McGirr et al v. Rehme et al

Filing 92

ORDER GRANTING 60 Motion for Leave to Amend the Complaint; DENYING without prejudice 13 Motion to Dismiss; DENYING without prejudice 14 Motion to Dismiss; DENYING as moot 27 Motion for Protective Order; DENYING as moot 43 Motion in Limine and DENYING as moot 52 Motion for TRO. Signed by Judge Robert H. Cleland on 12/20/2016. (lgw)

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION

CONNIE MCGIRR, et al.,
Plaintiffs,
v.

Case No. 16-464

THOMAS F. REHME, et al.,
Defendants.
/
ORDER GRANTING LEAVE TO AMEND COMPLAINT, DENYING WITHOUT
PREJUDICE DEFENDANTS’ MOTIONS TO DISMISS, AND DENYING AS MOOT
DEFENDANTS’ MOTION IN LIMINE, DEFENDANTS’ MOTION FOR PROTECTIVE
ORDER, AND PLAINTIFFS’ MOTION FOR TEMPORARY RESTRAINING ORDER
Pending before the court is Plaintiffs’ “Motion for Leave to File Their First
Amended Complaint.” (Dkt. #60) Defendants have filed responses to the motion (Dkts.
##66, 67), and Plaintiffs have filed a reply, (Dkt. #69). After reviewing the briefs, the
court determines that a hearing is unnecessary. Also pending before the court are
several motions, the disposition of which have either been mooted by prior
determinations or are substantially affected by this court’s ruling on the motion for leave
to amend. (Dkts. ##13, 14, 27, 43, 52). For the following reasons, the court will grant
Plaintiffs’ motion for leave to file an amended complaint and deny the other motions.
I. BACKGROUND
Plaintiffs are 20 holders of a judgment entered by a Kentucky court against
Defendant Stanley M. Chesley, all residing in either Kentucky, Virginia, or Nevada. They
allege that Chesley, an Ohio state resident, embarked on a campaign to hide assets
from claimants through the execution of a 2013 Wind Up Agreement, which transferred

all of Chesley’s shares in an Ohio law firm in which he was the sole shareholder, Waite,
Schneider, Bayless, & Chesley Co., LPA (“WSBC”), to Defendant Thomas Rehme, who
is the secretary of WSBC and an Ohio resident. This agreement was executed one year
prior to the entry of the Kentucky judgment, but Plaintiffs allege that a Kentucky court
found that Chesley continued to use his influence over the firm to direct income derived
from his transferred interest in such a way as to render him judgment-proof while still
inuring to his general benefit. Plaintiffs brought claims for fraudulent transfer in this court
seeking injunctive relief placing limitations on Defendants’ discretion over future
transfers.
Defendants filed motions to dismiss, (Dkts. ##13, 14), alleging that, pursuant to
Federal Rule 19, Plaintiffs had failed to join as necessary parties the 362 other
Kentucky judgment creditors. Some of these creditors are residents of Ohio, the joinder
of whom would destroy the requirement of complete diversity and render this court
without subject matter jurisdiction to hear the entire action. Defendants also urge the
court to abstain from hearing the action, because it involves questions of state law. The
court scheduled hearings on these motions as well as a motion for preliminary
injunction, which led to the filing of competing motions for a protective order, (Dkts.
##27, 33), and a motion in limine, (Dkt. #43.) The court issued a protective order, (Dkt.
#46), but did not rule on the motion in limine. Plaintiffs also filed a motion for an order
expanding a temporary restraining order to prevent Defendants from transferring funds.
(Dkt. #52.) Since then the court has issued an order to that effect and extended it twice.
(Dkts. ##75, 78, 83.)

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Following the conclusion of hearings on July 26, 2016, Plaintiffs filed a motion for
leave to file an amended complaint. (Dkt. #60.) The proposed amended complaint
would add 104 plaintiffs residing outside of Ohio whose claims exceed $75,000 and 249
plaintiffs residing outside of Ohio whose claims do not. As to the latter group, Plaintiffs
urge the court to exercise supplemental jurisdiction under 28 U.S.C. § 1367. The
proposed amended complaint also adds a civil conspiracy claim and asks the court to
disregard the Wind-up Agreement as a sham transaction.
Defendants oppose Plaintiffs’ request for leave to file an amended complaint on
the basis of futility, reiterating arguments within their motions to dismiss that the
omission of 8 Kentucky judgment creditors residing in Ohio should not be permitted as
they are necessary parties. Defendants also claim that the new counts Plaintiffs seek to
add are not recognized under Ohio law. They argue further that the amendments will be
prejudicial, as Defendants had thus far only planned to defend against 20 claimants, not
several hundred. Defendants also claim that the amendments will raise abstention
concerns beyond those outlined in their motions to dismiss because it will require the
court to rule on unsettled questions of state law.
II. STANDARD
Federal Rule of Civil Procedure 15(a) states that leave to amend a complaint
“shall be freely given when justice so requires.” Fed. R. Civ. P. 15(a)(2). Though the
decision of whether to permit an amendment is within the discretion of the trial court,
such discretion is “limited by Fed. R. Civ. P. 15(a)’s liberal policy of permitting
amendments to ensure the determination of claims on their merits.” Marks v. Shell Oil
Co., 830 F.2d 68, 69 (6th Cir. 1987) (citation omitted). Factors to consider are “[u]ndue
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delay in filing, lack of notice to the opposing party, bad faith by the moving party,
repeated failure to cure deficiencies by previous amendments, undue prejudice to the
opposing party, and futility of amendment.” Hageman v. Signal L.P. Gas, Inc., 486 F.2d
479, 484 (6th Cir. 1973) (citation omitted). “Delay by itself is not a sufficient reason to
deny a motion to amend.” Id. “A proposed amendment is futile if the amendment could
not withstand a Rule 12(b)(6) motion to dismiss.” Rose v. Hartford Underwriters Ins.
Co., 203 F.3d 417, 420 (6th Cir. 2000).
III. DISCUSSION
The court finds no record of undue delay. The initial complaint was filed only four
months prior to the motion seeking leave to amend. The issues raised in Defendants’
motions to dismiss were discussed at the hearing in July, and Plaintiffs moved for leave
to amend shortly thereafter. Nor does the court find lack of notice to the opposing party,
since the proposed amendments were made in response to Defendants’ motions to
dismiss. Similarly absent is any indication of bad faith on Plaintiffs’ part. This is also the
first time that Plaintiffs have sought leave to amend.
Defendants claim that they will be unduly prejudiced. They contend that they
have already spent considerable resources defending the case, but they give the court
no cause to view this expenditure as unduly prejudicial. The legal and factual issues are
not significantly changed or multiplied. Plaintiffs are all claimants seeking to collect on a
single, common judgment. Discovery has not even commenced. Moreover, Federal
Rule 15 specifically contemplates that parties would amend pleadings in response to a
Rule 12 motion. Fed. R. Civ. P. 15(a). That the amendment was sought following
expenditures in the production of a motion to dismiss can hardly be considered “undue
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prejudice.” The only remaining questions are futility of amendment and whether the
court should exercise supplemental jurisdiction over the plaintiffs whose claims do not
meet the jurisdictional threshold.
A. Futility of Amendment
The first argument advanced by Chesley is that the proposed amended
complaint is internally inconsistent because it alleges both fraudulent transfer claims,
which require a distinct transferor and transferee, and also corporate veil piercing
claims, which are premised upon the view that the nominally separate parties were
actually a single unitary entity. First, it is not at all clear that it is inconsistent to allege
that two nominally distinct parties engaged in a fraudulent transfer while also being
functionally one entity. Even accepting the claim that these theories are inconsistent, it
does not render the proposed amendments futile. It is well-established that “[a] party
may state as many separate claims or defenses as it has, regardless of consistency.”
Fed. R. Civ. P. 8(d)(3). Therefore, the court will not deem Plaintiffs’ proposed
amendments to be futile on this basis.
Also unavailing is Chesley’s contention that the amendments are futile because
their inclusion implicates questions of state law and thus would make abstention more
appropriate. It is not uncommon for federal courts to interpret state law, and Defendants
have not sufficiently detailed the applicability of the various abstention doctrines to
convince the court that the proposed amendments are futile. Nor is the court moved by
Chesley’s claim that the amendments are futile because a separate, related action that
Chesley brought in state court was then removed to federal court and again remanded
to state court on the basis that other creditors were necessary parties. This is a
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separate action alleging different claims brought by different Plaintiffs, who have chosen
the federal forum.
1. Federal Rule 19
Defendants’ central argument is echoed from their motions to dismiss;
specifically that the approximately eight Ohio judgment creditors excluded from the
proposed amended complaint are necessary and indispensible parties who must be
joined under Federal Rule 19, but their inclusion would defeat the court’s subject matter
jurisdiction by destroying complete diversity. That their joinder would defeat the court’s
subject matter jurisdiction is uncontested. However, it is apparent that, even if
necessary, these parties are not indispensible.
To resolve the question of joinder under Rule 19 courts employ a three-step
process: 1) the court must first determine whether the absent person is necessary to the
action and should be joined if possible; 2) if necessary, the court considers whether
joinder is feasible, or whether joinder would destroy subject matter jurisdiction; 3) and
lastly, if joinder is not possible, the court must weigh the equities pursuant to Rule 19(b)
and determine if, in equity and good conscience, the suit can continue in the necessary
party’s absence or if the case should be dismissed because the party is indispensable.
See Fed. R. Civ. P. 19; Am. Express Travel Related Servs., Co., Inc. v. Bank OneDearborn, N.A., 195 F. App’x 458, 460 (6th Cir. 2006).
Rule 19(a)(1) dictates that a party is necessary when either 1) “in that person’s
absence, the court cannot accord complete relief among the existing parties,” Fed. R.
Civ. P. 19(a)(1)(A); or 2) “that person claims an interest relating to the subject of the
action and is so situated that disposing of the action in the person’s absence may”
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either a) “as a practical matter impair or impeded the person’s ability to protect the
interest,” or b) “leave an existing party subject to substantial risk of incurring double,
multiple, or otherwise inconsistent obligations because of the interest,” Fed. R. Civ. P.
19(a)(1)(B).
Focusing on the second alternative prong of Rule 19, to deem the absent parties
necessary, the court must first determine whether they have an “interest” in this ligation.
The claims of the Ohio creditors arise from the same settlement and judgment and
Plaintiffs have sought, as relief in this action, the transfer of all the shares of WSBC and
all funds transferred from WSBC to Chesley since June 23, 2015. These shares and
transferred funds are the same that the absent parties would presumably make a claim
upon if they brought a similar action. Thus, the court finds that the absent parties have
an interest in the subject of the litigation.
Next the court must consider whether the absent parties are so situated that
adjudicating the action in their absence would either 1) as a practical matter impair or
impede their ability to protect the interest or 2) would make an existing party subject to
substantial risk of incurring double, multiple, or otherwise inconsistent obligations
because of the interest. See Fed. R. Civ. P. 19(a)(1)(B). As to the first, it is easy to
imagine how adjudicating this matter might practically impair or impede the absent
parties’ ability to recover from Chesley: if the claims of the hundreds of new Plaintiffs
exhaust the pool of funds or law firm shares which have been fraudulently transferred,
(and are thus subject to forfeiture) then the absent parties will have nothing to collect
upon in their subsequent action.

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Courts often hold that where the claims of a party and an absent party are to a
common fund or asset and those claims compete or conflict, then joinder is required.
Wach v. Byrne, Goldberg & Hamilton, PLLC, 910 F. Supp. 2d 162, 169 (D.D.C. 2012).
Because the assets at issue here likely will not cover the claims of all the potential
judgment creditors, equity would likely dictate that the funds be apportioned on a pro
rata basis proportional to each judgment-creditor’s claim. Additionally, if the absent
parties are not joined, Defendants might be left “subject to substantial risk of incurring
double, multiple, or otherwise inconsistent obligations” regarding the shares of WSBC
and other funds at issue here. See Fed. R. Civ. P. 19(a)(1)(B)(ii). As Plaintiffs seem to
concede in their briefing, nothing will prevent the absent parties from asserting claims to
the WSBC shares at issue here, and should they prevail, Defendants may well be faced
with competing court orders commanding the transfer of those shares to Plaintiffs in this
action and successful parties in other actions. For these reasons, the court concludes
that the Ohio judgment creditors are necessary parties.
The parties do not dispute that joinder of the absent judgment creditors would
destroy diversity jurisdiction, and thus joining them is not feasible under Rule 19. See
Fed. R. Civ. P. 19(a)(1); Glancy v. Taubman Ctrs., Inc., 373 F.3d 656, 666 (6th Cir.
2004) (joinder is not feasible if it would destroy diversity jurisdiction). So, having
concluded that the absent parties are necessary because of their competing claims to
the assets at issue in this case, and joinder is not feasible, the court now turns to the
third step in the analysis and considers the factors enumerated in Rule 19(b).
Rule 19(b) guides courts in their consideration of whether an action can continue,
“in equity and good conscience,” without the absent parties or whether it must be
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dismissed because they are indispensable. Glancy, 373 F.3d at 672. “Courts are to
consider at least four factors in assessing whether the action should be dismissed,
including (but not limited to),” Id.
(1) the extent to which a judgment rendered in the person’s
absence might prejudice that person or the existing parties;
(2) the extent to which any prejudice could be lessened or avoided
by:
(A) protective provisions in the judgment;
(B) shaping the relief; or
(C) other measures;
(3) whether the judgment rendered in the person’s absence would
be adequate; and
(4) whether the plaintiff would have an adequate remedy if the
action were dismissed for nonjoinder
Fed. R. Civ. P. 19(b).
As explained above, judgment rendered without the absent parties could
prejudice both the absent parties and Defendants. Fed. R. Civ. P. 19(b)(1). The absent
parties may be prejudiced because their recovery in a later case might be drastically
limited once Plaintiffs in this case deplete the limited fund of assets that have been
fraudulently transferred. Additionally, Defendants will be prejudiced by the risk of
multiple and conflicting orders because these Plaintiffs seek the transfer of assets (the
WSBC shares) that could also be the subject of litigation by other plaintiffs in other
courts asserting the same fraudulent transfer claims.
Despite this prejudice, the court will be able to fashion a remedy which will allow
it to be lessened or avoided. The issue of exactly how to fashion such a remedy is not
ripe for adjudication, but at this stage it is sufficient to say that it can be done. For
example, the court could require that some small portion of the judgments paid out to
Plaintiffs be set aside in escrow in the event that the Ohio claimants succeed on future
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claims, or otherwise to be paid back out to Plaintiffs pro rata on a date determined by
applicable statutes of limitations. The Ohio creditors would have their interests
preserved at relatively small, temporary cost to the larger body of Plaintiffs, whose
recovery would have, at best been limited by the resources of Defendants and split
among claimants in any case. This would also prevent Defendants from being subject to
conflicting orders.
The question of “adequacy” has been read to address the public interest in
judicial efficiency and the desirability of resolving disputes as a whole when possible.
See Fed. R. Civ. P. 19(b)(3); Republic of Philippines v. Pimentel, 553 U.S. 851, 870-871
(2008). Here, it would be more efficient, and prevent the filling of multiple parallel or
related actions in various federal and state courts to allow Plaintiffs to amend their
complaint to include the vast majority of the judgment creditors under a single action.
The final factor, whether the plaintiff would have an adequate remedy if the
action were dismissed for nonjoinder, at most slightly favors dismissal. See Fed. R. Civ.
P. 19(b)(4). This case could be litigated in a state court, but, as discussed at the
hearing, Plaintiffs have already struggled with domesticating their judgment in state
court.
In sum, the balance of the factors favors a determination that, although they are
necessary parties, the Ohio judgment creditors are not indispensible. Their omission
does not require dismissal. Thus, the addition of the new Plaintiffs to the amended
complaint is not futile under Federal Rule 19.

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2. Validity of Claims
Defendants argue that Plaintiffs lack standing to assert their fraudulent transfer
claims against WSBC because they are not parties to the Kentucky judgment. This is
irrelevant. WSBC does not have to be a party to the Kentucky judgment for Plaintiffs to
sue to set aside an allegedly fraudulent transfer of assets. Defendants’ citation to Fade
v. Morris actually supports this very point, where the court found that a judgment
creditor did have standing to challenge transfer of property from the judgment debtor to
a transferee, and the transferee was also named as a defendant. No. 2015-A-0009,
2015 WL 9303117, 2015-Ohio-5337 (Ohio Ct. App. Dec. 21, 2015). Here it is
undisputed that Chesley is a debtor to the proposed Plaintiffs, and Plaintiffs seek to set
aside allegedly fraudulent transfers to the other Defendants. The standing analysis does
not render Plaintiffs’ proposed amendments futile.
Defendants claim that Plaintiffs’ proposed addition of alter ego claims are not
supported by Ohio law, which does not endorse the doctrine of reverse-veil piercing.
“[The Sixth Circuit] has explained, however, that veil piercing and alter ego concepts are
distinct.” In re Fisher, 296 F. App'x 494, 506 (6th Cir. 2008) (explaining that Ohio
recognizes alter ego claims but not reverse-veil piercing). Under the well-known maxim
that “the plaintiff is the master of his complaint,” courts refuse to reinterpret or add
claims to the complaint to reach a result. See, e.g., Bantom v. DTE Energy Co., 826 F.
Supp. 2d 1069, 1071 (E.D. Mich. 2011) (Plaintiff pleading only state law claims avoided
federal question jurisdiction even though federal claims were available to it). Here as
well the court will not interpret Plaintiffs’ valid claims as disfavored or moribund ones to
force a finding of futility. Defendants argue further that the addition of the civil
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conspiracy charges are also futile because Ohio does not recognize aiding-and-abetting
claims except under limited circumstances. This is another false equivalency. As
Plaintiffs point out, a case cited by Defendants concluded that the same plaintiffs were
able to proceed on civil conspiracy claims but not able to proceed on the aiding-andabetting charge. Grubbs v. Sheakley Grp., Inc., No. 13-246, 2014 WL 202041, at *12
(S.D. Ohio Jan. 17, 2014), report and recommendation adopted, No. 13-246, 2014 WL
934535 (S.D. Ohio Mar. 10, 2014).
Defendants challenge that Plaintiffs have failed to meet the heightened pleading
standard for fraud claims under Federal Rule of Civil Procedure 9(b), and thus as pled,
their fraud claims are futile. “To plead fraud with particularity, the plaintiff must allege (1)
the time, place, and content of the alleged misrepresentation, (2) the fraudulent
scheme, (3) the defendant's fraudulent intent, and (4) the resulting injury.” Chesbrough
v. VPA, P.C., 655 F.3d 461, 467 (6th Cir. 2011) (quotations omitted). The fraudulent
scheme, fraudulent intent, and resulting injury is apparent from the proposed amended
complaint. Plaintiffs contend that Defendants sought to use sham transactions to
prevent collection on Chesley’s debts, which injured Plaintiffs by preventing them from
being able to enforce any judgment. As to the time, place, and content of the
misrepresentations, the proposed amended complaint describes an allegedly fraudulent
Wind-Up Agreement as well as various transfers allegedly in support of the fraudulent
scheme with a fair degree of specificity. Plaintiffs’ proposed amended complaint is not
futile for failure to comply with the pleading standard of Federal Rule 9(b).

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B. Supplemental Jurisdiction
Defendants contend that the court should deny leave to amend the complaint to
add any additional Plaintiffs whose claims do not meet the jurisdictional threshold. It is
undisputed that at least some of the Plaintiffs’ claims satisfy the jurisdictional minimum.
Therefore the remaining question is whether the claims are all part of the same case or
controversy:
When the well-pleaded complaint in district court includes multiple claims,
all part of the same case or controversy, and some, but not all, of the
claims are within the court's original jurisdiction, does the court have
before it any civil action of which the district courts have original
jurisdiction? It does.
Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 566 (2005) (quotations
omitted). Defendants argue that the judgment creditors like owners of separate homes
damaged by a common disaster, all with separate claims under separate policies, and
less like members of a common class. See London v. Allstate Ins. Co., No. 07-8653,
2008 WL 186483, at *2 (E.D. La. Jan. 17, 2008). The instant case is not like the facts in
London, because the claimants here are creditors under a single judgment. The only
pertinent fact separating them is the amount of damages that they allege. There, the
only thing uniting the various claims was a common disaster. The claims of the
proposed additional Plaintiffs certainly are part of the same case or controversy as the
Plaintiffs who have met the jurisdictional threshold.
Additionally, these are not “exceptional circumstances” which provide “compelling
reasons for declining jurisdiction.” See Baskin v. Bath Twp. Bd. of Zoning Appeals, Nos.
95-3042/95-3881, 1996 U.S. App. LEXIS 30686, at *21 (6th Cir. Nov. 21, 1996)
(affirming refusal to exercise supplemental jurisdiction over state claims where doing so
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would require the federal court to review the decision of a local zoning board). The legal
issues are not meaningfully complicated by the addition of the new Plaintiffs. Therefore,
the court will exercise supplemental jurisdiction over the additional Plaintiffs and permit
the proposed amendments to the complaint.
C. Miscellaneous Outstanding Motions
Though the court has not directly discussed the merits of Defendants’ motions to
dismiss, many of the same arguments were advanced within those briefs as those
contained in the responses to Plaintiffs’ motion for leave to amend the complaint. The
court will not opine on the extent to which the amendments defeat Defendants’
argument in the event that they wish to present them anew before the court. However,
for now the court will deny their motions to dismiss without prejudice to their right to
bring renewed motions tailored to the amended complaint.
As discussed above, several other pending motions have been mooted through
developments in the course of this litigation. As such, the court will deny them to the
extent that they conflict with any other ruling of this court.
Accordingly,
IT IS ORDERED that pursuant to Federal Rule of Civil Procedure 15, Plaintiffs’
Motion for Leave to File Their First Amended Complaint (Dkt. #60) is GRANTED.
IT IS FURTHER ORDERED that Defendants’ Motions to Dismiss (Dkts. ##13,
14) are DENIED without prejudice.
IT IS FURTHER ORDERED that Defendant Chesley’s Motion for Protective
Order (Dkt. #27) is DENIED as moot.

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IT IS FURTHER ORDERED that Defendants’ Motion in Limine (Dkt. #43) is
DENIED as moot.
IT IS FURTHER ORDERED that Plaintiffs’ Motion to Expand Temporary
Restraining Order (Dkt. #52) is DENIED as moot.

s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: December 20, 2016
I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, December 20, 2016, by electronic and/or ordinary mail.

s/Lisa Wagner
Case Manager and Deputy Clerk
[phone]
S:\Cleland\JUDGE'S DESK\C2 ORDERS\16-464.McGirr.MotToAmend.bss.wpd

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