga Cnty. Bd. of Revision, 
    909 N.E.2d 597
    (Ohio 2009), and Beatrice Foods, Inc. v.
    Lindley, 
    434 N.E.2d 727
    (Ohio 1982).              Notably, both cases involved a very distinct
    issue—challenges to property valuations in appeals from the Board of Tax Appeals—and contrary
    to Scherer’s argument, neither case altered the collateral-estoppel doctrine in Ohio.
    In Olmsted Falls, a taxpayer appealed a decision of the Board of Tax Appeals (“BTA”) that
    adopted an increased valuation of the taxpayer’s property from $325,000 in 2002 to $1,200,000 for
    2003. The taxpayer argued in part that the BTA’s decision was barred under an estoppel
    theory—though the court specifically noted that the case did not present a “classic” type of estoppel.
    Olmsted 
    Falls, 909 N.E.2d at 601
    .
    In deciding the tax issue, the court explained that it is “elemental that for purposes of any
    challenge to the valuation of real property, each tax year constitutes a new ‘claim’ or ‘cause of
    action,’ such that the determination of value for one tax year does not operate as res judicata . . . of
    value as to the next tax year.” 
    Id. The court
    then recognized a line of tax valuation cases in which
    Ohio courts held that tax value in one year does not constitute the “‘same issue’ as the ultimate issue
    of tax value in a different year.” 
    Id. However, the
    court also stated that “the determination in an
    earlier year of a discrete factual/legal issue that is common to successive tax years may bar
    relitigation of that discrete issue in the later years.” 
    Id. at 602
    (citing Columbus Bd. of Educ. v.
    Franklin Cnty. Bd. of Revision, 
    1993 WL 540285
    , at *3 (Ohio Ct. App. Dec. 28, 1993)). Ultimately,
    the court rejected the taxpayer’s argument on the basis that it mistakenly equated the issue of tax
    value for one year with the issue of tax value for a subsequent year as if they were the “same issue.”
    Olmsted 
    Falls, 909 N.E.2d at 602
    .
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    Contrary to Scherer’s assertions, the Olmsted Falls decision did not alter Ohio’s collateral
    estoppel doctrine. The court’s decision was clearly on a discrete issue involving challenges to
    property valuations from year to year, and it only involved those cases having decided that discrete
    issue. The court even recognized that this was not a “classic” type of estoppel. And in any event,
    the court explained that even under such unique facts, estoppel may still apply to a prior decision on
    a “discrete factual/legal issue” common to the successive years. Further, the court failed even to
    mention the Ohio Supreme Court’s Fort Frye decision that Scherer argues was displaced by Olmsted
    Falls.
    Notably, there were two dissenting justices in Olmsted Falls who agreed with the majority
    “that this case does not involve collateral estoppel . . . .” Olmsted 
    Falls, 909 N.E.2d at 604
    (Pfeifer
    and O’Donnell, JJ., dissenting). One would think that if the Ohio Supreme Court was making a
    decision that altered the collateral-estoppel doctrine, there would be much more discussion among
    the justices than this. And in fact, it is clear from cases decided after Olmsted Falls that the Ohio
    Supreme Court continues to recognize the viability of Fort Frye and the principle that collateral
    estoppel “‘precludes the relitigation, in a second action, of an issue that had been actually and
    necessarily litigated and determined in a prior action that was based on a different cause of action.’”
    State ex rel. Nickoli v. Erie MetroParks, 
    923 N.E.2d 588
    , 592 (Ohio 2010) (quoting Ft. 
    Frye, 692 N.E.2d at 144
    ).
    Scherer’s reliance on Beatrice Foods is similarly unconvincing. In that case, the taxpayer
    argued that the Tax Commissioner’s prior tax assessments barred the Commissioner from issuing
    a subsequent assessment. Beatrice 
    Foods, 434 N.E.2d at 731
    . The court rejected this argument and
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    stated “[i]n order for [collateral estoppel] to apply, there must be an identity of parties and issues in
    the proceedings.” 
    Id. It concluded,
    “[a]t issue in the case at bar is a separate assessment based on
    an entirely different audit period, and we find the requisite identity of issues is not present.” 
    Id. Scherer argues
    based on this case that the issues presented to the district court here were not
    “identical” to issues decided in the 2004 probate action and thus should not have been barred. We
    disagree and conclude that the district court correctly determined that collateral estoppel applied
    here.
    All three of Scherer’s claims in this action are premised on a single foundation—that the
    bank made false statements and misrepresentations to the probate court regarding Scherer’s conduct
    during discovery and regarding Scherer’s misappropriation of trust assets over the course of several
    years. Scherer’s complaint alleges that the bank made “false statements of fact during the course of
    the 2004 Franklin County Probate Action” in pursuit of a “False Debt Claim”; that they perverted
    the 2004 probate action through the “use of false, deceptive or misleading representations and
    evidence” submitted during that lawsuit in pursuit of the bank’s “ulterior motive of attempting to
    avoid liability”; and that the bank conspired to “knowingly and intentionally misrepresent material
    facts . . . to the Franklin County Probate Court during the 2004 Franklin County Probate Action, all
    for the purpose of attempting to insulate the Bank from liability for its misconduct.” (Compl., Page
    ID #34, 37, 39).
    There is no question that the probate court squarely decided these issues during the course
    of the 2004 action and that the Ohio Court of Appeals upheld the decision as it applied to Scherer.
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    The probate court concluded that Scherer “stymied all of [Bank One’s] efforts to obtain
    information,” and that he repeatedly “failed to put a hold on his document destruction policy,” and
    “refused to provide [Bank One] with any of the requested information.” Further, the court found that
    Scherer, “without [Bank One’s] knowledge or consent, systematically began liquidating the
    remaining assets of the Scherer Family Business and otherwise engaging in transactions outside the
    usual course of business.” And these transactions “diverted millions of dollars of cash and other
    assets that should have been paid to the Trustee on behalf of [the Trusts].” (05/14/08 Findings, Page
    ID #472).
    Additionally, the court concluded that Scherer “knowingly impeded [Bank One’s] ability to
    perform the very functions that [he] alleges [Bank One] failed to fulfill despite its diligent efforts to
    do so: to actively manage the assets of the [Trusts], to monitor or diversify trust assets, to discover
    sooner Mr. Scherer’s . . . misappropriation of Trust assets, to prepare full and accurate trust
    statements and accountings, and to prepare accurate trust tax returns.” (05/14/08 Findings, Page ID
    #481)
    Scherer cursorily argues that his request for leave to file his late counterclaims for
    misrepresentation and abuse of process was never expressly granted by the probate court and thus
    the issues contained in that counterclaim were never decided. Scherer does not cite any authority
    for this proposition. Ordinarily, “[i]ssues adverted to in a perfunctory manner, unaccompanied by
    some effort at developed argumentation, are deemed waived.” McPherson v. Kelsey, 
    125 F.3d 989
    ,
    995-96 (6th Cir. 1997).
    - 16 -
    No. 12-3120
    Scherer v. JP Morgan Chase & Co., et. al.
    But even assuming Scherer has not waived his argument by not supporting it, the probate
    court’s opinion contradicts Scherer’s assertion. The court clearly took up the counterclaim issues
    and decided them when it concluded: “Contrary to [Scherer’s] allegations, [Bank One’s] final
    accountings do not contain misrepresentations, and [Bank One’s] preparation and filing of the final
    accountings was not done with an ulterior purpose or in an effort to use court procedures to
    accomplish a purpose for which they were not designed.” The court further held, “[e]ach of [Bank
    One’s] final accountings, as supplemented, is true, accurate, and complete. Even if . . . the final
    accountings are inaccurate and incomplete . . any such deficiencies were caused by the repeated
    refusal of [Scherer] . . . to provide information to [Bank One] despite its repeated and diligent efforts
    to obtain the information . . . .” (05/14/08 Findings, Page ID #485-86).
    The Ohio Court of Appeals overwhelmingly upheld the probate court’s decisions with respect
    to Scherer’s attempts to “cripple” discovery proceedings and his improper diversion of trust assets.
    Bank One Trust Co., N.A., 
    2009 WL 4049123
    , at *11, *14 (“[T]he evidence not only is sufficient
    to sustain the probate court's factual conclusions regarding the transactions but is nearly one-sided
    in support of those conclusions.”).
    We have recognized, consistent with Ohio law, that where a factual predicate or essential
    element of the claim being asserted has already been determined, collateral estoppel applies. See,
    e.g., McCormick v. Braverman, 
    451 F.3d 382
    , 398 (6th Cir. 2006) (concluding that factual predicate
    of property ownership decided in state court precluded claims based on that predicate); Quality
    Measurement Co. v. IPSOS S.A., 56 F. App’x 639, 646 (6th Cir. 2003) (“RSC's claims for actual and
    constructive fraud are therefore barred by issue preclusion, as an essential element of its claim has
    - 17 -
    No. 12-3120
    Scherer v. JP Morgan Chase & Co., et. al.
    already been determined against it.”); Clemons v. Noland, 
    1978 WL 216612
    , at *4 (Ohio Ct. App.
    1978) (“Collateral estoppel applies to bar a second action when an essential element of that second
    action has been adversely decided against plaintiff in a prior action between the same parties.”).
    Here, all of Scherer’s claims are premised on his assertion that the bank used false
    statements, and otherwise engaged in false or deceptive representations, to establish that Scherer
    stymied discovery and diverted millions of dollars in assets from the Trusts. These factual predicates
    to Scherer’s claims were clearly resolved by the probate court. For purposes of collateral estoppel,
    it does not matter that Scherer is asserting a different variety of claim in this action. Issue preclusion
    precludes the relitigation of an issue that has been actually and necessarily litigated and determined
    in a prior action “whether the cause of action in the two actions be identical or different.” Ft. 
    Frye, 692 N.E.2d at 144
    . The underlying factual issues here have already been decided. Accordingly,
    Scherer is precluded from relitigating them in federal court.
    B. Sanctions
    Under 28 U.S.C. § 1927, we have discretion to impose “costs, expenses, and attorney fees”
    personally on an attorney “who . . . multiplies the proceedings in any case unreasonably and
    vexatiously.” Waeschle v. Dragovic, 
    687 F.3d 292
    , 296 (6th Cir. 2012); 28 U.S.C. § 1927. “This
    standard is met ‘when an attorney knows or reasonably should know that a claim pursued is
    frivolous.’” Tareco Prop., Inc. v. Morriss, 
    321 F.3d 545
    , 550 (6th Cir. 2003) (quoting Jones v.
    Cont’l Corp., 
    789 F.2d 1225
    , 1230 (6th Cir. 1986)); see also Garner v. Cuyahoga Cnty. Juvenile Ct.,
    
    554 F.3d 624
    , 644 (6th Cir. 2009) (advising that sanctions are appropriate “where the attorney . . .
    knowingly disregards the risk that his actions will needlessly multiply proceedings.”) (internal
    - 18 -
    No. 12-3120
    Scherer v. JP Morgan Chase & Co., et. al.
    quotations omitted). Section 1927 sanctions may be imposed without a finding that the lawyer
    subjectively knew that his conduct was inappropriate. Ridder v. City of Springfield, 
    109 F.3d 288
    ,
    298 (6th Cir. 1997); see also Gibson v. Solideal USA, Inc., 
    2012 WL 2818944
    , at *6 (6th Cir. 2012)
    (“A court may sanction an attorney under § 1927, even in the absence of bad faith”). However, the
    conduct must exceed “simple inadvertence or negligence that frustrates the trial judge.” 
    Ridder, 109 F.3d at 298
    .
    Similarly, under the Federal Rules of Appellate Procedure Rule 38, we can impose sanctions
    if we determine that an appeal is frivolous after a separately filed motion or notice from the court and
    a reasonable opportunity to respond. Fed. R. App. P. 38; see also Roadway Express, Inc. v. Piper,
    
    447 U.S. 752
    , 767 (1980) (explaining that notice and opportunity to respond must precede the
    imposition of sanctions). We have noted that “Rule 38 should doubtless be more often enforced than
    ignored in the face of a frivolous appeal.” WSM, Inc. v. Tenn. Sales Co., 
    709 F.2d 1084
    , 1088 (6th
    Cir. 1983). Sanctions under Fed. R. App. P. 38 are “appropriate when an appeal is ‘wholly without
    merit’ and when the appellant's ‘arguments essentially had no reasonable expectation of altering the
    district court's judgment based on law or fact.’” B&H Med., L.L.C. v. ABP Admin., Inc., 
    526 F.3d 257
    , 270 (6th Cir. 2008) (quoting Wilton Corp. v. Ashland Castings Corp., 
    188 F.3d 670
    , 677 (6th
    Cir. 1999)).
    Here, even though the district court elected not to impose sanctions, it stated that the decision
    was a “very close call.” The district court also admonished counsel for not being more familiar with
    - 19 -
    No. 12-3120
    Scherer v. JP Morgan Chase & Co., et. al.
    preclusion law and advised him to be more careful in evaluating potential cases. This should have
    given counsel a clear warning that the issues raised below would likely lack any merit on appeal.5
    Thus, at the very least, Scherer’s counsel seems to have “knowingly disregard[ed] the risk”
    that in pursuing an appeal his actions would “needlessly multiply proceedings.” 
    Garner, 554 F.3d at 644
    . Counsel’s failure to file a reply brief is further evidence that he had reason to know the issue
    on appeal was a non-starter. See Leeds v. City of Muldraugh, Meade Cnty., Ky., 174 F. App’x 251,
    256 (6th Cir. 2006) (acknowledging that failure to file reply brief may be additional evidence that
    sanctions are appropriate). It is also noteworthy that on appeal counsel abandoned all but a single
    argument raised below and that the best support he could muster for that argument was an Ohio
    Supreme Court case that briefly discussed the concept of estoppel, but that clearly did not alter the
    course of the estoppel doctrine in Ohio. After the district court’s rebuke, counsel should have seen
    the writing on the wall.
    Accordingly, we order Scherer’s counsel to show cause as to why, pursuant to 28 U.S.C. §
    1927 or Fed. R. App. P. 38, he should not be sanctioned for filing this appeal.
    CONCLUSION
    For the foregoing reasons, we AFFIRM the dismissal of Scherer’s claims pursuant to Fed.
    R. Civ. P. 12(b)(6), and we ORDER Scherer’s counsel to show cause as to why he should not be
    sanctioned for filing this appeal. Counsel will have 30 days to submit a response to the clerk of this
    court.
    5
    Scherer had the same counsel in the district court and during the course of this appeal.
    - 20 -
    

Document Info

Docket Number: 12-3120

Citation Numbers: 508 F. App'x 429

Judges: Boggs, McKeague, Carr

Filed Date: 12/11/2012

Precedential Status: Non-Precedential

Modified Date: 10/19/2024

Authorities (20)

Wsm, Incorporated v. Tennessee Sales Company, a General ... , 709 F.2d 1084 ( 1983 )

Roadway Express, Inc. v. Piper , 100 S. Ct. 2455 ( 1980 )

Terry v. Tyson Farms, Inc. , 604 F.3d 272 ( 2010 )

Garner v. Cuyahoga County Juvenile Court , 554 F.3d 624 ( 2009 )

Ferdinand Hammer v. Immigration and Naturalization Service , 195 F.3d 836 ( 1999 )

Daubenmire v. City of Columbus , 507 F.3d 383 ( 2007 )

B & H Medical, L.L.C. v. ABP Administration, Inc. , 526 F.3d 257 ( 2008 )

Linda McCormick v. Eric A. Braverman Citizens Insurance ... , 451 F.3d 382 ( 2006 )

jane-p-evans-v-pearson-enterprises-incorporated-a-michigan-corporation , 434 F.3d 839 ( 2006 )

douglas-c-mcpherson-and-connie-k-mcpherson , 125 F.3d 989 ( 1997 )

Jones v. City of Cincinnati , 521 F.3d 555 ( 2008 )

40-fair-emplpraccas-1343-40-empl-prac-dec-p-36108-gwendolyn-e , 789 F.2d 1225 ( 1986 )

Wilton Corporation v. Ashland Castings Corporation Ashland ... , 188 F.3d 670 ( 1999 )

thomas-abbott-larry-arthur-ormsby-antonio-mendoza-edsol-j-stanley-v-state , 474 F.3d 324 ( 2007 )

prod.liab.rep.(cch)p 12,790 Ralph McAdoo Janice McAdoo v. ... , 932 F.2d 522 ( 1991 )

McCrory v. Children's Hospital , 28 Ohio App. 3d 49 ( 1986 )

Tareco Properties, Inc. v. Steve Morriss , 321 F.3d 545 ( 2003 )

Michael G. Schroyer Gail R. Schroyer v. Kenneth P. Frankel ... , 197 F.3d 1170 ( 1999 )

Stephen Michael Ridder v. City of Springfield, Clark County , 109 F.3d 288 ( 1997 )

Bank One Trust Co. v. Scherer , 176 Ohio App. 3d 694 ( 2008 )

View All Authorities »