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Five Star Financial Corp. v. Merchants Bank and Trust Co.

Court of Appeals of Ohio, First District

July 17, 2013


Civil Appeal From: Hamilton County Court of Common Pleas Trial No. A-0800266, A-0911042.

Eric C. Deters & Partners, P.S.C., and Eric C. Deters for Plaintiffs-Appellants,

Ulmer & Bern, LLP, John M. Hands and Pamela Ginsburg for Defendants-Appellees.


Hildebrandt, Judge.

{¶1} In one assignment of error, Five Star Financial Corporation and Steven Winter (collectively "FSFC") appeal from the trial court's dismissal of their complaint pursuant to Civ.R. 41(B)(1) for failing to abide by a court order directing them to supply Merchants Bank and Trust Co., Don Patterson, Paul Silva, and Mark Sams (collectively referred to as "Merchants") with certain financial documents. We affirm.

FSFC and the Separate Entity "Five Star"

{¶2} FSFC was in the business of making residential and commercial real estate loans funded in part through loans from other institutions. One of these institutions, Merchants, had extended to FSFC a two million dollar line of credit. FSFC defaulted. After Merchants obtained a judgment against FSFC, FSFC sued Merchants in connection with this loan for fraud in the inducement, negligence, intentional infliction of emotional distress, and intentional interference with business relations. The basis for some of these claims was that Merchants had wrongfully interfered with FSFC's ability to secure commercial real estate loans. FSFC claimed damages exceeding five million dollars.

{¶3} Steven Winter was deposed in connection with this lawsuit. In pertinent part, he testified that his wife, Sarah Winter, had formed a company called 5 Star Commercial Capital ("5 Star") in 2007. He also testified that 5 Star was in the business of making commercial loans and that it had made approximately 20 commercial loans a year since 2008. Winter later admitted that he, and not his wife, managed 5 Star and that he was 5 Star's president.

{¶4} Because it appeared to Merchants that FSFC's damage claim may have been artificially inflated if FSFC had diverted its commercial loan business to 5 Star, in December 2011 Merchants began attempts to secure 5 Star's financial records.

Merchants' Failed Attempts to Secure Financial Records

{¶5} In December 2011, Merchants served 5 Star's statutory agent, Leo Grote, with a subpoena duces tecum requesting 5 Star's state and federal tax returns, its financial statements, its operating agreement and its articles of organization. Grote responded that he never had the tax returns for 5 Star and that the balance of the requested documents were in FSFC's possession. Merchants then reissued the subpoena duces tecum to Sarah Winter, 5 Star's alleged founder. On January 6, 2012, FSFC's attorney accepted service of the subpoena on behalf of Sarah. A month later, FSFC's counsel reported that Sarah Winter did not have these documents, that the documents had been produced at one of the Winters's judgment debtor exams and that they were in the possession of an attorney named Bryce Lenox. Merchants contacted Lenox. Lenox told Merchants that the only 5 Star documents he had were some bank statements, but that he only had statements through December 2008. FSFC's counsel then claimed that the documents were most likely in the possession of the Winters's accountant, Neal Schear. Merchants obtained a CD of Schear's documents. After searching through approximately 8, 000 pages of documentation, Merchants discovered that the CD contained nothing responsive to its subpoena. And FSFC's counsel ignored a request to sign a release so that Merchants could directly obtain 5 Star's tax returns from the IRS.

The Motion to Compel and Subsequent Hearings

{¶6} On July 9, 2012, six months after serving the subpoena duces tecum on Sarah Winters regarding 5 Star's business records, Merchants filed a motion with the trial court to compel compliance with the subpoena. One week before the hearing on Merchants' motion, FSFC claimed for the first time that no tax returns had ever been prepared for 5 Star. Following an August 1, 2012 hearing on Merchants' motion to compel, the trial court ordered FSFC to produce the documents requested in the subpoena or face dismissal. On August 2, FSFC provided financial documents that it had previously given to Merchants pertaining to FSFC, but had revised the documents overnight to add 5 Star's name to them. At the August 2, 2012 hearing, Merchants then made a new request of FSFC. Merchants wanted FSFC to produce the underlying loan transaction materials and banking statements that would support the newly combined financial documents. At the hearing, the trial court told FSFC's attorney to give Merchants' attorney "whatever he needs" in regard to 5 Star's financial records and warned FSFC that if they did not provide these documents to Merchants, the case would be dismissed.

{¶7} FSFC never provided Merchants with the documents underlying the newly combined financial records of FSFC and 5 Star. Following a hearing on October 18, the trial court dismissed the ...

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