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Thomas v. Othman

Court of Appeals of Ohio, First District, Hamilton

November 8, 2017

RICHARD THOMAS, and GAIL THOMAS, Plaintiffs-Appellants,
AKRAM OTHMAN, and MARK WOEHLER, Defendants-Appellees.

         Civil Appeal From: Hamilton County Court of Common Pleas Trial No. A-1601001

          William Flax, for Plaintiffs-Appellants,

          James R. Hartke, for Defendant-Appellee Akram Othman,

          George M. Parker, for Defendant-Appellee Mark Woehler.


          Cunningham, Presiding Judge.

         {¶1} Plaintiffs-appellants Richard and Gail Thomas appeal from the judgment of the Hamilton County Court of Common Pleas granting the motion of defendants-appellees Akram Othman and Mark Woehler to dismiss the amended complaint for failure to state a claim upon which relief could be granted, pursuant to Civ.R. 12(B)(6). For the reasons that follow, we affirm.

         I. Background Facts and Procedure

         {¶2} This appeal arises from the Thomases' efforts to recover from Othman and Woehler a portion of the retirement funds the Thomases lost after investing them in a Ponzi scheme operated by Glen Galemmo. According to the allegations in the amended complaint, Galemmo was convicted of securities fraud in the case United States v. Galemmo, Case No. 1:13-CR-00141, for operating a "complex, " multi-year "Ponzi scheme." The Thomases, Othman, and Woehler were all investors in the scheme, and are all members of the plaintiff class of "Net Losers" investors-investors who lost more than their principal investment-in several civil class-action lawsuits which were referenced in the Thomases' complaint.

         {¶3} Like the other "Net Losers, " the Thomases, Othman, and Woehler have recovered and may continue to recover some of their losses from money forfeited in the criminal case against Galemmo, and from money recovered from "Net Winner" investors sued in the civil class actions in a court approved allocation plan. The individual recoveries in the criminal and civil actions are "pro rata, " defined in the amended complaint as meaning that "each 'loser' recovers the same percentage of the total net recovery as his net loss bears to the total net losses of 'Net Losers.' "

         {¶4} Although all are net loser investors, Othman and Woehler were earlier investors who recouped a part of their principal investment during the scheme. The Thomases were later investors who had "no opportunity to recoup any part" of their principal investment, comprising about $700, 000 in retirement funds, some of which, they allege, was paid to Othman and Woehler.

         {¶5} Although frustrated that the distribution in the class-action cases did not draw the equitable distinctions among the losing investors that the Thomases wanted, nonetheless the Thomases took their pro rata distributions in those cases and filed this individual action against Othman and Woehler to recover "specific funds" they identified as their property.

         {¶6} Specifically, the Thomases alleged that they could "trace" the retirement funds that they were fraudulently induced to invest with Galemmo, and that were deposited into a bank account associated with a Galemmo entity, to "specific payments" made to Othman and Woehler from a bank account associated with another Galemmo entity during the execution of the Ponzi scheme. The Thomases asserted they could trace their retirement fund deposits to payments to Othman and Woehler even though those retirement fund deposits had been commingled with other deposits in the Galemmo entity accounts. The Thomases sought to recover from Othman and Woehler a percentage of the challenged payments on the grounds that the transfers by Galemmo were "fraudulent, " as contemplated by Ohio's Fraudulent Transfer Act, and that they had a superior equitable "position" with respect to "their own misallocated [retirement] funds" when compared with Othman and Woehler, who were "unjustly enriched."

         {¶7} With regard to Woehler, the Thomases alleged that his claim to the challenged payment was "compromised by [his] longstanding interaction with Galemmo and the Galemmo entities, " and he "is believed to have been introduced to the Galemmo entities by Steve Schuholz, a close and long standing associate" of Galemmo and a defendant in one of the class-action lawsuits brought by the class of net losers.

         {¶8} With respect to Othman, they alleged that Galemmo issued him a check from one of Galemmo's entities on June 6, 2013, just two days after the IRS had raided Galemmo's main office and seized voluminous documents. Further, they claimed that this large payment made to Othman was allegedly "requested" by Othman's "friend" David Dahoud, an "associate" of Galemmo's "who enjoyed the privilege and use of a desk in Glen Galemmo's office, received commissions for introducing persons who would invest in Galemmo entities, " was "fully aware" of the IRS raid when he obtained the check for Othman, and is a defendant in one of the class-action lawsuits. Finally, they alleged that Galemmo's "deliberate act of favoritism" to Othman was also demonstrated by Othman's friendship with Schuholz and by Galemmo's reference to Othman by his first name in a 2014 deposition.

         {¶9} In relief, as relevant to this appeal, the Thomases requested that the court impose a "constructive trust" on the assets obtained or retained by Othman and Woehler as a result of the "fraudulent transfers."[1]

         {¶10} Othman and Woehler moved to dismiss. In the alternative, they sought to transfer and consolidate the action with one of the pending class-action cases in which all parties were members of the plaintiff class, and where distributions had already been made ...

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