Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC ( 2022 )

RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 22a0131p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
┐
BUSINESS DEVELOPMENT CORPORATION OF SOUTH │
CAROLINA, │
Plaintiff-Appellant, │
> No. 21-3673
│
v. │
│
RUTTER & RUSSIN, LLC; ROBERT P. RUTTER; JUSTIN P. │
RUDIN; GALLAGHER, GAMS, TALLAN, BARNES & │
LITTRELL, LLP; MARK HOWARD GAMS; STATE FARM │
FIRE & CASUALTY COMPANY, │
│
Defendants-Appellees.
┘
Appeal from the United States District Court for the Northern District of Ohio at Cleveland.
No. 1:19-cv-02609—J. Philip Calabrese, District Judge.
Argued: March 18, 2022
Decided and Filed: June 16, 2022
Before: SILER, CLAY, and MURPHY, Circuit Judges.
_________________
COUNSEL
ARGUED: Paul R. Kerridge, KEATING, MUETHING & KLEKAMP, PLL, Cincinnati, Ohio,
for Appellant. Holly Marie Wilson, REMINGER CO., L.P.A., Cleveland, Ohio, for Rutter
& Russin Appellees. Richard G. Witkowski, NICOLA, GUDBRANSON & COOPER, LLC,
Cleveland, Ohio, for Gallagher, Gams, Tallan, Barnes & Littrell Appellees. Jason R.
Goldschmidt, DINSMORE & SHOHL, LLP, Cincinnati, Ohio, for Appellee State Farm Fire
& Casualty. ON BRIEF: Paul R. Kerridge, James E. Burke, KEATING, MUETHING
& KLEKAMP, PLL, Cincinnati, Ohio, for Appellant. Holly Marie Wilson, REMINGER CO.,
L.P.A., Cleveland, Ohio, for Rutter & Russin Appellees. Richard G. Witkowski, Nicholas J.
Dertouzos, NICOLA, GUDBRANSON & COOPER, LLC, Cleveland, Ohio, for Gallagher,
Gams, Tallan, Barnes & Littrell Appellees. Jason R. Goldschmidt, Gregory A. Harrison,
DINSMORE & SHOHL, LLP, Cincinnati, Ohio, for Appellee State Farm Fire & Casualty.
No. 21-3673 Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC, et al. Page 2
_________________
OPINION
_________________
MURPHY, Circuit Judge. Parties who fail to assert their rights during the litigation of a
case sometimes seek to belatedly raise those rights in a collateral attack on the court’s judgment.
This strategy usually does not end well—as Business Development Corporation of South
Carolina (BDC) has come to learn. BDC held a mortgage on a home that had been damaged.
The home’s owners sued their insurer in Ohio state court when the insurer denied coverage for
the damage. They named BDC as a defendant because of its interest in the insurance proceeds.
For reasons known only to BDC, it chose not to appear in the case. After the homeowners and
insurer settled, the state court found that BDC had no right to the proceeds. When BDC learned
of this result, it did not seek relief from the judgment in the state court. Rather, it filed this
federal suit alleging that the insurer, its lawyers, and the homeowners’ lawyers all colluded to
defraud it. The district court dismissed the suit under Ohio’s claim-preclusion law. Because
BDC cannot meet the demanding test required to attack the state court’s judgment in this
collateral fashion, we affirm.
I
BDC lent $800,000 to a company owned by Steven and Elizabeth Sugg. The Suggs
personally guaranteed this loan and secured it with a $200,000 mortgage on their home in Shaker
Heights, Ohio. Two other lenders (Bank of America and MidFirst Bank) held more senior
mortgages on the home.
The Suggs’ home unfortunately suffered serious water damage from a burst pipe during a
cold winter day in February 2014. State Farm Fire and Casualty Co. insured the home for up to
$352,130. The Suggs filed a claim with State Farm to recover for the damage. State Farm
denied the claim on the ground that the Suggs had failed to heat their home at a temperature
required by their policy.
In January 2015, the Suggs sued State Farm in an Ohio state court. They alleged that
State Farm had breached the insurance policy and acted in bad faith by denying coverage.
No. 21-3673 Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC, et al. Page 3
The Suggs also sued all three lenders with mortgages on their home—Bank of America, MidFirst
Bank, and BDC. Their complaint explained that these lenders “have an interest in the policy
proceeds” because the policy entitled them to payment even if State Farm had a valid defense
against the Suggs. Compl., R.7-1, PageID 117. It described each lender as “an interested and
necessary party to this lawsuit.” Id.
During the state-court litigation, Rutter & Russin, LLC, and its attorneys, Robert P.
Rutter and Justin P. Rudin, represented the Suggs. (We will refer to these defendants
collectively as the “Rutter Firm” because their distinctions do not matter now.) Gallagher,
Gams, Tallan, Barnes & Littrell, LLP, and its attorney, Mark Gams, represented State Farm.
(We will similarly refer to these defendants as the “Gallagher Firm.”)
The Suggs served State Farm and the three lenders. BDC decided not to appear. A BDC
lawyer told the Rutter Firm that BDC viewed itself as a “nominal” party, not a necessary one.
Email, R.7-3, PageID 171. The BDC lawyer gave the Rutter Firm information that the firm
requested and asked “to be kept advised” of the suit in exchange. Compl., R.1, PageID 16. The
Rutter Firm allegedly agreed.
For months, attorneys for both sides voluntarily sent their filings to the non-appearing
BDC. But things changed in October 2015. The parties stopped serving BDC at that point while
they worked out a $365,000 settlement.
The Suggs, through the Rutter Firm, moved to enforce this settlement. The motion,
which was not sent to BDC, noted that the Suggs had settled with State Farm and that the “only
remaining issue” concerned the logistics: To whom should State Farm make out the checks and
for what amounts? Mot., R.7-3, PageID 135. The Suggs agreed to use the settlement to pay off
Bank of America’s and MidFirst’s mortgages. But the Suggs disputed BDC’s right to any
amount for three reasons: because BDC did not sue (or file a crossclaim against) State Farm
within the policy’s limitations period, because BDC did not appear, and because BDC lacked a
right to any settlement amount under the policy’s terms. The Suggs asked the court to enter an
order adopting this conclusion. State Farm responded that it was “constrained by the policy
No. 21-3673 Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC, et al. Page 4
language to include BDC” in the settlement unless the court ordered otherwise. Resp., R.7-4,
PageID 174.
Ultimately, the state court entered the Suggs’ requested order. On November 18, 2015,
the court handwrote into a proposed order that BDC “has no right to the settlement proceeds and
State Farm is within its rights to exclude BDC from any settlement payments.” Order, R.7-5,
PageID 176. The court directed State Farm to pay $13,500 to Bank of America, $78,281.81 to
MidFirst, and $273,218.19 to the Rutter Firm as trustees for the Suggs.
BDC asserts that it first learned of this order thirteen months later in December 2016.
Yet BDC waited nearly three more years to challenge the state-court settlement by filing this
federal suit against the Rutter Firm, the Gallagher Firm, and State Farm. BDC alleged one
general claim against all of these defendants: that they committed an “abuse of process” by
excluding it from the settlement. BDC also alleged several individual claims. It reraised the
claims against State Farm that the Suggs had litigated: that State Farm breached the policy and
engaged in a bad-faith denial of coverage. BDC next alleged several claims against the Rutter
Firm (which had represented the Suggs): that the firm converted the settlement; that it
fraudulently asserted that it would keep BDC informed of the state-court litigation; that it should
be liable under a promissory estoppel theory for this failed promise; that it tortiously interfered
with BDC’s contract with State Farm; and that it had been unjustly enriched. BDC lastly alleged
one individual claim against the Gallagher Firm (which had represented State Farm): that it also
tortiously interfered with BDC’s contract with State Farm.
The district court granted the defendants’ motions for judgment on the pleadings. It ruled
that claim preclusion barred all of BDC’s claims. See Bus. Dev. Corp. of S.C. v. Rutter
& Russin, LLC, 2021 WL 2766043, at *2–3 (N.D. Ohio July 2, 2021); Bus. Dev. Corp. of S.C. v.
Rutter & Russin, LLC, 2021 WL 1295062, at *6–10 (N.D. Ohio Apr. 7, 2021). We review these
decisions de novo. See Bates v. Green Farms Condo. Ass’n, 958 F.3d 470, 479 (6th Cir. 2020);
Ohio ex rel. Boggs v. City of Cleveland, 655 F.3d 516, 519 (6th Cir. 2011).
No. 21-3673 Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC, et al. Page 5
II
A federal court must give the same “full faith and credit” to a state court’s judgment that
this judgment would receive in the state’s own courts. 28 U.S.C. § 1738. This command means
that we must look to Ohio law to identify the effect that the state court’s earlier judgment has on
BDC’s federal case. See CHKRS, LLC v. City of Dublin, 984 F.3d 483, 490 (6th Cir. 2021).
Like most courts, Ohio courts follow the well-known doctrines of claim preclusion (res judicata)
and issue preclusion (collateral estoppel). See id. This case concerns Ohio’s claim-preclusion
rules.
The Ohio Supreme Court’s current approach to claim preclusion dates to Grava v.
Parkman Township, 653 N.E.2d 226 (Ohio 1995), which jettisoned a narrow preclusion test in
favor of the Restatement’s broader one. Id. at 228–30 (citing Restatement (Second) of
Judgments §§ 24–25 (Am. L. Inst. 1982)). Ohio courts have since described claim preclusion
this way: “a final judgment or decree, rendered on the merits by a court of competent
jurisdiction, is a complete bar to any subsequent action on the same claim between the same
parties or those in privity with them.” State ex rel. Kendrick v. Parker, 158 N.E.3d 573, 574
(Ohio 2020) (per curiam) (citation omitted).
We have separated this test into four elements. See Hapgood v. City of Warren, 127 F.3d
490, 493 (6th Cir. 1997); see also Portage Cnty. Bd. of Comm’rs v. Akron, 846 N.E.2d 478, 495
(Ohio 2006). To begin with, a court with jurisdiction must have issued a “final” judgment on the
“merits.” See Hapgood, 127 F.3d at 493. In addition, the first and second suits must involve the
same “transaction.” See id. Next, the second suit must assert legal theories that were or could
have been raised in the first suit. See id. Lastly, the second suit must involve the same parties or
those in “privity” with these parties. See id. We consider each of these elements in turn.
A. Final Judgment on the Merits
Most basically, claim preclusion may apply only if the state court in the Suggs’ earlier
suit rendered a “final” judgment on the merits. See id. At first glance, this element seems easily
met. The state court had jurisdiction over the Suggs’ insurance claim and over the parties, and it
issued a final judgment ordering State Farm to distribute the insurance proceeds to the Suggs
No. 21-3673 Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC, et al. Page 6
(not BDC) under the parties’ settlement. Order, R.7-5, PageID 176; Dkt., R.7-2, PageID 132.
Although the court’s judgment merely enforced a settlement, Ohio courts have long treated these
types of judgments as on the “merits” for preclusion purposes. See In re Gilbraith, 512 N.E.2d
956, 959 (Ohio 1987); see also McAdams v. Mercedes-Benz USA, L.L.C., 162 N.E.3d 755, 760
(Ohio 2020).
Not so fast, BDC responds. It points to a disclaimer in Ohio caselaw that a judgment
must have been “rendered” “without fraud or collusion” to have preclusive effect. Grava, 653
N.E.2d at 228 (citation omitted). And here, BDC says, the Rutter Firm, the Gallagher Firm, and
State Farm colluded to obtain the judgment through fraud. Although the district court held that
BDC failed to state a fraud claim, Bus. Dev. Corp., 2021 WL 1295062, at *6–7, BDC criticizes
the court for failing to apply the proper standard of review at this pleading stage. Besides, Ohio
courts treat claim preclusion as an affirmative defense. See State ex rel. Green v. Wetzel, 140
N.E.3d 586, 588 (Ohio 2019) (per curiam). Parties generally do not need to “negate” such a
defense in their complaint. Perry v. Merit Sys. Prot. Bd., 137 S. Ct. 1975, 1986 n.9 (2017);
Jones v. Bock, 549 U.S. 199, 216 (2007). So we opt not to resolve this argument on the district
court’s grounds.
Nevertheless, we see a more fundamental legal problem with BDC’s fraud response—one
that we find proper to consider at this pleading stage. Cf. Est. of Barney v. PNC Bank, Nat’l
Ass’n, 714 F.3d 920, 926 (6th Cir. 2013). Whether or not BDC adequately alleged fraud, it has
raised this fraud defense in the wrong court and the wrong case. Ohio provides a specific
process to challenge a suit’s final judgment on fraud grounds: a party may file a motion for relief
from judgment under Ohio Civil Rule 60(B). And we do not think that the Ohio Supreme Court
would permit BDC to bypass Rule 60(B) by raising its fraud defense to preclusion in this
separate suit.
Start with the way that BDC should have raised its fraud defense. Under Rule 60(B), a
party with a “meritorious defense or claim” may move to reopen the judgment in the court that
entered it if the party can establish one of the rule’s grounds. GTE Automatic Elec., Inc. v. ARC
Indus., Inc., 351 N.E.2d 113, 116 (Ohio 1976). Rule 60(B) allows a party to seek relief for fraud
in two ways. Rule 60(B)(3) permits relief due to the “fraud” or “misrepresentation” “of an
No. 21-3673 Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC, et al. Page 7
adverse party.” Rule 60(B)(5)—which allows a court to reopen a judgment for “any other reason
justifying relief”—permits relief due to “fraud on the court,” including fraud by an attorney.
Coulson v. Coulson, 448 N.E.2d 809, 811–12 (Ohio 1983). A party must file a motion under
these provisions “within a reasonable time,” but Rule 60(B)(3) also comes with a strict one-year
time limit. Ohio Civ. R. 60(B). Notably, claim preclusion would not bar these direct attacks on
a judgment (as long as the allegations could not have been raised in a direct appeal). See
Coulson, 448 N.E.2d at 813; Wingenfeld v. Wingenfeld, 1993 WL 497074, at *4 (Ohio Ct. App.
Dec. 2, 1993); see also PennyMac Corp. v. Godinez, 474 P.3d 264, 268–70 (Haw. 2020)
(collecting authorities).
Because Rule 60(B) provides detailed procedures for challenging a judgment, Ohio
courts have been reluctant to grant relief from the judgment in other ways. When considering
alternative requests for relief within the same case, the courts have held that they lack any
inherent authority to set aside their judgments for reasons other than those listed in Rule 60(B) or
in ways different from those prescribed by the rule. See EMC Mortg. Co. v. Atkinson, 2011 WL
193366, at *1–2 (Ohio Ct. App. Jan. 12, 2011); Cale Prods., Inc. v. Orrville Bronze & Aluminum
Co., 457 N.E.2d 854, 857–58 (Ohio Ct. App. 1982). And when considering requests for relief in
a different case, the courts have generally refused to upset a prior case’s judgment in a collateral
attack that alleges that the judgment had been obtained through fraud. See Lanza v. Lanza, 2020
WL 7495444, at *4–5 (Ohio Ct. App. Dec. 21, 2020); Buckingham v. Buckingham, 113 N.E.3d
1093, 1096–97 (Ohio Ct. App. 2018); Granata v. Stamatakos, 2013 WL 6708412, at *4 (Ohio
Ct. App. Dec. 17, 2013); Pomaro v. Pomaro, 1976 WL 188550, at *2–3 (Ohio Ct. App. Mar. 24,
1976). They have reasoned that they would render Rule 60(B) “meaningless” if litigants could
freely bypass the rule by bringing a “fraud” attack in a separate case instead. Buckingham,
113 N.E.3d at 1097.
Admittedly, the Ohio Supreme Court allowed collateral attacks based on fraud before it
adopted the Civil Rules. See Ohio Pyro, Inc. v. Ohio Dep’t of Com., 875 N.E.2d 550, 556 (Ohio
2007) (citing pre-Rule 60(B) cases). But that court has yet to address the interaction between
Rule 60(B), a collateral attack on fraud grounds, and claim preclusion. And it routinely looks to
the Restatement of Judgments and common-law authorities to resolve preclusion questions.
No. 21-3673 Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC, et al. Page 8
See Bradley v. Reno, 749 F.3d 553, 557 (6th Cir. 2014); State ex rel. Coles v. Granville,
877 N.E.2d 968, 977 (Ohio 2007) (per curiam); Grava, 653 N.E.2d at 229. These authorities
support the Ohio decisions that prohibit parties from ignoring Rule 60(B) by attacking an earlier
judgment in a later case. The Restatement explains that a party generally “must” seek relief from
a judgment under Rule 60(b). Restatement (Second) of Judgments § 78. So courts generally
should not “consider the merits of an attack on a judgment when that attack is made in the course
of a subsequent action in which the judgment is relied on as a basis of [a] claim or defense.” Id.
§ 80 cmt. a. The Restatement permits these collateral attacks only in “limited” circumstances—
such as when the traditional methods for seeking relief (for example, a Rule 60(b) motion) are
“unavailable” to the party. Id. § 80 & cmt. a.
Federal practice conforms to this approach. Before adoption of the Federal Rules of Civil
Procedure, courts allowed an “independent” equitable action to overturn a judgment. See United
States v. Beggerly, 524 U.S. 38, 45 (1998); 11 Charles A. Wright et al., Federal Practice and
Procedure § 2868, at 556–57 (3d ed. 2012). Federal Rule 60 (unlike Ohio’s equivalent) still
expressly permits such “an independent action to relieve a party from a judgment[.]” Fed.
R. Civ. P. 60(d)(1). Nevertheless, now that Rule 60(b) allows a party to assert fraud challenges
against a judgment in the same case, the Supreme Court has adopted a “demanding standard” to
permit this collateral attack. Beggerly, 524 U.S. at 47. Courts may grant relief only “to prevent
a grave miscarriage of justice.” Id. And the misconduct that might justify relief under Rule
60(b)(3) will not necessarily meet this more stringent test. Id.This reluctance to consider collateral attacks outside Rule 60(B)’s confines makes sense.
As a matter of efficiency, the approach channels fraud challenges to the court that managed the
earlier case. That court will have the records from the case and be best positioned to know
whether fraud affected its judgment. See 18 James W. Moore, Moore’s Federal Practice
§ 131.30[1][c] (3d ed.), Lexis (database updated 2022). Here, for example, the state court is
better situated than we are to answer whether the parties and attorneys defrauded BDC by having
the court enter an order excluding it from the settlement. As a matter of comity, this approach
avoids the need for one court to “grade” another’s decision. See Restatement (Second) of
Judgments § 78 cmt. a. These comity concerns are particularly acute in this case since BDC asks
No. 21-3673 Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC, et al. Page 9
a federal court to overturn a state court’s judgment without ever seeking relief in that court.
Cf. Williams v. Taylor, 529 U.S. 420, 436–37 (2000); Lundborg v. Phoenix Leasing, Inc., 91 F.3d
265, 272–73 (1st Cir. 1996).
The pleadings also show that BDC cannot meet the “demanding standard” necessary for
its collateral attack. Beggerly, 524 U.S. at 47. With full knowledge of the Suggs’ suit, BDC
decided not to appear even though the complaint described it as “an interested and necessary
party[.]” Compl., R.7-1, PageID 117. BDC’s complaint in this suit also makes clear that it did
not bother to monitor the docket of the Suggs’ suit. And it never moved for relief from the
judgment in that suit under Rule 60(B). BDC thus was not without some “fault.” 11 Wright,
supra, § 2868, at 559–60 & 560 n.12. If anything, its “own carelessness” largely explains its
predicament. Campaniello Imps., Ltd. v. Saporiti Italia S.p.A., 117 F.3d 655, 662 (2d Cir. 1997).
So even if BDC’s fraud allegations might have provided grounds for relief under Rule 60(B),
they are legally insufficient to show the “grave miscarriage of justice” that would permit this
collateral attack outside Rule 60(B). Beggerly, 524 U.S. at 47; Buckingham, 113 N.E.3d at 1097.
None of the cases on which BDC relies proves the contrary. It cites unpublished Ohio
cases that state that fraud allegations provide a basis to avoid claim preclusion. But this
precedent does not suggest that litigants may simply ignore Rule 60(B). Rather, the courts found
that the fraud allegations lacked merit, so they had no need to address the proper procedure for
raising these sorts of fraud claims. See, e.g., Kobal v. Edward Jones Sec., 2021 WL 1235200, at
*7 (Ohio Ct. App. Apr. 1, 2021); Faught v. Faught, 1988 WL 141103, at *1 (Ohio Ct. App. Dec.
22, 1988).
BDC also argues that Rule 60(B) relief was “unavailable” to it. Restatement (Second) of
Judgments § 80. That is so, BDC claims, because it allegedly did not learn of the fraud until a
year after the judgment and Rule 60(B)(3) sets a one-year time limit for raising fraud allegations.
We see three problems with this argument. For one thing, BDC asserts that the parties’ attorneys
engaged in the fraud. Those claims qualify as “fraud on the court” and trigger Rule 60(B)(5)’s
catchall, which has no strict time limit. See Coulson, 448 N.E.2d at 812.
No. 21-3673 Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC, et al. Page 10
For a second, BDC could have timely filed a Rule 60(B) motion even if it could assert its
fraud claim only under Rule 60(B)(3). The docket shows that the state court did not formally
dismiss the Suggs’ suit until February 2016, and BDC admits that it learned of the settlement’s
terms by December of that year. Dkt., R.7-2, PageID 132; cf. Condos. at Stonebridge Owners’
Ass’n v. Patton, 2009 WL 1564784, at *1 (Ohio Ct. App. June 4, 2009). Although BDC claims
that the court’s earlier order approving the settlement in November 2015 should really qualify as
the final judgment under Ohio law, this entire debate about the meaning of an esoteric state final-
judgment rule shows why this claim belongs in state court.
For a third, even if BDC could not have filed a timely motion under Rule 60(B)(3), Ohio
courts have rejected claims that a timeliness problem automatically allows parties to collaterally
attack the judgment on fraud grounds outside Rule 60(B). That result would render the rule’s
time limits “meaningless.” Buckingham, 113 N.E.3d at 1097. Yet those limits serve important
finality interests, so the Ohio Supreme Court has enforced them even when later events proved
that a case’s outcome was indisputably wrong. Strack v. Pelton, 637 N.E.2d 914, 916 (Ohio
1994). We thus doubt that the court would permit the rule to be eviscerated in the way that BDC
seeks in this case. In sum, BDC must accept the state court’s judgment as final in this separate
suit.
B. Same Transaction
We also may apply claim preclusion only if BDC’s suit grows out of the same
“transaction” as the Suggs’ suit. Grava, 653 N.E.2d at 229. The Ohio Supreme Court takes a
fact-based approach to what counts as a “transaction,” defining the word to mean a “common
nucleus of operative facts.” Id. (quoting Restatement (Second) of Judgments § 24 cmt. b).
Under this definition, suits asserting different legal theories, relying on different evidence, or
seeking different remedies can arise from the same “transaction” if they concern the same
general fact pattern. See U.S. Bank Nat’l Ass’n v. Gullotta, 899 N.E.2d 987, 991 (Ohio 2008);
Grava, 653 N.E.2d at 229. To decide whether the facts across two cases fall within a single
transaction, Ohio courts use a “logical relation” test. Rettig Enters., Inc. v. Koehler, 626 N.E.2d
99, 103 (Ohio 1994). The test asks whether litigating each claim separately “would involve a
No. 21-3673 Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC, et al. Page 11
substantial duplication of effort and time by the parties and the courts.” Id.; cf. Restatement
(Second) of Judgments § 24(2).
BDC’s case comes with an added wrinkle to this typical “transaction” inquiry. Claim
preclusion usually arises when the same plaintiff loses a first suit and seeks to litigate a second
one. See Gullotta, 899 N.E.2d at 991; Kirkhart v. Keiper, 805 N.E.2d 1089, 1091 (Ohio 2004);
Grava, 653 N.E.2d at 229–30. Here, by contrast, the Suggs were the plaintiffs in the first suit;
BDC was a defendant. Despite this wrinkle, courts have applied “defendant preclusion” if a
defendant-turned-plaintiff raises a claim in a second suit that arises from the same fact pattern as
the first suit. 18 Charles A. Wright et al., Federal Practice and Procedure § 4414, at 345 (3d ed.
2016). When does this type of suit meet Ohio’s “transaction” test? The Ohio Supreme Court has
little caselaw on the topic, so we again look to the Restatement. See Bradley, 749 F.3d at 557. It
notes that a defendant who fails to assert a claim in a first suit will be “precluded” from
maintaining a second suit on the claim in two circumstances. Restatement (Second) of
Judgments § 22(2).
Circumstance One: Preclusion will apply if the defendant-turned-plaintiff should have
filed the second suit’s cause of action as a “counterclaim” in the first suit under a “compulsory
counterclaim statute or rule of court[.]” Id. § 22(2)(a). This circumstance does not apply here.
Ohio Civil Rule 13(A) requires a defendant to assert a compulsory counterclaim against a
plaintiff if, among other things, “it arises out of the transaction or occurrence that is the subject
matter” of the plaintiff’s claim. BDC did not bring a “counterclaim” against the Suggs at all, and
its claims against State Farm (a codefendant) would qualify as permissive “cross claims.” Ohio
Civ. R. 13(G). In addition, when identifying the “transaction” for this compulsory-counterclaim
rule, the Ohio Supreme Court has distinguished the facts from which the first suit arises from the
parties’ litigating conduct during the suit. See Yaklevich v. Kemp, Schaeffer & Rowe Co., L.P.A.,
626 N.E.2d 115, 119 (Ohio 1994). An abuse-of-process claim, for example, requires a party to
litigate a suit for an improper purpose. See id. at 118. The court has held that the defendant to
the abusive suit generally need not raise an abuse-of-process claim as a compulsory
counterclaim. Id. at 118–19. Rather, it may defend against the case and then file a second
abuse-of-process suit. Id. at 119.
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Circumstance Two: Even if no court rule would require a defendant to assert a claim in
the first suit, preclusion still applies if the “relationship” between the defendant-turned-plaintiff’s
claim in the second suit “and the plaintiff’s claim” in the first “is such that successful prosecution
of the second action would nullify the initial judgment or would impair rights established in the
initial action.” Restatement (Second) of Judgments § 22(2)(b). The pragmatic “transaction” test
thus prevents a defendant-turned-plaintiff from filing a second suit merely to attack the first
suit’s judgment. So, for example, a defendant could not file a second suit raising a “restitution”
theory to recover the funds that it paid as a result of the first suit’s judgment. Id. § 22 cmt. f; see
also 18 Wright, supra, § 4414, at 352; Cadle Co. v. Reiner, Reiner & Bendett, P.C., 307
F. App’x 884, 889–90 (6th Cir. 2009); A.B.C.G. Enters., Inc. v. First Bank Se., N.A., 515 N.W.2d
904, 907–09 (Wis. 1994).
Ohio cases comport with this approach. On the one hand, Ohio courts sometimes hold
that a second suit involves a different “transaction” when it challenges conduct that occurred
during the litigation of the first suit. Critically, however, the relief sought in these cases was
consistent with—not contrary to—the first judgment. See Davis v. Wal-Mart Stores, Inc.,
756 N.E.2d 657, 659 (Ohio 2001); see also Yaklevich, 626 N.E.2d at 116, 119; Hall v. Tucker,
829 N.E.2d 1259, 1271–72 (Ohio Ct. App. 2005). In Davis, for example, a plaintiff successfully
prosecuted a wrongful-death action against Wal-Mart for the death of her husband, a Wal-Mart
employee. 756 N.E.2d at 658. During the litigation, the plaintiff determined that Wal-Mart had
withheld evidence. Id. She thus filed a second action for spoliation of evidence. Id. The Ohio
Supreme Court held that claim preclusion did not apply because Wal-Mart’s conduct in failing to
disclose evidence was a distinct “transaction” from its conduct in causing an employee’s death.
Id. at 659. But the plaintiff had won that first action; she was not seeking to undermine it. See
id. at 658.
On the other hand, Ohio courts have held that a party’s second suit falls within the same
“transaction” as the first one if the suit seeks relief that “would necessarily vacate or modify” the
prior suit’s judgment. Keen v. Keen, 811 N.E.2d 565, 567 (Ohio Ct. App. 2004); see
Buckingham, 113 N.E.3d at 1096. In Buckingham, for example, a husband and wife litigated
their divorce proceedings to a final judgment. 113 N.E.3d at 1094. The wife later brought
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another suit alleging fraudulent-concealment and spoliation-of-evidence claims against her
husband for hiding assets during the earlier proceedings. Id. The Ohio court reasoned that claim
preclusion barred the wife’s suit (and that the trial court lacked jurisdiction over it) because the
“damages she [sought] effectively would modify the relief that was granted by the domestic
relations division in the divorce decree.” Id. at 1096.
Under these rules, BDC’s suit arises from the same transaction. For starters, some of
BDC’s claims against State Farm—those for breach of contract and bad-faith denial of
coverage—are identical to the claims litigated by the Suggs. These claims are not just
“offshoots” of the “same basic controversy”; they are the “same basic controversy[.]” Koehler,
626 N.E.2d at 103.
BDC’s remaining claims—whether labeled abuse of process, tortious interference with
contract, fraud, or anything else—all challenge the litigating conduct of the parties and attorneys
in the Suggs’ suit. These claims are more like those found precluded in Buckingham than those
allowed to proceed in Davis. If BDC successfully proved its claims, these claims would
“nullify” the judgment from the Suggs’ suit and “impair” the rights “established” by the suit’s
outcome. Restatement (Second) of Judgments § 22(2)(b). Both State Farm and the Suggs
obtained a binding judgment that BDC was not entitled to any portion of the insurance proceeds.
Now, however, BDC seeks the opposite judgment—that it was, in fact, entitled to those
proceeds. Thus, BDC cannot win this case without our court holding that the Suggs’ earlier case
was wrongly decided. And BDC’s suit would compel State Farm to pay the same claim twice
because BDC seeks most of “the amount” that State Farm “paid” to the Suggs “pursuant to the
[earlier] judgment[.]” Id. § 22 cmt. f. In short, BDC cannot prove the torts alleged in this suit
without obliterating the earlier judgment. Its claims thus involve the same “transaction.” Cf.
Berkshire Invs., LLC v. Taylor, 278 P.3d 943, 952–53 (Idaho 2012); Chaara v. Lander, 45 P.3d
895, 898–99 (N.M. Ct. App. 2002).
C. Cause of Action that Could Have Been Litigated
Claim preclusion next applies only if BDC could have litigated in the Suggs’ suit the
causes of action that it has raised in this one. See Grava, 653 N.E.2d at 229. This element does
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not require BDC to have raised these causes of action in that suit. See id. Nor does it require
BDC to have even known of the causes of action. Its negligence in failing to discover a claim
does not stop preclusion so long as it could have asserted that claim by exercising reasonable
diligence. See 46 Am. Jur. 2d Judgments § 517, Westlaw (database updated May 2022);
cf. Adair v. State, 680 N.W.2d 386, 397 (Mich. 2004); Sutphin v. Speik, 99 P.2d 652, 655 (Cal.
1940). BDC only needed to have had the ability to assert its causes of action in the earlier suit
through “all the proper means within [its] control[.]” Nat’l Amusements, Inc. v. City of
Springdale, 558 N.E.2d 1178, 1180 (Ohio 1990) (citation omitted). In this way, preclusion
serves its purposes by forcing a party “to present every ground for relief in the first action, or be
forever barred from asserting it.” Id.Two examples show how this element works. Suppose a movie theater loses an equal-
protection suit against a city’s tax. See id. at 1179. The theater may not later bring a free-speech
suit seeking identical relief, even if the theater did not think of the free-speech claim in the first
suit and even if subsequent caselaw has made that claim more viable. See id. at 1181. Suppose,
by contrast, a business that leases movie posters to theaters settles an antitrust claim against an
alleged monopolist. See Lawlor v. Nat’l Screen Serv. Corp., 349 U.S. 322, 323–24 (1955). The
business may later challenge monopolistic conduct that occurred after the first case ended
because it could not have raised in that case a claim that “did not even . . . exist” at the time of its
final judgment. Id. at 328; State ex rel. Jones v. Husted, 73 N.E.3d 463, 468 (Ohio 2016).
BDC is more like the movie theater than the movie-poster business. It has pointed to no
legal impediment that would have barred it from raising its claims in the Suggs’ suit. It
indisputably could have brought its breach-of-contract and bad-faith claims against State Farm in
that suit—since those claims existed from the start. And while BDC’s other claims arose during
the suit, they had ripened by the end (unlike the claims in Lawlor). So BDC could have raised
them in the suit if it had exercised reasonable diligence—by, for example, appearing in the case.
Cf. Buck v. Thomas M. Cooley L. Sch., 597 F.3d 812, 817–18 (6th Cir. 2010). BDC’s abuse-of-
process claim proves this point. Although the Ohio Supreme Court has noted that this type of
claim generally is not a compulsory counterclaim to an abusive suit, the court has also clarified
that a defendant may assert the claim in that same suit. See Yaklevich, 626 N.E.2d at 119.
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Nothing about the claim or its elements required BDC to wait for a final judgment. See id. BDC
likewise identifies nothing about its other claims (or their elements) that would have required a
final judgment in the Suggs’ case. Cf. id. at 119 n.4; see also Davis, 756 N.E.2d at 660.
At the least, BDC learned of these claims at a time when it could have filed a Rule 60(B)
motion. So it could have raised them that way. BDC responds that any ability to file a Rule
60(B) motion does not prove that it could have litigated its claims in the prior suit. But many
courts have relied on the right to file a Rule 60(b) motion as a reason to apply preclusion. See
Granata, 2013 WL 6708412, at *4; see also Weldon v. United States, 70 F.3d 1, 5 (2d Cir.
1995); Horwitz v. Alloy Auto. Co., 992 F.2d 100, 104 (7th Cir. 1993); Regions Fin. Corp. v.
Marsh USA, Inc., 310 S.W.3d 382, 394–96 (Tenn. Ct. App. 2009). BDC adds that Rule 60(B)
permitted it to raise only its fraud claim, not its other claims. Yet fraud offers the gateway
through which a party may assert other claims in this motion. BDC still needed to show that it
had a “meritorious defense or claim to present if relief” were granted due to the fraud. GTE
Automatic, 351 N.E.2d at 116. So it could have raised these other causes of action as the
grounds for its allegedly “meritorious” defense. Id.
D. Same Parties or Privies
State Farm, the Rutter Firm, and the Gallagher Firm lastly may invoke claim preclusion
against BDC only if they were all parties in the Suggs’ suit or in “privity” with one of the parties.
O’Nesti v. DeBartolo Realty Corp., 862 N.E.2d 803, 806 (Ohio 2007). BDC concedes that State
Farm meets this element because BDC and State Farm were both parties in the prior litigation.
But the Rutter Firm and Gallagher Firm represented clients in that litigation; they were not
parties themselves. This element thus hinges on whether the law firms were in “privity” with
their clients.
The Ohio Supreme Court has described privity in this preclusion context as “somewhat
amorphous” because the court has departed from the word’s traditional understanding in favor of
a “broad definition[.]” State ex rel. Schachter v. Ohio Pub. Emps. Ret. Bd., 905 N.E.2d 1210,
1217 (Ohio 2009) (per curiam) (quoting Brown v. City of Dayton, 730 N.E.2d 958, 962 (Ohio
2000), and Kirkhart, 805 N.E.2d at 1092). To be in privity, two parties need not have a
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contractual connection or one rooted in estate law (such as a grantor-beneficiary relationship).
See Brown, 730 N.E.2d at 962; Thompson v. Wing, 637 N.E.2d 917, 923 (Ohio 1994). They
need only have “a mutuality of interest, including an identity of desired result.” Brown, 730
N.E.2d at 962. That is, the parties must share a “close enough” relationship that it would serve
preclusion law’s purposes to apply the doctrine even though the parties are technically distinct.
Id.; Thompson, 637 N.E.2d at 923.
Under this broad test, Ohio courts have repeatedly held that privity exists between a
principal and an agent for actions taken “within the scope of the agency relationship.” ABS
Indus., Inc. ex rel. ABS Litig. Tr. v. Fifth Third Bank, 333 F. App’x 994, 999 (6th Cir. 2009)
(collecting cases); Wright v. Heller, 102 N.E.3d 1285, 1292–93 (Ohio Ct. App. 2018). The Ohio
Supreme Court, for example, has held that the government is in privity with its agents, so a party
cannot challenge the same conduct twice simply by suing a different government actor in each
suit. See State ex rel. Johnson v. Bureau of Sentence Computation, 152 N.E.3d 251, 255 (Ohio
2020); cf. Kirkhart, 805 N.E.2d at 1092–94; State v. Williams, 667 N.E.2d 932, 936 (Ohio 1996).
More relevantly, Ohio courts have applied this agency rule to find privity between
attorneys and their clients when a second suit against the attorneys involved actions that they
took on behalf of their clients. See Huber Heights Veterans Club, Inc. v. Bowman, 2021 WL
5144545, at *7 (Ohio Ct. App. Nov. 5, 2021); 533 Short N. L.L.C. v. Zwerin, 2015 WL 5771924,
at *8 (Ohio Ct. App. Sept. 30, 2015); Bell v. Nichols, 2013 WL 3193682, at *15 (Ohio Ct. App.
June 20, 2013). Take Huber Heights. There, a veterans’ organization successfully sued a local
chapter for violating its bylaws. 2021 WL 5144545, at *1. The chapter later sued an attorney for
the organization. Id. at *2–3. The court held that claim preclusion barred this suit because the
attorney was “clearly acting as [the organization’s] agent” when engaging in the challenged
conduct. Id. at *7. And parties cannot avoid preclusion merely “by changing the name” of the
individuals that they sue. Id. at *8.
Or take Bell. There, landowners unsuccessfully challenged a government appropriation.
2013 WL 3193682, at *3–5. They then sued, among others, the lawyer (and firm) that
represented the government in the appropriation suit. Id. at *5–6. The court found this suit
precluded. Id. at *15. It reasoned that the suit was “simply an attempt to attack the [prior]
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decision from a different angle, by attempting to attack the parties involved in representing” a
prior litigant. Id.
This logic reaches the Rutter and Gallagher Firms. BDC alleges that those firms colluded
with their clients to defraud it of the insurance proceeds. There is no dispute that the clients
themselves (the Suggs and State Farm) would satisfy this preclusion element. And there is no
dispute that the firms were “acting as . . . agent[s]” of the clients when litigating the prior suit.
Huber Heights, 2021 WL 5144545, at *7. The attorneys and clients also “share[d] a mutuality of
interest and desired result” in that suit. 533 Short N., 2015 WL 5771924, at *8. Just as in these
other cases, then, we cannot allow BDC to avoid preclusion merely by suing the attorneys of the
litigants involved in the prior suit. See Huber Heights, 2021 WL 5144545, at *8.
BDC responds that a “mutuality” of interests can exist for privity purposes only if the
nonparty to the earlier suit “would have been bound by [the judgment in that suit] had the result
been the opposite.” O’Nesti, 862 N.E.2d at 806 (citation omitted). BDC adds that mutuality
(and so privity) cannot exist under this test because a judgment for BDC in the Suggs’ suit would
not have bound the law firms. Yet the Ohio Supreme Court has applied preclusion against
nonparties to the first suit (and so found them in privity with parties) even when these nonparties
would not have been formally bound by the earlier judgment. See, e.g., Brown, 730 N.E.2d at
961. And the Ohio decisions that extend privity to principal-agent relationships (including our
decision in ABS) have not asked whether a judgment in the earlier suit would have bound the
nonparty agent. See, e.g., ABS, 333 F. App’x at 999–1000; Wright, 102 N.E.3d at 1292. Indeed,
such a requirement could categorically exclude these principal-agent relationships from privity—
a result that would upend “well settled” Ohio preclusion law. ABS, 333 F. App’x at 999.
BDC next cites decisions from other states holding that an attorney-client relationship
does not create privity. See Lane v. Bayview Loan Servicing, LLC., 831 S.E.2d 709, 715 (Va.
2019); Rucker v. Schmidt, 794 N.W.2d 114, 119 (Minn. 2011). But these decisions “narrowly
construe privity” in this context. Lane, 831 S.E.2d at 715. Ohio takes a “broad” view of the
doctrine. Kirkhart, 805 N.E.2d at 1092. And the courts that follow Ohio’s broad approach have
likewise used preclusion law to bar parties from suing attorneys for their representations of
clients. See Berkshire, 278 P.3d at 951–52; Jayel Corp. v. Cochran, 234 S.W.3d 278, 281–84
No. 21-3673 Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC, et al. Page 18
(Ark. 2006); Simpson v. Chi. Pneumatic Tool Co., 693 N.W.2d 612, 616–18 (N.D. 2005);
Chaara, 45 P.3d at 897; cf. Plotner v. AT&T Corp., 224 F.3d 1161, 1169 (10th Cir. 2000).
BDC also suggests that Ohio treats privity as a fact question unsuited for resolution on
the pleadings. But it fails to identify any factual dispute that could matter to the outcome. That
omission distinguishes this case from those on which it relies. See Charvat v. GVN Mich., Inc.,
2010 WL 2706163, at *5–6 (Ohio Ct. App. July 8, 2010); Pheils v. Garber-Lawrence Publ’g
Grp., Inc., 1993 WL 513200, at *14 (Ohio Ct. App. Dec. 10, 1993). In Charvat, the court held
that a fact question existed over whether an agency relationship existed. 2010 WL 2706163, at
*5–6. Here, by contrast, BDC does not dispute that the law firms were agents of their clients. In
Pheils, the court held that a plaintiff could not hold a client liable for her lawyer’s abuse of
process if the lawyer acted “without the knowledge or consent of the client[.]” 1993 WL
513200, at *15. Yet the court addressed neither preclusion nor privity. Regardless, BDC
disclaimed any allegation that the law firms “acted without their client’s knowledge.”
Appellant’s Br. 37.
* * *
The Ohio Supreme Court has long balanced the interest in deciding all litigation correctly
against the interest in ensuring that it comes to an end. See Strack, 637 N.E.2d at 916. If we
were to allow BDC’s collateral attack, it would upend the balance that the court has struck.
Because BDC failed to avail itself of Ohio procedure to seek the relief it now requests, we
affirm.