Buckeye Retirement Co., L.L.C., Ltd. v. Busch , 2017 Ohio 4009 ( 2017 )

[Cite as Buckeye Retirement Co., L.L.C., Ltd. v. Busch, 2017-Ohio-4009.]
IN THE COURT OF APPEALS OF OHIO
SECOND APPELLATE DISTRICT
GREENE COUNTY
BUCKEYE RETIREMENT CO., LLC, :
LTD. :
: Appellate Case No. 2016-CA-32
Plaintiff-Appellant/Cross- :
Appellee : Trial Court Case Nos. 2007-CV-590
: and 2011-CV-428
v. :
: (Civil Appeal from
JOHN R. BUSCH, et al. : Common Pleas Court)
:
Defendants-Appellees/Cross-
Appellants
...........
OPINION
Rendered on the 26th day of May, 2017.
...........
JAMES C. CARPENTER, Atty. Reg. No. 0012228, VINCENT I. HOLZHALL, Atty. Reg.
No. 0074901, 41 South High Street, Suite 2200, Columbus, Ohio 43215
Attorneys for Plaintiff-Appellant/Cross-Appellee
GEORGE D. JONSON, Atty. Reg. No. 0027124, G. TODD HOFFPAUIR, Atty. Reg. No.
0064449, 36 East Seventh Street, Suite 2100, Cincinnati, Ohio 45202
JOHN D. SMITH, Atty. Reg. No. 0018138, ANDREW P. MEIER, Atty. Reg. No. 0083343,
IRA H. THOMSEN, Atty. Reg. No. 0023965, 140 North Main Street, Suite B, P.O. Box
639, Springboro, Ohio 45066
Attorneys for Defendants-Appellees/Cross-Appellants
.............
-2-
WELBAUM, J.
{¶ 1} In this case, Plaintiff-Appellant, Buckeye Retirement Co., LLC, Ltd.
(“Buckeye”) appeals from a judgment rendered in favor of Defendants-Appellees/Cross-
Appellants, John Busch, Thomas Noland, and Statman, Harris & Eyrich, LLC (“Statman”),
following a bench trial. Busch, Noland, and Statman have all filed cross-appeals
asserting assignments of error.
{¶ 2} Buckeye contends that the trial court erred in finding that Busch was not liable
for fraudulent concealment and/or fraudulent representation, and in finding that Noland
was not liable for tortious interference with contractual relations. Finally, Buckeye
contends that the trial court erred by failing to find Statman vicariously liable for the
conduct of Noland, who was a member in Statman.
{¶ 3} Noland’s assignments of error raise the trial court’s alleged error in
concluding that Buckeye purchased the tort rights asserted in this matter, and the court’s
alleged error in concluding that Noland could be sued, as USAT’s agent, for interference
with a contract. Likewise, Busch contends that Buckeye did not have the ability to pursue
its claims against any of the Appellees/Cross-Appellants.
{¶ 4} We conclude that the trial court did not err in awarding judgment in favor of
Noland, Statman, and Busch. Accordingly, the judgment of the trial court will be affirmed.
Furthermore, affirmance of the judgment in favor of Appellees/Cross-Appellants, Noland,
Statman, and Busch renders their assignments of error moot.
I. Facts and Course of Proceedings
{¶ 5} This action arose from events occurring prior to a bankruptcy proceeding filed
-3-
by U.S. Aeroteam, Inc. (“USAT”) on December 24, 2003. When the bankruptcy was
filed, Suhas Kakde was the chief executive officer, president, and majority stockholder in
USAT, John Busch was the chief financial officer and vice-president of finance for USAT,
and Thomas Noland was legal counsel for USAT. Noland was a member in Statman,
and had practiced bankruptcy law, including Chapter 11 bankruptcies, for many years.
{¶ 6} In 1998, USAT was a preferred supplier, on a minority disadvantaged basis,
with General Motors Corporation (“GM”). USAT had primarily been involved in the
aerospace industry, but at GM’s behest, began submitting bids for automotive work with
GM and Delphi, which became a separate entity from GM in 1999. Based on discussions
with GM, USAT geared up to meet the GM/Delphi business, which required an infusion
of additional capital. At the time, USAT had an existing loan with First International Bank,
which subsequently became United Parcel Service Credit (“UPS”). UPS had a
considerable inventory credit line available for USAT, but could not expand the line to
match USAT’s business plan. As a result, USAT looked for other lenders and entered
into an asset based loan with Provident Bank (“Provident”) in November 2000.
{¶ 7} Asset based loans, also known as revolvers, are ones in which creditors
allow advances against collateral, inventory, and equipment. Remittances back to the
creditor (from accounts receivable of debtors) are typically made to a lock-box. The
amounts advanced vary up to the maximum amount of the note, and fluctuate based on
expansion or contraction of a debtor’s receivables and inventory. Advance rates reflect
the quality of a debtor’s receivables, and typically vary between 70 and 85% of the total
amount of the receivables. Generally, the advance rate applied to inventory is 50% of
the value of raw inventory or finished goods. These loan formulas, which discount the
-4-
real value of assets, mean that creditors may be made whole upon liquidation without
recovering 100% of a debtor’s assets.
{¶ 8} The maximum amount of the Provident loan was the lesser of $2,500,000 or
the sum of: (1) 50% of the cost or market value, whichever was lower, of eligible inventory;
(2) 80% of the amount of eligible receivables; and (3) 100% of the balance of the cash
collateral account (collectively referred to as the “borrowing base”). In other words, the
maximum amount USAT could borrow was $2,500,000, and the amount available on a
given date varied, depending on the extent of USAT’s eligible inventory and receivables,
as well as how much money had already been borrowed. Ultimately, the amount of
eligible receivables increased to 85%, due to the quality of USAT’s receivables.
{¶ 9} The amount available under the loan was calculated through borrowing base
reports or certificates (BBCs), which USAT submitted to Provident. BBCs contained
reports of accounts receivable, inventory, and some other items that Provident used to
calculate the formula and the amount available to USAT on the loan.
{¶ 10} The loan agreement did not provide specific times for submission, nor did it
contain detailed requirements for content of the BBCs; instead, the agreement simply
stated that the bank could require USAT to deliver schedules of all outstanding accounts.
These schedules were to “be in form satisfactory to the Bank and shall show the age of
such Accounts in intervals of not more than 30 days, and contain such other information
and be accompanied by such supporting documentation as the Bank may from time to
time prescribe.” Joint Ex. 2, section 5.3, pp. 10-11. In addition, the agreement required
USAT to deliver copies of its “invoices, evidences of shipment or delivery and such other
schedules and information as the bank may reasonably request.” Id. at p. 11. The only
-5-
time specification listed for any of these records was that they be provided “from time to
time solely for [the Bank’s] convenience in maintaining records of the Collateral.” Id.
{¶ 11} However, the agreement did require all collections on cash collateral to be
deposited in a cash collateral account maintained by Provident, and also stated that
Provident would apply all or part of the collected cash collateral on a daily basis against
the loan obligation. Joint Ex. 2, section 7.1, p. 16. Any part of the collected balance in
the cash collateral account that Provident elected not to apply to USAT’s obligations could
then be paid over to USAT’s commercial account, which USAT could write checks
against. Id. Although a lock box was used, at times creditors paid receivables directly
to USAT, and USAT would deposit these payments in the cash collateral account.
{¶ 12} Certain items were ineligible to be included in calculating how much money
USAT could obtain. For example, any receivables overdue more than 90 days were
excluded, and if more than 25% of a customer’s receivables were overdue by more than
90 days, all receivables from that customer were excluded. Money that USAT owed a
customer was also excluded, as were invoices representing tooling or invoices listing
receivables from non-U.S. based companies.
{¶ 13} The loan agreement also contained several financial and other covenants,
and allowed Provident to take various actions, including acceleration, upon default, or at
any time in its sole discretion, if the loan were due on demand.
{¶ 14} When the Provident loan was signed in November 2000, UPS had already
filed multiple UCC filings covering USAT’s business assets, but UPS agreed to
subordinate its interest in receivables and inventory only, pursuant to an inter-creditor
agreement. UPS, therefore, had a first lien on everything other than the inventory and
-6-
receivables. Kakde personally guaranteed the loans to both UPS and Provident.
{¶ 15} USAT was in violation of major loan covenants on the first day the Provident
agreement was signed. For example, the loan agreement required a ratio of liabilities to
tangible net worth of 7.5 to 1. However, the ratio, based on an audit one month later,
was 17.8 to 1. Provident ignored this violation, and in June 2001 drastically increased
the ratio to 25 to 1. However, a financial assessment six months later showed that USAT
had failed that ratio, too.
{¶ 16} The original loan document also required USAT to have a tangible net worth
of $750,000. However, an audit one month after the loan began showed that USAT had
only a tangible net worth of $369,000. Provident waived that requirement as well, and
reduced the net worth requirement to $215,000. USAT barely reached that amount the
first year and missed it by December 2002. Other violations related to the amount of
current debt requirements, timely delivery of audited financials, the fact that USAT owed
back taxes (more than $300,000 in early 2003); the fact that USAT was out of formula,
i.e., obtained loan amounts greater than the collateral base; the fact that the bank allowed
credit for receivables from one customer that were greater than 15% of the total
receivables; and the fact that USAT overstated collateral by about $500,000 in 2002.
{¶ 17} In January 2002, Provident notified Kakde that the loan was in default and
reminded him that he was personally liable. The loan was on the “watch list” in May
2002, and was still in default in August 2002. In the fall of 2002, the loan was transferred
to Provident’s Special Assets Division (“SAD”), and was assigned to Robert Burk, who
was the vice president of the division. The loan came to Burk because of continued
losses and tight cash position. When the loan was transferred, payments were current
-7-
on the loan, but USAT was in violation of all financial covenants.
{¶ 18} In October 2002, Delphi cancelled a part of the Saginaw Steering contract;
the overall Saginaw contract had been expected to generate many millions of dollars in
business for USAT. USAT’s president, Kakde, communicated this information to Burk.
In October 2002, the outstanding loan balance was $2,085,000, and a field audit done in
December 2002 indicated that as of November 30, 2002, USAT had $1,865,000 in
collateral to cover a credit line of $1,994,000. This resulted in a negative collateral
position. Thus, at that time, USAT was out of formula on the loan. In addition, USAT
had overstated its collateral by $350,000 in its collateral report, meaning that the loan was
actually under-collateralized by almost $500,000.
{¶ 19} The audit also indicated that USAT was substantially in arrears with many
vendors and was $285,000 behind in property tax. Despite these defaults, Provident
continued to work with USAT and continued to lend money. This state of affairs
continued throughout 2002 and 2003, until USAT filed bankruptcy in December 2003.
{¶ 20} In June 2003, Delphi cancelled the balance of the Saginaw Steering
contract, which was a significant loss. At the time, Delphi accounted for 60% of USAT’s
business, and the Saginaw contract was one of two large contracts with Delphi. As a
result, USAT contacted Thomas Noland in July 2003 to discuss filing bankruptcy.
Noland met with USAT a few times in July, and concluded that USAT was in dire financial
condition. By mid-July, USAT had provided Noland with various information relative to
filing bankruptcy, and an extended meeting was held on July 31, 2003. Noland, Kakde,
Busch, and Jeff Maag, USAT’s vice-president of operations, were present at this meeting.
During the meeting, they discussed USAT’s financial situation, Chapter 11, creditors,
-8-
leases, what USAT had to do to comply with requirements for filing forms with the court,
U.S. Trustee requirements – in all, a myriad of issues.
{¶ 21} As part of the discussion, Noland suggested that USAT open a non-lender
account to fund expenses for initial post-petition operation and for his firm’s retainer.
Noland explained that the bankruptcy code prevents parties from using cash or collateral
upon filing, without the consent of lenders or a subsequent court order. If no cash is
immediately available, contracts could not be completed and employees could leave,
causing reorganization to be over before it began. Noland further advised USAT to
“park” money in the non-lender account for filing, and not to notify Provident about the
account. However, if Provident asked, USAT was to tell Provident about the account.
{¶ 22} When Busch expressed concern about whether this was illegal or would
breach the contract with Provident, Noland indicated that telling Provident would serve no
purpose because Provident would take action to get the money back and USAT would
have no cash for filing. According to Kakde, Noland told USAT that the company would
be breaching a covenant, but also said that USAT had already breached many loan
covenants.
{¶ 23} Prior to the meeting, Kakde had asked Noland to be ready to file bankruptcy
as early as July 28, 2003. However, Kakde wanted to avoid Chapter 11 if possible, and
hoped to obtain over two million dollars in damages from Delphi, based on the cancelled
contract. On August 4, 2003, USAT opened an account with Bank One, using $50
supplied by Kakde. Kakde, Busch, and Maag were signatories on the account.
Subsequently, on August 11, 2003, a $92,600 check from British Air was deposited in the
Bank One account. Between August 4, 2003, and December 23, 2003, $544,299.10
-9-
was deposited into that account.
{¶ 24} In the meantime, Busch inaccurately reported items on the BCCs sent to
Provident. For example, a September 3, 2003 BCC showed the British Air receivable as
being in the 60-90 day range, when it had already been received on August 11, 2003.
However, the money from the British Air receivable was subsequently deposited into
Provident’s account on September 26, 2003, because it would otherwise be listed as
overdue by more than 90 days and would be removed from the cash collateral basis at
that point. Busch did this with other receivables as well, meaning that Provident obtained
the money; it was just not accurately reflected on a current BBC. USAT used some
money in the Bank One account to pay accounts payable and also remitted money back
to Provident. During the relevant time period, about $270,000 of the $544,299.10 was
transferred back to Provident.
{¶ 25} In late November 2003, another customer, Borg Warner, cancelled its
contract, and USAT began litigating the issue with Borg Warner. Furthermore, on
December 5, 2003, Kakde received a letter from Delphi, indicating that it would offer only
$150,000 for its cancelled account, instead of the 2.1 million dollar offer that Kakde had
expected. At that point, USAT began to prepare to file for bankruptcy. Ultimately,
Delphi indicated on December 15, 2003, that its final offer would be the $150,000 amount.
{¶ 26} In the meantime, Borg Warner wired $200,000 to USAT on December 8,
2003. This money was deposited into the Bank One account, which at that point,
contained only $33.00. The $200,000 was not a receivable, but was payment for the
contract cancellation. It was part of the total $544,299.10 amount put in the Bank One
account. On December 11, 2003, $50,000 was disbursed from the Bank One account
-10-
to Noland’s law firm. $35,000 was a retainer for the bankruptcy, and $15,000 was
payment for Noland’s representation of USAT in the Borg Warner case.
{¶ 27} The last promissory note between USAT and Provident had expired on
November 1, 2003. However, Provident was not concerned about getting the note
renewed, and had decided to renew it for 90 days, upon the same terms and conditions
as before.
{¶ 28} On December 19, 2003, Burk went to USAT to discuss renewal of the line
of credit. Kakde, Busch, and Noland were present at the meeting. At that time, Burk
was informed that negotiations with Delphi were ongoing, and that USAT would probably
file bankruptcy. After the meeting, Burk engaged outside counsel, Mike Debbeler. The
record does not clearly indicate exactly when Provident learned about the Bank One
account, but Provident was aware of receivable errors and the non-lender account at least
by December 21 or 22, 2003.
{¶ 29} Rather than calling the loan, Provident asked for an audit, to which USAT
agreed. USAT then filed for bankruptcy on December 24, 2003. The day before the
bankruptcy filing, Provident did offset $455,000 in certificates of deposit owned by a friend
of Kakde’s, who had pledged the certificates to guarantee the loan. On December 30,
2003, Provident also obtained a judgment in the principal sum of $2,030,632.87, plus
interest, against Kakde based on his personal guaranty of the loan.
{¶ 30} Provident did not object to USAT’s request for an emergency order allowing
USAT to use cash collateral during the Chapter 11 proceeding; USAT’s motion to do so
was granted on December 29, 2003, after notice and a hearing. Subsequently,
Provident agreed to a February 5, 2004 cash collateral order. This occurred after
-11-
Provident had completed its audit. Provident also agreed to additional orders allowing
USAT to use cash collateral during the bankruptcy. Provident’s continuing agreement
continued up to the time that Provident sold the USAT loan to Buckeye in December 2004.
{¶ 31} After Buckeye purchased the loan, it became involved in an adversary
proceeding against Kakde, who had filed a personal bankruptcy action. In that case, the
bankruptcy court concluded that Buckeye failed to prove that “Provident actually relied on
the Borrowing Base Certificates in making its decision to forbear or any other decisions
pertaining to the Loan as a whole, a prerequisite to finding the entire Loan balance debt
nondischargeable as to Mr. Kakde.” In re Kakde, 382 B.R. 411, 426 (S.D. Ohio 2008).
{¶ 32} In the meantime, Buckeye had filed an action for damages in Greene
County Common Pleas Court against Busch, Noland, and Statman in June 2007. In
June 2010, the trial court granted Busch’s motion for summary judgment, concluding that
Buckeye’s claims were barred by res judicata. The decision was based on the prior
proceeding in the adversarial proceeding in Kakde. See Buckeye Ret. Co., L.L.C., Ltd.
v. Busch, 2d Dist. Greene No. 2010-CA-51, 2011-Ohio-1125, ¶ 13. Specifically, the trial
court held that “although Busch was not a party to the Kakde litigation, the relationship
between Busch and Kakde was ‘close enough’ to include Busch within res judicata.” Id.
The trial court also concluded that “while the claims in the Kakde case were ‘styled
differently’ from the complaint against Busch, ‘they reach the same conclusion.’ ”
(Emphasis sic.) Id. The appeal was a final appealable order because the trial court had
included a Civ.R. 54(B) certification, and Buckeye had also dismissed the claims against
Noland and Statman without prejudice. Id.
{¶ 33} On appeal, we held that res judicata did not apply because Busch was not
-12-
in privity with Kakde. Specifically, Busch was not a party in the bankruptcy case and
would not have been bound by the result in that case. Id. at ¶ 22. There was also no
evidence that Busch actively participated in or had control over the prior lawsuit. Id.
We, therefore, reversed the judgment and remanded it to the trial court for further
proceedings. In August 2011, the Supreme Court of Ohio declined further review. See
Buckeye Retirement Co., L.L.C. v. Busch, 129 Ohio St. 3d 1450, 2011-Ohio-4217, 951
N.E.2d 1046.
{¶ 34} Following our remand, Buckeye filed another complaint in April 2011 and
the trial court consolidated the 2007 and 2011 actions. As with the original complaint,
the complaint filed in the 2011 action alleged fraudulent concealment against Busch, and
tortious interference with contractual relations and aiding and abetting against Noland.
Statman was sued based on its alleged respondeat superior liability for Noland’s actions.
{¶ 35} During January 2014, the case was tried before a magistrate for three days.
At trial, the magistrate heard evidence from John Busch, Thomas Noland, William Buseck
and William Bodoh (expert witnesses for Buckeye), John Gluckner (a Buckeye account
officer), and Jeffrey Morris and Alan Duvall (expert witnesses for the defense). In
addition, the parties stipulated to admission of the trial testimony of Robert Burk and
Suhas Kakde in the adversary proceeding in the case of In re Kakde (located at pp. 121-
284 and pp. 465-553 of the transcript of that proceeding).1
{¶ 36} After considering the evidence, the magistrate issued a decision in January
2015, concluding that there was insufficient evidence to support the claims against Busch.
1This is the bankruptcy case that was discussed in our decision in Busch, 2d Dist.
Greene No. 2010-CA-51, 2011-Ohio-1125.
-13-
The decision also concluded that Noland’s advice was prudent and consistent with advice
given by bankruptcy attorneys, and that Noland acted appropriately and without malice.
The finding in Noland’s favor additionally resolved the status of any claims against
Statman. Buckeye then filed objections in January 2015 and supplemental objections in
March 2015, after the transcript was filed. Busch, Noland, and Statman filed cross-
objections in January 2015, and responded to Buckeye’s objections and supplemental
objections.
{¶ 37} In July 2016, the trial court overruled all objections and granted judgment in
favor of Busch, Noland, and Statman. Buckeye timely filed a notice of appeal, and Busch
Noland, and Statman filed cross-notices of appeal.
II. Did the Court Err in Rejecting the Claims against Busch?
{¶ 38} Buckeye’s First Assignment of Error states that:
The Trial Court Erred in Finding that Defendant John R. Busch Was
Not Liable for Fraudulent Concealment and/or Fraudulent Representation.
{¶ 39} Under this assignment of error, Buckeye raises a manifest weight challenge
to the trial court’s decision that Busch was not liable for fraudulent concealment and
misrepresentation. In this regard, Buckeye argues that Busch falsely inflated financial
information on the BBCs, and that there was overwhelming evidence that Provident
justifiably relied on the false BBCs to advance money to USAT and not accelerate the
loan.
{¶ 40} “ ‘[I]n order for an appellate court to reverse a decision as against the
manifest weight of the evidence in a civil context, the court must determine whether the
-14-
trier of fact, in resolving evidentiary conflicts and making credibility determinations, clearly
lost its way and created a manifest miscarriage of justice.’ ” Brewer v. Dick Lavy Farms,
L.L.C., 2016-Ohio-4577, 67 N.E.3d 196, ¶ 46 (2d Dist.), quoting Alh Properties, P.L.L. v.
Procare Automotive Serv. Sols., L.L.C., 9th Dist. Summit No. 20991, 2002-Ohio-4246,
¶ 12. “ ‘[M]anifest weight of the evidence’ refers to a greater amount of credible evidence
and relates to persuasion * * * .” Eastley v. Volkman, 132 Ohio St. 3d 328, 2012-Ohio-
2179, 972 N.E.2d 517, ¶ 19. “In a civil case, in which the burden of persuasion is only
by a preponderance of the evidence, rather than beyond a reasonable doubt, evidence
must still exist on each element (sufficiency) and the evidence on each element must
satisfy the burden of persuasion (weight).” Id.
{¶ 41} In Eastley, the court stressed that “[i]n weighing the evidence, the court of
appeals must always be mindful of the presumption in favor of the finder of fact.” Id. at
¶ 21. Thus, the court cautioned that:
“[I]n determining whether the judgment below is manifestly against
the weight of the evidence, every reasonable intendment and every
reasonable presumption must be made in favor of the judgment and the
finding of facts. * * *
“If the evidence is susceptible of more than one construction, the
reviewing court is bound to give it that interpretation which is consistent with
the verdict and judgment, most favorable to sustaining the verdict and
judgment.”
Id., quoting Seasons Coal Co., Inc. v. Cleveland, 10 Ohio St. 3d 77, 80, 461 N.E.2d 1273
(1984), fn. 3. (Other citation omitted.)
-15-
{¶ 42} Before addressing the evidence, we note that the elements of fraudulent
concealment and fraudulent misrepresentation are essentially the same. (Citations
omitted.) Gentile v. Ristas, 160 Ohio App. 3d 765, 2005-Ohio-2197, 828 N.E.2d 1021,
¶ 51 (10th Dist.) Accord States v. Wing, 11th Dist. Trumbull No. 2005-T-0145, 2006-
Ohio-4423, ¶ 25. “Fraud may be committed not only by affirmative misrepresentation or
concealment, but also by nondisclosure when there is a duty under the circumstances to
disclose.” Gentile at ¶ 51, citing Parahoo v. Mancini, 10th Dist. Franklin No. 97APE08-
1071, 1998 WL 180539 (Apr. 14, 1998).
{¶ 43} To prove fraud, the party asserting the claim must establish: “(1) a
representation (or concealment of a fact when there is a duty to disclose) (2) that is
material to the transaction at hand, (3) made falsely, with knowledge of its falsity or with
such utter disregard and recklessness as to whether it is true or false that knowledge may
be inferred, and (4) with intent to mislead another into relying upon it, (5) justifiable
reliance, and (6) resulting injury proximately caused by the reliance.” (Citation omitted.)
Volbers-Klarich v. Middletown Mgt., Inc., 125 Ohio St. 3d 494, 2010-Ohio-2057, 929
N.E.2d 434, ¶ 27. Accord Seitz v. Harvey, 2d Dist. Montgomery No. 25867, 2015-Ohio-
122, ¶ 24. All these elements must be present, and the absence of any element
precludes recovery. (Citations omitted.) Westfield Ins. Co. v. HULS Am., Inc., 128 Ohio
App.3d 270, 296, 714 N.E.2d 934 (10th Dist.1998).
{¶ 44} In rejecting the fraud claims, the magistrate thoroughly reviewed the
evidence and concluded that Buckeye had presented insufficient evidence about what it
would have done if it had known about the Bank One account and the inaccurate
borrowing BBCs. In addition, the magistrate found that Buckeye had not proven its loss,
-16-
if any, based on the filing of the inaccurate statements. In reaching these conclusions,
the magistrate noted the statement of Buckeye’s expert that it was impossible to
determine what Provident would have done if it had known the facts, but that the expert,
himself, would have called the loan. The magistrate placed little weight on this
testimony, noting that Provident did not appear to lose trust in Busch because Provident
did not object to Busch staying on in his position with USAT during the bankruptcy.
{¶ 45} Furthermore, the magistrate placed great weight on the testimony of
defense expert, Alan Duvall, who indicated that Provident and USAT had a long history
of problems with the loan, including USAT’s violation of covenants for years, which
caused the loan to be in default. Nonetheless, Provident did not call the loan, and chose
to work with USAT in order to keep the company in business. The magistrate also noted
Duvall’s testimony that, in fact, even though Busch provided inaccurate BBCs in 2003,
the BBCs were actually understated, in terms of collateral, and Provident remained fully
secured on the loan. Magistrate’s Decision, Doc. #264, p. 11. And finally, the
magistrate noted the lack of evidence that Provident relied on the BBCs in terms of
keeping the loan in place. Id.
{¶ 46} In challenging the decision as being against the manifest weight of the
evidence, Buckeye points to testimony from Robert Burk, who stated that the bank relies
on the accuracy of the financial information in determining what funds are available to a
customer, and on the testimony of Noland, Kakde, and Busch, that Provident might
accelerate the loan if it knew about the Bank One account.
{¶ 47} “The question of justifiable reliance is one of fact and requires an inquiry
into the relationship between the parties.” (Citation omitted.) Crown Property Dev., Inc.
-17-
v. Omega Oil Co., 113 Ohio App. 3d 647, 657, 681 N.E.2d 1343 (12th Dist.1996).
“Reliance is justifiable if the representation does not appear unreasonable on its face and
if there is no apparent reason to doubt the veracity of the representation under the
circumstances. * * * However, reliance and responsibility must be balanced * * * .”
(Citation omitted.) Lapos Constr. Co. v. Leslie, 9th Dist. Lorain No. 06CA008872, 2006-
Ohio-5812, ¶ 21.
{¶ 48} We stressed these points in Amerifirst Savings Bank of Xenia v. Krug, 136
Ohio App. 3d 468, 495, 737 N.E.2d 68 (2d Dist.1999). We further noted that “ ‘[t]he rule
of law is one of policy and its purpose is, while suppressing fraud on the one hand, not to
encourage negligence and inattention to one's own interests. There would seem to be
no doubt that while in ordinary business transactions, individuals are expected to exercise
reasonable prudence and not to rely upon others with whom they deal to care for and
protect their interests, this requirement is not to be carried so far that the law shall ignore
or protect positive, intentional fraud successfully practiced upon the simple-minded or
unwary.’ ” Id. at 495-496, quoting 50 Ohio Jurisprudence 3d, Fraud and Deceit, Section
132 (1984).
{¶ 49} The case before us does not involve a simple-minded or unwary participant.
Instead, Provident was a sophisticated financial institution which chose to excuse
repeated defaults, including ones occurring from the very beginning of the transaction.
Moreover, Buckeye failed to present evidence from Provident that it would have
accelerated the loan had it known of the Bank One account and the inaccuracies in the
BBCs. Buckeye’s response to this is that one cannot know what Provident would have
done because Provident did not have all the facts at the time. However, Burk, who was
-18-
in charge of the loan, stated only that if Provident had known USAT was providing false
information, it “would not have set well,” and that the bank “could have accelerated the
entire obligation and proceeded to move against the collateral.” (Emphasis added.)
Transcript of Adversary Hearing, p. 151.
{¶ 50} Burk further indicated that Provident would evaluate its options and various
factors once it became aware of the situation, including where it was going to preserve
the most value. Id. at p. 180. Additionally, Burk noted that while USAT was in default
pretty consistently on loan covenants throughout 2002 and 2003, USAT was generating
more receivables, and receivable collection had not been a problem for USAT, which
historically had collected all its receivables. Id. at pp. 217-218, 224, and 271. According
to Burk, the reporting of BBCs and review by the bank was an internal control the bank
put in place to make sure the loan did not get out of balance with the collateral. Id. at p.
138.
{¶ 51} Consistent with Burk’s testimony, Duvall (the expert the magistrate found
credible), commented that:
Well note, [USAT has] been in loan covenant violation since day one.
They’ve got serious financial issues. The bank is well aware of their
serious financial issues. Audit reports – they’re doing internal audits but
the loan has been moved into you know the SAP division and yet, during
this point in time, they allow this loan to go from March 31, 2003 to August
29, 2003, they allow it to grow $700,000.00 even though it’s a troubled loan.
Now, then, still knowing it’s a troubled loan, from August 29th to
November 30th, it grows another $490,000.00. You know, if you, really, if
-19-
you graph this out it’s almost a solid straight line up; about a $140,000 to
150,000 a month increase; so the question you have to raise is why did they
allow that to grow during that point in time? And if there was something
you know was there any factor after August 29th that happened that
influenced them as opposed to what they knew back in March 31st, 2003.
You see a growth the whole time and your conclusion has to be that * * *
they saw the collateral base increasing, particularly with Delphi, and they
were riding the pony * * * along with [USAT].
Transcript of Trial Proceedings, Vol. 6, pp. 806-807 (Testimony of Alan Duvall).
{¶ 52} Duvall further testified that nothing in his investigation demonstrated that
the increase in the borrowing base was related to any inaccurate BBCs. Id. at p. 826.
Duvall also said that instead of relying on the BBCs in terms of keeping the loan in place,
Provident “actively ignored” the BBCs, “actively lent in excess of their lending authority
and * * * knew there were issues with the borrowing base certificates back in November
2002. And they ignored all those issues.” Id. at 827.
{¶ 53} Provident’s response after learning of Busch’s actions and the intended
bankruptcy is also inconsistent with justifiable reliance. Provident did not accelerate the
loan prior to bankruptcy, even though it learned of the intended bankruptcy several days
before USAT filed. Provident also did not accelerate the loan when it learned of Busch’s
actions; instead, Provident requested an audit. Transcript of Adversary Hearing, p. 190;
Transcript of Trial Proceedings, Vol. 1, pp. 85-87; Vol. 3, pp. 428-429.
{¶ 54} After the audit was conducted, Provident did not object to the use of
emergency cash collateral, and subsequently consented to USAT’s temporary and
-20-
permanent use of cash collateral in the bankruptcy proceeding, which allowed USAT to
use, in part, Provident’s capital to continue to operate. Transcript of Adversary Hearing,
p. 153; Transcript of Trial Proceedings, Vol. 4, pp. 488-489; Vol. 5, p. 674. Provident
also continued to work with USAT and with Busch during the bankruptcy proceedings; in
particular, Busch was signing BBCs during the bankruptcy proceedings. Transcript of
Proceedings, Vol. 3, pp. 425-426, and 433-435; Transcript of Adversary Hearing, p. 506.
In addition, Provident did not ask for a trustee or receiver to be appointed during the
bankruptcy. Id. at 433-434.
{¶ 55} Under the circumstances, we cannot say that the trial court’s decision was
against the manifest weight of the evidence. The trial court gave more weight to the
testimony of certain witnesses, and this was a credibility issue, to which we accord
substantial deference. Bayes v. Dornon, 2015-Ohio-3053, 37 N.E.3d 181, ¶ 54 (2d
Dist.). Credibility of witnesses and the weight to be given their testimony are primarily
matters for triers of facts to resolve. State v. DeHass, 10 Ohio St. 2d 230, 231, 227
N.E.2d 212 (1967).
{¶ 56} “Because the factfinder, be it the jury or, as in this case, the trial judge, has
the opportunity to see and hear the witnesses, the cautious exercise of the discretionary
power of a court of appeals to find that a judgment is against the manifest weight of the
evidence requires that substantial deference be extended to the factfinder's
determinations of credibility. The decision whether, and to what extent, to credit the
testimony of particular witnesses is within the peculiar competence of the factfinder, who
has seen and heard the witness.” State v. Lawson, 2d Dist. Montgomery No. 16288,
1997 WL 476684, *4 (Aug. 22, 1997). Accord Bayes at ¶ 53.
-21-
{¶ 57} As an additional matter, the trier of fact has the same ability to decide the
credibility of expert witnesses and the weight to be given their testimony. In re Estate of
Secoy, 19 Ohio App. 3d 269, 274, 484 N.E.2d 160 (2d Dist.1984). (Citation omitted.)
See also Schutz v. Schutz, 2d Dist. Darke No. 2016-CA-6, 2017-Ohio-695, ¶ 72; Vance
v. Vance, 151 Ohio App. 3d 391, 2003-Ohio-310, 784 N.E.2d 172, ¶ 100 (2d Dist.).
{¶ 58} This case does not present the exceptional situation in which the trier of fact
“ ‘clearly lost its way and created a manifest miscarriage of justice.’ ” Brewer, 2016-Ohio-
4577, 67 N.E.3d 196, at ¶ 46, quoting Alh Properties, 9th Dist. Summit No. 20991, 2002-
Ohio-4246, at ¶ 12. Instead, the finding of lack of justifiable reliance was supported by
more than adequate evidence.
{¶ 59} Because the lack of justifiable reliance is fatal to Buckeye’s claim against
Busch, we need not consider issues concerning whether the reliance proximately caused
injury to Buckeye. Volbers-Klarich, 125 Ohio St. 3d 494, 2010-Ohio-2057, 929 N.E.2d
434, at ¶ 27; HULS Am., Inc., 128 Ohio App. 3d at 296, 714 N.E.2d 934. We do note that
Duvall, the defense expert, presented a detailed explanation of why no damages were
caused, and the trier of fact gave great weight to that testimony.
{¶ 60} Based on the preceding discussion, the First Assignment of Error is
overruled.
III. Did the Court Err in Rejecting the Claims against Noland?
{¶ 61} Buckeye’s Second Assignment of Error states that:
The Trial Court Erred in Finding that Defendant Thomas R. Noland
Was Not Liable for Tortious Interference With Contractual Relations.
-22-
{¶ 62} Under this assignment of error, Buckeye contends, first, that the trial court
applied the wrong legal standard in considering the tortious interference with contract
claim against Thomas Noland. Specifically, Buckeye argues that the trial court
incorrectly applied a legal malpractice standard instead of standards that apply to claims
for interference with contractual relationships. Buckeye’s second point is that the
judgment in Noland’s favor is against the manifest weight of the evidence. We will
address these issues separately.
A. Legal Standards
{¶ 63} As an initial point, we note that the magistrate specifically found in his
decision that the claim against Noland was not a legal malpractice claim; instead, the
claim was for tortious interference with a business relationship. Magistrate’s Decision,
Doc. #264, p. 12. The magistrate then concluded that Noland “acted professionally
without malice and gave good-faith legal representation to USAT which is the standard in
the State of Ohio.” Id. at pp. 15-16. As a result, judgment was rendered in Noland’s
favor on Buckeye’s claim.
{¶ 64} According to Buckeye, the trial court improperly used a standard from legal
malpractice cases to decide if Noland was entitled to qualified immunity for his legal
advice. Buckeye contends that the trial court, instead, should have used a seven-factor
test from Fred Siegel Co., L.P.A. v. Arter & Hadden, 85 Ohio St. 3d 171, 707 N.E.2d 853
(1999), to decide whether Noland lacked justification to interfere with Provident’s contract.
{¶ 65} In Siegel, the Supreme Court of Ohio reaffirmed the existing elements of
tortious interference with contract, holding that they are “(1) the existence of a contract,
(2) the wrongdoer's knowledge of the contract, (3) the wrongdoer's intentional
-23-
procurement of the contract's breach, (4) lack of justification, and (5) resulting damages.”
Id. at 171-172, paragraph one of the syllabus, affirming and following Kenty v.
Transamerica Premium Ins. Co., 72 Ohio St. 3d 415, 650 N.E.2d 863 (1995), paragraph
two of the syllabus.
{¶ 66} In Siegel, the Supreme Court of Ohio also stated that establishing the fourth
element, lack of justification, would require “proof that the defendant's interference with
another's contract was improper.” (Citation omitted.) Id. at 172, paragraph three of the
syllabus. To evaluate this particular point, the court adopted the following seven factor-
test:
In determining whether an actor has acted improperly in intentionally
interfering with a contract or prospective contract of another, consideration
should be given to the following factors: (a) the nature of the actor's conduct,
(b) the actor's motive, (c) the interests of the other with which the actor's
conduct interferes, (d) the interests sought to be advanced by the actor, (e)
the social interests in protecting the freedom of action of the actor and the
contractual interests of the other, (f) the proximity or remoteness of the
actor's conduct to the interference, and (g) the relations between the
parties.
Id. at paragraph three of the syllabus, adopting Restatement of the Law 2d, Torts, Section
767 (1979).
{¶ 67} Like the case before us, Siegel involved allegations of contractual
interference. However, the facts in Siegel were substantially different and had nothing
to do with advice given during an attorney-client relationship. Specifically, in Siegel, an
-24-
attorney and her new law firm were sued for contractual interference because they
solicited her former firm’s clients. Siegel, 85 Ohio St. 3d at 174, 707 N.E.2d 853. After
reaffirming the existing elements of the tort of contractual interference and adopting
Section 767 of the Restatement of Torts 2d, the court concluded that summary judgment
had been improperly granted on behalf of the attorney and her new law firm. In this
regard, the court reasoned that the record contained “unresolved issues of fact”
concerning whether the attorney and her new law firm had used wrongful means in
competing with the attorney’s former law firm. Id. at 180.
{¶ 68} As noted, Siegel did not involve an attorney’s legal advice to a client and
allegations that a contractual interference claim could arise from that activity.
Nonetheless, in arguing that the trial court used the wrong standard, Buckeye contends
that Siegel “recognized a claim for tortious interference could be maintained against a law
firm.” (Emphasis added.) January 12, 2016 Brief of Appellant and Cross-Appellee,
Buckeye Retirement Co., LLC, Ltd., p. 1. This is incorrect. Siegel did not establish a
new theory of liability against law firms, and the involvement of attorneys was simply a
factual matter in the case, not a basis for the claim.
{¶ 69} In fact, cases based on tortious interference of contract by attorneys and
law firms existed well before Siegel. See Sonkin & Melena Co., L.P.A. v. Zaransky, 83
Ohio App. 3d 169, 179, 614 N.E.2d 807 (8th Dist.1992) (in case involving law firm’s claim
against former attorney employee, court of appeals agreed with trial court that under
totality of circumstances, former employee did not interfere with law firm’s clients when
he left the firm); Shane, Shane & Summers Co., L.P.A. v. Caravona, 8th Dist. Cuyahoga
No. 52690, 1987 WL 20208, *2 (Nov. 19, 1987) (in suit involving former partners of law
-25-
firm, jury found that former law firm interfered with partners’ contractual relations and
prospective business advantage by persuading a doctor not to perform services for the
partners’ new firm); Hilliard v. Lease, 10th Dist. Franklin No. 93AP-1029, 1993 WL
538312, *3 (Dec. 23, 1993) (in case involving law firm’s claims of tortious interference
with business relationship by attorney who left firm and took clients, the court of appeals
reversed dismissal of the case, concluding that the complaint adequately stated a claim).2
{¶ 70} In Siegel, the Supreme Court of Ohio did reject the suggestion of the
attorney and her new firm that the Disciplinary Rules for lawyers justified their actions.
In this regard, the court stated that a finding of tortious interference with contract is not
precluded by the fact that clients have a right to discharge attorneys, or by the fact that
attorneys may inform clients of their departure and willingness to provide services at a
new location without violating ethical rules. Siegel, 85 Ohio St. 3d at 176-178, 707 N.E.2d
853. The court also rejected the suggestion that “the propriety of an attorney’s conduct
for purposes of a tortious interference analysis should be determined solely by application
of the Disciplinary Rules.” Id. at 178. The court noted that violation of the Disciplinary
Rules does not create a private cause of action, and that “the power to determine
violations of the Disciplinary Rules is reserved” to the Supreme Court of Ohio. Id.
{¶ 71} As a result, the court concluded that “consistent with our adoption in Kenty
2 In a later appeal, the court of appeals agreed with the trial court, which held a bench
trial and decided that the facts did not support the business interference claim. Hilliard
v. Lease, 10th Dist. Franklin No. 95APE04-473, 1996 WL 17578, *5 (Jan. 16, 1996).
However, the court of appeals did reverse the trial court’s finding that the attorney had no
fiduciary duty to his former law firm. On remand, the trial court held that the attorney did
not breach a fiduciary duty to the firm by improperly handling or delaying settlements in
the cases of the clients he took, and the court of appeals affirmed this decision. Hilliard
v. Lease, 10th Dist. Franklin No. 97APE05-637, 1997 WL 723232, *3 (Nov. 18, 1997).
-26-
of Restatement Section 766, which sets forth the elements of tortious interference with
contract, the propriety of the appellants' conduct in contacting Siegel's clients and
suggesting that they follow [the attorney] to [the new firm] should be determined by
applying relevant legal tests as defined in Section 766 et seq. of the Restatement.” Id.,
citing Kenty, 72 Ohio St. 3d 415, 650 N.E.2d 863. The court then adopted the seven-
factor test mentioned above.
{¶ 72} In the case before us, the magistrate specifically found in his decision that
the claim against Noland was not a legal malpractice claim, but was a claim for tortious
interference with a business relationship. Magistrate’s Decision, Doc. #264, p. 12. The
magistrate then referred to Shoemaker v. Gindlesberger, 118 Ohio St. 3d 226, 2008-Ohio-
2012, 887 N.E.2d 1167, which held that “attorneys in Ohio are not liable to a third party
for the good-faith representation of a client, unless the third party is in privity with the
client for whom the legal services were performed.” Id. at ¶ 9, citing Scholler v. Scholler,
10 Ohio St. 3d 98, 462 N.E.2d 158 (1984), paragraph one of the syllabus. According to
Shoemaker, “[t]his rule is rooted in the attorney's obligation to direct attention to the needs
of the client, not to the needs of a third party not in privity with the client.” Id., citing Simon
v. Zipperstein, 32 Ohio St. 3d 74, 76, 512 N.E.2d 636 (1987). The court also commented
that “[t[he necessity for privity may be overridden if special circumstances such as ‘fraud,
bad faith, collusion or other malicious conduct’ are present.” Shoemaker at ¶ 11, quoting
Zipperstein at 76.
{¶ 73} Shoemaker involved a negligence claim that beneficiaries brought against
an attorney for preparing a deed that resulted in increased tax for the estate. Id. at ¶ 1.
The attorney had prepared the deed at the decedent’s request, as she wanted to transfer
-27-
property to one child and reserve a life estate for herself. Id. at ¶ 2. When the estate
was probated after her death, the remaining children found out that estate assets would
have to be sold to pay taxes on the transfer. As a result, they brought an action for
negligence against the attorney and an action for unjust enrichment against their brother.
Id. at ¶ 3-4. In turn, the brother asserted a cross-claim against the attorney for
negligence. Id. at ¶ 5.
{¶ 74} The trial court granted summary judgment in the attorney’s favor, based on
the lack of an attorney-client relationship, or lack of privity between the attorney and the
children. Id. On appeal, the Supreme Court of Ohio held that the limited exception to
the privity rule, i.e., for cases of fraud and malice, should not be expanded, Id. at ¶ 7.
Thus, because the beneficiaries were not in privity and had not alleged fraud or malice,
they did not have standing to file a negligence action against the attorney. Id. at ¶ 10.
{¶ 75} In rejecting expansion of the exceptions to privity, the court stressed that
public policy justified adherence to the privity rule, because it primarily “is used to protect
the attorney's duty of loyalty and the attorney's effective advocacy for the client.”
(Citations omitted.) Id. at ¶ 14. The court also focused on the fact that, in the estate
planning context, attorneys would have conflicting duties and loyalties without the rule.
Id. at ¶ 15. And finally, in a more general context, the court concluded that expanding
the exceptions could cause “unlimited potential liability for the lawyer.” (Citations
omitted.) Id.
{¶ 76} In a recent decision, we thoroughly considered issues pertaining to the
extent to which attorneys can be sued by third parties to the attorney-client relationship –
a subject that was not involved in Siegel. See Omega Riggers & Erectors, Inc. v.
-28-
Koverman, 2016-Ohio-2961, 65 N.E.3d 210 (2d Dist.).
{¶ 77} Omega involved individual claims of minority shareholders against a
corporate attorney. These claims arose from the attorney’s involvement in a sale of
assets of the closely held corporation. Id. at ¶ 3-4. The complaint sought damages
against the attorney for breach of fiduciary duty, legal malpractice, and negligence. Id.
at ¶ 16. When the attorney filed a motion for summary judgment based on lack of
standing, the plaintiffs responded that they were in privity with the corporation, that the
attorney had acted with malice, and that their injuries were not in common with other
stockholders. Id. After the trial court granted summary judgment for the attorney, the
plaintiffs appealed.
{¶ 78} Our decision initially noted that the attorney’s summary judgment motion
had argued, among other things, that the claims for breach of fiduciary duty and generic
negligence were not independent claims, and that plaintiffs lacked standing to assert
individual claims. Id. at ¶ 21. We then commented that only the lack of an attorney-
client relationship, or a substitute for the relationship, had been appealed. Id.
{¶ 79} In discussing the issues, however, we first observed that “[a] claim against
an attorney for actions taken in his professional capacity is a claim sounding in legal
malpractice no matter how artfully the pleadings attempt to raise some other claim.”
Omega, 2016-Ohio-2961, 65 N.E.3d 210, at ¶ 22. We then stressed that:
“ ‘An action against one's attorney for damages resulting from the manner
in which the attorney represented the client constitutes an action for
malpractice * * *, regardless of whether predicated upon contract or tort or
whether for indemnification or for direct damages. * * * Malpractice by any
-29-
other name still constitutes malpractice.’ ” Pierson v. Rion, 2d Dist.
Montgomery No. 23498, 2010-Ohio-1793, ¶ 14, quoting Muir v. Hadler Real
Estate Mgmt. Co., 4 Ohio App. 3d 89, 446 N.E.2d 820 (10th Dist.1982).
Although the trial court correctly found that the only viable claim is one for
legal malpractice, and that conclusion is not on appeal, we reiterate the
nature of the claim to emphasize that the plaintiffs' various claims need to
be analyzed in a legal-malpractice context.
Omega at ¶ 22.
{¶ 80} Notably, in Pierson, the complaint alleged “legal malpractice,
fraud/fraudulent misrepresentation, negligent misrepresentation, and breach of contract”
on the attorney’s part. Pierson at ¶ 3. We concluded in Pierson that all these claims
“were subsumed within [the plaintiff’s] legal malpractice claim.” Id. at ¶ 13.
{¶ 81} Based on the above authority, the magistrate could have concluded that the
claims against Noland for interference with contract were, in fact, legal malpractice claims.
Furthermore, if this were the case, the magistrate’s resort to qualified immunity was
appropriate.
{¶ 82} Courts have held that “not all fraudulent conduct committed by an attorney
will fall under the umbrella of a general malpractice claim, although the elements of fraud
must be specifically pled in the complaint.” Gullatte v. Rion, 145 Ohio App. 3d 620, 626,
763 N.E.2d 1215 (2d Dist.2000), citing DiPaolo v. DeVictor, 51 Ohio App. 3d 166, 173,
555 N.E.2d 969 (10th Dist. 1988). In DiPaolo, the Tenth District Court of Appeals stated
that “[i]n order to rebut that presumption [of good faith in handling a client’s affairs] and
sufficiently allege a cause of action for fraud against attorneys in a situation where the
-30-
gist of the complaint involves legal malpractice * * *, plaintiffs must have specifically
alleged that defendants committed the actions for their own personal gain. To hold
otherwise would be to undermine the purpose and focus of the malpractice statute.”
(Citation omitted.) Id. at 173.
{¶ 83} One theme asserted by Buckeye at trial was that Noland’s alleged
misconduct was based on a desire for personal gain, i.e., for payment of his firm’s
retainer. However, we commented in Gullatte that, despite the holding in DiPaolo, the
Tenth District Court of Appeals “recently held that a desire to obtain a settlement and
resulting contingent fee was not the type of personal gain that would support an action
for fraud separate from a malpractice action.” Gullatte at 626, citing Endicott v. Johrendt,
10th Dist. Franklin No. 99AP-935, 2000 WL 796576 (June 22, 2000). As a result, the
Tenth District concluded in Endicott that the plaintiff’s claim for fraud against her former
attorneys was subsumed within her malpractice claim. Endicott at *5.
{¶ 84} In Endicott, the court of appeals did hold that one component of the
plaintiff’s claim for intentional infliction of emotional distress covered matters not within
the scope of her former attorneys’ representation, because it was based on their actions
during an arbitration proceeding, well after their representation ended. Id. at *5.
Specifically, the plaintiff alleged that the attorneys had falsely characterized her as an
abuser of prescription drugs and had caused her physical distress. Id. However, there
is no contention in the case before us that Buckeye’s claim against Noland involved
actions taken after Noland’s representation of USAT ended.
{¶ 85} Applying the above discussion to the case before us, we conclude that the
magistrate should have evaluated Buckeye’s claims as ones for legal malpractice. All
-31-
the claims against Noland arose from “ ‘the manner in which’ ” Noland represented his
client and should be considered in that context, regardless of how they were styled in the
trial court. Dottore v. Vorys, Sater, Seymour & Pease, L.L.P., 8th Dist. Cuyahoga No.
98861, 2014-Ohio-25, ¶ 37, quoting Muir, 4 Ohio App. 3d at 90, 446 N.E.2d 820. See
also Omega, 2016-Ohio-2961, 65 N.E.3d 210, at ¶ 22. While representing his client,
Noland advised USAT to open a non-lender account and to deposit funds in the account
in preparation for bankruptcy. If these actions caused damage, they would have been
the subject of a legal malpractice action. Furthermore, even if Noland had been partially
motivated by the prospect of funding a retainer, this was not the type of personal gain that
would support an action beyond an action for malpractice. Endicott at *5; Dottore at ¶ 44
(desire to keep a client’s business is not the type of personal gain elevating concealment
from an act of malpractice to an act of fraud).
{¶ 86} Nonetheless, even if the magistrate erred in failing to consider the claim
against Noland as one for legal malpractice, the magistrate did apply the correct standard
for malpractice claims. As was noted, the magistrate applied qualified immunity, which
prevents lawsuits against attorneys unless a party is in privity with the attorney.
Shoemaker, 118 Ohio St. 3d 226, 2008-Ohio-2012, 887 N.E.2d 1167, at ¶ 9.
{¶ 87} Furthermore, even if Buckeye’s claim were solely based on interference
with contractual or business relations, and Siegel applied, any error by the magistrate
was harmless. As was noted, the factors in Siegel include “(a) the nature of the actor's
conduct, (b) the actor's motive, (c) the interests of the other with which the actor's conduct
interferes, (d) the interests sought to be advanced by the actor, (e) the social interests in
protecting the freedom of action of the actor and the contractual interests of the other, (f)
-32-
the proximity or remoteness of the actor's conduct to the interference, and (g) the relations
between the parties.” Siegel, 85 Ohio St. 3d at 178-179, 707 N.E.2d 853.
{¶ 88} In concluding that Noland acted without malice, professionally, and in good
faith, the magistrate did consider Noland’s conduct and motives, the interests of
Provident, the interests of USAT that Noland was attempting to advance, the time
between Noland’s advice and the alleged interference, and the relations between the
parties. See Magistrate’s Decision, Doc. #264, pp. 5, 9, and 12-16. Although the
magistrate did not explicitly discuss the societal interests in qualified immunity for
attorneys, the magistrate’s citation to Shoemaker indicates that this issue was implicitly
considered. In Shoemaker, the court stressed public policy, and the fact that the privity
rule is primarily “used to protect the attorney's duty of loyalty and the attorney's effective
advocacy for the client.” Shoemaker at ¶ 14. As a result, consideration of societal
interests was inherent in the magistrate’s decision.
{¶ 89} Accordingly, we reject Buckeye’s claim that the judgment should be
reversed because the trial court used an incorrect standard to evaluate the claims against
Noland.
B. Manifest Weight Challenge
{¶ 90} Buckeye’s second argument is that the judgment in Noland’s favor is
against the manifest weight of the evidence. As support for this, Buckeye relies on
testimony from Busch and Kakde that Noland was aware that receivables would be used
to fund the Bank One Account, and that Noland’s response during their discussion was
that Busch should “do what you have to do.”
{¶ 91} Again, for us to reverse decisions based on manifest weight, we “ ‘must
-33-
determine whether the trier of fact, in resolving evidentiary conflicts and making credibility
determinations, clearly lost its way and created a manifest miscarriage of justice.’ ”
Brewer, 2016-Ohio-4577, 67 N.E.3d 196, at ¶ 46, quoting Alh Properties, 9th Dist. Summit
No. 20991, 2002-Ohio-4246, at ¶ 12.
{¶ 92} In Omega, we stressed that only three methods could substitute for the
essential requirement of an attorney-client relationship: “(1) the claimant is so situated
that it is deemed in ‘privity’ with the actual client, (2) the attorney acted with malice toward
the claimant such that an action for recovery is justified, or (3) the injury or damages
caused by a tortfeasor to a corporate shareholder claimant are unique and distinct from
those suffered by other shareholders, which justify a direct claim by the shareholder
against the tortfeasor.” Omega, 2016-Ohio-2961, 65 N.E.3d 210, at ¶ 23. The only
potential exception that would apply in the case before us is malice. In this respect, the
magistrate concluded that Buckeye’s claim survived a motion to dismiss based on
whether Noland’s advice was based on “something other than sound legal advice.”
Magistrate’s Decision, Doc. #264, p. 12.3 At that point, Noland had not yet presented his
case. However, after considering the entirety of the evidence, the magistrate concluded
that Noland did not act maliciously, nor did he have an ulterior motive in connection with
his legal advice. In addition, the magistrate found that Noland acted professionally and
in good faith. Id. at pp. 15-16.
{¶ 93} In Omega, we discussed the subject of malice at length. Id. at ¶ 31-37.
3 The parties and trial court referred to the motions made at the end of Buckeye’s case
as motions for “directed verdict,” but since the trial was to the bench, the motions were
for dismissal under Civ. R. 41(B)(2). The distinction is a matter of semantics, as the
correct standards were applied.
-34-
We observed that normally, malice is defined as “ ‘(1) that state of mind under which a
person's conduct is characterized by hatred, ill will or a spirit of revenge, or (2) a conscious
disregard for the rights and safety of other persons that has a great probability of causing
substantial harm.’ ” Id. at ¶ 31, quoting Preston v. Murty, 32 Ohio St. 3d 334, 336, 512
N.E.2d 1174 (1987). Because ill will, hatred, and revenge were not at issue, we further
discussed only the issue of conscious disregard. Id. As in Omega, hatred, ill will, and
revenge are not present in the case before us.
{¶ 94} Regarding “conscious disregard,” we stressed in Omega that:
In the context of a legal-malpractice action, resolving whether an
attorney's actions could be construed as “a conscious disregard for the
rights and safety of other persons that has a great probability of causing
substantial harm” requires a subtle, but indispensable, distinction regarding
applicable facts. An attorney should not suffer potential liability to third
parties for advising and pursuing a client's non-criminal goals, even if those
goals will subject the client to potential civil liability. If Omega, by direction
of Foreman, its majority shareholder and president, intentionally decided to
freeze out Cotter and Anthony, and Koverman was engaged to handle the
legal process to do so, Koverman would not be liable in malpractice to the
minority shareholders even though those facts arguably could be construed
as the majority shareholder's conscious disregard of others’ rights that
probably would cause substantial harm, and even though those facts would
expose the corporation and its majority shareholder to damages from the
freeze out, as it did here. To hold otherwise would mean no attorney could
-35-
advise a client about, or legally participate in, the freeze out of a minority
shareholder without incurring malpractice liability. But that is not the law.
Omega, 2016-Ohio-2961, 65 N.E.3d 210, at ¶ 32.
{¶ 95} In light of these observations, we held that “malice, as a substitute for an
attorney-client relationship, cannot be predicated on actions by the attorney that the
attorney is permitted to take, or even negligently may take, as part of the representation
of plaintiffs’ adversarial client. To constitute malice, the actions of the attorney must
include a disregard of rights that the attorney, not the client, is required to protect and
must include harm beyond that which legal action necessarily may inflict. In most
circumstances, an attorney is not obligated to protect the rights of an adversary.” Id. at
¶ 35.
{¶ 96} Viewing the evidence through this prism, we conclude that the judgment in
Noland’s favor is not against the manifest weight of the evidence. As a preliminary
matter, we note that Buckeye’s argument about manifest weight relies on incomplete
testimony of Busch and Kakde, and ignores the testimony of Noland and the defense
expert.
{¶ 97} According to Noland, the discussion on July 31, 2003, about opening the
bank account, occupied only one percent of a very long meeting that was held when filing
bankruptcy appeared imminent. Noland stated that he told USAT to open an account
and “park” money in it in preparation for bankruptcy. Noland denied having any
discussion and direction telling USAT it was to do anything other than build the account
so it would be available if filing bankruptcy were necessary.
{¶ 98} The purpose of the account was to protect employees and preserve asset
-36-
values. Noland explained to USAT that if a business does not have cash available when
it files bankruptcy, it cannot operate unless it obtains consent or an order from the court.
If no cash is available, contracts go into default and employees will walk out the door with
equipment, product, and whatever they can take, if they have not been paid. In that
situation, the chance of reorganization ends before it has a chance to succeed.
{¶ 99} Noland also denied that Busch had said at the meeting that he was going
to put receivables into the non-lender account. Transcript of Trial Proceedings, Vol. 2,
p. 199. Noland believed that Busch had said receivables were the source of cash that
USAT had to put into that account. However, Noland also stressed that he stated at the
meeting “that Mr. Kakde or other sources should be explored to fund that account * * *.”
Id. at p. 201. In addition, Noland told Busch that if he were to obtain a receivable he
turned into cash, Busch would have to accurately report that. Id. at p. 217. Finally,
Noland told Busch that if Provident asked about a secondary bank account, Busch should
reveal the account.
{¶ 100} USAT’s president, Kakde, was present during the July 31, 2003 meeting.
Kakde testified that a discussion occurred during the meeting about opening a bank
account. According to Kakde, Noland indicated that opening a bank account would be
a breach of contract, but that a breach was not illegal; USAT had already breached many
covenants and this would just be another one. Concerning discussion about money for
the account, Kakde testified that:
* * * I don’t know exactly how it transpired, but my recall is about reporting
to the bank, if you put the money in that account, how am I going to report
that to Provident, because all source of money is receivables only, you
-37-
know. * * * John [Busch] asked, you know, this is the borrowing base, what
should I do with it and all that. Tom said, I’m not an accountant, you do
what you have to do. John started running the scenario again and Tom
said, I don’t understand. And I said, John, I don’t understand that either,
what you need to do is if you have any questions about anything, touch
base with Tom, get an answer from Tom. Because between you two, I’m
pretty sure you’ll be able to resolve it. And my patter [sic] is full, I need to
take care of other issues.
Transcript of Adversary Proceeding, p. 489.
{¶ 101} After the July 31, 2003 meeting, the next time that Noland met with USAT
was when he handled litigation involving Borg Warner in November 2003. When the
Borg Warner issue came up, they discussed the Chapter 11 proceeding. However, there
was no evidence that Busch contacted Noland about anything pertaining to BBCs until
mid-December 2003, when Busch called Noland and said he was uncomfortable with a
report he was to submit to the bank. At that time, Noland told Busch to consult with
Kakde and have Kakde sign it, if he would. Transcript of Trial Proceedings, Vol. 2, pp.
285-286.
{¶ 102} Notably, Busch signed almost all the BBCs after the July 31, 2003 meeting,
other than ones on December 9 and December 16, 2003. Kakde signed these two
BBCs. According to Kakde, Busch only told him of an issue about signing after Kakde
had signed the BBC on December 16. Kakde indicated that Busch’s concern was that
USAT’s collateral might not have the value due to the Delphi cancellation.4 At that point,
4 Delphi’s final offer of $150,000 rather than the anticipated $2,000,000 on the contract
-38-
Kakde told Busch that they would talk to Noland. Transcript of Adversary Proceeding,
p. 505. The bankruptcy was filed shortly thereafter.
{¶ 103} Noland testified that he first learned of borrowing base issues with USAT’s
account from Provident’s attorney in December 2003, after USAT told Provident it was
going to declare bankruptcy. Transcript of Trial Proceedings, Vol. 2, p. 282. Kakde also
testified that he was shocked when he learned that Busch had provided inaccurate
information on the BBCs. Transcript of Adversary Proceeding, p. 548. Kakde said that
he had trusted Busch and still trusted him. He went on to say that “I did not understand
the extent of [Busch’s] genuine, genuine lack of understanding. There’s clearly a gap
between what Mr. Noland wanted to see and could not fully articulate and what Mr. Busch
understood he should do to keep that account from Provident, to keep the Bank One
account from Provident. That’s how I see the situation.” Id. at pp. 548-549.
{¶ 104} In addition, Busch never testified that Noland told him to put receivables in
the account or to falsify documents. His testimony was that in order to open an account
and fund it, it was not possible to record the receivables accurately without Provident
knowing. Transcript of Trial Proceedings, Vol. 1, p. 128. Busch then stated that “You
couldn’t do both; so what I did was I opened the account and did not record the information
on the books and records of USAero Team to keep it secret. Now I thought when Mr.
Noland said to do what you needed to do that is the only thing I could see that could be
done.” (Emphasis added.) Id.
{¶ 105} At a minimum, the above testimony demonstrates ambiguity about was
what meant by “do what you have to do.” At a maximum, there are credibility issues that
cancellation was received on December 15, 2003.
-39-
were resolved in Noland’s favor by the finding that he acted professionally and in good
faith. Certainly, if one believes Noland and Kakde, no discussion or instruction about
inaccurately reporting BBCs was given. And, even Busch’s testimony is based on what
he “thought” was meant by Noland’s statement.
{¶ 106} Buckeye contends that the advice to “do what you have to do” was not
sound legal advice because making false statements to banks to influence lending is a
crime under 18 U.S.C. 1014. However, that assumes Noland’s statement was both
unambiguous and undisputed. It was not, and as we have stressed, triers of fact
primarily resolve witness credibility and weight, and we give substantial deference to the
fact-finder’s determination. DeHass, 10 Ohio St. 2d at 231, 227 N.E.2d 212; Bayes,
2015-Ohio-3053, 37 N.E.3d 181, at ¶ 54. The reason for this is that “the factfinder * * *
has the opportunity to see and hear the witnesses * * *.” Lawson, 2d Dist. Montgomery
No. 16288, 1997 WL 476684, at *4. Furthermore, “[t]he fact that the evidence is subject
to different interpretations does not render the judgment against the manifest weight of
the evidence.” (Citation omitted.) Seitz, 2d Dist. Montgomery No. 25867, 2015-Ohio-
122, at ¶ 41.
{¶ 107} We also note that Noland presented testimony from an expert bankruptcy
practitioner (Jeffrey Morris), who testified that all of Noland’s conduct, including his pre-
bankruptcy advice, was appropriate and prudent, and was within the standard of care for
bankruptcy attorneys in Ohio. In addition, Provident’s expert (William Bodoh) did not
indicate that Noland did anything “unethical or illegal.” Transcript of Trial Proceedings,
Vol. 4, p. 562. Bodoh acknowledged that setting up a non-lender account was pretty
routine in pre-bankruptcy proceedings, but was critical of the length of time the account
-40-
was open. Bodoh also criticized Noland’s suggestion to Busch that “false and fraudulent”
statements be submitted to Provident. Id. at p. 565. However, this criticism assumed
the truth of facts that were actually disputed. Again, the trier of facts was entitled to
assess the credibility of expert witnesses and what weight to give their testimony. In re
Estate of Secoy, 19 Ohio App. 3d at 274, 484 N.E.2d 160; Schutz, 2d Dist. Darke No.
2016-CA-6, 2017-Ohio-695, at ¶ 72.
{¶ 108} Based on the preceding discussion, we conclude that the trial court’s
judgment as to Noland’s lack of liability was not against the manifest weight of the
evidence. We also note, for the reasons previously expressed, that our decision would
be the same even if we evaluated the manifest weight issue based on Siegel and the
seven-factor test for deciding if interference with a contract lacks justification.
{¶ 109} Based on the preceding discussion, the Second Assignment of Error is
overruled.
IV. Respondeat Superior
{¶ 110} Buckeye’s Third Assignment of Error states that:
The Trial Court Erred in Finding that Defendant Statman, Harris &
Eyrich, LLC Was Not Vicariously Liable under Respondent Superior for the
Conduct of Its Employee, Defendant Thomas R. Noland.
{¶ 111} Under this assignment of error, Buckeye argues that if Noland is liable for
tortious interference with the contract between Provident and USAT, then Statman is also
liable under the theory of respondeat superior. Buckeye concedes that if Noland is not
liable, then Statman has no vicarious liability. We agree.
-41-
{¶ 112} “Respondeat superior speaks only to the vicarious liability of an employer;
it does not simultaneously create an express cause of action against individual agents
and servants of the employer. ‘Respondeat superior’ means ‘[l]et the master answer,’
and [has been defined] * * * as the doctrine holding ‘a master * * * liable in certain cases
for the wrongful acts of his servant, and a principal for those of his agent.’ ” (Emphasis
sic.) Hauser v. Dayton Police Dept., 140 Ohio St. 3d 268, 2014-Ohio-3636, 17 N.E.3d
554, ¶ 11, quoting Black's Law Dictionary 1546 (3d Ed.1933).
{¶ 113} Because the judgment pertaining to Noland’s lack of liability is being
affirmed, the Third Assignment of Error is without merit and is overruled.
V. Cross-Appellants’ Assignments of Error
A. Noland’s and Statman’s Assignments of Error.
{¶ 114} Noland and Statman have filed the following assignments of error, as
Cross-Appellants:
(1) The Trial Court Erred in Overruling Noland and SH&E’s Motions
to Dismiss; Motions for Summary Judgment; Motion to Dismiss as a Matter
of Law Whether Language of the Asset Sale Agreement is Ambiguous; and
Motion for Directed Verdict, Specifically in Regard to Determining Whether
Buckeye Had Purchased from Provident the Tort Rights Asserted Against
the Defendants in the Underlying Matter.
(2) The Trial Court Erred in Overruling Noland and SH&E’s Motion
for Summary Judgment and Motion for Directed Verdict, Specifically in
Regard to Determining that Noland Was Not USAT’s Agent for Purposes of
-42-
the Transactions at Issue and Could Be Prosecuted for Tortious
Interference With the Contract Between USAT and Provident.
{¶ 115} Under these assignments of error, Noland and Statman present two main
arguments. The first is that Buckeye did not purchase the right to sue Noland and
Statman based on the terms of the loan acquisition documents and applicable law.
They, therefore, contend that the trial court should have dismissed the complaint, granted
summary judgment in their favor, or granted their motion for “directed verdict.”
{¶ 116} The second argument is that Noland and Statman could not be sued for
tortious interference with the contract between Provident and USAT because Noland was
acting as USAT’s agent at all relevant times and was legally deemed a party to the
contract. Since a party cannot tortuously interfere with its own contract under Ohio law,
Noland and Statman contend that the trial court erred by failing to grant their motion for
summary judgment and motion for “directed verdict,” both of which raised these points.
{¶ 117} Because the trial court’s judgment in favor of Noland and Statman is
being affirmed, these assignments of error are moot and need not be considered. See
App.R. 12(A)(1)(c).
B. Busch’s Assignment of Error
{¶ 118} Busch has filed the following assignment of error:
The Trial Court Erred in Overruling Busch, Noland, and SH&E’s
Various Motions Asserting Plaintiff Buckeye Retirement Co., LLC, Ltd. Did
Not Purchase from The Provident Bank the Tort Rights Asserted Against
the Defendants in the Underlying Matter and Did Not Have the Ability to
-43-
Pursue the Claim Against the Defendants.
{¶ 119} For the reasons just discussed, this assignment of error is moot and need
not be considered, pursuant to App.R. 12(A)(1)(c).
VI. Conclusion
{¶ 120} All of Buckeye’s assignments of error having been overruled, and the
assignments of error of Cross-Appellants, Noland, Statman, and Busch having been
rendered moot, the judgment of the trial court is affirmed.
.............
FROELICH, J. and TUCKER, J., concur.
Copies mailed to:
James C. Carpenter
Vincent I. Holzhall
George D. Jonson
G. Todd Hoffpauir
John D. Smith
Andrew P. Meier
Ira H. Thomsen
Hon. Michael A. Buckwalter