Scheurer Hospital v. Lancaster Pollard & Co. et al
Filing
70
ORDER granting 23 Motion to Dismiss Cross-Claim; granting in part and denying in part 27 Motion to Dismiss Counterclaim. Signed by District Judge Thomas L. Ludington. (SGam)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
NORTHERN DIVISION
SCHEURER HOSPITAL,
Plaintiff,
Case No. 12-11536
Honorable Thomas L. Ludington
v.
LANCASTER POLLARD & CO. et al.,
Defendants.
______________________________________ /
OPINION AND ORDER GRANTING DEFENDANTS’ MOTION TO
DISMISS CROSS-CLAIM AND GRANTING IN PART AND DENYING
IN PART PLAINTIFF’S MOTION TO DISMISS COUNTERCLAIM
In this professional malpractice case, the immediate question is whether a defendant may
assert the statute of limitations as both an affirmative defense and, under a separate heading, a
claim for declaratory relief. For reasons detailed below, the Court answers this question in the
negative.
In 2001, Plaintiff Scheurer Hospital retained a financial services firm, Defendant
Lancaster Pollard & Co., to advise Plaintiff on a bond issuance. To hedge against the risk of
rising interest rates, Lancaster Pollard recommended that Plaintiff enter into an interest rate swap
agreement with a third-party financial institution, Lehman Brothers. Plaintiff did so. After
Lehman sought bankruptcy protection in 2008, Plaintiff consulted Lancaster Pollard regarding
the proper manner of terminating the agreement with Lehman. Lancaster Pollard retained a law
firm, Defendant Peck Shaffer & Williams. Peck Shaffer advised Lancaster Pollard. It, in turn,
advised Plaintiff. The instructions allegedly proved incorrect, however, rendering Plaintiff’s
termination of the swap agreement ineffective. Consequently, Plaintiff entered into a settlement
agreement compensating Lehman. This litigation ensued.
Plaintiff brought suit against Defendants seeking compensation for the damages caused
by the allegedly incorrect advice. Lancaster Pollard, in turn, cross-claimed against Peck Shaffer.
Peck Shaffer cross-claimed against Lancaster Pollard and counterclaimed against Plaintiff.
In April 2012, Peck Shaffer moved to dismiss Plaintiff’s complaint and Lancaster
Pollard’s cross-claim. ECF Nos. 5, 6. The Court denied the motion to dismiss the complaint and
granted in part and denied in part the motion to dismiss the cross-claim. Scheurer Hosp. v.
Lancaster Pollard & Co., 12-11536, 2012 WL 3065347 (E.D. Mich. July 27, 2012).
Plaintiff moves to dismiss Peck Shaffer’s counterclaim. And Lancaster Pollard moves to
dismiss Peck Shaffer’s cross-claim. For the following reasons, Plaintiff’s motion will be granted
in part and denied in part. Lancaster Pollard’s motion will be granted.
I
Plaintiff is a Michigan not-for-profit corporation that operates a hospital serving the
residents of Huron County, Michigan, and the surrounding areas. Compl. ¶ 1. Defendant
Lancaster Pollard & Co. is an Ohio corporation specializing in providing financial services to
health care providers such as Plaintiff. Id. ¶¶ 3, 5. Defendant Tanya Hahn was a managing
director at Lancaster Pollard. Id. ¶ 4. (Collectively, Lancaster Pollard and Ms. Hahn are referred
to as the “Financial Defendants.”)
Defendant Peck Shaffer & Williams, LLP, is a law firm headquartered in Ohio that
specializes in healthcare financing. Id. ¶ 7. Defendant Jason George was a partner at Peck
Shaffer. Id. ¶ 6. (Collectively, Peck Shaffer and Mr. George are referred to as the “Legal
Defendants.”)
Plaintiff and Financial Defendants move to dismiss the Legal Defendants’ counterclaim
and cross-claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Therefore, the following
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facts from the Legal Defendants’ counterclaim and cross-claim are assumed to be true (certain
allegations from the complaint are also included to provide background; in deciding the pending
motions, no presumption of truth attaches to the complaint’s allegations).
A
In 2001, Plaintiff sought to finance capital improvements and refinance existing debts by
issuing $10 million in bonds. Compl. ¶ 13. The Financial Defendants offered to advise Plaintiff
on the matter and to underwrite the bonds. Id. ¶¶ 13–14. Plaintiff accepted. Id. ¶ 14.
To manage some of the risk associated with the bond issuance, the Financial Defendants
recommended that Plaintiff enter into an interest rate swap agreement with a third-party financial
institution. Id. ¶¶ 15–16. Designed to hedge against the risk of rising interest rates, the swap
agreement would identify two rates: a floating rate and a fixed rate. Id. ¶ 16. The floating rate
would vary with the London Inter-bank Offered Rate (“LIBOR”). Id. The fixed rate (as its
name suggests) was set by the parties at a single, unvarying rate. Id. When the LIBOR fell
below the fixed rate, Plaintiff would be required to make payments to the counterparty to the
swap agreement. Id. When the LIBOR rose above the fixed rate, the counterparty would be
required to make payments to Plaintiff. Id. (Thus, Plaintiff would assume the risk of falling
interest rates, but would be protected from rising interest rates.) Plaintiff agreed to implement
the hedge. Id. ¶ 15.
Accordingly, the Financial Defendants brokered a swap agreement on Plaintiff’s behalf in
October 2001 with Lehman Brothers Special Financing, Inc. (“Lehman Financing”), a wholly
owned subsidiary of Lehman Brothers Holdings, Inc. (“Lehman Holding Co.”). Id. ¶ 17. On
October 25, 2001, Plaintiff and Lehman Financing executed the swap agreement. See ISDA
Master Agreement (“Swap Agreement”), attached as Compl. Ex. A.
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The swap agreement had a seven year term — from November 2001 through November
2008. Id. But, section 5 of the swap agreement provides that a party’s bankruptcy constitutes an
“Event of Default.” Swap Agreement § 5(a)(vii). Section 6 provides that if a party defaults, the
other party may invoke “an Early Termination Date in respect of all outstanding Transactions.”
Id. § 6(a).
Crucially, however, to invoke the early termination provision, notice must be given to the
defaulting party. Id. Section 10 provides the acceptable ways that notice may be transmitted,
specifying: “Any notice or other communication in respect of this Agreement may be given in
any manner set forth below (except that a notice or other communication under Section 5 or 6
may not be given by facsimile transmission or electronic messaging system).” Id. § 10(a).
Section 11 provides the parties’ choice-of-law, explaining that the agreement will be
“governed by and construed in accordance with the law specified in the Schedule,” id. § 11(a),
which selects “the laws of the state of New York, without reference to choice of law doctrine.”
See Swap Agreement Ex. B.
B
Lehman Holding Co. sought Chapter 11 bankruptcy protection on September 15, 2008.
Compl. ¶ 20. Lehman Financing was not a part of that bankruptcy filing (it would file its own
Chapter 11 petition on October 3, 2008).
On September 29, 2008, Mr. George composed an email discussing the potential
consequences of the bankruptcy on parties like Plaintiff. Legal Defs.’ Countercl. ¶ 6, ECF No.
20.
He first noted that Lehman Financing was not a party to the Lehman Holding Co.
bankruptcy proceedings.
Id.
But, he observed, “under most (if not all) swaps that have
[Lehman] Financing as the counterparty, [Lehman Holding Co.] has issued a guaranty on the
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swap payments due from [Lehman] Financing. Under Section 5(a)(vii) of the Agreement, the
filing of bankruptcy by a Credit Support Provider or Specified Entity constitutes an Event of
Default.” Id. Given the default, Mr. George concluded, the swap agreement could be unwound.
Id. Explaining how to do so, he wrote:
[T]he borrower will need to calculate the Settlement Amount — yes, it is the nondefaulting party (the borrower) that establishes this amount. All swaps that I have
reviewed state that the Second Method and Market Quotation is the means to
establish the Settlement Amount. Under Market Quotation, the Settlement
Amount is determined on the basis of quotations from Reference Market Makers.
Under this methodology, the borrower should request bids from 4 leading dealers
in the market on what they would pay to assume Special Financing’s position in
the swap. Then the borrower will review the responses — if 4 responses are
provided, the arithmetic mean of the quotations will be the Settlement Amount —
if only 3 responses are received the middle response will be the Settlement
Amount. If however, fewer than 3 response[s] are received, it is determined that
the Settlement Amount using the Market Quotation method can not be determined
and the Loss methodology should be used. Under the Loss procedures, the
borrower should determine the amount that Special Financing’s total losses will
be from terminating the swap.
Id. Mr. George went on to explain that he had discussed what the potential market for assuming
Lehman Financing’s position in the swap might be with several “swap advisors.” Id. He wrote:
The swap advisors are predicting that the borrower will not get 3 bids. If there are
less than 3 bids, the borrower will use the Loss method and take whatever bid
they did receive. We are also being told that any bids that do come back will
most likely have $0 as the upfront payment — therefore, $0 will be the Settlement
Amount (if by chance you do receive an upfront payment, this payment will be
the Settlement Amount due [Lehman] Financing). The other way to think about
this is that if [Lehman] Financing wanted to sell its position on the swap, there
most likely would not be a market to buy that position, therefore [Lehman]
Financing has not suffered any losses in connection with the termination. The
next question is what happens if there are no responses. At this point, the
borrower has determined that there is not a market for such a swap and the
Settlement Amount would still be $0. The borrowers do need to be careful here
and not enter into another swap for a reasonable time. If they did, [Lehman]
Financing could have an argument that the determination of the Settlement
Amount was not handled properly. There was no consensus of what time period
this should be; however most agreed that 2–3 weeks seemed reasonable or the
occurrence of some dramatic event which would affect the market and cause the
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swap market place to be different than at the time the Settlement Amount was
determined.
Id. (emphasis omitted). Finally, Mr. George noted that if Lehman Financing itself filed for
bankruptcy, a new set of rules would apply: “Section 562 of the Bankruptcy Code will kick in
and the bankruptcy court will determine the termination payment due on the earliest subsequent
date on which there are commercially reasonable determinates — you will not be permitted to
use the Market Quotation or the Loss method.” Id. (emphasis omitted).
On September 30, 2008, Mr. George forwarded his email to Kassem Matt at Lancaster
Pollard. Id. Mr. George did not intend that Mr. Matt share its contents with anyone else. Id. ¶ 7.
That day, Lancaster Pollard contacted Plaintiff regarding Lehman Holding Co.’s Chapter
11 filing. Compl. ¶ 22. To address the issue, the Financial Defendants attached a proposed letter
from Plaintiff to Lehman Financing. Id. ¶ 24. The letter notified Lehman that because of
Lehman Holding Co.’s Chapter 11 filing Plaintiff was withholding future payments due under
the agreement. Id. ¶ 24. The Financial Defendants advised Plaintiff to “sign and fax to Lehman
Brothers as soon as possible regarding putting them on notice of the default and the nonpayment
of your October 1 payment.” Id. ¶ 22 (brackets omitted). Plaintiff did so. Id. ¶ 23.
On October 3, 2008, Lehman Financing filed for Chapter 11 bankruptcy. Legal Defs.’
Countercl. ¶ 10. The Financial Defendants, however, did not inform Plaintiff of Mr. George’s
instruction that if Lehman Financing filed for bankruptcy protection, neither the market
quotation nor the loss method could be used. Id. ¶ 12. Moreover, the documents that the
Financial Defendants provided to Plaintiff used the market quotation and loss method to
calculate the termination payment. Id. ¶ 13.
On October 9, 2008, the Financial Defendants requested that Plaintiff authorize the
termination of the swap agreement. Compl. ¶ 25. Plaintiff did so. Id. The following week,
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Plaintiff received “a second letter to be addressed to Lehman [Finacial] on [Plaintiff’s]
letterhead. . . . [Plaintiff] was instructed to send the communication by facsimile.” Id. ¶ 26.
Again, Plaintiff did so. Id.
On October 16, 2008, Plaintiff “faxed a request for early termination to Lehman
[Financing] at fax number 646-758-2988.” Legal Defs.’ Countercl. ¶ 19. Using the market
quotation and loss method, Plaintiff then determined the swap agreement’s settlement amount to
be $0. Id. ¶¶ 21–22. On October 20, 2008, Plaintiff faxed Lehman Financing a notice of
termination of the swap agreement. Id. ¶ 20. The notice informed Lehman of Plaintiff’s
settlement amount calculations and that the settlement amount was $0. Id.
Plaintiff then paid the Financial Defendants $2,000 invoiced amount for “legal fees.”
Compl. ¶ 95.
D
In November 2008, Plaintiff hired Robert Schwartz, a partner at Butzel Long, to broker a
second bond interest rate swap agreement for Plaintiff. Legal Defs.’ Countercl. ¶ 24. He did so,
and Plaintiff entered into a swap agreement with Charter One. Id. The Legal Defendants had no
involvement with this transaction. Id. ¶ 26.
Several months passed. In May 2009, Lehman Financing sent Plaintiff monthly invoices
for money owed by Plaintiff to Lehman Financing from November 2008 through May 2009. Id.
¶ 35.
In September 2009, Lehman Financing notified Plaintiff that Plaintiff “had not
successfully terminated its swap agreement.” Id. ¶ 38. Plaintiff contacted Mr. Schwartz. Id. ¶
41. (Plaintiff did not contact the Legal Defendants. Id. ¶ 40.) Mr. Schwartz responded:
Lehman most certainly seems to want to renegotiate, at least. They appear to be
taking the position that your termination was not timely, so they have rights to
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renegotiate or enforce the terms of the swap. I wasn’t involved in the termination
of the swap, nor do I know when you terminated it, so I can’t offer much in the
way of advice. Based on the Lehman letter, it appears that there may have been
grounds for terminating at or before the Lehman bankruptcy, so timing could be
important there. However, the terms of the swap control, so whatever the
termination provisions set forth as grounds for termination of the swap, and the
timing of it, are most important. I am not at all familiar with bankruptcy matters,
so I can’t respond to the letter’s representations about what rights Lehman may
have. In this regard, only a bankruptcy lawyer can give the appropriate advice.
On the whole, someone should review the terms of the swap regarding your
termination, and the basis for the termination. Then, compare the conclusions
with the assertions of Lehman. That may or may not lead to the need for an
analysis of the situation under the bankruptcy laws, although, before reaching a
final conclusion you should consider having a bankruptcy lawyer look at
Lehman’s claims in that regard. This is no small matter and ultimately could be
very expensive to you if Lehman is right.
Id. ¶ 42.
E
About this time, the court presiding over the Lehman bankruptcy proceedings entered an
order requiring “those parties who were subject to claims of Lehman to enter into a non-binding
mediation of such disputes prior to adjudicating the merits in the Bankruptcy Court.” Compl. ¶
37. Plaintiff did so. Id. ¶¶ 37–40.
Plaintiff also consulted the Financial Defendants regarding Lehman’s assertions. Id. ¶
32. In October 2009, The Financial Defendants informed Plaintiff “that fax was an appropriate
method of delivery of termination of the Swap Agreement and that [Plaintiff] ‘followed the
language articulated in the swap document for termination.’” Id.
On October 5, 2009, Plaintiff was notified by Lehman Financial that it “had no record of
receipt of the faxed termination notices.” Legal Defs.’ Countercl. ¶ 53. That day, Ms. Hahn
emailed Plaintiff recommending that it “hold tight” to its position.
Id. ¶ 54.
“Another
organization I am working with,” Ms. Hahn wrote, “has hired bankruptcy counsel and their swap
documents are very similar to yours and that attorney still says they have a right to terminate it
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even now since they chose to not pull the trigger last fall. At the end of the day it is your call on
what you want to do, our recommendation is to hold tight and respond with the copies of
documents you sent them last fall to terminate the swap.” Id.
Two months later, Ms. Hahn suggested a change in course — recommending Plaintiff
retain bankruptcy counsel. Legal Defs.’ Countercl. ¶ 62. In an email to Plaintiff on December 8,
2009, Ms. Hahn first explained that the Financial Defendants “still stand by the actions we
recommended you take.” Id. But, she continued, Plaintiff may nevertheless wish to consult a
bankruptcy law expert, explaining:
Given the increasing communication some of our clients are getting from Lehman
about the swaps we terminated, I have secured names and contact information for
two attorneys here in Columbus who are bankruptcy specialists with healthcare
experience who may be able to assist you in further discussion with Lehman if
you so desire. The legal counsel we employed for the swaps are bond counsel not
bankruptcy specialists and we thought it prudent to help our clients have higher
level experts available if the need arises. We still stand by the actions we
recommended you take, I just wanted to provide additional assistance if it comes
to that. The attorneys are: Victoria Powers . . . and Tyson Crist at [Schottenstein
Zox & Dunn].
Id. Plaintiff responded that it was “inclined to check with the attorneys you are suggesting, but
not sure it is really necessary at this point unless they step up the efforts.” Id. ¶63.
Two weeks later, Plaintiff contacted the attorneys that Ms. Hahn had recommended and
discussed the Lehman swap default.
Id. ¶¶ 66–68.
In 2011, Plaintiff executed a formal
engagement letter with Schottenstein Zox & Dunn for that firm to represent Plaintiff with respect
to Lehman’s claims against Plaintiff. Id. ¶ 71.
Sometime later, Plaintiff entered into a settlement agreement (termed a “termination
agreement”) with Lehman “settling all claims of Lehman in exchange for payment.” Compl. ¶
39. This litigation ensued.
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F
In February 2012, Plaintiff filed a seven-count complaint in the Huron County Circuit
Court against the Legal and Financial Defendants.
Defendants were served in March 2012. The following month, Defendants removed the
case to this Court based on diversity of citizenship. ECF No. 1.
On April 12, 2012, the Financial Defendants filed a cross-claim for indemnification
against the Legal Defendants. ECF No. 3. If the Financial Defendants are liable to Plaintiff, the
cross-claim asserts, the Legal Defendants are liable to the Financial Defendants.
The Legal Defendants, in turn, moved to dismiss Plaintiff’s complaint and the Financial
Defendants’ cross-claim. ECF Nos. 5, 6. In July, the Court denied the motion to dismiss the
complaint and denied in part and granted in part the motion to dismiss the complaint. Scheurer
Hosp. v. Lancaster Pollard & Co., 12-11536, 2012 WL 3065347 (E.D. Mich. July 27, 2012).
The Legal Defendants then answered, counterclaimed against Plaintiff, and cross-claimed
against the Financial Defendants. ECF Nos. 21–22.
The counterclaim against Plaintiff has three counts. Each seeks declaratory relief. Count
one seeks a declaration that Plaintiff’s “termination agreement” with Lehman “is unreasonable,
unconscionable and unenforceable.”
Legal Defs.’ Countercl. ¶ 80.
Count two seeks a
declaration that Plaintiff did not have an attorney-client relationship with the Legal Defendants.
And count three seeks a declaration that Plaintiff’s claims against the Legal Defendants are
barred by the statute of limitations.
The Legal Defendants’ cross-claim has two counts. Count one seeks compensatory
damages from the Financial Defendants for violating the Ohio Deceptive Trade Practices Act,
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Ohio Rev. Code § 4165.02. Count two seeks a declaration that the Financial Defendants’ crossclaim against the Legal Defendants is barred by the statute of limitations.
Plaintiff now moves to dismiss the first two counts of the counterclaim pursuant to
Federal Rule of Civil Procedure 12(b)(6) and to redesignate the third count (the statute of
limitations count) as an affirmative defense. ECF Nos. 27. The Financial Defendants move to
dismiss the first count of the cross-claim pursuant to the same rule and to redesignate the second
count (again, a statute of limitations count) as an affirmative defense. ECF No. 23. Each motion
is addressed in turn.
II
To survive a Rule 12(b)(6) motion to dismiss, the pleading “must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility,” the Supreme Court
instructs, “when the [party] pleads factual content that allows the court to draw the reasonable
inference that the [opposing party] is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678
(citing Twombly, 550 U.S. at 555–56). A court must accept all factual content in the pleading as
true, however, a court is “not bound to accept as true a legal conclusion couched as a factual
allegation.” Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)).
“In keeping with these principles a court considering a motion to dismiss can choose to begin by
identifying pleadings that, because they are no more than conclusions, are not entitled to the
assumption of truth. . . . When there are well-pleaded factual allegations, a court should assume
their veracity and then determine whether they plausibly give rise to an entitlement to relief.”
Iqbal, 556 U.S. at 679.
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III
The Legal Defendants’ counterclaim against Plaintiff, as noted, has three counts. Each
seeks declaratory relief.
“In a case of actual controversy within its jurisdiction,” the Declaratory Judgment Act
provides, “any court of the United States, upon the filing of an appropriate pleading, may declare
the rights and other legal relations of any interested party seeking such declaration, whether or
not further relief is or could be sought.” 28 U.S.C. § 2201.
Neither a sword nor a shield, the Declaratory Judgment Act does not create an
independent cause of action, but merely offers another form of relief. Heydon v. MediaOne of
Se.Mich., Inc., 327 F.3d 466, 470 (6th Cir. 2003) (citing Public Serv. Comm’n v. Wycoff Co., 344
U.S. 237, 241 (1952); Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671–72 (1950);
and Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240 (1937)). “Therefore, a court may only
enter a declaratory judgment in favor of a party who has a substantive claim of right to such
relief.” In re Joint E. & S. Dist. Asbestos Litig., 14 F.3d 726, 731 (2d Cir. 1993).
Whether to grant such relief rests within the discretion of the district court. Wilton v.
Seven Falls Co., 515 U.S. 277, 286 (1995). The Supreme Court emphasizes that the Declaratory
Judgment Act vests district courts with “unique and substantial discretion.” Id. at 288. Although
substantial, the district court’s discretion is also circumscribed:
The two principal criteria guiding the policy in favor of rendering declaratory
judgments are (1) when the judgment will serve a useful purpose in clarifying and
settling the legal relations in issue, and (2) when it will terminate and afford relief
from the uncertainty, insecurity, and controversy giving rise to the proceeding. It
follows that when neither of these results can be accomplished, the court should
decline to render the declaration prayed.
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Grand Trunk W. R. Co. v. Consol. Rail Corp., 746 F.2d 323, 326 (6th Cir. 1984) (quoting Edwin
Borchard, Declaratory Judgments 299 (2d ed.1941)).
Extrapolating from these two basic
criteria, the Sixth Circuit instructs that a district court should consider five factors:
(1)
(2)
(3)
(4)
(5)
whether the declaratory action would settle the controversy;
whether the declaratory action would serve a useful purpose in clarifying
the legal relations in issue;
whether the declaratory remedy is being used merely for the purpose of
“procedural fencing” or “to provide an arena for a race for res judicata”;
whether the use of a declaratory action would increase friction between
our federal and state courts and improperly encroach upon state
jurisdiction; and
whether there is an alternative remedy which is better or more effective.
Grand Trunk, 746 F.2d at 326 (formatting supplied) (quoting 6A Moore’s Federal Practice ¶
57.08(2) (1983)).
A
Count one of the Legal Defendants’ counterclaim seeks a declaration that the termination
agreement that Plaintiff and Lehman executed “is unreasonable, unconscionable and
unenforceable.” Legal Defs.’ Countercl. ¶ 80. Specifically, it asserts that the termination
agreement is so because it “provides that [Plaintiff] had no expectation that Lehman would
provide material information relating to Lehman’s claims against [Plaintiff] and that [Plaintiff]
consented to a settlement agreement with Lehman even though Lehman may have knowingly
engaged in material misrepresentations and omissions.” Id. Plaintiff moves to dismiss this count
for three reasons. None are persuasive.
1
First, Plaintiff argues that the count is premature because the Legal Defendants do not
know what the terms of the termination agreement are. Plaintiff writes: “Defendants have
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speculated as to the terms of the termination agreement and the production of the termination
agreement is still a contentious discovery issue between the parties.” Pl.’s Mot. to Dismiss 9.
Plaintiff is not, however, asserting that the Legal Defendants are incorrect about the terms
of the termination agreement. Rather, Plaintiff is asserting that the Legal Defendants are just
guessing about what those terms are. (Put differently, Plaintiff is not saying that the Legal
Defendants are wrong; Plaintiff is saying that the Legal Defendants cannot know that they are
right.) Plaintiff’s argument, however, has been overcome by events.
Plaintiff filed its motion to dismiss the counterclaim on September 7, 2012. At the time,
production of the termination agreement was a contentious discovery issue (it was the subject of
a motion to compel). Since then, however, Plaintiff has agreed to produce a copy of the
termination agreement for the Legal Defendants. On November 9, 2012, this understanding was
memorialized in an order issued by Magistrate Judge Charles Binder. See ECF No 66. And,
although the termination agreement has been produced, Plaintiff has not sought to supplement its
papers to argue that the Legal Defendants are wrong about the terms of the termination
agreement.
Plaintiff’s argument that the count should be dismissed because the Legal
Defendants are simply guessing about the terms of termination agreement is unpersuasive. The
Legal Defendants are not guessing anymore.
2
Next, Plaintiff argues that allegations in the counterclaim regarding whether Lehman
received the faxed notices of termination “are not factually true.” Pl.’s Mot. to Dismiss 9.
Plaintiff elaborates that it “has never been provided any confirmation from an entity involved in
this litigation that Lehman Brothers actually received the faxed termination notices.” Id. (citing
Compl. ¶¶ 23, 30, 31, 38).
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Contrary to Plaintiff’s contention, on a motion to dismiss a counterclaim pursuant to Rule
12(b)(6) a court may not determine whether the counterclaim’s allegations are “factually true.”
Rather, “All the relevant statements of fact contained in the counterclaim must be accepted as
true.” Milton Roy Co. v. Bausch & Lomb Inc., 418 F. Supp. 975, 978 (D. Del. 1976) (citing
Hosp. Bldgs. Co. v. Rex Hosp., 425 U.S. 738 (1976)); see also Carpenter Paper Co. v. Calcasieu
Paper Co., 164 F.2d 653, 656 (5th Cir. 1947).
3
Additionally, Plaintiff argues that even if the Court accepts the allegations in the
counterclaim as true, count one must nevertheless be dismissed because the alleged
misrepresentations by Lehman were not material. Pl.’s Mot. to Dismiss 9–10. Plaintiff explains:
Defendants have plead that Lehman Brothers received notice of the termination
agreement by way of the faxes sent by Scheurer. As stated above, Scheurer has
no reason to believe this to be true and even if true, if Lehman Brothers
misrepresented in settlement negotiations that it did not receive the termination
notice, it is not a material misrepresentation that would render the contract
unenforceable because in some instances New York law requires strict
compliance with the terms of the contract.
Id. at 10.
Thus, Plaintiff tacitly acknowledges that if Lehman had made any material
misrepresentations, the termination agreement would be unenforceable.
Instead, Plaintiff
counters that Lehman did not make any material misrepresentations since “in some instances
New York law requires strict compliance with the terms of the contract.” Id.
Once again, Plaintiff misconstrues the Rule 12(b)(6) standard.
“Like a battlefield
surgeon sorting the hopeful from the hopeless, a motion to dismiss invokes a form of legal triage,
a paring of viable claims from those doomed by law.” Iacampo v. Hasbro, Inc., 929 F. Supp.
562, 567 (D.R.I. 1996). “It is the moving party which has the burden of proving that no claim
exists.” Lebron v. Ashford Presbyterian Cmty. Hosp., 995 F. Supp. 241, 243 (D.P.R. 1998); see
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generally Arthur Miller, From Conley to Twombly to Iqbal: A Double Play on the Federal Rules
of Civil Procedure, 60 Duke L.J. 1, 19–20 (2010) (“[W]hereas Conley accepted complaints
showing the possibility of a right to relief, Twombly requires a pleading to show the plausibility
of a claim; the Court has not demanded that the pleader demonstrate a probability of the claim
prevailing on the merits, however.”).
Plaintiff contends that the count should be dismissed because Plaintiff could win “in
some instances.” Pl.’s Mot. to Dismiss 10. That is, Plaintiff neither asserts that it must win or
that it is implausible that Defendant will win. Thus, Plaintiff does not attempt, much less
demonstrate, that no claim plausibly exists.1 Rather, Plaintiff merely asserts that it is plausible
that Plaintiff could win as well.
This, however, does not establish that count one of the
counterclaim must be dismissed for not stating a claim on which relief may be granted.
4
Finally, as an aside, it should be noted that although Plaintiff does not advance a
persuasive argument on its Rule 12(b)(6) motion, one might well be available on a Rule 56
motion. As a general matter, “The doctrine of unconscionability seeks to prevent sophisticated
parties with grossly unequal bargaining power from taking advantage of less sophisticated
parties.” NML Capital v. Republic of Argentina, 621 F.3d 230, 237 (2d Cir. 2010) (quoting
United States v. Martinez, 151 F.3d 68, 74 (2d Cir. 1998)). Thus, it generally does not apply to
two sophisticated commercial parties, both represented by counsel, negotiating a settlement. See
id.
1
As this Court previously noted, New York law is not altogether uniform on whether actual notice is
sufficient to terminate a contract. Scheurer Hosp., 2012 WL 3065347, at *11 (collecting cases). Plaintiff does not
attempt to distinguish the line of cases holding that strict compliance with the terms of the contract is not required.
E.g., Rockland Exposition, Inc. v. Alliance of Auto. Serv. Providers, 706 F. Supp. 2d 350, 360 (S.D.N.Y. 2009)
(“Under New York law, timely notice that violates the terms of the contract is proper so long as it is actually
received and no prejudice results.”).
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In New York,2 “unconscionability generally requires a showing that the contract was both
procedurally and substantively unconscionable when made — i.e., some showing of an absence
of meaningful choice on the part of one of the parties together with contract terms which are
unreasonably favorable to the other party.” Gillman v. Chase Manhattan Bank, N.A., 534 N.E.2d
824, 828 (N.Y. 1988) (quotation marks omitted) (quoting Williams v. Walker–Thomas Furniture
Co., 350 F.2d 445, 449 (D.C. Cir. 1965)).3
“The procedural element of unconscionability,” the New York Court of Appeals explains,
“requires an examination of the contract formation process and the alleged lack of meaningful
choice.” Gillman, 534 N.E.2d at 828. The court elaborates: “The focus is on such matters as the
size and commercial setting of the transaction, whether deceptive or high-pressured tactics were
employed, the use of fine print in the contract, the experience and education of the party claiming
unconscionability, and whether there was disparity in bargaining power.” Id.
Here, the parties to the termination agreement, Plaintiff and Lehman Financial, have not
asserted that they lacked meaningful choice about whether to enter the agreement. As noted,
moreover, they were both sophisticated parties represented by counsel. See generally NML
Capital, 621 F.3d at 238 (“[The defendant] has pointed to no authority — and we are aware of
none — finding an agreement involving parties of like sophistication unenforceable on
substantive unconscionability grounds.”).
2
Although not expressly identified by the parties, it is likely that the termination agreement — like the
swap agreement — contains a choice-of-law provision selecting New York law. See e.g., Stinger v. Chase Bank
USA, NA, 265 F. App’x 224 (5th Cir.2 008) (applying law of state identified in choice-of-law provision to determine
unconscionability of arbitration provision). If no choice of law provision was included, New York law would
nevertheless apply. See Chrysler Corp. v. Skyline Indus. Servs., Inc., 528 N.W.2d 698, 703 (Mich. 1995) (citing
Restatement (Second) of Contracts §§ 187 and 188 (1971)).
3
Additionally, the New York Court of Appeals observes, “there have been exceptional cases where a
provision of the contract is so outrageous as to warrant holding it unenforceable on the ground of substantive
unconscionability alone.” Gillman, 534 N.E.2d at 829 (collecting cases).
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Under the circumstances, the Legal Defendants will face substantial obstacles in
attempting to establish unconscionability.
But because of the fact-intensive nature of this
inquiry, this is a question better resolved on a summary judgment motion than on a motion to
dismiss for failure to state a claim. Perhaps recognizing this, Plaintiff does not make this
argument in its motion to dismiss. And based on the arguments that it does make, Plaintiff is not
entitled to have count one of the counterclaim dismissed for not stating a claim on which relief
may be granted.
Plaintiff’s motion to dismiss count one of the counterclaim will be denied.
B
Count two of the counterclaim seeks a declaration that Plaintiff did not have an attorneyclient relationship with the Legal Defendants.
Moving to dismiss this count, Plaintiff
acknowledges that this Court found in its previous opinion and order “that [Plaintiff] did not
have an attorney-client relationship with [the Legal] Defendants but that it may proceed under a
third-party beneficiary claim of legal malpractice.” Pl.’s Reply Br. 4; see Scheurer Hosp., 2012
WL 3065347, at *10. But, Plaintiff continues, this Court’s previous opinion moots the issue.
Plaintiff writes: “If this Court declares, duplicatively, that no attorney-client relationship existed
between [Plaintiff] and [the Legal] Defendants, it does not affect [Plaintiff’s] third-party
beneficiary malpractice claim and it does not clarify the legal relations at issue to any detail
beyond what the Court has already determined.” Pl.’s Reply Br. 4.
Plaintiff is correct that one of the factors that a court should consider in evaluating
whether to authorize declaratory relief is “whether the declaratory action would serve a useful
purpose in clarifying the legal relations in issue.” Grand Trunk, 746 F.2d at 326. And Plaintiff
is also correct that this Court has previously found that “an attorney-client relationship existed
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between the Legal Defendants and the Financial Defendants — not between the Legal
Defendants and Plaintiff.” Scheurer Hosp., 2012 WL 3065347, at *9. But what Plaintiff does
not mention is that Plaintiff itself injected the attorney-client issue into the case. Pl.’s Compl. ¶¶
89–102. Count six of the complaint expressly alleges that the Legal Defendants and Plaintiff had
an attorney-client relationship. See id. Given that Plaintiff has not voluntarily dismissed this
count, the Legal Defendants are entitled to seek a declaration that would settle the particular
dispute by clarifying the legal relations at issue. See Grand Trunk, 746 F.2d at 326.
Plaintiff’s motion to dismiss count two of the counterclaim will be denied.
C
Count three of the counterclaim seeks a declaration that Plaintiff’s claims against the
Legal Defendants are barred by the statute of limitations. Plaintiff asserts that the Court should
redesignate this count as an affirmative defense rather than a counterclaim. Plaintiff is correct.
1
The statute of limitations has long been an affirmative defense. See generally Fleming
James, Jr. & Geoffrey Hazard, Civil Procedure 252 (5th ed. 2001) (discussing history of statute
of limitations). The Federal Rules of Civil Procedure codify of the common law rule. “In
responding to a pleading,” Rule 8 specifies, “a party must affirmatively state any avoidance or
affirmative defense, including . . . statute of limitations.” Fed. R. Civ. P. 8(c)(1).
Rule 8 further provides: “If a party mistakenly designates a defense as a counterclaim, or
a counterclaim as a defense, the court must, if justice requires, treat the pleading as though it
were correctly designated, and may impose terms for doing so.” Fed. R. Civ. P. 8(c)(2).
A pragmatic rule, the purpose of Rule 8(c)(2) is to elevate substance over artful pleading.
As Judge Frank Easterbrook puts the point, “The label ‘counterclaim’ has no magic. What is
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really an answer or defense to a suit does not become an independent piece of litigation because
of its label.” Tenneco Inc. v. Saxony Bar & Tube, Inc., 776 F.2d 1375, 1379 (7th Cir. 1985)
(collecting cases); see also Rayman v. Peoples Sav. Corp., 735 F. Supp. 842, 852 (N.D. Ill. 1990)
(disregarding counterclaim because it “simply duplicates arguments made by way of affirmative
defense”).
The distinction between counterclaims and affirmative defenses, James and Hazard
observe, is that the former seeks relief independent of that sought in the complaint while the
latter simply challenges the relief sought in the complaint, cautioning:
[T]he question whether a set of facts is properly a counterclaim or merely a
defense is not always an easy one to answer. When the defendant is asking for an
affirmative award of money damages rather than simply a reduction of plaintiff’s
claim, defendant’s pleading should be regarded as a counterclaim. But many
kinds of relief, though affirmative in form, are in result nothing more than
defenses to plaintiff’s claim.
James & Hazard, supra, at 255 (footnote omitted); see generally 6 Arthur Miller et al., Federal
Practice & Procedure § 1406 (West 2010) (discussing counterclaims and cross-claims for
declaratory judgment).
Here, the Legal Defendants’ plead the statute of limitations as both an affirmative defense
and a counterclaim. The former is properly pleaded; the latter is not. The statute of limitations
challenges the relief sought in the complaint. If successful, it will do nothing more than reduce
Plaintiff’s claim (to nothing). It is an affirmative defense, not an independent cause of action.
Plaintiff’s motion to dismiss count three of the counterclaim will be granted.
2
Complicating — but not altering — this conclusion is the specific type of relief sought by
the Legal Defendants in count three of their counterclaim: declaratory relief.
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Had the Legal Defendants been the party to have initiated the case in this Court (rather
than Plaintiff), for example, declaratory relief on the statute of limitations question may have
been appropriate.
Cf. In re United Ins. Mgmt., Inc., 14 F.3d 1380, 1384 (9th Cir. 1994)
(permitting declaratory judgment action on whether equitable tolling exception to two-year
statute of limitations in § 546(a)(1) of the Bankruptcy Code applied). That, however, is not the
procedural posture of this case.
The Declaratory Judgment Act, as noted, vests district courts with “unique and
substantial discretion in deciding whether to declare the rights of litigants.” Wilton v. Seven
Falls Co., 515 U.S. 277, 286 (1995). Factors to consider include:
(1)
(2)
(3)
(4)
(5)
whether the declaratory action would settle the controversy;
whether the declaratory action would serve a useful purpose in clarifying
the legal relations in issue;
whether the declaratory remedy is being used merely for the purpose of
“procedural fencing” or “to provide an arena for a race for res judicata”;
whether the use of a declaratory action would increase friction between
our federal and state courts and improperly encroach upon state
jurisdiction; and
whether there is an alternative remedy which is better or more effective.
Grand Trunk, 746 F.2d at 326 (formatting supplied) (quoting 6A Moore’s Federal Practice ¶
57.08(2) (1983)).
Here, none of the factors suggest that resolving the statute of limitations question is better
decided on declaratory judgment than as an affirmative defense. First, while a declaratory action
would settle the controversy between Plaintiff and the Legal Defendants, such an action is also
unnecessarily duplicative. The Legal Defendants claim to have a valid statute of limitations
defense to Plaintiff’s claims, which they have raised as an affirmative defense. A separate
declaratory action on the same issue is, of course, redundant. Second, such a redundant action
would not serve a useful purpose in clarifying the legal relations in issue. The alternative
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remedy — moving for judgment as a matter of law on Plaintiff’s claims based on the statute of
limitations defense — is equally effective. Given that the statute of limitations is specifically
identified as an affirmative defense, not an independent action, it is the better practice.
Consequently, the Court declines to authorize the Legal Defendants to seek declaratory
relief on their statute of limitations defense. Therefore, as noted, Plaintiff’s motion to dismiss
count three of the counterclaim will be granted.
D
Finally, the counterclaim’s prayer for relief seeks attorney fees and costs. Moving to
dismiss this claim for relief, Plaintiff writes: “Defendants have provided no statutory,
contractual, or equitable basis for recovery of costs and attorneys’ fees.” Pl.’s Mot. to Dismiss
14. Plaintiff’s argument lacks merit.
Federal Rule of Civil Procedure 54(d)(1) provides that as a general matter “costs — other
than attorney’s fees — should be allowed to the prevailing party.” Here, if the Legal Defendants
prevail on the merits, they will be entitled to costs.
Attorney fees, in contrast, are generally not available to the prevailing party, unless they
are specifically provided for by either statute or contract. See generally Alyeska Pipeline Serv.
Co. v. Wilderness Soc’y, 421 U.S. 240, 247–60 (1975) (discussing historical development of the
“American rule”). Nevertheless, courts retain the inherent authority to “assess attorneys’ fees for
the willful disobedience of a court order as part of the fine to be levied on the defendant, or when
the losing party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons.” Id. at
258–59 (alterations, quotation marks, and citations omitted) (collecting cases). Here, if Plaintiff
misbehaves in any of these ways, the Legal Defendants may be entitled to attorney fees. At this
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early stage in the litigation, it is premature to categorically bar the Legal Defendants from
recovering attorney fees.
Plaintiff’s motion to dismiss the Legal Defendants’ claim for attorney fees will be denied.
IV
The Legal Defendants’ cross-claim against the Financial Defendants has two counts.
Count one alleges that the Financial Defendants violated the Ohio Deceptive Trade Practices
Act, Ohio Rev. Code § 4165.02. Count two seeks a declaration that the Financial Defendants’
cross-claim against the Legal Defendants is barred by the statute of limitations.
A
Count one of the Legal Defendants’ cross-claim alleges that the Financial Defendants
made several misrepresentations, violating section 4165.02 of the Ohio Revised Code.4 First, the
Financial Defendants misrepresented “to [Plaintiff] that [the Financial Defendants] were
receiving legal services from [the Legal] Defendants related to the creation of, interpretation of,
and/or termination of the Swap Agreement.” Legal Defs.’ Cross-cl. ¶ 86. Second, the Financial
Defendants misrepresented “to [Plaintiff] that the method to calculate the termination value of
[Plaintiff’s] Swap Agreement with Lehman was devised by [the Legal Defendants].” Id. ¶ 93.
And finally, the Financial Defendants misrepresented to Plaintiff that they “had incurred legal
4
In pertinent part, § 4165.02 provides:
(A) A person engages in a deceptive trade practice when, in the course of the person’s business, vocation,
or occupation, the person does any of the following:
(1) Passes off goods or services as those of another;
(2) Causes likelihood of confusion or misunderstanding as to the source, sponsorship, approval, or
certification of goods or services;
(3) Causes likelihood of confusion or misunderstanding as to affiliation, connection, or association
with, or certification by, another.
Ohio Rev. Code § 4165.02(A)(1)–(3).
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fees from [the Legal] Defendants related to the termination of [Plaintiff’s] Swap Agreement.”
Id. ¶ 90. These misrepresentations, the Legal Defendants assert, “have caused damages to
Defendants in that Defendants have incurred legal fees and related expenses as a result of
defending this lawsuit.” Id. ¶ 102.
The Financial Defendants move to dismiss the Legal Defendants’ Deceptive Trade
Practices Act claim on two grounds. First, the Ohio state law “has no application to conduct
occurring within the State of Michigan.” And second, the act does not “permit one defendant to
recover its defense costs from another defendant.” Each argument is addressed in turn.
1
A federal court sitting in diversity applies the choice-of-law rules of the state in which the
court sits. Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 497 (1941). Here, that state is
Michigan.
To decide choice-of-law issues, Michigan applies the lex fori rule. Burney v. PV Holding
Corp., 553 N.W.2d 657, 659 (Mich. Ct. App. 1996). This rule provides that “the law of the
forum state (lex fori) should apply unless there is a ‘rational reason’ to displace it.” Id.; see also
Mahne v. Ford Motor Co., 900 F.2d 83, 86 (6th Cir. 1990) (noting that Michigan now applies lex
fori rule); see generally Eugene Scoles et al., Conflict of Laws § 17.12 (hornbook ed. 2004)
(discussing lex fori rule).
“In determining whether a rational reason to displace Michigan law exists,” the Michigan
Supreme Court explains, “we undertake a two-step analysis. First, we must determine if any
foreign state has an interest in having its law applied. If no state has such an interest, the
presumption that Michigan law will apply cannot be overcome. If a foreign state does have an
interest in having its law applied, we must then determine if Michigan’s interests mandate that
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Michigan law be applied, despite the foreign interests.” Sutherland v. Kennington Truck Serv.,
Ltd, 562 N.W.2d 466 (Mich. 1997) (citing Olmstead v. Anderson, 400 N.W.2d 292 (Mich.
1987)). Although this analysis “most frequently favors the forum (Michigan’s) law, Michigan
courts nonetheless use another state’s law where the other state has a significant interest and
Michigan has only a minimal interest in the matter.” Hall v. Gen. Motors, Corp., 582 N.W.2d
866, 868 (Mich. Ct. App. 1998). This is such a case.
Both the alleged violators of the Deceptive Trade Practices Act (the Financial
Defendants) and the alleged victims (the Legal Defendants) are domiciled in Ohio. Lancaster
Pollard is an Ohio corporation with its principal place of business in that state. Ms. Hahn works
in Lancaster Pollard’s Ohio office. Peck Shaffer is a law firm based in Ohio. And Mr. George is
an attorney licensed to practice in Ohio.
Not only are the relevant parties each citizens of Ohio, the relevant conduct centers on
Ohio as well. The alleged tortious conduct — the Financial Defendants’ misrepresentations —
originated in Ohio. And, though the misrepresentations travelled to Michigan, this was but a
waystop on their way back to Ohio, where their impact was felt by the Legal Defendants.
Under the circumstances, Ohio has a significant interest in having its law applied.
Michigan, in contrast, has only a minimal interest in whether one set of Ohio residents (the Legal
Defendants) may bring a claim against another set of Ohio residents (the Financial Defendants)
for misrepresentations that began and ended in Ohio. The Financial Defendants’ contention that
the Ohio Deceptive Trade Practices Act does not apply lacks merit.
2
The Ohio Deceptive Trade Practices Act provides two distinct routes to court. Ohio Rev.
Code § 4165.03(A)–(B). The first, which provides injunctive relief to those “likely to be
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damaged,” is available regardless of whether the person has proof of “monetary damage.” §
4165.03(A)(1). The second, which provides monetary compensation to those who have been
“injured,” requires proof of “actual damages.” § 4165.03(A)(1). Once in court under either
route, the court “may” award attorney fees to the prevailing party. § 4165.03(B). In pertinent
part, the act provides:
(A)(1) A person who is likely to be damaged by a person who commits a
deceptive trade practice that is listed in division (A) of section 4165.02 of
the Revised Code may commence a civil action for injunctive relief
against the other person, and the court of common pleas involved in that
action may grant injunctive relief based on the principles of equity and on
the terms that the court considers reasonable. Proof of monetary damage
or loss of profits is not required in a civil action commenced under
division (A)(1) of this section.
(2) A person who is injured by a person who commits a deceptive trade
practice that is listed in division (A) of section 4165.02 of the Revised
Code may commence a civil action to recover actual damages from the
person who commits the deceptive trade practice.
(B)
The court may award in accordance with this division reasonable
attorney’s fees to the prevailing party in either type of civil action
authorized by division (A) of this section.
Id. § 4165.03(A)–(B). Subsections (A)(1) and (2) thus provide two different paths to court. And
once the court sees the matter through to conclusion, it “may” award attorney fees to the
prevailing party. The “may,” however, indicates discretion. Under section 4165.03(B), “the
allowance of attorney fees is discretionary — not mandatory.” Cesare v. Work, 520 N.E.2d 586,
591 (Ohio Ct. App. 1987) (citing Lozier v. Kline, 319 N.E.2d 204, 209 (Ohio Ct. App. 1973)).
Here, the Legal Defendants’ claim relies on subsection (a)(2) — they seek money
damages, not an injunction. See Legal Defs.’ Cross-cl. ¶ 102. But the only injury that they
allege is the “legal fees and related expenses as a result of defending this lawsuit.” Id. Based on
the plain language of section 4165.03, this is not a route into court, but a discretionary form of
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relief that may be awarded only after one party has prevailed in court. Because the Legal
Defendants seek neither an injunction nor damages for an injury, they have not stated a claim
under Ohio Deceptive Trade Practices Act.
Arguing against this conclusion, the Legal Defendants cite a number of Ohio cases
holding that attorney fees may be recovered as compensatory damages when the fees were
incurred in third-party litigation. The Legal Defendants’ argument lacks merit.
“Where the wrongful act of the defendant has involved the plaintiff in litigation with
others,” the Ohio Court of Appeals observes, “such costs and expenses, including attorneys’ fees,
should be treated as the legal consequences of the original wrongful act and may be recovered as
damages.” S & D Mech. Contractors, Inc. v. Enting Water Conditioning Sys., Inc., 593 N.E.2d
354, 363 (Ohio Ct. App. 1991) (quoting V.N. Holderman & Sons. Co. v. Jackson, 73 O.O.2d
148, 150. (Ohio Ct. Cl.1975)), quoted in Legal Defs.’ Resp. Br. 12.
The key, however, is the “litigation with others.” In S & D Mechanical Contractors, for
example, the court emphasized that in Ohio “legal fees incurred in the third-party litigation . . .
are thus recoverable as compensatory damages.” 593 N.E.2d at 363; see also Ironhead Marine,
Inc. v. Donald C. Hannah Corp., 3:10 CV 82, 2012 WL 1202297, at *6 (N.D. Ohio Apr. 10,
2012) (noting that all of the cases relied on by the plaintiff “involves suits with third-parties”).
Here, the only injury that the Legal Defendants’ allege in their cross-claim is the “legal
fees and related expenses as a result of defending this lawsuit.” Legal Defs.’ Cross-cl. ¶ 102.
The cross-claim does not allege damages caused by “litigation with others.” Consequently, the
Legal Defendants have not stated a claim under Ohio Deceptive Trade Practices Act.
Against this conclusion, the Legal Defendants make one further argument, writing: “[The
Financial Defendants’] deceptive trade practices have resulted in a number of entities, including
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(but not limited to) [Plaintiff], suing [the Legal Defendants], even though [the Legal Defendants]
did nothing wrong.” Legal Defs.’ Resp. Br. 12.
Contrary to the Legal Defendants’ argument, however, their cross-claim does not seek to
recover damages for the attorney fees incurred in third-party litigation. Rather, as noted, the only
injury that the Legal Defendants’ allege in their cross-claim is the “legal fees and related
expenses as a result of defending this lawsuit.”
Legal Defs.’ Cross-cl. ¶ 102 (emphasis
supplied). This is not to suggest that the Legal Defendants cannot state a claim under Ohio
Deceptive Trade Practices Act, only that their cross-claim does not do so at present. See
generally Fed. R. Civ. P. 13(g).
Count one of the Legal Defendants’ cross-claim will be dismissed.
B
Count two of the Legal Defendants’ cross-claim seeks a declaration that the Financial
Defendants’ claims against the Legal Defendants are barred by the statute of limitations. As they
did in answering Plaintiff’s complaint, moreover, in responding to the Financial Defendants’
cross-claim the Legal Defendants also raise the statute of limitations as an affirmative defense.
The Financial Defendants move to re-designate the count as an affirmative defense. For
the same reasons discussed above, this affirmative defense will be re-designated as such.
V
Accordingly, it is ORDERED that Plaintiff’s motion to dismiss (ECF No. 27) is
GRANTED IN PART AND DENIED IN PART.
It is further ORDERED that Plaintiff’s motion to dismiss counts one and two of the
Legal Defendants’ counterclaim, is DENIED.
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It is further ORDERED that Plaintiff’s motion to dismiss count three of the Legal
Defendants’ counterclaim and redesignate it as an affirmative defense is GRANTED.
It is further ORDERED that Plaintiff’s motion to dismiss the Legal Defendants’ request
for attorney fees is DENIED without prejudice.
It is further ORDERED that the Financial Defendants’ motion to dismiss cross-claim
(ECF No. 23) is GRANTED.
Dated: January 16, 2013
s/Thomas L. Ludington
THOMAS L. LUDINGTON
United States District Judge
PROOF OF SERVICE
The undersigned certifies that a copy of the foregoing order was served
upon each attorney or party of record herein by electronic means or first
class U.S. mail on January 16, 2013.
s/Tracy A. Jacobs
TRACY A. JACOBS
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