Moran v. Svete et al

Filing 215

AMENDED ORDER: RE 214 (1) GRANTING RECEIVERS MOTION TO LIFT THE STAY (DOC. 213 );AND (2) DIRECTING SVETE TO SHOW CAUSE. REPORT & RECOMMENDATION THAT RECEIVER'S COMPLAINT BE DISMISSED WITH PREJUDICE ( Objections to R&R due by 6/16/2014). Signed by Magistrate Judge Michael J Newman on 05/27/14. (pb1)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION AT DAYTON
H. THOMAS MORAN, II,
in his Capacity as Receiver of
the Assets of Lifetime Capital,
Inc. and Certain Affiliated Persons
and Entities,
Plaintiff,

Case No.: 3:05-cv-72

vs.
DAVID W. SVETE,

Judge Thomas M. Rose
Magistrate Judge Michael J. Newman

Defendant.
ORDER: (1) GRANTING RECEIVER’S MOTION TO LIFT THE STAY (DOC. 213);
AND (2) DIRECTING SVETE TO SHOW CAUSE.
REPORT & RECOMMENDATION1 THAT RECEIVER’S COMPLAINT BE
DISMISSED WITH PREJUDICE
This case is before the Court on Receiver’s motion to lift the stay. Doc. 213. On
December 10, 2013, the Court issued an Order denying Receiver’s prior motion to lift the stay
without prejudice to refile. Doc. 210. That Order detailed the factual and procedural history of
this case and the since-closed bankruptcy case filed by Defendant David W. Svete in the United
States Bankruptcy Court for the Central District of California, which resulted in him receiving a
discharge. In re Svete, No. 9:12-BK-11696 (Bankr. C.D. Cal. filed Apr. 23, 2012). The parties
were ordered to advise the Court in writing by January 10, 20142 as to their positions on the
impact of Svete’s bankruptcy discharge on the instant case. Doc. 210 at PageID 2346.

1
Attached hereto is a NOTICE to the parties regarding objections to this Report and
Recommendation.
2

The Court, cognizant of Svete’s incarceration and his pro se status in this case,
purposely afforded the parties an extended period of time to file their briefs. Doc. 210 at PageID
2346. The Court, acting in the interest of justice, has waited a significant period of time beyond
the deadline to issue this Report and Recommendation. See Brand v. Motley, 526 F.3d 921, 925
(6th Cir. 2008).

The Court is mindful of the Sixth Circuit’s prior directive to determine whether there are
one or more agreements by the parties to arbitrate, and whether the specific disputes at issue in
this litigation fall within the “substantive scope” of those agreements. Moran v. Svete, 366 F.
App’x 624, 632 (6th Cir. 2010). After Receiver filed a motion for summary judgment, resolution
of the arbitration issue was deferred and the Court intended to perform the required analysis in
conjunction with a ruling on Receiver’s motion. See doc. 178 at PageID 2104-05. Svete’s
bankruptcy filing then resulted in this case being stayed. Doc. 193.
I. Receiver’s Claims
Receiver has advised the Court he believes that all of his claims against Svete were
discharged as a result of the bankruptcy case. Doc. 211 at PageID 2350. Receiver also advised
the Court of his desire for the stay to be lifted so that he can now move for summary judgment
on Svete’s counterclaims.3 Id. Despite the extended briefing schedule and additional time past
the deadline, Svete has not filed a response to the Court’s Order. Receiver subsequently filed a
motion to lift the stay on February 4, 2014 and reiterated his intent to file a motion for summary
judgment on Svete’s counterclaims. Doc. 213.
Receiver has asserted sixteen claims for relief including fraud, breach of fiduciary duty,
federal Racketeering Influenced and Corrupt Organization (RICO) Act claims (18 U.S.C.
§ 1962(a)-(d)), corrupt activities in violation of state law (Ohio Rev. Code § 2923.34), civil
conspiracy, deceit and misrepresentation, breach of contract, fraudulent transfer, unjust
enrichment, alter ego, constructive trust and equitable lien, and violations of the Sarbanes-Oxley
Act of 2002 (Pub. L. No. 107-204, 116 Stat. 745). Doc. 1 at PageID 19-40. Any and all claims
Receiver has, by his own admission, were discharged as a result of the bankruptcy case. See doc.

3
Receiver’s prior summary judgment motion addressed the merits of his claims, not Svete’s
counterclaims.

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211 at PageID 2350; doc. 213 at PageID 2356. The Court agrees with Receiver’s assertion that
his claims were so discharged. See doc. 210 at PageID 2344-46. It is therefore unnecessary for
the Court to analyze whether Receiver’s claims are within the scope of the arbitration agreement.
II. Svete’s Counterclaims
As best the Court call tell, it appears from a careful review of Document 61 that Svete has
attempted to plead three counterclaims. Doc. 61 at PageID 527-34. The first counterclaim does
not seek substantive relief; rather, it seeks an Order to compel arbitration of Receiver’s claims
against him. Id. at PageID 529-30. Seeking to compel arbitration serves as a defense or
challenge to litigation in this Court; it is not an affirmative counterclaim for relief. See Johnson
Assocs. Corp. v. HL Operating Corp., 680 F.3d 713, 718 (6th Cir. 2012) (“[A]s a practical
matter, an enforceable contractual right to compel arbitration operates as a quasi-jurisdictional
bar to a plaintiff’s claims, providing grounds for dismissal of the suit. It is therefore unsurprising
that defendants routinely raise the right to arbitration in their answer, whether it is technically
required by Rule 8 or not.”).
The second counterclaim is labeled “demand for receivable.” Doc. 61 at PageID 531. A
review of the substance of this counterclaim reveals that it is -- when liberally construed in
Svete’s favor, see Brand, 526 F.3d at 923 -- a breach of contract counterclaim against LifeTime
Capital, Inc. (“LCI”) and unspecified LCI creditors. Doc. 61 at PageID 531-32. Svete alleges
that he entered into several contracts with LCI, and that he is owed over $135 million under the
terms of these contracts. Id. Such contracts included consulting agreements, profit-sharing
agreements, and asset sales. Id. at PageID 531. Svete also alleges that he made multiple loans to
LCI that remain outstanding, and that he incurred expenses on behalf of LCI that have not been
reimbursed. Id. Svete further alleges that LCI owes him money for judgments entered against

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him because LCI agreed to indemnify him. Id. Finally, Svete alleges that he is also owed money
by unspecified creditors of LCI for expenses he incurred and on account of judgments entered
against him because these creditors agreed to indemnify him. Id. at PageID 532.
The third counterclaim is labeled as a “demand to invoke indemnification and holdharmless agreements.” Id. at PageID 533. Svete alleges that LCI, LCI’s creditors, and he
entered into multiple contracts that contained agreements to indemnify and hold him harmless
from all liability and expenses. Id. Svete seeks indemnification from LCI and LCI’s creditors
for his legal fees and expenses. Id.
Svete does not specify the LCI creditors referenced in his second and third counterclaims.
Receiver, who asserts the claims of LCI, and Svete are the only parties to this litigation. See doc.
9 at PageID 102 (dismissing seven originally-named Defendants for failure to effect service).
The deadline to join additional parties expired on July 30, 2007, see doc. 58 at PageID 509, and
neither party has attempted to join parties at any stage in this litigation. To the extent that Svete
seeks to assert counterclaims against anyone other than Receiver, such claims are not properly
part of this litigation, and the Court need not consider whether it is appropriate to compel these
claims to arbitration.
The counterclaims asserted by Svete against Receiver remain to be examined pursuant to
the Sixth Circuit’s mandate concerning arbitration. Before the Court undertakes this exhaustive
review, it is appropriate to confirm whether Svete still seeks to compel these counterclaims to
arbitration given his lack of recent involvement in this case. Svete, for example, did not file a
motion for summary judgment by the November 18, 2011 deadline, and did not file a
memorandum in opposition to Receiver’s summary judgment motion. See doc. 176 at PageID
1832. Moreover, Svete ceased filing status reports regarding his bankruptcy case after January

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2013, despite the fact that the Court’s July 5, 2012 Order -- requiring him to file such a report
every sixty days -- remains in effect. See doc. 193 at PageID 2270. Svete’s most recent filing
was a motion received June 4, 2013 -- nearly one year ago -- which sought disclosure of ex-parte
communications. Doc. 202. Svete has responded neither to Receiver’s October 30, 2013 status
report -- advising the Court that the bankruptcy case was closed -- nor either of Receiver’s two
motions to lift the stay. See docs. 208, 209, 213. Nor did Svete respond to the December 10,
2013 Order requiring him to advise the Court “as to [his] position[] on the effect of the closing of
[his] bankruptcy case on this litigation.” See doc. 210 at PageID 2346.
Accordingly, this Order shall constitute an ORDER TO SHOW CAUSE. Svete is
ORDERED to advise the Court in writing on or before July 1, 2014 whether he still seeks an
Order compelling his counterclaims to arbitration. Svete is ADVISED that failure to respond by
July 1, 2014 may be construed as an abandonment of his counterclaims and the Court may
recommend that the counterclaims be dismissed with prejudice.
III. Conclusion
Receiver’s motion to lift the stay (doc. 213) is GRANTED. It is ORDERED that the
stay of this case is LIFTED and the Clerk of Courts is directed to REOPEN this case on the
Court’s active docket.
For the foregoing reasons and the reasoning set forth in more detail in Document 210, the
Court RECOMMENDS that Receiver’s complaint (doc. 1) be DISMISSED WITH
PREJUDICE.
May 27, 2014

s/ Michael J. Newman
United States Magistrate Judge

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NOTICE REGARDING OBJECTIONS
Pursuant to Fed. R. Civ. P. 72(b), any party may serve and file specific, written
objections to the proposed findings and recommendations within FOURTEEN days after being
served with this Report and Recommendation. Pursuant to Fed. R. Civ. P. 6(d), this period is
extended to SEVENTEEN days because this Report and Recommendation is being served by
one of the methods of service listed in Fed. R. Civ. P. 5(b)(2)(C), (D), (E), or (F), and may be
extended further by the Court on timely motion for an extension. Such objections shall specify
the portions of the Report and Recommendation objected to, and shall be accompanied by a
memorandum of law in support of the objections. If the Report and Recommendation is based in
whole or in part upon matters occurring of record at an oral hearing, the objecting party shall
promptly arrange for the transcription of the record, or such portions of it as all parties may agree
upon or the Magistrate Judge deems sufficient, unless the assigned District Judge otherwise
directs. A party may respond to another party’s objections within FOURTEEN days after being
served with a copy thereof.

As is made clear above, this period is likewise extended to

SEVENTEEN days if service of the objections is made pursuant to Fed. R. Civ. P. 5(b)(2)(C),
(D), (E), or (F). Failure to make objections in accordance with this procedure may forfeit rights
on appeal. See Thomas v. Arn, 474 U.S. 140, 153-55 (1985); United States v. Walters, 638 F.2d
947, 949-50 (6th Cir. 1981).

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