Ronald Scherer, Sr. v. JP Morgan Chase & Co

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION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.
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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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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’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).
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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
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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
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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
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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.
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