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McGirr v. Rehme

United States District Court, S.D. Ohio, Western Division

August 3, 2018

CONNIE MCGIRR, et al., Plaintiffs,
v.
THOMAS F. REHME, et al., Defendants.

          OPINION AND ORDER RESOLVING ALL PENDING MOTIONS

          ROBERT H. CLELAND UNITED STATES DISTRICT JUDGE

         On April 21, 2017, the court granted Plaintiffs' Motion for a Preliminary Injunction and ordered Defendants to refrain from assigning, distributing, disbursing, transferring, or taking any action on any assets beyond basic expenses. (Dkt. # 113.) Defendants appealed that order, arguing that it amounted to an improper exercise of jurisdiction over the Assignee who was managing many of the Defendants' assets pursuant to a proceeding in Ohio Probate Court. While that appeal was pending in the Sixth Circuit Court of Appeals, the Ohio Probate proceeding was stayed through a peremptory writ issued by the Ohio Supreme Court and was subsequently dismissed.

         Meanwhile, the parties continued to file numerous motions with this court and contested which of the motions the court had jurisdiction to resolve during the pendency of Defendants' appeal. With the Sixth Circuit now having issued an opinion affirming this court's injunctive order, the parties' jurisdictional arguments are moot, and this court will address all pending motions. See McGirr v. Rehme, No. 17-3519, __ F.3d __, 2018 WL 2437184 (6th Cir. May 31, 2018).

         I. BACKGROUND[1]

         This case involves a previously settled mass tort action concerning the diet drug “fen-phen.” Some of the plaintiffs in that case instituted an action in Kentucky state court against their attorney, now Defendant, Stanley Chesley. They alleged that he wrongfully retained money they were due from the settlement. That action resulted in a $42 million dollar judgment against Chesley jointly and severally, see Mildred Abbott et al. v. Stanley M. Chesley, et al., No. 05-CI-00436 (Ky. Cir. Ct. Aug. 1, 2014), affirmed Chesley v. Abbott, 524 S.W.3d 471 (Ky. Ct. App. 2017), which Plaintiffs have had little, if any, luck in collecting. Sometime thereafter, Defendant Chesley was disbarred. See Kentucky Bar Assn. v. Chesley, 393 S.W.3d 584 (Ky. 2013). Consequently, in 2013, Chesley executed a Wind-up Agreement to close his wholly owned law firm, Waite, Schneider, Bayless, & Chesley, Co., LPA (“WSBC”). In the agreement, he named WSBC's secretary, Thomas Rehme, as trustee of the firm's assets for the purpose of terminating operations. The Kentucky Circuit Court concluded that the Wind-up Agreement was a “sham” and ordered Chesley to transfer his interest in WSBC to Plaintiffs, but he never did so. See Chesley, 524 S.W.3d at 477; State ex rel. McGirr v. Winkler, 93 N.E.3d 928, 932 (Ohio 2017).

         A. Procedural History

         Plaintiffs filed this action against Chesley, WSBC, and Rehme. Plaintiffs do not seek enforcement of their Kentucky state court judgment, rather, they have filed a separate complaint against Defendants for fraudulent transfer. (See Dkt. # 10, Pg. ID 330.) They allege that Defendants fraudulently transferred funds to shield Chesley from the Kentucky state court judgment against him.

         In the early stages of this case, an Ohio federal court in a related class action lawsuit approved the payment of attorneys' fees from Duke Energy International, Inc. to Defendant WSBC. See Dkt. # 266 of Williams v. Duke Energy, No. 08-46 (S.D. Ohio Oct. 21, 2015). This court concluded that there was a substantial risk of irreparable harm to Plaintiffs if the fee award was given directly to WSBC; therefore, the court ordered that the funds be held on deposit with the court during the pendency of this litigation. (Dkt. # 10; Dkt. # 48, Pg. ID 1011.)

         Thereafter, Rehme, still acting as trustee for WSBC, created Trustee Inc. and caused WSBC to transfer its assets to Trustee Inc., which proceeded to transfer the assets to Eric Goering. Rehme then commenced a bankruptcy-like action (known as Assignment for the Benefit of Creditors “ABC”) in Hamilton County Probate Court in Ohio. In the ABC action, Goering was designated as the Assignee over all of WSBC's assets for disbursement to WSBC's creditors. Plaintiffs are judgment creditors of Defendant Chesley rather than Defendant WSBC, and therefore were not included in the ABC action.

         Upon Plaintiffs' motion in this court and following extensive briefing and hearings, the court entered a temporary restraining order prohibiting, among other actions, the assignment, disbursement, distribution, transfer, or any action related to any asset of WSBC, outside of basic office expenses. (Dkt # 75, Pg. ID 1842.) The court later issued a preliminary injunction containing the same terms. (Dkt. # 113.) The injunction essentially froze WSBC's financial transactions. To this end, neither WSBC nor Assignee Goering has been permitted to direct any money owed to WSBC or manage its assets, liabilities, or debts.

         Defendants appealed the court's injunctive order to the Sixth Circuit. While that appeal was pending, the Ohio Supreme Court dismissed the Ohio ABC action on the grounds that the action was a “vexatious abuse of process” intended to shelter Defendant Chesley's assets from Plaintiffs. See State ex rel. McGirr v. Winkler, 93 N.E.3d 928, 933 (Ohio 2017). The Sixth Circuit subsequently affirmed this court's injunctive order concluding that “Chesley and his co-defendants have proven apt at moving money around to evade the plaintiffs” and the court's injunction “serves an important purpose-‘to allow a victory by [the plaintiffs] to be meaningful.'” See McGirr, 2018 WL 2437184 at *9. (quoting AIG Aviation, Inc. v. Boorom Aircraft, Inc., 1998 WL 69013, at *3 (6th Cir. 1998)) (brackets in original).

         II. DISCUSSION

         Currently, ten motions are pending on the court's docket-the parties continued to file motions during the pendency of Defendants' appeal in the Sixth Circuit despite the court's jurisdictional uncertainty. The motions now include: (1) Plaintiffs' Motion for Partial Summary Judgment (Dkt. # 99), (2) Plaintiffs' Motion for Appointment of a Receiver (Dkt # 116), (3) Assignee Eric Goering's Motion to Intervene and for the Appointment of a Receiver (Dkt. # 162), (4) Plaintiffs' Renewed Motion to Appoint a Receiver (Dkt. # 178, # 190), (5) Plaintiffs' Motion for Leave to File a Second Amended Complaint (Dkt. # 170), (6) Plaintiffs' Motion to Compel Production of Documents (Dkt. # 126), (7) Plaintiffs' Motion for a Scheduling Order (Dkt. # 151), (8) Plaintiffs' Motion for a Status Conference (Dkt. # 179), (9) Motion to Nullify Substitution of Trustees (Dkt. # 174), and (10) Motion to Substitute Trustee (Dkt. # 180). Additionally, the proposed intervener and Plaintiffs filed a Notice of Agreed Order Appointing Receiver. (Dkt. # 165.) The court directed Defendants to file a response indicating whether they agreed to the “Agreed Order.” (Dkt. # 166.) Defendants subsequently filed a response opposing the proposed receivership. (Dkt. # 167.)

         The court will address each motion.

         A. Plaintiffs' Motion for a Scheduling Order (Dkt. # 151) and Motion for a Status Conference (Dkt. # 179)

         In January 2017, the parties submitted a Rule 26(f) report that offered widely divergent views on the scope and timing of discovery. (Dkt. # 94.) In March 2017, before the court was able to resolve their disagreements, Plaintiffs filed a motion for summary judgment. (Dkt. # 99.) Defendants then requested an extension of their allotted time to respond to the motion in order to pursue discovery pursuant to Federal Rule of Civil Procedure 56(d). (Dkt. # 103.) The court granted that motion. (Dkt. # 110.) However, no discovery deadline was established because the court concluded that the case may be a “proceeding ancillary to a proceeding in another court, ” see L.R. 16.2(viii); Dkt. # 91, which is an exception to Rule 16(b)'s scheduling order requirement. Due to the existence of several related state court proceedings and the issues on appeal to the Sixth Circuit, the court refrained from entering a scheduling order at that time.

         Given that related proceedings and appeals in Kentucky state court, Colorado state court, Ohio Probate court, and the Sixth Circuit Court of Appeals have all concluded, Plaintiffs have filed a motion for a scheduling order (Dkt. # 151) and Defendants have not opposed it. Plaintiffs have also filed a motion for a status conference. (Dkt. # 179.)

         The court will order the parties to meet and confer to develop a revised Rule 26(f) plan that accounts for the needs of this case including any outstanding discovery and motion practice. The proposed scheduling order should first and foremost account for this order granting Plaintiffs' motion for leave to file a second amended complaint (discussed below) by setting a deadline for Defendants' answer or other response allowed under the Federal Rules of Civil Procedure as well as any time needed for discovery on the new claims. When crafting a proposed schedule, the parties should also be cognizant that the court previously denied (without prejudice pending the Sixth Circuit's decision on appea) Defendant Chesley's motion to transfer all sequestered funds to the IRS (Dkt. # 101), Defendants Rehme and WSBC's motion for summary judgment (Dkt. # 105), and Plaintiffs' motion to strike expert affidavit (Dkt. # 122). The parties should also be mindful of the court's ruling on Defendants' Rule 56(d) motion and that the court will dismiss without prejudice Plaintiffs' motion for summary judgment (as discussed below) to allow for adequate discovery.

         In sum, the case schedule moving forward should provide a timeline for addressing all of these issues should the parties believe they are still pertinent to the dispute. After reviewing the parties' proposal, the court will either adopt it by order or hold a conference with the parties to discuss and finalize a scheduling order.

         B. Plaintiffs' Motion for Leave to File a Second Amended Complaint (Dkt. # 170)

         Plaintiffs request leave to file a second amended complaint based on recent proceedings in Ohio State court. (Dkt. # 170.) Specifically, the Supreme Court of Ohio dismissed the probate ABC action filed by Defendant Rehme on the grounds that the action was a “vexatious abuse of process” intended to shelter Defendant Chesley's assets from Plaintiffs. See State ex rel. McGirr v. Winkler, 93 N.E.3d 928, 933 (Ohio 2017). Plaintiffs' amended complaint alleges that Defendants Rehme and WSBC improperly transferred WBSC's assets to Trustee Inc. and Eric Goering through a series of assignments. Georing then filed the ABC action in Ohio Probate court, which triggered all the protections afforded by the bankruptcy court and allowed him to serve as Assignee over the assets. Plaintiffs' proposed amended complaint seeks to add Trustee Inc. and Georing to their claims of conspiracy against Defendants, as well as to add claims for punitive damages against Defendants Chesley, Rehme, and WSBC based on this conduct. (Id. at 6445.)

         According to Federal Rule of Civil Procedure 15(a)(2), after the time allotted under Rule 15(a)(1) has expired, “a party may amend its pleading only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires.” Although the rule embodies a liberal amendment policy, leave to amend may be appropriately denied “when there is ‘undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.'” Brown v. Chapman, 814 F.3d 436, 443 (6th Cir. 2016) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)).

         “[T]he party requesting leave to amend must ‘act with due diligence if it wants to take advantage of the Rule's liberality.'” Parry v. Mohawk Motors of Mich., Inc., 236 F.3d 299, 306 (6th Cir. 2000) (quoting U.S. v. Midwest Suspension & Brake, 49 F.3d 1197, 1202 (6th Cir. 1995). Delay becomes undue when it places an unwarranted burden on the court, or is prejudicial, placing an unfair burden on the opposing party. See Bridgeport Music, Inc. v. Dimension Films, 410 F.3d 792, 806 (6th Cir. 2005) (quoting Morse v. McWhorter, 290 F.3d 795, 800 (6th Cir. 2002)).

         Plaintiffs request leave to amend their complaint to add claims and parties based on events that transpired after the filing of their first amended complaint; namely, Defendants' initiation of and actions concerning the Ohio Probate case. Plaintiffs have not unreasonably delayed filing their claims nor have they acted in bad faith or with a dilatory motive. Their proposed claims arise out of Defendants' actions taken during the course of this litigation. The Ohio Supreme Court found of “a pattern of misuse of the judicial process in Ohio by Chesley and WSBC to obstruct collection efforts and conceal Chesley's ongoing control of WSBC.” See McGirr, 93 N.E.3d at 933. The court finds no reason why leave to amend should not be freely given here and further, is convinced that justice requires Plaintiffs be granted leave to amend their complaint to include allegations of fraudulent transfer related to the Ohio Probate Court ABC action.

         C. Plaintiffs' Motion for Partial Summary Judgment (Dkt. # 99)

         Plaintiffs filed a motion for partial summary judgment on their fraudulent conveyance claim. They argue that there is no genuine issue of material fact that Defendant Chesley's transfer of WSBC to Defendant Rehme, and Rehme's subsequent transfer of WSBC to Trustee Inc. and Goering, constitute fraudulent transfers. (Dkt. # 99.)

         The court granted Defendants' request to conduct discovery prior to summary judgment proceedings pursuant to Rule 56(d). While the parties have engaged in some discovery since that time, it is unclear whether that discovery is complete or has been sufficient to allow Defendants to respond to the pending summary judgment motion. Additionally, the landscape of this case has changed dramatically since Plaintiffs' original filing of their complaint and will change again with the filing of their amended complaint. To allow both parties a fair opportunity to be heard, the court will deny Plaintiffs' summary judgment motion without prejudice, will review the revised Rule 26(f) plan that the court has directed the parties' to develop, and will set a briefing schedule for dispositive motion practice that accounts for any outstanding discovery Defendants might reasonably need.

         D. Plaintiffs' Motion to Compel Production of Documents (Dkt. # 126)

         Plaintiffs ask this court to enter an order compelling third party Clark, Schaefer, Hackett & Co (“CSH”) to produce documents requested pursuant to two subpoenas duces tecum. CSH provides accounting services for ...


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