Case No. 08-2185 IN THE SUPREME COURT OF OHIO IN THE SUPREME COURT OF OHIO State ex rel: FIRSTMERIT...

IN THE SUPREME COURT OF OHIO

State ex rel:

FIRSTMERIT BANK, N.A.,

Relator,

Case No. 08-2185

Original Action in Prohibition andMandamus

vs.

HONORABLE JOSE A. VILLANUEVA, :

Respondent.

APPENDIX IN SUPPORT OF ANSWER OF INTERVENOR-RESPONDENTMATTHEW L. FORNSHELL, RECEIVER, VOL. 2 OF 2

John C. McDonald (0012190)Schottenstein, Zox & Dunn250 West StreetColumbus, Ohio 43215(614) 462-2201 (Telephone)(614) 462-5135 (Facsimile)[email protected]

Jonathon M. Yarger (0043781)Chemett Wasserman Yarger LLCThe Tower at Erieview - Suite 33001301 East Ninth StreetCleveland, Ohio 44114(216) 737-5000 (Telephone)(216) 737-0011 (Facsimile)[email protected]

Thomas B. RidgleyVorys Sater Seymour and Pease LLP52 East Gay StreetPO Box 1008Columbus, Ohio 43216-1008

John W. SolomonVorys Sater Seymour and Pease LLP106 South Main Street, Suite 1100Akron, Ohio 44308

Marcel DuhamelElizabeth RatliffVorys Sater Seymour and Pease LLP2100 One Cleveland Center1375 E. Ninth StreetCleveland, Ohio 44114

Joshua R. Cohen (0032368)Cohen Rosenthal & Kramer400 Hoyt Block Building700 West St. ClairCleveland, OH 44113(216) [email protected]

Counsel for Receiver, Matthew L. Fornshell

Counsel for Relator

Charles E. HannanThe Justice Center, Courts Tower, 8th Fl.1200 Ontario StreetCleveland, Ohio 44113

Counselfor Respondent

1HI391976.1 )

INTERVENOR-RESPONDENT'S APPENDIX

DOCiTMENT TAB

Order on Receiver's Motion for Leave to File Second AmendedComplaint dated April 7, 2008 1

Motion to Substitute Correct Copy of Second AmendedComplaint dated November 21, 2008 2

Order and Finding Regarding Ponzi Scheme dated August 2, 2006 3

Findings and Order of Distribution dated December 21, 2007 4

Opinion and Order dated November 13, 2008 (remandingthe Young Case) 5

Complaint dated June 9, 2005 (the Vlahovic Case) 6

Plaintiff's Motion to Consolidate dated June 8, 2006 7

Marginal Order denying Motion to Transfer dated July 5, 2006 8

Remand Order dated December 7, 2006 9

Receiver Matthew L. Fomshell's Motion to Intervene Pursuant toFed. Civ. R. 24 10

Sample filings 11

Defendant Firstmerit Bank N.A.'s Response to Expedited Motionto Supplement Orders Appointing Receiver and Objectionsto the May 23, 2006 Supplemental Order Appointing Receiver 12

Revised Proposed Schedules of Allowed Unsecured Claims 13

The Receiver's Proposed Distribution of Sale Proceeds to Non-InvestorClaimants 14

FILEDAPR 1.7 2008

CIEPR OF.COURTSCUVAnJOACOUHTY OHIOt, ne s s wSA^^^YA

IN THE COURT OF COMMON PLEASCUYAHOGA COUNTY, OHIO

MATTHEW L. FORNSHELL, ) CASE NO. 04-CV-548887

)Plaintiff ) JUDGE JOSE VILLANUEVA

V.

..._. .Y^ _ .^;. ^q

% E

APR "i .84008'

FIRSTMERIT CORPORATION, ) DEFENDANT FIRSTMERIT BANK.N.A.'S RESPONSE TO EXPEDITED

Defendant. ) MOTION TO SUPPLEMENT ORDERSAPPOINTING RECEIVER ANDOBJECTION TO MAY 23. 2006SUPPLEMENTAL ORDER APPOINTINGRECEIVER

FirstMerit Bank, N.A. hereby responds to Plaintiff's May 23, 2006 Expedited Motion to

Supplement Orders Appointing Receiver and objects to the May 23, 2006 Supplemental Order

Appointing Receiver ("Supplemental Order") on the grounds set forth in FirstMerit Corporation's

briefing on its Motion to Vacate the Supplemental Order and Request for Oral Argument, its

Reply in Support thereto, its Post-Hearing Supplemental Memorandum in Support of FirstMerit

Corporation's Motion to Vacate Supplemental Order, its Memorandum in Opposition to

Plaintiff s Motion for Leave to File Second Amended Complaint, and its Response to Plaintiffs

Notice of Filing Supplemental Authority. Each of those briefs is attached as a consecutively

lettered exhibit, and is expressly incorporated into this response and objection by reference.

FirstMerit Bank, N.A. files this response and objection seven calendar days after having received

a copy of Plaintiffs Second Amended Complaint, to which the Supplemental Order is attached.

Respectfully submitted,

Thom B. Ridgley (00 0910)Vorys, Sater, Seymour and Pease LLP53 East Gay StreetP.O. Box 1008Columbus, Ohio 43216-1008Telephone: (614) 464-6400Facsimile: (614) 464-6350e-mail: [email protected]

John W. Solomon (0018206)Vorys, Sater, Seymour and Pease LLP106 S. Main Street, Suite 1100Akron, Ohio 44308Telephone: 330-208-1013Facsimile: 330-208-1001E-Mail: [email protected]

Marcel C. Duhamel (0062171)Elizabeth A. Ratliff (0075673)Vorys, Sater, Seymour and Pease LLP2100 One Cleveland Center1375 East Ninth StreetCleveland, Ohio 44114Telephone: (216) 479-6100Facsimile: (216) 479-6060e-mail: [email protected]

[email protected]

Attorneys for DefendantFirstMerit Bank, N.A.

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CERTIFICATE OF SERVICE

A copy of the foregoing Defendant FirstMerit Bank, N.A. 's Response to Expedited

Motion to Supplement Orders Appointing Receiver and Objection to May 23, 2006 Supplemental

Order Appointing Receiver was sent via U.S. Mail this 17°i day of April, 2008, to the following:

Joshua R. CohenCohen Rosenthal & Kramer400 Hoyt Block Bldg.700 West St. ClairCleveland, OH 44113

Jonathon M. YargerChernett Wasserman Yarger &Pasternak3300 Erieview Tower1301 East Ninth StreetCleveland, OH 44114

Attorneys for Matthew Fornshell

Joel LevinChristopher M. VlasichAparesh PaulLevin & Associates Co., LPAThe Tower at Erieview1301 East Ninth St., Suite 1100Cleveland, OH 44114

Attorney for PlaintiffDan Vlahovic

One f the Attomeys for Defen anFirstMerit Bank, N.A.

3

IN TIIE COURT OF COMMON PLEASCUYAHOGA COUNTY, OHIO

roo' N;,r I I P 4 12MAITHEW L. FORNSHELL 1 CASE NO. 06-CV-592402-

(CONSOLIDATED WITIi)':;.n; E r LjcnS -Plaintiff, ) CASENO.04-CV-54888^' ;')....

V. ) JUDGE JOSE A. VILLANUEVA

FIRSTMERIT CORPORATION ) MOTION TO VACATE MAY 23, 2006SUPPLEMENTAL ORDER

Defendant. ) APPOINTING RECEIVER ANDREOUEST FOR ORAL ARGUMENT

Defendant FirstMerit Corporation respectfully requests that this Court vacate its ex parte

Supplemental Order Appointing Receiver entered on May 23, 2006 ("SupplementaI Order").

The grounds for FirstMerit Corporation's Motion are: -

(1) Plaintiff Matthew L. Fomshel] lacks standing to represent the investors onwhose behalf he purported to sue FirstMerit Corporation pursuant to theSupplemental Order;

(2) The Supplemental Order constituted a summary certification of a classaction in violation of the due process rights of investors and FirstMeritCorporation;

(3) Until recent consolidation of this case with the Receivership case,FirstMerit Corporation was not a party to the Receivership proceedings and didnot have an oppordurity to object to the entry of the Supplemental Order; and

(4) By this Motion, FirstMerit Corporation has moved timely to seek vacationof the Supplemental Order, afrer Ieanring of the Consolidation Order entered onApril 22, 2007.

The Supplemental Order is subject to review and vacation where appropriate. The

Expedited Motion to Supplement Orders Appointing Receiver ("Expedited Motion") explicitly

contemplates that the "relief granted herein could be readily modified or withdrawn entirely if

the Court so detemnines...." (Expedited Motion at 6) For the Court's convenience, the

EXHIBIT

A

Supplemental Order is attached hereto as Exhibit A and the Expedited Motion is attached hereto

as Exhibit B. For the reasons set forth above, which are explained more fully in the

Memorandum in Support attached hereto and incorporated herein, FirstMerit Corporation

respectfully requests that the Court vacate its Supplemental Order.

Further, FirstMerit Corporation respectfully requests that this Court schedule a hearing

for oral argument on this Motion.


Thonias B. Ridgley (00009'tA)Vorys, Sater, Seymour and Pease LLP53 East Gay StreetP.O. Box 1008Columbus, Ohio 43216-1008Telephone: (614) 464-6400Facsimile: (614) 6350e-mail: [email protected]



earatlif£@vssp.com

Aftorneys for DefendantFirstMerit Corporation

2

IN THE COURT OF COMMON PLEASCUYAHOGA COUNTY, OIIIO

MATTHEW L. FORNSHELL

Plaintift;

) CASE NO. 06-CV-592402) (CONSOLIDATED WITH)) CASE NO. 04-CV-548887))

V. ) JUDGE JOSE A. VILLANUEVA)

FIRSTMERIT CORPORATION ) MEMORANDUM IN SUPPORT OF) MOTION TO VACATE MAY 23. 2006

Defendant. ) SUPPLEMENTAL ORDER) APPOINTING RECEIVER

1. PRELIMINARY STATEMENT

Defendant FirstMeiit Corporation ("FirstMerit') ' respectfully requests that this Court

vacate its Supplemental Order Appointing Receiver entered on May 23, 2006 ("Supplemental

Order") (Exhibit A), pursuant to the Receiver's ex parte Expedited Motion to Supplement Orders

Appointing Receiver. ("Expedited Motion") (Exhibit B) The Expedited Motion stated that

Receiver Matthew Fomshell had "conducted an investigation of the affairs of Joanne C.

Schneider and her related companies" and intended to file claims against FirstMerit Corporation.

(Expedited Motion at 3) Fomshell further asserted that the purported claims against FirstMerit

Corporation "belong to both Joanne C. and her husband, Alan Sohneider and the Company

Defendants." (Id.) He further asserted that "it appears that these causes of action should also be

brought by the Receiver against FirstMerit Bank for and on behalf of the Investors of the

Schneiders and the Company Defendants." (Id.) (emphasis supplied)

' On May 10, 2007, Mr. Fomshell filed a Motion for Leave to File an Amended Complaint, to substitute FirstMeritBank, N.A., the bank at which the Schneiders held certain depository accounts, for FirstMerit Corporation, a bankholding company that wholly owns FirstMerit Bank, NA. Simultaneously with the filing of this Motion, FintMeritCocporation has filed a Memorandum in Opposition to Mr. Fomshell's Motion for Leave, which FirstMeritCorporation incorporates as if fully rewritten herein.

The day after filing the Expedited Motion and receiving the Supplemental Order ex parte,

Fomshell filed a Complaint against FirstMerit Corporation that contained claims belonging only

to the investors. Contrary to Fomshell's representations to this Court, the Complaint contains no

claims belonging to the Schneiders or their companies. Specifically, Fornshell's Complaint

contains claims under Ohio's securities laws and Pattem of Corrupt Activities Act, and for

common law aiding and abetting fraud and civil conspiracy allegedly arising from the

Schneiders' own fraud.

Two weeks prior to the filing of the Expedited Order and the Complaint, investor Kathy

Young filed a putative class action containing the same causes of action and very similar factual

allegations against FirstMerit Bank, N.A. ("FirstMerit Bank") - purportedly on behalf of the very

same investors Fornshell purports to represent. In his Expedited Motion, Fomshell incorrectly

represented to this Court that the "Investors in this case are largely unrepresented by legal

counsel, and the need for the Receiver to act in their interests is thus heightened." (Expedited

Motion at 5) Not only does Fomshell's Expedited Motion fail to address the Complaint Kathy

Young filed in state court (See Class Action Complaint, "Youne Complaint," attached as Exhibit

C), he has continued to litigate his claims "on behalf oP' the very investors who are representing

themselves. Presently, a Motion for Class Certification is pending in the YOung case in Federal

Court, Katherine Young et al. v. FirstMerit Bank. N.A.. Case No. 06-CV-1486 (N.D. Ohio).

Fornshell has delayed the resolution of that Motion, however, by filing an interlocutory appeal of

District Judge Boyko's denial of his Motion to Intervene in the Young case.

The implications of Fomshell's filing of a Complaint containing claims belonging only to

the investors, and not to the received entities, are far reaching. They involve more than

misrepresentations to the Court regarding the proposed lawsuit. Specifically, Fornshell has no

2

standing to file claims on behalf of investors alone arising out of the fraud of the received

persons or entities. This is not, for example, a fraudulent transfer case where the receiver is

attempting to recover an asset that is rightfully receivership property. Instead, Fomshell is

attempting to recover money damages not on behalf of the receivership estate, but solely on

behalf of individual investors, the vast majority of whom are not even parties to the Receivership

proceeding and none of whom are parties to this case. Indeed, he is attempting to interfere with

the rights of persons to represent themselves - which they are exercising through a first-filed,

putative class action in Federal court.

Fornshell's approach and the resulting Supplemental Order amounts to a summary

certification of a class action, but without regard to the procedural due process protections that

underlie Ohio Rule of Civil Procedure 23, which governs whether cases can be certified as class

actions and the conduct of class actions. Contrary to what would transpire in a normal class

certification context, Fornshelt is proceeding with a so-called "collective action" without

FirstMerit Corporation having had an opportunity to be heard on the issue of Fornshell's

representation of hundreds of investors, and absent the presentation of any evidence or legal

analysis conceming the seven factors an Ohio court must examine through a rigorous analysis

under Rule 23 before certifying a damages class action that will bind absent class members to the

judgment. As a result of Fomshell's unprecedented procedural experiment, the following

infumities will plague this action going forward:

• There is no mechanism in place to provide the 740 investors notice of thependency of this case or of ariy judgment entered in this case;

• There is no right of any investor to opt out of the action and provide notice oftheir opt-out to FirstMerit Corporation;

• There is no mechanism for Court approval of a settlement, or the opportunity forinvestors to be notified of and/or heard on a proposed settlement;

3

• The filing of the action did not toII the statute of limitations for the investorsunder existing precedent;

• Neither the 740 investors nor FirstMerit Corporation would be bound by or couldnot enforce any judgment that is entered in this case;

• There is a putative class action in Federal court in which certain investors purportto represent a class of similarly situated investors; and

• There is no investor representative asserting a claim on behalf of similarlysituated investors in this case.

Although FirstMerit Corporation would have been happy to address the Court with its

concems about the standing and due process implications of the Supplemental Order and

Complaint when they were filed on May 23, 2006 and May 24, 2006, respectively, at that time,

FirstMerit Corporation was not a party and had no notice of the ex parte Expedited Motion to the

Receivership proceedings. Moreover, to the extent FirstMerit Corporation could have appeared

in the Receivership proceedings and objected to the Supplemental Order, Fomshell provided no

notice to FirstMerit Corporation reasonably calculated to apprise FirstMerit Corporation of any

opportunity to object to Fomshell's authorization to file suit against it on behalf of investors.

Instead, FirstMerit Corporation received the Supplemental Order as an attachment to a Summons

and Complaint by certified mail on June 1, 2006. The notice provided was "surreptitious" at

most, and, in any event, the deed was already done. FirstMerit Corporation had already beea

sued and its rights already substantially affected by that act alone.

This case was only recently consolidated by order of this Court on April 22, 2007.

FirstMerit Corporation was not even served with notice of that order - either by the Clerk of

Courts or by Fomshell. FirstMerit Corporation discovered the Consolidation Order during a

routine check of the Receivership docket, and thereafter received Fomshell's Motion for Leave

to File an Amended Complaint, which was filed on May 10, 2007. Indeed, the Consolidation

4

Order does not even currently appear on the docket of this case, which continues to reflect that

this matter is pending before Judge Timothy McMonagle. Now that this case has been

consolidated with the Receivership action in which the Supplemental Order was issued,

FirstMerit Corporation takes its first opportunity to address the deficiencies of the Receiver's

Expedited Motion and the Supplemental Order.

FirstMerit Corporation respectfully requests that this Court vacate the Supplemental

Order, for the reasons set forth in greater detail below.

lI. PROCEDURAI. HISTORY

A. Kathy Young Files a Putative Class Action on May 10, 2006. Two WeeksBefore Fornshell's Expedited Motion Was Filed.

On May 10, 2006, Kathy Young, a purported investor in the Schneiders' investment

scheme, filed an action against FirstMeiit Bank in the Cuyahoga County Court of Common

Pleas. (Exbibit A) Styled as a putative class action, Young stated in her Complaint that she

sought to represent more than 500 "similarly situated" investors. (Class Action Complaint 124)

Her Complaint against FirstMerit Bank contained three counts: ( 1) alleged violations of Ohio's

security laws; (2) aiding and abetting fraud; and (3) civil conspiracy.

On June 16, 2006, FirstMerit Bank removed Young's Complaint to Federal Court on the

theory that her state-law claims were completely preempted under the National Bank Act and

regulations promulgated by the Office of the Comptroller of the Currency pursuant to its

authority under the National Bank Aot. Subsequently, on July 14, 2006, Young filed a First

Amended Class Action Complaint ("Youne Amended Complaint"). Among other things, the

Youne Amended Complaint added 6 additional investor-Plaintiffs and a claim under Federal

civil RICO (18 U.S.C.A. § 1962(c)).

5

B. Entry of the May 23, 2006 Supplemental Order Aopointine Receiver.

On May 23, 2006, Fomshell approached this Court with a request that he deemed an

"emergency." Fornshell asked this Court to enter, ex parte, a supplemental order on grounds that

he had "conducted an investigation of the affairs of Schneider and her related companies" and

identified causes of action against FirstMerit Corporation, which "belong both to Joanne C. and

her husband, Alan Schneider and the Company Defendants," and which "should also be

brought...on behalf of the Investors...... (Expedited Motion at 3) He requested that he be

"granted authority to reprasent and pursue directly the interests of the Investors against

FirstMerit Corporation and/or its affiliates, agents, of$cers, and/or employees, arising out of or

related to conduct of the Schneiders and/or [their companies represented by Fotnshell in the

receivership]." (Id.) As of the filing of Fomshell's request for additional authority, Young had

'already filed, 13 days before, a putative class action on behalf of the very investors Fomshell

asserted were unrepresented. (Id. at 5)

Whether intentionally or unintentionally, Fornshell mada several significant

misrepresentations in his Expedited Motion for the emergency and ex parte Supplemental Order.

The following compares the misrepresentations in Fornshell's Expedited Motion to the actual

facts:

1VJisrepresentation #1

The causes of action Fomshell sought authority to bring against FiustMeritCorporation "belong both to Joanne C. and her husband, Alan Schneider andthe Company Defendants. However, it appears that these causes of action shouldalso be brought by the Receiver against FirstMerit Bank for and on behalf of theInvestors of the Schneiders and the Company Defendants." (Expedited Motion at3) (emphasis supplied)

"While the Order, as previously amended, may well already provide thisauthority, the Receiver seeks a supplement to-the Order, providing that he isexpressly authorized to pursue this action not only on behalf of the CompanyDefendants, but also on behalf of the Investors." (Id.) (emphasis supplied)

6

Actual Facts:

Fornshell has never filed a cause of action against FirstMerit Corporation (orFirstMerit Bank) on behalf of the Schneiders or their companies.

Misrepresentation #2

"An identical course of action was authorized by Senior U.S. District JudgeDavid A. Katz in the series of cases now pending in Toledo commonly known asthe Liberte Capital cases." (Id.) (emphasis supplied)

Actual Facts

This action is not identical to Liberte Capital Group v. Caowill, 229 F.Supp.2d 799 (N.D. Ohio 2002). (attached as Exhibit 3) The Liberte Capital casesinvolved a receiver proceeding on behalf of investors who, through class counsel,consented to his representation of their interests in litigation. Further, andsignificantly, the receiver had brought claims on behalf of the received entitiesthemselves, as well as assisting in the proceedings on behalf of investors.Fomshell has filed no claims on behalf of the Schneiders against FirstMeritCorporation, and has demonstrated no consent of the Young Plaintiffs or theircounsel to represent them.

Misrepresentation #3

"The Investors in this case are largely unrepresented by legal counsel, and theneed for the Receiver to act in their interests is thus heightened." (Id. at 5)(emphasis supplied)

Actual Facts-

This statement, and the paragraph following it, ignores completely that a putativeclass action was filed on behalf of the same investors 13 days before Fomshellfiled his Expedited Motion.Z

In sum, there is a significant disparity between what Fomshell represented the facts to be

and what they actuaAy were and a significant disparity between what the Court gave permission

to Fomshell to do and what he actually did.

= Whether Fornshen knew of Yoime Complaint or not, on May 23, 2006, is of little relevance. If Forashell leatnedof its filing after he filed his Complaint on May 24, 2006, he should have dismissed his case at that point Atminirnurn, its ptusuit wastes the essets of the receivership estate where an identical lawsuit is being prosecuted bythe real parties in interest, the investors.

7

C. Fornshell's Actions After Obtaining the Supplemental Order.

A$er obtaining the Supplemental Order on May 23, 2006, Fomshell did not immediately

attempt to serve it on FirstMerit Corporation, although the Supplemental Order requires

Fornshell to "immediately provide notice of the Motion and this Order to all parties in

accordance with the Court's previously established noticing procedures." (Supplemental Order

at 4, 14) Perhaps the reason for his failure was that FirstMerit Corporation was not even a party

to the Receivership proceedings, although its due process rights were severely infringed by the

Supplemental Order.

Instead of providing immediate notice to FirstMerit Corporation (or FirstMerit Bank),

Fomshell immediately filed a Complaint against FirstMerit Corporation the following day, on

May 24, 2006. He simply attached the Supplemental Order as an Exbibit to the Complaint.

D. - Fornshell's Actions In Federal CourL

On June 19, 2006, FirstMerit Corporation removed Fomshell's Complaint to Federal

Court on the theory that Fornshell's state law claims are completely preempted by the National

Bank Act 3 Fomshall moved to remand this case on June 26, 2006. He also moved to intervene

as a plaintiff in the Youne case on June 29, 2006.

While the intervention Motion was pending, Distdct Judge Gaughan stayed the Fomshell

case in Federal court - until December 8, 2006, whan she simultaneously lifted the stay and

granted Fomshell's Motion to Remand. District 7udga Boyko then held a hearing on Fomshell's

Motion to Intervene on December 11, 2006. A decision denying Fomshell's Motion to Intervene

in Youn was issued on Febmary 1, 2007.

; Affiliates and subsidiaries of national banks are entitled to the protections of the National Bank Act See. g.g,Wattets v. Wachovia Bank N.A..127 S.Ct 1559 (2007) (extending National Baik Act protections to opentingsubsidiaries of a nationai bank); National City Bank of Indiana v.'Ihmbau¢h 367 F.Supp2d 805 (D. Md. 2005)(sacne).

8

Although Fomshell's originally-filed Complaint is now back in this Court, he continues

to press for intervention in the Young case in Federal court. On March 5, 2007, Fomshell

simultaneously filed a Notice of Appeal of District Judge Boyko's denial of his Motion to

Intervene and sought an extraordinary writ by filing a Petition for Writ of Mandamus against

Judge Boyko seeking remand of the Young case. The Sixth Circuit Court of Appeals promptly

denied Fomshell's Petition. (See Exhibit D, attached) With respect to Fomshell's appeal of the

Motion to Intervene, the Court of Appeals has not yet set a briefing schedule. A mediation

conference was held on Apri14, 2007, by Order of the Court of Appeals. It was unsuccessful.

Given that Fomshell continues to strive for intervention in the Young case in Federal

Court, FirstMerit Corporation has filed in this case a Motion to Stay, a Supplemental Motion to

Stay and, simultaneously with this Motion, a Supplemental Memorandum in Support of its

Motion to Stay.4 Specifically; FirstMerit Corporation seeks a stay until the procedural

uncertainty surrounding the fortnn in which Fomshell will litigate his "claims" against FirstMerit

Corporation is resolved since Fomshell still seeks to be a co-plaintiff in the Yotme case.

III. LAW AND ARGUMENT

For the first time, FirstMerit Corporation has the opportunity to address the deficiencies

of the Supplemental Order. This case was only recently consolidated with the Receivership

proceedings in which the Supplemental Order was issued. FirstMerit Corporation was not served

with the Apri122, 2007 Consolidation Order either by the Clerk or by Fomshell, nor does that

Order appear anywhere on the docket of this case, 06-CV-592042. Now that it is apparently a

party to the Receivership proceedings for the first time, FirstMerit Corporation moves to vacate

the Court's Supplemental Order on the following grounds:

' FirstMerit Corporation incorporates as if fully rewritten herein its Supplemental Memorandum in Support of itsMotion to Stay.

j

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• Fornshell lacks standing to assert the claims of investors;

• The Supplemental Order, which in effect is a summary certification of aclass action in this case, violates the due process rights of both investorsand FirstMerit Corporation; and

• As a stranger to the Receivership proceeding, FirstMerit Corporation hadno opportunity to be heard on Fornshell's Expedited Motion, which wasfiled on an emergency and ex parte basis before the "collective action" wasfiled.

Each of these points is addressed in greater detail below.

A. Fornshell Lacks Standing to Assert the Claims of Investors.

A determination of standing is "a preliminary inquiry in all legal claims." Cuvahoga Cty.

Bd. of Commrs. v. State. 112 Ohio St. 3d 59, 62-63 (2006). Whether "established facts confer

standing to assert a claim is a matter of law." Id. uotin Portage Cty. Bd. of Cornmrs. v.

AlQ0I1 109 Ohio St. 3d 106 (2006)).

1. The Investors, and Not Fornshell, Are the Real Parties in Interest toThis Matter.

It is axiomatic that an action must be prosecuted by the real party in interest. Ohio R.

Civ. P. 17(A); State ex rel. Dallman v. Franklin Cty. Court of Common Pleas. 35 Ohio St. 2d

176, (1973) (standing depends upon whether the party has sufficiently alleged a "personal stake

in the outcome of the controvers}). A "real party in interest" has been described as "one who

has a real interest in the subject matter of the litigation, and not merely an interest in the action

itself, i.e., one who is directly benefited or injured by the outcome of the case." W. Clennont

Edn. Assn. v. W. Clermont Bd. of Edn.. 67 Oliio App. 2d 160,162 (Clermont Cty. 1980).

Fomshell's "personal interest" in this matter. is nonexistent. He purports to bring this

action (1) in his capacity as receiver for the Schneiders; (2) in his capacity as receiver for the

Schneider Companies; and (3) "on behalf' of the investors. (Complaint 11.1, 15) However,

Fornshell does not assert in his Complaint that:

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• FirstMerit Corporation is liable to the Schneiders or their companies for failing todetect a fraud that the Schneiders themselves masterminded.

• FirstMerit Corporation harmed the Schneiders or their companies. To thecontrary, the Complaint asserts that the Schneider's enterprises were enriched byF'ustMerit Corporation's alleged lack of attention to the Schneiders' bankingpractices. (Complaint ¶ 34).

See Knauer v. Jonathon Roberts Financial Group Inc 348 F.3d 230, 234 (7th Cir. 2003)

(holding that Ponzi entities were "not injured by sales of securities," which "resulted only in the

fattening of the companies' coffers," and that "[a]ny claim relating to the fraudulent sales

rightfully belongs to the wronged investors"); Cagan v. West Suburban Bank. 1992 WL 80966,

*4 (N.D.Ill. 1992) (barring receiver from bringing claims against bank for its role in alleged

Ponzi scheme on behalf of limited partnerships operated by Ponzi masterminds, because limited

partnerships "were not themselves the victims of fraud, but rather were the means to that end"

with "no injury of which to complain').5

On the other hand, with respect to the investors, Fomshell asserts the investors he

purports to represent:

• were the "victims of illegal conduct" perpetrated by the Schneiders and theSchneider Companies. (Complaint 11)

• were the "victims," who purchased at least "$60 million" in promissory notesfrom the Schneiders. (Id. 15)

•"lost millions of dollars" in "worthless" notes. (Id. 17)

• are victims of the Schneiders' fraud. (Id. 156)

Thus, it is apparent from the Complaint that the only interests Fomshell seeks to

vindicate in this lawsuit are those of the investors. He is not himself an investor, nor is he the

s Attached as Exhibit G, hereto.

11

receiver for any investor. Therefore, Fornshell is not the real party in intersest; the investors are,

and they filed a putative class action two weeks before Fornshell filed the Expedited Motion.

2. Fornshell Lacks Standing to Bring Claims on Behalf of Investors.

Fornshell has no standing to pursue damages claims belonging solely to the investors and

not to the receivership estate he represents. R.C. 2735.04. "Since 1935 it has been well settled

that the plaintiff in his capacity of receiver has no greater rights or powers than the corporation

itself would have." Fleming v. Lind-Waldock & Co., 922 F.2d 20, 25 (1st Cir. 1990) (intemal

quotations omitted) (relying on McCandless v. Furlaud. 296 U.S. 140, 167 (U.S. 1935)). A

receiver is permitted only to "su[e] on behalf of the corporation, not third parties" and mayonly

state "the same claim that the corporation could have made had it brought suit prior to entering

receivership." Caplin v. Marine Midland Grace Trust Co. of New York. 406 U.S. 416,429

(1972) (interpreting McCandless 296 U.S. at 167).

a. Under the Principles of McCandless/Caplim Fornshell LacksStanding to Represent the Investors in this Case.

In Canlin, the U.S. Supreme Court held that a banlo:uptcy trustee lacked standing to assert

claims of misconduct by an indenture trustee on behalf of the holders of debentures issued by the

bankrupt entity. Canlin. 406 U.S. at 428-34. The Caplin decision rested on three grounds: "(1)

the Bankruptcy Act then in effect contained no provision granting the trustee authority to collect

money not owed to the estate; (2) the debtor corporation had no independent action of its

own against the indenture trustee; and (3) an action by the trustee would not bind the

third-party debenture holders, raising the prospect of conflicting results, proliferation of

litigation and questions arising as to who would be bound by the outcome of the trustee's

litigation." In re Canyon Systems Corp„ 343 B.R. 615, 658 (Bkrtcy. S.D. Ohio 2006) (under

Canlin, trustee of Chapter 7 estate of corporation that had operated Ponzi scheme had no

12

standing to pursue claims under the Ohio Pyramid Sales Act (OPSA) to recover damages from

participants in scheme; claim belonged to individual creditors, not to trustee) (emphasis added).

"Like a trustee in bankruptcy," an "equity receiver may sue only to redress injuries to the

entity in receivership, corresponding to the debtor in bankruptcy[.]" Scholes v. I.ehmarm- 56

F.3d 750, 753 (7th Cir. 1995). In accordance with this principle, at least four U.S. Courts of

Appeal - including the Sixth Circuit - have recognized that the standing analysis of

McCandless/Caplin and its progeny, with respect to trustees, also prevents equity receivers from

bringing claims that rightfully belong to creditors. See e.e.. Goodman v. FCC. 182 F.3d 987,

991-92 (D.C. Cir. 1999) (holding that receiver lacked standing to sue on behalf of customers and

creditors of entity in receivership); Troelstrup v. Index Futures Groun. Inc.. 130 F.3d 1274,

1277 (7th Cir. 1997) (holding that only investors - and not receiver appointed to marshal assets

of futures trader who allegedly defrauded investors - had standing to assert claim against futures

merchant whose negligence may have helped trader perpetrate fraud); Jarrett v. Kassel, 972 F.2d

1415, 1426 (6th Cir. 1992) (holding that receiver "had authority to sue on behalf of the

receivership itself but had no authority to bring a cause of action on behalf of the individual

customen;" defrauded under company's sales scheme); Flemine v. Lind-Waldock & Co.. 922

F.2d 20, 25 (1st Cir. 1990) (holding that "equity receiver cannot assert these investors' claims,"

nor "can he succeed in a class action as a putative representative of these same investors,"

because "dual role as receiver for the corporation and representative of investors with claims

against the corporation would present an inherent conflict").

The case of Scholes v. Schioeder, 744 F.Supp. 1419 (N.D. IIl. 1990), is particularly

instructive regarding the application of the principles of McCandless/Caplin to this case. In

Scholes, the receiver brought causes of action solely on behalf of investors defrauded by the

13

received entities he represented and not the received entities themselves, pursuant to the order of

a District Judge authorizing the suit. See id. at 1421. The Scholes court, applying the principles

of Canlin, stated that a "receiver or like surrogate cannot pursue claims that belong, not to the

receivership estate as such, but rather to those who may have an ultimate derivative interest in

the estate." Id. at 1422. Invalidating the portion of the order authorizing the receiver to bring

claims on behalf of the investor alone, the Scholes court explicitly stated, "Fraud on investors

that damages those investors is for those investors to pursue - not the receiver. By contrast,

fraud on the receivership entity that operates to its damage is for the receiver to pursue...." Id.

Similarly, Fomshell may not pursue damages claims belonging to the investors alone

where those claims do not give rise to damages recoverable by received persons and entities.

The Schneiders and their companies were the fraudfeasors, and are not entitled to the investors'

damages. Fornshell's Complaint makes that clear - even if, in his Expedited Motion, he

promised he would bring claims belonging both to the receivership and the investors. Fornshell

did not fulfill that promise and, instead, filed securities laws claims, an Ohio Pattern of Cotnipt

Activities Act claim, and common law aiding and abetting fraud and civil conspiracy claims on

behalf of the investors alone. Consequently, he lacks standing to prosecute this action. The

Supplemental Order authorizing this suit should be vacated. The investors are prosecuting their

rights on their own, in the form of a putative class action in Federal Court.6

6 District Judge Boyko himself questioned Mr. ForvsheIl's standing in denying his Motion to Intervene in the Younecase. Judge Boyko wrote in his opinion, "...the Receiver has failed to convince this Court that the Receivership canniaintain the same claims brought on behalf of the investors. As the alleged toxtfeasors, it is difficult to conceivebow. the Schneiders or their entities can maintain the causes of action presented by the aggrieved investors."(Opinion at 7-8, attached hereto as Exlubit B).

14

b. Liberte CaDital is Not Analoeous and Does Not SupnortFomshell's Suit on Behalf of Investors.

In his Expedited Motion, Fomshell relies heavily on an order issued in the Liberte Canital

case, Case No. 99-818 (N.D. Ohio). He attached to his original Expedited Motion the Joint

Motion of the Receivers for an Additional Statement ofAuthority ("Joint Motion") and the

District Court's resulting Order authorizing the receiver in those cases to pursue directly the

rights of investors in the viatical insurance investment programs that were the subject of the

Liberte Canital cases. The Joint Motion is part of Exhibit B, the Expedited Motion, attached

hereto.

The circumstances under which District Judge Katz entered an Order granting the

receivers in Liberte additional authority to act directly on behalf of investors are quite distinct

from those here. First, a class action had been certified in Libert e and the class of investors,

through class counsel affinnatively urged the Court to expand the receivers' authority to assist 3

the investor class and their counsel. The Joint Motion explicitly states, "Both Receivers and the

Liberte class counsel have consistently engaged in a cooperative effort to preserve the interests

of investors." (Joint Motion at 5) The Joint Motion quotes a prior memorandum opinion of the

Court stating that "the Receiver's methods, as well as those of class counsel, have resulted in

ongoing litigation both in federal and state court as he attempts to continue to marshal assets on

behalf of the Receivership estate for the benefit of the investors and others." (Id.) Here,

Fomshell has shown no similar cooperation from class counsel for the investors. lndeed, he has

characterized the class action as "competing" and contrary to his interests, both in this Court and

in Federal court, and has acknowledged that class counsel has refused to cooperate with him.

(See Fomshell's Motion to Enjoin Filing of Motion for Class Certification, attached hereto as

Exhibit F)

15

Judge Katz's Order makes clear that the receivers' activities on behalf of investors would

directly advance "the ultimate goal of maximizing the Estates for the benefit of the investors...."

Fornshell, unlike the Liberte receivers, is not pursuing claims that maximize the, estate. Instead,

he pursues claims for the benefit of investors alone - claims which the investors could, and are,

pursuing on their own against FirstMerit Bank. Indeed, instead of focusing on authorization to

initiate a particular lawsuit against a particular defendant, like the Supplemental Order does,

Judge Katz's Order does not address initiating any particular lawsuit or lawsuits, nor does it

effectively certify a class in a summary fashion to bring a specific claim. Instead, his Order

authorizes the receiver to pursue investors' "5nterests."

Finally, the Liberte Order does not depart from the principles of McCandless/Caplin

discussed above. Judge Katz, who entered the Order, subsequently issued an opinion clarifying

the scope of the authority his Order had conferred. See Javitch v. Transanmerica Occidental Life

Insurance Co. 408 F.Supp.2d 531 (N.D. Ohio 2006). In that decision, Judge Katz expressly

addressed the effect of the Liberte Order on the receivers' standing to sue on behalf of investors.

Judge Katz found that the receiver had standing only to the extent to which the receiver sought to

redress harm to the estate: "To the extent that the Receiver represents the interests of Liberte [a

received entity] and seeks to recover those premiums on its behalf, the Plaintiff has alleged an

injury in fact. Since Liberte acquired the policies, established and placed them in trust accounts,

and paid the premiums thereon, Liberte has sustained a distinct and palpable injury." Id. at

536 citin Warth v. Seldin. 422 U.S. 490, 501 (1975)). A key distinction, therefore, between the

Order in Liberte and the Supplemental Order entered in this case is that the receiver in Liberte

alleged claims on behalf of the received entity, which itself was defrauded, in addition to claims

on behalf of the investors injured by the same fraudulent scheme as Liberte itself.

16

The circumstances under which the receiver in Libert e proceeded on behalf of Liberte

Capital's investors, with their urging and consent, are entirely different from those here.

Significantly, like the cases cited above, the received entity in Liberte had its own causes of

action against the fraudfeasors against whom investors, likewise, had claims. The Liberte cases

and the Order attached to Fornshell's Expedited Motion do not support his position. Indeed,

Fomshell cited no cases in the Expedited Motion in which a receiver was found to have standing

to assert claims belonging solely to the investors, and not to the received entities.

B. The Supplemental Order - Which in Effect is a Summary Class CertificationOrder - Violates the Due Process Ri¢hts of Investors and FirstMerit.

1. Parties Affected by this Action - Investors and FirstMeritCorporation - Are Entitled to Due Process of Law.

The Due Process Clause of the Fifth Amendment of the United States Constitution

p;ovides that "No person shall ... be deprived of life, liberty, or property, without due process of

law...... Generally, two types of due process protections are recognized: substantive due process

and procedural due process. Substantive due process prevents the govemment from taking

action which fundamentally "shocks the conscience," Rochin v. California. 342 U.S. 165, 172

(1952), or interferes with rights "implicit in the concept of ordered liberty." Palko v.

Connecticuk 302 U.S.319,325-26(1937).

Procedural due process comes into play where substantive due process requirements have

been met, but the deprivation of a person's of life, liberty or property must be implemented in a

fair manner. Matthews v. Eldridee. 424 U.S. 319, 335 (1976). The fundamental requirement of

procedural due process is the opportunity to be heard "at a meaningful time and in a meaningful

manner" where the State, through an official act, intends to deprive a person of life, liberty or

property. Armstrong v. Manzo. 380 U.S. 545, 552 (1965). Procedural due process has "three

distinct factors:"

17

• First, the private interest that will be affected by the official action;

• second, the risk of an erroneous deprivation of such interest through theprocedures used, and the probable value, if any, of additional or substituteprocedural safeguards; and

• finally, the Govennnent's interest, including the function involved and thefiscal and administrative burdens that the additional or substituteprocedural requirement would entail.

Matthews, 424 U.S. at 335 (citation omitted).

Procedural due process protections must be afforded to both investors -who are not

actually parties to Fomshell's action and have no control over it - and FirstMerit Corporation,

wlrich is potentially subject to a judgment awarding monetary damages based on injuries to "at

least 740 different victims," (Complaint ¶ 5), should Fomshell prevail. Fomshell, however, has

taken a short-cut around procedural due process protections which must be afforded to investors

and FirstMerit Corporation by obtaining the Supplemental Order, which is, in effect, a class

certification made without the procedural safeguards of Rule 23.

2. Fornshell's Unprecedented "Collective Action" Violates ProceduralDue Process Protections Typically Afforded Investors and FirstMeritCorporation Through a Class Action Device.

FomsheIl, by obtaining his Supplemental Order, has instituted an unpreoedented form of

"collective action." The Supplemental Order, in appearances and effect, is the equivalent of a

class certification, given that none of the investors is a party to this action. Many of them are not

even parties to the Receivership proceedings. Indeed, there are only 3,32 Defendants listed on

the docket to the consolidated case of Matthew L. Fornshell. Eso. v. Robert W. Antalik, et al

Case No. 05-560633, which involves those 332 investors whose notes were secured by

mortgages on various property of the Schneiders - not even half of the 740 alleged victims to

which Fomshell's Complaint refers. (Complaint ¶ 5)

18

a Rieorous Analvsis of the Rule 23 Factors by the CerlifvinR Courtis Required to Protect Due Process Riehts of Represented Partiesand Defendants.

Although equivalent to a class action, Fornshell's lawsuit lacks the procedural safeguards

that are the halhnarlcs of a class action brought under Ohio Rule of Civil Procedure 23. In other

words, Fornshell wants the benefit of a class action without any of the stringent procedural

safeguards meant to protect absent class members and defendants. Pursuant to Warrter v. Waste

Manaeement. Inc.. 36 Ohio St. 3d 91, 96 (1988), a plaintiff in a putative class action must

demonstrate, with evidence, the following seven express factors: (1) the existence of a readily

identifiable class with an unambiguous definition; (2) the named plaintiff's membership in the

class; (3) numerosity; (4) commonality; (5) typicality, (6) adequate representation of absent class

members; and (7) a demonstration that the case is maintainable as a class action under Ohio Rule

of Civil Procedare 23(B)(3).7

Fomshell does not meet any, let alone all, of the requirements of Wamer. Indeed, he has

not presented the Court any factual basis for a finding of the legal requirements for class

certification. He is not a member of the class, and he asserts no claims on behalf of the received

entity. Since he has no claims in common with the class, it will be impossible for Fomshell to

show commonality of claims, typicality of claims and defenses, that he is an adequate

representative of the class and that any of the prerequisites ofRule 23(B)(3) have been met.

Each of the Rule 23 factors derive from due process protections discussed in the seminal

case of Hansbeny v. Lee. 311 U.S. 32 (1940) - particularly the adequate representation

requirement. Indeed, due process and standing are intertwined:

The heart of the rationale that the class representative must adequately representthe class is the notion that the court must be satisfied that the class

7 Tlu factors of Rule 23(BX3) are pertinent here because FomsheIl's Complaint seeks damages as the predominantform of relieL

19

representative, by litigating his or her personal claim, will also necessarily belitigating common claims that are shared by the class. This underlyingrequirement that permits class actions to be maintained is derived from standingrequirements in traditional litigation that a plaintiff must have a personal stake inthe outcome of the litigation. This traditional litigation personal stakerequirement is reflected in the basic prerequisites of all class actions....

Newberg on Class Actions, § 1:13 (4th ed. 2002) (emphasis supplied) Of course, as discussed

above, Fornshell has no personal claim and has asserted no claim on behalf of the receivership

estate. Since he has no such claims, he can assert no claims that are common to the claims

shared by the absent class members.

A court is required to conduct a "rigorous analysis" into all requirements of class

certification prior to making a determination. Hamilton v. Ohio Savings Bank. 82 Ohio St. 3d

67, 71 (1998); In re American Medical Systems, Inc.. 75 F.3d 1069, 1078-79 (6th Cir. 1996) e

The Ohio Supreme Court has also recognized the importance of allowing a defendant to a class

action to present evidence at a class certification hearing. Warner, 36 Ohio St. 3d at 98 citin

Walker v. World Tire Coro., 563 F.2d 1090, 1099 (sth Cir. 1977), for the proposition that

"[W]here the pleadings themselves do not conclusively show whether the Rule 23 requirements

are met, the parties must be afforded the opportunity to discovery and present documentary

evidence on the issue.") Nomially, a defendant would have an opportunity to be heard on a

motion for class certification. See, ^ Weathers v. Peters Realty Com.. 499 F.2d 1197, 1200

(6th Cir. 1974). By contrast, Fornshell sought to circumvent the requirements of Rule 23

entirely by moving, on an expedited and ex parte basis, to obtain an Order that, in essence,

certified a class in summary fashion, with absolutely no input from FirstMerit Corporation.

Indeed, Fomshell has previously argued that his action is superior to the Young putative

class action because Fomshell is not subject to the procedural due process requirements of Civil

' Marks v. C.P. Chemical Co.. lnc.. 31 Ohio St 3d 200, 201 (1987) holds that "federal authority is an appropriate aidto interpretation of the Ohio nile' since "the Ohio rule is [virtaally] identical to Fed.R.<Sv.P. 23... :"

20

Rule 23. (Memorandum in Opposition to Supplemental Motion to Stay at 5) This confession of

impropriety is sufficient to vacate the Supplemental Order. It is so fundamental to the concept of

a rigorous analysis that the opposing party have an opportunity to participate in the decision to

certify a class that it is not even the subject of a legal pronouncement.

b. There Is no Res Judicata Effect of Any Judement FomshellObtains "On Behalf of' Investors

Any judgment Fomshell obtains on behalf of investors, or that FirstMerit Corporation

obtains in this litigation, will not be enforceable. The doctrine of res judicata:

...rests at bottom upon the ground that the party to be affected, or some other withwhom he is in privity, has litigated or had an opportunity to litigate the samematter in a former action in a court of competent jurisdiction. The opportunity tobe heard is an essential requisite of due process of law in judicial proceedings.And as a state may not, consistently with the Fourteenth Amendment, enforce ajudgment against a party named in the proceedings without a hearing or anopportunity to be heard so it cannot, without disregarding the requirement of dueprocess, give a conclusivc•effect to a prior judgment against one who is neither aparty nor in privity with a party therein.

Bentley v. Grange Mut. Cas. Ins. Co..119 Ohio App3d 93, 100 (Franklin Cty. 1997) uotin

Postal Telegraph Cable Co. v. City of Newnort. Kv.. 247 U.S. 464, 476 (1918)). If FirstMerit

Corporation obtains a favorable judgment, non-party investors may attempt to sue FustMerit

Corporation again, hoping to fare better the second time around. On the other hand, if Fomshell

obtains a favorable outcome, the judgment would not be enforceable by individual investors

against FirstMerit Corporation. In the absence of the binding effect that characterizes proper

representative litigation in the form of a class action under Rule 23, Fornshell has performed a

disservice to the investors he purports to represent, and FirstMerit Corporation will have no

confidence that a conclusion of this suit will bar subsequent claims of investors.

If this were a certified class action, rather than a contrived "collective action" of

Fomshell's own creation, investors who are not named parties to this suit, and who did not opt

21

out, would nonetheless be bound by any judgment rendered. ee Cooper v. Fed. Reserve Bank

467 U.S. 867, 874 (1984) ("There is of course no dispute that under elementary principles of

prior adjudication a judgment in a properly entertained class action is binding on class members

in any subsequent litigation"); Hansbenv. 311 U.S. at 42-43; Supreme Tribe of Ben-Hur v.

Cauble, 255 U.S. 356, 366 (1921). The due process protections of Rule 23 afforded to absent

class members and the party being sued allow the parties to be so bound.

In sum, Fomshell's theory of a "collective action," although inventive, fails to protect the

due process rights of investors and FirstMerit Corporation. In seeldng the Supplemental Order

on an expedited and ex parte basi., Fomshell in essence obtained a summary class certification

without presenting any evidence bearing on such a decision without a rigorous analysis, as Ohio

law, and the Due Process Clause of the United States Constitution, require. See Wamer v. Waste

Manaeement. Inc.. 36 Ohio St. 3d 91, 94 (1988).

c. Under the Sugplemental Order, the Investors Do Not ReceiveNotice of the Attempt by the Receiver to Represent Them and DoNot Receive Notice Describing the Effect of the Judpment and theOpportunitv to Ont Out.

Under Ohio Rule of Civil Procedure 23(C)(2), class members are entitled to "the best

notice practicable under the circumstances, including individual notice to all members who can

be identified through reasonable effort." Rule 23(q(2). "The notice shall advise each member

that (a) the court will exclude him from the class if he so requests by a specified date; (b) the

judgment, whether favorable or not, will include all members who do not request exclusion; and

(c) any member who does not request exclusion may, if he desires, enter an appearance through

his counsel." Id.

"[N]otice plus an opportunity to be heard and participate in the litigation, whether in

person or through counsel" is a minimal requirement of due process protection of investors not

22

addressed in the Supplemental Order. Philips Petroleum v. Shutts. 472 U.S. 797, 812 (1985).

The notice must be "feasonably calculated, under all the circumstances, to apprise interested

parties of the pendency of the action and afford them the opportunity to present their objections."

Mullane v. Central Hanover Bank & Tivst Co. 339 U.S. 306, 314-315 (1950). No such

procedural safeguards are contained in the Supplemental Order.

Here, the only notice provided to potential class members was, potentially, through the

Court's "previously established noticing procedures" which includes only the "master service

list" maintained by Fomshell - not notice describing their rights and the effect of the judgment to

all 740 investors. (See October 31, 2005 Case Management Order) Further, those on the

'^naster service list'were entitled only to service of the order, not notice describing their rights

and the effect of the judgment as required under Rule 23(C)(2). Failure to provide noticing

procedures specifically for absent investors compromises their due process rights.

d. The Supnlemental Order Provides No Opportunity to Opt Out asDue Process Requires.

Not only does the Supplemental Order fail to provide a noticing procedure, but it also

provides no opportunity for an investor to opt out of the litigation to pursue his own. The United

States Supreme Court held "that due process requires at a minimum than an absent plaintiff be

provided with an opportunity to remove himself from the class by executing and returning an

`opt out' or 'request for exclusion' form to the court." Shutts 472 U.S. at 812. See also

Newberg on Class Actions, § 1:15 (4s' ed. 2002) ("[M]inimal due process...requires notice an

opportunity for class members to exclude themselves from litigation.") Fomshell's "collective

action" fails in this respect as well.

23

e. Fomshell is Not a Member of the Class of Persons He Pumorts toRepresent.

Ohio law requires as a threshold inquiry on the propriety of class certification that the

representative of a class of persbns be a member of that class. Hamilton v. Ohio Savines Bank.

82 Ohio St 3d 67, 74 (1.998). "The class membership prerequisite requires only that 'the

representative have proper standing. In order to have standing to sue as a class representative,

the plaintiff must possess the same interest and suffer the same injury shared by all members of

the class that he or she seeks to represent"' Id. (qpotin 5 Moore's Federal Practice (3 Ed.

1997) at 23-57, Section 23.2[1]).

Fomshell, in his Expedited Motion, aggregates persons into this litigation who share the

following characteristic: "any person or entity that invested with or lent money to Schneider or

any of the Company Defendants on the promise that they would receive a retum on their

investment, or interest in the amounts invested or lent in excess of 3% above the market interest

rate as determined by the Federal Reserve at the time the money was invested or lent."

(Expedited Motion at 3, n. 2) Fomshell is not himself an investor. He is the receiver of the

Schneiders' assets and the assets of their various companies. (Complaint ¶ 1) Fomshell clearly

is not a member of the "class." Further, as discussed in Section A, above, Fornshell lacks

standing to proceed on behalf of the investors in this htigation as receiver of the tortfeasors'

assets.

f. The Sunvlemental Order Provides No Assurance of AdeauateRe resentation of Investors.

Procedural due process "of course requires that the named plaintiff at alt times adequately

represent the interests of the absent class members." Id. Such protection of absent parties in a

representative action was the hallmark of the seminal case of Hansbenv. sanra. In Hansberrv,

the United States Supreme Court allowed parties who were not adequately represented in a

24

supposed "representative" action, similar to the contemporary class action, to collaterally attack a

judgment that affected their interests.

Here, because there was no evidence presented regarding the prerequisites of class

certification, there was no analysis of whether Fornshell is an "adequate representative" of the

investors under Ohio Rule of Civil Procedure 23(A)(4). Clearly, however, Fomshell cannot

represent the class.

First, as discussed above, Fomshell is not a member of the class whose interests are

aligned with those of the class.

Second, there was no demonstration that there is no antagonism between Fonvshell and

investors. ee In re Kroger Shareholder Litigation. 70 Ohio App. 3d 52, 61 (Hamilton Cty.

1990) (discussing the required intra-class antagonism analysis). To the contrary, it appears that

at least certain investors could readily show antagonism exists between them and FomsheIl.

Fornshell actually sued 332 of those very investors to set aside their security interests in real

property of the Schneiders in Case No. 05-560633, which has been consofidated with these

proceedings. Some of the defendants in that case had obtained cognovit judgments against the

Schneiders. Further, several investor-defendants have resisted the setting aside of security

interests before this Court. Antagonism between Fornshell and the investors is an open, and

significznt, issue here. Adequate representation is the backbone of due process in the context of

representativa litigation. See Hansbenv. 311 U.S. at 42-43; Newberg on Class Actions, §1:13

(4th ed. 2002).9

The adequacy of Fomshell's representation matters. To the extent it can be shown, later,

that Fomshell failed to represent the investors adequately, any judgment obtained is subject to

' Indeed, Forashell is not his own fast choice for representative of the investors. He previously has moved for theappointment of liason counsel for the investors, but was subsequently unsuccessful in his efforts to secure suchseparate counsel for them.

25

collateral attack by investors. See. e.g, Matsushita Elec. Indus. Co. Ltd. v. Epstein. 516 U.S.

367, 396 (1996) (Ginsburg J. concurring and dissenting) ("Final judgments...remain vuhierable

to collateral attack for failure to satisfy the adequate representation requirement."); Hansberrv.

sunra. Neither the investors nor FirstMerit Corporation can enjoy the certainty of knowing that a

judgment in this case, whether favorable or unfavorable to Fomshell, will "stick," because there

has been no finding, based on the preponderance of the evidence, that Fomshell is an adequate

representative of investor interests.

g. The Supplemental Order Provides for No Court Supervision ofAny Setflement Process.

If this case were a class action, court approval would be required for Fornshell to settle it

on behalf of the 740 investors to protect their due process rights. Ohio Rule of Civil Procedure

23(E). Moreover, the investors would be entitled to notice of the proposed settlement so that

they could voice their objections, if any, to the proposal. Id. The Supplemental Order entirely

fails to provide for either court supervision or notice of a proposed settlement to investors.

Moreover, if Fomshell settles the case on behalf of investors, but his representatiort is later

deemed inadequate, the settlement is in peril. See Amchem Products. Inc. v. Windsor 521 U.S.

591 (1997) (overtuming a class-wide settlement where there existed adversity between the

representatives and the sub-classes on whose behalf the representatives settled claims). In such a

situation, neither FiustMerit Corporation nor the investors could take comfort that a settlement

orchestrated by Fomshell was an enforceable, full and final settlement and release of all claims

by each and every one of the 740 investors. To the contrary, any such "settlement" would be

meaningless.

26

h. Filing of the Litigation Failed to Toll the Statute of Limitations forInvestors.

In his Expedited Motion, Fomshell argued that he needed to obtain an expedited, ex parte

order allowing him to file suit immediately because the statute of limitations govenvng

investors' claims would, potentially, expire in two days. (Expedited Motion at 6) Fomshell's

argument is futile. Although there is clear legal authority for the proposition that when a class

action is filed, the statute of limitations tolls for all putative class members until class

certification is denied, sae. ^ Chardon v. Fumero Soto. 462 U.S. 650 (1983); American Pipe &

Constr. Co. v. Utah. 414 U.S. 538 (1974), there is no similar legal precedent that Fomshell's

filing of his Complaint tolled the statute of limitations for all investors. By contrast, I{athy

Young's filing of a Complaint on May 10, 2006, had the effect of tolling the statute of

]irnitations until a class determination is made.

In sum, the Supplemental Order deprives both investors and FirstMerit Corporation of

their constitutional rights to Due Process. Moreover, FirstMerit Corporation did not even have

the opportunity to be heard on Fomshell's Expedited Motion. Until recently, neither FirstMerit

Corporation nor FirstMerit Bank was a party to the Receivership proceedings. As the section

below explains, for this reason and others, FirstMerit Corporation had no opportunity to be heard

on the Expedited Motion, in violation of its rights of due process. For that reason alone,

FirstMerit Corporation's Motion to Vacate should be granted.

C. Neither FirstMerit Corporation nor Proposed Defendant FirstMerit Bank.N.A.. Received Timely Notice of the Supplemental Order or an Oanortunitvtb Be Heard on It.

The Supplemental Order specifically requires that Fornshell "immediately provide notice

of the Motion and this Order to all parties in accordance with the Court's previously established

noticing procedures." (Supplemental Order at 4, 14) However, several interested parties -

27

including FirstMerit Corporation - were not parties to the Receivership proceedings and had no

opportunity to object.

FirstMerit Corporation has not had the opportunity to raise any objection to the

Supplemental Order until the filing of this Motion to Vacate. This case was consolidated with

the Receivership proceedings on Apri122, 2007. Prior to that time, FirstMerit Corporation was

not a party to the Receivership proceedings. Additionally, this case was in District Court

pursuant to FirstMerit Corporation's removal for seven months before it was remanded in

December 2006. FnstMerit Corporation was not even served with the Apri122, 2007

Consolidation Order by either the Clerk or Fomshell. It discovered the Order only after a routine

check of the Receivership docket (after which it was served, on May 10, 2007, with Fomshell's

Motion for Leave containing a consofldated caption). FirstMerit Corporation filed this Motion to

Vacate as soon as possible after consolidation, and after it became a party to the Recievership

proceeding:

To the extent that Fornshell could have raised an objection in May 2006 to the entry of

the Supplemental Order, it was not provided notice of the Supplemental Order as the Order itself

requires. Instead of providing immediate notice to FirstMerit Corporation (or FirstMerit Bank),

Fornshell immediately filed a Complaint against FirstMerit Corporation the following day, on

May 24, 2006, without providing any notice whatsoever to FirstMerit Corporation first. The

Supplemental Order was merely attached to the Complaint as an Exln'bit and not separately

served on FirstMerit Corporation.

The Summons clearly states that FirstMerit Corporation had 28 days, not seven, to

respond to the Complaint contained therein. As one would expect, the Summons does not

indicate that, in this particular instance, Exhibit 3 to the Complaint contains a Supplemental

28

Order to which FirstMerit Corporation must raise any objection it has to the Order in only seven

days. Effectively, Fornshell's "notice" that an Order affecting FirstMerit Corporation's rights

had been filed in the receivership proceedings failed to serve the purpose of notice articulated in

Fornshell's Expedited Motion - that any interested parties would have the opportunity to raise

objections with this CourL (Expedited Motion at 6)

The Supplemental Order refers to service of the Order according to "the Court's

previously established noticing procedures." It appears from the Case Management Order

entered on October 28, 2005, that the "noticing procedures" established by the Court for the

"noticing of parties or persons involved in these proceedings for matters other than involving

the sale of Receivership Property," entail (1) providing notice to persons reflected on a "master

service lisY' maintained by Fomshell; and (2) an order that 'Tarties and their counsel are ordered

to review [Fornshell's] website regularly" to view "pleadings and motions filed by [Fomsyiell]"

in the Receivership Proceedings. FirstMerit Corporation would not have received notice

pursuant to these "previously astablished" means.

In any event, Fomshell sued FirstMerit Corporation under the mantle of the Supplemental

Order. Limiting notice only to parties to the Receivership proceedings is inconsistent with

Fornshall's representation in his Motion that, through operation of the Supplemental Order,

"intarested parties [will] be provided with notice and an opportunity to object." (Fornshell's

Expedited Motion at 6) Nevertheless, FirstMerit Corporation did not receive notice reasonably

calculated to apprise it that an Order affecting its rights - in the form of a summary class

certification - had been entered by this Court. Instead, FirstMerit Corporation was sued

immediately, on May 24, 2006, and the Supplemental Order was surreptitiously tucked behind

the Complaint.

29

For this reason alone, this Court should vacate its Supplemental Order.10

IV. CONCLUSION

FirstMerit Corporation only recently has become a party to these Receivership

proceedings, from which the Supplemental Order was issued. Consequently, FirstMerit

Corporation now takes the opporfunity to show the deficiencies of Fomshell's Expedited Motion

and Supplemental Order. Contrary to Fornshell's barebones assertion in the Expedited Motion,

he has no standing to represent the investors, and the investors were already represented by the'tr

own counsel in a putative class action. Indeed, Fornshell's "collective action" violates the due

process rights of the very investors he purports to represent, as well as FirstMerit Corporation,

which had no opportunity to weigh in on the Expedited Motion. In effect, a simimary class

certification was granted against FirstMerit Corporation without any opportunity of FirstMerit

Corporation to be heard on the Motion. This Court should vacate its Supplemental Order.

10 On May 10, 2007, Fomshell filed a Motion for Leave to File an Atnended Complaint, conceding that he sued thewrong defendant on May 24, 2006. FirstMerit Corporation is the bank holding company, while FirstMerit Bank,NA. is the actual bank at which the Schneiders held certain depository accounts. Although FirstMerit Bank is now"aggrieved" by the Order, Fornshell has not served the Supplemental Order on FirstMerit Bank at alL The rights ofFirstMerit are materiatly prejudiced by Fomshell's faibue to ideatify the proper defendant in his pre-suitinvestigation prior to 81ing bis Expedited Motion, and theo, as a consequence, failing to provide FirstMerit Bankany notice of Supplemental Order. In fact, although Fornshell seeks leave to amend his complaiat at this late date,he has not served the Supplemental Order on FirstMerit Bank, an aggrieved party, to permit it an oppordmity to beheard on the Supplemeatal Order.

30

Further, FirstMerit Corporation respectfully requests that this Court schedule a hearing

for oral argument on this Motion.


Thomas 0. Ridgley (0000910Vorys, Sater, Seymour and Pease LLP53 East Gay StreetP.O. Box 1008Columbus, Ohio 43216-1008Telephone: (614) 464-6400Facsimile: (614) 6350e-mail: [email protected]


Marcel C. Duhamel (0062171)Elizabeth A. Ratll$'(0075673)Vorys, Sater, Seymour and Pease LLP2100 One Cleveland Center1375 East Ninth StreetCleveland, Ohio 44114Telephone; (216) 479-6100Facsimile: (216) 479-6060e-mail: [email protected]

[email protected]

Attorneysfor DefendantFirstMerit Corporation

31

CERTIPTCATE OF SERVICE

A copy of the foregoing Motion to Vacate May 23, 2006 Supplemental Order Appointing

Receiver and Requestfor Oral Argument was sent via U.S. Mail this _I!Z f4ay of May, 2007; to

the following:

JoshuaR CohenCohen Rosenthal & Kramer400 Hoyt Block Bldg.700 West St. ClairCleveland, OH 44113

Jonathon M. YargerChemett Wasserman Yarger & Pasternak3300 Erieview Tower1301 East Ninth StreetCleveland, OH 44114


One ofthe Attorneys for De;FirstMerit Corporaflon

32

dant,

05/17I2007 Cleveland 1125508


DOUG WF11TE, DIItECTOR OF THE OHIODEPARTIHI:NT OF COb1MERCE

Plsintifts,

CASE NO: 04 548887

JUDOEJOSEA VIISANi3EVA -

vs. SUPPLEMENTAL ORDER APPOINTING RE['EIVER

JOANNE C. SCHNEIDER

Defendard.CASE NO. 05 560633Cansalidefed with CaseNo. 04 548887

MA2THE W L. PORNBM? ,. ESQ,

Plsmti$

vs.

ROBERT W. ANTALIK, ot eL,

CIEVELAND CONSIRUCTION DiC., a al.,- - .. _ __...`- -- -^ - " --' --- -' PieinUffs,

vs.

PEARL DEVELOPMENT CO. LLC, et al,

Defmde=

CASE NO. 05 559117Cousolidstod vdtlh Cnse No. 04 548887

CASE NO. 05 558095Consnlideted wNh Casa No. 04 548887

STRUCTURA ARCHITECTS, LTD.

P1aiaNiir .

vs.

GARNET DEVELOP1v1ENT COMPANY, LLC, et eL,

Dofrndonts.

MATTREW L. FORNSfiELL, RECETVER

Plnmtl$

vs.

ZACK HOTY, GENERAL PARTNER, et sl..

DefendWs.

CASE NO. 05 559979.Coosolidamd wiih Csse No. 04 548887

CASE NO. 05 564814Consolidatr.d with Cese No. 04 548857

EXHIBIT

A

DANVLlHOVIC,

Plaiatig

vs.

JOANNE C. SCHINEO]ER, et al.

Dofendents.

NEDINA SUPPLY CO., INC.,

Pleinti$

vs

QUALfTY CEMENT, INC., et e1,

Defendants.

CASE NO. 05-5 6 9 073Coacalidated with Cese Na.04548887

Upon the Motion of Matthew L. Fomshell, Esq, thc duly appointed and acting

Receiver, to Supplement the Court's Earlier Orders Appoiatin.g Matthew L. Fornshell as

Receiver (the "Motion'^, in order to expressly grant the Receiver certain additional duties

and powers, the Court finds as follows:

A. Matthew L. Fornshell was appointed as the Receiver for Joanne C.

Schneider ("Schneider") by Order of this Court entered on February 4, 2005 (the

"Order"), as modified. The Receivership Assets include all assets owned by Joanne C.

and Alan Schneider and by Claire's Folly, Inc., Claire's Folly II, Inc., Claire's Grand

River Winery , Inc., Claire's Winery, Old Mill Winery, Inc., Schneider Management Co.,

Pearl Development Co., LLC, Garnet Development Co., LLC, Ruby Development Co.,

LLC, Faith One, Ltd., Faith Fovndation of Cleveland and Pure Spirit Productions, Inc.

(the "Company Defendants"), including causes of action.

2

B. In order for the Receiver to effectively and properly perform his duties and

responsibilities as Receiver, the Order, as amended, should be modified to expressly

include within the scope of the Receivership authority the right to represent and pursue

directly the interests of the Investors (as defined in the Motion) against FirstMerit

Corporation and/or its aff'iliates, agents, officers andlor employees, arising out of or

related to the conduct of the Schneiders and the Company Defendants.

C. The relief requested herein must be granted on an expedited basis, as it

appears that rights may be irreparably lost, either voluntarily or involuntarily, if not

pursued immediately, and the risk of the potentialloss of these rights outweighs the need

for prior notice to parties.

The Court finds tbat good cause exists to grant the Motion, and that the

requirements of Revised Code Sections 1313.56, 1336.07, and 2765.01 have been met,

and aacord'mgly, it is HEREBY ORDERED, ADJUDGED AND DECREED as

foIIows:

1. The Motion is GRANTED.

2. Matthew L. Fomshell is qualified to act as Receiver, and his authority to

prosecute any available causes of action for or on behalf of the Scbneiders or any of the

CompanyDefendants is hereby ratified and confirmed, and to the extent not previously

existing, the•Receiver is also granted authority to represent and pursue directly the

interests 'of the Investors against FirstMerit Corporation andlor its affiliates, agents,

officers, and/or employees, arising out of or related to the conduct of the Schneiders

andlor the Company Defendants.

3. The terms of this Order shall continue in full force and effect unless and until

further order of this Court.

4. The Receiver shall immediately provide notice of the Motion and this Order to

all parties in accordance with the Court's previously established noticing procedure. Any

party may address the Motion and seek appropriate relief by serving and filing a motion

or response to the Motion within seven (7) days after service thereof

rf IS SO ORDERED.

1msl.3 day of May, 2006.

RECENED FOR FILINGS

4

IN THE COURT OF COMMON PI.EASCC)YAHOGA COUNTY, OHIO

DOUG WHTTE, DDIECTOR OF THE OHIODEPARTMENT OF COMMERCE

vs.

PtamtiHe,

JOANNE C. SCHNEIDER

Defendant

tdATTL3$W L. FORNSH£LL, UQ.,

Pleinti$

vs.

ROBERT W. ANTALII{, et sl.,

Defendznts.

CLEVELAND CONSTRUCTION AIC., at st.,

vs.

Plaintiffs,

PEARLDEVELOF2viENTCO. LLC, et el.,

Defrndanb,

STRUCTURA ARCHITECTS, LTD.

Ptalatift:

vs.

GARNET DEVELOPMENf COMPANY, LLC, et st.,

Defeodants.

MATfHEW L. FORNSHELL, RECEIVHA,

Plemti$

vs.

ZACK HOTY, GENERAL PARTNER, et al.,

Defeodaats.

CASE NO: 04 546887

JUDGB JOSE A. VDdANUEVA

F!^-^D23 A 0.

r(^4l

,,.. .,.:o.t r:QJu Y

^: kAi J r_. FJ^ R^ r^;. ^ L: CL' R S. ^ .

RECEIVER'S ERPEDIT&D MOTION TOSUPPLEMENT ORDERS APPOJNTING RECEJVER

CASE NO. 05 560633Geese}ida£ed-with-CaseNa. 04 $48883

CASENO.05559117 'Consolidated with Cese No. 04 548887

CASE NO.OS 558095Consolidated wit6 Cese No. 04 548887

CASE NO. 05 559879ConsaAdated with CeseNo. 04 548887

EXHIBIT

I B

DAN VLAHOVIC,

Plaintiff,

vs.

JOANNE C. SCHNHII)F11, e[ e1.

Defendants.

MPDINA SUPPLY CO., INC.,

P]aiati$

vs.

QUALITY CEMENT, INC., at al.,

Defmdants.

CASE N0. 05 564814Coasolidatcd with Cese No. 04 548687

CASENO. 05-569073Couso]idsted with Cese No. 04-548887

Matthew L. Fornshell, the diily appointed and acting Receiver in this case, hereby

requests that the Court supplement its earlier orders appointing him as Receiver, on an

expedited basis for the reasons set forth in the attached Memorandum of Points and

Authorities.


Yarger (#0043781)1(#0075293)ASSERIvIANASTERNAK, LLC

1N4YEastNmth Street, Suite 3300-Cleveland, OH 44114(216) 737-5000Facsimile: (216) 737-0011Email: jlnyAcwyplaw.com

Aitorneys for Matthew L. Forrrshell,Recefver

2

MEMORANDUM OF POINTS AND AUTHORITIES

Matthew L. Fomshell ("Fornshell" or "Receiver") was appointed as Receiver for

Joanne C. Schneider ("S chneider") by order of this Court entered on February 4, 2004

(the "Order"). An amondment to the Order was entered by this Court on February 28,

2005, expanding the scope of the assets which were identified as receivership assets and

also providing for certain other procedural and substantive modifications to the Order.

Since his appointment as Receiver, Fomshell has conducted an investigation of

the affairs of Schneider and her related companies (the "Company Defendants")' and has

determined that a number of causes of action may exist against FirstMerit Corporation

(hereinafter "FirstMerit Bank"). These causes of aciion belong both to Joanne C. and her

husband, Alan Schneider and the Company Defendants. However, it appears that these

causes of action should also be brought by the Receiver against FirstMerit B ank for and

on behalf of the Investors2 of the Schneiders and the Company Defeadants.

Commencing and prosecuting this litigation on behalf of the Investors will be in

the best interests of the Receivership. Fornshell's investigation has revealed that

FirstMerit Bank, among other things, participated in or aided the Ponzi Scheme conduct

of Schneider, and may be liable for rescission or for some or all of the damages suffered

1 The Company defdndants were identified in the Amended Order Appointing Receiveras Clair's Folly, Inc., Clair's Folly, II, Inc., Clair's Grand River Wmery, Inc., Clair'sWinery, Old Mill Winery, Inc., Schneider Management Co., Pearl DevelopmentCompany, LLC, Garnet Dovelopment Company, LLC, Ruby Development Company,LLC, Faith One, Ltd., Faith Foundation of Cleveland and Pure Spirit Pmductions, Inc.

Z An Investor is any persoa or entity that invested with or lent money to ScYmeider or aayof the Company Defendants on the promise that they would receive a return on their.investment, or interest on the amouats invested or lent in excess of 3% above the marketinterest rate as detemiined by the Federal Reserve at the time the money was invested orlent.

3

by the Investors. The best interests of the Investors will thus be served by allowing the

Receiver to use the evidence, material and legal knowledge already gained to pursue

relief from FirstMerit Bank (and other potential defendants) arising out of or related to

the Ponzi scheme. While the Order, as previously amended, may well already provide

this authority, the Receiver seeks a supplement to the Order, providing that he is

expressly authorized to pursue this action not only on behalf of the Company Defendants,

but also on behalf of tha Investors.

An identical course of action was authorized by Senior U.S. District. Court Judge

David A. Katz in the series of cases now pending in Toledo commonly known as the

Liberte Capital cases. See, Case No. 99-818, pending before the United States District

Court for the Northem District of Ohio. The Lib'erte Capital case revolves around the

viatical settlement industry. rn this investment scheme, companies were engaged in the

business of purchasing life insurance policies fiom terminally ill policyholders willing to

sell their rights to the policies. The companies solicited investors who invested money,

which was to be used to buy the policies. When the investment scheme collapsed, the

District Court appointed a receiver over the assets of the investment companies and the

individual personally involved in the fraud. See, Liberte Capital Group v. Capwill, 229

F. Supp. 2d 799 jN.D. Ohio 2002).

The original entry of appointment in the Liberte Capital case stated that the

receiver was empowered to oversee and to administer the business and asset's of the

companies, but did not grant the receiver the authority to represent and pursue the

interests of the individual viatical investors. The receiver eventually brought litigation

against several brokerages houses and three commercial banks on behalf of the estate and

4

the investors. The banks each filed a motion to dismiss, arguing in part that the receiver

lacked standing to pursua the investor claims. '£hereafter, the court granted a motion to

expand the authority of the receiver and to grant them both (there were actually two

receivers acting in this case) the power to "represent and pursue the interests of investors

directly." A copy of the Joint Motion of the Receivers for an Additional Statement of

Authority (without attachments) is attached hereto. A copy of the District Court's Order

authorizing the receiver to represent and pursue the interests of investors directly is also

attached hereto.

The Investors in this case are largely unrepresented by legal.counsel, and the need

for the Receiver to act in their interests is thus heightened. In the first few montlts

following his appointment, the Receiver filed a Motion for Entry of Practice and

Procedure Order and for Order Approving Appointment of Liaison Counsel. While the

proposed liaison counsel was not to act in the capacity as representative counsel for the

Investors, he or she was to serve as "the appointed voice of the defendants." This Court

ultimately granted that motion, and ordered the parties to confer on the appointment of

suitable liaison counsel in its Order dated June 23, 2005. Unfortunately, no attomey

among those counsel contacted by the Receiver was willing or able to serve as liaison

counsel and the position was unable to be filled. Consequently, no person has yet been

appointed by the court to act as the "voice" of the Investors. Granting the Receiver the

authority requested herein will serve to fulfill that need with regard to the claims against

FirstMerit Bank, and will allow the lnvestors to participate in a chance to receive some of

their lost investments.

The Receiver also requests that the Motion be granted on an expedited basis

without prior notice to the Investors or other parties to this case for the following reasons.

First, the Receiver has determined that one or more of the causes of action which

he intends to bring against First Merit Bank may be subject to a statute of limitations

which might expire on May 25, 2006. While the Receiver has concluded that the statote

of limitations for these causes of action will not expire on that date, he has decided to

bring this lawsuit on or before that date in order to avoid any potential issue.

Second, any person or entity aggrieved by the Supplemental Order will have the

right to seek its modification or other appropriate relief at a later time. The relief granted

heiein could be readily modified or withdrawn entirely if the Court so determines, and its

entry without prior notice will not materially a$ect any parties' interests or rights. On the

other hand, if the relief is not granted as requested herein, and if May 25, 2006 turns out

to be a real deadline, then irreparable harm inay befall Investors whose rights have been

lost.

For the foregoing reasons, the Receiver requests that the relief requested herein

be granted on an expedited basis and tbat interested parfles be provided with notice and

an opportunity to object, thereafter.

RespectfuIly submitted,

Yarger (#004378 1)del (#0075293)WASSERMANPASTERNAK, LL C

East Nmth Street, Suite 3300Cleveland, OH 44114(216) 737-5000Facsimile:'(216) 737-0011Email: imy(acwyplaw.com

6


The undersigned hereby certifies that a copy of the fbregoing Receiver's

Expedited Motion to Supplement Orders Appointing Recefver will be served by the

Receiver on the following persons:

]oanne and Alan Schneider8255 Crystal Creek DriveNorth Royalton, Ohio 44133

Ian N. Friedman, Esq.700 West St. Clair Avenue, Suite 10Cleveland, Ohio 44113

All peisons who have filed a Noflce of Appearance with The Garden City Crroup or theReceiver.

The foregoing will also be posted.on the Receiver's website. www.szcLcom.

ttorneys fbr Matthew L.his official capacity as

7

Case 5:99-ev-00818-DAK Document 1979-1 Filed 04/22/2003 Page 1 of 6

IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

LIBERTE CAPITAL GROUP, LLC

Plaintiff,

CASE NO. 5:99 CV 818

JUDGE DAVID A. KATZ

vs.

JAMES A. CAPWILL, ET. AL

Defendants.

JOINT MOTION OP THE RE .F R4 FOR AN ADDITIONAL SIXTEMEN-7OP AUTHORITY

Now comes Victor Ivf. Javitch, the General Receiver, and William T. WuGger, the

Alpha Receiver, and hereby request an Order grantmg them additional authority as it

pertains to the iaterested parties in this case.

Since the appoiatment of the original Receiver in this matter on July 15,1999, and

the sub stitution of Mr. Javitch approximately a year latet, the ase has evolved both in terms

of its compleadty and the detnands placed upon the Court and its Receivers.

Notwithstaading the constaat evolution of the case, both Receivets have been performing

their duties and exerdsiag their authority pursuant to the terms and conditions set forth in

the original orders of appointment

The original order of appointment of a General Receiver authorized Receiver

Frederick Luper to take charge of the assets of Viatical Escrow Services and Capital Fund

Leasing, which at that time were known to be the primary vehicles for Defendant Capwill's

misappropriation of the Plaintiffs' funds. The Alpha Receiver and the Liberte class counsel

are in agreement with the caczent General Receivet that a restatement of thek authority is

appsopriate in light of the evenchanging c.ircnmstances of this case.

Case 5:99-cv-00818-DAK Document 1979-1 Filed 0412212003 Page 2 of 6

The appointing court controlsthe powers of a receiver, and therefore controls his

actions. Fed.R.Civ.P. 66;Jcvitrh v. Ffrt! Unioa Secxrifiet, Iso., et a1, 315 F.3d 619 (66'Cit 2003);

t4f.tGimren x U.S., 90 F.3d 143 (6ih Cir.1996). The issue of the cxtent of a Receivet's powers

depends on the authority granted by the appointing court and that actually exercised by the

receiver. Jevihb, 315 F.3d at 61.

A corporate receiver's authority in the context of ordinary receivership cases extends

only to marshal and preserve the assets of a for-profit entity for the benefit of creditors

genetally. Soholer v. Lebmcnn, 56 F.3d 750 (7" Cit. 1995); Goodman P. FCC, 182 F.3d 987

(D.C.Cir.1999); Scbnle.r u Schroeder, 744 F.Supp. 1419 (N.D.Ll. 1990). Accordingly, courts

have rarely foond that these receivers are capable of asserting the interests of othets directly.

By contrast, in the instaat case, the Court iuitially placed Viatical Escrow Services

and Capital Fund Leasing into receivership. These two entities were little more than sheIl

corporatioas that were used by Defendant CapwAl to perpetrate a fraud on his clients and

their investors. The two entities essentially lad no assets of their own. VES dealt

exclusively with trust fuads belonging to investors and escrowed manies of the Plaintiffs.

(apwill in nua funded CFL with 'assets' that consisted aimost enttrely of investor fuads

rightfuliy brloaging to VES. It has now become clear that the'assets' in these receivetships

are the investor funds. The Couzt bas consistently ruled that the property at issue in this

case wiIl eventaally be distributed to the injured investors.

Defendant CapwiIl diverted the assets of VES and CFL to the detrimeot of the

innocent investors. Because of the extent to which Defendant Capwill tnismaaaged,

commingled, and otherwise misappropriated these funds, the funds lost their separate

2

Case 5:99-cv-00816-DAK Document 1979-1 Filed 0412 2 /2 0 0 3 Page 3 of 6

identity and, as a consequence, the investors lost their tight to pursue recovery under a

lxadng theory. The Court established a pro rata basis for disttibution accordingly.'

As the Courtis well aware, the multip&city of issues that have developed through the

course of the aciministtation of these receivetships bave required the intervendon of the

Court in the fattn of specific directioa ot authorization on many occasions. The docket of

this case is replete with instances of both Receiveta requesting spedfic insttuctions or

direcdon from the Coutt when mattets warranted.

The Receivers have always maintained clearly in mind their mandate to preserve and

increase their respective estates for the ultimate disttt'bution to follow. In recognition of this

goal, the Court at vauous times has autitntized the Receivers to act in the interest of and for

thc direct benefit of the injured investuts on an ad bacbasis when such a declaration was

derlned constructive.

On October 16, 2000, the Coutt otdeted, the General Receivu to take control and

dispose of a pottfo]io of viatical life insurance policies undet the control of the Court by

virtue of a pteSiminary injunction issued in the zelated matter of United Stater vf Ame,tra P.

Eichard JamieJVn, et aL, case number 3:00CV7312 = A copy of the Order is attached hereto as

Exhibit A. The Court found that the General Receivet, by virtue of his appointtaent, was

"needed to take coatrol over and to be provided with the authority to dispose of and protect

aaid policies in the best interest of the investors." SeeHxhibrlA (esrpbarir addedJ. The

Court further found that the Receiver'7tas the authority to conduct said sale of the policles

pursuant to this Order, and the fact that he is successor in interest to the previous

fiduriaries:' Id

' SeeDaeketNo. 1797.1 DoclketNo. 777

3

Case 5:99-cv-00818-DAK Document 1979-1 Filed 04/22/2003 Page 4 of 6

The Court Llcewise acknowledged the ovessiding interest of the investors in the

context of its adoption and approval of the patties' setflement agreement' On January 19,

2001, the Court issued an Order that provided in part "Victor Javitch will remain in place as

the Receiver and he wi7l continue to act oa behalf of the plaintiffs, interveningplaintiffs, and

their investots for purposes of obtaining recovery of money and assets aad to take

direction of the U.S. District Courts in Akron and Toledo to enhance the economic interests

of the plaintiffs, intercening plaintiffe as weIl as th eir investors wit}t the goal of protecting

the etonomie interests of same." See Order af 1/19/01, attaabed benta as Exhibit B(empbaria

addad^

In the interest of the fair and ordetly adtninistntion and distributioa of the estate,

the Court on another occasion precluded investors from bringing claims on their own

behalf, deeming such claims to be assets of the reeeivetship estates.' The Order of October

2, 2002 recognized that overlapping claims on the part of individual or groups of investors

seekng to recover damages from their Liberte or tllpha brokers could endanger the

equitable distcibution of the estate The Court therefore ordered that all such elaims are

assets of the receivecships "and must be filed by the Receivers, if at all." Sea Exhibit C.

The history of the docket of this case evinces a clear intent on the part of the Coucy

the parties, and the Receivers themselves to adrninister the receiverships in a manner

calculated to mammize the size of the estates for the benefit of the investors. In succeeding

to the rights of the entities in receiverahip, the Receivers are also obligated to protect the

rights of the investors whose interests cornpase the assets witbin the estates. Because of the

escrow nature of PES, the equitable interests of the inveators cannot be ignored. Those

interests are virtually one and the same.

3DoeketNo.925' DocketNo.1758

4

Case 5:99-cv-00818-DAK Document 1979-1 Filed 04122/2003 Page 5 of 6

The presetvation of an equitable clitnate for distribution is essentiaL Despite the

Court's certification of a class ofLiberte Capital Group investors,ithas fallen to the General

Receiver to assert cls.ims for their benefit as a matter of cotnmon ptactice in this case. Both

Receivers and the Lt'berte class counsel have consistently engaged in a cooperative effort to

preserve the interests of investors. In its tnemorandum opinion discussing the method of

distdbution, the Court noted that "the Receiver's methods, as weIl as those of class counsel,

have tesulted in ongoing litigation both in federal and state court as he attempts to contiaue

to marshal assets on behalf of the Receivership estate for the benefit of the investors and

others." See Exbibit D.

The absence of a certified class of Alpba investors has made it essential that the

Alpha Receivet act affitmatively to represent the interests of those iavestors directly,

consistent with the terms of his own appointment order, and he has done so as a matter of

coutsa's The Alpha Receiver's appointment order explicitly states that he is "to use his best

judgment to protcct the rights of Alpha investors and to discharge his duties in a mannet

ealculated to presetve the greatest monetary recovery for the maaimum number of aIlAlpha

investots." -

These Orders are consistent with the equitable goals of the Court and its Receivers

to recover funds for the ultimate benefit of the investors in anticipation of the Court's

eventual order of distribution. The parties to this case have operated in the past with the

tacit understanding, and on sevetal occasions with the express atthorization, that the

Receivers act in the interest of investors.

WHEREFORE, the Receivcrs jointly request an Order from the Court expressly

recognizing that their authority is twofold: to recover and presuve the assets of the

° DucketNo. 1290

5

Case 5:99-cv-00818-DAK Document 1979-1 Filed 0412212003 Page 6 of 6

receivaship entities consistent with the intent and terms of the original appointment orders,

and to act in and represent the direct interests of the investors. This Motion is filed with the

consent and approval of class counsel for the Iaberte iavestors.

Respeetfully submitted,

/a/ VirtarM lmrihbvICTORM. jAVITCHGENERALRECEIVERJavitcb, Block & Rathbone LLP1400 Pentan Media Building1300 EastNinth StreetCleveland, Ohio 44114(216) 623-0000 Telephone(216) 623-0190 FacsimileyiavitcaJhzndR, eom

/.r/ {®ilkam T. 1Y/afigsrWILLIAM T. WULIGERALPHA RSCEIVF.RWuliger, Fadel & BeyerThe Brocvnell Building1340 Smmmer CourtCleveland, Ohio 44115(216) 781-7777 Telephone(216) 781-0621 Facsimtle

6

Case 8:99-cv-00818-DAK Document 1982 Filed 04122/2003 Page 1 of 2

IN THE AI IITED STATES DISTRICT COURTFOR THE NORTfi1;RN DISTRICT OF OHIO

WESTHRN DNISION

LIBERTE CAPITAL GROUP,

Plamti$ Case No. 5:99 CV 818-vs-

O R D E R

7AMES A. CAP9dILS., et al.,

Dofendant.KATZ, J.

This matter is hefote the Court oa the joint motion of the Reoeivets for an additional statement of

their authority with respeat to interested parfies. (Doa No. 1979)

The Court tacoozes that the original ordec of appoiatment of the General Receiver in this case is

nearly fom: years old. Witlmnt questions the wiffiin matter bas doveloped well beyond tho origiaal

conxption of the parties and the Court bath in terms of its breadth and complexity. The consistent

factor thmoghout the history of this case has been the need for diligent efforts on ffie part of the Genecal

Receiver, and subsequeatly the Alpha Receiver, to act affinnafively to recover and preserve the assets of

their Estates sohject to tLe supervision and approval of the Coutt.

The Covrt finds that the Receivers' efforts contimie to be necessary. The Court finthet

tec.ognizes that ihose efforts aie necessary not only to vindicate iotetests witbin the striet con8nes of the

entities in receivership, but in the dixect and larger interest of the imrostors as well, Tbo Coiut has

ehaxged the Receivers m the past with repceseiting the adecests of the investois wlun necessary, or when

Case 5:99-cv-00818-DAK Document 1982 Filed 04l22/2003 Page 2 of 2

it would be impracticable or imposs'ble for them to do so on their own Having receotly detemiuied that

a pro iata dishibution plan wonld be the most equitable under the eitct stames, the Coiut is also

mmd5il that the ultimate distnbution is i¢tmded to remedy in some measu:e harm done to the indtviduat

mvestots. It is thecvfore

ORDERED that the Geaeral Receiver and the Alpha Bazivet, in keeping with tho ultimate goal

of mm;.n_ =g the Estates for tbe benefit of the investocs, are empowered to represent and pcusoe the

interests of investors directly. The Receiveis sball fiather continne to carry out their dufies and

obligations as set forth by previous and existing Orders of the Coart. FinaIIy, tbo Receivers shaIl comtinue

to coo:dinate their effarts with class counsel to :eeover, protect and preserve receivership assets.

TT IS SO ORDERED.

slDavid A. KatzDAVIDA. KA1ZU. S. DISTiLICT IUDGE

2

"9i ifAY i o P4. li 2J

IN THE COUIIXZ^_ _f{(EMM Pi.EASCUYAH

KATHY YOUNG5994 Gienway Drive, Apt BBrook-Park, Ohio 44142-1440[On behalf of herself and all personssimifarly situated]

Plaintiff,

V.

FIRSTINERiT BANK, N.A.,111 Cascade PlazaAkron; Ohio 44308

))

Defendant.

cv^ MP^1®610fA01^^0

39318569

I,.,+....hdge: WiLLVW r coYxE

MM®M®IXIUEI CV 06 591332

Class Action Complaint

Jury Demand Endorsed Hereon

Plaintiff Katherine Young, for herself and on behaiF of atl others simifariy situated,

states as follows upon imrestigation of counsel and upon infonnation and belief for her

ciass 'action oompiaint:

1. THE PARTIES

1. Plaintiff and Class Representative Kathy Young is a resident of

Independence, Cuyahoga County, Ohio.

2. Defendant FlrstMerit Bank ('FirstMerft' or °Defendant') Is a National

Banking Association wtth Its principal place of business in Akron, Summit County, Ohio.

FirstMerlt engages in banking activity throughout the country and substantial, non-

Isolated banking transacfions throughout the State of Ohio, including in the City of

Strongsville, Cuyahoga County, Ohio.

EXHIBIT

I c

Ii. JURISDICTION AND VENUE

3. This Court has subject matter jurlsdiction over this matter pursuant to

§2305.01 of the Ohio Revised Code and ArtiGe IV, § 4(B) of the Constifution of the

State of Ohio.

4. Venue is proper in this Court pursuant to 3(B)(3), (6), and (11) of the Ohio

Rules of Civii Procedure because Defendant regularly and systematically conduds

banking business in Cuyahoga County, Ohio, inciuding the activity that gives rise to the

daims set forth In this compiaint.

Ill. INTRODUCTION

.5. Piaintiff brings this actfon to pursue Ohio statutory and common law

remedies arising from the essenfiai role FustMerit played In fadlitating an IAegal

promissory note investment scheme. '

6. At all times relevant, FirstMerit maintained a business checking account

#5763000257, which had been opened at its 5trongsviile, Cuyahoga County branch

office in the name of "Alan C. Schneider, d.b.a. Mortgage Escrow" (the "Mortgage

EscrowAccounY').

7. Between January 1, 2000 and January 1, 2005, FirstMerit provided all

banking services needed to facaitate a massive Ponzi scheme which victimized

hundreds of Northeast Ohio famiftes - (the "Mortgage Escrow Schemel.

8. Victims of the Mortgage Escrow Scheme were told that "Ntortgage Esarow"

was a highly-profitable real estate business; In fact, 'Mortgage Escrow' was nothing

more than a FirstMerit bank account and the distnbutions received by investors were

actually funds contributed to the Mortgage Escrow Scheme by its newest victtms,

2

9. At all times relevant, FirstMerit faiied in its obiigations to 'know its

customers; to report to regulatory authorities a steady stream of suspicious, atypical

activity In the Mortgage Escrow Account and to shut down that acxount. •

10. Plaintiff and members of the putative class continued to pour their savings

into the Mortgage Escrow Account because FirstMerit turned a blind eye to the Illegal

activities in the Mortgage Escrow Account and continued to process and facilitate all of

Its customers' t4egai sales transactions. Promoters of the Mortgage Escrow Scheme

were able to continue to strip Piaintiff and members of the putative class of their

savings.

IV. FACTUAL BACKGROUND

A. The Mortgage F.scrow Account Raised Red Flags

11. During the period 2000 2005, the Mortgage Escrow Scheme proceeded tn

this fashion:

a tts promoters sold unregistered °promissory note" securifiesto the pubiic In violation of Chapter 1707 et seq. of ihe OhioRevised Code;

b. Investors were instructed to make their cheoks payable to"Mortgage Escrow' or 'Aian Schneider, d.b.a. MortgageEscrow' or some variation thereof, and about 2,500 of thesechecks were presented to Defendant at Its Strongsville, Ohiobranch office and deposited into the Mortgage EscrowAccount;

c. Monthly deposits to the Mortgage Escrow Account ranged intotal between $500,000 and $2.5 million and many of theinvestor's personal checks presented to FlrstMerifs teller atthe Strongsviile branch 'for deposit made reference to theexistence andlor tenns of the iiiegai promissory notetransaction;

d. Defendant processed about 30,000 withdrawals from theMortgage Escrow Account wFiich primariiy comprised

3

monthty 'interest" distributions to Noteholders; many of thechecks drawn on the Mortgage Escrow Account makePeferenoe to the exisfence and/or terms of the Illegalpromissory note transaclion or to "gifr or other personaluses for the Mortgage Escrow Scheme's promoters.

12. At all times relevant, activrty in the Mortgage Escrow Account raised many

"red flags" which; at a minimum, placed Defendant on inquiry notice that its customers

were using the Mortgage Escrow Account to fapilitate illegal, fraudulent and/or other

Improper aptivities.

13. At afl times relevant, Defendant maintained several accounts and provided

extensive personal and business banking-related services to the Mortgage Escrow

Scheme and to persons and entities with which they were affifiated, which servioes

included processing credft applications, wire transfer transactions, overdraft checking

activity, assessing special fees and "bad oheck" charges.

14. As a result of tts extensive and long-standing relafionship with these

individuals and entities and the aotivity in the Mortgage Escrow Account descdbed

above, Defendant knew that'Alan C. Schneider d.b.a. Mortgage Escrow' was not using

the Mortgage Escrow Account to facilitate any lawful or legitimate business enterprise.

15, Even after FirstMerit received subpaenas from the Divfsion of SecuriEies

pertaining to fts customers' fllegaf sales of promissory note securities, FirstMerit

continued to allow them to perpetuate the Mortgage Escrow Scheme through the

Mortgage Escrow Account

B. FirstlVlerit's Obrigatlon to Report Suspicious Activity

. 16. All financial instituttons are requlred by federal statutes and regulations to

report suspicious activity to law enforcement, banking regulators, and the Financial

4

Crimes EnForcement Network. The suspicious activity report ("SAR"j fiGng form

contains instructions that detail the legal and regulatory requirements for reporting

suspicious activity.

17. FirstMedt is rnquired to report suspicious activify to law enforcement and

regulators as set forth in 31 U.S.C. § 5318(g) and 31 CF.R. § 103.18 and the reporting

rules of the Board of Govemors of the Federal Reserve System ("fhe Federal Reserve

Board l. All SARs filed by banking organizations are required to be accurate and timely,

and to provide a complete description of the suspicious activEty invoived.

18. The Financial Ctimes Enforcement Network, 31 CFR §103.18(b)(3)

providesc

A bank is required to file a BAR no later than 30 calendardays after the date of lnl6al detecGon of facts that mayconstitute a basis for filing a SAR. If no suspect wasidentified on the date of detectton of the Incident requiringthe filing, a bank may delay filing a SAR for an addidonal 30calendar days. to Identify a suspect. In no case shallreporting be delayed more than 60 calendar days after thedate of Initlal detection of a reportable transacNon.

19. As a result of FirsWlerft's failure to comply with these regulattons, standards,

and policies, it furthered the Intent and purpose of the Mortgage Escrow 5cheme.

C. FirstMerit is Required by Law to Know its Customers

20. Since the tnception of the Mortgage Esuouv Accounk Defendant had an

obligation to 'know lts customers" 'Alan Schnelder d.b.a. Mortgage Escrow." After the

Patriot Act was enacted in 2001, FirstMerit had a heightened duty to 'know Its

customers.'

5

21. FirstMerft had reason to suspect Its customers were using the Mortgage

Escrow Account in furtherance of a fraudulent andlor illegal purpose, It faled to inquire

or investigate further.

V. CLASS REPRESENTATIVE ALLEGATIONS

22. Pursuant to Rule 23(A) and (8)(3), Ohio R. Civ. P., the Class

Representatives bring this action on their own behalf and on behalf of others srmilarly

skuated. The Class Representative Plaintiff Is a member of the Class.

23. The putative class In this action (the "Class') is defined as follows: all

persons and entiCies who Invested monies into the Mortgage Escrow Acoount from five

years proceeding the filing of this complaint.

24. Pursuant to Rule 23(A)(1), the Class is so numerous that joiner of all

members Is Impraoticable. Upon infonnation and belief, there are more than 5m

members in the Class.

25. Pursuant to Rule 23(A)(2), comrnon questions of fact and law affect the

claims of each member of the Class, and predominate over Individualized Issues.

Issues of law or fact common among the Class inGude, but are not limifed to, the

following; - -

• whether or not F'¢stMerit knew or ought to have known, Inthe exercise of due diGgence of the possibility that itscustotner was using the Mortgage Escrow Account Enfurtherance of fraudulent, iliegal and/or wrongful activity;

• whether or not FirstMertt ever submitted a"SuspiciousActivity ReporC for the Mortgage Escrow Acaount orInquired or lnvesdgated further upon becomingsuspicious of account aotivity;

6

whether or not FirstMerit's actively or passively fact<itatedIts customers' fraudulent and illegal misconduct;

• whether FirstMerit aided the Schneiders in "laundering'and frauduientiy diverting Investor funds; and

• whether or not Plaintiff and members of the putative classhave suffered damages that were pno)dmately caused bythe conduct of FirstMerR

26. Pursuant to Rule 23(A)(3), the claims of the Class Representatives are

typical of the claims of each member of the Class.

27. Plaintiff Kathy Young, a ratlred widow living alone in Independence,

Cuyahoga County, Ohio, purchased a new Mortgage Escrow promissory note in hopes

of deriving a steady stream of retirement Income annuatly between 1999 and 2004. On

July 23, 2004, she used the proceeds of her late husband's life Insurance poiicy to

purchase a$50,000 Mortgage Escrow pramissory note.

28. The tegal claims asserted In this action, as well as the facts underlying

those claims, are the same as would be advanced by all members of the Class were

they to instifute individual actions. Further, members of the Class have sustained

damages as a result of the same course of misconduct by FlrstMerit in the Schnefders'

scheme.

29. Pursuant to Rule 23(A)(4), the Plaintiff Is an adequate representative of the

Class and will fairly and adequately protect the interests and rights of the Class.

Plaintiff is aware of her duties and responsbiliUes as Class Representative, and has

agreed to undertake those responsibpities to the best of her respective abilities. The

Plaint'df possesses a general understanding of the nature of the claims being asserted,

and Is willing to represent the interests•of the Class as a whole. The undersigned

7

attomeys have substantial expedence in complex and class action litigafion, and wlll

adequately represent the Interests of the Class.

30. Pursuant to Rule 23(BX3), common Issues of fact or law predominate over

any questions affecting only individual members, and a class action is superior to other

available methods for the fair and efficient adjudication of the controversy. The size of

the claims of the Class members, In light of the complex4y of the issues, render

individualtzed suits cost prohlbitive. There Is no discenu'61e interest of Class members

In individually controiling the prosecution of separate acfions. Upon information and

belief, no other lifigation of thls controversy has commenced and Is pending by

members of the Class. It is desirable to concentrate the fGga6on of the claims in this

forum. There are no signiflcant or unusual difficulties associated with the facts and legal

theories giving rise to these claims which would preclude the maintenance of this case

as a class action.

VI. CAUSES OF ACTION

COUNT I -VIOLATION OF OHIO SECURITIES LAWS(O.R.C. CHAPTER 1707 etseq.)

31. The faregoing averments of the Complalnt are Incorporated by reference

here.

32. Pursuant to §1707.44 of the Ohio Revised Code ("ORCI:

(A)(1) ... no salesperson shatl sell securities In this statewithout being Gcensed pursuant to secfion 1707.16 of theRevised Code.

(C) No person shall knowingly sell, cause to be sold, offer forsale, or cause to be offered for sale, any security whichcomes under any of the following descriptions:

8

(1) is not exempt under section 1707.02 of theRevised Code, nor the subject matter of one of thetransac8ons exempted in section 1707,03, 1707.04,or 1707.34 of the Revised Code, has not beenregistered by coordination or qual'ification, and is notthe subject matter of a transaction that,has'beenregistered by description.

. . :

33. The promissory notes sold pursuant to the Mortgage Escrow Sdheme

constitute "securities' as defined by O.R.C. § 1707.01(S).

34. Each sale of promissory note securities violated Ohio law because the

promoters of the Mortgage Escrow Scheme:

• were never Gcensed by the State of Ohio to sell securities;

• failed to register the promissory note securities sold pursuant to theMortgage Escrow Scheme with the State of Ohio.

35. The abovementioned violations of O.R.C. §1707.44 materially affect the

protections contemplated by Chapter 1707.

36. Pursuant to §1707.43(A) of the Ohio Revised Code,

Every sale or contract for sale made in violation of Chapter1707 of the Revised Code is voidable at the election of thepurchaser. The person making such sale or contract forsale, and every person who pan5cfpated !n or aided theseNer !n any way fn making the sale or contract for sale,are jointiy and severally liable to the purchaser.

37. FirstMerit °aided and participated" in the. sale of Illegal securities within the

meaning of O.R.C. 1707 by continuing to provide all banking services and faciiities

required for the processing of purchases and distributions on the manner and under the

cin:umstances hereinabove alleged.

9

38. Pursuant to O.R.C. §1707.43, Plaint'df and all members of the putative class

are entitied to rescind their respective purchases of Mortgage Escrow Account

promissory note securities and to n.cover their purchase prices from FirstMerit

39. Pursuant to O.R.C. §1707.43, Plaintiff and all members of the putative class

shall tender to Defendant, in person or in open court, their respeative Mortgage Escrow

Account securitles.

40. Neither Plaint'df nor any member of the putative class has received an offer

In wrfting to relinquish his or her promissory note security and receive In return the full

amount paid thereof.

41. As a direct and proximate resutt, Piainttff and all members of the putative

class have suffered damages of a nature and to an extent to be demonstrated at the

trial of this cause.

COUNT 11 - CIVIL AIDING AND ABETTING

42. The foregoing averments of the Compiaint are incorporated by reference

here.

43. At all times relevant hereto, FirstMerit was aware of the fraudulent, Illegal

activity andlor other misconduct engaged in by Its customers, the promoters of the

Mortgage Escrow Scheme.

44. At all times reievant, FiratMertt was aware of fts role In the Mortgage Escrow

Scheme, i.e., supplying essenftat banking services to launder the proceeds of their

Illegal securities sales through the Mortgage Escrow Account.

45. At all times relevant, FirstMerR knowingly and substantiaiiy assisted Its

customers' frauduient and Illegal misconduct.

10

. 46. As a direct and proximate result, Plaintiff and all members of the putative


trial of this cause.

COUNT III - CIVIL CONSPIRACY

47. The foregoing averments of the Complaint are incorporated by reference

here.

46. FrstMerlt fonned a malicious combination with the promoters of the

Mortgage Escrow Scheme and engaged in a course of conduct constitudng civil

consp'uacy, thus to advance the fraudulent and Illegal objectives of the Mortgage

Escrow Scheme.

49. As a direct and proximate resutt, Plaintiff and aR members of the putative


triai of this cause.

VII. CLASS REPRESENTATIVE RELIEF

WHEREFORE, Piairrtiff,.individually and on behalf of all others sanilarly situated,

requests the following reGef.

a. an Order certitying the Class and appropriate sub-aiasses, if any;

b. an Order appointing the undersigned as counsel for the Class;

c. an award of compensatory damages In an amount to bedemonstrated at trial, not less than $80,000,000, punitive damages,and pre^udgment and post judgment Interest in favor of the Ctassand against FirstMerit

d. an award of reasonable attomey fees and reimbursement of costsand expenses to oounsel for the Class; and

e. such other and further relief to which they may be entitled,

11


J . Chapman 25811)Jason T. Albin (0078458)John S. Chapman & Associates, LLCHoyt Block, Suite 300700 West St. Clair AvenueCleveland, Ohio 44113216.241.8172 P216.241.8175 [email protected]@jsdtd.com .

JoelLAvin (001d671)stopher M. Vlasich 75546)

Aparesh Paul (0077119)Levin & Assooiates, L.P.A.The Tower at Erieview, Suite 11001301 East 9°i StreetCleveland, Ohio 44114216.928.0600 P216.928.0016 [email protected]®[email protected]

Atfomeys for Plaintiff

12

No. 07-3259

UNITED STATES COURT OF APPEALSFOR THE SI%1Ii CIRCUIT

Tn re: MA'ITHEW L. FORNSH&I,L,

Petitioner.

))

Q.$D- E))

PILEDAPR 1 9 2001

IWNARD GREEN, Cterk

Before: SUHRFiEIIdRICH and QIBBONS, CircuitJudges; HBYBURN, ChiefDistrictJudge'

The petitioner seeks a writ of mandamus directing the distnct court to remand a case to the

state comt from which it was removed. However, because he has a remedy via a direct appeal

pending before this court, the writ sball be denied.

In 2004, the Ohio Division of Securities brought an enfo*cr+++Pnt action against Joanne and

Alan Schneider, who are alleged to have conducted a massive Ponzi scheme resultmg in losses to

hundreds of investors. The petitioner, Matthew Fornshell, was appointed the receiver for the

Sohneiders' assets.

In 2006, one of the investors, ^+he*+nP Young, brought an action on bebalf of herself and

otherinvestorsagainstFirstMeritBank. TheSchneidersbadmaintainedamortgageescrowacxount

atFirstMeritthatwas allegedlyused as the toolforthePon7i activities. Young's actionnlaimedthat

FirstMerithadbreachedOhio securities law and aidedandabettedthe Schneiders' unlawful actions.

'The Honorable John G. Heybum II, Chief United States Distdct Judge for the WestemDistrict of Kentucky, sitting by designafion.

No. 07-3259-2-

ShortlyafterYoungfiledber action, thepetitioner songhtan A**+Pnd+++Pntto his appoinhnent

as receiver to allow him to pursue soeb an action on behalf of investors against FirsHvlerit. The

motionwasgranted exparfe. ThepetitionerthenfiledanaetionagainstFirstMeritinhisownname.

FirstMerit removed both actions to federal cotrL The petitioner successfully moved to

remand his action to the state courL He also moved to iartervene in Young's action. That motion

was denied, and the petitioner has fSed a direct appeal that is pending in this court as No. 07-3260.

In this pefition for a writ of mandamus, he asks that this court direct the district court to remand

Young's case to state court.

Theissuanceofawritinrnandamnsis extraordinaryrelie£ Severalguidelinesare considered

in determining whether to gnint a writ

(1)

(2)

The party seeldng the writ has no other adequate means, such as directappeal, to attain the reliefdesired.

The petitioner will be damaged or prejudiced in a way not coaectable onappeal. (l'his girideline is closely related to the first).

(3) The district court's order is cleaily erroneous as a matter of law.

(4) The district court's order is an oft repeated error, or manifests a persistentdisregard error of the Yederal rules.

(5)' The districtcourt's orderraisesnewand importantproblems, orissues of lawof frst impression.

In re Bendectin Products Liability Lftigalion, 749 F.2d 300, 304 (6th Cir.1984). It is not required

that every element be met; the factors may "be balanced in opposition to each other." In'Re

ChimenH, 79 F3d 534, 540 (6th Cir.1996).

The first two factors weigh heav4ly against the petitioner. If the pelitioner is successful in

reveising the denial of intervention, he may then argue for a remand to state court. The distdct court

in the Young case has never addressed tlu jurisdictional questions raised by the petitioaer. Fmther,

No.07-3259-3-

the Young case is d4s6nct from the petitioner's case and includes a claim uxidei the..ltacketeer

Influenced and Coaupt OrganizationsAct. •.6 i,

Upon consideration, the petition for a writ of mandanmus is DEI^1).. ,^f

ENTERED BY dRDER (jF ^COURT,^^... .

(.E^t.Uhd..J P^cu^tClerk

Case 1:06-cv-01486-CAB Document 50 Filed 02/01/2007 Page 1 of 8

UNTTED STATES DISTRICT COURTNORTHERN DISTRICT OF OHIO

EASTERN DIVISION

KATHY YOUNG, ET AL, .

Plaintiff,

Vs.

FIRSTMERIT BANK, NA

Defendant.

CHRISTOPHER A. BOYKO. J:

CASE NO.1:06CV1486

JUDGE CHRISTOPHER A. BOYKO

ORDER

This matter is before the Court on the Motion to Intervene (ECF Dkt# 6) of Receiver

Matthew Fornshell. For the following reasons, the Court denies Receiver's Motion to Intervene.

Plaintiff investors allege they were defrauded of millions of dollars in a classic "Ponzi

scheme" by Joanne and Alan Schneider, who are non-parties to this suit. The invcstors allege

Defendant FirstMerit aided or participated in the sale of unregistered securities in violation of

Ohio Revised Code Section 1707.01 et seq., aided and abetted the Schneider's fraud and civilly

conspired with the Schneiders. In February of 2005, the Cuyahoga County Court of Common

Pleas appointed a Receiver. Matthew Fomshell, to take control of the Schneiders' assets,

I

EXHIBIT

E

Case 1:06-cv-01486-CAB Document 50 Filed 02I01/2007 Page 2 of 8

including their companies. In November of 2005, the Schneiders were indicted in state coucL

On February 28, 2006, the Court of Common Pleas issued an Amended Order appointing

Matthew Fomshell Receiver of the Schneiders' assets and companies. The Amended Order also

enjoined creditors, amongst others, "from commencing or continuing any action at law or suit or

proceeding in equity to foreclose any lien or euforce any claim against the Receivership assets or

against the Receiver" and "from interfering with the Receiver in the discharge of his duties." On

May 10. 2006, Plaintiffs filed the present suit in Cuyahoga County Court of Common Pleas and

FirstMerit removed the case to United States District Court on June 16, 2006. The Complaint

alleges claims solely against FirstMerit. Approximately two weeks after PlaintifPs filed this

action in state court, on May 23, 2006, the Receiver filed an emergency motion with the state

court to grant him authority to represent investors on any claims. The state court granted the

Receiver's motion and the Receiver filed a substantially similar action against FirstMerit on May

24, 2006 in state court on behalf of the investors.

The Receiver now seeks to intervene in the action before this Court on the basis of the

authority granted him by the state court to prosecute claims on behalf o f investors. 'Ihe Receiver

contends the Receivership is granted authority to bring this action on behalf of investors. The

Receivership orders enjoin any actions against the assets of the Receivership and, according to

the Receiver, failure to pennit intervention would substantially impede the Receiver's rights.

The Investor/Plaintiffs in this claim oppose Receiver's Motion on the following grounds:

I) Receiver has failed to allege how the Schneiders or their companies, as

perpetrators of the Ponzi scheme, have any claims against FirstMerit.

2) Receiver's Emergency Motion seeking an expansion of his authority to prosecute

2

Case 1:06-cv-01486-CAB Document 50 Filed 02/0112007 Page 3 of 8

all claims on behalf of investors contained numerous misstatements of fact.

3) Receiver has failed to satisfy the requirements of Fed. R. Civ. P. 24.

Standard of Review

A non-party may intervene of right, "when the applicant claims an interest relating to the

property or transaction which is the subject of the action and the applicant is so situated that the

disposition of the action may as a practical matter impair or impede the applicant's ability to

protect that interest, unless the applicant's interest is adequately represented by existing parties."

Fed. R. Civ. P. 24(a)(2). The Sixth Circuit requires a non-party seeking intervention of right to

prove the following four elements: "(1) timeliness of the application to intervene, (2) the

applicant's substantial legal interest in the case, (3) impairment of the applicant's ability to proteci

that interest in the absence of intervention, and (4) inadequate representation of that interest by

parties already before the court." Michigan State AFL-ClD v. Miller. 103 F.3d 1240, 1245 (6th

Cir.1997) (citing Cuyahoga Ya!!ey Ry. Co. v. Tracy, 6 F.3d 389, 395 (6th Cir.1993)).

Futthermore, the Sixth Circuit has adopted a pertnissive approach to Rule 24(c) requirement that

intervenor attach the pleading to its motion. See Providence Baptist Chtrrch v. Hillendale

Committee. Ltd.. 425 F.3d 309, 315 (66 Cir. 2005).

nalvsis

Plaintiffs claim Defendant FirstMerit violated Ohio Revised Code Section 1707.01(B) by

aiding in the selling of unregistered securities. O.R.C. 1707.01(B) states:

(B) "Security" means any certificate or insttvment, or any oral, written, or elec.tronicagreement, understanding, or opportunity, that represents title to or interest in, or is secured byany lien or charge upon, the capital, assets, profits, propetty, or credit of any person or of anypublic or governmental body, subdivision, or agency. It includes shares of stock, certificates forshares of stock, an uncertificated security, membership intcrests in limited liability companies,

I

3


voting-trust certificates, warrants and aptions to purchase securities. subscription rights, interimreceipts, interim certificates, nrotnissorv notes. (emphasis added) all forms of commercial paper,evidences of indebtedness, bonds, debentures, land trust certificates, fee certificates, leaseholdcertificates, syndicate certificates, endowment certificates, intorests in or under profit-sharing orparticipation agreements, interests in or under oil, gas, or mining leases, preorganization orreorganization subscriptions, preorganization certificates, reorganization certificates, interests inany trust or pretended trust, any investment contract, any life settlement interest, any instrttmentevidencing a promise or an agreement to pay money, warehouse receipts for intoxicating liquor,and the currency of any goverttment other than those of the United States and Canada, butsections 1707.01 to 1707.45 of the Revised Code do not apply to the sale of real estate.

Furthetmore, O.R.C. 1707.43(A) states:

(A) Subject to divisions (B) and (C) of this section, every sale or contract for sale made inviolation of Chapter 1707. af the Revised Code, is voidable at the election of the purchaser. 77ieaerson raakirrP srrch sale or contract jor sa1e, arrd everv persorr rirar has aarticipated in oraided rhe seller irr any rvav In nrakir:rsuc6 sale or contract for sale. are iobrtlv aud severallvliable to dte purclraser, (emphasis added) in an action at law in any court of competentjurisdiction, upon tender to the seller in person or in open court of the securities sold or of thecontract made, for the fu11 amount paid by the purchaser and for all taxable court costs, unless thecourt determines that the violation did not materially affect the protection contemplated by theviolated provision.

On May 23,2006, the Cuyahoga County Court of Cormnon Pleas granted Receiver

Matthew Fotnshell the authority to "represent and pursue directly the interests of the Investors

against FirstMerit Corporation and/or its affiliates, agents, officers, and/or employees, arising out

of or related to the conduct of the Schneiders and/or Company Defendants."

Ohio courts have held O.R.C. §1707.43 must be liberally construed. "It must be

emphasized that O.R.C. §1707.43 uses very broad language, and, in addition to this, the

securities laws are to be liberally construed." Fed. Mgt. Co. v. Coopen & Lybrand, et al.. 137

Ohio App.3d 366, 392 (Ohio App, l0a Dist. 2000) citing In re Co6mrbus Skyline Securities.

(1996) 74 Ohio St.3d 495. As this case is not at the summary judgment stage. we must examine

all the alleptions in Plaintiffs complaint as true. The express language of O.R.C. 1707.43 holds

4


plaintiffs have a cause of action against anyone participating in and aiding in the sale of

unregistered securities. This creates, in this Courts opinion, a cause of action by investors

against FirstMerit that is not derivative in nature, nor is it a claim against the assets of the

Receivership. Rather, the claim belongs solely to each investor sold an unregistered security.

Therefore, the injunction against suits depleting the assets of the Receivership is not applicable

and does not prevent this action by investors against FirstMerit.

Plaintiffs challenge the timing and the representations made by the Receiver to the state

court that resulted in the Supplemental Order granting the Receiver authority to sue on behalf of

investors. This Court holds such inquiry is inappropriate and cannot be properly addressed on

collateral review. "The initial question thus is whether the Ohio court had jurisdiction to appoint

a n:ceiver, for as the order of that court is not directly, but only collaterally, attacked, the questior.

ofjurisdiction can alone be considered. That the order may have been erroneous, inequitable, or

ill-advised would not be enough to invalidate it here." Lively Y. Pfcron, 218 F. 401, 406 (611 Cire.

1914) citing Bar6our• v. Bank, (1887) 45 Ohio St. 133. "Upon the general proposition that

under collateral attack upon a judgment of a court of competent jurisdiction, only jurisdictional

defects can be considered." Lively at 406 citing Butterheld v. Miller, 195 Fed. 200 (6i6 Cir. 1912).

Pursuant to Grant Y. A.B. Leach & Co., 280 U.S. 351 (1930). the appointment of a receiver, if

erroneous, is not subject to collateral attack in another court.

Therefbre, this Court may not entertain collateral attacks on the authority or appointment

of the Receiver pursuant to Givnt and Live/y.

Nor does the fact that the Schneiders were the primary wrongdoers in this fraudulent

investment scheme require the Court to impute such wrongdoing to their companies now under

5


control of the Receiver. In iVuliger v. Liberty Bank NA. 2004 WL 3377416, unreported (N.D.

Ohio 2004), the Court held that once the alleged wrongdoer is removed from the operation and

control of a corporation, no evil motive may be imputed to the corporation or the receiver acting

on its behalf. Therefore, this Court will not deny intervention on Plaintiffs argument that the

Receiver is acting on behalf of the alleged wrongdoers and that such position is adverse to the

investors.

However, exclusive authority granted the Receiver to file claims on behalf of the

investors is noticeably absent from the Supplemental Order. The Court takes judicial notice that

the claims of the investors were filed prior to the authority granted the Receiver to bring claims

on their behalf.

Under Federal Rule of Civil Prod'edure 24, the Court finds no federal statutory authority

compelling intervention. Nor does the Court find the Receiver's ability to protect its interests are

impaired or impeded, as this Court notes the Receiver has similar claims currently pending in

Cuyahoga County Court of Common Pleas. Furthermore, nothing before this Court suggests

current counsel for investors cannot adequately represent the interests of the investors. The

"jurisdictional priority rule" specifies that as between state courts of concurrent jurisdiction, the

tribunal whose power is first invoked by the institution of proper proceedings acquires

jurisdiction, to the exclusion of all other tribunals, to adjudicate upon the whole issue and to

settle the rights of the parties. State ex rel Shimko v. McMonagle, (2001) 92 Ohio St. 3d 426, 429

"[i]n general, the jurisdictional priority rule applies when the causes of action are the same in

both cases, and if the first case does not involve the same cause of action or the same parties as

the second case, the first case will not prevent the second." State ex rel Shfmlco at 429, citing

6


State ex rel. Red Head Brass, Inc. Y. Holmes Cty. Coart ofComnron Pleas (1997), 80 Ohio St.3d

149, 151, 684 N.E.2d 1234, 1236. Therefore, under Ohio law, the first -filed case excludes all

other tribunals from adjudicating the same claims with the same parties. Since this case was

removed from state court, there is nothing preventing the Receiver from bringing his claims in

state court. However, the logic of the first-file rule militates in favor of giving deference to the

first-filed case. Since PlaintifFs filed their action prior to the Receiver's authority to sue on their

behalf, the Court is hardpressed to find how the investors rights to choose their own counsel

prejudices Receiver's claims on behalf of the Receivership.

Under Fed. R. Civ. P. 24(b) states:

(b) Permissive Intervontion. Upon timely application anyone may be permitted to intervene inan action: (1) when a statute of the United States confers a conditional right to intervene; or (2)when an applicant's claim or defense and the main astion bave a question of law or fact incommon. When a party to an action relies for ground of claim or defense upon any statute orexecutive order administered by a federal or state governmental officer or agency or upon anyregulation, order, requirement, or agreement issued or made pursuant to the statute or executiveorder, the officer or agency upon timely application may be permitted to intervene in the action!n exercising its discretion the court shall consider whether the intervention will unduly delay orprejudice the adjudication of the rights of the original parties.

The Court finds no federnl statutory authority conferring a conditional right upon the

Receiver to intervene. Though there are cwmmon questions of law and fact, this Court may, in it:

discretion, consider whether the intervention will unduly delay or prejudice adjudicating the

rights of the original parties. Here, the Court finds intervention will unduly prejudice the righu

of the original parties. The Receiver has previously filed suit against members of the class he

now seeks to represent through intervention. See Fornsliell v. Antalik, ee al., Case No. CV 05-

560633, (Cuyahoga County Court of Common Pleas 2005). Such adverse action and interest

compels this Court to question whether the investors interests are best served by counsel with

7

Case 1:06-cv-01486-CAB Document 50 Filed 02I01 /2007 Page 8 of 8

such an adverse history. The Court finds tliis.Fristo,ry createsan obvious concem that the original

parties rights maybe prejudiced bythe Receiver's intervention. Finally, the Receiver has failed

to convince this Court that the Receivership can maintain the same claims brought on be7Wf of

the investors. As the alleged tortfeasors, it is difficult to conceive how the 5chneidm or their

entities can maintgin the causes of action presented by the aggrieved investors.

Therefore, the. Court deniesReceiver'MatthewFosnshell's Motion to lntecveaea

1T.Is S0 ORDEIrED.

CHRISTOPIMMA.BO'YKOUnited StatesDlstrictJuilge

FILED

^q^ 12Q07

8

IN THM E bC2LPIIZEpP COMMON PI.EASCUYAHOGA COiJNTY, OHIO

^^dlllN -9 P ^ 20DOUG WHITB DIR R OP 1TiE Case No. 04 548887OffiO DEPARTMBNT OF COMl1ffitCE,

CIE ^^F COURTS^ CUYAHCCA. COU;?TY

JOANNE SCHNEIDER,Defendant.

MATTHEW L. FORNSHELL, ESQ,Plaintiff,

vS.ROBERT W. ANTALUC, et al.,

Defendants.

CLBVELAND CONSTRUCTiON, INC,Plaintiff,

ve.

PEARL DEVELOPMENT CO., LLC, et al.,

Defendants.

Judge V'illenueva

ConsolidatedCase No. 560633

Consolidated withCase No. 04 548887

ConsolidatedCase No. 05 559117

Conaolidated withCase No. 04 548887

STRUCTURA A1tCFIITECI'S, LTD., Consolidated .Plainfiff Case No. 05 558095

vs. Coneofidated withGARNBT DEVELOPMENT CO., LLC, et al., Case No. 04 548867

Defeidante.

MATTHBW L. FORNSHBLL, ESQ., ConaoBdatedPlaintiff Case No. 0456184

vs. Cmisolidated with

ZACK HOTY, GENERAL PARTNER, et aL,Case No. 0.5 559879

Defendants.

DAN VLAHOVIC, Coneo]idatedPlaintiff Case No. 04 56184

vs. Consolidated with

JOANNE C SCEINIIDEIt, et al., Case No. 04548887Defendants.

MEDINA SUPPY CO., INC.,Platuti$

ve.QUALTTY CEMENT, INC., et aL,

Defendanb.

EXHIBIT

ConsolidatedCase No. 05 569073

Consolidated withCase Na 04 548887

I F

RECE[VER'S MOTION(1) TO ENJOIN FILiNG OF CLASS CERTIFtCATION

MOTION IN CASE NO. CV-06-b91332; AND(2) TO CONSOLIDATE CASE NO. CV-06-591332

Receiver Matthew L. Fomshell respectfully nwves the Court

n to enjoin attorneys John S. Chapman and JoelLevin from filing a motion for classcertification in Kathy Youngv. FirstMerit Bank,Case No. CV-06-591332; and

n to consolidate the Young case with this one, ifthe Court also decidesto take the same actionwith respect to Fornshell's own pendinglawsuit against FirstMerit.

The Courthas authorized Fornshell to prosecute claims againstFirstIvieriton

beha)f of victims of the'Ponzi Scheme° operated by Joanne Schneider and

Alan Schneider. Fornshell filed his complaint against the bank on May 24,

2006.

As discussed in the accompanying Memorandum, Fornshell did not

latow at the time that Chapman and Levin had fi)ed a putative class-action

complaint against FirstMerit two weeks earlier. Upon )earning of the other

case, Fornshell's counsel immediately offered to collaborate with Chapman

and Levin in litigating against FirstMerit, a strategy that would have realized

distinct strategic and logisHc advantages for investors that the two attorneys

cDuld not achieve by prosecuting Young as an independent class action (if

they succeeded in having it certified as such).

-2- 1

Chapman and Levin, however, balked, insisting instead upon

preserving what they erroneously perceive as their preeminent right to

pursue class litigation against FirstMerit. They have demanded that

Fornshell dismiss his lawsuit and have threatened to launch a paper war

against him in this Court if he refuses to comply. Chapman and I.evin take

this tack even though their chronological primacy in filing suit does not

conclusively establish their right to represent investors, either as a matter of

class-action procedure or otherwise.

Chapman's and Levin's conduct raises serious questions about their

fitness to serve as dass representatives. More significantly,their hostility

toward Fornshell's case and their determination to have Young certified as °

a competing class aclionthreatens to impedehis performance as Receiver, in

direct violation of this Court's prior orders. To prevent this from happening,

the Court should enjoin Chapman and Levin from seeldng class certifintion

in Young.

Fornshell has moved to have his lawsuit against FirstMerit

consolidated with this one. In the event the Court grants the Motion, the

Court should extend similar treatment to Young. Doing so will provide the

Court with an opportunity to ensure that Chapman and Levin do not make

good upon their implidt threat to disrupt Fornshell's case.

,

en (0032368)Rosentha) & Kramer LLP

Hoyt Block Bldg. - Suite 400700 West. St. Clair Ave.Qeveland, Ohio 44113(216) 781-7956 (Telephone)(216) 781-8061 (Facsimile)[email protected] (E-1vIai1)

ionathan M. Yareer (ver consent -TRCIJonathon ivi. Yarger (0043781)Cherneft Wasserman YargerPastemak LLCThe Tower at Erieview - Suite 33001301 East Ymth StreetCleveland, O1-Lio 44114(216) 737-5000 (Telephone)(216) 737-0011 (Facsimile)[email protected] (&Mail)

-4-


I certify that I have served a copy of this Motionby United States mail

or messenger tlvs !R! day of June, 2006 on the following persons:

Joanne and Alan Sctuieider8255 Csystal Creek DriveNorth Royalton, Ohio 44133

IanN. Friedman, Esq.700 West St. Clair Avenue, Suite 10Cleveland, Ohio 44113

John S. Chapman, Esq.700 West St. Clair Avenue, Suite 10Cleve]and, Ohio 44113

Joel Levin, Esq.The Tower at Erieview - Suite 33001301 BastNinth StreetQeveland, Ohio 44114

All persons who have filed a Notice of Appearancewith the Garden City Group or the Receiver.

The foregoing will also be posted on the Receiver's website. www.szd.com<http://www.szd.com>.


^=• ^ t f-

DOUG WffiT6,DIRECTOROFTHE 3 CaseNo.04548871j^ °ll« - P ti' 20OFIIO DEPARTMENT OF COMMERCE,

Pathyfp GERr.LU E. FUERST

Ju Vlleaueva CLcPK OE COUP i S`^vs. CUl'A!?')C;:JOANNE SCHPIEIDER,

Detendant.

L'OUYTY

MATTI3EW L FORNSHELL, ESQ., ConsolidatedPlaintiff Case No.560633

vs. Consolidated with

ROBERT W. ANTAI.IIC, et al., Case No. 04 548887Defendants.

CLEVELAND CON9TRUC7'JON, INC, ConsolidatedPlaintiff, Ceae No.05 559117

ve. Consolidated with

PEARL DEVELOPMENT CO., LLC, et aL, Case No.04 548887

Defendents.

STRUCf[AtAARCE{ITECTS,LTD., ConsolidatedFlakthf Case No. 05 558095

lidaVs.GARNEtDEVELOPMENTCO.,LLC,etal., CaseNo'04548887

Defendants.

MATTHEW L FORNSFIELL, ESQ., ConsolidatedPlaint.iff, Case No. 04 56184

VS.ZACK FtOTY, GENERP.L PAR'INER, et al., l ° 05 559879

Defendante.

DAN VLAHOVIC, 3 ConsolidatedPla9niiff Case No.04 56184

vs. 3 Consolidated withJOANNE C. SCHNE[DER, et al„ Case Na.04 548887

Dafendants.

MEDINA SUPPY CO., INC., 3 ConsolidatedPlaintiff, Cese No. 05 569073

withvs.QUALPPY CEMENT, INC., et al.,

Na 04 ^ 54 887

Defendants.

MEMORANDUM IN SUPPORT OF RECEIVER'S MOTION(1) TO ENJOIN FILING OF CLASS CERTIFICATION

MOTION IN CASE NO. CV-06-591332; AND(2) TO CONSOLIDATE CASE NO. CV-06-591332

INTRODUCTION

The Court has entered an order authorizing Receiver Matthew L.

Fornshell to pursue claims against FirstMeritBank onbehalf ofvictims of the

"ponzi Scheme" run by Joanne and Alan Schneider. The litigation creates a

possible source of recovery for investors who otherwise might recoup ornly

a small fraction of the amounts spent in purchasing the Schneiders' bogus

promissory notes,

Attorneys John S. Chapman and Joel Levin are seeking to derail the

FirstMerit litigation in order to advance their own personal agenda. They

are insistingthatFornsheII disn-isshis casesothattheyrnay pursue a lawsuit

that they filed two weeks earlier on behalf of a single investor, which they

hope to convert into a class action.

Fornshell's counsel asked Chapman and Levin to work with them in

pursuing his case against FirstIvIerit, which provides investors with various

logistical advantages that the two attomeys could not duplicate in their

would-be class aclion. Chapman and Levin, however, would have none of

it - their desire to serve as exclusive class counsel (should they succeed in

obtaining certification under Civ. R 23) overrode any interest they might

-2-

have had in realizing the significant benefits they could have achieved for

dass members by joining forces with Fornshell.

Chapman and Levin have dedared a turf war that they cannot pos-

sffily win. In an order dated Febniary 4,2005, the Court enjoined all "cred-

itors, caimants ..., parties in interest, and their respective attomeys" from

issuing

or causing the ... issuance out of any court... anyprocess for thepurpose ... of interfering with theReceiver in the discharge of his duties.'

Chapman and Levin are violating this prohibition by pursuing a would-be

class action against PirstMerit, in open and hostile competition with the

lawsuit the Court explicitly authorized Fornshell to bring, notwithstanding

the dear interest of note holders in having the latter case proceed.

The Court should not allow the selfish motives of two attomeys to

disrupt the plan already in place for the Receiver to seek recovery from

FirstMerit. In keeping with Fomshell's Motion, the Court should enjoin

Chapman andl.evinfromseekingdass certificationintheir separate lawsuit.

The Court should also consolidate their casewiththis one, in the event it also

decides to take similar action with respect to Fornshell v. FirstMerit

Cmporation. -

I A copy of the February 4, 2005 order appears ac Exlubit 1 to Eiis Memorandum

-3-

FACTUALBACKGROUND

I. FirstMerit's Alleged Misconduct

The Schneiders raised at least $60 rnillion in selling unregistered

promissory notes to atleast 740 differentvictims. They did so as partofaso-

called "ponzi Scheme," under which the Schneiders paid anwunts owed to

existing investors by make sales to new ones, rather than from any legitimate

source of funds.

FirstMerit played an indispensable role in this unlawful raclcet. The

Schneiders deposited virtually all of the money raised from selling promis-

sory notes into a single "mortgage escrow" account at the bank, from which

they also made monthly interest payments to investors.

Hundreds upon hundreds of transactions took place each month in

the FirstMerit account. This activity bore all of the obvious earmarks of a

money-laundering operation - an absolutely crucial tool in operating a

"Fonzi Scheme," given the perpetrators' need to take in and distribute funds

from and among their multiple vicfims in an inconspicuous, expedited

manner. FirstMerit facilitated and participated in the Schneiders"`ponzi

Scheme" by peraiitting them to use the "mortgage escrow account" in this

fashion.

II. Order Authorizing Fornshell to Fi1e Suit

On May 23, 2006, the Court issued an order that specifically

authorized Fornshell to pursue this lawsuit against FirstMerit on behalf of

-4-

"any person or entity that invested with or lent money to the" Schneiders or

any of their companies

on the promise that they would receive a returnon their investment, or interest on the amountsinvested or lent in excess of 3'/o above the marketinterest rate as determined by the FederalReserve at the time the money was invested orlent2

FomsheIl's Lawsuit

Fornshell filed suit against FirstMerit the following day.s His

Complaint includes a claim under the Ohio Securities Act for rescission of

investors' purchase of unregistered promissory note, based uponthe bank's

participation in the Schneiders' "Ponzi Scheme." Fornshell also seeks

recovery for investors under the Ohio Cornipt Activities Act and various

common law theories of liability.

Fomshell has moved to have his case again.st FirstMerit consolidated

with this one. His motion remains pending.

N. Young vs. FirstMerit

A. General Background

On May 10, 2006, exactly two weeks before Fornshell instituted his

case againstFirstMerit, Chapman and Levinfiled suit inthisCourt onbehalf

of a single plaintitf, Kathy Young, who had purchased a promissory note

2 A copy of the order appears as Exhibit 2 to this Memorandam.3 FornsheII v. FirstMerit Corporation, Case No. CV-06r592402 in the Cuyahoga Cty. Ct. of

Conmmon Pleas. A copy of Fornshell's complaint appears as Exhibit 3 to this Memo-andum.

-5-

from the Sclutieiders.' Young's complaint encompassed all of the claims that

appeared inFornshell's,withtheexceptionofthe one alleged undertheOhio

Corrupt Activities Act.

B. Class-Action Allegations

"Because class action rulings are frequently based on the pleadings,

together with briefs and affidavits..., and because failure to meet any one of

the prerequisites of [Civ. R 23] will justify a class denial, dass action

allegations call for careful attention." 2 ALBA CONTE & HERBHRT NEWBERG,

NEwBERG oN CLASsAcrtoNS § 6.13 at 613 (4'h ed. 2002).5 Chapman and Levin

did not heed considerations such as these in drafting the Young complaint,

which describes the grounds upon which they propose to secure class

certification in general and condusory terms.

This cursoryapproachmanifestsitsel.fmost distinctlyinthe definition

of the putative class:

persons and entities who [sic] invested moniesinto the [FirstMerit] Mortgage Fscrow Accountfrom five years proceeding [sic] the filing of thisComplaint.

COatPi.AnsP, g23. Thistype of ambiguous and unspecific desaiptionby itself

can result in the denial of cIass certification. See Barber v. Meister Protectiox

Sera., 8"' Dist., No. 81553, 2003-Ohio-1520 at V3-134.

4 Yartng v. FirstMerit Bank, NA., Case No. CV-06391332. A copy of Young's complaintappeaxs as Bxldbit 4 to thia Memorandum.

5 As this Court bas obeerved, "Newberg on Class Actions is the frequently consultedauthorityon class litigation." Bederu. Cleoeland Bsowns, fnc. (2001), Cuyahoga Cty. C. Pl,114 Ohio Miet 2d 26, 28, 758 N.E.2d 307.

-6-

The Young complaint included an even more serious substantive

defect. Chapman and Levin accvse the Schneiders of violating RC.

1707.44(A)(1) by selling pron-dssory notes in Ohio without a license to do so

and seek to hold FirstMerit liable for its involvement in these transactions.

CoMPI.AUa'c, 9[32-9[34.

The Ohio Securities Act, however, does not reqnire the actual issuers

of promissory notes to obtain a license before their sale within this state. See

R.C. 1707.01(E)(1)(a) (issuers do not qualify as "dealers" within meaning of

the Act). Chapman and Levin misapprehended this fundamental principle

in drafting their Complaint.

V. Receive{s Advantages in Pursuing Case

The fact that Chapman and Levin filed the Young case two weeks

beforeFomsheIl's lawsuitbeganhardly gavethem an absolute and exclusive

right to represent aggrieved investors in litigation against FirstMerit. As a

matter of class-aclion procedure, a plaintiff's chronological primacy in filing

suit represents only one of several factors that courts consider in dedding

whether to grant class certification. See 4 NEwBERG ON CLAsS AC17oN8,

§ 13.24 at 419-20; see aisa Civ. R. 23(B)(2)(3)(B).

In this case, claimants would realize concrete advantages in having

Fornshell prosecute the FirrstMerit claims. While Chapman and Levin have

had no opportunity to conduct discovery, Fornshell has already conducted

an intensive investigation of the bank's involvement in the Sctuieiders'shell

-7-

game. The receivership also already has in place an infrastructure for

communicating with investors, and for distributing funds to them, if the suit

proves successful.

Moreover, given his former employment by the Ohio Division of

Securities, Pornshell has a strong worldng knowledge of the Ohio Securities

Act, the statute standing at the heart of the case against FirstMerit. In

contrast, as discussed above, Chapman and Levin have already raised

serious doubts about their mastery of the Act even at this early juncture of

their case.

Most significantly, the Court has already sanctioned Fornshell to

proceed with investors' claims against FrstMerit. Chapman and Levinwill

have to move for and obtain dass certification under Civ. it 23 in order to

reach that same juncture.

The attorneys cannottreat class certification as a foregone conclusion.

The Ohio Supreme Court has significantly restricted the applicability of Civ.

R. 23 in recent years. See Howland v. PursuePharntt+, L.P.,104Ohio St.3d 584,

2004-Ohio-6552,821N.E.2d 141, Wilson a. Bruslt Weltrnan,103Ohio St.3d538,

2004-0hio-5847, 817 N.E.2d 59.

Moreover, even 4f the trial judge did grant Chapman's and Levia's

motion to certify, FirstMerit would have an immediate right to appeal under

R.C. 2505.02(B)(5). Under the circumstances, two full years could easily pass

before they even begin to address the merits of investor daims against

-8-

FirstMerit - something that FornsheIl has already begun.

A delay of this sort would have an exEremely negative impact on the

victims of the Schneiders' "Ponzi Scheme.° Note holders' reaction to the

notice they received about the filing of the FirstMerit case shows their

enthusiasm for proceeding faR-steam-ahead:6

--Origlnal Meswge--From: [ADDRESS REDAf,7ED3Sant± Tuesday, 7une 06,1006 12:48 AMTo: Natthew L FomchellSubf ect: Sohndder case

Dear Matt,

We received our let[ar from you today as did my famlly and Mends. Our phoneshave been ringing all day. Thls [a the best news we're heard yetl Everyone is verypleased with your findings on First Metit and we pray this will bring us ourretirementlsavings back. Thank you very much forrepresenting us. When this doesgo to trfal, and if we wtn, Ffrat Madt wiB have to pay your salery, corteat't

Do you have any informa6on about the Schnekler's tda7

Thank you for keepfng us Informed.

Dfane (Kennedy)

-Original Message-rFrom:[ADDRES6REDACfED]]SanL• Monday, June g6, 20069:46 PMTo: Matthew L FornshellSublect Latter of 6d-06

Dear Mr. Fomshell,

this Is the best news IYe heard in a whilell Waytogoll Keep at'em, we're w6h you ail the wayl L.ock fcrward to headng any andallprogress. W 0 the state eventually peraue cdminal charges agahiet Joanne andAlan or wIU there be a plea arrangement whh nojail time? Keep up the goodwodc,If you need us, just contact us. Jack & Doris Takaht

6 Copies of the cited e-mails appear as Exhibit 5 to tt+ia bfemorandum.

-9-

----0ripinal Messape-From:IADDRESSNEDACfED]Sent: Monday, ]une 05, 2006 8:29 PMTo: Matthew L FontdtellSu6ject: Re: June 2, 2006 lstter

Dear Mr. Fomshell.

W e(the family of Tomislav. Jagoda & Petar Bs(ic) want to thank you for trying tostay In oommunication link wlth us,and attempOng to encuumge us to oontinue betleving thatthere Is a hope of recovedng our life-saving, Invested with Schneiders.

Thanks again.

--Origfnal MeuaOe-From: [ADDRESS REDACTED]Sent: Wadnesday, ]une 07,2806 11:33 AMTo; Matttusw L FotnsbegSublect: Flrstmerk Bank Lawsult

[ have tied by best to follow your websito to keep updated on all of thedevelopments re[atiag to your teceivecahip. I just weated to thaak you for your]atest effort onbehalf'of the ittvestots. I gready appreciate aB of your efforta torettieve as mnch of our money as possible. I know this joutney bas not been easyon you. I want to nvdd sure you know that your work is tm[yappreciated. I lookforwerd to the end of this dark phese of our finances. I do realize theae issuestake tiote to resolve. Thank you agaia for al1 of your ti0te and efYotts.

Sincerely,

LmaaL I.evandows13

Former Sclmeider Investor

VI. Fomshell's Preliminary Offer to Join Forces

FomsheII did not know about Young v. FirstMerit when he filed his

lawsuit against the bank. After the other case had come to light, however,

his lawyers talked to Chapman about the prospects of joining forces.'

7 Se[ APFIDAvII 0F JOSHUA IL COHEN and 1SFFIDAVII' oF JASON R BBiS1oL, which appear asHxhibits 6 and 7 to this Ivtemonndum.

-io-

Pomshell certainly did not need any assistance in litigating against

FirstMerit Counsel saw no upside, however, in waging a fight over who

would represent the Schneiders' victims, so long as the case moved

expeditiously and effectively.°

With that solitary objective in mind, Fornshell's counsel discussed

with Chapman the benefits he foresaw in proceeding in a single case under

the authority the Court had granted the Receiver to sue FirstMerit. Under

the dreumstances, Chapman and Levin would not have to contend with the

uncertainty of class certification, ensuring a far quicker resolution to the

dispute than they ever could hope to achieve in their own separate law-

suit.9

VII. Chapman's and Levin's Demand for Dismissal of Fornshell'sCase against FirstMerit

Chapman paid lip service to the overtures made by Fornshell's

counsel. Later in the day, however, Levin telephoned "as a courtesy" to

disclose their intention to dispute the legitimacy of Fornshell's case, given

the prior filing of the Young case'o

Levin more formally delivered the message in a June 6, 20061etter to

Fornshell's counsel." The correspondence accused Fomshell of deceiving the

8 ColiEN AFFnavrr.9 Id.; see aLro HR=APFMAvrr.

10 COHEN AFBIDAVrr.11 A cropy of Levia's letler appeara as Fxhabit S to thLs Memorandom.

-11-

Court by not disclosing the pendency of Young v. FirstMerit when he sought

permission to file his own lawsuit against the bank. (Levin did not say

exactly how Fornshell was supposed to learn of the case, given his and

Chapman's failure to send him a copy of their complaint or any other

notification of the proposed class action.)"

Given the earlier filing of Young, Levin "DEMAND[ED]- that Forn-

shell disaiiss his lawsuit against FirstMerit °IAIIIIEDIATELY" (emphasis

added). Jfhe refused to do so, Levin threatened to file "various motions and

pleadings to undo the effect of the Court's Order" authorizing Fornshell to

proceed with his case against the bank.

Levin's letter manifests an explicit intention on his and Chapman's

part to "interfer[e] with the Receiver in the discharge of his duties," in direct

violation of the Court's order. The two attorneys had an opportunity to

work with Fornshell in pursuing an expeditious recovery from FirstMerit, to

the benefit of all the investors they wish to represent.

While investors might benefit, however, Chapman and Levin would

not - at least not to the exfent they could by serving as exclusive class

12 Chapman certainly had reason to serve Fornshell with a copy of the Young ComplaintHe represents the plaintiff in Vfahovic vs. Schneider, et ai., Case No. 561g4, where hecharges certain defendants with aiding, abetting, or conspiring with Joanne SchneiderIn the sale of unregistered promissory notes -much like he accuses FirstMerit of doingin Young. Over Chapman's vodferous objecdon, the Court consolidated VlaHovic withthis lawsuit Under the circumatances, Chapman necessarily understood thatFonwhellwould have wanted tolmow (and needed to know) about any lawsuit againstparfies like"aiders" or "abettors" like F'usHvferit, be it a class action or otherwise.

counsel. They flatly rejected Fornshell's invitation to collaborate, forfeiting

the logistical and strategic advantages that doing so would provide to their

prospective clients - all to preserve what they erroneously perceive as their

exclusive prerogative to prosecute the case against FirstMerit, given the two

weeks by which the Young complaint predated Fornshell's.

LAW AND ARGUMENT

L The Court properly authorized Fornshell to bring investor claimsagainst FirstMerit.

The Court properly authorized Fornshell to bring investor daims

against First Merit. FornsheIl assumed his receivership pursuant to R.C.

1707.27, which provides for this remedy in dvil litigation initiated by the

Ohio Division of Securities for purposes of marshaling assets obtained by the

defendants through violations of the state securities laws. SeegenerallyPeItier

v. Condo-Mobile, Inc. (Dec. 23,1980),10°' Dist., No. 79AP-747, slip op., 1980

WL 353864.

The General Assembly enacted P.C. 1707.27 as a means of

"procur[ing] satisfaction for purchasers of securities whose money was takai

... by fraud." HowaxDM.FRnEDtvtaN, OHroSaC.law&Piencr[CE§30.07 at 30-

28, fn. 5(3rd ed. 2005) (internal quotation marks omitted). Without the

appointment of a receiver to marshal assets, small investors might not

recover at all, given the financial burden of pursuing litigation. Id. at 30-28,

-13-

citIngPagev.AEIGsoup (Apr.30,1991),10ei Dist., No.90AP-151,slip op., 1991

WL 70126.

Toward thisend,RC.1707.27expresslyauthorizesthe courtto "make

orders and decrees as JUSTICE AND EQIIITY REQIZiRE" in connection

with its appointment of a receiver (emphasis added). As with all remedial

sections of the Ohio Securities Act, R.C. 1707.27 must receive a hberal

construction. In re Columbus Skyline Sec. (1996), 74 Ohio St. 3d 495, 498, 660

N.S.2d 427.

These considerations fully validate the Court's decision to have

FornsheIl prosecute investor claims against FirstMerit. As Receiver,

Fornshell must seek "satisfaction" for the victims of the Schneiders' sale of

unregistered promissory notes. The case against FirstMerit concerns the

bank's complicity in these same unlawful transactions and seeks redress for

the same investor losses that necessitated Fornshell's appointment as

Receiver in the first place.

The assets Fomshell has otherwise retrieved have come nowhere close

to covering the damages sustained by these individuals and entities.

F'irstMerit bears partial responsibility for put[ing these individuals in harm's

way, given the significant role it played in the shell game run by the

Schneiders. While note holders could file suit against F'irstMerit on their own

personal behalf, a collective action would achieve important economies of

-14-

scale and could neutralize the disparity in resources that the bank could

bring to bear in litigation against a single investor.

Moreover, as discussed above,FomsheR stands in the best position to

handle a collective action on behalf of aII investors, given

n his superior knowledge of the facts;

n the evidence he has already garnered againstFirstMerit;

n thelinesofcommunicationsinplacebetweenhim and note holders;

n his superiorlmowledge of the securities laws;and

n his ability to proceed immediately to themerits of the case, without having to contendwith the fluctuating jurisprndence of class -certification.

Other courts have recognized the authority of receivers to prosecute

investor claims in appropriate situations. See, e.g., Lfbcrfe v. CapwiII (N.D.

Ohio 2006), 419 F. Supp. 2d 992, 996. Given the circumstances of this case,

"justice and equity" fu1Iy justified the Court's decision to permit Fomshell

to pursue this course.

II. The Court should enjoin Chapman and Levin from seeking classcertification in Young.

No one can stop Chapman and Levin if they intend to make good on

their threat to file "various motions and pleadings to undo" FornsheII's

authority to sue FirstMerit. The Court, however, need not stand by and

-15-

watch them undermine the Receiver's case by seeking certi$cation of a

competing class action in a separate lawsuit.

In pressing this point, Fomshell must concede that Chapman and

Levin have severely impaired whatever chance they ever had of converting

Young into a class action. To obtain certification under Civ. R 23, plaintiffs

must show that they and their attorneys will adequately represent absent

class members. Bennett v. FirstEnergy Cory., Cuyahoga Cty. C. P1.,118 Ohio

Misc. 2d 174, 2002-Ohio-2745, 770 N.E.2d 164 at 1[33-$35. A conflict of

interest between counsel and eligible claimants can negate their adequacy

as class representatives. See generally 1 NswBERG ON CcAsSAC170Ns § 3.21-§

3.22 at 408411.

Chapman and Levin have already shown that they will handle the

case against FirstMerit according to what is best for them, even if it ill serves

the class they hope to have cert4fied. Pornshell offered them the chance

toproceed jointly against the bank, in a manner that would eliminate up to

two years (or more) of procedural wrangling.

The two lawyers, however, want to serve as class counsel all by

themselves. To indulge this wish, they were willing to saai.fice investors'

obvious need and desire for expediency in the resolution of their claims,

plus all of the other advantages they could reap in joining forces with

Fomshell.

-16-

The pendency of a competing class ac[ion (however unlikely) would

oniyposeproblemsforFornshell inpressinghis case againstFirstMerit. The

bartk almost certainly would fry to use the overlap between the two cases to

its procedural advantage. Chapman's and Levin's maztifest hostility toward

the Receivership likewise promises an intensive round of squabbling as to

who does and does not legitimately represents note holders.

Given these inevitable consequences, any attempt by Chapman and

Levin to move fordass certificationin Young v. FirstMeritwould significantly

impede Fornshell in "discharg[ing]" his duty as Receiver to prosecute his

own case against the bank. The Court should enforce its prior Order by

enjoining the two lawyers from taking this action.

III. The Court should consolidate Young v. FirsfMerit with this case.

Civ. R. 42(A) permits the Court to consolidate cases "involving a

coaunon question of law or fact." Trial judges have discsetion in determin-

ing whether to invoke of this procedure. Garrett v. Cook (8' Dist., Apr. 17,

1980), No. 40879, slip op., 1980 WL 354746 at *2-*3.

The Court should consolidate Young into this case if it also decides to

take similar action with respect to Fornshell v. FirstMerit Corp. The two cases

address identical factual and legal questions, as Civ. R 42 requires. While

the Court may eventually decide to release Young to pursue her own

individual case against FirstMerit, if she chooses to do so, it should first I

-17-

ensure that the separate litigation would not interfere with the collective

action that Fornshel) is pursuing. Consolidation would give the Court that

opportunity.

CONCLUSION

The Court should not allow Chapman's and Levin's self-interest to

impede properly-authorized litigation against FirstMerit that stands to

generate an important recovery for victims of the Schneiders' "Fonzi

Scheme." For the reasons discussed above, the Court should grant

Fornshell's motion to enjoin Chapman and Levin from seeldng class

certification in Young v. FirstMerit Bank, and to consolidate that case with this

one, in the even it also takes such action with respect to the Receiver's case

R. Cohen (0032368)Rosenthal & Kramer LLP

Hoyt Block Bldg. - Suite 400700 West. St. Clair Ave.Clevetand, Ohio 44113(216) 781-7956 (Telephone)(216) 781-8061(Facsiaiite)[email protected] (E-Mail)

Ton_athonM.Yareer[perconsent TRClJonathon M. Yarger (0043781)Chemett Wasserman YargerPaseernak LLCThe Tower at Erievi ew - Su ite 33001301 East Nmth StreetCleveland, Ohio 44114(216) 737-5000 (Telephone)(216) 737-0011 (Facsimile)[email protected] (E-Mail)

-18-


I certify that I have served a copy of this Memorandum by United

States mail or messenger this 9.! day of June, 2006 on the following persons:

Joanne and Alan Schneider8255 Crystal Creek DriveNorth Royaltory Ohio 44133

Ian N. Friedmazt, Esq.700 West St. Clair Avenue, Suite 10Cleveland, Ohio 44113

John S. Chapman, Esq.700 West St. Clair Avenue, Suite 10Q.eveland, Ohio 44113

Joel Levin, Esq.The Tower at Erieview - Suite 33001301 East N'mth StreetCleveland, Ohio 44114

All persons who have filed a Notice of Appearancewith the Garden City Group or the Receiver.

The foregoing will also be posted on the Receiver's website. www.szd.rnm<tM-://www.szd.com>,

-19-

Not Reported in F.Supp.Not Reported in F.Supp., 1992 WL 80966 (N.D.Bl.)(Cite as: 1992 WL 80966 (N.D.IIL))

POnly the Westlaw citation is ciurentty available.

United States District Court, N.D. Illinoia, EastemDivision.

Jeffi-ey CAGAN, as court appointed Receiver, JohnF. Muccianti, and Pamela A.

Nicpon, individually and on behalf of all otherssimilarly situated,

Plaintiffs,V.

WEST SUBURBAN BANK, Defendant.No. 90 C 5582.

April 15, 1992.

MEMORAND UM OPINION AND ORDER

ILANA DIAMOND ROVNER. District 7udge.

L IWTRODUCTTON*1 This is a putative class action in which the

plaintiffs allege that the defendant, West SuburbanBank ("the Bank"), actively participated in a Ponzischeme perpetrated by third parties, to the detrimentof unwitting persons who invested in the schemethrough Individual Retirement Accounts theymaintained at the Bank. The Bank bas moved todismiss the second amended complaint rFNll. andupon referral from this Court Magistrate JudgeEdward A. Bobrick has recommended that themotion be granted. Pending before the Court areplaintiffs' objections to Judge Bobrick's Report andRecommendation (the "Report"). For the reasons setforth below, the Court sustains the objections andoverrules the Report fn parL The Court will grantthe Banlc's motion to dismiss to the extent ofdismissing plaintiff Jeffrey Cagan for lack ofstanding and dismissing Count Two far failure toplead an injury resulting from the use or investmentof racketeering income, but deny the motion todismiss on all other groimds asserted.

II. BACKGRO[INDThe factual allegations of plaintiffs' complaint are setout at length in the Report, and in the absence of anyobjection to that summary, there is no need to repeatthem at length here. Only a brief reiteration of theessential allegations is required for purposes of thepending objections. Of course, the Court accepts the

Page I

well-pleaded factual allegations of the complaint astrue in deciding a motion to dismiss. See Con/ev v.Glbson. 355 U.S. 41. 78 S.Ct. 99 (19571.

In the late 1970s and 1980s, Earl Dean Gordon andKenneth Boula (collectively, "Gordon-Boula")operated a massive Ponzi scheme under the guise ofFinancial Concepts, Ltd. ("Financial Concepts"), afmancial plaoning company of whioh they weregeneral partners. Through Financial Concepts,Gordon-Boula sold limited partttersbips worth $65million in a series of 350 parmerships which theyalso managed as general parmers. As with otherPona schemes, this one used funds received fromlater investors to pay off earlier investors and therebyencomage 5n0ter investnuent.

The scheme was brought to a halt in July of 1988,when Jeffrey Cagan was appointed as the Receiverfor Financial Concepts and its related paruterships ina class action which had been filed by investorsagainst Gordon-Boula, Gaskill Y. Gordorr No. 88 C3404 (N.D.Ill.). Gordon-Boula later settled that caseand agreed to pay investors $35 million, but nothinghas been collected upon that judgmaa. In 1990,Gordon and Boula pleaded guilty to multiple chargesof securities fraud and mail fraud and were sentencedto prison terms.

According to the complaint, throughout the 1980s,the Bank made a series of twenty-four loans totaling$5.8 milGon to Gordon-Boula which were used tokeep the Ponzi scheme afloat by paying imerest andprincipal to old investors until new investors could belured into the scheme. In 1985, the Bank allegedlylearned through the senior officer in charge of theGordon-Boula account that the business of these twomen was, in fact, fraud. Rather than blow thewhistle, however, the Bank allegedly decided ta lendits assistance to the scheme in the hope that itsoutstanding loans would be repaid from the moniesadvanced by additional unwitting investors.

*2 The Bank allegedly aided Gordon-Boula infiutherance of its own interests in a variety of ways.In 1986, Gordon-Boula transferred to the Bank (andthus made It the trustee of) a large number of IRAswhich had previously been opened for its investors,and directed new investora to open their IRAs at theBank. Gordon-Boula bandled the IRA applicationsand, as the IRAs.were established with the Bank,

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Not Reported in F.Supp.Not Reported in F.Supp., 1992 WL 80966 (N.D.III.)(Ctte as: 1992 WL 80966 (N.D.Dt.))

directed the fimds to be invested through Fina¢cialConcepts. At tiee same time, the Bank disclosedinfonnation about the amounts and types ofinvestments in other IRAs to Gordon-Boula withoutauthorization, a practice which enabled Gordon-Boula to target and solicit additional investors. Inaddition, the Bank soliched prospective investors totake out home equity loans from the Bank, theproceeds of which would be used to invest inFinanc'ial Concepts. Finally, the Bank alsopurportedly helped Gordon-Boula practice lawwithout a license by supplying land trust brochureswhich Gordon-Boula used to draft land trusts. TheBank purportedly reaped some financial gain fromthese alleged activities; according to the complaint,in addition to the loan payments which the Bankcontinued to receive, Gordon-Boula also depositedwith the Bank some S560,000 which it had lootedfrom the Financial Concepts limited partnerships.The Bank also collected fees on the IRAs and landtrust accounts it maintained.

Plaintiffs allegedly learned of the Gordon-Boulascheme in 1988, when Cagan was appointed asReceiver. However, purportedly because the Bankhad deliberately concealed its role in the scheme,plaintiffs did not leam of the Banks involvememuntil September of 1990.

Plaintiffs in this action include Cagan, the court-appointed Receiver for Financial Concepts and itsrelated entities, who sues on behalf of the 3501imitedparmerships in which Gordon-Boula sold interests, aswell as John F. Muccianti and Pamela A. Nicpan,who sue on behalf of themselves and a putative classof 2,230 defrauded investors.

The complaint contains seven counts. Count Ialleges aiding and abetfing violations of Section10(b) of the Exchange Act, 15 U.S.C. & 78ifb1 andS.E.C. Rule 1 Ob-5 promulgated thereunder, 17 C.F.R.& 240.10b-5. Counts 11 and IV assert primaryviolations of the Racketeer Influenced and CorruptOrganizations Act ("RICO"), IS U.S.C. & 6 1962(a)and c while Counts nI and V assett aiding andabetting violations under that statute. Coums VI andVU set farth pendent state law claims of breach offiduciary duty and conunon law fraud.

111. TIfE REPORTJudge Bobrick has recommended that the complaint

be dismissed on the following grounds:

1. The Receiver lacks standing to assert any claimsagainst the Bank on behalf of the limited

Page 2

partnerships, because they were merely the vehiclesfor the alleged fraud and, in any event, have beenconsolidated in receivership with Financ9al Concepts,which benefited from the frand; because the realinjury was to the investors in the limited parmenhips;and finally because the Bank played no role in thelooting of the partnerships which underlies theReceivets clahm.

*3 2. The securities claim is defective, becauseplaintiffs have failed to allege loss causation; andbecause the bulk of the purchases of partnendapinterests fall outside the statutory period of repose.

3. The claims of secondary liability under RICO aredefective, because plaintiffs have failed to adequatelysllege that the Banlc shared the requisite &audulemintent with Gordon-Boula.

4. 'The claims of primary liability under RICO arealso defective, because plaintiffa have failed to allegean injury resulting from the use or investmem ofracketeering income as required in order to state aclaim under 1962 a• and because plaintiffs havefailed to identify predicate acts of racketeering whichwere committed by the Bank and which amount to apattem of recketeering activity.

5. The pendent state claims must be dismissed in theabsence of a viable federal claim.

I[! ANALYSISAs set forfh below, the Court concludes that theReport is correct in its conclusion that Cagan lacksstanding as the Receiver to assert claims against theBank and that plaintiffs have failed to identify aninvestment injmy suppotting Count II's assertion ofprlmary liability tmder 18 U.S.C. 8 1962(a).However, the Court further concludes that theallegations of the remaining counts of the complaintare su8'icient to withstand the Banlc's motion todisnilss as to the investors.

A. Recefver's SYanding

The Court adopts the Report Insofar as it concludesthat the Receiver lacks standing to assert any claimsagainst the Bank The complaint leaves no doubtthat the limited partnerships on whose behalf Caganbrings suit were merely the vehicles for Gordon-Boula's ftaud and were never ereated as sepatate,legitimate entities in their own right. (See ComplaintQ 46.) Although the complaint does allege that thepartnerships were looted in order to repay the Bankand for other wrongBII purposes (see id Q 44)

0 2007 Thomson/West. No Ciaim to Orig. U.S. Govt. Works.

Not Reported in F.Supp.Not Reported in F.Supp., 1992 WL 80966 (N.D.111.)(Cite as: 1992 WL 80966 (N.D.BI))

IFN21, it was the iavestors who purchased interests inthose partnerships and who bore the real bnmt of thewrongdoing. As this Court's colleague Judge Milton1. Shadur has stated in a case quite similar to this one,"Fraud on the investors that damages those irrvestorsis for those irrvestors to pursue-not the receiver."Scholes v. Sahroeder. 744 F.Suoo. 1419. 1422(N.D.111.1990) (emphasis in original). See Ca in v.Marine Midland Grace Trvst Co. of New York. 406U.S. 416. 429-34. 92 S.Ct. 1678. 1685-88 (1972).Consequently, the claims asserted in this actionproperly belong to the investors themselves, not toCagan and the pattnecships. Moreover, to the extentthe partnerships might be said theoretically to havesuffered any independent itljury when they werelooted by Gordon-Boula (see Complaint 1 44), therelationship of these entities to the overall schemeoperated by Gordon-Boula cannot be disregardedAs the complaint reveals, the district court presidingover the Gaskill litigation entered an order in June,1989, providing that all partnership identities andinterests were to be disregarded. (Complaint 9 46.)The complaint itself explains why:

*4 The court found that consolidation was necessaryas the investments were the instrumentalities of acommon fraudulent scheme and were not treated byGordon-Boula as bona fide limited partnerships intheir creation, operation, or sale.

(Id) In sum, it is clear from the very allegations ofthe complaint that the l'united parmerships were notthemselves the victims of fraud, but rather were themeans to that end fFN37 Accordingly, they have noinjury of which to complain and Cagan as theReceiver has no standing to sue the Bank forwhatever role it may have played in the fraud.

B. Securities Claim

The Report recommends dismissal of the securitiesclaim asserted in Count One on two separategrounds: the failure to allege "loss causation" and thefailure to file suit whhin the period of repose. As setfotth below, the Court conoludes that the plaitttiffshave alleged loss causation sufficiently and, 8utber,that although many of the transactions underlying thecomplaint may have taken place outside of the periodof repose, at least some are recent enough for thesecurities claim to survive.

1. Loss Causation

In orderto state a claim under § 10(b) and Rule l0b-5, a plaintiff must allege both "transaction causation"

Page 3

and "loss causation." LHLC Corp. v. Cluett. Peabody& Co.. 842 F.2d 928. 931 f7th Cir.) ceri. denied 488U.S. 926. 109 S.Ct. 311 (19881: Vi'/IaPe of trlinetonHeiQhts v. Poder 712 F.Bupp 680 , 685(N.D.111.19891(Rovner, J.). Transaction causation ispresent when the plaintiff demonstrates that shewould not have engaged in the hransaction at issuebut far the defendanYs untruthful statements oromissions. LHLC. 842 F.2d at 931. Loss causationis established by proof that the plaintiff would nothave suffered a loss if the facts were what she hadbelieved them to be. Id The Report concludes thatplaintiffs have adequately alleged transaction, but notloss causation.

As the Seventh Circuit has explained, "[i]osscausation is an exotic name-- perhaps an unhappyone-far the standard rule of tort law that the plaintiffmust allege and prove that, but for the defendant'swrongdoing, the plaintiff would not have inaured iheharm of which he complains." Bastian v . PemenResources Corp.. 892 F.2d 680 (7th Cir.) (citationomitted), cert. denied 496 U.S. 906. 110 S.Ct 2590(1990) . The CourCs opinion in Bartian makes clearthat the purpose of the loss causation requirement isto weed out cases in which misrepresentations havebeen made to an investor, but the invesmr's loss hasnothing to do with those misrepresentations. Forexample, the plaintiffs in Bastian had invested in oiland gas limited partnerships which later becameworthless. They alleged that they never would haveinvested in the parmerships were it not formisrepresentations and omissions conceming thepromoters' competence and integrity. Theseallegations were sufliciem to establish uansactioncausation; but because the complaint did not indicatewhy the parmerships became worthless, and, inparticular, did not rule out the possbility that theinvestments lost their value due to a general declinein the oii and gas market which would have harmedplaintiffs even if they had made the same investmentwith someone else, loss causation bad not beenadequately alleged. Id at 684-85. The Courtremarked:

*5 No social purpose would be served byencouraging everyrone who suffas an investment lossbecauae of an unanticipated change in marketeonditions to pick through ofFering memoranda witha fine-tooth comb in the hope of uncovering amisrepresentation. Defrauders are a bad lot andshould be punished, but Rule IOb-5 does not makethem insurers against national economic calamities.If the defendanu' oil and gas ventures failed notbecause of the personal shortcomings that the

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defendants concealed but because of industry-widephenomena that destroyed all or most such ventures,then the plaintiffs, given their demonstrated desire toinvest in such ventures, lost nothing by reason of thedefendants' fiaud and have no claim to damages.

Id at 685 (citations ornined). Compare Rerha!Associates. Inc. v. Lang Grove VodFUr Co. 754F.Supn. 1226. 1234 (N.D.111.1990) (Rovner, 7.)(where plaintiffs alleged,hat but for the defendants'misrepresentations, they would have made moreconservative investments which would not have losttheirvalue, loss causation was adequatelyalleged).

1'he Report concludes that plaintiffs have failed toallege loss causation in this case becausa "[h]ad theBank played no role whatsoever in the allegedincidents-no release of cort8demial information, nofailure to disclose, no loan to Gordon-Boula--aninvestment in Fitumcial Concepts would stlll havefallen prey to Gordon-Boula's scheme and was aworthless investment from the start." (Report at 12.)The Bank played no part in rendering thepartnerships worthless, the Report reasons; therefore,it can have no liability for the investors' loss under10b. (Id)

The Court believes the Report reads the complainttoo narrowly. Plaintiffs' claim is one oFaiding andabetting. This requires the plaintiffs to allege that "

-'(1) someone committed a primary violation, (2)positive law obGges the abettor to disclose the truth,and (3) the abettor fsil[ed] to do this, with the samedegree of scienter necessary for the primaryviolation.' " Reshal Associates. 754 F.Supp. at 1233(quoting DiLeo v. Finst & Yovng. 901 F.2d 624. 628(7th C'u•). cert denied 498 U.S. 941, 11l S.Ct. 347199 . There is no question that plaintifEs have

adequately alleged a primary violation of § lOb andRule lOb-5 by Gordon-Boula. Nor is there anydispute, assuming the truth of the complainesallegations, that the Bank withheld materialinformation about Gordon-Boula's Ponzi schemefrom its investors. Moreover, as discussed below Infurther detail, the Bank's status as trustee of the IRAstlurough which plaintiffs invested -supplies therequisite duty of disclosure. Finally, the thnut of thecomplaint is that the Bank aided Gordon-Boula withthe hope and iatent that the scheme would not fallapart before the Banks loans were repaid.Therefore, according the plaitttiffs the benefit of aliberal reading of the complaint to which they areentitled at this stage of the proceedings, the complaintadequately makes out a claim fbr aiding and abettingunder § 10b and Rule lob-S.

Page 4

*6 The complaint also suffices to allege losscausation. Plainly this is not a case in whuh theinvestors' loss can be chalked up to general marketconditions or anything other than the &aud in whichGordon-Boula engaged and to which, according tothe complaint, the Bank willingly lent its assistance.Financial Concepts and its related entities amountedto nothing more than a monetary black hole. Hadthey realized this, plaintiffs would not have sufferedthe loss they did. In other words, in contrast toBastlan, it would defy logic here to assume thatplaintifts might well have invested in another Ponzischeme choreographed by someone else. Thealleged scheme had nothing to do with marketconditions or any other eodraneous circumstance; itwas a self-contained fraud upon the investors. 1'hus,there is a direct causal link between plaintiffs' loss anthe one hand and the alleged misrepresentations andomissions of both Gordon-Boula and the Bank on theother.

The Court must stress again that the complaint inthis case does not portray the Bank merely as a silentbystander to or conduit for GoFdon-Boula's misdeeds.Rather, the complaint alleges that the Bank, uponleaming of the Ponzi scheme, leapt to its assistance.Not only did the Bank pmportedly facilitate theinvestments (transaction causation), but by allegedlyremaining silent despite its knowledge of the shamnature of these investments, it facilitated theinvestor's loss as well. lbere is at least someauthority suggesting that a plaintdT need not showthat the aider and abettor did anything to contributedirectly to the investor's loss, so long as losscausation is demonstrated vis a vis the pruneryviolator and the aider and abettor "substentiallyassisted" the primary violator. See ICahn v. ChaseManhattan Ban,E NA 760 F Supp 369 374(S.D.N.Y.1991); but see In re Gas Reclamation. InaSecurities Lrtigation 733 F Suoo 713 721(S.D.N.Y.1990). The allegations of the complaintare more than suflicient to establish both losscausation on the part of Gordon-Boula andsubstantial assistance by the Bank However, to theextent loss causation must be shown with raspect tothe Bank, the allegatioos conceming the Bank'sfailure to disclose what it purportedly knew about thePonzi scheme and Its own stake in that schemesuffice. Cj. Scho(nick v. Schecter, 752 F Supo 13171323-24 (E.D.Mich.19901 (bauk's conduct vis a visinvestors, including, inter aliq its failure to disclosean arrangement with limited parmerships pursuant towhich investment proceeds would be used to reduceoutstanding loans, sufSced to show loss causation).

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Moreover, the assistanco which the Bank allegedlygave to Gordon-Boula in identifying prospectiveinvestment fhnds and in establishing new IItAs withthe Bank arguably fostered the entire scheme andkept the house of cards from collapsing longer than itotherwise migbt have, to the detriment of laterinvestors.

2. Statate ofRepose

*7 With the Supreme CourCs recent decision inLamv-r Plev¢ Lrpkind Pruois & Peti¢row v.Gilbertson 501 U.S. 350, 111 S.Ct 2773 (1991). it isnow settled that an action brought under § lOb mustbe filed within one year of the discovery of the factsconstitufing the violation and within three years ofthe violation itselE The Seventh Circuit had held thesame one year earlier in SAort v. Belleville Shoe Mfe.Co.. 908 F.2d 1385 (7th Cir.19901, cert denied QU.S. 1250, 111 S.Ct. 2887 (1991). These casesrepresented a departure from prior precedent, whichhad looked to the more generous limitations periodsprovided for in shrte blue sky laws. The questionbefore the Court is whether the three-year period ofrepose should be applied retroactively here. N41

The original complaint in this case was filed onSeptember 25, 1990. Accordingly, sales which tookplace prior to September 25, 1987, would not supportthe § 10b claim set forth In Count One if the newperiod of repose adopted in LaaegJ' and Short isapplied retroactively. It would seem from thebriefing that this would reduce the size of the putativeclass (fbr purposes of Count One) to 279 individualswho made investments totalling $1.9 milfion. (SeePlaintiffs Response to Defendant's SupplementalAuthority at 1, q 1,)

In arguing against retroactive application of thethrae-year period of repose, plaintiffs assert that theyrelied upon the more genetous provisions of Illinoissecurities code which had previously govemed intheir pre-filing investigation. fFN51 Reliance uponclear past precedent contrary to the new tule is onefactor which the Supreme Court has identified as aground for not applying that rule retroactively.Chevron Oil Co. y. Httro)z 404 U.S. 97. 106-107. 92S.Ct 349_ 355 (1971). However, as the Court ofAppeals noted in Short, when a plaintiff files suitshortly after leatning of the facts which supply thebasis for her complaint, she cannot claim to haverelied upon the more generous limitations periodfrom which Short departed. 908 F.2d at 1390.Accord Reshal Assoc(ales 754 F.SuuD. at 1240-41.

Page 5

Upon review of the complaint, the Court concludesthat plaintiffs have not shown reliance upon the pre-Short Iimitations period which would bar retroactiveapplication of the shorter period. The complaint issomewhat two-faced on this issue. Plaintiffsconcede that they did not acquire the informationwhich underlies their securities claim against theBank until September of 1990, the same month theyfiled suit (See Complaint' 43.) However, thectunplaint also alleges that p[ainGffs had beeninvestigating the Bank earlier than this date, and hadin fact acquired (on a date unspecified) informationsuggesting that the Bank may have breached itsfiduciary duty to them. (Id) Based upon tbisallegation, plaintiffs in effect contend that they had"hints" of the Bank's wrongdoing prior to Septemberof 1990, but put off fiGng suit based upon theirexpectation that they would be able to availthemselves of the tolling provisions of the Illinoissecarities statute if and when they came up withsufficient evidence of wrongdoing to file suit

*8 Given plaintiffs' unequivocal concession that theywere unaware of the alleged fitcGe whiclt.support theirsecurities claim until September of 1990, they arewithout any real basis upon which to"claim relianceupon pre-Short law. Given the dictates ofFed.R.Civ.P. 11. mere hints or suspicions would nothave been enough to permit plaintiffs to file asecurities claim against the Bank. In other words,not until plaintiffs had some concrete infomtationimplicating the Bank in violations of § l0b and RulelOb-5 could the plaintiffs have filed suit at all, andnot until that point could they have begun relyingupon pre-Short law in deciding when to file suit. Tothe extent plaintifls argue that they might haveinereased the speed or scope of their investigationhad they anticipated the shorter period of reposeimposed by Short, it is an argument which, in theview of this Court, is far too speeulative to support anexemption from the application of Short. Indeed, itis an argument which could be made in almost anycase presenting this ldnd of retroactivity question,and which Is vittually beyond objectiva evaluation.Whether and when a plaintiff came into informationwhich would support his claim is subject to someverification, but what prior hints or suspicions hemay have had, and whether he would have conductedhis pre-flling investigation on a different or moreexpedited basis had he realized the limitations clockwas ticking more quickly than he thought, are muchless suscepttble to testing. Thus, plaintiffs in thiscase argue generally that they relied upon pre-Shortlaw in doing their investigative work, but neithertheir complaint nor their briefing reveals what early

® 2007 ThomsonlWest, No Claim to Orig. U.S. Govt. Works.

Not Reported in F.Supp.Not Reported in FSupp,1992 WL 80966 (N.D.III.)(Cite as: 1992 WL 80966 (N.D.IB.))

hints of the banlt's wrongdoing they had or identifiesany way in which their investigation strategy restedupon the more generous limitations period whichShort abandoned. See Lewis v. Flermann JL5F.Supo. 1137. 1146 (N.D.BI.19911(Aspen, 7.).

Accordingly, the Court concurs in the Report'srecommendation that Short be appiied retroactivelyhere. Based upon the assumption that this would barplaintiffs' claims on all alleged sales but one--onNovember 13, 1987, to named plaintiff Nicpan-theReport appears to conclude that Count One isuntimely and should be dismissed on that ground.However, in objecting to the Report, plaindffs havepointed out that an additional salc-this one on March21, 1988 to plaintiff Muceianti--also survives the newperiod of repose. Thus, both of the named plahdifispurchased partnership interests within the three-yearperiod of repose. In addition, as noted above,plaintiffs have contended that a total of 297individuals would qualify for a class of investors whomade their purchases on or after September 25,1987.Under these circumstances, it would appear thatCount One remains viable under Short, albeit for amuch smaller class than originaAy envisioned.Accordingly, dismissal of Count One on timelinessgrounds would not be appropriate. [FNC1i

C. Secondary Liability under RICO/Duty ofDiselarure

*9 As set forth above, Counts III and V of thecomplaint allege that the Bank aided and abettedviolations of the RICO statute, 6 6 1962(a) and (c7.The Report concludes that neither count states acognizable claim because the allegations of thecomplaint fafl to demonstrate that the Bank (as theabettor) shared the same mental state as Gordon-Boula (the primary violator). Report at 17-18. Inorder to meet the scienter requirement, plaintitl's haverelied upon the notion that the Bank, as trustee of theIRAs through wbioh investors purcbased interests inthe Financial Concepts entities, had a fiduciary dutyto the investon: which required it to disclose what itImew about Gordon-Boula's Ponzi scheme.However, the Report finds that the allegations of thecomplaint fail to identify any agreement betweea theBank and the investors (let alone its terms) whichwould give rise to such a fiduciary duty. Report at17-18.

Although the allegations concemmg the nature of therelationship between the iavesmrs and the Bank areindeed skeletal, they are sufficient, at this stage of theproceedings, to give rise to the infesence that the

Page 6

Bank bore a fiduciary duty to the investors. fFN71The complaint repeatedly alleges that the investoraccounts held by the Bank were "IRAs" and that theBank was the "Trustee" of these accounts. (See, e.g.,Complaint 11 3; 23, 24, 25, 26, 28, 29, 31, 36, 37,38.) As the Report notes, Mart v. Ford Citv Bm^kand Trust. 779 F.2d 397. 400-401 (7th Cir.1985) .provides that DtAs are "special" deposits which giverise to a fiduciary duty in the bank as trustee of theseaccounts. The Report is correct in observing thatwhether or not an account qualifies as an IRAdepends upon the terms of the trust instrument whichthe bank and the depositor execute, see td (citing 26U.S.G 8 408(a)l, and thatMasf and the Illinois casesit relied upon for the proposition that IItAs are"special" under Dlinois as well as federal lawultimately rest upon the language of such instrumentsin determining that a breach of fiduciary duty hadtaken place. However, in light of the complaint'sunequivocal atlegations that the investor depositswith the Bank were IltAs, coupled with the terms of afederal statute which specify what renders a depositan IRA (26 U.S.C. 6 408 (al) , the lack of detail in thecomplaint as to the particular tetmc of the agreemembetween the Bank and its depositors is- not acompelling reason for dismissal of the aiding andabetting claims. Giving plaintiffs the benefit ofreasonable inferences from their allegations, thecomplaint is sufficient to establish a fiduciary dutywhich was breadted when the Bank allegedly failedto infotm its depositors of Gordon-BoWa's fraudulentscheme. The Court notes that this holding poses noundue prejudice to the Bank in pmctieal temu, for asthe repositnry of the investors' accounts, it has readyaccess to the terms of the agreements, whichgoverned those accounts; and, of course, anyoutstaading questions as to the status of the plaintiffs'acceunts may be answered in the course of discovery.

*10 Counts III and V therefore do not fail upon theground that they lack adequate allegations as to theBank's scienter.

D. Primary Liability under RlCO

Counts B and IV assert that the Bank is culpablepursuant to b b 1962(a) and (c) of RICO under atheory of primary liabiliry. The Report concludesthat the 6 6 a claim fails because it does notallege an injury resWting from the use or investmemof racketeering income. (Report at 19- 20.) It alsofinds the 1962(c) ctaim defective, on the groundthat the alleged predicate acts of mail and wire fraudwere not fraudulent in and of thetnselves and, in anyevent, do not suggest a genuine threat of continued

C 2007 Thomson/VVest No Claim to Orig. U.S. Govt. Worka.

Not Reported in F.Supp.Not Reported in F.Supp., 1992 WL 80966 (N.D.IU.)(Cite as:1992 WL 80966 (N.D.BL))

criminal activity which demonstrates a pattem ofraeketeering activity. (Id at 20-21.)

1. Liability under 1962(a)

The Ceurt agrees that the 19 a claim assertedin Count II fails for lack of an identified injuryresulting fram the use or investment of racketeeringincome. See R.E. Davia Cheniical Corp. v. NalcoChemical Co.. 757 F.Supu. 1499. 1524-25LN.D.I11.19901 (Rovner, J.). In this case, the realharm alleged is injury resulting from the Bank'spurported acts of racketeering rather than the use offunds which the Bank allegedly reaped from thoseaets. According to the complaint, the income whichthe Bank received (which included "repayment ofGordonBoula's loans, interest, IBA custodial fees,and land trust fees," Complaint q 71) was invested inthe Bank itself (the alleged "enterprise") and wasused "to fund its continuing operations" (fd 1 72).Plaintlffs argue that this mvestrnent enabled the Ponzischeme conducted by Gordon-Boula to continue andallowed more investors to be drawn into the scheme.(Objections at 11.) However, in terms of the Bank'salleged misdeeds, the real injury to investors resultedfrom the assistance whicb the Bank allegedly lent toGordon-Boula by helping to bring in new investorsand in failing to alert these investors to the ongoingfraud-acts which have no connection to the incomewhich the Bank purportedly received fiom Gordon-Boula in exchange for its help. Moreover, to theextent the Bank may have reinvested any income itreceived back into any of the Financial Conceptsentities (eg., by way of additional loans), this did notamount to an lnvestment in the "entetprise"cognizable under 1262(a) far Count II identifiesthe Bank itselt not Gordoa-Boula, FinancialConcepts, or any of the limited partnerships, as thepertinent "enterprise." (See Complaint q 66.)Accordingly, the Court adopts the Report in thisrespect and will dismiss Count II for failure to state aelaim under 1962 a.1FN81

2. Liabiliry under 1962(el

The Court overrules the Report insofar as itconcludes that the alleged predicate acts ofracketeering were not fraudulent per ee and do notdemonstrate a pattem of ntcketeering activity.Communications which are identified as acts of mailand wire fraud need not be fraudulent in and ofthemselves, so long as they are " 'incident to anessentud part of the scheme or'a step in the plot' " todefraud. Schmudc v. Untteed States 487 U.S. 705.109 S.Ct. 1443. 1447 ( 1989) (citations omitted); see

Page 7

fd. at 1449. In this case, the Bank's role in thepurported scheme to defraud investors has beenalleged at length, and in the context of this case, theroutine communications eharacterized as acts of mailand wire fraud in furtherance of that scheme aresufficient for the complaint to withstand the motionto dismiss.

*11 Given the substantiai length of time over whichthe Bank is alleged to have participated in Gorden-Boula's scheme (from 1985, when it purportedlylearned of the wrongdoing, to 1988, when theReceiver was appointed), and the number of victimsallegedly involved (some 1700 of the Bauk'sdepositors), the Court also finds that a pattem ofracketeering acrivity has been pleaded adequately.7Le Report is no doubt correct in stating that there isno present threat of ongoing taiminal activitysuggested by the complaint, givm that Gordon-Boula's scheme bas been exposed and thewrongdoing brought to an end; thus, the case doesnot suggest "open-ended" continuity as descnbed inH.J. Ina v. Northwestern Bell Telenhone Co 492U.S. 229. 109 S.Ct. 2893. 2902 (1989) . However,given the sigeificant length of time over which theBank's alleged wrongdoing (and the correspondingacts of mail and wire fraud) took place, coupled withthe large number of victims (each of whom suffered adistinct injury), the complaint is sufficient to show"closed-ended" continuity. See fd

V. CONCL USIONFor all of the reasons set forth above, plamtifrs'objec6ons to the Magistrate Judge's Report andRecommendation are sustained in part. 7he Courtadopts the Report insofar as it recommends dismissalof Receiver Jeffrey Cagan for lack of staading anddismissal of Count Two for faflure to plead an injuryresulting from the use or investment of racketeeriagincome. However, detbndant's motion to dismiss isdenied in all other respects. Because countsasserfutg federal causes of action remain pending, theCoart retains jurisdiction over the state law olaimsasserted in Counts VI and VII.

The Court will conduct a status hearing on April 30,1992. At that time, the parties shall be prepared todiscuss how the case should proceed, including suchconsiderations as class certification and thecompletion of discovery.

,F^1 All references in this opinion to the"complaint" are to the second amendedcomplaint.

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Not Reported in F.Supp,Not Reparted in F.Supp, 1992 WL 80966 (ND.Di.)(Cite as: 1992 WL 80966 (N.D.IIL))

F^t Arguably, given the allegations as tothe Bank's knowledge of Gordon-Boula'smisdeeds and the purpotted assistance whichit lent to that scheme in the hopes of seeingits loans repaid, the Bank might be said tohave played some mle in the looting of thepatuterships. However, because the Courtagrees with the Magistrate Judgc that theReceiver lacks standing to assert such claimson behalf of the partnerships themselves, theCourt need not reach this issue.

FN3. The securities law claim asserted inCount One of the complaint fails upon anadditional, albeit related ground. As theMagistrate Judge noted, the partnershipsupon whose behalf Cagan sues were sellersof securities, not brsyers. (Report at 9.)Again, given the allegations that thepartnerships were merely the vehicles forGordon-Boula's fraud, the proposition thatthese partnerships waee the "victims" ofsecurities fraud is untenable. See Scholes.744 F.SIWp. at 1423.

FN4. After the Supreme Court's decision onretroactivity in Jmnes B. Beam Drsti[linQ Co.v. Geor$ia. 501 U.S. 529. 111 S.Ct 243919 1 courts began to apply the new period

of repose announced in Lampf retroactivelyto all pending cases. See e.g., Boudreeu v.Deloilte. Haskrns & Sells. 942 F2d 497. 498(gth Cir.1991) . However, on Deceadrer 19,1991, Congress added Section 27A to theSecurities Exchange Act (via § 476 of theFederal Deposit Insutance CorporationImprovement Act of 1991, Public Law 102-242. 105 Stat. 22361. This new sectionprovides that "[tlhe limitation period for anyprivate civII action implied under section10(b) of ihis Act that was commenced on orbefore June 19, 1991, shall be the limitationperiod provided by the laws applicable inthe jurisdiction, including principles ofretroactivity, as such laws existed on June19, 1991." 105 Stat 2387. 71te SeventhCircuit's 1990 decision in Short representsthe law of this jurisdiction as of June 19,1991; accordingly, the Court must applythat case, together with the principles ofretroactivity enunciated there and in similarcases, in order to determine whetherplaintiffs' claims are timely.

FMS III.Rev.Stat ch. 121 1/2 ,' 137.13D

Page 8

requires securities suits to be filed withinthree years of the date of sale, but permitsequitable tolling for up to two years.

FN6. The Bank has altennuively argued thatthe sectaities claim is completely barred bythe one-year statute of limitatioas. In theBank's view, at least as of July, 1988, whenthe receiver was appoiuted, investorsreasonably should have appreciated the needto investigate the Banks role, if any, inGordon-Boula's fxaud. However, givingplaintlfs the benefit of a liberal reading ofthe complaint, the allegations are sufficientto establish both that plaintifts were unableto learn of the Bank's purported role in thescheme until 1990, despite due diligence ontheir patt in investigating the scheme (seeComplabtt 11 39-43) and that the Baaktook steps to actively conceal its allegedlyfraudulent activity (hi Q 38). Tbesecircumstances prov;de a sufficient basis, atthis stage of the proceedings, for eqaitabletolling of the statute of limitations throughthe date when plaintifl's achtally discoveredthe Bank`s allegedly wrongfid conduct SeeDavennort v. A C. Daveriport & Son Ca903 F.2d 1139.1142 (7th Cir.1990L

FN7 The breach of such duty would,accordingly, evince the requisite sharedintent to defraud the investors, (see Report at17), as well as substantial assistance infbrtherence of the scheme. Arguably, theBank's alleged knowledge of Gordon-Boule's misdeeds, its intent that the schemecontinue so that its loans would be repaid,and the other actions which the Bankallegedly took to facilitate the scheme alsoreflect the Bank's shared intent to defraudthe iavestors.

18 The Bank argues that the 1962(aclaim in Count IB should be dismissed onthe same ground. However, that count isftamed as an aiding and abetting cwunt inwhich Financial Concepts is the purported"enterprise." (Compla;nt g 76.) In thiscontext, the continued investment of moneyinto Financial Concepts-the vehicle ofGordon-Boula's fraudulent scheme and anentity whioh apparently had no legitimatebusiness-arguably enabled the fraud topersist, to the detriment of additional victimsof the seheme. In this respect, Count III is

0 2007 Thomson/9Vest, No Claim to Orig. U.S. Govt Works.

Not Reported in F.Supp.Not Reported in F.Supp., 1992 WL 80966 (N.D.IIl.)(Cite as: 1992 WL 80966 (N.D.DI.))

sufficiently distinct from Count. II that itsurvives the motion to dismiss.

END OF DOCUMENT

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0 2007 Thomson/West. No Claim to Orig. U.S. Govt Works.

IN THE COURT OF COMMON PLEAS r71CUYAHOGA COUNTY, OHIO ^ ^ Q

2001 SEP 21 P 3- 3b

MATTHEW L. FORNSHELL

Plaintiff,

GCASE NO. 04-CV=6498$4

v. ) JUDGE JOSE A. VILLANiIEVA

FIRSTMERIT CORPORATION ) POST-HEARING SUPPLEMENTALMEMORANDUM IN SUPPORT OF

Defendant. ) FIRSTMERIT CORPORATION'SMOTION TO VACATE MAY 23,2006SUPPLEMENTAL ORDERAPPOINTING RECEIVER

Defendant FirstMerit Corporation ("FirstMerit") submits this Supplemental

Memorandum in Support of its Motion to Vacate the May 23, 2006 Order Appointing Receiver

("Motion to Vacate"), at the Court's invitation, to clarify certain issues raised at the September 7,

2007 Hearing ("Hearing") on FirstMerit's Motion to Vacate, FirstMerit's Motion to Stay and

Receiver Matthew Fomshell's ("Fornshell") Motion for Leave to File Amended Complaint

Instanter.

1. FORNSHELL'S COMPLAINT AND PROPOSED AMENDED COMPLAINTCONTAIN CLAIMS SOLELY BELONGING TO THE SCIINEIDERINVESTORS.

Fomshell's Complaint contains five counts against FirstMerit Corporation ("FirstMerit"),

all asserting claims of investors: ( 1) aiding and abetting the sale of unregistered securities under

R.C. 1707.43; (2) aiding and abetting securities fraud under R.C. 1707.43; (3) violation of the

Ohio Con:upt Activities Act, R.C. 2923.32; (4) aiding and abetting conunon law fraud; and (5)

civil conspiracy to commit fraud. Fomshell alleges that Alan and Joanne Schneider (the

"Schneiders") were primarily responsible for fraud on various investors by operating an illegal

EXHIBIT

°n B

Ponzi scheme, part of which involved the sale of unregistered promissory notes to individual

investors (the "Schneider Investors"). (Complaint and proposed Amended Complaint, ¶¶ 2-7,

39, 44, 49-50, 54.) Fomshell's Complaint and his proposed Amended Complaint are virtually

identical, except that his proposed Amended Complaint states that the defendant is "FirstMerit

N.A." rather than FirstMerit Corporation.t

The injuries set forth in Fornshell's Complaint and proposed Amended Complaint were

sustained by the Schneider hivestors alone:

Count One: "FirstMerit bears liability for rescission under R.C. 1707.43 to thosewho purchased unregistered promissory notes from the Schneiders."(proposed Amended Complaint and original Complaint ¶ 40) (emphasis supplied.)

Count Two: "These violations of the Ohio Securities Act entitle purchasers ofthe promissory notes to rescission pursuant to R.C. 1707.43." (Complaint andproposed Amended Complaint ¶ 45) (emphasis supplied.)

Count Three: "This violation of R.C. 2923.32(A)(1) renders FirstMerit liable fortreble damages to the purchasers of the Schneiders' promissory notes."(Complaint and proposed Amended Complaint ¶ 52) (emphasis supplied.)

Count Four: "...FirstMerit bears liability for victims of the fraud perpetratedby the Schneiders" (Complaint and proposed Amended Complaint ¶ 56)(emphasis supplied.)

Count Five: "...FirstMerit conspired with the Schneiders in committing fraudperpetrated upon purchasers of the promissory notes. As a result, FtirstMeritbears liability for the damages suffered by these individuals and entities."(proposed Amended Complaint and original Complaint ¶ 58) (emphasis supplied.)

None of the claims contained in Fomshell's Complaint belong to the Receivership or the

Received Entities (the Schneiders and their companies). None of the claims belong to all

creditors of the Schneiders and their companies. Indeed, Fomshell expressly states in his

1 FirstMerit Corporation is a bank holding company that wholly owns FirstMerit Bank, N.A., the nationally-chartered bank at which the Schneiders had a business depository account. There is no entity called "FirstMeritNA." Although FirstMerit attempted to draw to Fomshell's attention the deficiency of proposing an AmendedComplaint that names a non-existent entity as a defendant, he has, as of the filing of this Memorandum, failed tocorrect the proposed pleading, for reasons known only to Fomshell.

2

Complaint that he is pursuing claims on behalf of all Schneider Investors pursuant to this Court's

Supplemental Order Appointing Receiver entered in May 2006:

On May 23, 2006, Judge Villanueva issued an order that specificallyauthorized Fomshell to pursue this lawsuit against FirstMerit on behalf of"any person or entity that invested with or lent money to the' Schneiders orany of their companies 'on the promise that they would receive a return ontheir investment, or interest on the amounts invested or lent in excess of3% above the market interest rate as determined by the Federal Reserve atthe time the money was invested or lent."

(Complaint and proposed Amended Complaint ¶ 15) (emphasis supplied.)

As part of Fornshell's effort to intervene in Kathy Youne, et al. v. FirstMerit Bank. N.A..

Case No. 1:06-CV-01486, App. No. 07-3260 (Boyko, J.) (the "Young Case"), he proffered the

same Complaint he filed in this Court to the District Court. In his Order denying Fomshell's

Motion to Intervene in the Young Case, Judge Boyko expressly found that Fornshell's claims in

his Complaint belong to the Schneider Investors alone:

The express language of O.R.C. 1707.43 holds plaintiffs have a cause of actionagainst anyone participating in and aiding in the sale of unregistered securities.This creates, in this Court's opinion, a cause of action by the investors againstFirstMerit that is not derivative in nature, nor is it a claim against the assets ofthe Receivership. Rather, the claim belongs solely to each investor sold anunregistered security.

(February 1, 2007 Order in Case No. 1:06CV 1486, p. 5) (emphasis supplied.) Judge Boyko's

ruling is supported by the language throughout Fornshell's Complaint indicating the it is the

Schneider Investors alone who have the right to recover from alleged tortfeasors involved in the

Schneider's investment scheme. On the issue of whose claims are being pursued in Fomshell's

Complaint, Judge Boyko has ruled, and this Court should be bound by, or at least give

substantial deference to, that rnling. Clearly, Fomshell has no standing to bring claims solely on

behalf of the Schneider Investors.

3

H. IN AN ABRUPT ABOUT-FACE, FORNSHELL NOW 1VHSCHARACTERIZESTHE CLAIMS OF HIS COMPLAINT AS CLAIMS BELONGING TO THERECIEVERSHIP.

Although Judge Boyko has ruled correctly that the claims set forth in his Complaint are

claims belonging solely to the Schneider hivestors, Fornshell now attempts in vain to

mischaracterize his claims before this Court (1) in the Hearing - in open Court and on the record

- and (2) in his Memorandum in Opposition to FirstMerit Corporation's Motion to Vacate the

May 23, 2006 Supplemental Order Appointing Receiver.

Shockingly, Mr. Jonathan Yarger, counsel for Fomshell, argued at the Hearing that

Fomshell's asserted claims are not claims of the Schneider Investors which the receiver filed on

their behalf. Instead, he disingenuously asked the Court to recognize that Fomshell's Complaint

contains claims belonging to the receivership alone, in contravention of the clear language of the

Complaint itself and contrary to Judge Boyko's clear raling. Mr. Yarger suggested for the first

time that the receiver is asserting claims against FirstMerit belonging to the receivership estate

alone, and that the investors have no right of recovery in this lawsuit:

• "We're not bringing a lawsuit to vindicate the claims of the investors.We are bringing a lawsuit to put money into the estate which will go tothe investors, permitting them simultaneously or subsequently topursue their own claim." (Tr. 107) (emphasis supplied.)

• ...."[T]hat injury to the estate is because the creditors or investors,depending on how they are characterized, have claims against the estatethat must be paid as a result of the wrongdoing of the third party. So it'sthe money, these kind of indenmification claims, that the estate has to pay.So these estate creditors, these investors, are entitled to be paid from thisestate...." (Tr. 33.)

• "I'm not this [investor's] attomey. This person is not my client. And itmay be confusing to some people out there, but I don't represent thesefolks. I represent the receivership. It's an estate. It has claims against itby these people, and to the extent that any money is collected here,whether it's from the sale of the Comerstone Development or whether it'sbecause this action against FirstMerit is successful, and to the extent that

4

that money is distributed to these folks, whatever claims they may haveindividually which these courts are all allowing to proceed separately arereduced by that amount." (Tr. 53-54.)

Fomshell's characterization of the nature of his claims at the Hearing is mysterious,

given that neither his Complaint, nor his nearly identical Amended Complaint, contains any sort

of claim on behalf of the estate or the estate's creditors for which he seeks recovery against

FirstMerit. Indeed, it is difficult to understand what the receiver's claim against FirstMerit is or

could possibly be. Although the Mr. Yarger's description of the receiver's "claim" suggests that

it may be similar to a contribution claim, Fomshell: (1) asserted no such right of recovery by the

receivership in his Complaint or proposed Amended Complaint, and (2) in any event, no claim

of contribution by the receivership estate against FirstMerit would be cognizable under Ohio

law. R.C. 2307.25(A) ("There is no right of contribution in favor of any tortfeasor against whom

an intentional tort claim has been alleged and established.")

The first time Fornshell asserted in briefing filed with this Court that his claims against

FirstMerit belong to the receivership and not the Schneider Investors alone (contrary to his own

Complaint) was on June 20, 2007, in his Memorandum in Opposition to FirstMerit

Corporation's Motion to Vacate May 23, 2006 Supplemental Order Appointing Receiver at pp.

18-23. Prior to the filing of that Memorandum, Fornshell consistently had represented to this

Court that he sought to prosecute claims of Schneider Investors. Indeed, as recently as March 2,

2007, Fornshell was singing a different tune:

• "From the day this lawsuit began, Fornshell has had full authority torepresent all of the [Schneider Investors] comprised within the classthe federal plaintiff is only hoping one day to have certified."(Fomshell's Memorandum in Opposition to FirstMerit's SupplementalMotion to Stay) (emphasis supplied.)

• "This is a collective action, and always has been - Fornshell filed hisComplaint on behalf of all investors victimized by the `Ponzi Scheme'

5

implemented by the Schneiders and FirstMerit. As a result, this lawsuiteffectively involves hundreds of Plaintiffs." (Id. at 9) (emphasis supplied.)

• "Plaintiffs need court authorization before they can prosecute litigation ona class-wide basis. Fomshell already has it; Young does not." (Id. at 10)(emphasis supplied.)

At the recent Hearing, Fomshell offered a completely different argument about his

authority and his relationship with the Schneider Investors. In open court, he renounced his

representation of the Schneider Investors, denied he filed his Complaint on behalf of all

Schneider Investors, and seemed to deny he had any authority to pursue claims of the Schneider

Investors "on a class-wide basis." His counsel stated, "the receiver in this case is not a direct

successor or assignee to the actual claims of creditors." (Tr. 29.)

Why does Fomshell contradict himself so? Fornshell's maneuvering demonstrates

that he is willing to shift his position to assert convenient arguments in a futile attempt to

keep this case alive, despite the pending and duplicative putative class action in federal

conrt. Instead of taking Fornshell's position-of-the-moment at face value (as Fomshell invites

this Court to do), this Court should take a long view of this case and the propriety of Fornshell's

prosecution of the claims belonging to the Schneider Investors. Respectfully, this Court should

be troubled by Fomshell telling the Court he represents the Schneider Investors when he sought

leave of this Court to bring this lawsuit, and then shifting his position 180° when he realizes he

has no standing to bring claims on behalf of those Investors.

III. IN A SELF-CONTRADICTION, FORNSHELL ARGUES TIIAT SCHNEIDERINVESTORS CAN PURSUE LAWSUITS AGAINST FIRSTMERITINDEPENDENTLY OF THE RECEIVERSHIP'S ACTION - WHILE AT THESAME TIME ATTEMPTING TO INTERVENE IN YOUNG.

In another about face, Fornshell at the Hearing for the first time argued that the Young

Case and this action can proceed "simultaneously" and that they do not present identical claims

6

for decision. (Tr. 62-63, 66, 106-107.) Fomshell's position is belied by his continued efforts to

intervene in the Young Case. (Tr. 57-58.) He told the Sixth Circuit Court of Appeals in his

Proof Brief, filed on July 27, 2007, that the Young case "impairs" his interest "in that [the Young

Case] curtails his ability to gather assets for the benefit of defrauded investors and creditors of

the Schneiders." (Fornsliell's Proof Brief at 10.)2 Although Fomshell roundly criticizes the

Young plaintiffs at every tum for having yet to obtain class certification, it is Fornshell who has

delayed the Young Case by attempting unsuccessfully to intervene in it, then filing a mandamus

action aga.inst Judge Boyko in the Sixth Circuit (sunmiarily rejected by the Sixth Circuit), and

simultaneously appealing the denial of his intervention motion to the Sixth Circuit. Judge Boyko

apparently has decided, with good reason, to delay his decision on class certification, and on the

merits, in the Young Case until Fomshell's appeal is resolved.

If Fornshell's claims are substantively distinct from the Young plaintiffs' claims, as

opposed to overlapping as he previously argued, why is Fornshell expending so much energy and

resources of the receivership estate attempting to intervene in and delay the resolution of the

Young Case? Fomshell's actions with respect to the Young Case reveal that he wants to assert

and control the Schneider Investor claims even though Judge Boyko has ruled that those claims

belong solely to the Schneider Investors.

IV. FORNSHELL'S COUNSEL MISSTATED THE LAW AND MISUSEDAUTHORITIES THROUGHOUT THE HEARING.

At the Hearing, Fornshell's counsel "reviewed" several case law authorities which he

never had referenced in his opposition memorandum in an effort to support Fornshell's standing

to pursue claims of the investors. (Tr. 27-48.) Fornshell repeatedly misstated and misused these

2 The Court stated at the Hearing that it wants the parties to attach no papers, other than unreported cases, as exhibitsto this Post-Hearing Supplemental Memorandum. (Tr. 108.) To the extent the Court needs to refer to copies of anypleadings in this case or the Young Case which are not readily before it, FirstMerit is happy to provide copies to theCourt at the Court's request

r

7

precedents. Below, FirstMerit clarifies that Fornshell has provided this Court no authority

supporting his position; indeed, the great weight of authority supports FirstMerit's analysis that

Forashell lacks standing to assert the claims contained.in his Complaint which belong solely to

the Schneider Investors.

A. FirstMerit Did Not Misquote McCandless; Fornshell Missapplies It.

At the Hearing, Mr. Yarger's opening salvo involved accusing FirstMerit of having

"misquoted" or'miscited" in its Memorandum in Support of its Motion to Vacate the United

States Supreme Court case McCandless v. Furlaud 296 U.S. 140 (1935). (Tr. 27-30.) FirstMerit

did not misquote or miscite McCandless. FirstMerit did not quote McCandless in its

Memorandum in Support of its Motion to Vacate. FirstMerit quoted the First Circuit Court of

Appeals' interpretation of McCandless, for the proposition that "the plaintiff in his capacity of

receiver has no greater rights or powers than the corporation itself would have." (Memorandum

in Support of Motion to Vacate at 12.) This proposition, and the conclusions which flow from it,

are faithful to the McCandless case. In McCandless, the receiver sought to recover damages

from promoters of the received corporation who, in contravention of their fiduciary duties to the

corporation, had sold worthless securities to investors who were now creditors of the

receivership. See id. at 159, 163. hi upholding the receiver's action against the promoters, the

Supreme Court specifically held:

... [T]he question is not here whether restitution of illicit profits as the outcome ofthis suit may be proved to mitigate the damages in actions by other plaintiffs, ifany such there are. As we have striven to make clear, the receiver does not claimto have succeeded to the rights of bondholders or noteholders to recover damagesfor deceit. The wrong that is here redressed is the unlawful depletion of theassets whereby the company was made insolvent and the creditors weredefrauded of their lawful rights and remedies.

8

Id. at 167 (emphasis supplied). In other words, the received corporation in McCandless had an

independent cause of action against the promoters, separate and apart from the claims belonging

to defrauded investors. Indeed, McCandless permits recovery of damages arising from injuries

incurred by the received persons and entities themselves. That decision supports precisely the

opposite of what Fomshell is attempting to do here. Fornshell attempts to assert claims and

recover damages arising only from injuries incurred solely by the Schneider Investors.3

McCandless does not permit such an action by a receiver.

B. Fornshell Cited No Cases Which Support His Position.

After irrationally attacking the Supreme Court cases upon which FirstMerit relies,

Fornshell's counsel reviewed a laundry list of cases that he never mentioned in his Memorandum

in Opposition to FirstMerit's Motion to Vacate, or that were cited only by FirstMerit itself in its

briefing. (Tr. 33-48.) All cases discussed by Fomshell's counsel at the hearing support

FirstMerit's position that Fomshell has no standing to bring claims on behalf of the Schneider

Investors, and do not support Fomshell's position.

1. Cases FirstMerit Cited In Its Memorandum in Sunnort of Its Motion toVacate.

At the Hearing, Fomshell's counsel cited several cases (in addition to McCandless and

Ca li n that FirstMerit cited in its Memorandum in Support of its Motion to Vacate (pp. 13-14),

as if those cases support Fornshell's standing position. (Tr. 34-38.) They do not. Each of the

following federal cases, whether or not they find the receiver has standing to pursue claims

against third parties, applies the McCandless/Carolin principle: a receiver must assert a claim

3 Fornshell's counsel also sought to minimize the significance of Canlin v. Marine Midland Grace Trust Co. of NewYor 406 U.S. 416 (1972), calling the holding "narrow" and confined to an intsrpretation of the old BankruptcyAct. (Tr. at 31-32.) Fomshell misunderstands the import of Canlin, which is that a trustee in banlaniptcy or anequity receiver has no standing greater than that which is permitted by his role - to marshal assets on behalf of theinsolvent corporation for the benefit of creditors. Canlin makes quite clear that a trustee cannot sue on behalf ofthird parties to recover damages where the estate itself has no stake in the action.

9

belonging to the receivership estate in conjunction with asserting any claims that, if successful,

will ultimately benefit investors, creditors and/or customers harmed by fraud or other

wrongdoing of a third party:

• Goodman v. F.C.C.. 182 F.3d 987, 992 (D.C. Cir. 1999) ("We concludethat Goodman lacks standing to sue the Commission. He does notrepresent the parties who sustained the injury of which he complains, nor isthere anything preventing the parties who were injured from themselvesprotecting their rights.")

• Troelstrup v. Index Futures Group. Inc., 130 F.3d 1274, 1277 (7th Cir.1997) (Rejecting standing, finding "The receiver is not trying to build up[the estate's] assets. He is suing a third party on behalf of [the estate's]creditors to enforce a personal right of theirs, not a right of [the estate's] inwhich they have an interest by virtue of being his creditors.")

• Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir. 1995) ( Finding statndingto sue where "The three sets of transfers removed assets from the[received] corporations for an unauthorized purpose and by doing soinjured the corporations.")

• Jarrett v. Kassel, 972 F.2d 1415, 1426 (6th Cir. 1992) (The receiver, inthat capacity, "had authority to sue on behalf of the receivership itself buthad no authority to bring a cause of action on behalf of the individualcustomers.")

• Scholes v. Schroeder 744 F.Supp. 1419, 1422 (N.D. 111. 1990) ("[A]receiver...cannot pursue claims that belong, not to the receivership estateas such, but rather to those who may have an ultimate derivative interestin the estate.")4

° Fomshell also cited Flenzine v. Lind-Waldock & Co.. 922 F.2d 20 (1st Cir. 1990), at the Hearing (Tr. 28, 33), inthe context of his claim of FirstMerit's alleged mis-quotation of McCandless and for the proposition that "thereceiver's power...is derived from and limited by the order of the Court appointing him." (Tr. 33.) FirstMerit doesnot disagree with that proposition - which in and of itself does not support Fornshell's standing here. As FirstMeritexplained in its Memorandum in Support of its Motion to Vacate, Fleming stands for the equally true, andsignificant, proposition that a receiver cannot prosecate a claim belonging only to investors and not the receivedentity itself.

10

2. Cases Fornshell Cited At the Hearing Not Contained In His or FirstMerit'sBriefing.

At the Hearing, Mr. Yarger mentioned several cases that appear nowhere in Fomshell's

Memorandum in Opposition to FirstMerit's Motion to Vacate. None of the cases Fomshell

brought to the Court's attention support his position that he has standing:

• Aegis Services, hic. v. Trans Healthcare, Inc., No. 2:04-CV-01175, 2005WL 3479879 (S.D. Ohio Dec. 20, 2005).5 This case involved an entirelydifferent issue than receiver standing; indeed, it addressed essentially theopposite question. Specifically, on a Rule 56 Motion for SummaryJudgment, the court held that where a receiver had standing to assertfraudulent transfer claims on the estate's behalf, a creditor had standingto assert those same claims on his own behalf where both the receiver andthe creditor where suing to recover a fraudulent transfer from a. transferee.See id. at *3,

• SEC v. Cook. No. 3-01-CV-0480-R, 2001 WL 803791 (N.D. Tex. July11, 2001). That opinion addressed only a motion to dismiss for lack ofpersonal jurisdiction; while the Cook court mentioned an allegation in thereceiver's complaint that the funds the receiver sought to recoverbelonged to the estate, the court did not address the merits of thoseallegations or the receiver's standing.

• Scholes v. Stone, McGuire & Beniamin. 821 F.Supp. 533 (N.D. Ill. 1993),is consistent with FirstMerit's position that the receivership itself musthave sustained an injury for the receiver to pursue a claim against a thirdparty. The Scholes court found, in the context of a Rule 56 motion, that adispute of fact existed as to whether the receivership itself had sustaineddamages resulting from the actions of its former law firm, the defendant.See id. at 537.

• McGinness v. United States 90 F.3d 143 (6th Cir. 1996), involves awrongful levy action seeking the reimbursement of property of a taxpayerwhere the receivership estate had lien creditor status over the assets, and,consequently, standing to pursue the claim. Mr. Yarger conceded at theHearing that McGuiness was "[n]ot directly on point " (Tr. 37.)

• Marion v. TDI. Inc., No. Civ.A 02-7032, 2004 WL 1175740 (E.D. Pa.May 27, 2004). Citing no authorities in support of its holding, the Marioncourt found the receiver could represent "defrauded investors" where thereceived entity was liable to them, and the defendants, TDI and othercompanies, were responsible for "increasing the liabilities" of the received

5 All unreported cases are attached hereto as Exhibit A in the order in which they appear in this Memorandum.

11

entity. See id. at *3. A close reading of this case, and an examination of asubsequent ruling on post-trial motions, 2006 WL 3742747 at * 2, revealsthat the receivership itself had causes of action against TDI, et al.,including for breach of fiduciary duty to the corporation.

• Craft v. Sunwest Bank, 84 F.Supp. 2d 1226 (D.N.M. 1999), and Cordial v.Emst & Young, 483 S.E.2d 248 (W.Va. 1996), arise in the insuranceliquidation context. Both cases rely on specific state statutes conceminginsurance liquidation to find that state insurance commissioners mayassert claims on behalf of policyholders against third parties. Moreover,in both Craft and Cordial, the defunct insurance company had claimsagainst the defendant: in Craft, for breach-of-trust against a trustee bank,and in Cordial against the insurance company's own former auditor.Those cases provide no support for Fomshell's standing position in thiscase.

Among the "new" cases cited by Fornshell at the Hearing, not one supports a receiver

prosecuting only claims that belong solely to investors, as Fornshell wishes to do here.

3. Cases Fornshell Discussed in His Memorandum in Opnosition toFirstMerit's Motion to Vacate.

At the Hearing, Fomshell's counsel cited to two cases Fomshell mentioned in his

Memorandum in Opposition to FirstMerit's Motion to Vacate. (Tr. 45-46.) Neither case

supports Fornshell's novel action against FirstMerit.6 First, Hays v. Adam, No. CN-A-105-

CV2705-CAP, 2007 WL 991356 (N.D. Ga. March 19, 2007), does not examine the issue of

receiver standing or find that the receiver had standing. Havs instead involves other

jurisdictional issues and the legal merits of the receiver's claims in the context of a 12(b)(6)

motion. Second, Terrv v. Dowdell. No. CN-A-3:04-00067, 2006 WL 2360933 (W.D. Va. Aug.

11, 2006), clearly involves a claim belonging to the receivership estate. Specifically, the receiver

in that case had sued to recover $20,000 that the operator of a Ponzi scheme (the received

6 Mr. Yarger also mentioned the case of Warfield v. Alaniz. 453 F.Supp.2d 1118 (D. Ariz. 2006), upon which herelied heavily in his Memorandum in Opposition to FirstMerit's Motion to Vacate at pages 15-16. (Tr. 45.)FirstMerit thoroughly explained why Warfield is inapposite in its Reply in Support of its Motion to Vacate, on page4. In short, Warfield is distinguishable from this case because, like so many of the authorities upon which Fomshellrelies, the Warfield receiver asserted a claim belonging to the received entity - a fraudulent transfer claim

12

person) had directed from the received estate by wiring it to his nephew in exchange for a

promissory note. The claims at issue included fraudulent conveyance, for judgment on the note,

and for unjust enrichment.

In sum, the authorities are against Fomshell and support FirstMerit's analysis of standing

set forth in its Motion to Vacate. Among all the cases Fornshell brought to the Court's attention

at the Hearing and in briefing, not one is on point and supports a finding that Fornshell has

standing to bring claims on behalf of the Schneider Investors - as Fornshelll purports do in his

Complaint and proposed Amended Complaint.

V. FirstMerit's Due Process Rights Are Violated By The May 23, 2007 SupplementalOrder And The Continuation Of This Litigation.

The focus of the Court's Hearing was Fomshell's standing to pursue the claims set forth

in his Complaint. Another, independent reason for this Court to vacate its Supplemental Order is

the due process implications of that Order. FirstMerit explained how its due process rights are

violated by the Supplemental Order and the receiver's action against it at length in its

Memorandum in Support of its Motion to Vacate at pages 17 - 27 and in its Reply in Support of

its Motion to Vacate at pages 5 - 8 .7

' The Court inquired of FirsdAerit's counsel at the Hearing why FhstMerit would be concerned about the dueprocess rights of the Schneider Investors, as well as its own due process rights. In short, Fornshell's novel approachto a "collective action" is unlikely to withstand scrutiny on appeal because the Schneider Investors' and FirstMerit'sdue process rights have been violated, resulting in this case serving no purpose other than to spend the resources ofthe Schneiders' receivership estate, the Court, and FirstMerit, to FirstMerit's detriment.

I

13

VI. CONCLUSION.

Fomshell lacks standing to pursue the claims asserted in his Complaint or in his proposed

Amended Complaint. Even if he had such standing, his proposed "collective action," as

described in the Complaint and the proposed Amended Complaint, violates the due process

rights of FirstMerit and the Schneider Investors. For the foregoing reasons, and for the reasons

set forth in FirstMerit's Motion to Vacate the May 23, 2006 Supplemental Order Appointing

Receiver, Reply in Support of same and by counsel for FirstMerit at the September 7, 2007

Hearing, FirstMerit respectfully requests that this Court vacate its May 23, 2006 Supplemental

Order Appointing Receiver.

14


Thopiks -15. Ridgley U000MVorys, Sater, Seymour and Pease LLP53 East Gay StreetP.O. Box 1008Columbus, Ohio 43216-1008Telephone: (614) 464-6400Facsimile: (614) 464-6350e-mail: [email protected]



[email protected]


15


A copy of the foregoing Post-Hearing Supplemental Memorandum in Support of

FirstMerit Corporation 's Motion to Vacate and Supplemental Motion to Stay was sent via U.S.

Mail on September 21, 2007, to the following:


Jonathon M. YargerChemett Wasserman Yarger &Pastemak3300 Erieview Tower1301 East Ninth StreetCleveland, OH 44114


Attorney for PlaintiffDan Vlahovic


Per instruction of counsel for Matthew Fornshell, a copy of the Post-Hearing

Supplemental Memorandum in Support of FirstMerit Corporation's Motion to Vacate and

Supplemental Motion to Stay was sent via e-mail and U.S. Mail on September 21, 2007, to the

following for service on all interested parties to this litigation:

Katie Manghillis ([email protected])Schottenstein Zox & Dunn Co., LPA250 West StreetColumbus, OH 43215

One 6f the Attomeys for -FirstMerit Corporation

16

I

Cleveland 1144672.4

Westl.aw.Not Reported in F.Supp.2dNot Reported in F.Supp.2d, 2005 WL 3479879 (S.D.Ohio)(Cite as: 2005 WL 3479879 (S.D.Ohio))

COnly the Westlaw citation is currently available.

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

AEGIS SERVICES, INC., Plaintiff,v.

TRANS HEALTHCARE, INC., et. al., Defendants.No. 2:04-CV-01175.

Dec. 20, 2005.Rick Louis Brunner. Michael Sabin Kolman. The

Brunner Firm Co., LPA, Columbus, OH, for Plaintiff.

Andrew William Owen. Josenh Edward Ezzie,Thomas Wilson Hess. Buckingham Doolittle &Burroughs, Columbus, OH, Brian D. Sieve. GaborBalassa. Michael Slade Stephanie Brennan, Jeffrey J.Zei er Kirkland & Ellis LLP, Chicago, IL, forDefendants.

MEMORANDUM OPINION AND ORDER

GRAHAM, J.

*1 Aegis Services, Inc., ("plaintiff') filed suit onNovember 12,2004, in the Franklin County Court ofCommon Pleas against Trans Healthcare, Inc.("TransHealthcare"); Trans Health Management, Inc.("THM"); Trans Healthcare of Ohio, Inc. ("THO");THI Holding, Inc.; GTCR Fund VI, L.P.; and variousrelated Doe entities (collectively "defendants").Defendants removed, invoking this court's diversityjurisdiction. This matter is now before the court onthe motion of Trans Healthcare, THO, and THM forjudgment on the pleadings with respect to count II ofthe complaint.

1. Standard of ReviewA motion for judgment on the pleadings parsuant to

Rule 12(c) "should not be granted unless it appearsbeyond a doubt that the plaintiff can prove no set offacts in support of his claim that would entitle him torelief." Conlev v. Gibson_ 355 U.S. 41. 45-46. 78S.Ct. 99, 2 L.Ed.2d 80 (1957). See also Grindstal)'v.Green, 133 F.3d 416, 421 (6th Cir.1998) ("Thestandard of review applicable to a Rule 12(c) motionis the same as that for a Rule 12(b)(6) motion.")(Citation omitted). All well-pleaded allegations mustbe taken as true and must be construed most

Page I

favorably toward the non-movant. Scheuer v. Rhodes,416 U.S. 232. 236. 94 S.Ct. 1683. 40 L.Ed.2d 901974 . A motion for judgment on the pleadings is

directed solely to the complaint and any exhibitsattached to it. Roth Steel Prods. v. Sharon SteelCoro.. 705 F.2d 134, 155 (6th Cir.1983). The meritsof the claims set forth in the complaint are not atissue on a motion for judgment on the pleadings.Consequently, a complaint will be dismissed pursuantto Rule 12(c) if there is no law to support the claimsmade, or if the facts alleged are insufficient to state aclaim, or if on the face of the complaint there is aninsurmountable bar to relief. See Rauch v. Day &Nirht Mfg Corp 576 F.2d 697, 702 (6th Cir.1978);Westlake v. Lucas, 537 F.2d 857, 858 (6th Cir.1976).However, the court "need not accept as true legalconclusions or unwarranted factual inferences."Morgan v. Church's Fried Chicken, 829 F.2d 10, 12(6th Cir.1987) (citations omitted).

II. BackgroundPlaintiff, an Ohio corporation, entered into four

sublease agreements with THI Columbus, Inc., ("THIColumbus"). THI Columbus is not a defendant in thiscase, but is a wholly owned subsidiary of defendantTrans Healthcare. Under the terms of the subleaseagreements, THI Columbus leased sixteen nursinghome/health care facilities from plaintiff. To securethe leases for THI Columbus, Trans Healthcareagreed to a Limited Guaranty and Stock PledgeAgreement granting plaintiff the right to acquire allof THI Columbus' shares from Trans Healthcare ifTHI Columbus defaulted on the leases.

Plaintiff alleges THI Columbus defaulted in earlyNovember, 2004. Plaintiff sent notice to THIColumbus that it intended to exercise its rights underthe various agreements, including the stock pledgeagreement. Several days later, on November 12,2004, plaintiff commenced this lawsuit in theFranklin County Court of Common Pleas. Count I,which is not challenged in defendants' motion,alleges breach of the limited guarantee and stockpledge agreement against Trans Healthcare. In countII, plaintiff alleges that under the Ohio FraudulentTransfer Act, O.R.C. & 1336.01 et seq., defendantsfraudulently transferred to themselves assets of THIColumbus, rendering THI Columbus unable to pay itsobligations to plaintiff. In count II, plaintiff seeks thereturn of all funds to THI Columbus, attachment offunds generated from the sublease agreements, an

0 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Not Reported in F.Supp.2dNot Reported in F.Supp.2d, 2005 WL 3479879 (S.D.Ohio)(Cite as: 2005 WL 3479879 (S.D.Ohio))

injunction prohibiting the further transfer of funds orassets of THI Columbus until THI Columbus can payall debts, and judgment against defendants for allamounts wrongfully received or taken by them.

*2 When plaintiff filed its complaint, plaintiff alsopetitioned the Franklin County court to appoint asreceiver, Paul Dauerman of LTC Workouts, LLC,(the "receiver") to operate THI Columbus.SFNII Anorder appointing receiver was issued authorizing thereceiver to conduct all affairs connected with THIColumbus' business, including managing alllitigation. The order also prohibited creditors andclaimants, with the exception of plaintiff, fromcommencing or continuing any action against TCIColumbus or the receiver, to recover funds owed tothem by TCI Columbus.

FRI. On September 28, 2005, the courtgranted the receiver's motion to substituteLTC Workouts for Paul Dauerman asreceiver. This order has no bearing on theissues presented in defendants' motion.

After the appointment, the receiver moved tointervene in this case on behalf of THI Columbus,alleging that funds and assets had been fraudulentlytransferred from THI Columbus to defendants. OnNovember 17, 2004, the Franklin County courtgranted the receiver's motion to intervene.

On January 10, 2005, the receiver filed a cross-claimagainst defendants that mirrors the claim brought incount II. Specifically, the receiver alleges that priorto its appointment and at the direction of defendants,substantial sums were transferred from the operationsof THI Columbus to defendants, rendering THIColumbus insolvent and unable to pay it'sobligations. Like the plaintiff, the receiver seeks thereturn of all funds fraudulently transferred from THIColumbus, the attachment of funds fraudulentlytransferred, and an injunction prohibiting the furthertransfer of funds or assets of THI Columbus untilTHl Columbus can pay its debts.

III. Discussion

Defendants move for judgment on the pleadings,alleging that only the receiver has standing to assertthe claim brought in count II of the complaint.Defendants argue that plaintiffs claim should bedismissed because the receiver was appointed to, andby intervening in this case, has brought litigation onbehalf of THI Columbus for the benefit of all THIColumbus' creditors, including plaintiff.

Page 2

Defendants maintain that under Ohio law, a receiveris an administrative arm of the court that "takescharge of the assets ... for the purpose of conservingthem to the ends of equity and for the benefit ofcreditors generally". See Tonti Y. Tonti, 118 N.E. 200,202 (Ohio App.1951). See also O.R.C. & 1313.56 (areceiver shall "administer all of the assets of thedebtor for the equal benefit of the creditors.").Defendants argue that a receiver " 'act[s] for thebenefit of creditors generally' by among other thingspursuing litigation for their benefit." See DefendantsMotion for Judgment, Document 31 at 4, (citingMcGinness v. United States 90 F .3d 143, 145-146(6th Cir.1996)).

The receiver's duties also depend on the authoritygranted by the appointing court. Id. Here the receiverwas authorized to make collections and conductlitigation on behalf of THI Columbus. The receiverfulfilled this obligation by filing a cross-claim, onbehalf of all creditors, asserting a fraudulent transferclaim that is identical to plaintiffs count H claim. Thereceiver's cross-claim and plaintiffs count II claimare based on the same facts and statutory provisions,and seek the same remedies.

*3 Defendants argue that because the claims areidentical, and because the receiver, unlike plaintiff, isseeking relief on behalf of all creditors, the receiveris the only party with standing to maintain this action.Defendants further assert that any recovery byplaintiff would interfere with the receiver's ability toallocate recovery among THI Columbus' creditorsaccording to the proper priority interest, and that thisposes the potential threat of double recovery.

Defendants' motion is not well taken because theFraudulent Transfer Act expressly grants creditorsthe right bring suit and be awarded relief. See O.R.C.§ 1336.07. See also Bank One, Akron NA v.Atwater EnterRrises. 115 Ohio Apo.3d 461, 470-471,685 N.E.2d 799 (Ohio App.1996) ("The [FraudulentTransfer Act] was specifically designed to allowcreditors to sue to prevent successful fraudulenttransfers."). It is undisputed that plaintiff is anunsecured creditor of THI Columbus, and is thereforeauthorized by statute to bring claims seekingrecovery of the fraudulently transferred funds.

Moreover, the order appointing the receiver grantsthe receiver the right to bring claims on behalf of THIColumbus against defendants, but never states thatthis right is exclusive to the receiver. The order doesnot address plaintiffs, or any other creditors', right to

® 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Not Reported in F.Supp.2dNot Reported in F.Supp.2d, 2005 WL 3479879 (S.D.Ohio)(Cite as: 2005 WL 3479879 (S.D.Ohio))

sue the defendants for funds that were Gaudulentlytransferred, but rather only forbids other creditorsfrom bringing an action against THI Columbus or thereceiver. Defendant has provided no authority tosupport its position that plaintiff lacks standingbecause the receiver has asserted an identical claim.

Lastly, defendants argue that if plaintiff is allowed tobring it's claim, then THI Columbus' other creditorsmay be denied recovery as plaintiffs award wouldupset the priority interest of the creditors.

This argument is unpersuasive in light of thestatutory language of the Fraudulent Transfer Act.The Ohio Legislature expressly granted creditors theright to recover fraudulently transferred funds. Thiscourt cannot deny plaintiff the right to bring its claimand the ability to control the prosecution of that claimmerely because a dispute may arise overrecoverability of damages.

IV. Conclusion

Defendants have failed to provide adequate supportfor their position that the receiver's pursuit ofidentical claims extinguishes plaintiffs ability to sueunder the Fraudulent Transfer Act. Therefore, themotion of Trans Healthcare, THO, and THM forjudgment on the pleadings with respect to count II ofthe complaint is denied.

It is so ORDERED.

Not Reported in F.Supp.2d, 2005 WL 3479879(S.D.Ohio)

END OF DOCUMENT

Page 3


Westlaw.Not Reported in F.Supp.2dNot Reported in F.Supp.2d, 2001 WL 803791 (N.D.Tex.)(Cite as: 2001 WL 803791 (N.D.Tex.))

cOnly the Westlaw citation is currently available.

United States District Court, N.D. Texas, DallasDivision.

SECURITIES AND EXCHANGE COMMISSIONPlaintiff,

v.Benjamin Franklin COOK, et al. Defendants.

Lawrence J. WARFIELD, as Receiver for DennelFinance Limited Petitioner,

V.David EDWARDS, et al. Respondents.

No. 3-01-CV-0480-R

July 11, 2001.

ORDER

BUCHMEYER,1.

*1 After making an independent review of thepleadings, files and records in this case, and theFindings and Recommendation of the United StatesMagistrate Judge, I am of the opinion that theFindings and Recommendation of the MagistrateJudge are correct and they are adopted as theFindings of the Court.

FINDINGS AND RECOMMENDATION OF THEUNITED STATES MAGISTRATE JUDGE

KAPLAN, Magistrate J.

Respondents International Education ResearchCorporation, Pacific International LimitedPartnership, Resource Development International,LLC and Sound Financial Services, Inc. have filed amotion to dismiss for lack of personal jurisdiction.For the reasons stated herein, the motion should bedenied.

1.This case arises out of a lawsuit brought by theSecurities and Exchange Commission againstBenjamin Franklin Cook and other defendants whooperated a Ponzi scheme under the auspices ofDennel Finance Limited. (Pet.Compl.¶ 14). In thatcase, the SEC alleges that defendants "inducedhundreds of investors to invest in [Dennel] by

Page I

promising them high retums, when in reality themoney received from the investors was used by theCook Defendants and their associates for personaland other unauthorized uses ..." (Id). The SEC seeksinjunctive relief, disgorgement, and civil penaltiesagainst those defendants who actively participated inthe fraud.

On March 16, 1999, the district court appointedLawrence J. Warfield as Temporary Receiver for alldefendants in the Cook case. As Receiver, Warfieldwas authorized to:

institute, defend, compromise or adjust suchactions or proceedings in state or federal courtsnow pending and hereafter instituted, as may in hisdiscretion be advisable or proper for the protectionof the Receivership Assets or proceeds therefrom,and to institute, prosecute, compromise or adjustsuch actions or proceedings in state or federal courtas may in his judgment be necessary or proper forthe collection, preservation and maintenance of theReceivership Assets.

(Pet Resp., Exh. A-1 at 7).

On March 12, 2001, the Receiver filed this actionagainst respondents who allegedly served as brokersfor the Dennel Trading Program. (Pet.Compl.¶ ¶ 15-19). The Receiver contends that respondentsdisseminated information and solicited investors infurtherance of the illegal Ponzi scheme operated byCook and his associates. (Id ¶ 18). In return for theirservices, respondents received investor funds totalingat least $2,548,000. (Id ¶ 16). Those funds allegedlyconstitute Receivership Assets which are subject tothe jurisdiction and control of this Court. (Id ¶ 20).By this action, the Receiver seeks to recover investormonies from respondents under theories of fraudulenttransfer, conversion, civil conspiracy, breach offiduciary duty, fraud, negligent misrepresentation,and violations of the federal securities laws.

Respondents have filed a motion to dismiss for lackof personal jurisdiction. Originally, respondentsargued that the Receiver did not file his order ofappointment and copies of the complaint with theappropriate federal district court within ten days afterentry of the order as required by 28 U.S.C. 6 754.FN 1 After the Receiver presented evidence that the

order of appointment and complaint were received bythe United States District Court for the District ofNevada on March 23, 1999, respondents raised

® 2007 Thomson/West No Claim to Orig. U.S. Govt. Works.

Not Reported in F.Supp.2dNot Reported in F.Supp.2d, 2001 WL 803791 (N.D.Tex.)(Cite as: 2001 WL 803791 (N.D.Tea.))

altemative grounds for dismissal. Now, theycomplain that the order of appointment was not"filed" by the district clerk within the statutory ten-day period and does not contain the official courtseal. The issues have been briefed by the parties andthe motion to dismiss is ripe for determination.

FNI. Respondents were under the mistakenbelief that the Order Appointing TemporaryReceiver, entered on March 16, 1999, wasnot filed in the United States District Courtfor the District of Nevada until August 23,1999. (Resp. Mot at 2 & Exh. A). However,the docket sheet upon which respondentsrely pertains to a separate, ancillaryproceeding against David Edwards in theDistrict of Nevada. (Pet. Resp., Exh. B 1 8).

II.*2 The exercise of personal jurisdiction over adefendant must always comport with therequirements of due process. When a federal courtsitting in diversity attempts to exercise extraterritorialjurisdiction over a nonresident defendant, theserequirements are met where the defendant hasminimum contacts with the forum state. Busch v.Buchman, Buchman & O'Brien, Law Firm, I I F.3d1255. 1258 (5th Cir.1994). citing International ShoeCo. v. State of Washineton. Otrice of UnemploymentCompensation and Placement, 326 U.S. 310. 315. 66S.Ct. 154_ 158. 90 L.Ed. 95 (1945); see also Driver v.Nelms. 74 F.R.D. 382. 390 (D.R.I.1977), affdJnrelevant part and rev'd in part, 577 F.2d 147 (1stCir.197 revQ 100 S.Ct. 774 (1980). However, thedue process analysis is different when personaljurisdiction is predicated on a federal statute thatallows for nationwide service of process. In suchcases, Congress has effectively provided for thenational exercise of personal jurisdiction over adefendant based on his contacts with the UnitedStates. Driver, 74 F.R.D. at 390. Thus, "while theDue Process Clause must be satisfied if a forum is toacquire personal jurisdiction over a defendant,sovereignty defines the scope of the due process test"Busch, I I F.3d at 1258.

A.The lawsuit brought by the Receiver againstrespondents is authorized by 28 U.S.C. & 1692. Thatstatute provides:

In proceedings in a district court where a receiveris appointed for property, real, personal, or mixed,situated in different districts, process may issue andbe executed in any such district as if the propertylay wholly within one district, but orders affecting

Page 2

the property shall be entered of record in each ofsuch districts.

28 U.S.C. & 1692. Thus, the territorial jurisdictionof a receivership court extends to any district whereproperty of the receivership estate may be located.See Securities and Exchange Commission v. VisionCommunications. Inc., 74 F.3d 287, 290(D.C.Cir.1996); Haile v. Henderson National Bank657 F.2d 816. 823 (6th Cir.1981), cert. denied, 102S.CL 1450 (1982).

There is no question that respondents are residents ofthe United States, fFN21 By this lawsuit, theReceiver seeks to recover property that belongs to theReceivership Estate. The Court therefore concludesthat respondents have sufficient minimum contactswith this forum to satisfy the requirements of dueprocess. See Busch, I l F.3d at 1258.

FN2. At least one respondent, IntemationalEducation Research Corporation, admits thatit is a Nevada corporation. (Resp. Answer at2). The other respondents, PacificInternational Limited Partnership, ResourceDevelopment Intemational, LLC and SoundFinancial Services, Inc., allege that theyhave been formally dissolved for more thana year. (Id at 4).

B.However, this does not resolve the jurisdictional

issue raised by respondents. A federal district courtcannot exercise personal jurisdiction over anonresident under 28 U.S.C. S 1692 unless theReceiver complies with the requirements of 28U.S.C. § 754. That statute provides, in relevant part:

A receiver appointed in any civil action orproceeding involving property, real, personal ormixed, situated in different districts shall, upongiving bond as required by the court, be vestedwith complete jurisdiction and control of all suchproperty with the right to take possession thereof.

R # #

*3 Such receiver shall, within ten days after theentry of his order of appointment, file copies of thecomplaint and such order of appointment in thedistrict court for each district in which property islocated. The failure to file such copies in anydistrict shall divest the receiver of jurisdiction andcontrol over all such property in that district.28 U.S.C.& 754.

The order appointing Lawrence J. Warfield asTemporary Receiver was entered on March 16, 1999.


Not Reported in F.Supp.2dNot Reported in F.Supp.2d, 2001 WL 803791 (N.D.Tex.)(Cite as: 2001 WL 803791 (N.D.Tex.))

(Pet. Resp., Exhs. A¶ 4 & A-1). Six days later, theReceiver sent certified copies of this order and thecomplaint filed by the SEC to the federal districtcourt in Las Vegas, Nevada by ovemight delivery.(Id., Exhs. B¶ 5& B-1). Included in that mailingwas a check in the amount of $20.00 to cover thefiling fee. (Id., Exhs. B-1 & B-3). Although bothdocuments were initially stamped "Received AndFiled" by the district clerk on March 23, 1999,respondents have produced a certified copy of theOrder Appointing Temporary Receiver showing thatthe words "And Filed" have been marked out. (Id.,Exh. B-2; Resp. Reply, Exh. B). The notation on theorder now reads "Received Only." Respondentstherefore maintain that the Receiver has failed tocomply with section 754 which requires the order ofappointment to be filed in the appropriate federaldistrict court within ten days after entry.

The Court rejects this hyper-technical argument.Therir'is no doubt that the Receiver did everything inhis power to comply with the requirements of thestatute. In his letter to the district clerk dated March22, 1999, counsel for the Receiver states:

Pursuant to 28 U.S.C. & 754, enclosed are certifiedcopies of the Complaint and Order AppointingTemporary Receiver which we request be fled as amiscellaneous matter in your court, as they arebeingfled for notice purposes only. Also enclosedare our check in the amount of $20.00, extra copiesof the first pages of the enclosed pleadings to befiled, and a self-addressed stamped envelope.(Pet.Resp., Exh. B-1) (emphases added). Not only

did the Receiver specifically request that thedocuments be filed, he also enclosed a check to coverthe filing fee. This check was accepted and cashed bythe district clerk. (Id., Exh. B-3). Stamped copies ofthe complaint and order of appointment bearing thenotation "Received and Filed" were returned to theReceiver on March 29, 1999. (Id, Exh. B-2).Therefore, as of that date, the Receiver rightlybelieved that he had done everything necessary tocomply with the statute. It is unclear why someonelater marked through the words "And Filed" andwrote "Received Only," but the Court finds thisirrelevant. The clerk accepted the filing fee, opened afile, and assigned a cause number to the case. Thissatisfies the requirements of section 754.

Respondents further contend that the order ofappointment was not filed in accordance with 28U.S.C. & 1691 because it does not bearthe seal of theissuing court or the signature of the district clerk .lFN31 The Court initially observes that this statuteapplies only to "writs" and "process," not to court

Page 3

orders. But even if the requirements of section 1691were to apply to court orders, the Order AppointingTemporary Receiver is properly certified by thedistrict clerk. The order is stamped "Certified to be aTrue Copy" and signed by a deputy clerk. See ScanbeManufacturine Co. v. Tyron 400 F.2d 598, 599 (9thCir.1968) (signature of deputy clerk satisfiesrequirements of section 1691). Although the orderattached to respondents' pleading does not show theseal of the issuing court, that is because the embossedstamp is a raised mark containing no ink or othercoloration and thus is not visible on a photocopy. TheCourt takes judicial notice that it is the standardprocedure of the district clerk, when certifyingdocuments, to affix the official court seal to the frontpage of the document. See Harcon Barge Co. v. D &G Boat Rentals, Inc., 746 F.2d 278. 282 n. 1(5thCir.1984) affd on reh'g en banc, 784 F.2d 665 (5th

ir. cert denied, 107 S.Ct. 398 ( 1986) (uniformpractices of court personnel are appropriate subjectfor judicial notice under Fed.REvid. 201). There isrio reason to believe that was not done in this case.LFN41

FN3. Section 1691 provides:All writs and process issuing from a court ofthe United States shall be under the seal ofthe court and signed by the clerk thereof.28 U.S.C.& 1691.

FN4. In fact, the district clerk in Nevada hasconfirmed that the original certified copy ofthe Order Appointing Temporary Receiverbears the embossed seal of this court.

RECOMMENDATION*4 Respondents' motion to dismiss for lack of

personal jurisdiction should be denied.

END OF DOCUMENT


tiUest)aw.Not Reported in F.Supp.2dNot Reported in F.Supp.2d, 2004 WL 1175740 (E.D.Pa.)(Cite as: 2004 WL 1175740 (E.D.Pa.))

HOnly the Westlaw citation is currently available.

United States District Court,E.D. Pennsylvania.

David H. MARION, as Receiver for BentleyFinancial Services, Inc.

V.TDI, INC. (f!k/a Traders and Dealers, Inc., f/k/a The

Trading Desk, Inc. andf/k/a U.S. Central Securities, Inc.), Southeastem

Securities, Inc., SFGFinancial Services, Inc., Peninsula Bank, Theodore

Benghiat, Casto EdwinRivera, Jerry Manning, John Strine, Jeffrey Wilson

and Joseph MarzoucaNo. Civ.A. 02-7032.

May 27, 2004.David L. Grove, David D. Lanefitt . Frank A. Mayer,IIl, John H. Lewis, Jr., Montgomery, McCracken,Walker & Rhoads LLP, Philadelphia, PA, forPlaintiff.

TDI, Inc., Aurora, CO, pro se.

Marc J. Sonnenfeld Morgan, Lewis & Bockius,LLP, Steven Arbittier, Thomas B. Roberts, BallardSpahr Andrews & Ingersoll, LLP, Philadelphia, PA,for Defendants.

Jerry Manning, Aurora, CO, pro se.

John Strine, Littleton, CO, pro se.

Jeftrey Wilson, Littleton, CO, pro se.

MEMORAND(IMAND ORDER

FULLAM J.

*1 The Securities and Exchange Commissionbrought suit against Robert L. Bentley, BentleyFinancial Services, Inc. and Entrust Group, allegingserious violations of the securities laws, and obtainedthe appointment of a receiver for those entities (C.A.No. 01-5366). David H. Marion, Esquire, wasappointed Receiver, and given "complete jurisdictionover, and control of all property, real, personal ormixed, including any assets or funds, wherever

Page I

located, of all defendants" (Order dated November 7,2001).

Briefly summarized, Robert L. Bentley and hiscorporations, Bentley Financial Services, Inc. andEntrust Group, conducted an elaborate financialswindle which eventuated into a Ponzi-scheme.Investors were led to believe that they werepurchasing from BFS federally-insured certificates ofdeposit (CD's), whereas actually they werepurchasing unregistered IOU's of BFS. Some $4billion dollars worth of these unregistered securitieswere sold, far in excess of BFS's ability to repay.Funds received from current investors were used tokeep the scheme afloat as long as possible, but, likeall Ponzi schemes, the arrangement collapsed.

In his capacity as Receiver of Bentley FinancialServices, Inc., Mr. Marion has brought this actionagainst various entities and individuals whosewrongful conduct allegedly helped to perpetuate thescheme, and thus damaged BFS by increasing itsliabilities to defrauded investors. The defendants are:

1. Southeastern Securities, Inc., SFG FinancialServices, Inc., Theodore Benghiat, and Casto EdwinRivera (the "Benghiat Defendants"). SoutheastemSecurities is a registered broker-dealer which acted asco-broker in many of the sales of unregisteredsecurities; Benghiat was President of SoutheasternSecurities and its related company "SFG," and Riverawas compliance officer.

2. Peninsula Bank and Joseph Marzouca, itsexecutive vice president. Peninsula Bank purported tobe acting as escrow agent holding the legitimate CD'swhich the securities sold by BFS were supposed torepresent (i.d., in which the investors supposedlyobtained an interest).

3. TDI, Inc. ("TDI" and various related entities(hereinafter collectively referred as 'TDI") was abroker-dealer registered with NASD, whichemployed Mr. Bentley for a time, and was allegedlyinvolved in many of the fraudulent sales. DefendantJerry Manning was CEO and compliance officer forTDI. Defendants John Strine and Jeffrey Wilsonwere, respectively, vice president and president ofTDI, and also compliance officers.

Plaintiffs claims are set forth in a first amended


Not Reported in F.Supp.2dNot Reported in F.Supp.2d, 2004 WL 1175740 (E.D.Pa.)(Cite as: 2004 WL 1175740 (E.D.Pa.))

complaint, 64 pages in length, containing 271paragraphs. Plaintiff is proceeding on severaltheories, set fbrth in 20 separate counts. The BenghiatDefendants and Peninsula Bank and its vice presidentJoseph Marzouca have filed motions to dismiss underFed.R.Civ.P. 12(b)(6). Peninsula Bank and Mr.Marzouca also seek dismissal for lack ofjurisdiction.

The amended complaint includes the followingclaims: Count I, violation of the Securities ExchangeAct, § 20(a), 15 U.S.C. & 78t(a): Count II,respondeat superior liability under § 20(a) of theSecurities Exchange Act; Count III, respondeatsuperior liability fbr failure to supervise registeredrepresentatives of a securities broker; Counts IV andV, negligence; Count VI, negligent supervision;Count VII, deepening insolvency; Counts VIII andIX, breach of fiduciary duty; Count X, fraud; CountXI, breach of contract; Count XII, conversion; CountXIII, violation of Pennsylvania securities law 7oP.S. & 6 I-501. 1-5031; Count XIV, aiding andabetting fraud; Count XV, aiding and abettingconstructive fraud; Count XVI, aiding and abettingbreach of fiduciary duty; Count XVII, aiding andabetting conversion; Count XVIII, aiding andabetting deepening insolvency; Count XIX, negligentmisrepresentation; and, Count XX, unjustenrichment.

*2 Since I am required, at this stage, to accept as trueall factual averments of the amended complaint, andsince dismissal is improper unless it is clear thatplaintiff cannot possibly prove the claim asserted;and since the amended complaint has obviously beenprepared with great care and skill, I am satisfied that,except for the issues discussed below, the motions todismiss lack arguable merit. Plaintiff may well beunable to prove the claims being asserted, but he isentitled to proceed with the attempt.

The potentially dispositive issues do requirediscussion. They are: (1) whether this court hasjurisdiction over the claims being asserted againstPeninsula Bank and Joseph Marzouca, in view of aforum-selection clause in the document setting forthPeninsula Bank's role as escrow agent; (2) whetherplaintiff has standing to assert claims for conductwhich allegedly increased BFS's liability todefrauded investors; and (3) whether plaintiffsclaims are barred by the doctrine of in part delicto.

1. The Forum-Selection ClauseEntrust, one of the Bentley receivership entities,entered into three "custodian agreements" with thedefendant Peninsula Bank, setting forth the terms

Page 2

under which the Bank was to maintain a custodyaccount for federally-insured CD's. Each of theseagreements contained the following forum-selectionclause:

"This agreement is governed by the laws of thestate of Florida and by applicable federal law. Thisagreement binds you and your heirs, personalrepresentatives, successors and assigns. You and[Peninsula State Bank] agree that any legal actionrelated to this agreement shall be solely determinedby the federal or state courts sitting in DateCounty, Florida. You and PSB agree to irrevocablywaive the right to trial by jury in any action arisingfrom this agreement."

It is clear that this lawsuit is not an "action arisingfrom this agreement." A closer question is whetherthis lawsuit constitutes a "legal action related to thisagreement." Peninsula contends that this action is"related to" the escrow agreement because, in itsview, certain provisions of that agreement provide acomplete defense against the claims now beingasserted by the Receiver. According to Peninsula, theescrow agreements required Peninsula to carry outthe instructions of Entrust, without any obligation toinquire into the propriety of Entrust's requests.

I have concluded that the forum-selection clauseshould not be enforced, for several reasons. In thefirst place, the language "any legal action related tothis agreement" is less precise than the language "anyaction arising from this agreement," and it isreasonable to suppose that the contracting partiesintended the two phrases to have the same meaning. Iam thus led to conclude that this lawsuit is notcovered by the forum-selection clause. Ambiguitiesshould be resolved against PSB, which drafted it.

I note also that, in Coastal Steel Corp. v. Til hmanYVheelabrator. Ltd. 709 F.2d 190 (3d Cir 19831 theCourt stated "a forum-selection clause ispresumptively valid and will be enforced by theforum unless the party objecting to its enforcementestablishes (1) that it is the result of fraud oroverreaching, (2) that enforcement would violate astrong public policy of the forum, or (3) thatenforcement would in the particular circumstances ofthe case result in litigation in a jutisdiction soseriously inconvenient as to be unreasonable." If, asplaintiff alleges, the escrow arrangements betweenEntrust and the Peninsula Bank were an integral partof the fraudulent activities of the Bentley entities, andPeninsula Bank tortiously aided and abetted in theexecution and prolongation of the fraudulent scheme,it would be contrary to public policy (of this or any



other forum) to permit the wrongdoers to select theforum in which their liability would be determined.

*3 Finally, it is at least arguable that Peninsula Bankshould be deemed to have submitted to thejurisdiction of this court by submitting a claim letterdemanding attomeys' fees (pursuant to paragraph 8 ofthe custodian agreement) for defending this action.See Travellers Int'l AG v. Robinson , 982 F2d 96, 99& n. 5 (3d Cir.1992); Langenkamo v. Cula 498 U.S.42, 111 S.Ct. 330. 112 L.Ed.2d 343 (1990).

The motion of the Peninsula Bank defendants todismiss for lack of jurisdiction will therefore bedenied.

II. StandingThe defendants argue that plaintiffs claims forsecurities law violations, fraud, etc., are really theclaims of the defrauded investors. It is undoubtedlytrue that persons who were directly victimized by thealleged sale of unregistered securities under falsepretenses, the alleged fraud, etc. have claims againstthe parties directly involved, BFS, Entrust and RobertBentley. And, presumably, they would have claimswhich they might assert against these defendants, foralleged participation in the fraudulent scheme and inits continuation. But this does not mean that theplaintiff, as Receiver for BFS, should be precludedfrom asserting that the defendants' wrongful conducthas rendered BFS liable to the defrauded investors,thus increasing the liabilities of BFS. So long asdouble recoveries are avoided, I see no reason whythe Receiver should be precluded from proceedingagainst wrongdoers who damaged BFS by increasingits liabilities, merely because, eventually, anyrecovery by the Receiver would enure to the benefitof the defrauded investors.

The Receiver has been authorized to take control ofall of the assets of the receivership entities. Aspleaded in the amended complaint, the assets of thereceivership entities include their claims against thesedefendants. The Receiver has control of these assets,and may seek to realize upon them. Of course, anyrecovery which is ultimately distributed to thedefrauded investors will be credited against theirclaims, just as any direct recoveries by the defraudedinvestors against these defendants would be creditedagainst the claims asserted by plaintiff in this action.

III. In Pari DelictoThe defendants, understandably, contend that sinceRobert Bentley and his companies, BFS and EntrustGroup conceived and carried out the fraudulent plan,

Page 3

they are precluded by the doctrine of in pari delictofrom complaining against other alleged participantsin the scheme. I conclude, however, that the plaintiffReceiver, as an innocent successor-in-interest, doesnot suffer from the same handicap. As the ThirdCircuit Court of Appeals has stated, the defense of inpari delicto "loses its sting" when the bad actor iseliminated. See In re Personal & Bus. Ins. Aoencv.334 F.3d 239. 246 (3d Cir.2003); Ofl'zcial Comm. ofUnsecured Creditors v. R.F. Lafferrv & Co., 267 F .3d340, 358 (3d Cir.20011; FDIC v, O'Melveny &Mevers. 61 F.3d 17. 19 (9th Cir.1994); but seeKnauer v. Jonathan Roberts Fin. Groun Inc. 348F.3d 230 (7th Cir.2003).

Conclusion*4 For all of the foregoing reasons, defendants'

motions to dismiss the complaint will be denied,without prejudice to a properly supported motion forsummary judgment, ifjustified by the facts.

ORDERAND NOW, this day of May 2004, upon

consideration of defendants' motions to dismiss, IT ISORDERED:

That the respective motions of SoutheastemSecurities Inc., SFG Financial Services Inc.,Theodore Benghiat and Casto Edwin Rivera, andPeninsula Bank and Joseph Marzouca to dismissplaintiffs first amended complaint are DENIED.

Not Reported in F.Supp.2d, 2004 WL 1175740(E.D.Pa.)

END OF DOCUMENT


Vldkw.Not Reported in F.Supp.2dNot Reported in F.Supp.2d, 2006 WL 3742747 (E.D.Pa.)(Cite as: 2006 WL 3742747 (E.D.Pa.))


United States District Court,E.D. Pennsylvania.

David H. MARION, as Receiver for BentleyFinancial Services, Inc.

V.TDI, INC. (f1k/a Traders and Dealers, Inc., f/k/a The

Trading Desk, Inc. andf/k/a U.S. Central Securities, Inc.), Southeastem

Securities, Inc., SFGFinancial Services, Inc., Peninsula Bank, Theodore

Benghiat, Casto EdwinRivera, Jerry Manning, John Strine, Jeffrey Wilson

and Joseph MarzoucaDavid H. Marion, as Receiver for Bentley Financial

Services, Inc.V.

S.D. Goldfine & Company and Sanford Goldfine.Civil Action Nos. 02-7032, 02-7076.

Dec. 14, 2006.David D. Lanefitt . John H. Lewis, Jr.. MontgomeryMccracken Walker & Rhoads, LLP, Frank A. Maver.III Buchanan Ingersoll P.C., Julie Beth Neeovan.Cozen & O'Connor, Philadelphia, PA, for DavidMarion.

Thomas B. Roberts Ballard Spahr Andrews &Ingersoll, LLP, Philadelphia, PA, for JosephMarzouca and Peninsula Bank.

Jerry Manning, Aurora, CO, pro se.

John Strine, Littleton, CO, pro se.

TDI, Inc., Aurora, CO, pro se.

Jeffrey Wilson, Littleton, CO, pro se.

Thomas A. Kuzmick Rawle & Henderson LLP,Philadelphia, PA, for Sanford Goldfine.

Daniel J. Rucket, Michael A. Meehan. David S.San tee Rawle & Henderson LLP, Philadelphia, PA,for Sanford Goldfine and S.D. Goldfine & Co.

MEMORANDUMAND ORDER

FULLAM, Sr. J.

Page 1

*1 At a ten-dayjury trial, plaintiff, David H. Marion,Receiver for Bentley Financial Services, Inc.,recovered substantial jury verdicts against two sets ofdefendants, the "Peninsula Bank Defendants" and the"Benghiat Defendants." Now.pending are defendants'renewed motions for judgment as a matter of law orfor a new trial, and plaintiffs motion to mold theverdicts.

The underlying facts are well known to the partiesand need not be set forth in detail. Briefly, agentleman named Robert Bentley conducted anelaborate Ponzi scheme, and bilked many investors ofmillions of dollars. On October 23, 2001, theSecurities and Exchange Commission filed an actionin this court which had the effect of immediatelyclosing down Mr. Bentley's operations. The SECobtained the appointment of Mr. Marion as receiverfor all of the Bentley entities. The SEC's motionsuccinctly described the scheme, as follows:

"Defendants [Robert L. Bentley, Bentley FinancialServices, Inc. And Entrust Group], operating as anunregistered broker-dealer, are fraudulentlyrepresenting that they are selling FDIC-insuredbank-issued CDs when in fact they are issuingprivate notes. Rather than an insured bank standingbehind the defendants' promise to pay backprincipal to investors on maturity, it is only theirown ability to find more victims that allows themto pay principal to investors when due. Also, alarge number of CDs that defendants buy withinvestor funds are callable. Because defendantshave refused to comply with subpoenas issued bythe SEC, plaintiff carmot determine if defendants infact hold actual CDs for every note they haveissued. There are currently at least $318 million ofsuch fraudulently-issued notes outstanding in thehands of more than 3,000 investors nationwide.Most of the investors are small credit unions,banks, and savings and loan institutions."

Mr. Marion, in his capacity as receiver, alleged inthe present action that the defendants conspired withor aided and abetted the fraudulent scheme. Theevidence at the trial permitted the jury to find that,between April 1999 and October 23, 2001 (the datewhen the SEC closed down the Bentley operations),the defendants provided Mr. Bentley withapproximately $10 million in financing, thus enablingMr. Bentley to prolong the life of the Ponzi scheme.



During that period, Mr. Bentley's scheme obtainedadditional investments from defrauded investorstotaling $269,455,213. While some of theseinvestments resulted in the purchase of actual CDswhich were still on hand when the scheme was shutdown, the principal amount of CDs on hand as ofOctober 23, 2001 was approximately $23 million lessthan the principal amount the investors hadpurchased, and that figure does not include$9,440,000 in unpaid (and unpayable) interest. Thus,it was the Receiver's contention that the defendants'assistance to Mr. Bentley caused additional losses tothe investors totaling $32,774,330.

The crucial issue at trial was whether the defendantsknew that Mr. Bentley was engaged in a fraudulentscheme, when they provided the funds which enabledhim to continue in business. There was, in my view,ample evidence which permitted the jury to find thatthe defendants either had actual knowledge of thePonzi scheme itself, actual knowledge of facts whichdemonstrated that Mr. Bentley was defraudinginvestors, or were chargeable with willful blindness.Moreover, it is undisputed that, between July 1998and August 2000, Mr. Bentley was a registeredrepresentative employed by the Benghiat firm. Thus,the Benghiat defendants had an obligation tosupervise Mr. Bentley's activities, and could properlybe held liable for failing to do so.

MOTIONS FOR JUDGMENT AS A MATTER OFLAW

*2 Defendants advance three principal arguments insupport of their motions for judgment as a matter oflaw. They contend (1) that the evidence wasinsufficient to support the jury's verdict; (2) that Mr.Marion lacked standing to pursue this action; and (3)that the doctrine of in parf delicto precludes recovery.

As discussed above, I am satisfied that the evidenceamply supported the jury's verdict. It was clear thatthe defendants supplied funds to Mr. Bentley and hisorganizations in the knowledge that they desperatelyneeded cash. But, if Mr. Bentley and BentleyFinancial Services were acting properly in their roleas CD brokers, and if Entrust Group really was actingas independent custodian, it is inconceivable that theywould have needed to borrow money fromdefendants in order to satisfy their investors.Moreover, Mr. Bentley himself testified that all of thedefendants were at least aware that the CDs heactually purchased did not "match" the CDs hisinvestors thought they were obtaining. Mr. Bentley'stestimony alone would sufftce for the imposition ofliability in this case, and the jury was entitled to

credit that testimony.

Page 2

Defendants also contend that they are entitled tojudgment as a matter of law because Mr. Marionlacked standing to pursue this litigation, and becausethe entities for which he is Receiver were wrongdoerswho primarily caused the losses, recovery of which isnow being sought. At an earlier stage, I rejected thesearguments in denying defendants' motion to dismissand, notwithstanding defendants' earnest arguments, Iremain persuaded that Mr. Marion has standing topursue these claims, and is not barred by the in paridelicto doctrine.

I recognize that a trustee in bankruptcy would nothave standing to pursue claims on behalf of creditorsdefrauded by the debtor and others acting in concertwith the debtor. If the debtor was a wrongdoer, the inpart delicto doctrine would preclude recovery. And,in any event, the claims belong to the defraudedcreditors, not the bankrupt estate. But a bankruptcyproceeding differs significantly from an equityreceivership imposed at the request of a governmentagency such as the SEC. The whole purpose of theSEC proceeding is to remedy violations of thesecurities laws for the benefit of investors.

The order appointing Mr. Marion as Receiverprovided that he "shall have complete jurisdictionover, and control of all the property, real, personal ormixed, including any assets or funds, whereverlocated, of all defendants." One of these entities wasBentley Financial Services, Inc., a corporation. Thus,Mr. Marion has the right to pursue the cause of actionwhich was the property of Bentley FinancialServices--i.e., a claim that its officer, Mr. Bentley,breached his fiduciary duty to the corporation bysubjecting it to liability for fraud, and that thePeninsula Bank and Benghiat Defendants assistedhim in doing so.

As everyone recognizes, Mr. Marion is pursuing thislitigation on behalf of the defrauded investors, notMr. Bentley. Neither Mr. Marion nor the investorsare wrongdoers; the in parf delicto doctrine does notbar the recoveries being sought in this case.

*3 In addition to the three issues discussed above,the defendants have included an argument to theeffect that there was no basis for the jury's conclusionthat the funds advanced to Mr. Bentley by thedefendants caused the Ponzi scheme to continuelonger than it otherwise would have. The contentionis, as I understand it, that even if the defendants hadnot advanced Mr. Bentley the $10 million, the Ponzi



scheme might well have continued in existence: Mr.Bentley could simply have liquidated some of theCDs he had on hand, and thus continued to operatehis scheme. In other words, defendants should not beheld liable for knowingly assisting Mr. Bentley inperpetuating the scheme because he might have beenable to obtain financing from sources unaware of thenature of the scheme (or from other wrongdoers). Thefallacy of this argument is, I believe, self-evident.

MOTION FOR A NEW TRIALFor the reasons thus far discussed, I have concluded

that the defendants are not entitled to a new trial onthe theory that the verdict was against the weight ofthe evidence. The defendants advance the furtherargument that a new trial should be ordered becausethe defendants were prejudiced by the admission ofevidence charging them with negligence in failing toleam that "Entrust Group" was not a corporation butmerely a sole proprietorship owned by Mr. Bentley.The evidence in question was admissible, however,on the issue of whether the defendants werechargeable with willful blindness. The jury wasspecifically, and repeatedly, instructed that thedefendants could not be held liable unless the jurywas satisfied that they either had actual knowledge ofthe fraudulent nature of Mr. Bentley's activitieswhich they were assisting in, or entertainedsuspicions which they intentionally chose not topursue because they did not want to learn the facts.

MOTTON TO MOLD THE VERDICTWith the agreement of counsel for all the parties, the

jury was asked to render its verdict by responding tointerrogatories. Counsel participated in the drafting ofthese interrogatories, and approved the final formsubmitted to the jury. The interrogatories, and thejury's responses, were as follows:

1.Do you find that the Peninsula Defendants(Peninsula Bank and Joseph Maaouca) eitherconspired with or aided and assisted RobertBentley in his fraudulent activities?Yes x Noa)If your answer is "Yes" to Interrogatory I above,what is the amount of damages the PeninsulaDefendants caused the Receivership Estate tosustain?$13,109,7322.Do you find that the Benghiat Defendants (TedBenghiat, SFG and Southeastern) either conspiredwith or aided and assisted Robert Bentley in hisfraudulent activities?Yes x Noa)If your answer is "Yes" to Interrogatory 2 above,what is the amount of damages the Benghiat

Page 3

Defendants caused the Receivership Estate tosustain?819, 664, 598

Plaintiff now contends that, since the jury found thatthe defendants were intentional wrongdoers, each setof defendants should be held liable for the totalamount of damages found by the jury. Plaintiff seeksto have the verdict molded so as to represent ajudgment against each set of defendants for the totalamount, $32,774,330. Defendants, understandably,contend that the court has no authority fbr increasingthe judgment as to each set of defendants, and that todo so would be inconsistent with defendants'constitutional right to a jury trial. Plaintiff counterswith the argument that, in the discussions whichpreceded the submission of the case to the jury, whenthe issue ofjoint and several liability was mentioned,and when counsel expressly requested that the jury beasked to make separate damage findings against eachset of defendants, defense counsel made statementswhich reflected a willingness to have the jury verdictmolded if necessary, after the jury returned a verdict.

*4 The record is very clear that both sides wantedthe jury to make separate damage findings as to eachset of defendants. Indeed, after the jury's answers tothe interrogatories were read, in making sure that allof thejurors agreed with the answers, I stated:

"So, basically, you're saying that you haveconcluded that the Peninsula Defendants are liablein the total of $13,109,732, and that the BenghiatDefendants are liable in the total amount of$19,664,598. Do you all agree on that?" And thejury responded, "Yes, Your Honor."

The jury has spoken. I am not persuaded that there isany basis upon which this court would be justified indisregarding the jury's findings, and, in effect,increasing the liability of each set of defendants.

Plaintiff stresses the fact that the total of the amountsassessed against each set of defendants by the jurycoincides with the total amount of damages sought byplaintiff, as calculated by plaintiffs expert witness,Mr. Brulenski. But this was only one of severalcalculations which plaintiff submitted to the jury fortheir consideration. It is simply not possible at thispoint to determine precisely what the jury's reasoningmay have been. There was evidence which wouldhave permitted the jury to fix the damages at loweramounts than the amounts set forth in the answers tointerrogatories, and there was evidence to support thenotion that the defendants' conspiracy with andassistance to Mr. Bentley covered different periods of



time, and may have had disparate impacts upon thecontinuation of the scheme.

Be that as it may, I am satisfied (1) that, if it waserror not to instruct thejury about the joint liability ofconspirators, the effor was invited, and (2) that itwould be necessary to grant a new trial, as todamages, to achieve the result now being sought byplaintiffs motion to mold the verdict. Plaintiff has notsought a new trial.

Finally, as a practical matter, given the size of thejury's verdict, and the arguments made by defensecounsel about the limited resources of their respectiveclients, the difference between joint liability andindividual liabilities may be academic.

CONCLUSIONSThe jury's verdict was amply supported by theevidence. There is no basis for granting a new trial,or for molding the verdict. An Order to that effectfollows.

ORDERAND NOW, this 14th day of December 2006, IT IS

ORDERED:

1. Defendants' motions for judgment as a matter oflaw, and/or for a new trial are DENIED.

2. Plaintiffs motion to mold the verdict is DENIED.

Not Reported in F.Supp.2d, 2006 WL 3742747(E.D.Pa.)

END OF DOCUMENT

Page 4


Slip CopySlip Copy, 2007 WL 991356 (N.D.Ga.)(Cite as: 2007 WL 991356 (N.D.Ga.))


United States District Court,N.D. Georgia, Atlanta Division.

S. Gregory HAYS, as receiver for Mobile Billboardsof America, Inc., et al.,

Plaintiff,V.

David E. ADAM, et al., Defendants.No. CIVA 105-CV2705-CAP.

March 19, 2007.James David Dantzler, Jr., Merle R. Arnold, IIL

Troutman Sanders, LLP, Atlanta, GA, for Plaintiff.

William Gordon Leonard, Leonard & Swenson,LLP, Gregorv Bartko, Law Office of GregoryBartko, James Albert Nofi, Page Perry LLC, Atlanta,GA, John A. Beam, III. Beam, Miller & Rogers,PLLC, Nashville, TN, Jonathan Schwartc, LawOffice of Jonathan Schwartz, Marina Del Rey, CA,for Defendants.

Matt Bondurant, Reidsville, NC, pro se.

Bruce F. Ruark, pro se.

Craig Warner, Fenton, MI, pro se.

Jay Castro, Palm Desert, CA, pro se.

ORDER

PANNELL,1.

•1 This matter new comes before the court ondefendant AF, Inc.'s ("AF") motion to dismiss forlack of proper jurisdiction [Doc. No. 151] anddefendant Bruce Ruark's motion to dismiss for lackof cause [Doc. No. 152].

1. AF's Motion to Dismiss [Doc. No. 1511

A. The Motion is Not Properly Before the Court

AF's motion to dismiss is signed by Bruce Ruark inhis capacity as President of AF. However, there is noindication in that pleading that Ruark is an attomeylicensed to practice law in the State of Georgia.

Page I

Consequently, the motion is not properly before thecourt.

"It has been the law for the better part of twocenturies ... that a corporation may appear in thefederal courts only through licensed counsel."Rowland v. California Men's Colonv 506 U.S. 194,201-02, 113 S.Ct. 716, 721, 121 L.Ed.2d 656 (1993) .The fact that the motion is signed by AF's president,Bruce Ruark, who is also a defendant in this case, isirrelevant because the rule "applies even when theperson seeking to represent the corporation is itspresident and major stockholder." FTC v. GemMerchandising Corporation, No. 95-8364, 1995U.SApp. LEXIS 41028, at *1 (11th Cir. Sep. 1,1995). Moreover, this court's own local rule states,

[A] corporation may only be represented in courtby an attorney, ... an attomey must sign allpleadings submitted to the court, and ... a corporateofficer may not represent the corporation in courtunless that officer is also an attorney licensed topractice law in the state of Georgia ... and failure tocomply with this rule could result in a default beingentered against the corporate party.

Local Rule 83.IE(2)(b)(I). AF's motion is thusimproperly before the court, and AF isINSTRUCTED that it may not file any futurepleadings or otherwise appear in court proceedingsunless it is represented by an attorney admitted topractice before the court.

B. The Motion Fails on the Merits

Although AF's motion is due for dismissal because itwas not filed by an attomey, there is no need for AFto re-file the motion after it retains an attorneybecause the motion clearly fails on the merits. AF'sargument that the court lacks jurisdiction isunfounded because this case is ancillary to an SECenforcement action also pending befbre this court,SEC v. Mobile Billboards, et al., No. 1:04-CV-2763-WBH. Thus, the Receiver is permitted to sue in thisdistrict-the district in which he was appointed-toenforce claims against AF or any other United Statesdefendant. See 28 U.S.C. & 754; 28 U.S.C. & 1692;see also Scholes v. Lehrnann. 56 F.3d 750. 753 (7thCir.1995) ("a receiver [may] sue in the district inwhich he was appointed to enforce claims anywherein the country"). AF's motion to dismiss for lack ofjurisdiction [Doc. No. 151] is accordingly DENIED.

C 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Slip CopySlip Copy, 2007 WL 991356 (N.D.Ga.)(Cite as: 2007 WL 991356 (N.D.Ga.))

II. Ruark's Motion to Dismiss [Doc. No. I521

Ruark claims in his motion to dismiss that he did notpersonally receive any payments from MobileBillboards of America, Inc. ("MBA"), and that theplaintiffs suit is accordingly "without merit." Thisargument fails.

*2 The Federal Rules of Civil Procedure do notspecifically provide for a motion to dismiss for lackof cause. The court will therefore consider the motionas a motion to dismiss for failure to state a claimunder Rule 12(b)(6). A court may dismiss acomplaint for failure to state a claim "only if it isclear that no relief could be granted under any set offacts that could be proved consistent with theallegations." Hishon v. King & Saaldine. 467 U.S.69. 73. 104 S.Ct. 2229. 2232. 81 L.Ed.2d 59 (1984).

The Receiver's claims in this case are assertedagainst sales agents of MBA. Ruark does not denythat he was a sales agent of MBA. He simply claimsthat any compensation from MBA was paid to AF,and not to Ruark personally. Nonetheless, theReceiver's complaint obviously clears the lowthreshold for surviving a motion to dismiss underRule 12(b)(6), especially in light of the fact that thecourt has granted summary judgment to the Receiveron the issue of liability [Doc. No. 3211. Ruark'sargument essentially amounts to a dispute of factover allocation of damages. Any dispute as to theamounts Ruark and/or AF should be required todisgorge will be addressed in future courtproceedings on damages. Ruark's motion to dismissfor lack of cause is thus DENIED.

III. Conclusion

For the reasons stated above, AF's motion to dismissfor lack of jurisdiction [Doc. No. 151] is DENIED.AF is further INSTRUCTED that it may not filefurther pleadings or otherwise appear in courtproceedings unless it is represented by an attorneyadmitted to practice before the court. DefendantRuark's motion to dismiss for lack of cause [Doc. No.152] is also DENIED.

SO ORDERED.

Slip Copy, 2007 WL 991356 (N.D.Ga.)

END OF DOCUMENT

Page 2

© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.

Westlaw.Not Reported in F.Supp.2dNot Reported in F.Supp.2d, 2006 WL 2360933 (W.D.Va.)(Cite as: 2006 WL 2360933 (W.D.Va.))

COnly the Westlaw citation is currently available.

United States District Court,W.D. Virginia.

Roy M. TERRY, Jr., and Durrette Bradshaw PLC,Receiver for: Terry L. Dowdell et

al., Plaintiffs,V.

Christopher W. DOWDELL, Defendant.No. CIV A 3:04-CV-00067.

Aug.11,2006.Douglas Alan Scott. John C. Smith. Durrette

Bradshaw, Richmond, VA, for Plaintiffs.

Christopher W. Dowdell, Columbus, OH, pro se.

MEMORANDUM OPINION

MOON. J.

*1 This matter is before the Court on the Receiver'sVerified Motion for Partial Summary Judgment, filedMay 22, 2006. Defendant has not responded to themotion, despite this Court's notice of his opportunityto do so.

1. BACKGROUND AND FINDINGS OF FACTThis matter arises in connection with a civil action

brought by the Securities and Exchange Commission("SEC") to recover funds illegally disbursed by TerryL. Dowdell ("Dowdell") while operating a Ponzischeme in violation of Section 22(a) of the SecuritiesAct of 1933, 15 U.S.C. & 77v(al and Section 27 ofthe Securities Exchange Act of 1934, 15 U.S.C. 678aa. Securities and Exchange Commission v. TerryL. Dowdell, Case No. 3:01CV00116 (W.D.Va. filedNov. 19, 2001). On December 19, 2002, Dowdellwas charged with wire fraud and securities fraud in arelated criminal proceeding. Securities and ExchangeCommission v. Dowdell, Case No. 3:02CR00107(W.D.Va. filed Dec. 19, 2002).

From approximately April 1998 through the Springof 2002, Dowdell raised more than $70 millionthrough the sale of fictitious securities to would-beinvestors in a fraudulent trading program (the"Vavasseur Program") purportedly operated by theBahamas-based Vavasseur Corporation

Page 1

("Vavasseur"). Consent & Stipulation, Case No.3:01CV00116, docket no. 218 1 3 (June 4, 2002)(hereinafter "2002 Consent & Stipulation"). None ofthese funds were ever used for any trading program;rather, Dowdell, through Vavasseur, paid oldinvestors with funds obtained from new investors. Idat ¶ 5. Dowdell misappropriated millions of dollarsof Vavasseur funds to pay for his business andpersonal expenses and transferred millions more tohis marketers, business associates, family and friends.FFNII Id at¶ 9.

FNI. In May 2003, Dowdell voluntarilyconsented to entry of an Order SettingAmount of Disgorgement and CivilPenalties ("Order"). Consent & Stipulation,Case No. 3:O1CV00116, docket no. 427(May 29, 2003). SEC policy does not permithim to consent to the Order while denyingallegations in the Order. Id. at ¶¶ 3, 9. TheOrder decreed that Dowdell was jointly andseverally liable to disgorge $121,235,000.00in ill-gotten Vavasseur investor funds,subject to certain reductions. Order SettingAmount of Disgorgement, Case No.3:01CV00116, docket no. 426 at 3-4 (May29,2003).

Vavasseur investors had deposited more than $21million into U.S. bank accounts, including variousaccounts in the name of T.L. Dowdell & AssociatesLLC at a Virginia Bank of America branch. Id at ¶37. On October 26, 2001, Dowdell caused $500,000to be transferred from one of these accounts to hispersonal account (Exh. 11 at 2). That same day, hecaused $20,000 to be wire transferred from hispersonal account to the Bank One account ofDefendant Christopher Dowdell ("Defendant"). (Exh.12 at 3). Defendant is a resident of Ohio and is thenephew of Dowdell and the son of David and BeverlyDowdell. Answer at ¶ 2.

Defendant signed a promissory note dated October26, 2001, signature date November 1, 2001 (the"Note"), promising to pay Terry and Mary Dowdellthe principal amount of $20,000, payable in monthlyinstallments of $200.00 commencing March 1, 2002.(Exh. 3).

On the same day the SEC brought its civilenforcement suit against Dowdell, this Court froze


Not Reported in F.Supp.2dNot Reported in F.Supp.2d, 2006 WL 2360933 (W.D.Va.)(Cite as: 2006 WL 2360933 (W.D.Va.))

his U.S. bank accounts. Order Freezing Assets, CaseNo. 3:O1CV00116, docket no. 8 (Nov. 19, 2001). OnFebruary 27, 2002, the Court entered an AgreedPreliminary Injunction Order extending the assetfreeze orders entered on November 19, 2001,November 19, 2001, and December 7, 2001. AgreedPrel. Inj. Order, Case No. 3:01 CV00116, docket no.151 (Feb. 27, 2002). To facilitate recovery of investorlosses, this Court appointed Roy M. Terry, Jr. and thelaw firm of DurretteBradshaw PLC as Receiver forDowdell and his various business entities. OrderGranting Jt. Mot. for Appoint. of Receiver, Case No.3:O1CV00116, docket no. 243 (July 12, 2002)("Appointment Order"). All of Dowdell's assets,including his interest in the Note, were transferred tothe Receiver, !d. at ¶ 1, and Mary Dowdell hasassigned the Receiver her interest in the Note. (Exh.13). Acting under his authority to pursue claims onbehalf of Dowdell's creditors, Appoinnnent Order at 12(g), the Receiver brought this action seeking returnof the $20,000 that Dowdell transferred to Defendant.fFN21

FN2. Count One states a fraudulentconveyance claim; Count Two claims unjustenrichment; Count Three seeks impositionof a constructive trust; Count Four requestsjudgment on a promissory note; and CountFive alleges money had and received.

II. STANDARD OF REVIEW*2 The Fourth Circuit has explained the appropriate

standard of review in cases in which the nonmovingparty has failed to respond to a motion for summaryjudgment:

Th[e] failure to respond ... does not fulfill theburdens imposed on moving parties by Rule 56.Section (c) of Rule 56 requires that the movingparty establish, in addition to the absence of adispute over any material fact, that it is "entitled toajudgment as a matter of law." Fed.R.Civ.P. 56(c).Although the failure of a party to respond to asummary judgment motion may leaveuncontroverted those facts established by themotion, the moving party must still show that theuncontroverted facts entitle the party to "ajudgment as a matter of law." The failure torespond to the motion does not automaticallyaccomplish this. Thus, the court, in considering amotion for summary judgment, must review themotion, even if unopposed, and determine fromwhat it has before it whether the moving party isentitled to summary judgment as a matter of law.This duty of the court is restated in section (e) ofthe rule, providing, "if the adverse party does not

Page 2

so respond, summary judgment, if appropriate,shall be entered against the adverse party."Fed.R.Civ.P. 56(e) (emphasis added).

Custer v. Pan American Life Ins. Co.. 12 F.3d 410.415 (4th Cir.1993).

Thus, the court is obligated to examine thepleadings, affdavits, and other proper discoverymaterials to determine whether any genuine issue ofmaterial disputed fact exists. Fed.R.Civ.P. 56(c);Celotex Corp. v. Catrett. 477 U.S. 317, 322-23. 106S.Ct. 2548, 91 L.Ed.2d 265 ( 1986). It must view thefacts in the light most favorable to the non-movingparty, drawing inferences favorable to that party ifsuch inferences are reasonable. Anderson v. LtberrvLobby, Inc., 477 U.S. 242. 255, 106 S Ct. 2505. 91L.Ed.2d 202 ( 1986).

III. DISCUSSIONThe Receiver brought this verified motion seekingpartial summary judgment on the following issues: (i)Ohio's Uniform Fraudulent Transfers Act govems theReceiver's fraudulent conveyance claim; (ii) theVavasseur Program was a Ponzi scheme; (iii) TerryDowdell's transfer of $20,000 to the Defendant wasmade with actual intent to defraud Vavasseur'screditors; and (iv) the Defendant is liable to theReceiver for $20,000, less any repayments he canprove at trial.

(1) The fraudulent conveyance claim is govemed byOhio law

Virginia choice of law principles apply to theReceiver's fraudulent conveyance claim. Terry v.June. 420 F.Suoo.2d 493. 504 (W.D.Va.2006); seeKlaxon Company v. Stentor Electric ManufacturinQCo.. 313 U.S. 487. 496. 61 S.Ct. 1020. 85 L.Ed. 14771941 . Under Virginia law, the law of the

jurisdiction where a wire transfer was completedgovems a claim that the transfer was fraudulent.June, 420 F.Suoo.2d at 504. A wire transfer iscompleted "by acceptance by the beneficiary's bankof a payment order for the benefit of the beneficiaryof the originator's payment order." Id.; Va.Code Ann.§ 8.4A-104(a).

*3 Defendant admitted that he is an Ohio residentand that Dowdell transferred $20,000 to him onOctober 26, 2001. Dowdell's personal bank accountstatement lists a wire transfer in that amount on thatdate, and names "Christopher W. Dowdell" as thebeneficiary and the receiving institution as "BankOne, N.A. ID: 044000037." (Exh. 12 at 3). Althoughthe Receiver did not offer direct evidence on this



point, the clear inference drawn from these facts, andfrom the request for summary judgment on theapplicability of Ohio law, is that the Bank One thatreceived Dowdell's transfer is located in Ohio. TheReceiver's implicit, yet clear, representation iscertified under penalty of perjury to be true andcorrect Verifred PMSJ at 12. There is no materialissue of disputed fact--and the Receiver is entitled tojudgment-that the wire transfer at issue wascompleted in Ohio and that Ohio's UniformFraudulent Transfer Act (UFTA) govems.

(2) Dowdell operated the Vavasseur Program as aPonzi scheme

A Ponzi scheme is a "fraudulent investmentarrangement whereby an entity makes payments toinvestors from monies obtained from later investorsrather than from any 'profits' of the underlyingbusiness venture." In re Ramirez Rodriguez. 209 B.R.424, 430 (Bkrtcv.SD.Tex.1997). To show thatDowdell operated the Vavasseur Program as such ascheme, the Receiver must prove that he (i) receiveddeposits from investors; (ii) conducted no legitimatebusiness as represented to investors; (iii) produced noprofits or earnings through legitimate investments orbusiness, but rather raised funds by securing newinvestments from investors; and (iv) made paymentsto investors from other investors' invested funds. Id.at 431.

The Receiver's allegations that Dowdell was runninga Ponzi scheme are established by his ownadmissions, and by proof of Dowdell's conviction inthe related criminal proceeding. SEC v. Dowdell,Case No. 3:02CR00107 docket no. 45 (W.D.Va. July21, 2004); see Fed R. Evid. 201 (entitling the Courtto take judicial notice of adjudicative facts), Martinov. Edison Worldwide Capital (In re Randv). 189 B.R.425. 434 (Bankr.N.D.I11.1995) (facts pleaded in anindictment and established by conviction arecompetent evidence for summary judgmentpurposes). The Court is also entitled to judiciallynotice the facts concerning Dowdell's operation of aPonzi scheme established in the record of the SECenforcement case. Order Granting Joint Motion forPermanent Injunction, 3:O1CV00116, docket no. 219(June 4, 2002) (incorporating by reference 2002Consent & Stipulation ).

The Receiver is entitled to judgment that Dowdelloperated the Vavasseur Program as a Ponzi scheme.

(3) Dowdell's transfer to the Defendant was madewith actual intent to defraud

Page 3

As the Receiver has established with undisputedcompetent evidence that Dowdell was operating theVavasseur Program as a Ponzi scheme on October26, 2001, and that he transferred $20,000 of theprogram's assets to Defendant, a rebuttablepresumption arises that Dowdell, as operator of thescheme, (i) was insolvent on the date of the transfer,and (ii) made the transfer with actual intent todefraud Vavasseur investors. See, e.g. Terry v. June,432 F.Supp.2d 635. 640-41 (W.D.Va.2006); Flovd v.Dunson (In re Rodrizuez), 209 B.R. 424, 432(Bankr.S.D.Tex.1997); In re Independent ClearinQHouse. 77 B.R. 843, 860. 871 (D.Utah 1987).

*4 The Defendant has offered no evidence rebuttingeither presumption, and thus the Receiver is entitledto judgment that Dowdell transferred the $20,000 tohim with actual intent to defraud Vavasseur'screditors.

(4) Defendant is liable to the Receiver for $20,000,less any repayments he can prove

Ohio's UFTA provides in relevant part:(A) A transfer made or an obligation incurred by adebtor is fraudulent as to a creditor, whether theclaim of the creditor arose before or after thetransfer was made or the obligation was incurred, ifthe debtor made the transfer or incurred theobligation ...(1) With actual intent to hinder, delay, or defraudany creditor of the debtor;

Ohio Rev.Code Ann. & 1336.04. A creditor mayobtain avoidance of a fraudulent transfer to the extentnecessary to satisfy the creditor's claim. Id. §1336.07. However, a transfer is not fraudulent andmay not be avoided if the transferee establishes thathe took in good faith and for a reasonably equivalentvalue. Id § 1336.08(A).

The undisputed evidence shows that Dowdell is adebtor vis-a-vis defrauded Vavasseur investors andthat the Receiver is authorized to pursue claims ontheir behalf. As noted above, the Receiver has provedas a matter of law that Dowdell transferred the$20,000 to the Defendant with actual intent todefraud his creditors. The Defendant has not offeredany evidence and therefore has not established that heis a good faith transferee. Therefore, under Ohio law,the Receiver is entitled to a judgment voiding thetransfer and holding the Defendant liable to theReceiver for $20,000, less any repayments he canprove he made toward that amount.



The Receiver's Motion for Partial SummaryJudgment will be granted in its entirety in an Order tofollow.

T'he Clerk of the Court is directed to send a certifiedcopy of this Memorandum Opinion to all counsel ofrecord.

Not Reported in F.Supp.2d, 2006 WL 2360933(W.D.Va.)

END OF DOCUMENT

Page 4

® 2007 Thomson/West. No Claim to Orig. U.S. GovL Works.


MATTHEW L..FQRNSHELL, ) CASE NO. 04-CV-548887. ,.

Plaintiff ) JUDGE JOSE VILLANUEVA

V.

FIRSTMERIT CORPORATION,

Defendant.

DEFENDANT FIRSTMERITCORPORATION'S MEMORANDUM INOPPOSITION TO PLAINTIFF'S MOTIONFOR LEAVE TO FILE SECONDAMENDED COMPLAINT

Defendant FirstMerit Corporation ("FirstMerit") respectfully requests that this Court

deny Receiver Matthew Fomshell's ("Fomshell") Motion for Leave to File his Second Amended

Complaint. FirstMerit strongly opposes Fornshell's continued efforts to assert claims that belong

solelv to the individuals who purchased unregistered promissory notes from Alan and Joanne

Schneider (the "Schneiders") (the "Schneider Investors"). On Sentember 20, 2007, the Sixth

Circuit Court of Appeals effectively reversed the sole case upon which Fornshell relied to

obtain "authority" to sue FirstMerit on behalf of the Schneider Investors. See Liberte

Capital Group, LLC v. Capwill, No. 06-3501, 2007 WL 2733335 (6th Cir. Sept. 20, 2007)

(All unreported cases are attached hereto as Exhibit A.) Citing "overwhelming authority" in

favor of its determination that the Liberte receiver lacked standing to represent defrauded

investors, the Court of Appeals held, "The district court operated outside of Article III, granting

excessive authority to Appellee in the name of equity. This was error...." Id. at * 15.

Accordingly, Fomshell has no standing to bring Counts One - Five, which Fornshell concedes

are "Investors' Claims" and not claims of the receivership. This Court should, therefore, reject

Fomshell's Second Amended Complaint and deny his Motion for Leave to file same. To allow

I

EXHIBIT

c I

him to continue to prosecute the Schneider Investors' claims without standing to do so would

waste the resources of the receivership, FirstMerit and this Court.

Further, that Fomshell has included in his proposed Second Amended Complaint

additional claims (Counts Six - Eight) purportedly belonging only to the receivership fails to

cure his defective standing with respect to the claims that plainly belong only to the Schneider

Investors (Counts One - Five). Indeed, should Fomshell seek leave to file a Third Amended

Complaint containing only Counts Six - Eight, FirstMerit would consent to the amendment,

subject to proper service of a summons and the Third Amended Complaint on FirstMerit Bank,

N.A. FirstMerit will not consent, however, to Fomshell's attempt to bring claims that belong to

the Schneider Investors alone.

FORNSHELL'S PROPOSED SECOND AMENDED COMPLAINT

Fomshell's proposed Second Amended Complaint is different from the Complaint he

originally filed in this case in two ways: (1) instead of naming bank holding company FirstMerit

Corporation as the defendant, Fomshell names FirstMerit Bank, N.A., the nationally chartered

bank where the Schneiders had a business depository account, as the defendant; and (2)

Fornshell includes three new counts (Counts Six - Eight), which are characterized as claims

belonging to the receivership alone, rather than to the Schneider Investors. Counts One - Five of

Fornshell's proposed Second Amended Complaint consist of claims Fomshell asserted in his

original Complaint which belong to the Schneider Investors alone and which Fornshell purports

to assert on their behalf - despite the fact that he lacks standing to assert those claims.

AS THE RECENT LIBERTE DECISION SHOWS, FORNSHELL LACKS STANDINGTO ASSERT COUNTS ONE - FIVE ON BEHALF OF INVESTORS

The September 20, 2007 decision of the Sixth Circuit Court of Appeals in Liberte should

close the book for this Court on whether Fornshell has standing to pursue Counts One - Five of

2

his proposed Second Amended Complaint on behalf of Schneider Investors. Since the inception

of this case, Fomshell has relied heavily on the Liberte line of cases to support his position that

he has standing to bring Counts One - Five. Liberte was the only case upon which Fomshell

relied in his May 23, 2006 Expedited Motion for Supplemental Orders Appointing Receiver (he

even attached the Liberte Order authorizing the Liberte receiver to pursue investor claims to his

Expedited Motion). He also referred to the Liberte line of cases three times in his Post-Hearing

Brief. (Receiver's Post-Hearing Brief at 4, 7, 15.) Now, the Sixth Circuit has held that the

receiver in Liberte lacks standing to pursue investor claims. As the Sixth Circuit's analysis

demonstrates conclusively, Fomshell likewise lacks standing to pursue Counts One - Five,

which, as District Judge Boyko found in his February 2, 2007 Order, belong solely to Schneider

Investors. (Kathy Young, et al. v. FirstMerit Bank. N.A., Case No. 1:06-CV-1486, Febraary 2,

2007 Order at 5.)

The Liberte court explains the pertinent background of the Liberte line of cases as

follows:

Investors lost substantial amounts of their monies due to the fact that theinsurance policies underlying the viatical investments in which they had investedwere procured tbrough fraud. A receiver was appointed over the entity that servedas escrow agent and fiduciary for companies that marketed the viaticalsettlements, Liberte and Alpha Later, the receiver's authority was expanded suchthat "all claims against former agents and/or brokers of Alpha and Liberte fordamages in contract or tort actions arising out of claims by investors are deemedto be assets of the receivership estates and must be filed by the Receiver[ ], if atall." The investors sought a declaratory judgment that they, and not the receiver,had the right to pursue the arbitration claims they had filed against their broker-dealers alleging fraud and misrepresentation inducing their investments. On crossmotions for summary judgment, the district court granted the receiver's motion,authorizing him to pursue the arbitration claims and declaring that if the investorscontinue to pursue the litigation, any proceeds will be added to the receivershipestate and will be distributed pro rata to the entire class of investors harmed.

3

Id. at * 1. The Court of Appeals earlier had affinned the District Court's ruling that the claims

were arbitrable in Liberte Canital Groun. LLC v. Capwill, 148 F. App'x 413 (6th Cir. 2005),

but made no finding concerning "who has the right to pursue the arbitration claims." Id. at * 3,

n. 3. In its 2007 decision, the Sixth Circuit addresses directly who has standing to bring investor

claims on the investors' appeal of the District Court's decision granting the receiver's motion for

summary judgment and allowing him to pursue investor claims in arbitration.

The Liberte court used the Article III framework to determine whether the receiver had

standing to assert investor claims. To show that he has standing, "a plaintiff must, generally

speaking, demonstrate that he has suffered 'injury in fact,' that the injury is `fairly traceable' to

the actions of the defendant, and that the injury will likely be redressed by a favorable decision."

Id. at *5 (quoting Bennett v. Snear. 520 U.S. 154, 162 (1997)). Ohio's requirement that a party

have an "injury in fact" niirrors the federal standard. See, ^ Fraternal Order of Police v.

Cleveland, 141 Ohio App. 3d 63, 75 (8 Dist. 2001); State ex rel. Consumers League of Ohio v.

Ratchford. 8 Ohio App. 3d 420, 424 (10 Dist. 1982). The Liberte court held that the receiver

could not show that he had suffered an "`injury in fact' that is `fairly traceable' to the actions" of

the defendants. Id. citin Goodman v. FCC 182 F.3d 987, 992 (D.C. Cir. 1999)). "The mere

fact that the [receiver] would like to pull the arbitration proceeds into the receivership pool does

not establish a`personal stake' for the receivership entities." Id. (emphasis original)

The Liberte court explained:

We have recognized the general rule that a receiver acquires no greaterrights and powers to sue than the person or entity whose property is inreceivership. See Javitch v. First Union Sec.. Inc., 315 F.3d 619, 625 (6th Cir.2003) ("Because they stand in the shoes of the entity in receivership, receivershave been found to lack standing to bring suit unless the receivership entity couldhave brought the same action.") (citations omitted). Accordingly, when areceiver is appointed over a corporation, the receiver may only assert claimsthat could have been asserted by the corporation, and the receiver lacks

4

standing to institute action on behalf of investors in the corporation. 13Moore's Federal Practice § 66.08[1] [b] (3d ed. 2005). Indeed, Javitch emphasizedthat "although the stated objective of a receivership may be to preserve theestate for the benefit of creditors, that does not equate to a grant of authorityto pursue claims belongiug to the creditors." 315 F.3d at 627 (citing Jarrett v.Kassel, 972 F.2d 1415, 1426 (6th Cir. 1992)).

Id. at *6. (emphasis supplied) The Court of Appeals then concluded,

[T]o the extent that Appellee serves as receiver for VES and CFL, he lacksauthority to sue on behalf of investors such as Appellants, as VES and CFLhad no standing to file suit for the misrepresentation on the part of brokers andagents that induced the investment of Appellants and other Liberte investors.

Id. at *6. (emphasis supplied)

The receiver in Liberte argued that that the Court should apply "a very loose conception

of standing" and attempted to distinguish between investors having a "direct" interest in

receivership assets and investors that "had only a derivative interest in the receivership estate

based on their equitable interest in the receivership entity itself. Accordingly, [the receiver]

conclude[d] that [the received entity] as trustee for investor funds, `had at least an equal right,

and perhaps even a superior right to sue for tortious conduct resulting in diminishment of trnst

property."' Id. at * 11.

The Liberte court rejected the receiver's argument:

For several reasons, this argument fails. First, and most importantly, it seems thatAppellee misses the point entirely. Indeed, he claims that he has the right to suefor "tortious conduct resulting in the diminishment of trust property" and that"trustees have standing to maintain any action to remedy an injury with respect totrust property." [citing the receiver's Brief with emphasis added]. Yet the instantaction does not concem tortious conduct that injures or diminishes property intrast. Rather, it concerns tortious conduct that induced the decision to placeproperty in trust. Indeed, the claims arising from that tortious conduct neverwere trust property.

Id. at * 12. (italicized emphasis original; bold emphasis supplied) Further, the Liberte court

quoted Knauer v. Jonathan Roberts Fin. Group. Inc.. 348 F.3d 230, 233-234 (7th Cir. 2003), a

5

Ponzi scheme case, in its observation that "[a]ny claim relating to the fraudulent sales [in a Ponzi

scheme] rightfully belongs to the wronged investors." Id.

That the Liberte receiver had obtained an order from the District Court permitting him to

pursue investors' claims failed to confer standing on him. The Liberte court reasoned:

Indeed, if [the. receiver's] position were correct and a district court could conferindividual creditors' standing on a receiver simply by ordering it so, such anexception would completely swallow the general rule that receivers may sue onbehalf of the entity they are appointed to represent, not on behalf of creditors andinvestors directly. [The receiver] has established no basis for such a vastexpansion of a receiver's authority or a departure from this overwhelmingcase law.

Id. at * 14. (emphasis supplied) To the extent Fornshell has argued that the weight of authority

on the issue of receiver standing favors his position, and not FirstMerit's, the Sixth Circuit's

analysis demonstrates that Fomshell is wrong. Indeed, the Liberte court relies on many of the

same authorities FirstMerit cited in its briefing on its Motion to Vacate, including Goodman v.

FCC, 182 F.3d 987 (D.C. Cir. 1999); Troelstrup v. Index Futures Groun. Inc.. 130 F3d 1274 (7th

Cir. 1997); Jarrett v. Kassel 972 F.2d 1415 (6th Cir. 1992); Fleming v. LindWaldock & Co., 922

F.2d 20 (lrt Cir. 1990); and Scholes v. Schroeder, 744 F.Supp. 1419 (N.D. Ill. 1990). See

Liberte 2007 WL 2733335 at *5-* 10, * 13-* 14. To the extent that Fomshell attempts to rely on

cases that stray from the framework of receiver standing established by the case law authority

cited by FirstMerit, which the Sixth Circuit has called "overwhehning," such authorities are

outliers departing from the majority view that a receiver cannot sue a third party for claims

belonging solely to defrauded investors who are creditors of the estate.

The Liberte court concluded:

In light of the overwhelming authority that not only states that [the receiver] hasno right to pursue [the investors'] arbitration claims but also refutes the argumentsthat [the receiver] attempts to make in seeking affirmance of the district court'sholding, we are "firmly convinced that a mistake has been made,"... and that the

6

district court improperly applied the law... The district court operated outside ofArticle III, granting excessive authority to [the receiverr in the name of equity.This was error....

Id. at * 15. (citations omitted)

Likewise, this Court should conclude that Fomshell has no standing to bring Counts One

- Five of his Second Amended Complaint, and, for this reason, should deny Fomshell's Motion

for Leave.

FORNSHELL'S STATUS AS A STATE COURT RECEIVER ASSERTING STATE LAWCLAIMS IS IRRELEVANT TO THE STANDING ANALYSIS

In argument at the Hearing on September 7, 2007, Fomshell's counsel mentioned

McGinness v. United States, 90 F.3d 143 (6th Cir. 1996), and conceded that it is "not directly on

point...." (Tr. 37.) The dissent in Liberte also relied on McGinness, but the majority

distinguished it, stating that it is "void of any persuasive value" in that case. Liberte, 2007 WL

2733335, *10.

Likewise, McGinness is void of persuasive value in this case. McGinness held that a

state court receiver was not barred from bringing a wrongful levy suit against the United States

on behalf of the estate of a taxpayer, Dr. Derakhshan, because the receiver had the right to

receive the levied monies as a lien creditor and a federal statute pemiitted lien creditors to bring

wrongful levy claims. In McGinness, after Dr. Derakhshan was found in contempt for failure to

pay alimony and child support arrearages, the Court ordered Nationwide to make payments to

the receiver instead of Dr. Derakhshan. Then, the IR9levied on money due Dr. Derakhshan for

medicare claims billed through Nationwide, giving rise to a dispute between two creditors.

The Liberte majority observed that "[tlhe dissent fails to appreciate the fact that the

McGinness decision was founded expressly on Ohio law." Id. To clarify the McGinness

decision for this Court, the "Ohio law" to which the Liberte court referred was former R.C.

7

.1309.20(C) (now R.C. 1309.102(A)(52)), which sets forth the definition of a "lien creditor" to

include "a receiver in equity from the time of appointment." McGinness, 90 F.3d at 146.

In other words, the McGinness court relied on Ohio law to establish that the receiver had

the power to bring a wrongful levy action under the specific defmition of "lien creditor" in Ohio,

because as a receiver he satisfied that definition and could assert a claim for wrongful levy that,

by statute, must be asserted by a lienholder. Obviously, this has absolutely nothing to do with

whether or not Fornshell has standing to pursue Schneider Investor claims in this case. To the

extent Fornshell suggests, in the future, that he somehow has standing to pursue investor claims

under Ohio law because he is a state court receiver, he misses the point of McGinness and the

"overwhehning authority" holding otherwise. Simply put, as the Liberte court recognized, a

court has no power to extend a receiver's authority beyond the limits of constitutional standing.

FORNSHELL HAS NOT CONFERRED STANDING ON HIMSELF TO BRINGINVESTOR CLAIMS BY INCLUDING COUNTS SIX - EIGHT

IN HIS PROPOSED SECOND AMENDED COMPLAINT

In addition to the arguments FirstMerit has raised previously in its briefing and in oral

argument to this Court, Fomshell does not and cannot confer standing on himself to assert

Counts One - Five on behalf of the Schneider Investors by incorporating claims into the Second

Amended Complaint that he insists belong to the receivership alone - "aiding and abetting a

Ponzi scheme" (Count Six), "deepening insolvency" (Count Seven) and "declaratory judgment

for joint and several liability" (Count Eight). Fomshell's counsel conceded at the September 7,

2007 Hearing that "the receiver in this case is not a direct successor or assignee to the actual

claims of the creditors" and that the Schneider Investors "are entitled to pursue their own

individual action if they choose." (Tr. 29, 62.) Fornshell's counsel farther stated repeatedly at

the Hearing that the investors are not his clients and are not represented by Fomshell and that he

8

is not "bringing their claims, per se." (Tr. 53, 62, 104-105, 107.) Any right of recovery on the

Schneider Investors' claims in Counts One - Five still belongs only to the Investors themselves.

Fomshell lacks standing to bring Counts One - Five on behalf of the Schneider Investors.

Consequently, this Court should not permit Fornshell to file his proposed Second Amended

Complaint against FirstMerit Bank, N.A.

A close reading of authorities on the subject of a receiver's standing to bring claims

against third parties shows that standing is not conferred on a receiver to bring claims of

defrauded investors merely because those investors may also be creditors to whom the estate is

ultimately liable. The Liberte case, discussed above, is an excellent example of such a

situation. Also instructive is the discussion in Goodman v. FCC 182 F.3d 987, 991-992 (D.C.

Cir. 1999). In that case, the District of Columbia Circuit Court of Appeals held that a receiver

for "application mills" that defrauded applicants for special mobile radio licenses lacked standing

to assert their rights to challenge FCC orders conceming the validity of their licenses. The

Goodman court reasoned that the receiver lacked standing because "the application mills would

not have standing to bring this action on their own account." Id. at 992. "A mere congruence

of interests between the receivership licensees and the application mills...does not suffice to

make Goodman a proper party to vindicate the interests of the receivership licensees." Id.

(emphasis supplied)

The Goodman court distinguished the case of Scholes v. Lehmann, 56 F.3d 750 (7th Cir.

1995), in which the Seventh Circuit Court of Appeals held that the receiver had standing to sue

for the reversal of a series of fraudulent conveyances the corporation "made at the direction of its

controlling shareholder." Id. at 991. The key distinction between Scholes and Goodman,

reasoned the Goodman court, was that in Scholes, "the entity in receivership could itself properly

9

have brought the same action." Id. at 991-992 citin Canlin v. Marine Midland Grace Trust

Co., 406 U.S. 416 (1972); Jarrett v. Kassel 972 F.2d 1415 (6th Cir. 1992); Fleming v. Lind-

Waldock & Co., 922 F.2d 20 (1st Cir. 1990)). In Scholes, there was a distinct injury to the

corporation; in Goodman, by contrast, the receiver was merely making an effort to reduce the

receivership's liability to the licensees, should the licensees "successfully sue [the application

mills] for fraud." See also Lank v. New York Stock Exchange, 548 F.2d 61, 67 (2nd Cir. 1977)

(holding that the receiver of a corporate member of New York Stock Exchange could not sue the

exchange for its failure to force the member to comply with the exchange's rules on behalf of

creditors to the estate because "[t]o allow the receiver to sue as representative of the

corporation's creditors would be to allow the corporation itself to sue, for ultimately the recovery

is the same.")

This case is like Liberte and Goodman, not Scholes. Here, Fornshell asserts claims to

recover damages for the injuries sustained by the Schneider Investors. As Judge Boyko

recognized, Fomshell's claims for rescission arising from the Schneiders' sale of unregistered

securities (Counts One and Two) belong to the Schneider Investors alone, as do Fornshell's

claims for conspiracy (Count Five), Ohio civil RICO (Count Tbree) and aiding and abetting

fraud (Count Four). (February 2, 2007 Order at 5.)

As FirstMerit has briefed exhaustively, and as has been argued orally to the Court at the

September 7, 2007 Hearing, Fornshell lacks standing to bring claims that belong solely to the

Schneider Investors. Counts One - Five of his Second Amended Complaint are identical to the

claims of Fomshell's original Complaint, and he specifies in his Second Amended Complaint

that each one is an "Investors' Claim" rather than a claim of the receivership. Fomshell lacks

standing to assert "Investors' Claims." Liberte, supra. FirstMerit incorporates as if fully

10

rewritten herein its Motion to Vacate the May 23, 2006 Supplemental Order Appointing

Receiver and Memorandum in Support of same, its Reply in Support of same, its Post-Hearing

Supplemental Memorandum in Support of its Motion to Vacate, the transcript of the Hearing on

the Motion to Vacate held September 7, 2007, and its Notice of Filing Supplemental Authority

Conceming its Motion to Vacate, each of which discusses Fornshell's lack of standing to bring

such claims.

FIRSTMERIT DOES NOT OPPOSE FORNSHELL BRINGING ONLYCOUNTS SIX - EIGHT OF HIS PROPOSED SECOND AMENDED COMPLAINT

IN A THIRD AMENDED COMPLAINT

Had Fomshell brought only Counts Six - Eight in his proposed Second Amended

Complaint, FirstMerit would not oppose the amendment, given the liberal standard an Ohio court

must apply to a Motion for Leave to Amend a pleading under Ohio Rule of Civil Procedure 15.

At the same time, FirstMerit does not concede that Fomshell can state a claim under Ohio law

for "aiding and abetting a Ponzi scheme," "deepening insolvency" or "declaratory judgment for

joint and several liability," nor does it waive any defenses merely by consenting to a leave to

amend. If Fornshell chooses to file a Third Amended Complaint containing only Counts Six -

Eight, FirstMerit will consent to the amendment. Such consent is not a concession that the

Complaint would state a claim against FirstMerit, however; FirstMerit Bank would seek to

dispose of those claims on a timely motion to dismiss under Civil Rule 12(b)(6) after it is

properly served.

Similarly, if this Court grants Fomshell leave to file his proposed Second Amended

Complaint,. FirstMerit Bank will timely file a motion to dismiss for failure to state a claim under

Ohio Rule of Civil Procedure 12(b)(6), after FirstMerit Bank, N.A. is properly served with

the Second Amended Complaint and a Summons pursuant to Civil Rules 3 and 4. See Russ

11

v. Lakewood Hosnital. 1993 WL 300317, *1 (Cuyahoga Cty., August 5, 1993) (dismissing

action against new defendant named in amended complaint, because plaintiff never effectuated

proper service and court accordingly lacked personal jurisdiction to enter judgment); Buckeye

Linen Service, Inc. v. New Reeb's Ltd. 1990 WL 93904, *3 (Franklin Cty., June 28, 1990)

(holding that court could not enter judgment against new defendant, because plaintiff failed to

effect proper service after naming defendant in amended complaint).

12

CONCLUSION

For the foregoing reasons, FirstMerit respectfully requests that this Court deny

Fomshell's Motion for Leave to file his Second Amended Complaint.


Th6mas B. Ridgley (00 10)Vorys, Sater, Seymour and Pease LLP53 East Gay StreetP.O. Box 1008Columbus, Ohio 43216-1008Telephone: (614) 464-6400Facsimile: (614) 464-6350e-mail: [email protected]

John W. Solomon (0018206)Vorys, Sater, Seymour and Pease LLP106 S. Main Street, Suite 1100AlQon, Ohio 44308Telephone: 330-208-1013Facsimile: 330-208-1001E-Mail: [email protected]


[email protected]


13


A copy of the foregoing Defendant FirstMerit Corporation's Memorandum in Opposition

to Plaintiff's Motion for Leave to File Second Amerided Complaint was sent via U.S. Mail this

28th day of September, 2007, to the following:

Joshua R. Cohen Joel LevinCohen Rosenthal & Kramer Christopher M. Vlasich400 Hoyt Block Bldg. Aparesh Paul700 West St. Clair Levin & Associates Co., LPACleveland, OH 44113 The Tower at Erieview

1301 East Ninth St., Suite 1100Jonathon M. Yarger Cleveland, OH 44114Chemett Wasserman Yarger &Pastemak Attorneyfor PlaintiffDan Ylahovic3300 Erieview Tower1301 East Ninth StreetCleveland, OH 44114


Per instruction of counsel for Matthew Fomshell, a copy of the Defendant FirstMerit

Corporation's Memorandum in Opposition to Plaint ff's Motion for Leave to File Second

Amended Complaint was sent via e-mail and U.S. Mail on September 28th. 2007, to the

following for service on all interested parties to this litigation:

Katie Manghillis ([email protected])Schottenstein Zox & Dunn Co., LPA250 West StreetColumbus, OH 43215

14

V17 esti".Slip CopySlip Copy, 2007 WL 2733335 (6th Cir.(Ohio))(Cite as: 2007 WL 2733335 (6th Cir.(Ohio)))


This case was not selected for publication in theFederal Reporter.

Not for Publication in West's Federal Reporter SeeFed. Rule of Appellate Procedure 32.1 generallygoveming citation ofjudicial decisions issued on orafter Jan. 1, 2007. See also Sixth Circuit Rule 28.(Find CTA6 Rule 28)

United States Court of Appeals,Sixth Circuit.

LIBERTE CAPITAL GROUP, LLC, et al.,;Plaintiffs,

Ursula Linke; Angelo Salcedo; Larry Thompson,Intervenors-Plaintiffs-

Appellants,V.

James A. CAPWILL, et al.,; Defendants,William T. Wuliger, Receiver, Intervenor-Defendant-

Appellee.No. 06-3501.

Sept. 20, 2007

On Appeal from the United States District Court forthe Northern District of Ohio.

Before BATCHELDER CLAY. and McKEAGUE,Circuit Judges.

OPINION

McKEAGUE, Circuit Judge.

* 1 Investors lost substantial amounts of their moniesdue to the fact that the insurance policies underlyingthe viatical investments in which they had investedwere procured through fraud. A receiver wasappointed over the entity that served as escrow agentand fiduciary for companies that marketed theviatical settlements, Liberte and Alpha Later, thereceiver's authority was expanded such that "allclaims against former agents and/or brokers of Alphaand Liberte for damages in contract or tort actionsarising out of claims by investors are deemed to beassets of the receivership estates and must be filed bythe Receiver[ ], if at all." The investors sought a

Page I

declaratory judgment that they, and not the receiver,had the right to pursue the arbitration claims they hadfiled against their broker-dealers alleging fraud andmisrepresentation inducing their investments. Oncross motions for summary judgment, the districtcourt granted the receiver's motion, authorizing himto pursue the arbitration claims and declaring that ifthe investors continue to pursue the litigation, anyproceeds will be added to the receivership estate andwill be distributed pro rata to the entire class ofinvestors harmed. For the reasons stated below, weREVERSE.

I.BACKGROUNDIn 1997, James A. Capwill and Viatical Escrow

Services ("VES") agreed to serve as escrow agentsfor the handling of investment funds in LiberteCapital Group ("Liberte") and Alpha Capital Group("Alpha") viatical settlements. [FN1.1 Liberte andAlpha marketed viatical life insurance policies toinvestors, using VES to provide trustee services inhandling monies received from investors to buypolices and to service the payment of premiums.Liberte Capital Group, LLC v. Camvill 462 F 3d543, 547 (6th Cir-20061. Liberte and Alpha purchasedviatical insurance policies from insurance companiesor brokerage firms, marketed the investments, andthen contracted with agents to locate and resell thepolicies to investors. Capital Fund Leasing ("CFL")invested funds obtained by VES in the latter'sfunction as escrow agent and fiduciary for companiesthat marketed viatical settlements. Id

FNI. Viatical settlements allow investors toinvest in another person's life insurancepolicy. The investor purchases the policy, ora part thereof, at a price less than thepolicy's death benefit. When the seller of thepolicy dies, the investor collects the deathbenefit. The investor's return is dependentupon the seller's life expectancy and theactual date the seller dies.

Many of the insurance policies underlying theviatical investments that Liberte and Alpha hadmarketed were procured through fraud. LiberteCaDrtal 462 F.3d at 547. For example, some of theviators misrepresented their health in order to obtaincoverage. Additionally, Capwill and his escrowcompanies embezzled or absconded with the fundsthey held in escrow with which they were required to

® 2007 Thomson/West. No Claim to Orig. U.S. Govt- Works.

Slip CopySlip Copy, 2007 WL 2733335 (6th Cir.(Ohio))(Cite as: 2007 WL 2733335 (6th Cir.(Ohio)))

pay premiums to maintain the policies and pay outdeath benefits to investors upon the matched viator'sdeath. Accordingly, in 1999, Liberte sued Capwill,VES, and CFL in federal district court, alleging, interalia, that they misappropriated escrow funds. Thedistrict court appointed a receiver "to oversee and toadminister the business and assets of VES and CFL... to take and maintain exclusive and completecustody, control and possession of all the assetsbelonging to VES and CFL." FN2 In November1999, the scope of the receivership was extended

FN2. There have been three GeneralReceivers in this case as well as one receiverfor the intervening plaintiff Alpha. WhenAppellants first intervened, Victor Javitchwas the General Receiver. Prior to theMarch 15, 2006 summary judgment order,the General Receivership duties weretransferred to William T. Wuliger("Appellee"), who is also the AlphaReceiver.

*2 to cover all interests in any and all insurancepolicies funded by investors which Liberte Capital,LLC or Alpha Capital, LLC contacted, which areor were in the name of James A. Capwill, Capwill& Co., CWN Group or any other name, either asnominee owner or as trustee ... for the purpose ofmanaging and administering insurance policies inwhich one of the foregoing either is named asowner, beneficiary or Trustee, including, but is notlimited to death claims, rescission issues, premiumpayment issues and anything else reasonablynecessary in the management of these insurancepolicies.

Later, the scope of the receivership extended yetagain to cover Capwill's assets.

In December 2000, Ursula Linke and AngeloSalcedo, purchasers of Liberte viaticals, filedarbitration claims with the National Association ofSecurities Dealers, Inc. ("NASD") againstWashington Square Securities, Inc. ("WSSI"), theirbroker-dealer, alleging that WSSI was liable for itsrepresentatives' fraudulently inducing them topurchase Liberte viaticals. On January 30, 2001, JohnLazar, a Liberte investor who had intervened in theaction, moved for class certification, and the districtcourt granted the motion. The motion was granted inorder to evaluate Liberte policies and to help overseedecisions conceming the sale or rescission of policiesand the proper allocation of proceeds between Liberteand Alpha. On July 15, 2002, Linke and Salcedo fileda complaint against their broker-dealer, WSSI in

Page 2

federal district court. They sought a determinationthat the arbitration claims they had filed againstWSSI before the NASD were not encompassedwithin the Liberte class action. In September 2002,Larry Thompson filed an arbitration claim against hisbroker-dealer, Carillon Investments, Inc. ("Carillon"),alleging that its rePresentatives had fraudulentlyinduced him to purchase Liberte investments. Thereceiver initially approved of these arbitration claimsagainst WSSI and Carillon, and he stated that thearbitration proceedings did not interfere with hisduties.

In 2002, however, the receiver began initiating suitsto recover the lost investments and the return ofcommissions. On October 2, 2002, the district courtstated in an order that it "is of the view that all claimsagainst former agents and/or brokers of Alpha andLiberte for damages in contract or tort actions arisingout of claims by investors are deemed to be assets ofthe receivership estates and must be filed by theReceivers, if at all." J.A. at 1162. Along these lines,on November 7, 2002, the receivership court adopteda pro rata method of disbursement for the Liberteclass. We affirmed the disbursement method inLiberte Capital Group LLC v. Camvill 148 F. Apo'x426, 437 (6th Cir.2005). but we did not discuss theimport of the October 2, 2002 order.

On January 28, 2003, Thompson moved to intervenein the receivership proceedings, seeking a declarationthat his arbitration claim belonged to him and that itwas not a part of the receivership estate. On April 22,2003, the receivers filed a motion for an additionalstatement of authority. Recognizing that the matter"has developed well beyond the original conceptionof the parties and the Court both in terms of itsbreadth and complexity," the district court orderedthat the receivers "are empowered to represent andpursue the interests of investors directly in keepingwith the ultimate goal of maximizing the Estates fortheir benefit." J.A. at 1610-11.

*3 On June 26, 2003, the district court determinedthat the arbitration claims of Linke and Salcedoagainst WSSI were "distinct from the class claims"and granted Linke's and Salcedo's motion regardingarbitrability. J.A. at 1651. However, in so holding,the district court also referenced its October 2, 2002,and April 22, 2003, orders, stating that it had"modified the duties of the Receivers" and that "inaddition to their general charge of marshaling assetson behalf of the receivership estates, the Receivershave and continue to file cases against, inter alia,brokerage houses, banks, and insurance agents." J.A.



at 1649-50. We affirmed the arbitrability ruling inLiberte Capital Group, LLC v. Capwill, 148 F. App'x413, 418 (6th Cir.2005). jFN31

FN3. It is important to note that in that case,and in the litany of others we have heardarising out of these facts, we have leftunaddressed the issue presented in thisappeal, namely who has the right to pursuethe arbitration claims. Indeed, wespecifically stated,[W]hether the General Receiver is entitled tobring Linke's and Salcedo's arbitration claimor recover the proceeds of such anarbitration is a separate issue from whetherLinke's and Salcedo's claims are arbitrablein the first instance. The parties evenconcede that the issue of whether theGeneral Receiver owns the claims ofindividual investors is "currently beinglitigated in the district court." Because onlythe district court's order of June 26, 2003,regarding the question of arbitrability wasreferenced in the notice of appeal, we haveno jurisdiction to consider in this appeal theextent of the General Receiver's authorityover the claims of individual viaticalinvestors.Liberte Caoital. 148 F. App'x at 417 n. 1.

On July 21, 2003, the district court grantedThompson's motion to intervene in the receivershipproceedings. On July 23, 2003, Linke and Salcedofiled a second motion to intervene, claiming that theyhave a legal interest in their arbitration claim, thattheir ability to protect that interest after interventionis substantially impaired, and that their interest isinadequately represented by the parties alreadybefore the court. On June 9, 2004, the district courtgranted the motion.

On May 10, 2004, Thompson filed an interventioncomplaint against then-receiver Victor Javitch,seeking a determination that his arbitration claimsagainst his broker-dealer and his broker belonged tohim and not to the receiver. On June 10, 2004, Linkeand Salcedo sued the receiver, requesting that thedistrict court declare that they may bring theirarbitration claim in their own names and are notrequired to deliver to the receiver any damages thatmay be awarded by the arbitrators. On July 21, 2004,the receiver filed answers and counterclaims to thecomplaints of Linke and Salcedo as well asThompson (collectively "Appellants"). The receiverrequested that the district court enter judgment

Page 3

against Appellants, and he sought a declaration thatAppellants must bring their arbitration claims underhis name, as the receiver, and that any proceedsrecovered by them are assets of the receivershipestate or that any recovered proceeds will bededucted from any entitlement they have asbeneficiaries of the receivership estate. All partiesmoved for summary judgment on September 24,2004.

On March 15, 2006, the district court grantedsummary judgment to the receiver and deniedAppellants' summary judgment motion. The courtfirst reasoned that Appellants' argument that theirarbitration claims are distinct from the receiver's civillitigation against agents and brokers is notpersuasive. Second, the court stated that Appellants'argument that the receiver lacks standing to bring thearbitration claims "is not well taken," mainly becausein a case on which Appellants relied, Javitch v. FirstUnion Sec., Inc., 315 F.3d 619 (6th Cir.2003) . thisCourt "did not have the precise issue presented, anddid not opine, contrary to [Appellantsl assertion, that[the receiver] could not advance a suit on behalf ofthe investors." J.A. at 2320.

*4 Third, the district court considered equitablearguments. The judge noted that it is generallyrecognized that a receiver may bring suit toaccomplish the objective of the suit for which his orher appointment was made, or under the specificdirections of the appointing court, or pursuant to hisgeneral duties to receive, control, and manage thereceivership property. The court concluded thatallowing Appellants to pursue an independent action"would be an affront to the equitable principlescurrently in place to the detriment of all Liberteinvestors." J.A. at 2322. Fourth, the district court heldthat the receiver is not precluded from pursuing theclaims based on the in pari delicto doctrine. Finally,the court stated that it was cognizant of the costsexpended by Appellants thus far in litigation and thatit was confident that the parties "can come to amutually agreeable resolution" that would allowAppellants to continue to pursue the litigation,"provided the proceeds of the undertaking are addedto the Receivership estate and not do violence to thepro rata ruling currently in place." J.A. at 2325.

Appellants filed a timely appeal, contending, interalia, that Appellee lacks standing to pursue thearbitration claims, that the district court decisionviolates the Takings Clause of the Fifth Amendment,that Appellee is attempting to cause Appellants to"lose the same money twice," and that the equitable


Slip CopySlip Copy, 2007 WL2733335 (6th Cir.(Ohio))(Cite as: 2007 WL 2733335 (6th Cir.(Ohio)))

doctrine of in par! delicto bars Appellee fromasserting the arbitration claims.

U. ANALYSISA. Standard of Review

We generally review de novo a district court'sdecision to grant summary judgment. See, e.g.,Lindsey v. Detroit Entm't. LLC 484 F.3d 824, 827(6th Cir.2007) (citations omitted). Yet Appelleeargues that abuse of discretion review is applicable tothe instant case, to the extent that this case concerns adistrict court's administration of the receivership, thatthe lower court considered a number of equitableissues, that we have noted that "[a] district court hasbroad powers and wide discretion in fashioning reliefin an equity receivership proceeding," Liberte CapitalGroup. LLC v. Capwill, 421 F.3d 377, 382 (6thCir.2005), and that when a district court balances theequities, it "is overruled only in the rarest of cases,"Hadix v. Johnsom 182 F.3d 400. 404 (6th Cir.1999).The instant case provides no occasion for resolvingthis, as the district court erred under either standardof review.

Summary judgment is required "if the pleadings,depositions, answers to interrogatories, andadmissions on file, together with the afFrdavits, ifany, show that there is no genuine issue as to anymaterial fact and that the moving party is entitled to ajudgment as a matter of law." Fed.R.Civ.P. 56(c).The court deciding a motion for summary judgmentmust view the evidence and draw all reasonableinferences in favor of the non-moving party. Lindsev.484 F.3d at 827 (citation omitted).

B. The Authority to Pursue the ArbitrationClaims

1. A District Court's Powers in Presiding Over anEquity Receivership

*5 We have recognized that although bankruptcycases, in which Congress has set forth broad anddetailed statutes to guide federal courts, comprise thevast majority of cases involving receiverships, thereremains a class of cases in which federal courts mayexercise their equitable powers, institutingreceiverships over disputed assets in cases within thecourts' jurisdiction. Liberte Capital. 462 F-3d at 551.We have emphasized that district courts enjoy broadequitable powers to appoint a receiver over disputedassets in litigation before them. Id.; see also 13Moore's Federal Practice § 66.07 [3] (3d ed. 2007)("The appellate court is limited to determining

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whether the appointing court abused its discretion,either in the appointment of the receiver or in theadministration of the receivership."). The role of thereceiver is to safeguard disputed assets, to suitablyadminister the receivership property, and to assist thedistrict court in achieving a final, equitabledistribution of the assets. Liberte Capital, 462 F3d at551. The receiver's powers are coextensive with hisorder of appointment. Id. (citing 13 Moore's FederalPractice § § 66.02-.03 (3d ed.1999)).

2. Standing

The district court addressed standing, albeit in aperfunctory manner. It examined the issue in light ofonly one case, Javitch, and concluded that because"[t]he Sixth Circuit [in Javitch ] did not have theprecise issue presented and did not opine, contrary to[Appellants'] assertion that [Appellee] could notadvance a suit on behalf of the investors, ...[Appellants'] position on this issue is not well taken."J.A. at 2320.

"The appointment of a receiver is inherently limitedby the jurisdictional constraints of Article III and allother curbs on federal court jurisdiction." Scholes v.Schroeder, 744 F.Suop. 1419, 1421 (N.D I11.1990)."Constitutional standing is always a 'thresholdinquir[y] which this court is obligated to considerprior to asserting jurisdiction over [an] appeal.' "Newsome v. Batavia Local Sch. Dist. 842 F.2d 920,922 (6th Cir.1988) (citation omitted).

To satisfy the "case" or "controversy requirement"of Article III, which is the "irreducibleconstitutional minimum" of standing, a plaintiffmust, generally speaking, demonstrate that he hassuffered "injury in fact," that the injury is "fairlytraceable" to the actions of the defendant, and thatthe injury will likely be redressed by a favorabledecision.

Bennett v. Soear. 520 U.S. 154. 162 (1997) ( citationomitted). "[A] party must have a 'personal stake inthe outcome of the controversy' to satisfy Article III."Stevenson v. J.C. Bradford & Co. (In re Cannon).277 F.3d 838, 852 (6th Cir.2002) (citation omitted).

Here, the Appellee cannot show that the receivershipentities suffered an "injury in fact" that is "fairlytraceable" to the actions of WSSI and Carillon. See,e.g., Goodman v. FCC. 182 F.3d 987. 992(D.C.Cir.1999) ("We conclude that Goodman [thereceiver] lacks standing to sue the Commission. Hedoes not represent the parties who sustained theinjury of which he complains, nor is there anythingpreventing the parties who were injured from



themselves protecting their rights."). Nor can theAppellee show that the receivership entities have a"personal stake" in the outcome of the controversyinvolving WSSI and Carillon. The mere fact that theAppellee would like to pull the arbitration proceedsinto the receivership pool does not establish a"personal stake" for the receivership entities.

*6 We have recognized the general rule that areceiver acquires no greater rights and powers to suethan the person or entity whose property is inreceivership. See Javitch. 315 F.3d at 625 ("Becausethey stand in the shoes of the entity in receivership,receivers have been found to lack standing to bringsuit unless the receivership entity could have broughtthe same action.") (citations omitted). Accordingly,when a receiver is appointed over a corporation, thereceiver may only assert claims that could have beenasserted by the corporation, and the receiver lacksstanding to institute action on behalf of investors inthe corporation. 13 Moore's Federal Practice §66.08[l] [b] (3d ed.2005). Indeed, Javitchemphasized that "although the stated objective of areceivership may be to preserve the estate for thebenefit of creditors, that does not equate to a grant ofauthority to pursue claims belonging to the creditors."315 F.3d at 627 (citing Jarrett v. Kassel. 972 F.2d1415. 1426 (6th Cir.1992)).

A number of our cases and those from otherjurisdictions apply these general rules to a contextclosely analogous to the instant action, compellingour conclusion that Appellee lacks standing to pursueAppellants' arbitration claims. In Jarrett, from April1980 until December 1931, the plaintiffs purchasedcontracts for the future delivery of coal from anorganization named National Coal Exchange("NCE"). 972 F.2d at 1417. The plaintiffs alleged thatNCE's owners and employees secured the sales bymaking misrepresentations and without having themeans of acquiring the coal necessary to fulfillcontractual obligations. Id. In 1981, the CommodityFutures Trading Commission ("CFTC") filed suitagainst NCE, alleging violations of the CommodityExchange Act. /d . The district court in that actionappointed Erich Merrill as receiver for NCE and theother companies that were involved in the scheme.Id at 1418. As receiver, Merrill sought and obtainedpermission from the federal district court in theCFTC litigation to file suit on behalf of NCE'scustomers. Id In the suit, he claimed that the officersof NCE and another entity, inter alia, conspired todefraud NCE's customers in violation of Tennesseecommon law. Id.

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We stated that Merrill "did not have generalauthority to take legal action on behalf of NCE'scustomers." Jarrea. 972 F.2d at 1426 (citationomitted). Noting that the plaintiffs (NCE's customers)correctly stated that as corporate receiver, Merrillwas charged with the authority to protect theirinterests in the receivership property, we neverthelessemphasized that the plaintiffs erred in "equatfing] thislimited authority with general authority to representtheir legal interests." Id. Accordingly, Merrill'sauthority as receiver "was limited to preserving theproperty of the NCE receivership for thosecustomers. In this regard, he had authority to sue onbehalf of the receivership itself but had no authorityto bring a cause of action on behalf of the individualcustomers. " Id (emphasis added). This proposition isreplete in federal appellate case law. See, e.g.,Goodman v. F. C.C.. 182 F .3d 987. 991(D.C.Cir.1999); Troelstruo v. Index Futures GrouaInc., 130 F.3d 1274. 1277 (7th Cir.1997); Miller v.HardinF. No. 00-1245. 2000 WL 1792990, at *2 (lstCir. Dec. 5. 2000). Thus, to the extent that Appelleeserves as receiver for VES and CFL, he lacksauthority to sue on behalf of investors such asAppellants, as VES and CFL had no standing to filesuit for the misrepresentation on the part of brokersand agents that induced the investment of Appellantsand other Liberte investors.

•7 A further review of the applicable case lawreinforces this conclusion, notwithstanding (I) thefact that the receivership was later extended to coverthe interests in policies funded by Liberte investors(FN41 and (2) the district court's statements in itsOctober 2, 2002 and April 22, 2003 orders that (a) it"is of the view that all claims against former agentsand/or brokers of Alpha and Liberte for damages incontract or tort actions arising out of claims byinvestors are deemed to be assets of the receivershipestates and must be filed by the Receivers, if at all,"J.A. at 1162, and (b) "in addition to their generalcharge of marshaling assets on behalf of thereceivership estates, the Receivers have and continueto file cases against, inter alia, brokerage houses,banks, and insurance agents," J.A. at 1649-50.

FN4. Moore's Federal Practice states that"when a receiver was appointed over a fund,the receiver was the proper party to bringsuit against the brokers for the allegedsolicitation of investors." 13 Moore'sFederal Practice § 66.08[1][b] (3d ed.2005)(citing Commodity Futures Tradinn Comm 'nv. Chilcott Portfolio Mnmt. 713 F.2d 1477(10th Cir.1983)).



In Chilcott, Thomas Chilcott had operated aPonzi scheme, attracting nearly $80 millionin investments for a commodities pool fromaround 400 people. 713 F.2d at 1480. Afederal district court appointed JamesJohnson as equity receiver "to take custodyand control of all assets and records, toprevent further dissipation of assets, and toprosecute or defend all actions which he,with the court's approval, might deemnecessary to protect or recover assets ofChilcott." Id With the district court'sapproval, Johnson brought "a separate,ancillary" action against Chilcott and otherswho "allegedly dealt with Chilcott insoliciting investors and investing assets ofthe pool." Id The same day, Johnson filed amotion in the underlying suit by the CFTCagainst Chilcott, seeking an order staying allother suits against the defendants inJohnson's action. Id. The district courtgranted the stay. Id. The suits stayed by theorder included claims by investors "based onthe role of the intermediary brokers and theiremployees in the operation of Chilcott'sallegedly fraudulent scheme and generallyallege that the investors were induced toinvest with Chilcott throughmisrepresentations." Id. at 1481.In reversing the district court, the TenthCircuit noted that the district court wascorrect in holding that Johnson had thecapacity to initiate the action for "soliciting"investors. Chilcott. 713 F.2d at 1482.However, the Tenth Circuit expressly statedthat it was not addressing the issue ofstanding. Id. at 1482-83. Furthermore, thatcourt held that the district court abused itsdiscretion in staying the investors' actions.Id at 1487. Importantly, the court noted that"the fact that the Receiver is asserting onlyclaims of the pool means that the investorswill eventually have to proceed with theirindividual actions if they are to recover atall on their claims of misrepresentations inthe inducement to invest and for damagesresulting therefrom." Id. at 1485 (emphasisadded).Accordingly, while upon a first reading ofthe Moore's Federal Practice statementquoted above one may possibly concludethat it lends support to Appellee's position inthe instant case, a thorough reading of thecase used to support that quote indicates thatthe fact that the receivership estate was

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extended to cover the interests in policiesfunded by Liberte investors, if anything,further undermines Appellee's position.Indeed, when the standing issue arose laterin the course of the Chilcott litigation, thedistrict court held that Johnson lackedstanding to assert claims under theCommodity Exchange Act and theSecurities Exchange Act because thedeception and misrepresentations harmeddefrauded investors, not the fund, which -wasactually the beneficiary of that deception.Johnson v. Chilcatt. 590 F.Suvo. 204, 208-10 (D.Colo.1984) .

Our decision in Jarrett, in addition to the authorityoutside this Circuit cited below, undermines thesecond argument. In Jarrett, we held thatnotwithstanding the fact that the receiver sought andobtained permission from the receivership court tofile suit on behalf of NCE's customers in which thereceiver claimed that the officers of NCE and anotherentity, inter alia, conspired to defraud NCE'scustomers in violation of Tennessee common law,Jarrett. 972 F.2d at 1418, the receiver had authorityto sue on behalf of the receivership itself, but he hadno authority to bring a cause of action on behalf ofthe individual customers, fd at 1426.

In Scholes v. Schroeder, 744 F.Suoo. 1419. 1420-23(N.D.I11.1990). Steven Scholes, appointed as receiverof D & S Trading Group, Ltd., Analytic TradingSystems, Inc., and Analytic Trading Service, Inc.,attempted to raise claims "framed in terms of allegedfraud on the investors." The court reiterated theprinciple cited above, stating that "[f]raud oninvestors that damages those investors is for thoseinvestors to pursue-not the receiver. By contrast,fraud on the receivership entity that operates to itsdamage is for the receiver to pursue." Id at 1422. Thecourt further emphasized that a district court'sauthority with respect to appointing a receiver islimited by Article III and other constraints on federalcourt jurisdiction. Id at 1421. Accordingly, just asthe receivership court could not authorize the receiverto bring suits on behalf of entities wholly unrelated tothe suit, neither could the receivership court authorizethe receiver to pursue claims belonging to investorsrather than to the entities in receivership. Id. Moresuccinctly, the court held that to the extent that theorders appointing the receiver purported to conferpower on him to sue directly on behalf of investors,those orders exceeded the judiciary's power andwould not be enforced. Id. at 1423.



The conclusion that the district court exceeded itsappointment authority in the instant case findssupport in still other federal precedent. In Marwil v.Farah, No. 1:03-CV-0482-DFH. 2003 WL23095657, at *7 (S.D.lnd. Dec. 11, 2003), theplaintiff, Jeff Marwil, was appointed receiver forChurch Extension of the Church of God, Inc.("CEG") and United Management Services, Inc.("UMS"). Id at *1. CEG sold over $85 million ininvestment notes while representing that the fundsfrom the notes would be used primarily for interest-bearing loans to local churches. Id at *2. Asubsequent investigation by the SEC revealed that thefunds were actually misappropriated and were used topay prior investors. Id . at *3. The SEC filed asecurities action against CEG, UMS, and theirrespective presidents, Peter Grubbs and LouisJackson. Id. The district court appointed Marwil as areceiver for CEG, ordering him "to ensure that theInvestors are made whole with respect to the fundsthey invested with [CEG]." Id at *34.

*8 Marwil filed suit against Barry Farah, alleging,inter alia, equitable disgorgement on the grounds thatthe latter negligently misrepresented the value ofassets sold to CEG. Marwil, 2003 WL 23095657. at*34. The court held that Marwil, as receiver, lackedstanding to represent the investors directly. Id at *1.The court reasoned that notwithstanding the languageof the receivership court order that enabled him "toassert Causes of Action on behalf of Noteholders"and ordered him "to ensure that the Investors aremade whole with respect to the funds they investedwith [CEG]," id at *3, *5, the court lacked theauthority to transfer property-including causes ofaction-from the investors to the receiver, id at *5.The court emphasized that to hold otherwise wouldextend a district court's jurisdiction beyond theconfines of Article III. See id at *5-6.

A number of other cases stand for Scholes'proposition that fraud on investors that damagesthose investors is for the investors, and not thereceiver, to pursue, whereas fraud on the receivershipentity that operates to its damage is for the receiver topursue, 744 F.Suoo. at 1422. notwithstanding adistrict court's language granting a receiver authoritybeyond Article IH restrictions. See Flemine v.LindWaldock & Co.. 922 F.2d 20, 24-25 (1stCir.1990 (holding that although the district courtempowered the receiver "to prevent irreparable loss,damage and injury to commodity customers andclients," the receiver lacked standing to sue for claimsbelonging to investors, such as violations of theCommodity Exchange Act); B.E.L. T. Inc. v. Lacrad

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Intern, Corp.. No. 01 C 4296, 2002 WL 1905389, at*1-2 (N.D.I11. Aue. 19, 2002) (holding that thereceiver for a corporation had no standing to sue for,inter alia, receipt of funds fraudulently obtained,fraud, and unjust enrichment even though he wasappointed "on behalf of all the creditors," becausethose were claims of the creditors, not of thecorporation); Scholes v. Tomlinson. Nos. 90 C1350/6615/7201. 89 C 8407. 1991 WL 152062, at *2(N.D.I*I. July 29. 1991) (modifying the orderappointing the receiver such as "to omit any otherlanguage in the order which purports to conferauthority upon the Receiver to institute actionsbelonging to the investors, clients, or account holdersof the receivership entities" in light of the rule setforth in Scholes ). Applying those principles to theinstant case, Appellee's reliance on the district courtorders of October 2, 2002 and April 22, 2003 tofurther his contention that he has the right to pursuethe arbitration claims in question, is misplaced. Caselaw demonstrates that the district court exceeded itsauthority in so ordering.

The dissent erroneously claims that "case law clearlyindicates that receivers have broad powers to pursueclaims on behalf of a receivership estate andindividual investors, and that the scope of a receiver'spower is determined by the district court'sappointment orders." Dis. Op. at 5. The dissentapparently believes that the scope of a receiver'spower is solely determined by the district court, nomatter how broad the particular grant. The error insuch a conclusion has been sufficiently detailedabove and in ScAoles. 744 F.Suon. at 1421. Yet wepause here to emphasize that the dissent arrives atsuch a mistaken conclusion only by misstating andmisinterpreting our precedent and that of our sistercircuits.

*9 The dissent arrives at its conclusion that Chilcott"plainly supports an affirmance of the district court'sdecision" only by misreading that case. Dis. Op. at11. Indeed, the dissent makes such a claimnotwithstanding the Chilcott Court's expressstatement that "[w]e do not, however, reach or decidethe standing question." fFN51 713 F.2d at 1483.CAilcott actually constitutes strong persuasiveauthority for our decision today, as the Tenth Circuitexplicitly recognized the difference between theinvestors' pre-purchase claims of fraudulentinducement to invest and the receiver's post-purchaseclaims of dissipation of the commodities pooi'sassets, and emphasized, in concluding that thereceiver could raise the latter, that the receiver couldnot raise the former: FN6 "the fact that the



Receiver is asserting only claims of the pool meansthat the investors will eventually have to proceed withtheir individual actions if they are to recover at all ontheir claims of misrepresentations in the inducementto invest and for damages resulting therefrom." Id at1481, 1485 (emphasis added). Furthermore, onremand, the district court so concluded, holding thatthe receiver lacked standing to assert the claims ofdeception and misrepresentation that harmeddefrauded investors. Chilcatt. 590 F.Sunp. at 208-10.While apparently noting the pre- and post-purchasedistinction made in Chilcott, see Dis. Op. at 10, thedissent nevertheless fails to recognize that samedistinction or its import in the instant case; ouropinion, on the other hand, is consistent with theTenth Circuits statements in Chilcott, and itunderscores the legal significance of that distinction.

FN5. The Chilcott Court declined to reachthe standing issue because it was notdecided by the district court. 713 F.2d at1483. Consequently, to the extent that thedistrict court addressed the standing issue inthe instant case, there is no merit to thedissent's implicit conclusion that we shouldnot address the issue. See Dis. Op. at 11.

FN6. The dissent mischaracterizes theholding in Chilcott, claiming that "the Courtexpressly held that the Receiver had thecapacity to bring the Receiver's action andwas the proper real party in interest to bring[a] suit' on behalf of individual investars."Dis. Op. at 11 (quoting Chilcott, 713 F.2d at14831. In reality, the Chilcott Court statedonly that the receiver "was the proper realparty in interest to bring that suit," 713 F.2dat 1483 (emphasis added), namely the suitraising the post-purchase claims. Id at 1481("the Receiver's action ... is based on thedissipation of the pool's assets rather than onany culpable conduct in soliciting theinvestments"). Accordingly, an accurateaccount of the Tenth Circuit's statementreveals that it is entirely consistent with ourholding today and that the dissent'smodification of that statement is simply anattempt to recharacterize it such as to assignit force unintended by the Tenth Circuit.

The dissent misrepresents Fleminq v. LindWaldock& Co.. 922 F .2d 20 f lst Cir 19901, in claiming thatcase supports its conclusion. In Fleming, a districtcourt order had denied standing to the receiver asrepresentative of investors, stating that "It is

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axiomatic that [a receiver's] power is derived fromand limited by the order of the court appointing him."Id at 25. It was also the district court-not the FirstCircuit-that "noted that the language of the[appointment] order did not grant ... representationalpower to [the receiver]." See Flemine. 922 F.2d at 25.The dissent apparently believes that simply becausethe First Circuit set forth the procedural history of thecase in Fleming, it "implicitly adopted the districtcourt's reasoning." Dis. Op. at 10. That is, the dissentattempts to attribute the district court's statements tothe First Circuit, notwithstanding the fact that even acursory review of the Fleming opinion reveals thatthe First Circuit never expressly or impliedlyadopted, affirmed, or "not[ed] with approval," as thedissent claims, the district court's reasoning. fFN71See 922 F.2d at 24-25. Instead, the First Circuitdecided the case using the approach we employtoday, citing many cases--including Chilcott--affirming "representation of the corporation andprotection of its assets as the only purview of thereceiver," and concluding that "[t]he fnnds allegedlymismanaged ... belonged entirely to investors, not to[the entity in receivership]. Hence, Fleming as equityreceiver cannot assert these investors' claims." Id. at25 (emphasis added). Fleming is thus entirelyconsistent with our holding today.

FN7. If one were to accept the dissenPsapproach, a federal appellate court would bedeemed to have "implicitly adopted" thedistrict court's reasoning whenever theappellate court discusses the district court'sreasoning and then decides the case byemploying an altemative approach. Suchreasoning is clearly inconsistent with theproper interpretation of appellate precedent.

*10 The dissent's reliance on McGinness v. UnitedStates, 90 F.3d 143 (6th Cir.1996), is similarly voidof any persuasive value. The dissent fails toappreciate the fact that the McGinness decision wasfounded expressly on Ohio law. Indeed, the receiverin that case was appointed by the Lake County, OhioCourt of Common Pleas, and this Court relied onOhio case law and Ohio statutory law in holding thatthe receiver was not barred from bringing thewrongful levy suit. See id at 145-46. Specifically,this Court explicitly relied on a section of the OhioRevised Code in stating that "[t]he appointing courtdefines the powers of the receiver and, therefore,controls his actions." Id at 145. Hoping to extendMcGinness to the instant case, the dissent apparentlywould have us, a federal court, be bound by suchOhio state law even though neither of the parties in

® 2007 Thomson/West. No Claim to Orig. U.S. GovL Works.


the instant case--nor the dissent for that matter--claims that an Ohio court appointed the receiver orthat Ohio law otherwise controls. By stating inconclusory fashion that we do not "properlydistinguish[ ]" McGinness, Dis. Op. at 9, the dissentchooses to ignore this critical distinguishing featureof that case and thereby refuses to address thisanomaly.

The dissent's discussion of Javitch is also misleadingand unpersuasive. For example, the dissent againattempts to attribute portions of McGinness to theJavitch Court, yet the Javitch decision simplydescribes what this Court held in McGinness, and itnever adopted those statements as it own or otherwiseaffirmed them, as the dissent implies. CompareJavitch. 315 F.3d at 626, with Dis. Op, at 5-6.Additionally, the dissent selectively quotes Javitch,claiming that this Court "concluded that a receiver'could stand in the shoes of the entity in receivership,depending on the authority granted by the appointingcourt and actually exercised by the receiver.' " Dis.Op. at 6(intemal brackets and ellipsis omitted).Again, however, the dissent also ignores the fact thatJavitch was simply describing McGinness. SeeJavitch. 315 F.3d at 626. Through this series ofomissions and misstatements, the dissent attempts togive binding effect to McGinness; however, thatcase's paramount reliance on applicable Ohio statelaw, as stated above, demonstrates that it, of course,cannot be binding here and that the dissent errs inattempting to make such an extension.

Furthermore, although the dissent makes much of theclaim of the district court in the instant case thatnothing in Javitch stands for the proposition that areceiver may never be authorized to pursue claims onbehalf of individual investors, it is worth noting thatnothing in Javitch stands for the proposition that areceiver may ever be authorized to pursue claims onbehalf of individual investors. The dissent apparentlybelieves that simply because the question was notdirectly answered, it is permissible for it to assumethe answer in the favor of the conclusion it todayposits. That point aside, the district court's- & hencethe dissent's-statement is actually incorrect, as itignores the suggestive language in Javitch that isconsistent with our holding today. See td at 625, 627(emphasizing that "although the stated objective of ariceivership may be to preserve the estate for thebenefit of creditors, that does not equate to a grant ofauthority to pursue claims belonging to thecreditors").

*11 Finally, the dissent fails to explain how or why

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it ignores the portions of Jarrett cited above. See 972F.2d at 1417-18. 1426. The dissent merely notes thatthe receiver's actions in that case, for statute oflimitations purposes, were attributable to theindividual investors after the district court authorizedthe receiver to represent the. investors. The dissentthen claims that Jarrett supports its conclusion today.However, although the dissent would have us believeotherwise, this Court certainly never stated that adistrict court's granting the receiver permission to sueon behalf of individual customers was proper; indeed,that was not at issue in Jarrett. The dissent'ssupposition is particularly anomalous in light of theJarrett Court's recognition that the receiver'sauthority "was limited to preserving the property ofthe NCE receivership for those customers. In thisregard, he had authority to sue on behalf of thereceivership itself but had no authority to bring acause of action on beha j of the individualcustomers. "Id at 1426 (emphasis added).

Consequently, a review of the cases cited by thedissent demonstrates that it reaches its conclusionthat a receiver's powers--no matter how broad-aredetermined solely by the district court's appointmentorders only by misrepresenting and misstatingprecedent. Its approach, constituting a vast departurefrom the extensive case law cited above, also fails tosuggest any principled reason for such a departure.

Appellee asserts two remaining arguments in supportof his contention that he has standing to pursueAppellants' arbitration claims: (1) VES had standingto pursue the claims as trustee over investor funds,and hence so does Appellee as successor-trustee, and(2) he has independent standing to pursue the claimsby virtue of the district court's assignment of investorproperty. Each of these arguments fails.

First, Appellee claims that "VES functioned as atrustee over investor accounts; and as such, hadindependent standing to assert claims relating to thetrust property." Appellee's Br. 27. He argues thatVES and Appellants thus have concurrent standing toassert the arbitration claims. In support of this claim,he cites our precedent for the proposition that trusteeshave standing to maintain any action to remedy aninjury with respect to trust property. Appellee's Br.28 (quoting In re Cannon. 277 F.3d 838, 854 (6thCir.2002 . He contends that "[s]uch broad languagedenotes a very loose conception of standing,permitting trustees to pursue any action that relates toproperty in trust." Appellee's Br. 28-29. He alsoattempts to distinguish the instant case from the casesset out above by virtue of the fact that in the former



the investors have a direct interest in the propertyheld by the receivership entities in trust, whereas inthe latter investors had only a derivative interest inthe receivership estate based on their equitableinterest in the receivership entity itself. Accordingly,he concludes that VES, as trustee for investor funds,"had at least an equal right, and perhaps even asuperior right to sue for tortious conduct resulting inthe diminishment of trust property." Appellee's Br.31.

*12 For several reasons, this argument fails. First,and, most importantly, it seems that Appellee missesthe point entirely. Indeed, he claims that he has theright to sue for "tortious conduct resulting in thediminishment of trust property " and that "trusteeshave standing to maintain any action to remedy aninjury with respect to trust property." Appellee's Br.28, 31 (emphasis added). Yet the instant action doesnot concem tortious conduct that injures ordiminishes property in trust Rather, it concernstortious conduct that induced the decision to placeproperty in trust. Indeed, the claims arising from thattortious conduct never were trust property. Thisdistinction was emphasized in Knauer v. JonathonRoberts Fin. Group. Inc., 348 F.3d 230 (7thCir.2003 . In that case dealing with a Ponzi scheme,the Seventh Circuit stated,

For our purposes, it is useful to think of Ponzischemes as being comprised of two phases. First,the schemer solicits and receives money forinvestment, guaranteeing high returns while doinglittle with the money to produce actual profits.While in this first stage, the schemer may generatesome income for himself by charging a fee orpaying himself a salary with the funds, this "sales"step is not the source of most of his Ponzi gains.After all, the Ponzi schemer is not content to enrichhimself modestly by extracting fees or salariesfrom the funds he has solicited. Rather, theschemer realizes most of his gains by appropriatinglarge sums of money from the solicited funds, thepace of the withdrawals accelerating as he is readyto disband the Ponzi entity and make off with itsassets. This "embezzlement" step of the Ponzischeme depletes the Ponzi entity of resources,which are diverted to the entity's principal, theschemer.

Id at 233. Having made that distinction, the courtconcluded that "we believe the district court wasprobably correct in concluding that [the receiver] hadno standing to pursue the Ponzi sales claims.... Anyclaim relating to the fraudulent sales rightfullybelongs to the wronged investors." Id. at 234. Knauerthus makes explicit that while Appellee may be

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correct that he has right to sue for "tortious conductresulting in the diminishment of trust property" andthat "trustees have standing to maintain any action toremedy an injury with respect to trust property,"those propositions do not vest him with authority toassert Appellants' arbitration claims in the instantcase, as claims involving injury or diminishment oftrust property are not the type of claim at issue here.FNS

FN8. The dissent fails to appreciate thislogical distinction, instead choosing to makemuch of its contention that Appellee "hassuccessfully brought both 'pre-purchase' and'post-purchase' claims on behalf of investorsin the past." Dis. Op. at 2. However, to theextent that the three cases it cites have allbeen dismissed, one is left to wonder howthe dissent arrived at its characterization ofthose claims as "successful[ ]." Indeed, thereis actually evidence as to just the opposite,as Appellants claim that Appellee "has notgenerally sued broker-dealers on the groundthat they are liable because their registeredrepresentatives recommended Liberteinvestments to their clients." Appellants' Br.9. The dissent's other contention failsentirely to address the pre- and post-purchase distinction and instead assumes theresult, claiming that Appellee has theauthority to raise the arbitration claimssimply because he has filed suit allegingharm under similar theories.

Along the same lines, Appellee relies heavily onCannon, claiming that in that case we "reasoned thatan escrow agent has standing to pursue causes ofaction on behalf of third party trust beneficiaries."Appellee's Br. 32-33 (citing Cannon, 277 F.3d at853-54. However, in the cited pages, we merelynoted that "[u]nder the common law, a trustee canmaintain an action in law or equity against a thirdperson to remedy an injury with respect to trustproperty as if he held the property free of the trust;generally, beneficiaries of the trust cannot." Cannon.277 F.3d at 854 (emphasis added). He then arguesthat Cannon stands for the proposition that "but forthe fact that the successor trustee [] had succeeded tohis position via bankruptcy law, he would have hadstanding to pursue the beneficiaries' claims directlyAppellee's Br. 34.

*13 This argument suffers from the same defect asthat discussed immediately above, as Appelleeassumes the result by equating injuries to trust



property with injuries to investors in the form offraudulently inducing them to place their property intrust in the first instance. Another court has alreadyrejected Appellee's conclusion, stating that it is"extraordinarily troubling to find [the receiver's]counsel invoking authorities from the bankruptcyarea as though they stated any different principle[than the one that the receiver cannot bring causes ofaction that belong to their investors, as contrastedwith claims that belong directly to the companies forwhom the receiver is the appointed representative]."Scholes, 744 F.Supp. at 1421-22.

Finally, it should be noted that Appellee is similarlyunconvincing in his attempt to distinguish the casescited above on the grounds that they involveinvestors having only a derivative interest in thereceivership estate, based on the investors' equitableinterest in the receivership entity itself, whereas theinstant case involves investors having a direct interestin the property held by the receivership entities intrust. Indeed, he cites no reason as to why such adistinguishing feature is of any importance. Rather,he merely concludes that "[b]ecause of this uniquetwist, the interests of the Receiver in this case assuccessor-trustee are synonymous with those ofinvestors." Appellee's Br. 30. Furthermore, he evenconcedes that the distinguishing feature is present "inmany (if not all)" of the cases cited by Appellants.Accordingly, if Appellee can explain neither why hispurported distinguishing fact is relevant nor whetherall of the cases cited by Appellant are evendistinguishable on that ground, we see no reason todepart from the aforementioned overwhelmingprecedent.

Appellee's second general argument appears toconsist of two subparts: (1) the November 9, 1999order "operated as an assignment," such that thereceivership estate includes the actual investments,thereby rendering Appellee the successor-in-interestwith respect to those investors, and hence any injuryto the investors' property is an injury-in-fact toAppellee; and (2) the October 2, 2002 and April 22,2003 orders also "operate as assignments," assigningall choses in action relating to the investors' viaticalsettlements to Appellee, by virtue of Appellee'scontention that "an assignment operates to conferindividual creditors' standing on a receiver, curingany standing deficiency based on lack of injury-in-fact and enabling him to pursue the creditors' claimsdirectly," Appellee's Br. 38 (citing DeNune v. Consol.Campbell Investors v. TPSS Acquisition Corp.. 288F.Suoo.2d 844, 848 (N.D.Ohio 2003)).

Page I1

It should be noted that, in connection with thisargument, Appellee cites no authority, save for hisusual argument in which he concludes that equityreceivers can lawfully perform any number of actssimply because although those acts are forbidden bythe bankruptcy code, the instant case is not governedby the bankruptcy code. For these reasons, we rejectthe first subpart of Appellee's argument.

*14 Appellee's second claim also fails. Although herelies on DeNune, that case concerned a lawful,agreed-upon assignment. 288 F.Suon.2d at 848. AsAppellants point out, they neither agreed to norreceived consideration in connection with anyassignment of their arbitration claims. Thus,Appellee's characterization of the district court'sorders of October 2, 2002 and April 22, 2003 asassignments of the arbitration claims is entirelyunsupported by the record, and any reliance onDeNune is misplaced.

Furthermore, as stated above, overwhelmingauthority exists for the proposition that Appelleelacks the authority to pursue Appellants' arbitrationclaims even if the district court has declared that hehas such right See, e.g., Scholes. 744 F.Supp. at1421-22• Marwil. 2003 WL 23095657, at *5: see alsoJarrett. 972 F.2d at 1418. 1426. Indeed, if Appellee'sposition were correct and a district court could conferindividual creditors' standing on a receiver simply byordering it so, such an exception would completelyswallow the general rule that receivers may only sueon behalf of the entity they are appointed torepresent, not on behalf of creditors and investorsdirectly. Appellee has established no basis for such avast expansion of a receiver's authority or a departurefrom this overwhelming case law.

Finally, in discussing equitable considerations, thedistrict court stated that the receivership court'sdirectives "are generally aimed at marshaling assetsfor the benefit of the class/investors." J.A. at 2321. Italso noted that tracing or matching of investors topolicies was not possible, and it therefore concludedthat "the result of allowing [Appellants] to pursue anindependent action [ ] would be an affront to theequitable principles currently in place to thedetriment of all the Liberte investors." J.A. at 2322.Ostensibly, the district court feared that allowingAppellants to assert their pre-purchase claims couldadversely affect Appellee's post-purchase claims,disrupting the pro rata scheme set in place by thedistrict court in such a way that "[i]ndividualrecoveries could result in a windfall for someinvestors at the expense of their fellow investors or

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class members." J.A. at 1642-43.

Our precedent compels the conclusion that thedistrict court erred in so holding. In Jarrett, we heldthat the receiver did not have general authority totake legal action on behalf of the customers/investorsof the entity in receivership simply because thereceiver had authority to take charge of the entity'sproperty in order to protect the interests of thecustomers/investors. 972 F.2d at 1426. Furthermore,in an earlier proceeding in the instant case, we noted,in determining the propriety of the receiver's seizureof certain assets, that "[a]lthough equity and justiceare appropriate considerations for distribution, theyskirt the legal basis for [the investor's] claim that [theassets] never should have been made a part of thereceivership estate." Liberte CaDital. 421 F.3d at 384.See also Chilcott 590 F.Suno. at 208-09 (rejecting adifferent "attenuated 'but for' causation argument tosidestep the failed logic of relying onmisrepresentations to investors as the basis forrecovering on behalf of an entity"). Furthermore, wehave uncovered no case in which a court held, oreven suggested, that equitable considerations couldtrump a district court's exceeding its Article IIIpowers by permitting a receiver to raise claims ofinvestors. Neither does Appellee point us to any suchauthority.

*15 In light of the overwhelming authority that notonly states that Appellee has no right to pursueAppellants' arbitration claims but also refutes thearguments that Appellee attempts to make in seekingaffirmance of the district court's holding, we are"firmly convinced that a mistake has been made,"Whittington, 455 F.3d at 738, and that the districtcourt improperly applied the law, Barnes, 401 F.3d at741. [FN91 The district court operated outside ofArticle III, granting excessive authority to Appelleein the name of equity. This was error, regardless ofwhether the standard of review is de novo or abuse ofdiscretion.

FN9. Appellee's contention that any errorhere is harmless is simply incorrect. Indeed,whether Appellants are permitted to pursuetheir arbitration claims and retain theproceeds of those claims, rather than simplyshare pro rata in the proceeds of thoseclaims if Appellee actively pursues them--which Appellants allege he has in fact notdone-results in the conclusion that thedistrict court's error was surely not harmless.

Ill. CONCLUSION

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For the foregoing reasons, we REVERSE thedecision of the district court. [FNI 01

FN10. Because we so hold on the standingissue, we do not reach Appellants' remainingarguments. Furthermore, our decisionrenders moot the Appellee's motion to strikeportions of the Appellant's brief and motionto strike supplemental authority.

CLAY Circuit Judge, dissenting.

The majority finds that the district court erred ingranting Appellee ("the Receiver") authorization topursue the arbitration claims. I find that the majority'sconclusion contravenes established case law thatrecognizes a district court's broad equitable powers todefine the scope of a receiver's authority. Since thereis simply no legal basis for usurping and encroachingupon the district court's broad equitable powers inthis case, I would affirm the district court's decision.

DISCUSSIONI. Standard of Review

As an initial matter, the majority's fails to set forththe correct standard of review. The record clearlyshows that the district court granted summaryjudgment in favor of the Receiver. The majorityappears to argue that the district court's decisionshould be reviewed for abuse of discretion becausethe district court's "ultimate decision was founded onequitable concerns." (Appellee's Br. at 21) Thisstandard of review is unsupported by case law. See,e.g., Carter v. RMH Teleservices. Inc.. 205 F. Ann'x214. 218 n. 4 (5th Cir.2006) (unpublished case)(holding that "[plaintiff] incorrectly concludes that anabuse of discretion is the standard of review forsummary judgment."). Since this Court reviews adistrict court's summary judgment decision de novo, Iwill employ this standard in reviewing the claimsraised in this case. Old Life Ins. Co: ofAm. v. Garcia,411 F.3d 605, 610 (6th Cir.2005); Anderson v.

Liberty Lobby Inc.. 477 U.S. 242. 24748 (1986);Kendall v. Hoover Co.. 751 F.2d 171, 174 (6th Cir

.1984 .

II. The Arbitration Claims

Appellants allege violations of securities laws, fraud,breach of fiduciary duty, breach of contract, andnegligence against the brokerage firms on the

grounds that the broker-dealers sold Liberte

investments to them through misrepresentations andby failing to disclose material facts and



circumstances. Appellants seek actual damages andrescission, the benefit of the bargain, considerationpaid for the securities, lost opportunity costs, modelportfblio damages, prejudgment interest, and anaward of attomeys' fees, costs, and punitive damages.

The majority finds that the arbitration claims are notencompassed by the receivership estate. Essentially,the majority adopts Appellants' argument-- namely,that the Receiver cannot bring the arbitration claimsbecause they are "pre-purchase" claims of fraud andwrongful inducement and that the Receiver can onlyassert "post-purchase" claims such as thedisgorgement of wrongfully disbursed commissions.Although it may be possible to distinguish between"pre-purchase" and "post-purchase" claims, thisdistinction is simply not meaningful or persuasive.First, the record shows that the Receiver in this casehas successfully brought both "pre-purchase" and"post-purchase" claims an behalf of investors in thepast. See, e.g., Wuliger v. Moore, No. 03 CV 0734(N.D.Ohio); Javitch v. Gibson, No. 04 CV 0262(N.D.Ohio); Wulinger v. Wash. Viatical SettlementBrokers, No. 04 CV 1526 (N .D.Ohio). As the districtcourt aptly noted, the Receiver in this case haspursued claims for

*16 (1) securities violations under both SecuritiesAct of 1933 and Securities Exchange Act of 1934with the prayer seeking an award of considerationpaid by those [ ] investors whose business theDefendant solicited ...(2) Racketeering Influenced and CorruptOrganizations ("RICO") seeking an award of trebledamages of the amount of investment;(3) common law fraud seeking an award ofdamages consisting of the [] investors' lostinvestment ...(4) fraud in the inducement seeking "an award ofdamages consisting of the [] investors lostinvestments ... and(5) breach of contract seeking an award of damagesconsisting of the [] investors lost investments....

(J.A. 2317) (internal quotation marks and citationomitted) (formatting added). A distinction between"pre-purchase" and "post-purchase" claims is also notpractical because Appellants and the Receiver "seekliability under the same securities laws, both allegebreach of contract, common law fraud and claimssounding in negligence." (J.A. 2318) The arbitrationclaims are simply not special or distinct, and theReceiver has clearly demonstrated the ability topursue claims on behalf of investors. Second, in thiscase, the Receiver has an order from the district courtauthorizing him to pursue all claims on behalf of thereceivership estate and the individual investors.

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IIL The Receiver is Authorized to Pursue theArbitration Claims rFN 11 1

FNII. Appellants advance nine argumentsin support of the proposition that thearbitration claimsbelong to them: 1) theReceiver is attempting to cause Appellantsto lose the same money twice; 2) receiversdo not have the power to bring suit directlyon behalf of investors in receivershipentities; 3) giving the arbitration claims tothe Receiver would violate the TakingsClause of the Fifth Amendment; 4) receiverscannot lawfully take claims belonging toinvestors in a receivership entity; 5) thedistrict court incorrectly interpretedMcGinness v. United States: 90 F.3d 143,144-45 (6th Cir.1996); 6) the issue in thisappeal is whether the arbitration claimsbelong to the receivership estate, notwhether the pro rata method of distributingfunds from the receivership estate is correct;7) the Receiver does not have authority topursue pre-purchase claims against Liberteagents for wrongfully inducing investors toinvest; 8) the in part delicto doctrineprecludes the Receiver from taking thearbitration claims; and, fmally, 9)Appellants are capable of pursuing thearbitration claims without the Receiver'sassistance. Even though all of these claimswere thoroughly briefed and discussed bythe parties, the majority opinion primarilyaddresses the standing claim, presumablybecause the other claims do not support areversal of the district court's decision or areotherwise meritless.

Appellants' principal argument is that the districtcourt "gave the Receiver greater rights to the []arbitration claims than the Liberte receivership entityhad," and that receivers "can sue only on behalf ofthe entities for whom they are appointed and cannotsue on behalf of investors in those entities."(Appellants' Br. at 16) Appellants cite a plethora ofcases in support of this argument. However, most ofthe cases are inapposite because they concernbankruptcy receivers. A bankruptcy receiver's dutiesand functions are different from those of an equityreceiver, particularly because the scope of abankruptcy receiver's power is set forth in statutes.See, e.g., In re Cannnn. 277 F.3d 838, 848 (6thCir.2002 (noting that a bankruptcy statute grants abankruptcy trustee the standing and power to avoid



the transfer of an interest in property); see also In reVan Dresser Corp. , 128 F.3d 945, 947 (6th Cir.1997)(construing the scope of a bankruptcy estate underthe relevant bankruptcy statutes).

The Receiver has standing to pursue claims againstthe brokerage firms because he has been expresslyauthorized by the district court to bring claims onbehalf of the receivership estate and defraudedinvestors. The Receiver is assigned the rights of theparties he is representing. See, e.g., Goodman v.FCC, 182 F.3d 987. 991-92 (D.C.Cir. 1999) (holdingthat a receiver may lack standing to sue if the partyhe is representing cannot allege an injury or assert aclaim). While this representation is often limited tothe entity held in receivership, this Court's precedentsallow a district court to extend that representation toparties alleging claims against that entity. Javitch v.First Union Sec., Inc., 315 F.3d 619. 626 (6thCir.2003). In this case, the district court did just that.Furthermore, the record contains concrete andparticularized allegations of fraud. Since the allegedinjuries are fairly traceable to the action of thebroker-dealers, there is a causal connection betweenthe challenged conduct and the alleged injuries.Moreover, it is also likely that the injuries will beredressed by a favorable decision. Simply put, theparties the Receiver has been authorized to representhave standing to sue the broker-dealers. See Lu'!an v.Defenders of Wildlife, 504 U.S. 555, 560- 61 (1992).Since the Receiver is authorized to represent thedefrauded investors, he may assert claims against thebroker-dealers. See Javitch. 315 F.3d at 626.Therefore, this case is not, as the majority suggests,one where the receiver hopes to "pull the arbitrationproceeds into the receivership pool" without asufficient stake in the outcome of that arbitration.Maj. Op. at 10. Rather, this is a case where thedistrict court has properly authorized the receiver toprotect the rights of the receivership estate and thedefrauded investors alike.

*17 Contrary to the majority's conclusion, case lawclearly indicates that receivers have broad powers topursue claims on behalf of a receivership estate andindividual investors, and that the scope of a receiver'spower is determined by the district court'sappointment orders. See, e.g., Javttch. 315 F.3d at625-27; McGinness v. United States, 90 F.3d 143.145 (6th Cir.1996); Jarrett v. Kassel. 972 F.2d 1415,1426 (6th Cir.1992).

In Javitch, a receiver sued four brokerage firms fornegligence, breach of fiduciary duties and varioussecurities violations on behalf of defrauded

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individual investors. 315 F.3d at 622. The receiverclaimed that he could bring the action on behalf ofthe individual investors, but the brokerage firmsmoved to dismiss the action. On appeal, this Courtstated:

Ohio courts have described a receiver as "merelythe administrative arm of the court who takescharge of the assets of the partnership for thepurpose of conserving them to the ends of equityand for the benefit of creditors generally." Tonti v.Tonti, 118 N.E.2d 200. 202 (Ohio Ct.App.1951)(emphasis added); see Mine Safety Appliances Co.v. Best, 76 N.E.2d 108, 110 (Ohio Ct. CommonPleas 1947) (stating that the receiver "stands as aministerial officer of the court not having title tothe property, but obtaining his authority by the actof the court alone"). The appointing court definesthe powers of the receiver and, therefore, controlshis actions.

Javitch, 315 F.3d at 626 (quoting McGinness 90F.3d at 145-46) (emphasis in original). The Courtconcluded that a receiver could "stand[ ] in the shoesof the entity in receivership, ... depend[ing] on theauthority granted by the appointing court and actuallyexercised by the receiver," but found that the receiverin Javitch did not have express authorization from thedistrict court to pursue the contested claims on behalfof individual investors. Id As the district courtcorrectly noted in this case, nothing in Javitch standsfor the proposition that a receiver may never beauthorized to pursue claims on behalf of individualinvestors. Rather, Javitch indicates that the districtcourt determines the scope of a receiver's powers.Since the district court did not authorize the receiverin Javitch to pursue certain claims on behalf ofinvestors, this Court properly found that pursuing theclaims was beyond the scope of the receiver's powerin Javitch.

Similarly, this Court found that determining thescope of the receiver's appointment was important inJarrett. 972 F.2d at 1426. In Jarrett, a case wheredefendants "conspired with others to sell contracts ...in violation of the Commodity Exchange Act, ZU.S.C. & 6." id at 1417, the district court appointed areceiver for "the [ ] companies involved in the[financial] scheme," id at 1418. The receiver"acquired the assets of the companies for liquidationand distribution to the defrauded customers but failedto collect sufficient funds for that purpose." Id. Toprocure additional funds, the receiver "sought andobtained permission from the [district] court ... to file[a] lawsuit ... on behalf of [the individual] customersagainst ... one of the other companies involved in thescheme." Id. Because the statute of limitations had



elapsed, the receiver's action was dismissed. Onappeal, the individual investors argued that the statuteof limitations should be tolled because the receiver'sactions are attributable to the investors. This Courtfound "that the actions taken by [the receiver] beforehe filed th[e] suit ... are not attributable to theplaintiffs," but that the "investigation [that] continuedafter [the suit was filed], is attributable to theplaintiffs, and tolled the running of the statute oflimitations." Id at 1426. More specifically, the Courtstated:

*18 we first address the plaintiffs' argument that[the receiver's] actions as corporate receiver for[the company] were taken on their behalf. Theybase this argument on the receiver's authority totake charge of all of [the company's] property toprotect the interests of [the] customers. Plaintiffsare correct that as corporate receiver, [the receiver]was charged with the authority to protect theirinterests in the specific property of thereceivership. They err, however, when they equatethis limited authority with general authority torepresent their legal interests. As corporatereceiver, [the receiver] did not have generalauthority to take legal action on behalf of [the]customers. His authority was limited to preservingthe property of the [company's] receivership forthose customers. In this regard, he had authority tosue on behalf of the receivership itself but had noauthority to bring a cause of action on behalf of theindividual customers.

Id. (citations omitted). In Jarrett, the receiver'sactions were deemed to be attributable to theindividual investors only after the district courtauthorized the receiver to represent the investors.Before the district court expanded the receiver'spowers to encompass the lawsuit on behalf of theinvestors, the receiver simply could not represent oract on behalf of individual investors.

This Court reached a similar conclusion inMcGinness, a case where an Ohio state court"appointed [a] receiver to take possession of property... for the purpose of satisfying a judgment renderedin a divorce action." 90 F. 3 d at 144-45. InMcGinness, the receiver commenced a wrongful levyaction against the Internal Revenue Service ("IRS").The IRS moved to dismiss the receiver's complaintarguing that the receiver "possessed no interest in orlien on the receivership property; and [][that] hestood in the place of the taxpayer." Id at 145. As inJavitch, this Court stated that

[t]he appointing court defines the powers of thereceiver and, therefore, controls his actions....Because the receiver does not act under the control

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of or on behalf of the debtor-taxpayer, he does notstand in the place of the owner of the assets overwhich he exercises his authority.

Id at 145-46. The Court found that[w]hile ... the receiver can acquire no greater legalrights or powers with respect to the property ..., thereceiver's powers are not limited to the legal rightsof the debtor-taxpayer. Upon his appointment, thereceiver succeeded to the rights of not only thedebtor, but also the creditor. He assumed the powerto enforce the rights which the creditors, but for theproceedings under which the receiver wasappointed, might have enforced in their ownbehalf.

Id at 146 (internal quotation marks and citationsomitted). The Court concluded that the receiver "wasexercising th[e] power that the appointing courtgranted him; he was not exercising the rights of [thedebtor], representing [the debtor's] interests, or actingin [the debtor's] place." Id. The Court rejected thegoverttment's argument that "the receiver's right topossess property is purely custodial on behalf of theappointing court," and concluded that "the receiver inequity acquires lien creditor status over those assetsspecified by the court at the time of appointment." Id(citation omitted). "As a lien creditor, [the receiver]has a property interest in the property be holds in hiscapacity as receiver." Id McGinness does not supporta reversal of the district court's decision.

*19 Contrary to the majority's averments,McGinness cannot be distinguished on the groundsthat it involved a receiver appointed under Ohio statelaw. This Court interpreted and applied McGinness inJavitch and found that "McGinness does not stand fbrthe proposition that a receiver never stands in theshoes of the entity in receivership, but suggests thatthe question depends on the authority granted by theappointing court and actually exercised by thereceiver." Javitch. 315 F.3d at 626 (properly applyingand interpreting McGinness ) (citations omitted).Rather than properly distinguishing McGinness, themajority attempts to distinguish McGinness bycircumscribing the application and interpretation ofclearly established case law. fFN121 This Court'sruling in McGinness, like Javitch and Jarrett,indicates that a receiver may litigate claims on behalfof a receivership estate or individual investorsprovided that the receiver has the proper statutory ordistrict court authorization. This interpretation ofJavitch, Jarrett and McGinness is supported by caselaw from the First Circuit and Tenth Circuit. SeeFlemin2 v. LindWaldock & Co. 922 F.2d 20 24 (1stCir.1990); see also Commodity Futures TradingComm'n v. Chilcott Portfolio M¢mt 713 F.2d 1477 ,

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1482 (10th Cir.1983).

PN12. Instead of confming itself todiscussing the merits of the legal and factualissues presented by this case, the majorityresorts to attacking the dissent byinappropriately alleging that it misrepresentsapplicable case law.

In Fleming, a commodities fraud case, the districtcourt appointed a receiver who

was empowered: to take into his immediatecustody, control and possession all assets andproperty belonging to, or in the possession of, [theinvestment company] ... to prosecute all claims,choses in action and suits in equity on behalf of(the investment company] and to appear and takenecessary or appropriate action in any suit,proceeding or negotiations ... in order to representand protect the interests of the equity receivership... to seek and to act subject to further order of theCourt in order to prevent irreparable loss, damageand injury to commodity customers and clients andto conserve and prevent the dissipation of funds.922 F.2d at 24 (formatting added) (citationomitted). The receiver in Fleming "insisted that the[] allusion to 'commodity customers and clients'[in district court's appointment] expressly orimpliedly authorized him to assert actions onbehalf of [the investment company's] investors." IdThe district court indicated that "[i]t is axiomaticthat [a receiver's] power is derived from andlimited by the order of the court appointing him,"id. at 25 (internal quotation marks and citationomitted), but found that "the order appointing the... receiver does not authorize him to prosecuteactions on behalf of individual investors," id. at 24(citation omitted). The First Circuit affirmed thedistrict court's decision.

Admittedly, the First Circuit stated that"representation of the corporation and protection ofits assets as the only purview of the receiver," andfound that the "equity receiver cannot assert theseinvestors' claims." Id. at 25. However, in reachingthis decision the Court emphasized the importance ofthe receiver's appointment order by specificallystating that the "[district] judge who had written that[appointment] order subsequently denied, [thereceiver's] later request for such authority" and notingwith approval the district court's finding that "thelanguage of the [appointment] order did not grant ...representational power to [the receiver]." Id. Sincethe First Circuit offers the district court's reasoning insupport of its conclusion, the Court implicitly

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adopted the district court's reasoning. This implicitadoption clearly illustrates how the First Circuit'sconclusion was informed by the district court'sinterpretation of its appointment order. Contrary tothe majority's position, it is simply not possible todivorce the outcome in Fleming from the languageand scope of the receiver's appointment order. Likethe cases discussed above, Fleming indicates that thelanguage of an appointment order is dispositive indetermining the scope of the receiver's authorizationfrom the district court.

*20 In Chilcott, a case where a receiver "assert[ed]on behalf of the [receivership estate] substantiverights existing under Federal Law, the SecuritiesExchange Act, 15 U.S.C. & 78a et seg and theCommodities Exchange Act, 7 U.S.C. & 1 et sea.."individual investors opposed a receiver's lawsuitarguing that "the Receiver had no standing to assertwhat they say are third-party claims." 713 F.2d at1482. Contrary to the majority's view, Chilcott doesnot constitute strong persuasive authority for themajority's decision. Rather, Chilcott plainly supportsan affirmance of the district court's decision in thiscase.

In Chilcolt, individual investors brought "actions []based on the role of the intermediary brokers andtheir employees in the operation of [an] allegedlyfraudulent scheme and generally allege[d] that theinvestors were induced to invest ... throughmisrepresentations." Id at 1481. "In contrast, theReceiver's action, although naming some of the samedefendants, [was] based on the dissipation of the[commodities] pool's assets rather than on anyculpable conduct in soliciting the investments." IdSince "Receiver [wa]s asserting only claims of thepool," the Court noted that "the investors willeventually have to proceed with their individualactions if they are to recover at all on their claims ofmisrepresentations in the inducement to invest andfor damages resulting therefrom." Id at 1485(emphasis in original). However, the Court expresslyheld that "the Receiver had the capacity to initiate theReceiver's action and was the proper real party ininterest to bring [a] suit" on behalf of individualinvestors. Id at 1482. The Tenth Circuit declined toaddress standing and left the issue for the districtcourt to decide. Notably, the Tenth Circuit stated thatstanding may be decided based on "evidenceproduced" by the parties to "support the capacity tosue and the real party in interest." Id at 1483. As inthe cases discussed above, nothing in Chilcottindicates that there is an inherent limitation in areceiver's capacity to sue.



Instead of relying on Chilcott, the majority placesgreat weight on the district courYs decision onremand. The majority's reliance on the district court'sruling is misplaced because Chilcott-and not thedistrict court decision--sets forth persuasive TenthCircuit precedent As stated above, the Tenth Circuitcontemplated a case-by-case approach and instructedthe district court to decide the issue of standing basedon "evidence produced" by the parties. Chilcatt. 713F.2d at 1483. Since the outcome on remand wasbased on the evidence adduced by the parties, thedistrict court's standing determination is fact-specificand simply does not control the outcome in theinstant case.

The majority's reliance on Knauer v. JonathonRoberts Fin. Group, Inc., 348 F . 3d 230, 234 (7thCir.2003), Schales v. Schroeder, 744 F.Supp. 1419.1420- 23 (N.D.111.1990), and Marwil Y. Farah No.03-CV-0482-DFH. 2003 WL 23095657, at '5(S.D.Ind. Dec. 11. 2003) (unpublished case) iswoefully misplaced.

*21 In Knauer, the Seventh Circuit summarilyconcluded "that the district court was probablycorrect in concluding that [a receiver] ... had nostanding to pursue the Ponzi sales claims" becausethe "Ponzi entities themselves are not injured by thesales of securities," but found that "the diversion offunds ... did arguably constitute injuries to the Ponzientities, giving [the receiver] standing to pursue" theclaims of "embezzlement or taking of the funds." 348F.3d at 234 (emphasis added). Although the SeventhCircuit's position appears to support the majority'sposition, the Seventh Circuit did not cite any case lawor otherwise explain the basis for its conclusion.Since Knauer does not set forth any support for itsconclusion, it is difficult to see how its holding ispersuasive. The decision must be significantlydiscounted.

Similarly, Scholes contains a dearth of legalreasoning. In Scholes, the district court found that itcould not allow a receiver to "bring[ ] causes ofaction that belong to [the] investors," and held that"[t] o the extent that the orders tendered to [the court]... purport to authorize suit on behalf of the investors,those orders are at odds with the fundamentalcommand of Article III." 744 F.Supp. at 1421.However, the court did not cite meaningful case lawin support of this conclusion. Notably, the courtrelied on Caplin v. Marine Midland Grace Trust CoofNew York 406 U.S. 416 (1972) , a bankruptcy casewhere the Supreme Court found that a bankruptcy

Page 17

trustee does not have standing to sue an indenturetrustee on behalf of debenture holders "by examiningthe nature of Chapter X [bankruptcy] proceedings,the role of the trustee in [bankruptcy] reorganization,and the way in which standing to sue on behalf ofdebenture holders would affect or change that role."Id at 422. Since bankruptcy cases are factually andlegally distinguishable from cases concerning equityreceiverships, reliance on Caplin is not appropriate.See, e.g ., Chilcott, 713 F.2d at 1482 (finding that"Caplin is distinguishable" because "[i]t dealt withthe right of a trustee under Chapter X of theBanlauptcy Act to asseR, on behalf of debentureholders, claims of misconduct by an indenturetrustee.").

Last, in Marwil, the district court found that"[n]otwithstanding the phrase included in an agreedcourt order negotiated among counsel in the SECaction, the court simply does not have the power totransfer property (including causes of action) fromnon-parties (the note holders) to theconservator/receiver." 2003 WL 23095657 at •5.Marwil--aside from being a non-binding, unpublisheddistrict court case from a different jurisdiction--issimply not persuasive because it relies on casesconcerning bankruptcy trustees. Like Scholes, Marwilimproperly relied on Caplin. The majority's relianceon these cases is misplaced.

In this case, the majority misconstrues the casesdiscussed above and concludes that the Receiversimply cannot litigate claims on behalf of theindividual investors. Where the courts have ruledagainst receivers, including Jarrett, Javitch, andFleming; the rulings were compelled by receivers'attempts to exercise powers that were not included intheir appointment orders. These cases show thatreceivers can only exercise the power that a districtcourt gives them, and that receivers who fail toconfine or otherwise limit themselves to the districtcourt's appointment orders will not be allowed toexercise unrestrained power. Receivers may onlyexercise powers that were contemplated by thedistrict court and expressly set forth in the districtcourt's appointment order.

*22 Moreover, there is no language in any of thesecases to support the conclusion that a receiver'spowers are inherently limited. Case law does notsupport the proposition that receivers are neverallowed to pursue claims on behalf of individualinvestors. Rather, this Court is charged withconstruing and interpreting the scope of the districtcourt's appointment orders. Since "the question



depends on the authority granted by the appointingcourt," a receiver enjoys the powers which the districtcourt grants. Javitch, 315 F.3d at 626. Becausereceivers are given different powers by differentcourts, it is important to recognize that appointmentorders must be interpreted on a case-by-case basis.The majority fails to recognize that a court'sinterpretation of an appointment order in another casedoes not control the outcome in this case because thescope of a receiver's duties and responsibilitiesvaries. See J.A. 2320 ( tioting that "the ordersmodifying the Receivers' authority to the present area stark contrast to the original orders of appointmentand srgn fy the strange odyssey of this particularlitigation.') (emphasis added).

In the instant case, the record clearly shows that thedistrict court granted broad powers to the Receiver.The district courts appointment orders "are generallyaimed at marshaling assets for the benefit of theclass/investors, among others." (JA. 2320-21)(footnote omitted). In this case, the district courtauthorized the Receiver to take control of Libertepolicies to maximize their worth in the best interestof the investors. The Receiver is "authorized tocommence litigation against banks who participatedin illegal activities of money laundering, RICOviolations, negligence, and other tortious conductwhich contributed to the depletion of funds from[Capwill's entities]." (J.A. 2321) ( intemal quotationmarks and citation omitted). The district courtallowed the Receiver to recover commissions fromLiberte agents and brokers. "Since the claims againstagents and/or brokers sounding in contract or tortarose from claims by investors, those claims were'deemed to be assets of the receivership estates' andwere only to be pursued by the Receiver[ ]." Id(citation omitted). The district court also "expandedthe Receivers' responsibilities and authorized them Rorepresent and pursue the interests of the investorsdirectly.' " Id. (citation omitted). These are expansiveappointment orders.

The district court also interpreted its appointmentorders and concluded that the Receiver wasauthorized to bring claims on behalf of individualinvestors. The district court's decision is supported bythe plain language of the appointment orders. Themajority fails to give effect to language inappointment orders that empowers the Receiver tobring actions on behalf of individual investors.FN13 In so doing, the majority has contravened

established case law that recognizes a district court'sbroad equitable powers to define the scope of areceiver's authority. Case law clearly indicates that

Page 18

courts look at the district court's appointment order todetermine the scope of authority, and that a receivercannot exercise powers beyond those awarded by thedistrict court. The majority deviates from establishedprecedent by holding that the Receiver may notexercise powers expressly authorized by the districtcourt. In this case, there is simply no legal basis forusurping and encroaching upon the district court'sbroad equitable powers.

FNI3. As members of the underlying classaction and active participants in this case,Appellants were in a position to oppose theReceiver's motions for additional authorityto represent individual investors. Appellantsconsistently failed to object to the districtcourt's appointment orders.

IV. Authorizing the Receiver to Pursue theArbitration Claims is Not Unjust

1. Reimbursement

*23 Appellants argue that they are entitled to retainthe benefits of the arbitration claims because theyhave funded the arbitration claims for more than fiveyears without the Receiver's assistance. The recordshows that the district court was "cognizant of thecosts expended thus far by the [Appellants] in pursuitof their arbitration claims." (J.A. 2325) Indeed, "[t]heReceiver [was] directed to initiate discussionsregarding the issue of reimbursement with the[Appellants]." (J.A. 2326) No inequity would resultfrom allowing the Receiver to recover any proceedsfrom the arbitration claims because the Receivercould reimburse Appellants for any costs alreadyincurred. Appellants simply fail to explain in legal orpractical tenns why reimbursement is inadequate tocompensate them for the expenses and costs theyhave incurred in the arbitration.

2. Dissatisfaction with the Receiver

Last, Appellants argue that the Receiver has suedfew brokerage firms and is "settiing claims againstLiberte agents for return of commissions, not fullcompensatory damages." (Appellants' Br. at 45)Appellants point to the Receivet's representations tothe district court:

Mr. Newcomber: Investors may have other claimsother than just the loss of their money....Mr. Javitch: That's exactly the point because we're[pursuing] only the recovery of the commission.Mr. Wuliger: No, no. [][W]e are pursuing morethan that, but for purposes of resolution .... we have



uniformly taken the position, return thecommission dollars.The Court: Well, that's right.... If someone returnsthe commission dollars, the case as against thereceiver or receivers is done.Mr. Javitch: Right.The Court: Now, that does not insulate them fromany claims of the individual investors, but I don'tthink we can handle that here ... because ... theclaims may be wider than those encompassed inthe class action.

(J.A.2081-82) (formatting added). Appellantsoppose the Receiver's settlement of claims againstbrokerage firms for only the return of wrongfullypaid commissions. Essentially, Appellants appear tocomplain about the Receiver's litigation or settlementstrategy. Appellants do not cite any case law tosupport the proposition that dissatisfaction with areceiver's litigation strategy allows class members topursue independent relief. Settlement inherentlyinvolves compromise and is designed to limitexposure to liability, risk and uncertainty. Contrary tothe majority's averments, there is nothing in therecord to support a finding that the Receiver'ssettlement with brokerage firms on behalf ofindividual investors in other cases has been unfair,unreasonable, inadequate or otherwise wrongful.

The majority's reversal of the district court's decisionwill result in substantial and significant harm tolower-income investors who lack the resources andcapacity to pursue claims against brokerage firmsown their own. By reversing the district court'sdecision, the majority is precluding the Receiverfrom holding brokerage firms accountable for theirwrongdoing on behalf of all other members of theclass actioti. In this case, the Receiver is "charged ...with representing the interests of the investors whennecessary, or when it would be impracticable orimpossible for them to do so on their own." (J.A.1633-34) The Receiver plays an important role inadvocating on behalf of a large class of defraudedinvestors and should be allowed to represent lower-income investors because not all investors haveAppellants' resources and capacity to arbitrate claimsagainst brokerage firms. Indeed, the record showsthat the Receiver has successfully brought claimsagainst brokerage firms on behalf of individualinvestors without any objection from members of theclass. The class members have benefitted from theReceiver's actions. The individual investors havealready suffered a great financial harm, the majority'sholding will exacerbate and compound this financialharm by precluding the Receiver from continuing torepresent all other members of this large and complex

Page 19

class action. The majority's holding is not just legallyincorrect, but greatly prejudicial and inequitable.

CONCLUSION*24 For the foregoing reasons, I would affirm the

district court's summaryjudgment decision.

Slip Copy, 2007 WL 2733335 (6th Cir.(Ohio))

END OF DOCUMENT


WestlawNot Reported in N.E.2dNot Reported in N.E.2d, 1993 WL 300317 (Ohio App. 8 Dist.)(Cite as: 1993 WL 300317 (Ohio App. 8 Dist.))

Only the Westlaw citation is currently available.

CHECK OHIO SUPREME COURT RULES FORREPORTING OF OPINIONS AND WEIGHT OFLEGAL AUTHORITY.

Court of Appeals of Ohio, Eighth District, CuyahogaCounty.

Georgiana RUSS, etc., et al., Plaintiffs-Appellants,v.

LAKEWOOD HOSPITAL, et al., Defendants-Appellees.No. 65047.

Aug. 5, 1993.

Civil appeal from Common Pleas Court Case No.180,774. Affirmed.

Harvey B. Bruner, Bruner & Shapiro Co., L.P.A.,Cleveland, for plaintiffs-appellants.

Thomas H. Terry. IIi, Cleveland, for defendants-appellees.

OPINION

PER CURIAM:

*1 Appellants' assignment of error is overruled. Theappellants' certified mailing of the amendedcomplaint, which added appellee as new partydefendant, did not constitute proper service underCiv.R. 413). The trial court properly grantedappellee's motion to dismiss for lack of personaljurisdiction, despite the fact that appellee filed a leaveto plead and the motion to dismiss was not filedbefore the deadline to move or plead. Marvhew v.Yova (1984), 11 Ohio St.3d 154.

Thejudgment of the trial court is affirmed.

NAHRA, P.J., and JAMES D. SWEENEY andPORTER, JJ., concur.

N.B. This entry is made pursuant to the thirdsentence of Rule 22(D), Ohio Rules of ApnellateProcedure. This is an announcement of decision (seeRule 26). Ten (I0) days from the date hereof this

Page 1

document will be stamped to indicate journalization,at which time it will become the judgment and orderof the court and time period for review will begin torun.

Not Reported in N.E.2d, 1993 WL 300317 (OhioApp..8 Dist.)

END OF DOCUMENT


W^StlatnTNot Reported in N.E.2dNot Reported in N.E.2d, 1990 WL 93904 (Ohio App. 10 Dist.)(Cite as: 1990 WL 93904 (Ohio App. 10 Dist.))

cOnly the Westlaw citation is currently available.

CHECK OHIO SUPREME COURT RULES FORREPORTING OF OPINIONS AND WEIGHT OFLEGAL AUTHORITY.

Court of Appeals of Ohio, Tenth District, FranklinCounty.

BUCKEYE LINEN SERVICE, INC., Plaintiff-Appellee,

V.THE NEW REEB'S, LTD., et al., Defendants-

Appellants.No. 89AP-1425.

June 28, 1990.

Appeal from the Franklin County Municipal Court.

Luper, Wolinetz, Sheriff & Neidenthal, Mark J.Sheriff and Nodine Miller, for appellee.

Nina M. Naiiar. for appellants.

OPINION

PEGGY L. BRYANT, Judge.

*1 Defendants-appellants, The New Reeb's, Ltd.,Elminie Rickman, James Banks, and Dianne Banks,appeal from a judgment of the Franklin CountyMunicipal Court granting plaintiff-appellee, BuckeyeLinen Service, Inc., judgment against defendants inthe amount of $5,489.55 plus costs and interest.

On September 21, 1988, plaintiff filed a complaintagainst Elminie Rickman and James Banks, d.b.a.The New Reeb's, Ltd., a.k.a. Reeb's Restaurant # 2, aswell as The New Reeb's, Ltd., a.k.a. Reeb'sRestaurant # 2. Plaintiff asserted that it provideddefendants with linen service, for which defendantshad failed to pay plaintiff. Plaintiff also soughtinterest on the unpaid account, as well as attorneyfees. On November 8, 1988, an answer was filed onbehalf of all "defendants" wherein defendants deniedany liability to plaintiff, and also raised a defense that"service of process upon each of the defendants is notsufficient."

Page 1

Ultimately, plaintiff filed an amended complaint toinclude Dianne Banks as a defendant, and the casewas scheduled for trial on November 3, 1989. OnNovember 2, 1989, defendant Dianne Banks filed a"Notice of Filing of Bankruptcy by Defendant DianneBanks." The next day, the case was called for trial.Neither defendants nor defendants' counsel appeared.According to the trial court's judgment entry, thecourt took evidence and rendered judgment forplaintiff against " * * * the defendants, jointly andseverally ***." Defendants appeal therefrom, settingforth three assignments of ertor:

"I. The trial court erred in entering judgment againstdefendants-appellants after the defendants(s) [sic ]had filed a petition in bankruptcy.

"Il. The trial court erred in entering default judgmentagainst defendants-appellants without notice ofhearing on same after they had appeared in theaction.

"III. Assuming, arguendo, that the default judgmentwas properly entered, it was improperly entered as tothe identification of the defendants and must be setaside."

In their first assignment of error, defendants contendthat the trial court erred in granting judgment againstthem following filing of the Chapter 7 bankruptcypetition. In particular, defendants rely on Section362(a)(1). Title 11. U.S.Code, which provides:

" * * * [A] petition filed under § 301 * * * operatesas a stay, applicable to all entities of--thecommencement or continuation including theissuance or employment of process, of a judicial,administrative, or other action or proceeding againstthe debtor that was or could have been commencedbefore the commencement of the case under this title,or to recover a claim against the debtor that arosebefore the commencement or the case under this title* * *." (Emphasis added.)

Resolution of this, and other assignments of error inthis case, is complicated by the absence of atranscript of proceedings before the trial court, aswell as other pertinent documents, including thebankruptcy petition. We note the November 2, 1989filing of Dianne Banks in the trial court entitled"Notice of Filing of Bankruptcy by Defendant Dianne


Not Reported in N.E.2dNot Reported in N.E.2d, 1990 WL 93904 (Ohio App. 10 Dist.)(Cite as: 1990 WL 93904 (Ohio App. 10 Dist.))

Banks." The body of that filing indicates that DianneBanks is giving " * * * notice of the filing of herChapter 7 Petition in Bankruptcy in the U.S. DistrictCourt of the Southem District of Ohio ***."(Emphasis added.) Yet, in arguing that the trialcourt should vacate the judgment entered as a resultof proceedings on November 3, 1989, defendantsurged the trial court that Dianne Banks " * * * notonly filed her petition on behalf of herself, but alsoon behalf of defendant The New Reeb's, Ltd. ***."Moreover, the record before us does not indicate,other than by answers to interrogatories, who ownedReeb's Restaurant, whether The New Reeb's, Ltd.,was ever formed, or whether defendant James Bankswas affiliated with The New Reeb's, Ltd., if in fact itexisted.

*2 Nonetheless, in an attempt to address defendants'first assignment of error, we note that Dianne Banks'sfiling of a Chapter 7 bankruptcy petition on her ownbehalf does not stay, in itself, the action as to theother defendants named in the present case. SeeGATX Aircraft Corp. v. M/V Courtney Leieh (C A 51985), 768 F.2d 711. Rather, the language ofSection 362(a)(1). Title 11. U.S.Code, is limited, andapplies only to the petitioning debtor in a Chapter 7bankruptcy petition. See Wedgeworth v. FireboardCorn. (C.A.5. 1983). 706 F.2d 541: Lincoln Lynch v.Johns-Manville Sales Corp. (C.A 6. 1983) 710 F 2d1194. Because of the absence of the bankruptcypetition from the record, determining the preciseidentity of the debtors is difficult. Nevertheless, thenotice of bankruptcy filed with the trial court clearlyindicates that Dianne Banks is at least one of thedebtors in the pending bankruptcy case. Therefore,the automatic stay of Section 362 would bar anyclaims against Dianne Banks or her property,including any partnership interest Dianne Banks mayhave in any of the partnerships named herein. See Inre Dresky (E.D.Wis.1982), 7 Collier Bankr. Cas.(MB) 2d 1339; In the Matter of Lundell Farms(W.D.Wis.I988). 86 Bankr. 582. Under R.C.1775.25 an individual partner's partnership interest isdefined as follows: "A partner's interest in thepartnership is his share of the profits and surplus, andthe same is personal property." Although DianneBanks's filing of the notice of bankruptcy at the trialcourt on her own behalf affected an automatic stay ofproceedings against her, including her partnershipinterests, it did not affect an automatic stay oflitigation against the partnership or partnershipproperty. Dresky, supra.

Nonetheless, defendants also argued in the trial courtthat Dianne Banks's filing was not solely on her own

Page 2

behalf. Defendants' point to the language of theirCiv.R. 60(B) motion which states that Dianne Banksfiled not only on her own behalf, but on behalf of thepartnership The New Reeb's, Ltd. As to thiscontention, courts have held that a bankruptcypetition filed by an individual who is a partner in apartnership does not constitute a filing on behalf ofthe partnership. See In re Aboussie Bros.Construction Co. (E.D.Mo.1981). 8 Bankr. 302; Inre Palm Gardens Nursinz Home (E D.N.Y 1985) 46Bankr. 685. Thus, although a general partner mayordinarily bind partnerships without consent of othergeneral partners, in bankruptcy the rule is reversed: avoluntary petition of bankruptcy requires consent ofall the general partners. In re Cloverleaf Properties(9th Cir. BAP 1987). 78 Bankr. 242. While, allgeneral partners need not sign the petition, they mustconsent to its filing. In re Memphis-FridaysAssociates (W.D.Tenn.1988), 18 Collier Bankr.Cas.(MB) 2d 1360.

Even if we assume that Dianne Banks filed abankruptcy petition on behalf of herself and thepartnership, the bankruptcy stay contained in Section362(a)(1). Title 11. U.S.Code, would operate to staythe present action only against Dianne Banks and TheNew Reeb's, Ltd. No stay would operate against theother defendants herein, even if they be partners inthe parmership. Teachers Insurance & AnnuitvAssociation of America v. Butler (C.A.2. 1986) 803F.2d 61. To so hold would be to overlook theprimary rule in bankruptcy cases concerning aproblem involving partners and partnerships: apartnership is a distinct legal entity separate and apartfrom partners who formed it. Dresky, supra, citingLiberty Natl. Bank v. Bear (1928), 276 U.S. 215.Accordingly, if Dianne Banks filed a bankruptcypetition on her behalf as well as the partnership's, atmost, Dianne Banks's bankruptcy petition wouldoperate to stay proceedings against her, including herpartnership interests, and the purported partnershipThe New Reeb's, Ltd. Of course, other provisions ofthe bankruptcy code permit debtors not covered bythe automatic stay provisions to seek injunctive reliefagainst further proceedings, and, allow creditors whoare barred from pursuing claims to seek relief fromthe stay. However, these actions are purely mattersfor the bankruptcy court and not to be decided herein.

*3 In addition to the foregoing, in examining therecord, we note that, while Dianne Banks was addedas a defendant under plaintiffs amended complaint,service was never obtained upon her. As a result,she is not a party to the action. Hence, regardless ofwhether the bankruptcy petition operates as a stay



against her, judgment may not properly be enteredagainst her in the present action. Bessire v. Fisher(1953), 96 Ohio App. 464.

Given the record before us, we are uncertain whetherthe trial court found, or granted judgment against,any partnership; and, if so, whether the trial courtconsidered the bankruptcy issues discussed herein.As a result, we sustain the first assignment of error tothe extent that this matter is remanded forconsideration of the bankruptcy stay, and to which ofthe defendants herein it may apply.

In their second assignment of error, defendantscontend that the trial court erred in granting judgmentagainst. them without first giving them seven daysprior notice under Civ.R. 55.

Specifically, Civ.R. 55(A) provides:

"*** If the party against whom judgment bydefault is sought has appeared in the action, he (or, ifappearing by representative, his representative) shallbe served with written notice of the application forjudgment at least seven days prior to the hearing onsuch application. * * * "

However, as plaintiff properly notes, Civ.R. 55 is notapplicable in actions where defendant has filed ananswer but has failed to appear in court for trial.Indeed, in Garrison Carroet r1T11s v. Lenest, Inc.(1979). 65 Ohio Aoo.2d 251, the Court of Appeals ofSummit County addressed a similar situation andstated:

"*** Here, the defendants had answered and thecase was at issue. Defendants' counsel hadwithdrawn from the case, but the answers were notwithdrawn. Where issues of fact are pendingbetween the litigants, there can be no judgment bydefault, even though the defendant is absent on thedate of trial. Under such circumstances, the courtmust hear the evidence as though the defendant waspresent; and, if the plaintiff maintains his burden ofproof and establishes a prima facie case, the courtmay render the appropriate judgment. ***" Id at254.

We agree with the reasoning of Garrison CarpetMills, and find that the judgment rendered hereinagainst defendants was not a default judgmentpursuant to Civ.R. 55 as it arose from an actual trial,as the trial court entry notes, after notice to allparties. Accordingly, the trial court was under noobligation to notify defendants in accordance with the

Page 3

provisions of Civ.R. 55(A). Defendants' secondassignment of error is overruled.

In their third assignment of error, defendants arguefirst that the judgment entry is overly broad ingranting judgment against all named defendantsherein; and second, that service of process wasinsufficient, as service was by ordinary mail at thebusiness address of Reeb's Restaurant.

To address the first of defendants' contentions underthe third assignment of error, we agree that thejudgment entry is unclear in identifying those partiesagainst whom judgment was rendered. Specifically,defendant Dianne Banks was named a defendantherein, but, as noted above, she was never servedwith process. As a result, no judgment may be takenagainst her. Moreover, answers to interrogatories inthe file suggest that defendant James Banks had noownership interest, directly or indirectly, in Reeb'sRestaurant or the purported partnership, The NewReeb's, Ltd. Again, however, we note that, without atranscript of the proceedings before the trial court, weare unable to determine whether the evidencepresented at trial sufficiently proved James Banks'sinvolvement so as to support judgment against him.Moreover, because the judgment entry does notidentify in particular the defendants against whomjudgment was rendered, we are unable to determinewhether the trial court actually rendered judgmentagainst defendant James Banks.

*4 Accordingly, we sustain defendants' thirdassignment of error to the extent that this case isremanded to the trial court for clarification andidentification of the defendants against whomjudgment was actually rendered as a result of theevidence produced at trial.

In the second branch of their argument under thethird assignment of error, defendants contend that theservice of process upon them was insufficient. Therecord reflects that service of process was sent bycertified mail to Reeb's Restaurant at 1041 EastLivingston Avenue in Columbus, Ohio, and wasretumed unclaimed. As a result, ordinary mail wassent to the same address; it was not retumed.Pursuant to Civ.R. 4.2, service is thus deemedcomplete. While defendants do not contend that theydid not receive service of process, they contend thatservice at the business address was insufficient, as"the record is completely devoid of any indicationthat anyone at that location is authorized to receivemail or is/was an authorized agent at any time for theindividual defendants." Coupling the foregoing with



Page 4

the fact that the restaurant was closed for a portion of WI-IITESIDE and BOWMAN JJ., concur.the time service was attempted, defendants contendthat service of process was improper. Not Reported in N.E.2d, 1990 WL 93904 (Ohio

App. 10 Dist.)To the extent defendants contend that service ofprocess is always improper at an individual's business END OF DOCUMENTaddress, we disagree. In Rezional Airport Authorftvv. .cwrnehart ( 1980). 62 Ohio St.2d 403, the SupremeCourt specifically held that service of process at anindividual's business address may be proper underCiv.R. 4.1(11, but that such service must be"reasonably calculated" to reach interested parties.

In this case, the decisions in the record hinder ourability to address defendants' argument on the merits.While defendants contend that the restaurant wasclosed during the time service of process wasattempted, the only indication in the record to thateffect is a similar argument defendants presented in amotion for the trial court. Further, the recordcontains nothing to support defendants' contentionsthat no one at the address to which service was sentwas authorized to receive certified mail. Moreover,to the extent defendants' argument suggests that abusiness may avoid service of process by declaringthat no one at the business address is authorized toreceive mail, we are not persuaded.

While some of defendants' arguments suggest thatservice at the business address herein may not havebeen reasonably calculated to reach some of thedefendants, because no transcript of the proceedingsbefore the trial court is included in the record, we areunable to conclude that the evidence before the trialcourt failed to demonstrate that service of process at1041 East Livingston Avenue was reasonablycalculated to reach defendants herein. Whiledefendants raise the defense in their answer, theirfailure to produce evidence in support thereof at trial,results in a failure of that defense, as with manydefenses asserted in a pleading but not supported byadmissible evidence.

*5 As a result, we overrule that branch of defendants'third assignment of error.

Having overruled defendants' second assignment oferror, but having sustained a portion of defendants'first and third assignments of error, we reverse thejudgment of the trial court and remand this matter tothe trial court for clarification and identification inaccordance with this opinion.

Judgment reversed and cause remanded



MATTHEW L. FORNSHELL, ) QE NO..0-V 5402j^ oCj

Plaintiff ) JUDGE JOSE: VILLANUEVA

V.

FIRSTMERIT CORPORATION,

Defendant.

DEFENDANT FIRSTMERITCORPORATION'S RESPONSE TOPLAINTIFF'S NOTICE OF FILINGSUPPLEMENTAL AUTHORITY

Both FirstMerit Corporation ("FirstMerit") and Matthew Fomshell ("Fomshell") have

subniitted Notices of Supplemental Authority to advise this Court of the Sixth Circuit's decision

in Liberte Capital Group v. Capwill, 2007 WL 2733335 (6th Cir. Sept. 20, 2007). Fornshell's

Notice, however, significantly mischaracterizes the holding of the Liberte decision and

misconstrues the holding and import of McGinness v. United States 90 F.3d 143 (6th Cir.

1996), which was discussed by the Liberte court and which Fomshell's counsel aclmowledged at

the September 7, 2006 Hearing is "not directly on point" in this case. (Tr. 37.) As discussed in

detail at pages 7-8 of FirstMerit's Memorandum in Opposition to Fomshell's Motion for Leave

to File Second Amended Complaint, McGinness provides no support to Fomshell's position.

El I


Tho s B. Ridgley (000Vorys, Sater, Seymour and Pease LLP53 East Gay StreetP.O. Box 1008Columbus, Ohio 43216-1008Telephone: (614) 464-6400Facsimile: (614) 464-6350e-mail: [email protected]



[email protected]


2


A copy of the foregoing Defendant FirstMerit Corporation's Response to Plaintiff's

Notice of Filing Supplemental Authority was sent via U.S. Mail this 4th day of October, 2007, to

the following:


Jonathon M. YargerCheraett Wasserman Yarger &Pasternak3300 Erieview Tower1301 East Ninth StreetCleveland, OH 44114



Attorneyfor PlaintifJDan Vlahovic

One di the Attorneys for DefenFirstMerit Corporation

3Clevel2od 1147443

IN THE COURT OF COMMCtN ;" DCUYAHOGA COUNTY, OHIO

ZOtB jITI? 30 P 3= 23DOUG WHITE, DIRECTOR OF THE OHIO )DEPARTMENT OF COMMERCE,

);L-7 i

^^E4Sl^ l^Or^4-548887QI' i,'.J.

Plaintiffi )(cbi^solida'ted'with Cases560633, 559117, 558095,

) 559879,564814,569073)v. )

) Judge JosC A. V'illanueva)

JOANNE C. SCHNEIDER, et al. ))

Defendants. )

REVISED PROPOSED SCHEDULES OF ALLOWED UNSECURED CLAIMS

1. INTRODUCTION

On December 21, 2007, this Court entered its Findings and Order of Distribution

(the "Order"). On January 18, 2008, The Home Savings & Loan Company of

Youngstown, Ohio and Cleveland Construction, Inc. filed a Joint Notice of Appeal

challenging the Order. On April 28, 2008, the Eighth District Court of Appeals,

Cuyahoga County, Ohio granted the Receiver's Motion to Dismiss Appeal of Appellants

Cleveland Construction, Inc. and The Homes Savings & Loan Company of Youngstown,

Ohio. Accordingly, the Appeal challenging the Order is dismissed.

II. PROPOSED SCHEDULES OF ALLOWED UNSECURED CLAIMS

The Order required that within thirty (30) days of a Final Order approving the

Plan the Receiver shall file with the Court the Unsecured Creditor's Schedule of Allowed

Claims. Accordingly, on January 22, 2008, the Receiver submitted Proposed Schedules

of Allowed Unsecured Claims on behalf of two classes of Unsecured Creditors: Investor

and Non-Investor Unsecured Creditors. Attached hereto as Exhibit 1 is the Proposed

Schedule of Allowed Unsecured Claims of Investors submitted to the Court on January

IH1319J09.1 )

22, 2008. Attached hereto as Exhibits 2A and 2B are the Proposed Schedules of Allowed

Unsecured Claims of Non-Investor Creditors submitted to the Court on January 22, 2008

- accounts payable by entity and payroll payables, respectively.

III. OBJECTIONS PROCEDURE

Pursuant to Section III(C)(2) of the Order, any Unsecured Creditors had thirty

(30) days from the date of service of the Proposed Schedules of Allowed Unsecured

Claims to object to the treatment of the Claim. The Order further provided that in the

event that an Unsecured Creditor objects to the Proposed Schedules of Allowed

Unsecured Claims, the Court will dispose of the Objection in a summary proceeding at a

date and time to be set by the Court.

Set forth below is a summary of objections received from both classes of

Unsecured Creditors: Investors and Non-Investors and the Receiver's response to each

Objection.

A. Objections Filed by Investors

1. Definitions

An Investor is defined as any person or entity that invested with or lent money to

Schneider or any Schneider Entity on the promise that they would receive a return on

their investment, or interest on the amounts invested or lent in excess of 3% above the

market interest rate as detennined by the Federal Reserve at the time the money was

invested or lent.

The Allowed Unsecured Claim of an Investor shall equal the principal amount

invested or lent to any Schneider or Schneider Entity minus the amount of any payments

received by that Investor prior to February 4, 2005.

JH12K3U9.4 1 2

2. . Methodology

To calculate the Allowed Unsecured Claim of an Investor, the Receiver relied

upon infotmation provided by Investors on the Investor Claim Form and the reports

prepared by Mr. Richard DiCicco. To the extent there were inconsistencies between the

Investor provided information and Mr. DiCicco's reports, the Receiver reviewed the

supporting documentation provided by the Investor to reconcile the inconsistency. If no

supporting documentation was provided, the Receiver relied upon Mr. DiCicco's report

for determining the Allowed Unsecured Claim of Investors as this report was compiled

from bank records.

3. Summary of Objections Filed By Investors with the Court'

Nineteen (19) Investor Objections were filed with the Court. A summazy of those

Objections, and the Receiver's recommended disposition is discussed below.

a) Objection Filed by Fred Scharfenort, Jr.

Fred Scharfenort, Jr. objected to the Proposed Schedule of Allowed Unsecured

Claims of Investors ("Scharfenort Jr. Objection") on grounds that he was not listed on the

Proposed Schedule. The Receiver has reviewed the supporting documentation and has

detetrnined that the Scharfenort Jr. Objection should be sustained. The revised Allowed

Unsecured Claim of Fred Scharfenort, Jr. is $62,167.78.

b) Objection Filed by Fred Scharfenort, Sr.

Fred Scharfenort, Sr. objected to the Proposed Schedule of Allowed Unsecured

Claims of Investors ("Scharfenort Sr. Objection") on grounds that he was not listed on

` A review of the docket for Case No. 04-cv-548887 indicates that eighteen (18) Investors filed objectionsto the Receiver's Proposed Schedules of Allowed Unsecured Claims. The Receiver did not receive, andwas unable to retrieve from the court copies of objections filed by three (3) Investors. The Receivercontacted these investors via telephone and/or electronic mail requesting copies of their Objections, and todate has not received copies of the Objections. In addition, one (1) Investor filed a notice withdrawing herInvestor Unsecured Claim.

JH1349]U9.<) 3

the Proposed Schedule. The Receiver has reviewed the supporting documentation and

has determined that the Scharfenort Sr. Objection should be sustained. The revised

Allowed Unsecured Claim of Fred Scharfenort, Sr. is $43,754.08.

c) Objection Filed by Roberta Lane

Roberta Lane objected ("Lane Objection") to the Proposed Schedule of Allowed

Unsecured Claims of Investors on grounds that the Allowed Unsecured Claim should

have been $34,486.00 instead of the $15,590.13. The Receiver has reviewed the

supporting documentation submitted with the Objection and has and has determined that

the Lane Objection should be sustained. The revised Allowed Unsecured Claim of

Roberta Lane is $34,486.00.

d) Objection Filed by Cathy L. Dreifort

Cathy L. Dreifort objected ("Dreifort Objection") to the Proposed Schedule of

Allowed Unsecured Claims objecting to the amount of her Allowed Unsecured Claim.

The Dreifort Objection sought to treat accrued interest as an amount invested or lent to

any Schneider or Schneider Entity. The Dreifort Objection should be overruled. The

Order is clear that the Allowed Unsecured Claim of an Investor is equal to the principal

amount invested minus any interest payments received.

e) Objection Filed by Joseph J. Corso as Executor of theEstate of Peter A. Scrivens

Joseph J. Corso as Executor of the Estate of Peter A. Scrivens submitted an

objection ("Scrivens Objection") to the Proposed Schedule of Allowed Unsecured Claims

objecting to the amount of his Allowed Unsecured Claim. The Receiver has reviewed the

supporting documentation submitted with the Scrivens Objection and has determined that

IN1:44IDY.1 1 4

the Scrivens Objection should be sustained. The revised Allowed Unsecured Claim of

the Estate of Peter A. Scrivens is $14,734.07.2

f) Objection Filed by Harold A. and Cecilia J. Laubenthal

Harold and Cecilia Laubenthal submitted their objection ("Laubenthal

Objection") to the Proposed Schedule of Allowed Unsecured Claims of Investors

objecting to the amount of their Allowed Unsecured Claim. The Receiver has reviewed

the supporting documentation submitted with the Laubenthal Objection and has

detennined that the Laubenthal Objection should be sustained. The revised Allowed

Unsecured Claim of Harold and Cecilia Laubenthal is $157,666.69.

g) Objection Filed by Linda Sebek

Linda Sebek submitted her objection ("Sebek Objection") to the Proposed

Schedule of Allowed Unsecured Claims of Investors objecting to the amount of her

Allowed Unsecured Claim. The Receiver has reviewed the supporting documentation

submitted with the Sebek Objection and has determined that the Sebek Objection should

be ovemiled A review of Mr. DiCicco's report indicates that Linda Sebek received

amounts in interest and/or principal payments that were in excess of the amounts

invested.

h) Objection F71ed by Timothy M., Katherine H. andSandra K. Kreuzer

The Kreuzers submitted their Objection ("Kreuzer Objection") to the Proposed

Schedules of Allowed Unsecured Claims stating: "For unknown and unexplained

reasons, the Receiver has proposed a preposterously low amount for the Kreuzer claims,

1 Please note that two of the investments made by Mr. Scrivens were joint and/or P.O.D. to Mrs. LillyCleveland. Accordingly, the Allowed Unsecured Claim of the Estate of Mr. Peter A. Scrivens is $3,000.28,and $11,733.79 shall be added to the Allowed Unsecured Claim of Mrs. Lilly Cleveland.

(H12I9]U94 1 5

and in fact the proposal is unclear as to whether this amount covers all claims of the

Kreuzers collectively, or just for Timothy Kreuzer."

This Court should overrule the Kreuzer Objection because the Kreuzers' have

failed to submit copies of source documents3 that would enable the Receiver to reconcile

the inconsistency between Mr. DiCicco's report and the Kreuzer's alleged unsecured

claim. Moreover, the spreadsheet submitted as supporting documentation includes

interest due as part of the Kreuzers aileged unsecured claim. The Order clearly excludes

any claims for interest.

I) Objection Filed by Jeff Pace

Jeff Pace submitted his objection ("Pace Objection") to the Proposed Schedule of

Allowed Unsecured Claims of Investors objecting to the amount of his Allowed

Unsecured Claim. "1'he Receiver has reviewed the supporting documentation submitted

with the Pace Objection and has detennined that the Pace Objection should be sustained.

The revised Allowed Unsecured Claim of Jeff Pace is $12,925.36.

j) Objection Filed by Raymond M. and Patrice Stachowicz

Raymond and Patrice Stachowicz submitted their objection ("Stachowicz

Objection") to the Proposed Schedule of Allowed Unsecured Claims of Investors

objecting to the aznount of their Allowed Unsecured Claim. The Receiver has reviewed

3 In or about Apri12005, the Receiver mailed Investor Claim Fonns to all known Investors, including theKreuzers. The Investor Claim Form requested the foilowing information: (1) date(s) investment(s) made;(2) amount invested; (3) interest payments received; (4) principal payments received; (5) documentsprovided to the Investor by Joanne and/or Alan Schneider, (6) copies of the Investors canceled check(s);and (7) copies of any checks the Investor received fbr payment of interest and/or principal. In addition, onJanuary 22, 2008, in the cover letter enclosing the Proposed Schedules of Unsecured Claims for Review,the Receiver instructed Unsecured Creditors as follows: "If you have an objection to the AllowedUnsecured Claim, you most submit a written objection, with source documents, to the Court forfiling. Please note that a phone call, e-mail, or other correspondence sent to the Receiver and/or hisstaff is not sufficient notice of your objection. Source documents include the fbllowing: copies of anydocuments, including acknowledgment of the receipt of funds, provided to you by Joanne and AlanSchneider, copies of your retumed investment checks; copies of any checks you received as payment ofinterest or principal."

(Ii12I9]U9.1 1 6

the supporting documentation submitted with the Stachowicz Objection and has

determined that the Stachowicz Objection should be sustained. The revised Allowed

Unsecured Claim of the Raymond and Patrice Stachowicz is $148,439.53.

k) Objection Filed by George and Lou Ann Duffield

George and Lou Ann Duffield submitted their objection ("Duff'ield Objection") to

the Proposed Schedule of Allowed Unsecured Claims of Investors objecting to the

amount of their Allowed Unsecured Claim. The Receiver has reviewed the supporting

documentation submitted with the Duffield Objection and has determined that the

Duffield Objection should be sustained. The revised Allowed Unsecured Claim of

George and Lou Ann Duffield is $33,864.60.

1) Objection Filed by Charles and Susan Glorioso

Charles and Susan Glorioso submitted their objection ("Glorioso Objection") to

the Proposed Schedule of Allowed Unsecured Claims of Investors on grounds that he

they were not listed on the Proposed Schedule. The Receiver has reviewed the

supporting documentation and has determined that the Glorioso Objection should be

sustained. The revised Allowed Unsecured Claim of Charles and Susan Glorioso is

$92,045.00.

m) Objection Filed by Virginia lHeisler and/or SusanGlorioso

Virginia Heisler submitted her objection ("Heisler Objection") to the Proposed

Schedule of Allowed Unsecured Claims of Investors objecting to the amount of her

Allowed Unsecured Claim. The Receiver has reviewed the supporting documentation

submitted with the Heisler Objection and has determined that the Heisler Objection

should be overruled. Virginia Heisler invested or lent $23,000.00 and received

IxIzaswve t 7

$13,091.32 in payments; accordingly, the amount of the Allowed Unsecured Claim for

Virginia Heisler remains $9,908.68.

n) Objection Filed by J. Michael and Diane Pinkos

J. Michael and Diane Pinkos submitted their objection ("Pinkos Objection") to the

Proposed Schedule of Allowed Unsecured Claims of Investors, requesting that the Court

direct the Receiver to accept their claim in the amount of $6,400.00 and include the same

in the final schedule of allowed claims. Because the Proposed Allowed Unsecured Claim

for J. Michael and Diane Pinkos is $6,400.00, the Pinkos Objection should be overruled.

o) Objection Filed by Helen Forster

Helen Forster submitted her objection ("Forster Objection") to the Proposed

Schedule of Allowed Unsecured Claims of Investors, requesting that the Court direct the

Receiver to accept her claim in the amount of $6,200.00 and include the same in the final

schedule of allowed claims. The Receiver has reviewed the supporting documentation

submitted with the Forster Objection and has detennined that the Forster Objection

should be overruled. A review of Mr. DiCicco's report indicates that Helen Forster

received amounts in interest and/or principal payments that were in excess of the amounts

invested.

p) Objection Filed by Elaine Scarpelli

Elaine Scarpelli submitted her objection ("E. Scarpelli Objection") to the

Proposed Schedule of Allowed Unsecured Claims of Investors, on grounds that the

Allowed Unsecured Claim should have been $18,933.36 instead of the $13,555.63. The

Receiver has reviewed the supporting documentation submitted with the E. Scarpelli

Objection and has determined that the Allowed Unsecured Claim of E. Scarpelli should

be revised. Elaine Scarpelli invested or lent $25,000.00 and Mr. DiCicco's report

IH12193U9A1 8

indicates that she received $6,444.37 in payments. Accordingly, the revised Allowed

Unsecured Claim of Elaine Scarpelli is $18,555.63.

4. Objections Submitted to the Receiver

The Receiver received numerous telephone calls and written objections from

Investors. The Receiver has reviewed the objections and reported his deteminations to

the Investors. To the extent that there were changes to the amount of the Allowed

Unsecured Claims, those changes are reflected in the Schedule of Allowed Unsecured

Claims of Investors attached hereto as Exhibit A.

B. Objections Filed By Non-Investor Unsecured Creditors

1. Definitions

A Non-Investor Unsecured Creditor is any person or entity who provided goods

or services to Schneider and/or any Schneider Entity in the ordinary course of their

business and did not obtain a mortgage or lien to secure the amount due. A Non-Investor

Unsecured Creditor shall also mean any person that has a claim against the Receivership

Estate that does not qualify as an Administrative or Secured Claim as those terms are

defined in the Order.

The Allowed Unsecured Claim of a Non-Investor Unsecured Creditor shall

equal the total amount owed to each Non-Investor Unsecured Creditor prior to February

4, 2005, and shall not include any interest accraed after February 4, 2005.

2. Methodology

Following the appointment of the Receiver in this case, the books and records of

Schneider and the Schneider Entities fell under the control of the Receivership.

Professionals retained by the Receiver reviewed these business records and compiled the

Proposed Schedules of Allowed Unsecured Claims of Non-Investor Creditors. These

IH134930.4) 9

same professionals also received periodic unpaid invoices from Non-Investor Unsecured

Creditors and incorporated those non-duplicative Claims.

3. Summary of Objections.

Three Non-Investor Unsecured Creditors filed objections with the Court. A

summary of those objections and recommended disposition is below.

a) BCN Maintenance Co.

BCN Maintenance Co. filed an objection ("BCN Objection") objecting to (1) the

amount of its Allowed Unsecured Claim; and (2) the treatment of the full amount of its

claim as unsecured.

BCN first objection to the amount of the Allowed Unsecured Claim, and states

that it is owed the total sum of $23,591.82, instead of the $20,466.72 as listed on Exhibit

2A submitted to the Court on January 22, 2008. The Receiver has reviewed the

supporting documentation submitted with the BCN Objection and has determined that

this objection should be ovemiled because: (1) a prior payment $1,995.60 was made on

Invoice #40029; and (2) the last two pages of Exhibit 3A to the BCN Objection are not

invoices for work performed. Accordingly, the Allowed Unsecured Claim remains

$20,466.72.

BCN's second objection is that $9,715.00 of its claim should be treated as secured

because it obtained Mechanic's Liens in its favor against Schneider Management Co.

This objection should be overruled. The Mechanic's Liens are dated March 31, 2005 and.

Apri18, 2005. Mechanic's Liens filed on or after February 4, 2005, are void because the

Receiver took possession and control of all Schneider and Schneider Entity assets on that

date. Moreover, pursuant to this Court's Amended Order Appointing Receiver dated

Febniary 28, 2005, the filing of liens or other conduct designed to take action against

(HI]49N19.41 10

Receivership property was specifically enjoined. Accordingly, BCN should be treated as

a Non-Investor Unsecured Creditor.

b) R.W. Sidley, Inc.

R.W. Sidley, Inc. objected to the Proposed Schedules of Allowed Unsecured

Claims of Non-Investor Creditors: Accounts Payable by Entity on grounds that its claims

is a secured claim and should be recognized as such. R.W. Sidley, Inc. filed a secured

claim in the amount of $34,317.50 alleging that it held a mechanic's lien which it caused

to be recorded on February 15, 2005 against certain property owned by Pearl

Development. The secured status of R.W. Sidley, Inc. is addressed in the Receiver's

Initial Proposed Distribution of Sale Proceeds to Secured Creditors filed on June 13,

2008.

c) LifeStyle Designs, Inc.

LifeStyle Designs, Inc. ("LifeStyle") objected to the Proposed Schedules of

Allowed Unsecured Claims on grounds that it was omitted from the Proposed Schedule

of Allowed Unsecured Claims of Non-Investor Creditors: Accounts Payable by Entity.

The Receiver has revised the Proposed Schedule of Allowed Unsecured Claims of Non-

Investor Creditors: Accounts Payable by Entity such that LifeStyle is listed as an Non-

Investor Unsecured Creditor with an Allowed Unsecured Claim in the amount of

$113,665.65.

4. Mechanic's Lien Claimants

The Receiver has concluded that all mechanic's lien claimants are subordinate to

the mortgage of Home Savings & Loan Company. See, The Receiver's Initial Proposed

Distribution of Sale Proceeds to Non-Investor Claimants, filed on June 13, 2008.

Accordingly, the Receiver has included the Non-Investor Claimants claiming secured

(N12NiID9A I I I

status by virtue of mechanic's liens and tax liens in Exhibit B, the Revised Proposed

Schedule of Allowed Unsecured Claims of Non-Investor Creditors: Accounts Payable by

Entity. To the extent that the infonnation filed was insufficient for the Receiver to

determine whether the amount is valid, the amount is marked as "insufficient

information."

IV. PAYMENT OF CLAIMS

Court approval of the amount of the Allowed Unsecured Claim constitutes

allowance of such Claim. However, Unsecured Creditors should not interpret the

allowance of such Claim as a guarantee of payment. Section IV of the Order sets forth

the procedure for the payment of claiins and provides as follows: "Unsecured creditors

will be paid Pro Rata from the Receivership Assets remaining after payment of Allowed

Administrative and Secured Claims."

V. REVISED PROPOSED SCHEDULES OF ALLOWED UNSECUREDCLAIMS

Attached hereto as Exhibit A is the Revised Proposed Schedule of Allowed

Unsecured Clainu of Investors. Attached hereto as Exhibit B is the Revised Proposed

Schedule of Allowed Unsecured Claims of Non-Investor Creditors: Accounts Payable by

Entity. Attached hereto as Exhibit C is the Revised Proposed Schedule of Allowed

Unsecured Claims of Non-Investor Creditors: Payroll Payables.

VI. CONCLUSION

WHEREFORE, the Receiver recommends that this Court approve the following:

(1) the Revised Proposed Schedule of Allowed Unsecured Claims of Investors, attached

hereto as Exhibit A; (2) the Revised Proposed Schedule of Allowed Unsecured Claims of

Non-Investor Creditors: Accounts Payable by Entity, attached hereto as Exhibit B; and

JH1N9]119.4 1 12

(3) the Revised Proposed Schedule of Allowed Unsecured Claims of Non-Investor

Creditors: Payroll Payables, attached hereto as Exhibit C.


7o^tho arger (0043781)V tor d 1 (0075293)C W SSERMAN YARGER, LLC

Erieview1301 E. Ninth Street, Suite 3300Cleveland, Ohio 44114

Attorneys for the Receiver Matthew L.Fornshell, Esq.

(H12/9JUD.. ) 13


The undersigned hereby certifies that a copy of the foregoing The Receiver's

Revised Proposed Schedules of Allowed Unsecured Claims will be served by the

Receiver upon the following persons:

Matthew J. Lampke, Esq.Attomey General's OfficeAssistant Chief, Executive Agencies Section30 East Broad Street, 26d' FloorColumbus, Ohio 43215-3428

Joanne C. and Alan C. Schneiderc/o Ian N. Friedman, Esq.700 West St Clair Avenue, #110Cleveland, Ohio 44113

All persons requesting Notice who have served a request for Notice on Garden City, Inc.or the Receiver.

AIl Investor and Non-Investor Unsecured Creditors.

The Receiver's Revised Proposed Schedules ofAllowed Unsecured Clainrs will beposted on the Receivership's website at httn://www.szd.com/schneider/.

_/_1b1NWf - /e

JN12N9JU9.11 14

EXHIBIT A

REVISED SCHEDULE OF ALLOWED UNSECURED CLAIMS OF INVESTORS

Investor Allowed Unsecured Claim ofInvestorAdams, J. $9,886.11A osta,G. $1,833.46Aguiar, L. $129,135.23Albert, D. and L. $40,000.00Allen, W., Trustee $42,791.94Amato, D. $7,733.89Amato, R. $71,225.63Andrew, R. $15,000.00Andrews, C. $5,500.00Andrews, G. $6,990.00Andrews, L. and R. $9,520.00Andrews, R. $15,000.14Andrews, T. $23,795.23Au'a, J. and A. $12,800.00Aro, E. $40,000.00Ash, D. $18,642.54Bacci, Lea $3,937.50Bailosky, L. $2,166.78Bajic, B. $56,400.00Bajic, C. $5,500.00Bajic, J. $18,045.78Bajic, P. $42,416.60Bajic, T. $35,000.00Baldoza, D. and M. $6,550.00Ballog, E. and L. $35,808.55Ballo , E. and B. $51,423.23Ballog, T. $11,201.41Balukh, M. and 0. $40,000.00Banas, D. and S. $23,666.68Barat, S. $29,970.00Barrett, M. $101,901.50Barrett, W. and S. $50,950.00Barton, J. $300,600.00Bass, R., Trustee $20,000.00Bell, G. $16,000.00Bellanger, J. and R. $43,475.00Benzin, R. $25,000.00Beodray, G. $8,933.36Bemet, S. and L. $4,63735Berry, Be. $8,960.83Berry, Bra. $4,550.13Berry, Bre. $2,687.63

}N113512]]}

EXHIBIT 1

Berry, W. and S.. $72,367.02Beside, E. $30,100.00Beside, R. and J. $12,963.77Bewley, D. $83,666.03Biacsi, J. $303,872.70Biacsi, F. $200,593.11Bishop, T. and D. $50,000.00Black, L. $25,000.00Blenderhofer, F. $60,000.00Blenderhofer, M. $9,466.68Boettcher Fmnily Revocable Trust $77,200.00Boettcher, M. (custodia) $90,000.00Bognar, E. $58,787.29Bolog, C. $23,763.42Bomgaars, D. $9,466.68Borelli, T. $18,000.00Boring, L. $42,109.22Borszcs, S. $75,036.80Botson, M. and A. $12,947.87Botson, J.K. and A. $91,613.56Botson, JJ, and A. $6,962.31Bova, C. $51,299.16Bowlus, M. $36,266.76Bo ' , A. $29,780.67Bozicevich, D. $27,781.01Bozoli, J. and M. $20,000.00Brant, J. $16,53342Braund, S. (cust for Alec) $65,000:00Braund, S. (cust for S encer) $35,000.00Bright, W. $13,645.00Brinker, A. $7,000.00Brinker, D. $36,500.00Brinker, P. $10,000.00Brockelhurst, J. and C. $65,944.48Brown, D. $20,310.80Brown, F. $46,527.27Brown, J. $27,680.14Budd, R. $147,333.36Bujnarowski, C. $82,424.97Bujnarowski, Re. $4,960.55Bulmer, M. $4,133.42Burckha.rt, R. $45,333.38Burdette, W. - $18,056.97Burnside, L. $23,000.02Butchart, J. $9,200.02

Mssss.=z: ) 2

EXHIBIT 1

B am, W. and D. $161,106.99Caban, W. and C. $68,960.69Campbell, E. $112,787.00Campbell, Mart. $3,980.24Campbell, M. $57,600.00Capasso, A. $90,000.00Cardenas, P. $20,550.00Caazr, B. and M. $6,866.87Carr, E. $9,733.34Cemanec, D. $61,452.75Chambers, F. $41,931.47Chambers, F. cust. for Chambers, A.) $6,550.00Chambers, F. cust. for Chambers, C.) $8,000.05Chambers, F. (cust. for Chambers, L.) $3,781.52Chambers, H. $893.88Chambers, K. (cust for Daniel) $2,083.45Chambers, K. (cust. For Emmett $1,675.04Champa, C. $10,000.00Champa, D. and. J. $86,500.00Cha man, J. $23,33335Chapman, R. $24,000.01Chavez, R. $10,000.00Chesnik J. $25,000.00Chihil, D. $20,000.00Chipka, K. (POD Tomek, L.) $16,320.00Chonko, Da. $10,666,90Chonko, Do. $14,266.74Christensen, P. $420,000.00Ciavarro, P. $13,701.00Claire, E. and K. $22,000.00Clink, H. $5,300.00Cleveland, L. $122,194.53Coalmer, M. $28,120.00Coates, R. $34,950.58Coljohn, M.L. $7,000.00Connell, L. and E. $9,548.00Conrad, C. $122,455.93Conrad, S. $6,833.46Conway, J. $88,336.14Conwa , K. $12,017.44Cook, De. $46,400.00Cook, Do. $6,100.00Cool, D. $81,333.38Corlett, W. $25,000.00Crai , G. and J. $68,828.67

on^t 3

EXHIBIT 1

Cramer, J. and S. $70,000.00Crawford, H. (nee Plotz) $5,000.00Cuchiara, R. $10,000.00Crowe, T. $17,520.00Csongedi, R. $8,485.45Culler, D. $296,211.11Curtis, Dor. $108,061.90D'Agostino, F. $10,000.00D'Agostino, V. $9866.67D'Angelo, R. and C. $15,786.67Dankle, J. $118,922.75D a , M. $11,500.00Darrah, C. $47,539.75Darrah, D.J. $10,000.00Darrah, J. $47,539.75Darrah, K. $47,539.75Darrah, M. $47,539.81Danah, Neal. $275,137.56Datrdh, Patrick $37,308.27Daveduk, F. $28,104.86Daveduk, T. $33,089.36Davis, R. $2,800.00Deau, P. $12,500.00Deau, S. $19,320.00Decker A. $28,600.00Decker, G. $28,600.00Decker, J. $69,200.00DeFilipo, L. $34,700.00Degro, C. $12,500.00DeJesus, E. $1,566.92DeJesus, G. $51,938.32Demark, J. and C. $25,000.00Dennis, C. $26,734.25DeNova, S. $22,000.00Deobald, J. $33,267.24Derschau, W. $44,247.06Desmone-Baytos, R. $22,000.00Deters, D. $25,000.00Dettmer, J. $2,975.00Devera, C. $10,700.00Dharia, R. $25,000.00Dickinson, R. $33,600.04Dicus, R. and C. $45,090.02DiDio, R. $65,286.88Diffenbacher, R. $44,797.76

(xa3san.s) 4

EXHIBIT 1

Diffenbacher, T. $5,000.00Digney , B. $46,533.42DiPaola, M. $2,068.00DiVincenzo, J. $66,236.68Dixon, M. $17,066.74Dohar, C. $14,600.00Dohar, M. $18,133.38Dohar, R. $18,400.04Donovan, H. $9,466.68Dotson, H. $94,666.68Doug lass, J. $3,933.44Dra o, G. $15,466.78Drago, W. $104,898.41Dreifort, C. and J. $35,000.00Drozdowski, C. and M. $100,000.00Duffield, G. $33,864.60Duncan, De. $5 ,805.82Duncan, L.. $194,025.00Duncan, Do. $280,423.49Duncan, M. $183,564.00Du la , C. $50,000.00Ea ee e, R $175,000.00Eddy, La. $27,866.68Eddy, Lo. nee Genz) $37,866.68E et, J. $24,666.81Eisman, H. $36,600.00Eisman, H.L. $11,000.00Esson, R. $14,602.21Esther, E. $28,412.69Esther, Th. $4,400.30Evansco, J. $21,683.95Faber, M. $33,601.00Fagan, J. $178,262.68Farris, C. $50,000.00Farris, L $140,000.00Fesco, Family Trust $30,000.00Federico, C. $64,748.86Fedorak, S. $9,373.00Feiler, A. $274,483.04Fe 'utz, D. $75,961.63Fienauri, A. $23,333.35Fiesler, J. $23,333.35Flada, S. $7,300.00Flee e, G. $7,425.00Ford, L. $10,000.00

ainsmsI 5

EXHIBIT 1

Fortun T. $132,906.46Frate, G. $151,988.39Frate, M.A. $5,000.00Frate, M.J., trustee $459,768.68Frk, R. $2,900.00Funderburk, J. $21,582.28Gagliardi, J. $50 ,000.00Gagne, B. $30,000.00Gagne, L. $9,466.68Gagne, P., Jr. $47,150.35Gagne, P. Sr. $25,533.99Galek, D. $31,485.11Gallagher, J. $26,000.00Ganda, And. $24,400.14Ganda, Ant. $28,001.00Ganda, D. $38,666.78Gangale, A. $78,666.72Gangale, F. $78,666.72Garapic, M. $10,000.00Gartman, M. $3,425.00Gaumer, E. $7,200.00Gavlak, G. $15,000.00Genz, L. $38,933.34Gibbs, H. $9,066.69Gibson, W. $5,650.00Gillespie, H. $22,571.42Glenn, C. $7,72124Glorioso, C. and S. $92.045.00Glowacki, R.F. $185,113.48Golick, J. $10,500.00Golick, M. $89,635.49Gomez, E. $67,000.00Goodwin, K. $6,000.00Gorisek, E. $24,777.34Gorisek, P. $13,879.80Gosser, J. $83,372.21Gottschalk, J. $29,979.65Gottschalk, L. $12,183.22Gramm, A. $75,000.00Gramm, Ant. $14,233.48Gramm, A.G. $10,000.00Grande, P. $13,013.76Grande, M. and C. $34,168.79Graumer, E. $7,200.00Grecol, K. $15,627.50

(Hiiwa2) 6

EXHIBIT 1

Gregory, K. $69,255.60Griffie, D. $30,345.36Griffiths, P. $12,200.00Gromiak, B. $2,900.00Gugliotta, S. $10,700.00Guthrie, R. $50,000.00Gwirtz, K. $34,133.37Hall, Natalie $38,476.76Hamilton, A. $10,000.00Hamm, M. $36,266.69Harrah, G. $10,000.00Harrison, K lee le $96,693.59Harrison, R. $1650.66Hart, K. $124,843.10Hartgas, E. $38,933.34Hatgas, M. $10,000.00Hawley, J. $28,933.42Hazel, E. $122,500.00Haze1, E. $104,911.04Hein, St. $17,500.00Heins, A. $25,000.00Heins, L. $25,000.00Heipp, G. $4,800.00Heisler, V. $9,908.68Henry, M. $9,695.10Henry, R $14,410.00Hill, R. $10,500.00Hine, V. c/o S ckl, L.) $21,530.97Hinte, D. $15,000.00Hipps, R. $12,000.00Hlava , T. $35,000.00Hoag, D. $17,976.00Holcomb, R. $7,150.00Hop e Living Trost $37,210.65Hopper, D. $5,000.00Hostetler, W. $775.00Howe, M.K. $7,600.06Hmcir, M. and E. $22,183.85Hulbert, T. and L. $1,201.19Huston, D. $10,000.00Hyer, W. $28,537.05Ihde, M. $60,000.00Izuka, A. $63,000.00Jacquermain, J. and D. $71,991.30James, R. $23,500.00

Mivs.Vjt 7

EXHIBIT 1

Janiak, N. $176,387.24Janison, R. $18,933.36J. Notarian Scholarship Fund $9,466.68Jewett Trustee, C.A. $177,971.50Jewett Trustee, J. $77,333.39Kachmar, M. $123,904.61Kalinoski, K. $30,000.00Kalinoski, P. $9,866.67Ka6noski, S. $9,866.67Kalinowski, M. $108,875.81Karaba, R. $10,000.00Katrinak, S. $9,466.68Kebbel, V. $45,000.00Keblesh, J. $3,933.44Keefer, J. $78,280.00Kefalos, B. $60,000.00Kelly, V. $4,000.00Kem , Kr. $1,000.40Kem , M. $1,175.00Kemp, R and Ka. $9,239.02Keneson, J. $155,520.00Kennedy, D. $72,303.59Kensky, B. $686,974.46Kerzman, K. $6,278.45Kilbane, K. $4,200.08Kimmich, K. $25,000.00King, C. $50,000.00Kin dom Resources Foundation $17,806.66Kish, R. $41,790.05Kle fer, B. $42,789.40Klusak, M. $5,500.00Knerem, D. $20,000.00Kocar, B. $24,000.01Kocisko, S. and A. $24,867.00Koenen, J. $11,829.00Kollen, K. $100,000.00Kordos, E. $105,000.00Kornick, S. $40,000.00Kosakowski, C. $9,450.88Kosakowski, E. $15,466.78Kosakowski, J. $250,393.44Kosco, D. $108,278.74Kosco, M.L. $5,950.00Kovach, L. $9,700.00Kovach, M. $22,032.60

JN1135Q1.2/ 8

EXHIBIT 1

Kovary, J. $35,869.31Krencik, G. $9,866.67Krese, K. $28,006.88Kreuzer, T. $3,346.73Kruczek, J. and S. $12,000.00Krueger, G. and L. $150,000.00Krzemienieswk, M. $40,000.00Kufleitner, C. $12,800.00Kuhn, K. $87,455.35Kuhn, P. $50,000.00Kuhn, S. $142,687.90Kulow, D. $5,000.00Kulow, R. and P. $172,600.00Kwiecen, R. $9,466.68K ovs , Ri. $355,675.62K ov , Ro. $18,000.00K ovsk , R.J. $68 ,162.96Laco, C. $49 765.24Laco, J. $42 620.06Laina, M. $174,094.96Lane, R. $34,486.00LaPorta, L. $2,827.44Lastovka, T. $3,225.00Lau, W. $16,750.00Laubach, F. $89,466.67Laubenthal, H. and C. $157,666.69Laubenthal, J. $123,222.41Lawton, G. $96,000.01Lehotan, D. $3,800.12Leishman, A. $35,000.00Lesnick, J. $65,382.51Les ,C. $984.00Leszczynsky, Na. $4,032.33Leszc , Ni. $3,314.00Letterle, D. $28,400.00Levandowski, J. $38,085.44Levandowski, Sc. $32,500.00Levandowski, Su. $93,890.33Libonati, G. $189,273.49Libonati, P. $55,733.44Limon, D. $17,021.34Limon, N. $27,806.09Lineweaver, J. $316,583.30Liotta, E. $60,000.00Lloyd, D. $268,000.00

(H^.n.:) 9

EXHIBIT 1

Locy, E. $3,841.96Lombardo, J. $72,000.00Lori , R. $64,317.98Lukas, A. $12,500.00Lukic, Z. $75,000.00Lupton, M. $15,000.00Macek, R. $50,000.00Maceyko, M.J. $9,066.69Maceyko, M.A $125,496.34Maceyko, R. $11,360.00Maiorano, M. $10,000.00Maksin, J. $28,746.79Malone, D. $34,000.05Marcantonio, A. $86,250.00Marcinek, V. $44,258.20Marella, N. $3,050.00Marella, J. $117,250.00Marion, D. $10,000.00Mar uardt, R. $3,058.52Marshall, D. $9,066.69Martin, D. $15,000.00Martin, L. $44,866.67Masielle, J. $5,000.00Mate, L. $40,000.00Matts, D. $24,041.89Matts, M. $30,000.00Matuszn , G. $65,385.38Mauer, J. $10,000.00Maxwell, J. $99,333.34Mazzola, J. and B. $57,609.81Mazzola, R. $288,000.03McCafferty, S. $18,933.36McCarel, E. and. V. $12,534.97McCoy, D. $21,800.13McDermott, B. and Ch. $459,443.52McDermott, Cl. $25,790.02McDermott, E. $27,943.52McDennott, J. $83,420.55McDermott, K. and L. $163,062.35McDennott, L. cust for McDermott, J.) $900.00McDermott, L. (cust. for McDennoM S. ) $821.56McDermott, Ra. $18,266.71McDermott, Ro. $10,000.00McDonald, M. $49,722.22McDonnell, J. $28,000.00

pus3sen.2t 10

EXHIBIT 1

McKinley, J. $23,000.00McKinney, D. $12,836.01McNamee, C. $3,425.00Mcti e, D. $9,733.34Mehota, R. $115,073.78Merlino, S. $1,674,75Merlino, T. $160,589.40Micic, R. $26,727.49Micic, T. $27,200.00Middleton, D. $89,350.37Mihu, D. $22,000.00Mihu, R. $20,000.00Mikolaj, M. $90,066.69Milano, A. $19,519.19Milano, C. $5,873.27Milano, T. $10,000.00Milchak, Dav. $40,000.00Milchak, D and C. $69,543.73Milchak, E. $114,933.36Miller, C. $55,600.00Miller, D. $10,000.00Miller, M. $4,533.38Misko, S. $40,000.00Mochko, C. $30,000.00Modi, B. $7,451.27Monachello, L. $6,133.36Monai, A. $10,500.26Monai, R. $12,821.00Mont ome , M. $24,333.34Moore, P. $8,025.00Moreau, J. $10,000.00Moritz, C. F. $118,327.44Mortiz, C.J. $12,244.47Mortiz, N. $14,600.00Mortiz, S. $21,900.00Morrison, L. $9,333.70Morrissey, A. $28,365.43Moscarino, C. $10,000.00Mozser, D. $167,734.33Mraz, T. $10,000.00Mueller, L. $301,135.73Mullins, A. $52,702.56Murch, M. $786.71Muro Family Trust $24,733.34M h , E. $5,000.00

(xn3san.z j 11

EXHIBIT 1

Murray, J. $14,028.98Murray, K $7,865.00Musselman, D. $15,131.54M eress, R. $40,000.00Naegle, C. $80,000.00Naegle, C. $35,000.00Nae le, T. $35,000.00Nagel, E. and R. $16,222.47Nagel, R. $767,625.00Na el, S. $86,667.00Naider, J.J. $23,688.86Naider, J.L. $36,643.75Nakonec , G. $27,452.30Nale a, S. $49,400.06Neal, L. and E. $48,803.40Neale, J. $17,500.00Nedohon, T. $36,314.09Neiman, C. $39,319.10Neiman, R.A. $33,357.88Neiman, RJ. $23,400.00Nemeth, M. $11,241.71Nemeth, N. $3,575.00Nemeth, S. $71,446.77Nemeth, T. $3,575.00Nemeth, W. $16,216.69Neuenschwander, C. $16,034.27Nickles, J. $5,000.00Nobke, J. $75,000.00Novic , D. $23,313.60Oakes E ui ment Com an $414,367.17O'Brien, M. $12,200.00Oliverio, J. $8,666.70Oliverio, W. $17,965.67Onions, S. $3,800.00Onions, W. $6,000.00Oppedisano, J. $25,000.00Owens, A. $7,633.09Owens, W. $3,571.64Pacak, D. $147,666.67Pacak, M. $16,311.83Pace, J. $12,925.36Panek, J. $6,400.00Parsons, R. and M. $11,033.76Pasadyn, M. and J. $1,462.16Passerrello, H. $69,928.83

1„ssa^n,> 12

EXHIBIT 1

Patel, S. $15,200.12Pavalko, A. $4,600.04Pavlich, R. $162,348.49Pearson, E. $47,374.00Pechnik, D. $37,960.18Peck, B. $57,382.97Pecek, M. $45,937.84Perko Family Trust $28,400.00Perrotti, E. $20,000.00Pesek, L. $48,666.68Pesek, W. $149,333.34Pesic, M. $44,666.72Pesos ,E. $150,849.67Petkunas,T. $93,333.35Petronzio, R. $81,257.69Pe shin, J. and R. $49,105.76Pierce, J. $37,389.01Pietron, N. $32,616.83Pike, M. $29,882.99Pillar, J. $9,333.35Pinkos, J.M. $6,400.00Pirosko, J. $55,456.01Pkovary, J. $56,801.49Plotz, J. $63,055.57Pocza, D. $20,000.95Pocza, E. $249,344.90Pocza, M. $40,000.10Pocza, R. $53,533.42Podsiadlo, M. $36,080.06Poet, K. $7,044.86Poeta, K. $5,270.50Pola, L. $15,466.78Popiel, A. $1,874.11Popiel, D. $51,750.00Posner, D. $27,308.23Posner, E. $43,855.84Potocnik, V. $27,837.50Poznako, P $17,066.74Prall, E. $210,000.00Price, B. $50,000.00Prince, F. $17,751.63Prince, F. (Trustee for A. Smith) $138,227.90Prokes, L. $28,383.15Province, D. $4,666.96Prteniak, M. and M. $30,000.00

lHiLaur a ) 13

EXHIBIT I

Prteniak, M. and S. $29,600.00Pubal, E. $23,000.02Purcell, J. $6,826.74Putzier, C. $7,150.00Quell, R. $37,866.71Radatz, R. $21,604.23Radovic, D. $71,566.80Randall, W. $222,430.08Randar, J. and D. $210,000.00Ratner, A. $15,000.00Rebold, M. $5,090.04Reese, A. $5,746.74Re ' elli, E. $10,000.00Ra ' elli, R. $18,000.00Reichard, K. $23,333.35Reichard, L. $9,333.35Reiter, P. $16,533.42Reitzes, L. $38,886.76ReMalia, R. $3,082.51Rey, M. $4,542.59Rice, A. $77,333.35Rice, R. $97,333.34Richey, M. $10,000.00Rider, G. $17,393.45Rider, V. (cust for N. Rider) $3,425.00Rider, V. and W. $10,050.00Rider, W. and P. $87,143.00Rinks, L. $29,600.00Risku, J. $17,775.00Ritcher, C. $27,343.00Roberts, W. $54,880.02Rodriguez, D. $50,000.00Rogers, F. $27,000.06Rogers, G. and R. $50,000.00Rohn Showalter, J. $170,795.65Rollins, J. $20,000.00Romito, M.K. (cust. for G. Romito) $1,433.60Rondini, L. $15,588.60Rondini, R. $27,241.68Rose, L. $45,855.07Roth, Pence $13,000.00Rowland, J. $115,000.00Rudd, R. $11,800.00Ruess, C. $18,758.44Rusek, D. $25,000.00

Minsm.: } 14

EXHIBIT 1

Ruch, J. $304,200.15Russin, R. $538,829.95Russo, D. $62,500.00Russo, M. $15,000.04Russo, S. $58,449.72Rutter, D. $44,913.56Sabetta J. and J. $140,000.00Samardzi'a, S. $14,400.00Sammo J. $33,020.98Sanders, H. $48,880.51Sandora, C. $46,666.67Sanker, Dav. $16,467.05Sanker, Dan. And S. $18,501.60Sanker, Do. $1,840.00Santora, R. $175,000.00Sasala, G. $68,266.74Sasse, G. $14,300.00Sasse, G.H. $38,500.00Scarpelli, B. $14,530.79Scarpelli, C. $14,765.38Scarpelli, E. $18,555.63Scarpelli, S. $10,000.00Scharfenort, F., Sr. $43,754.08Scharfenort, F., Jr. $62,167.78Scharfenort, M. and A.M. $160,310.56Scharfenfort, S. $39,501.18Scharfenort, K $5,000.00Scharfenort, Mi. $2,370.00Schartman, J. $125,000.00Scheman, R. $10,000.00Schiefelbein, E. $32,754.86Schiefelbein, G. $10,000.00Schiefelbein, J. $15,000.00Schiefelbein, J. $20,797.56Schiefelbein, Ri. $10,000.00Schiefelbein, Ro. $25,000.00Schmitt, P. $42,166.93Schmitz, R. $25,392.00Schneider, K. $20,000.00Schowalter, J. $100,000.00Schrantz, C. $10,000.00Schreiber, J. $10,790.88Schreiber, S. $30,038.72Schubert, T. $52,716.20Schultz, N. $47,035.51

IX1335437.1) 15

EMHBIT 1

Schurk, R. $11,000.00Scoarste, J. $10,000.00Scoarste, R. $10,000.00Scrivens, P. (c/o Joseph J. Corso, Executor) $3,000.28Sebek, L. cust for Sebek, J. ) $4,000.00Sebek, L. cust. for Sebek, M.) $2,000.00Seevers, C. $29,829.08Seminsk , R.T. $222,026.46Sepik, K. and P. $10,000.00Setny, J. $9,220.02Sfara, M. $37,866.68Shaffer, J. 9,775.00Sheaves, C. $56,500.00Sheaves, D. $32,750.00Shemela, C. $7,000.00She , W. $11,700.00Shiever, A. $14,886.07Shiner, J. $11,000.00Siebert, G. $2,333.48Sieniawski, O. $8,000.05Siggelkow, A. $284,491.00Siggelkow, E. $77,342.62Siggelkow, R $57,315.33Simon, M. $5,000.00Sindelar, J. $91,875.12Singerman, D. $75,000.00Singleton, L. $8,409.98Skerlan, J. $9,200.02Skemess, R. and D. $191,000.00Skidmore, H. $45,000.00Slago, V. $69,333.56Slivka, L. $9,466.68Smee, S. $52,864.42Smith, A. $5,000.00Smoody, J. $78,666.72Snider, C. $27,600.00Snyder, L. cust. For J.L. ) $45,333.38Snyder, L. (cust. For RN. $100,000.00Snyder, R. and L. $50,000.00Soika, N. $10,000.00Sokolowski, D. and E. $50,000.00Sparano, G. (c^rst for N. Sparano) $5,000.00S arano, J. $6,850.00Sparano, M. and M. $47,338.24S ates, J. $40,123.76

0^s4n.: 1 16

EXHIBIT 1

S eckl, C. $8,666.70S ckl, L. and J. $24,020.00Spruell, M. $5,000.00Stachowicz, P. (cust for Stachowicz, T.D.) $12,683.35Stachowicz, P. (cust. for Stachowicz, T.R.) $12,683.35Stachowicz, Ra. $148,439.53Stachowicz, Ro. $193,916.09Stamm, A. $10,000.00Stamm, R. $77,864.26Stancato, L. $143,901.90Stancato, P. $37,838.23Stanis, K. $27,166.88Stanis, L. $80,764.10Stankicwicaz, R. $17,850.25Stankicwicz, W. $45,429.80Stankiewicz, M.A. $46,000.04Stanko, T. $23,951.07Stanton, S. $42,201.48Stefany, B. $17,801.02Stelbasky, D. $15,000.00Stelznaschuk, G. $62,000.00Steurer, E. $30,000.00Steurer, R. $105,857.90Steurer, S. $12,000.00Steyer, D. $68,500.00Stojkovic, K. $9,866.67Stoklas, J. $3,500.00Stoklas, K. $7,000.00Stolarski, B. $6,600.13Stoner, R. $3,882.79Stopper, D. $180,189.90Strouhal, J. $243,820.26Sullivan, M. $15,000.00Swellie, J. $65,565.60Swellie, R. $204,550.02Swiatek, Ron. $86,666.70Szmik, St. $2,000.00Tadrous, N. $284,548.07Tamburro, J. $35,733.36Tamura, J. $128,800.00Tanke, JoA. $10,000.00Tanke, Jos. $10,000.00Taylor, C. and J. $15,000.00Tercek, F. (cust for Lesnick. G. $10,000.00Tercelc, F. (cust for Lesnic(c, A.) $15,000.00

ixn3s.n.2) 17

EXHIBIT I

Terlop, S. $5,600.11Thomas, W. $12,072.61Tikium, A. $18,289.80Tolentino, E. $105,855.00Tomblin, D. $73,591.79Tomeo, D. $55,053.35Tomko, G. $245,745.43Trommer, C. $34,500.00Treisch, S. $22,112.22Tucker, R. $9,200.02Udris, V. $118,000.00Uhl, A. $10,000.00Ulan, L. $294,666.68Ulan, M. (cust for Ma.) $2,951.38Ulan, Me. $8,070.53Ulan, Mi. $32,496.98Ulan, Pa. $127,241.74Ulan, Ph., Jr. $14,536.91Ulan, Ph., Sr. $251,687.61Valkoff, T. $75,000.00Vas, J. $94,288.71Verbos, E. $347,762.13Veres, L. $10,000.00Vitullo, N. $20,550.00Vlahovic, D. $126,351.26Vlchek, C. $16,000.10Vlchek, F. $272,729.85Volosin, R. $14,743.49Vrh, J. $50,000.00Vulpio, C. $28,048.58Vulpio, J. and M.L. $96,514.66Vulpio, R. $27,685.29Wagner, B. $52,757.37Wa er,J. $10,651.75Wagner, W. $58,166.67Waldrop, D. $9,847.77Wallace, J. $120,830.55Wanyerka, Mar. $28,740.00Wanyerka, Marl. $297,540.29Wanyerka, P. and W. $49,333.34Warner, B. and J. $50,000.00Wamer, P. $94,835.73Waters, D. $4,637.36Waz gar, C. $5,769.52Wazgar, S. $121,749.90

°"'ss.z'2 1 18

EXHIBIT 1

Wedell, P. $35,685.00Weiser, D. $98,710.00Weiser, R. $34,608.50Weiss, U. $40,240.01Wells, S. $56,000.05Wentz, Dona. $45,400.00Wentz, Donn. $17,500.00Wemer, C. $10,000.00West, L. $2,625.00Westrick, J. $14,458.29Wheadon, K. $96,533.35Wieland, C. $210,000.10Wilk, R $6,0561.83WIIkin, M. $61,533.36Wilkinson, Wil. $104,000.00Wilkinson, Win. $52,544.76Williams, C. $20,666.71Winkler, M. $44,070.00Winkler, R. $23,419.99Wisniewski, L. $9,854.40WM Plotz Machine & Froge Co. $32,000.00Wojcik, T. $49,200.00Wollmann, G. $157,600.00Wonsick, T. $40,000.00Wosnak, T. $11,200.00Workman, K. $20,000.00WRE Investments, Inc. $6,160.00Wrobleski, C. $30,000.00Wrona, C. $15,968.21Wrona, E. $13,796.19Wrona, J. $164,840.99Wrona, M. $15,796.19Wrona, S. $14,968.21Yancy, T. $428,026.72Yelenosky, D. $25,744.04Yonkers Living Revocable Trust $28,400.00Youkel, F. $19,244.53Young, K. $50,000.00Zachar, T. $20,000.00Zagmeister, L. $36,025.27Zagmeister, M. $45,000.00Zatorski, B. $21',000.00Zatorski, J. $71,311.99Zatorski, M. and L. $25,600.11Zehe, D. $295,586.84

ixMe4U.x ) 19

EXHIBIT 1

Zelenok, M. $22,454.75Zilai, J. $53,815.57Zimak, J. $18,972.81Zinn; T. $264,000.00Zoldi, J. $34,813.06Zolna, R. $3,933.44Zolna, T. $6,000.00Zubel, W. or Bu'narowski, C. $17,303.39

wi^n.x ) 20

1 I 1 I ! I

Revised Proposed Schadule of Allowed Uosecured Claims of Non-lnvestor Creditors: Accomis Payable by Entity Exhibit B

ACCOUNTSPAYABLE

EntiN Vendor Address ount

Schneider Mgmt. CompanyAdelphia P.O. Box 6174 Cerol Sireem, IL 60197-6174 25.63Adnunismff Companies, Inc. P.O. Box 200634 Houston, TX 77216-0634 236.00AOtel P.O. Box 9001902 Louisville, KY 40290-1908 1,406.27American Expreas 565 Metro Plaa South Suita 150 Dublin, OH 43017-5388 3,938.07American Toner 9753 Prospect Road Strongsv8te, OH 44149 451.44

Andrews, Michael D. 1307 Preelmess Drive Manafield, OH 44906 598.08Ashland Division of Water 211 ClaremontAvenue Addend, OH 44805 7,377.63Ashland Publishing Co. 40 Eest Second Strmt Ashlend, OH 44805 1,333.21Ashtabula Countiy Treasurer 25 West JefTerson Street Jefferson, OH 44047 1,516.67Bath fi0cr 823 Township Rcad 754 Ashland, OH 44805 3,100.00BCN Maintenance Company 18302 Puritav Avenue Cieveland, OH 44135 20,466.72Brockman, Coats, Gedelien & Co. 1735 Merrimen Road Akron OH 44313-9007 26,200.00Bull, Pemy L. 279 Shermen Avenue Ashland, OH 44805 152.77C & S Landscaping 3170 Kinata Court West Sakm, OH 44287 9,069.00Capital Oae P.O. Box 85184 Richmond, VA 23285-5184 853.39Century Maintenance Supply P.O. Box 842434 Dallas, TX 75284 142.56Ceridian Benefits Services 3201340t Street Soulh St. Petersburg, FL 33711-3828 54.00Chronic(e Telegram 225 East Avenue P.O. Box 4010 Elyria, OH 44036-2010 229.40Citicorp Vendor Finence 1300 Eest NintyStreet 14dW Floor Cleveland, OH 44114-1503 101,170.77City of Cleveland 601 Lakeside Avenue Room 517 Cleveland OH 44114 570.00CNC Associates, Inc.Coinnraeh Corporation

Department LA 22217303 Sunnyside Boulevard Suite 700

,Pasadena, CA 91185-2217

Plainview, NY 11803

558.92208.70

Comcast P.O. Box 3001 Southeattern, PA 19398-3001 971,36Commercial Ullman 2846 East 37th Slreet Cleveland, OH 44115 46.60Cuyahoga Comty Treasurer 1219 Ontario Street Cleveland, OH 44113 8,671.62Cuyahoga Safe & Lock 13615 Madison Avenue Lakewood, OH 44107 672.30Deily Record 212 East Liberty Slreet P.O. Box 918 Wooster, OH 44691 882.94Dell Commercial Credit Dept. 50-031330908 P.O. Box 9020 Des Moine, IA 50368-9020 7,210.86Diamond Painting Company 15247 Marks Road Strongsville, OH 44136 3,825.00Division of Water P.O. Box 94540 Cleveland, OH 441014540 92.50Dmfee, Peggy A. 610 1/2 West Aveeue Elyria, OH 44035 166.51Envirochemical, Inc. 6442 Metro Court Suite B Bedford Heighu, OH 44146 470.59GE Capital P.O. Box 642 t 11 Pidsburgh, PA 15264-2111 3,900.65Grecn Nature Landscape, Inc. 10617 Snow Road Parma Heights, OH 44130 3,549.00Hastings Water Works 12800 York Road Unit C Nonh Royalton, OH 44133 2,042.28Hehns, Michelle M. The Greens of Ashland 265 Ronald Avenue Aahlmd, OH 44805 34.41Hendrix PainL & Clean P.O. Box 1870 Wooster, OH 44691 14,870.00Home Depot Credit P.O. Box 6029 TheLekes, NV 88901-6029 5,485.97Home Depot Supply 10641 Scripps Summit Court SmDiego, CA 92131 3,782.40Home Hardware, Inc. 140 Center Street P.O. Box 37 Ashhmd, OH 44805-0037 973.65

Revised Proposed Schedule of Allowed Unsecured Claims of Non-Investor Credimrs: Accoums Payable by Entity Exhibit B

ICI Paints 21033 Network Place Chicago, IL 60673-1210 2,593.64Bluminating Compeny P.O. BOX 3638 Akron, OH 44309-3638 284.45Illuminating Company Billing Services - NRHQ-215 P.O. Box 5000 Cleveland, OH 44197-9811 156.00Inlegrity Verific. 725 North Court Street Suite D Medina, OH 44256 32.00Irwin's Otfice Supplies 143 Center Street Ashlend, OH 44805 5.37JRF Managenu:nt 6200 SOM Center Road Suite C-20 Solon, OH 44139 10,000.00Kinina Minolta Bus. Sol P.O. Box 7247-0322 Philadelphia, PA 19170-0322 269.03Kinica/Minolta Bus. Sol. 18601 Cleveland Parkway Suite 100 Cleveland, OH 44135 3,464.00Krsnlz, Powers & Friedman 23240 Chagrin Boulevard Suite l80 Beachwood, OH 44122 4,391.85Lake County Treasurer 105 Main Street, P O Box 490 Paincsviile, OH 44077-0490 1,582.97LDMI Telecommunications Depar6nent 77609 P.O. Box 77000

cJo Alex Rakic, J.D., L.L.M.Detroit, MI 48277-0609 2,0t2.65

Lifestyle Designs, Inc. 1787 Peerl Road Bnmswick, OH 44212 113,665.65Lowes Business Acwunt P.O. Box 4554 Deparlment 79 Carol Slream, IL 60197-0554 1,208.52M&MSales&Service 1236 County Road 42-B Ashland, OH 44805 136.63Mast Appliance Service 7791-A Back Orrville Road Wooster, OH 44691 307.99McClintock Electrie, Inc. 402 East Henry Stfeet Wooster, OH 44691 2,657.46McCoy's Florist & Gift 7535 Pearl Road Middleburg Heights, OH 44130-6429 88.51Medical Mutual Servioea P.O. Box 931361 Cleveland, OH 44193-0542 48.00MJR Construction Servicea 16290 Glendale Avenue Strongsville, OH 44136 21,426.42National Carpet Mill OuOet Inc. 5730 Cleveland Road Wooster, OH 44691 33,332.74National Construction Rentals 15319 Chatsworth Street Mlission Hills, CA 3,920.41Nova SetOement/Recovery 7300 Chapman Highway Knoxville, TN 37920 1,714.92OfBce Max P.O. Box 9020 Des Moinra, IA 50368-9020 150.13Ohio State Landscaping 6353 Mariana Drive Parma Heights OH 44130 1,825.00OPENonline P.O. Box 549 CWumbus, OH 43216-0549 95.58Orkin 60 Hanna Parkway Ak.ron, OH 44319 499.58Orkin P.O. Box 740036 Adanta, GA 30374-0036 164.40Parma Plumbing Co. 5493 Broadview Road Parma, OH 44134 140.00Paychex, Inc. 4760 RichrnondrRoad SuitelOO Warrenaville Heighta, OH 44128 635.88The Plain Dealer P.O. Box 630504 Cincinnati, OH 45263-0504 2,689.56Precision Heating & Cooling 18514 Ridge Road North Royalton, OH 44133 7,703.00Proplumbing Service, Inc. 14133 Niagra Drive Strongsvillc, OH 44136 600.00Robinson Company, M. W. 5980 Ashland Road Wooster, OH 44691 4,522.75Roto-Rooter 1661 Barbara Drive P.O. Box 426 Wooster, OH 44691 184.45Securi-Com 4721 East Royalton Road BrosdviewHeights; OH 44147 362.88Sprint Conference P.O. Box 660051 Dallas, TX 75266-0051 95.69Stacklin, Thomas A. 10 Lincoln Drive Shelby, OH 44875 13.95Staples Credit Pian P.O. Box 9020 Des Moines, IA 50368-9020 3,201.17Sun Newspapers P.O. Box 25650 Cievelaad, OH 44125-0650 52.33Sunoco,lnc. P.O. Box 689156 Des Moinea, IA 50368-9156 USA 135.37Swan, Carletta J. 6125 Carol Avenue Brook Park OH 44142 120 28Tenant Credit Reports P.O. Box 660

,Wolfeboro, NH 03894

.276.44

Thomscat West P.O. Box 64833 SL Paul, MN 55164-0833 105.31

Revised Proposed Schedule of Allowed Unsecured Claims of Non-Investor Creditors: Accounts Payable by Entity Exhibit B

Turf Tamers Plus, LLC 1545 West 130th Street Unit B Hinckley, OH 44233 8,873.66Univemity Directories P.O. Box 8830 Chapel Hill, NC 27515 440.00Vallman, Thomas J. 6808 Parkgate Oval SevenHills, OH 44131-3643 107.35Westwood wuntry Club P.O. Box 16459 RockyRiver, OH 44116 4,350.08Wooster City ServicesWooster Glass Company, Inc.

538 Norlh Market Street419 South Market Street

Wooster, OH 44691Wooster, OH 44691

5,440.88307.77

Feith One, Ltd

483,690.56

City ofStrongsville P.O. Box 901425 StrongsvOle, OH 44190-1425, 262.46Turf Temers 1545 West 130th Street Unit B Hinckley, OH 44233 3,304.80

Garnet Development

3,567.26

Stmctura Architects Ltd 2251 Front Street Suite 109 Cuyahoga FaOs, OH 44221 30,250.00Blue Frog Corp DBA Party Plave 8,426.76

Claire's Folly, Inc.

38,676.76

A Bit of New York, Inc. P.O. Box 164 29 West 130th Street Hinckley, OH 44233 542.55LoPresti & Sans, Inc. 2735 East 40th Slreet Clevelend, OH 44115-3571 6,615.55ABCO Fire Protection 4545 West 160th Stret Cleveland, OH 44135 804.80Accurate Refrigeration Service Corp. 9500 Running Brook Drive Parma, OH 44130 1,193.78AB-Amuicen Draft Servies 26100 Forestview Avenue Euclid, OH 44132 80.00Artwork by Shoe, Inc. 7447 Skylark Drive Cleveland, OH 44130 2,242.08ASCAP 2690 Cumberland Parkwey, S.E. Suite 490 Allanta GA 30339-9883 183.67Blue Ribbon Meets 3316 West 67th Plew Cleveland, OH 44102 3,305.53Broadcast Music, fac. 10 Music Square East Neshville, TN 37203-9901 263.25Brandt Meat Co. 21500 Alexender Road Oakwood, OH 44146 34.95Brown, Dan 10108 Forestview Drive Strongsvtlle, OH 44136 231.13Bureau-ATF P.O. Box 330958 Strongsville, OH 44136 89.93Capital OneCarousel Works, Inc.

P.O. Box 85184225 Centrel Avenue

Richmond, VA 23285-5184Mansfield, OH 44905

56.6940,950.00

Canuso's Coffee, Inc. 10300 Brecksville Road Brecksvi0e, OH 44141 560.75Chargeback Department 7300 Chapman Highway Knoxvi0e, TN 37920-6612 855.00City Visitor Pub. 5755 Granger Road Suite 600 Independeace, OH 44131 495.00Clear Channel Broadcasting 3226 Jefferson Road Ashtabule, OH 44004 1,620.00Corecomm P.O. Box 2570 Cincinnati, OH 45274-2570 283.43Darling Int'l P.O. Box 3185 Dearborn, MI 48122 5.70Dean Supply 3500 Woodland Avenue Cleveland OH 44115-3421 384.15Electrical Appliance Repair 5805 Valley Belt Road Cleveland, OH 44131-1423 120.48Emtech Enterprises 1025 Herberich Avenue Akron, OH 44301 50.00

IRevised Proposed Schedule of Allowed Unucured Claims of Non-Investor Creditom: Accounts Payable by Entity Exhibit B

Janka Knisinski's 6300 Heisley Avenue Clevelend, OH 44103 82.50KeOy, Annette 6195 West 130th Stmot Parma, OH 44130 50.00Matrix Automation, Inc. 340 North Main Street Huron, OH 44839-1621 650.77Morgan Services, Inc. 2013 Columbus Road Cleveland, OH 44113-3516 2,851.52Naugle, Clifford R. 17502 Laverne Avenue Clevelend, OH 44135-1944 550.00Northern Haserot 21500 Alexander Road Oakwood, OH 44146 698.07Orlando Baking Co. 7777 Grand Avenue Cleveland, OH 44104-3099 869.09Pepsi-Cola Bottlera 75 Remittance Drive Suite 1884 Chicago, H. 60675-1884 700.98The Plain Dealer P.O. Box 630504 Cincionati, OH 45263-0504 5,883.00Port Erie Communications 3952 Collections Center Drive Chicago, R. 60693 173.32R C Fine Foods P.O. Box 236 Belle Mead, NJ 08502-0236 27.00Reflections 7800 Colgale Avenue Suite 2 Cleveland, OH 44102 50.00Salem Communications NE Ohio 4 Sununit Park Drive Suite 150 Independence, OH 44131-2583 4,300.00SBC Bill Payment Center Saginaw MI 48663-0003 05614SBC Bill Paymenl Center

,Saginaw, MI 48663-0003

.288.36

Service Wet Grinding Co. 1867 Proapect Avenue Cleveland, OH 44115 149.60Staples CrcAit Plan P.O. Box 9020 Des Moines, IA 50368-9020 213.05State Fish Compeoy 1600 Merwin Avenue Cleveland, OH 44113 375.00Structara Archilecta 2251 Frnnt Stnxt Suite 109 Cuyahoga Falls, OH 44221 13,500.00Sysco Food Service Cleveland P.O. Box 94570 Cleveiand, OH 44101-4570 38,314.25WDOK-FM 22286 Network Place Chicago, IL 60673-1222 1,994.00WFHM (Salam Broadcasting) 4 Stunmit Park Drive Suite 150 Independence, OH 44131 3,750.00WilhelmyFlowers, Inc. 17456 Lorain Avenue Kamms Plaze Clevdend, OH 44111 108.00Wineemcrica 1200 G Street, N.W. Suite 360 Washington, DC 20005 345.00WQAL - Q 104 One Radio Lene Cleveland, OH 44114 750.00Yagl, Jeanette 11019 Drake Road Nonh Royalton, OH 44133 42.76

Claire'a Grand River Winery

138,288.74

Advanced Gas & Welding 34355 Vokes Drive EasOake, OH 44095 163.90ASCAP 2690 Cumberlend Parkway S.E. Suite 490 Adanta, GA 30339-9883 183.67Bureau of Workers' Comp Slate Insurance Fund Corporate Processing Dept. Columbus, OH 43271-0821 1,526.41Cascade Fruit Merketing P.O. Box 749 Aumra, OR 97002-0749 4,271.20Coca-Cola BotOing Company 135 South LaSalle Street Department 2329 Chicago, IL 60674-2329 448.65Central Herdware 44 South Broadwey Avenuc Geneva, OH 44041 163.56City Visitor Pub 5755 Granger Road Suite 600 Independence, OH 44131 495.00Clear Channel Broadcasting Inc. 3952 Collections Center Drive Chicago, IL 60693 750.00Clear Chmnd AshtabWa 3952 Collectiona Center Drive Chicago, R. 60693 940.00Comfort Supply Inc. 7 South Broedway Geneva, OH 44041 428.39Complete Lawn Service 3978 North Broadway Avenue Geneva, OH 44041 480.00Criveller Company Cenada 6935 Oakwood Drive Niagra Falla, ONTARIO L2E 6S5 86.56Duke, John T. 1515 Northview Road Rocky River, OH 44116 167.62Duke, John T. 1515 NorWvlew Road Rocky River, OH 44116 68.82

1 I I I I

Revised Praposed Schedule of AOowed Unsecured Claims of Non-Investor Creditom: Accounts Payable by Entity Exhibit B

Eestem Logistics, Inc. 2016-C New Garden Road Greensboro, NC 27410 344.48Electrical Appl. Repair Service 5805 Vallcy Belt Road Clcveland, OH 44131-1423 534.06Emtech Enterprises 1025 Herberich Avenue Akron, OH 44301 50.00Eugene Wine 255 Madison Street Eugenc, OR 97402 11,494.19Grainger 1035 Valley Belt Road Brooklyn Heighta, OH 44131-1432 249.52Lemon Creek Fruit Farm 533 East l.emon Creek Road Berrien Springs, MI 49103 4,032.00News-Herald 7085 Mentor Avenue Willoughby OH 44094 128 40Newspaper Holings The Star 8eawn P.O. Box 2100

,Ashtabula, OH 44005

.307.50

Orkin 6940 West Snowville Road Brecksville, OH 44141-3216 74.73Orlando 7777 Grand Avenue Cieveland, OH 44104-3099 48.04OWPA P.O. Box 157 822 North Tote Road Austinburg, OH 44010 100.00The Plain DealaPresque Isle Wine Cellers

P.O. Box 69559440 West Main Road

Cleveland, OH 44190North East, PA 16428

1,492.0029.75

Scon Laboratories 4506 Main Street Buffalo, NY 14226 3,247.87Sysw Food Service Cieveland P.O. Box 94570 Cleveland, OH 44I01-0570 8,631.79Vinquiry, Inc. 7795 Bell Road Windsnr, CA 95492 64.09Weste Management 10237 Cutts Road ChardoR OH 44024 156.52

Old Mill Winery

41,158.72

Adelphia 3300 Lakeside Avenue Cleveland, OH 44114-3751 243.35ASCAP 2690 Cumbaland Pukway S.E. Suite 490 Adanta, GA 30339-9883 183.67Broadcast Music, Inc. 10 Music Square East Nashville, TN 37203-9901 257.40Brouse McDonwell, LPA 388 South Main Street Akron, OH 44311 255.00Central Ace Hardware 44 South Broadway Avenue Geneva, OH 44041 70.05City Visitur Pub. 5755 Granga Road Suite 600 Independenec, OH 44131 495.00Clear Channel Broad. 3952 Collections Center Drive Chicago, IL 60693 1,740.00Clear Chaunel Ashtabula 3952 Coilections Centa Drive Chicago, IL 60693 752.00Comfort Supply, Inc. 7 South Brnadwey Geneva, OH 44041 309.15Commercial Repair Savice 4351 West Sprague Road Nonh Royalton, OH 44133 252.00Complete Lawn Service, Inc. 3978 North Broadway Avenue Geneva, OH 44041 550.00Duke, John T. 1515 Northview Road Rocky River, OH 44116 64.11Duke, John T. 1515 Northview Road Rocky Riva, OH 44116 131.44Dominion East Ohio P.O. Box 26785 Richmond, VA 23261-6785 941.20Emtech Enterprises 1025 Herberich Avenue Akron, OH 44301 50.00FbstMerit Bank P.O. Box 1499 Akran, OH 44309-1499 1,553.14Geneva Area Chamber of Commerce P.O. Box 84 Geneva, OH 44041 90.00Multi-Flow Diepensers 5213 Grent Avenue Cleveiend, OH 44125 405.75Naylor Wine Celiers 4069 Vineyard Road Stewanstown, PA 17363-5478 577.87News-Henld 7085 Mentor Avenue WiOoughby, OH 44094 128.40Newspapa Holdings The Star Beacon P.O. Box 2100 Ashtabula, OH 44005 307.50]nterstate Logos, LLC 4384 Tulla Road Dublin, OH 43017 756.00Orkin-Cle.Comm 6940 West Snowville Road Brecksville, OH 44141-3216 80.25

I I I ^Revised Pmposed Schedule ofAllowed Unsecured Claims of Non-InvestorCreditors: Accounts Payable by Entity Exhibit B

Orland Baking Compauy 7777 Grand Avenue Cleveland, OH 44104-3099 353.97OWPA P.O. Box 157 822 North Tote Road Austinburg, OH 44010 187.50

TLe Plain Dealer P.O. Box 630504 Cincimati, OH 45263-0504 1,492.00

Staples Credit Plan P.O. Box 9020 Dcs Moines, IA 50368-9020 95.24

Sysco Food Service.s Cleveland P.O. Box 94570 Cleveland, OH 44101-4570 13,205.97

Waste Management of Ohio 10237 Cutb Road Chardon, OH 44024 184.60

W ineamerica 1212 New York Avenue Suite 425 Washington, DC 20005 530.00

26,242.56

Pearl Deveapment Company LLCAir Control Products 3800 Towpath Clevelsnd, OH 44147 585.00

Best Supply 8620 Tyler Road Mentor, OH 44060 InsufHcient Informetiou

Broadway ContraotingBrockman Coats

3950 East 68th Street1735 Merrimen Road

Cleveland, OH 44105Akron, OH 44313-9007

15,134.179,009.75

Campbell & Assoc. 1923 Bailey Road Cuyahoga Falls, OH 44221 14,020.00Castle Heating & Air, Inc. 2020I.ekeside Avenue Cleveland, OH 44114-3751 Insuffcientlnfotrnation

•City of Parma Heights (Tax Assessment) 6281 Pear1 Road Cleveland, OH 44130 4,137,557.72

Cleveland Con,truction, Inc. P.O. Box 641447 Cincinnati, OH 45264-1447 Insufficient Information

Donle>'s 5430WamerRoad Clevelend, OH 44125 Insufficient Information

Forum ArchitectsGQ Contracting, Inc.

1240 Huron Road1164 Lloyd Road

Cleveland, OH 44115Wickliffe, OH 44092

137,105.35472,790.92

Harrington Elecnic 3800 Perkins Avenue Cleveland, OH 44114-3751 624,152.65Illuminating Co P.O. Box 3638 Akran, OH 44309-3638 16,111.15Jacco and Associates P.O. Box 74778 Clevelend, OH 44194-0861 1,050.00Lorain Glass Co., Inc. 1215 Broadway Avenue Lorain, OH 44052 154,894.00Muni Cap 8340 Govemor Ridgeley Lane Ellicon City, MD 21043 100.00MuniCap, Inc. 8340 Govemor Ridgeley I.ane EOicott City, MD 21043 3,950.00

National Conshuction Rentals P.O. Box 4503 Pacoima, CA 91333-4503 32.40

Nonhem Valley Contractors, Inc. 7640-A WhippleAvenue North Centon, OH 44720 buufiicient InformationOhio Landscaping 6353 Mariana Drive Perma Heights, OH 44130 2,052.00Ohio State Landsceping (snow plowing) 6353 Mariana Drive Parma Heights, OH 44130 1,890.00PSI (Testing) P.O. Box 71168 Chicago, B.60694-1168 14,975.50Quality Cement, Inc. 1280 Trumbull Avenue, Suite B Girud, OH 44420 InsufGcient Information

R.M.D. Co., Inc. P.O. Box 1237 Medina, OH 44258 3,472.00RJ Stovieek 2950 Broadway Avenue Lorain, OH 44055 10,855.00R.W. Sidley, Inc. 6900 Madison Road, P.O. Box 70 Thompson. OH 44066 IneutHcient InformetionS.A. Comunale 2900 Newperk Drive Barberton, OH 44203-1050 19,278.00

Steinglasa Mechanied Contracting, Inc. 654 Progress Drive Medina, OH 44256 52,354.05

Shuctura 2251 Front Street Cuyahoga Fd]s, OH 44221 26,125.00ThyssenKrupp P.O. Box 1262 Memphis, TN 38101-1262 922.40Tomco Metsl Fabricating, Inc. 1873 East 55th Street Clevelend, OH 44103 IneufficientlnformationTycor Roofmg, Inc.(f/k/a Ha8 Jones Roofmg) 7390 Middlebranch Avenue Canton, OH 44721 InsuBicient InformationWaca (Scaffolding) 4545 Spring Road Cleveland, OH 44131 421.08

I I ; ', I I I , I i I

Revised Propoaed Schedule of Allowed Unsecured Claims of Non-lnvesmr Cn:ditors: Accounts Payable by Entity

Wereb Metal Fabricatiag P.O. Box 843 Mentor, OH 44061-0843

Exhibit B

39.46

5,718.877.60

*The City of Pamm Heights tax assessmentis allocated among the tluce owacrecomprising the Comustone Developmeotas fo8ows:Gamet Development Company: 36.99Y.Ruby Development Company: 25.98%Pearl Development Company: 37.09'/e

Total s 6,450,502.20

SCHNEIDER MGMT CO. & RELATED ENTITIES PAYROLL PAYABLE

Schneider Mgmt CompanyPayroll Pdd Ertimated Balance

Employee 1A1-2/13/05 Payroll Due

Andrews, Micheei 500.00 1,355.48 855.48Bjodclund, Brian 500.00 2,692.31 2,192.31Brinkman, Michelle 500.00 899.97 399.97Brown, Daniel 500.00 2,962.00 2,462.00Caats, Donald 500.00 1,428.38 928.38Dorsey Jr., Ronald 500.00 1,538.46 1,038.46Drop, Dennis 500.00 1,040.00 540.00Dunfee, Peggy 500.00 1,044.52 544.52Eddy, Kerilee 500.00 2,480.01 1,980.01Gayheart Jr., Reginnld 500.00 1,386.78 886.78Henrna, Rita 500.00 1,468.30 968.30Helms, Michelle 500.00 1,253.88 753.88Kosakowski, Chester 500.00 2,089.46 1,589.46Laubenthal, David 500.00 2,178.62 1,678.62Lebanik, Brisn 500.00 1,423.08 923.08Mallory, Brian 500.00 2,500.00 2,000.00Nagel, Cherles 500.00 2,307.69 1,807.69Ringer, Stephen 500.00 2,579.24 2,079.24Rivelsky,Margaret 500.00 1,592.31 1,092.31Schultz, Christine 500.00 1,926.59 1,426.59Schuitz, Thomas 500.00 1,997.50 1,497.50Scitz, Douglav 500.00 2,692.30 2,192.30Svren, Carlcha 500.00 1,215.39 715.39Vallmen, Thomas 500.00 1,373.08 873.05Weiser, Dale 500.00 2,126.05 1,626.08Zclenok, Merjarie 500.00 1,075.00 575.00

13,000.00 46,626.45 33,626.45

Old Mill Winery

EmployeePayroll Pald1/24-2/6/05

ErtimatedPayroll

BdanteDue

Gruber, Diene 500.00 887.19 387.19HellettAmy 500.00 833.65 333.65Raikes,Berhara 500.00 1,188.46 688.46Queeh, Susan 500.00 1,041.71 541.71

2,000.00 3,951.01 1,951.01

Exhihit C

Cidrea Grand River Winery, Ioe.

EmployeePayroll Paid Eelimated1!31-2/13/05 Payroll

BalanceDue

Duke,JohnMcMillin, ChristinaMcMillin,NicholasSnodgrass,Gene

500.00 761.22500.00 880.09500.00 818.69500.00 781.64

261.22380.09318.69281.64

2,000.00 3,241.64 1,241.64

Clairee Folly, inc.

EmplpyeePayroll Paid Esilmated1/31-2/13/OS Payroll

BalanreDue

Creepo,Victoria 500.00 615.02 115.02Dillon, James 500.00 688.65 188.65Donohae, Mark 500.00 1,466.33 966.33Nanhmaq Theodore 500.00 1,166.43 666.43Iuo,Lisa 500.00 945.20 445.20Joyce, Micheel 500.00 563.07 63.07Lijanq Dylen 500.00 602.53 102.53Romph, April 500.00 1,729.68 1,229.68Rush, Gartett 500.00 955.72 455.72Saddler, Damon 500.00 601.50 101.50Smith,Barrett 500.00 995.10 495.10Spies, Chrisline 500.00 655.41 155.41Waten, Kevep 500.00 967.22 467.22West, Catherino 500.00 610.20 110.20

7,000.00 12,562.06 5,562.06

Total Waeee Payahle $ 42,381.16

C:^âxwrm nd eqf.ipWTLxY SNmyplmy4eariW ededule-hpmll Annr,W Ihuew,d l.lu® (H1161b6).)n.SleheCl

SCHEDULE OF ALLOWED UNSECURED CLAIMS OF INVESTORS

Investor Allowed Unsecured Claim of InvestorAdams, J. $9 886.11A osta, G. $1 ,833.46Aguiar, L. $129,135.23Albert, D. and L. $40,000.00Allen, W., Trustee $42,791.94Amato, D. $7,733.89Amato, R. $71,225.63Andrew, R. $15,000.00Andrews, C. $5 500.00Andrews, G. $6 990.00Andrews, L. and R. $9,520.00Andrews, R. $15,000.14Andrews, T. $23,795.23Aro, E. $40,000.00Ash, D. $18,642.54Bailosky, L. $2,166.78Ba'ic, B. $56,400.00Bajic, C. $5,500.00Bajic, J. $28,312.44Baldoza, D. and M. $6 ,550.00Ballog, E. and L. $35,808.55Ballog, E. and B. $51,423.23Ballo , T. $11,201.41Balukh, M. and O. $40,000.00Banas, D. and S. $23,666.68Barat, S. $29,970.00Barrett, M. $101 ,901.50Barrett, W. and S. $50 950.00Barton, J. $300,600.00Bass, R., Trustee $20,000.00Bell, G. $16,000.00Bellanger, J. and R. $43,475.00Benzin, R. $25,000.00Beodray, G. $8 ,933.36Beme S. and L. $4,637.35Berry, Be. $8,960.83Berry, Bra. $4,550.13Berry, Bre. $2,687.63Berry, W. and S. $72 67.02Beside, E. $30,100.00Beside, R. and J. $12,963.77Bewley, D. $73,666.03

EXHIBIT I

Biacsi, J. $303,872.70

Biacsi, F. $200,593.11Bishop, T. and D. $50,000.00Black, L. $25 ,000.00Blenderhofer, F. $60,000.00Blenderhofer, M. $9,466.68Boettcher Family Revocable Trust $77,200.00

Boettcher, M. (custodia) $90,000.00

Bognar, E. $58,787.29Bolog, C. $23,763.42Bomgaars, D. $9,466.68Borelli, T. $18,000.00Boring, L. $42,109.22Borszcs, S. $75,036.80Botson, M. and A. $12,947.87Botson, J.K. and A. $91 ,613.56Botson, J.J, and A. $6,962.31Bova, C. $51,299.16Bowlus, M. $36,266.76Bo im, A. $29,780.67Bozicevich, D. $27,781.01Bozoli, J. and M. $20,000.00

Bmn J. $16,53342Braund, S. (cust for Alec) $65,000.00Braund, S. (cust for S cer $35,000.00Bri ht, W. $13 ,645.00Brinker, A. $7,000.00

Brinker, D. $36,500.00Brinker, P. $10,000.00Brockelhurst, J. and C. $65,944.48Brown, D. $21,416.08

Brown, F. $46,527.27Brown, J. $27 ,680.14Budd, R. $147,333.36Bu'narowski, C. $82,424.97Bu'narowski, Re. $4,960.55

Bulmer, M. $4,133.42

Burckhart, R. $45,333.38

Burdette, W. $18,056.97Bumside, L. $23,000.02

Butchart, J. $9,200.02B am, W. and D. $161 , 106.99Caban, W. $68,960.69

Campbell, Mart. $3,980.24

Campbell, M. $107,600.00

EXHIBIT I

Capasso, A. $90,000.00Cardenas, P. $20,550.00Cemanec, D. $61,452.75Chambers, F. $50,180.48Chambers, H. $893.88Chambers, K. (cust for Daniel) $2,083.45Chambers, K. (cust. For Emmett $1,675.04Champa, C. $10,000.00Champa, D. and. J. $86,500.00Chapman, J. $23,333.35Chapman, R. $24,000.01Chavez, R. $10,000.00Chesnik J. $25,000.00Chihil, D. $20,000.00Chipka, K. (POD Tomek, L.) $16,320.00Chonko, Da. $10,666,90Chonko, Do. $14,266.74Christensen, P. $420,000.00Ciavarro, P. $13,701.00Claire, E. and K. $22,000.00Clink, H. $5,300.00Cleveland, L. $118,293.98Coalmer, M. $28,120.00Coates, R. $34,950.58Coljohn, M.L. $7,000.00Connell, L. and E. $9,548.00Conrad, C. $122,455.93Conrad, S. $6,833.46Conway, J. $13,336.14Cook, De. $46,400.00Cook, Do. $6,100.00Cool, D. $81,333.38Corlett, W. $13,269.08Craig, G. and J. $68,828.67Cramer, J. and S. $70,000.00Crawford, H. (nee Plotz) $5,000.00Cuchiara, R. $10,000.00Crowe, T. $17,520.00Csongedi, R. $13,485.45Culler, D. $296,211.11Curtis, Dor. $108,061.90D'Agostino, F. $10,000.00D'A ostino, V. $9866.67D'An elo, R. and C. $15,786.67Dankle, J. $118,922.75

EXHIBIT 1

Dar a , M. $11,500.00Darrah, C. $47 539.75Darrah, D.J. $10,000.00Darrah, J. $47,539.75Darrah, K. $47,539.75Darrah M. $47,539.81Darrah, Neal. $275,137.56Darrah, Patrick $37,308.27Daveduk, F. $28,104.86Davedu T. $23,089.36Davis, R. $2,800.00Deau, P. $12,500.00Deau, S. $19,320.00Decker G. and A. $57,200.00Decker, J. $68,600.00DeFilipo, L. $34,700.00Degro, $12,500.00DeJesus, E. $1,566.92DeJesus, G. $51,93832Demark, J. and C. $25,000.00Dennis, C. $26,734.25DeNova S. $22,000.00Deobald, J. $33 ,267.24Derschau, W. $44 47.06Desmone-Baytos, R. $22,000.00Deters, D. $25 ,000.00Dettrner, J. $2,975.00Devera, C. $10,700.00Dharia, R. $25,000.00Dickinson, R. $33,600.04Dicus, R. and C. $45,090.02DiDio, R. $65,286.88Diffenbacher, R. $44,797.76Diffenbacher T. $5,000.00Di , B. $46,533.42DiPaola, M. $2,068.00DiVincenzo, J. $66,236.68Dixon, M. $17,066.74Dohar, C. $14,600.00Dohar, M. $18,133.38Dohar, R. $18,400.04Donovan, H. $9,466.68Dotson, H. $94,666.68Douglass, J. $3,933.44Drago, G. $15;466.78

EXHIBIT 1

Dra o, W. $104,898.41Dreifort, C. and J. $35,000.00Drozdowski, C. and M. $100,000.00Duffield, G. $24,414.59Duncan, De. $5,805.82Duncan, L.. $194,025.00Duncan, Do. $280,423.49Duncan, M. $183,564.00Du la , C. $50,000.00Ea lee e, R. $175,000.00Eddy, La. $27,866.68Eddy, Lo. (nee Genz) $37,866.68Eglet, J. $24,666.81Eisman, H. $36,600.00Eisman, H.L. $11,000.00Esson, R. $14,602.21Esther, E. $28,412.69Esther, Th. $4,40030Evansco, J. $21,683.95Faber, M. $33 ,601.00Fagan, J. $178,262.68Farris, C. $50,000.00Farris, L $140,000.00Fesco, Family Trust $30,000.00Fedarico C. $64,748.86Fedorak, S. $9,373.00Feiler, A. $274,483.04F 'utz, D. $75,961.63Fienauri, A. $23,333.35Fiesler, J. $23,333.35Flada, S. $7,300.00Fleegle, G. $7,425.00Ford, L. $10,000.00Fortuna, T. $132,906.46Frate, G. $151,988.39Frate, MA. $5,000.00Frate, MJ., tnistee $459,768.68Frk, R. $2,900.00Funderburk, J. $21,582.28Gagliardi, J. $50,000.00Gagne, B. $30,000.00Gagne, L. $9,466.68Gagne, P., Jr. $47,150.35Gagne, P. Sr. $25,533.99Galek, D. $31,485.11

EXHIBIT I

Gallagher, J. $26,000.00Ganda, And. $24,400.14Ganda, Ant. $28,001.00Ganda, D. $38,666.78Gangale, A. $78,666.72Gangale, F. $78,666.72Garapic, M. $10,000.00Gartman, M. $3,425.00Gaumer, E. $7,200.00Gavlak, G. $15,000.00Genz, L. $38,933.34Gibbs, H. $9,066.69Gibson, W. $5,650.00Gillespie, H. $22,571.42Glenn, C. $7,721.24Glowacki, R.F. $185,113.48Golick, J. $10,500.00Golick, M. $59,635.49Gomez, E. $67,000.00Goodwin K. $6 000.00Gorisek, E. $24,777.34Gorisek, P. $13,879.80Gosser, J. $83,372.21Gottschalk, J. $29,979.65Gottschalk, L. $12,183.22Gramm, A. $75,000.00Gramm, Ant. $14,233.48Grande, P. $13,013.76Grande, M. and C. $34,168.79Graumer, E. $7,200.00Grecol, K. $15,62750G o , K. $69,255.60Griffie, D. $30,345.36Griffiths, P. $12,200.00Gromi B. $2,900.00Gugliotta, S. $10,700.00Guthrie, R. $50,000.00Gwirtz, K. $34,133.37Hall, Natalie $38,476.76Hamilton, A. $10,000.00Hamm, M. $36,266.69Hanson, L. $10,000.00Harrah G. $10,000.00Harrison, K. Flee le $96,693.59Han-ison R. $1650.66

EXHIBIT 1

Hart, K. $124,843.10Hartgas, E. $38,933.34Hatgas, M. $10,000.00Hawley, J. $28 ,933.42Hazel, E. $122,500.00Hazel, E. $104,911.04Hein, St. $17,500.00Heins, A. $25,000.00Heins L. $25,000.00Heipp, G. $4,800.00Heisler, V. $9,908.68He , M. . $9 ,695.10Henry, R. $14,410.00Hill, R. $10,500.00Hine, V. $21,530.97Hinte, D. $15,000.00Hipps, R. $12,000.00Hiavaty, T. $35,000.00Hoag, D. $17 ,976.00Holcomb, R. $7,150.00Hoppe Living Trust $37,210.65Hopper, D. $5,000.00Hostetler, W. $775.00Howe, M.K. $7,600.06Hmcir M. and E. $22,183.85Hulbeit T. and L. $1 ,201.19Huston, D. $10 ,000.00Hyer, W. $28,537.05Ihde, M. $60,000.00Izuka, A. $63,000.00Jacquermain, J. and D. $71,991.30Janialr, N. $176,387.24Janison, R. $18,933.36J. Notarian Scholarship Fund $9,466.68Jewett Trustee, CA. $177,971.50Jewett Trustee, J. $77,333.39Kachmar, M. $123,904.61Kalinoski, K. $30,000.00Kalinoski, P. $9,866.67Kalinoski, S. $9,866.67Kalinowski, M. $108,875.81Karaba, R. $10,000.00Katrinak, S. $9,466.68Kebbel, V. $45,000.00Keblesh, J. $3,933.44

EXHIBIT 1

Keefer, J. $78,280.00Kefalos, B. $60,000.00Kelly, V. $4,000.00Kemp, Kr. and Mat. $2800.00Kemp, R. and Ka.. $2,924.00Keneson, J. $155,520.00Kennedy, D. $72,303.59Kensky, B. $758,974.23Keraman, K. $6,278.45Kilbane, K. $4,200.08Kimmich K. $25,000.00King, C. $50 000.00Kingdom Resources Foundation $17,806.66Kish, R. $41,790.05Klepfer, B. $42,789.40Klusak, M. $5,500.00Knerem, D. $20,000.00Kocar, B. $24,000.01Kocisko, S. and A. $24 ,867.00Koenen, J. $11 ,829.00Kordos, E. $105,000.00Kornick, S. $40,000.00Kosakowski, C. $9,450.88Kosakowski, E. $15,466.78Kosakowski, J. $250,393.44Kosco, D. $108,278.74Kosco, M.L. $5 ,950.00Kovach, L. $9,700.00Kovach, M. $22,032.60Kovary, J. $35,869.31Krencik, G. $9,866.67Krese, K. $28,006.88Kreuzer, T. $3,346.73Krucze J.and S. $12,000.00Krue er G. and L. $150,000.00Krzemienieswk, M. $40,000.00Kufleitner, C. $12,800.00Kuhn, K. $87,455.35Kuhn, P. $50,000.00Kuhn, S. $142,687.90Kulow, D. $5 000.00Kulow, R. and P. $172,600.00Kwiecen, R. $9,466.68K ovsk , Ri. $355,675.62K ovsk , Ro. $18,000.00

EXHIBIT 1

K ovsk , R.]. $68,162.96Laco, C. $49,765.24Laco, J. $42,620.06Laina, M. $174,094.96Lane, R. $15,590.13LaPorta, L. $2,827.44Lastovka, T. $3,225.00Lau, W. $16,750.00Laubach, F. $89,466.67Laubenthal, H. $84,670.38Laubenthal, J. $123,222.41Lawton, G. $96,000.01Lehotan, D. $3,800.12Leishman, A. $35,000.00Lesnick, J. $65,382.51Leszc nsk , C. $984.00Les2c nsk , Na. $4 032.33Leszc ns , Ni. $3,314.00Letterle D. $28,400.00Levandowski, J. $38,085.44Levandowski, Sc. $32,500.00Levandowski, Su. $93,890.33Libonati, G. $189 ,273.49Libonati, P. $55,733.44Limon, D. $17,021.34Limon, N. $27,806.09Lineweaver, J. $316,583.30Liotta, E. $60,000.00Lloyd, D. $268,000.00Locy, E. $3,841.96Lombardo, J. $72,000.00Lori , R. $64 ,3 17.98Lukas, A. $12,500.00Lukic, Z. $75,000.00Lupton, M. $15 ,000.00Macek, R. $50,000.00Maceyko, M.J. $9,066.69Maceyko, MA $125,496.34Mace ko R. $11 ,360.00Maiorano, M. $10,000.00Maksin, J. $28,746.79Malone, D. $34,000.05Marcantonio, A. $86,250.00Marcinek, V. $44,258.20Marella, N. $3 ,050.00

EXHIBIT 1

Man:lla, J. $117,250.00Marion, D. $10,000.00M uard R. $3 ,058.52Marshall, D. $9 066.69Martin, D. $12,184.00Martin, L. $44,866.67Masielle, J. $5,000.00Mate, L. $40,000.00Matts, D. $24,041.89Matts, M. $30,000.00Matuszny, G. $65,385.38Mauer, J. $10,000.00Maxwell, J. $99,33334Mazzola, R. $288,000.03McCafferty, S. $18,933.36McCarel, E. and. V. $12,534.97McCo , D. $21 ,800.13McDerrnott, B. and Ch. $459,443.52McDermo Cl. $25,790.02McDermott, E. $27,94352McDermott, J. $83,420.55McDermott, Ke. and L. $256,791.61McDermo Ra. $18,266.71McDermott, Ro. $10 ,000.00McDonald, M. $49,722.22McDonnell, J. $28,000.00McKinley, J. $23,000.00McKinney, D. $12,836.01McNamee, C. $3,425.00Mctigue, D. $9,73334Mehota, R. $115,073.78Merlino, S. $1,674,75Merlino, T. $160,589.40Micic, R. $26,727.49Micic, T. $27,200.00Middleton, D. $89,350.37Mihu, D. $22,000.00Mihu, R. $20,000.00Mikola', M. $90,066.69Milano, A. $19,519.19Milano, C. $5,87327Milano, T. $10,000.00Milchak, Dav. $40,000.00Milchak, D and C.. $69,543.73Milchak, E. $114,933.36

EXHIBIT 1

Miller, C. $55,600.00Miller, D. $10,000.00Miller M. $4,533.38Misko, S. $40,000.00Mochko, C. $30,000.00Modi, B. $7,451.27Monachello, L. $6,133.36Monai, A. $10,50026Monai, R. $12,821.00Mon ome , M. $24,333.34Moore, P. $8,025.00Moreau, J. $10,000.00Moritz, C. F. $118,327.44Mortiz, CJ. $12,244.47Mortiz, N. $14,600.00Mortiz, S. $21,900.00Morrison, L. $9,333.70Morrissey, A. $28,365.43Moscarino, C. $10,000.00Mozser, D. $167,734.33Mraz, T. $10,000.00Mueller, L. $301,135.73Mullins, A. $52,702.56Murch, M. $786.71Muro Family Trust $24,733.34M h , E. $5,000.00Mu ,J. $14,028.98Murray , K. $7,865.00Musselman, D. $15 , 131.54M eress, R. $40,000.00Nae e, C. $80,000.00Naegle, C. $35,000.00Naegle, T. $35,000.00Na el, E. and R. $16,222.47Nagel, R. $767,625.00Nagel, S. $86,667.00Naider, JJ. $23,688.86Naider, J.L. $36,643.75Nakoneczy, G. $27,452.30Nalepa, S. $49,400.06Neal, L. and E. $48 803.40Neale, J. $17,500.00Nedohon, T. $36,314.09Neiman, C. $39,319.10Neiman, RA. $33,357.88

EXHIBIT 1

Neiman, R.J. $23,400.00Nemeth, M. $11,241.71Nemeth, N. $3,575.00Nemeth, S. $71,446.77Nemeth, T. $3,575.00Nemeth, W. $16,216.69Neuenschwander, C. $16,034.27Nickles, J. $5,000.00Nobke, J. $75,000.00Novicky, D. $23,313.60O'Brien, M. $12,200.00Oliverio, J. $8,666.70Oliverio, W. $17,965.67Onions, S. $3,800.00Onions, W. $6,000.00O edisano, J. $25,000.00Owens, A. $7,633.09Owens, W. $3,571.64Pacak, D. $147,666.67Pacak, M. $16,311.83Pace, J. $2,925.36Panek, J. $6,400.00Parsons, R. and M. $11,033.76Pasadyn, M. and J. $1,462.16Passerrello, H. $69,928.83Patel, S. $15,200.12Pavalko, A. $4,600.04Pavlich, R. $162,348.49Pearson, E. $47,374.00Pechnik, D. $37,960.18Peck, B. $57,382.97Pecek, M. $45,937.84Perko Family Trust $28,400.00Perrotti, E. $20,000.00Pesek, L. $48,666.68Pesek, W. $149,333.34Pesic, M. $44,666.72Pesosk E. $150,849.67Petkunas, T. $93,333.35Petronzio, R. $81,257.69Petryshin, J. and R. $49,105.76Pierce, J. $37 ,389.01Pietron, N. $32,616.83Pike, M. $29,882.99Pillar, J. $9,333.35

EXHIBIT 1

Pinkos, J.M. $6,400.00Pirosko, J. $55,456.01Pkovary, J. $56,801.49Plotz, J. $63,055.57Pocza, D. $20,000.95Pocza, E. $249,344.90Pocza, M. $40,000.10Pocza, R. $53,533.42Podsiadlo, M. $36,080.06Poet, K. $7,044.86Poeta, K. $5,270.50Pola, L. $15,466.78Po iel,A. $1,874.11Popiel, D. $51,750.00Posner, D. $27,308.23Posner, E. $43,855.84Potocnik, V. $27,837.50Poznako, P $17,066.74Prall, E. $210,000.00Price, B. $50,000.00Prince, F. $103,948.37Prokes, L. $28,383.15Province, D. $4,666.96Prteniak, M. $29,600.00Pubal, E. $23,000.02Purcell, J. $6,826.74Putzier, C. $7,150.00Quell, R. $37 ,866.71Radatz, R. $21,604.23Radovic, D. $71,566.80Randall, W. $222,430.08Randar, J. and D. $210,000.00Ratner, A. $15,000.00Rebold, M. $5,090.04Reese, A. $5,746.74Reginelli, E. $9,315.32Re inelli,R. $16,767.57Reichard, K. $23,333.35Reichard, L. $9,333.35Reiter, P. $16,533.42Reitzes, L. $38,886.6Rey, M. $4,542.59Rice, A. $77,333.35Rice, R. $97,33334Riche , M. $10,000.00

EXHIBIT 1

Rider, G. $17,393.45Rider, V. (cust for N. Rider) $3,425.00Rider, V. and W. $10,050.00Rider, W. and P. $87,143.00Rinks, L. $29,600.00Risku, J. $17,775.00Ritcher, C. $27,343.00Roberts, W. $54,880.02Rodriguez, D. $50,000.00Rogers, F. $27,000.06Ro ers, G. and R. $50 ,000.00Rohn Showalter, J. $170,795.65Rollins, J. $20,000.00Rondini, L. $15 ,588.60Rondini, R. $27,241.68Rose, L. $45,855.07Roth, Pence $13,000.00Rowland, J. $115,000.00Rudd, R. $11 ,800.00Ruess, C. $18 ,758.44Rusek, D. $25,000.00Ruch, J. $304,200.15Russin, R. $538,829.95Russo, D. $62,500.00Russo, M. $15,000.04Russo, S. $58,449.72Rutter, D. $44,913.56Sabetta l. and J. $140,000.00Samardzija, S. $14,400.00Sammon, J. $33,020.98Sanders, H. $48,880.51Sandora, C. $46,666.67Sanker, Dav. $16,467.05Sanker, Dan. And S. $18,501.60Sanker, Do. $1,840.00Santora, R. $175,000.00Sasala, G. $68,266.74Sasse, G. $14,300.00Sasse, G.H. $38,500.00Sc IIi,B. $14,530.79Sc lli, C. $14,765.38Scarpelli, E. $13,555.63Scarpelli, S. $10,000.00Scharfenort, M. and A.M. $160,310.56Scharfenfort, S. $39,501.18

EXHIBIT I

Scharfeno K. $5,000.00Scharfenort, Mi. $2,370.00Schartman, J. $125,000.00Scheman, R. $10,000.00Schiefelbein, E. $32,754.86Schiefelbein, G. $15,000.00Schiefelbein, K. $15,000.00Schiefelbein, K. $20,797.56Schiefelbein, Ri. 410,000.00Schiefelbein, Ro. $25,000.00Schmi P. $42,166.93Schmitz, R. $25,392.00Schneider, K. $20,000.00Schowalter, J. $100,000.00Schrantz, C. $10,000.00Schreiber, J. $10,790.88Schreiber, S. $30,038.72Schubert, T. $52,716.20Schultz, N. $47,035.51Schurk, R. $11,000.00Scoarste, J. $10,000.00Scoarste, R. $10,000.00Seevers, C. $29,829.08Seminsky, R.T. $222,026.46Sepik, K. and P. $10,000.00Setny, J. $9,220.02Sfara, M. $37 866.68Shaffer, J. 9,775.00Sheaves, C. $56,500.00Sheaves, D. $3Z750.00Shemela, C. $7,000.00Sh , W. $11 ,700.00Shiever, A. $14,886.07Shiner, J. $11,000.00Siebert, G. $2,333.48Sieniawski, O. $8,000.05Siggelkow, A. $284,491.00Si elkow, E. $77,342.62Siggelkow, R. $57,31533Simon, M. $5 ,000.00Sindelar, J. $91,875.12Singerman, D. $75,000.00Sin leton L. $8,409.98Skerlan, J. $9,200.02Skerness, R. and D. $191,000.00

EXHIIBIT 1

Skidmore, H. $45,000.00Slago, V. $69,333.56Slivka, L. $9,466.68Smee, S. $52,864.42Smith, A. $5,000.00Smith, H. $3,733.46Smoody, J. $78,666.72Snider, C. $27,600.00Snyder, L. (cust. For J.L. ) $46,000.04Snyder, L. cust. For R.N.) $70,000.00Snyder, R. and L. $50,000.00Soika, N. $10,000.00Sparano, J. $6,850.00Sparano M. and M. $47,338.24Spates, J. $40,123.76Specki, C. $8,666.70Specki, L. and J. $24,020.00Spruell, M. $5,000.00Stachowicz, R. $132,260.59Stamm, A. $10,000.00Stamm, R. $77,864.26Stancato, L. $143,901.90Stancato, P. $37,838.23Stanis, K. $27, 166.88Stanis, L. $80,764.10Stankicwicaz, R. $ 17,850.25Stankicwicz, W. $45,429.80Stankiewicz, M.A. $46,000.04Stanko, T. $23,951.07Stanton, S. $42,201.48Stefany, B. $17,801.02Stelbasky, D. $ 15,000.00Stelmaschuk, G. $62,000.00Steurer, E. $30,000.00Steurer, R. $105,857.90Steurer, S. $12,000.00Steyer, D. $68,500.00Sto'kovic, K. $9,866.67Stoklas, J. $3,500.00Stoklas, K. $7,000.00Stolarski, B. $6,600.13Stoner, R. $3,882.79Stopper, D. $180,189.90Strouhal, J. $243,820.26Sullivan, M. $15,000.00

EXHIBIT 1

Swellie, J. $65,565.60Swellie, R. $204,550.02Swiatek, Ron. $86,666.70Szmik, St. $2,000.00Tadrous, N. $284,548.07Tamburro, J. $35,733.36Tamura, J. $128,800.00Tanke, JoA. $10,000.00Tanke, Jos. $10,000.00Taylor, C. and J. $15 ,000.00Tercek, F. (cust for Lesnick. G. $10,000.00Tercek, F. (cust for Lesnick, A. ) $15,000.00Terlop, S. $5,600.11Thomas, W. $12,072.61Tikium, A. $18,289.80Tolentino, E. $105,855.00Tomblin, D. $73,591.79Tomeo, D. $55,053.35Tomko, G. $245,745.43Trommer, C. $34,500.00Treisch, S. $22,112.22Tucker, R. $9,200.02Udris, V. $118,000:00Uhl, A. $10,000.00Ulan, L. $294,666.68Ulan, M. (cust for Ma.) $2,951.38Ulan, Me. $8,070.53Ulan, Mi. $32,496.98Ulan, Pa. $127,241.74Ulan, Ph., Jr. $14,536.91Ulan, Ph., Sr. $251,687.61Valkoff, T. $75,000.00Vas, J. $94,288.71Verbos, E. $347,762.13Veres, L. $10,000.00Vitullo, N. $20,550.00Vlahovic, D. $126,351.26Vlchek, C. $16,000.10Vlchek, F. $272,729.85Volosin, R. $14,743.49

Vrh, J. $50,000.00Vulpio, C. $28,048.58Vulpio, J. and M.L. $96,514.66Vulpio, R. $18,685.29Wagner, B. $52,757.37

EXHIBIT 1

Wagner, J. . $10,651.75Wagner, W. $58,166.67Waldro , D. $9,847.77Wal lace, J. $120,830.55Wanyerka, Mar. $28,740.00Wanyerka, Marl. $297,540.29Warner, B. and J. $50,000.00Wamer, P. $94,835.73Wazgar, C. $5,769.52Wazgar, S. $121,749.90Wedell, P. $35,685.00Weiser, D. $98,710.00Weiser, R. $34,608.50Weiss, U. $40,240.01Wells, S. $56,000.05Wentz, Dona. $45,400.00Wentz, Donn. $17,500.00Wener, C. $10,000.00Westrick, J. $14,458.29Wheadon, K. $96,533.35Wieland, C. $210,000.10Wilk, R. $6,0561.83Wilkin, M. $61 ,533.36Wilkinson, Wil. $104,000.00Wilkinson, Win. $52,544.76Williams, C. $20,666.71Winkler, M. $44,070.00Winkler, R. $23,419.99Wojcik, T. $49,200.00Wollmann, G. $157,600.00Wonsick, T. $40,000.00Wosnak, T. $11,200.00WRE Investments, Inc. $6,160.00Wrobleski, C. $30,000.00Wrona, J. $164,840.99Yancy, T. $428,026.72Yelowsky, D. $25,744.04Yonkers Living Revocable Trust $28,400.00Youkel, F. $19 44.53Young, K. $50,000.00Zachar, T. $20,000.00Za eister L. $36,025.27Zagmeister, M. $45,000.00Zatorski, N. $21,000.00Zatorski, J. $71,311.99

EXHIBIT 1

Zehe, D. $295,586.84Zelenok, M. $22,454.75Zilai, J. $53,815.57Zimak, J. $18,972.81Zoldi, J. $34,813.06Zolna, R $3,933.44Zoln T. $6,000.00Zubel, W. or Bu'narowski, C. $17,303.39

Exhibit 2.A

ACCOUNTSPAYABLE

EntiN- Vendor Address AmountSchneider Memt Company

Adelphia P.O. Box 6174 Cvol Stream, IL 60197-6174 25.63AdministaffCompanies, Inc. P.O. Box 200634 Houston, TX 77216-0634 236.00Alltel P.O. Box 9001902 Louisville, KY 40290-1908 1,406.27American Expnss 565 Metro Place South Suite 150 Dublin, OH 43017-5388 3,938.07

AmericanToner 9753 Prospeat Road Strongsville, OH 44149 451.44

Andrews, Michael D. 1307 Preakness Drive Mensfield, OH 44906 598.08

Ashlend Division of Water 211 Claremont Avenue Ashland, OH 44805 7,377.63Ashlend Publishing Co. 40 East Second Street Ashlend, OH 44805 1,333.21Ashtabula Country Treasurer 25 West Jelferson Slrcet Jefferson, OH 44047 1,516.67Bath fitter 823 Township Road 754 Ashlend, OH 44805 3,100.00BCN Maintenence Company 18302 Puritas Avenue Clavaland, OH 44135 20,466.72

Brockman, Coats, Gedelian & Co. 1735 Merriman Road Akron OH 44313-9007 26,200.00Bull, Penny L. 279 Shermnn Avenue Ashland, OH 44805 152.77C & S Landscaping 3170 Kinata Coun WestSalem, OH 44287 9,069.00Capital One P.O. Box 85184 Richmond, VA 23285-5184 853.39Century Maintenance Supply P.O. Box 842434 Dallas, 7R 75284 142.56Ceridien Benefits Services 3201 34th Streat South St. Petersburg, FL 33711-3828 54.00Chronicla Telegmm 225 Eavt Avenue P.O. Box 4010 Elyda, OH 44036-2010 229.40Citiemp VendorFinance 1300 East Ninty Strcet 14th Floor Cleveland, OH 44114-1503 101,170.77City ofCleveland 601 Lakeside Avenue Room 517 Clevelend, OH 44114 570.00CNC Associates, Inc. Department LA 22217 Pasadena, CA 91185-2217 558.92Coinmach Corporetion 303 Sunnyside Bouleverd Suite 700 Plainview, NY 11803 208.70Comcest P.O. Box 3001 Southeastem, PA 19398-3001 971.36Commemial Ullmen 2846 East 37th Street Cleveland, OH 44115 46.60Cuyahoga County Treesurer 1219 Ontario Street Cleveland,OH 44113 8,671.62Cuyahoga Safe & Lock 13615 Madison Avenue Lakewood, OH 44107 672.30Daily Record 212 East Liberty Sueet P.O. Box 918 Woostcr, OH 44691 882.94Dell Commeroial Credit DepL 50•031330908 P.O. Box 9020 Des Moines, IA 50368-9020 7,210.86Diamond Painting Company 15247 Merks Road Strongsville, OH 44136 3,825.00Division of Water P.O. Box 94540 Clevelend, OH 44101-4540 92.50Durd'ee, Peggy A. 610 If2 West Avenue Elyria, OH 44035 166.51Envirochemieal, Inc.GECapital

6442 Metro Caun Suite BP O Box 642111

Bedford Heights, OH 44146Pittsburgh PA 15264-2111

470.589003 65

Green Nature Landsape, Inc.. .

10617 Snaw Road,

Panne Heights, OH 44130, .

3,549.00Hastings Water Works 12800 York Road Unit C Nonh Royalmn, OH 44133 2,042.28Helms, Michelle M. The Greens of Ashland 265 Ronald Avenue Ashland, OH 44805 34.41Hendrix Paint & Clesn P.O. Box 1870 Wcuster, OH 44691 14,870.00Home Depot Crcdit P.O. Box 6029 The Iskes, NV 8S901-6029 5,485.97Home Depot Supply 10641 Scripps Summit Court Sen Diego, CA 92131 3,782.40Home Hardware, Inc. 140 Center Street P.O. Box 37 Ashlend, OH 44805-0037 973.65

Exhibit 2.A

ICI Paints 21033 Network Place Chicego. IL 60673-1210 2,593.64Illumineting Company P.O. BOX 3638 Akron, OH 44309-3638 294.45Illumineting CompanyIntegrity Veriftc.

Billing Serviees - NRHQ-215 P.O. Box 5000725 North Court Sncet SuiteD

Cleveland, OH 44197-9811Medina, OH 44256

156.0032.00

Irwin's Office Supplies 143 Center Street Ashlend, OH 44805 5.371RF Management 6200 SOM Center Road Suita C-20 Solon, OH 44139 10,000.00Kinica Minolta Bus. Sol P.O. Box 7247-0322 Philadelphia, PA 19170-0322 269.03Kinica7Minolle Bus. Sol. 18601 Cleveland Parkway Suite 100 Cleveland, OH 44135 3,464.00Krent; Powers & Friedmen 23240ChagrinBoulevard Suile 180 Bcachwood, OH 44122 4,391.85Lake County Treavurer 105 Main Street, P O Box 490 Painesville, OH 44077-0490 1,582.97LDMI Teleeommunications Deputrnem 77609 P.O. Box 77000 Detroit, MI 48277-0609 2,012.65Lowes Business Account P.O. Box 4554 Department 79 Carol Stream, IL 60197-0554 1,208.52M & M Sales & Service 1236 County Road 42-B Ashland. OH 44805 136.63Mast Applienee Serviae 779 I-A Back Orrville Road Wcoster, OH 44691 307.99McClintoek Electric, Inc. 402 Pest Henry Stteet Wcoster, OH 44691 2,657.46McCoy's Florist & GiftMedical Mutual Services

7535 Pearl RoadP.O. Box 931361

Middleburg Heights, OH 44130-6429Cleveland, OH 44193-0542

88.5148.00

MJR Construetion Services 16290 Glendale Avenue Strongsville, OH 44136 21,426.42National Carpet Mill Outlet Inc. 5730 Clevelend Rosd Wooster, OH 44691 33,332.74National ConsYuction Rentals 15319 Chatswonh Stroet Mliuion Hills, CA 3,920.41Nove Settlement/Recovery 7300 Chapman Highway Knuxville, TN 37920 1.714.92Office Max P.O. Box 9020 Des Moines, IA 50368-9020 150.13Ohio State Landscaping 6353 Mariene Drive PannaHeighb OH 44130 1,825.00OPENonline P.O. Box 549 Columbus, OH 43216-0549 95.58Orkin 60 Hanna Parkway Akmn,OH 44319 489.58Orkin P.O. Box 740036 AOanta, GA 30374-0036 164.40Pamte Plumbing Co. 5493 Broadview Road Parma, OH 44134 140.00Paychex,lnc. 4760 Richmondr Road Suite100 WarrensvgleHeighLs,OH 44128 635.88The Plain Dealer P.O. Box 630504 Cincimteti, OH 45263-0504 2,689.56Precision Heeting & Cooling 18514 Ridge Road North Royalton, OH 44133 7,703.00Proplumbing Service, Inc. 14133 Niagra Drive Strongsville, OH 44136 600.00Robinson Company, M.W. 5980 Ashlend Road Wooster, OH 44691 4,522.75Roto-Rooter 1661 Barbora Drive P.O. Box 426 Wnoster, OH 44691 184.45Securi-Com 4721 Eavt Royalton Road Broedview Heights, OH 44147 362.88Sprint Conference P.O. Box 660051 Dallu, TX 75266-0051 95.69Stacklin, Thomas A. 10 Lineoln Drive Shelby, OH 44875 13.95Staples Credit Plen P.O. Box 9020 Des Moines, IA 50368-9020 3,201.17Sun Newspapers P.O. Box 25650 Cleveland, OH 44125-0650 52.33Sunoco,lnc. P.O. Box 689156 DesMoines, IA 50368AI56 USA 135.37Swao, Cerletta J. 6125 Carol Avenue Brook Perk, OH 44142 120.29Tenant Ctodit Reports P.O. Box 660 Wolfeboro, NH 03894 276.44Thomson West P.O. Box64833 St. Paul, MN 55164-0833 105.31Turf Temen Plus, LLC 1545 West 130th Street Unit B Hinckley, OH 44233 8,873.66University Direatories P.O. Box 8830 Chapel Hill, NC 27515 440.00

,

Exhibit 2.A

Velunan, Thumasf. 6808 Padcgata Oval Seven Hilla, OH 44131-3643 107.35Wcatwood country Club P.O. Box 16459 Rocky River, OH 44116 4,350.08Woostar City Services 538 North Merket Street Wooster, OH 44691 5,440.88WaosterGless Company, Inc. 419 South Mamket Street Wooster, OH 44691 307.77

370,024.91

Faitb One, LldCity of Strongsville P.O. Box 901425 Strongsville, OH 44190-1425 262.46Turf Tvnera 1545 West 130th Street Unit B Hinckley, OH 44233 3,304.80

3,567.26

Garnet DevelopmenlStructum Archilecta Ltd 2251 Front Street Suite 109 Cuyahoga Falls, OH 44221 30,250.00Blue Fmg Corp DBA Parly Place 8,426.76

38,676.76

Claire's Folly, InaA Bit of Now York, Inc. P.O. Box 164 29 Wcst 130th Strcet Hinckley, OH 44233 542.55LoPresti & Sons, Inc. 2735 Esct 40th SUeet Cleveiand, OH 44115-3571 6,615.55ABCO Fire ProtecNon 4545 West 160th Slret Clevelend, OH 44135 804.80Accurete RePrigeretion Serviee Corp. 9500 Running Brook Drive Parme, OH 44130 1,183.78AII-Amerieen DreB Servies 26100 Forestview Avenue Euclid, OH 44132 80.00Artwork by Shoe, Inc. 7447 Skyiark Drive Clevelend, OH 44130 2,242.08ASCAP 2690 Cumberland Perkwey, S.E. Suite 490 Atlenta OA 30339-9883 183.67Blue Ribbon Meets 3316 West 67th Place Cleveland, OH 44102 3,305.53Broedrast Music, Inc. 10 Music Square East Nashville, TN 37203-9901 263.258randt Meat Co. 21500 Alexander Roed Oakwood, OH 44146 34.95Brown, Dan 10108 Fomstview Drive Strongsviile, OH 44136 231.13Bureeu-ATF P.O. Box 330958 Strongsville, OH 44136 89.93Capital One P.O. Box 85184 Richmond, VA 23285-5184 56.69Cemusel Works, Inc. 225 Cenbal Avenue MensBeid, OH 44905 40,950.00Caruso's CoB'ee, Inc. 10300 Brecksvilie Road Breckeville, OH 44141 560.75Chergebeck Deparhoent 7300 Chapmen Highway Knoxville, TN 37920-6612 855.00City Visitor Pub. 5755 Granger Road Suite 600 Independence, OH 44131 495.00CleerChannel Broadcasting 3226 3etyerson Road Ashtabule, OH 44004 1,620.00Corecomm P.O. Box 2570 Cincinnati, OH 45274-2570 283.43Dading Int'I P.O. Box 3185 Dearbom, Mi 48122 5.70Dean Supply 3500 Woodland Avenue Clevelend OH 44115-3421 384.15Electrical Appliance Repeir 5805 Valley Belt Road Clevelend, OH 44131-1423 120.48Emtech Enterprises 1025 Herberich Avenue Akmn, OH 44301 50.00Janka Krusinski's 6300 Heisley Avenue Clevelend, OH 44103 82.50Kelly, Annette 6195 West 130th Strat Panna, OH 44130 50.00

Exhibit 2A

Malrix Automattion, Inc. 340 North Main Street Humn, OH 44839-1621 650.77Morgen Servicas, Inc. 2013 Columbus Road Clevelsnd, OH 44113-3516 2,851.52Naugle, Clifford R. 17502 LevemeAvenue Clevdand, OH 44135-1944 550.00Northern JJaserot 21500 Alexander Road Oakwood, OH 44146 698.07Orlando Baking Co. 7777 Grend Avenue Clevdand, OH 44104-3099 869.09Pepsi-Cola Bo01ers 75 Remittance Drive Suite 1884 Chicago, IL 60675-1884 700.98The Plain Dealer P.O. Box 630504 Cincinnati, OH 45263-0504 5,883.00Port Erie Communicationa 3952 Colleetions Center Drive Chicago, IL 60693 173.32R C Fine Foods P.O. Box 236 Be1leMead, NJ 08502-0236 27.00Refledions 7800 Colgate Avenue Suite 2 Clevelend, OH 44102 50.00Selem Communications NE OhioSBC

4 Summit Park Drive Suite 150Bill Payment Center

Independence, OH 44131-2583Saginew, MI 48663-0003

4,300.00614.05

SBC Bill Payment Center Saginaw, MI 48663-0003 288.36Service Wet Grinding Co. 1867 Prospect Avenue Cleveland, OH 44115 149.60Staples Credit Plan P.O. Box 9020 Des Moines, IA 50368-9020 213.05State Fish Company 1600 Merwin Avenue Cleveland, OH 44113 375.00Structum Architectv 2251 Front Street Suite 109 Cuyahoga Falls, OH 44221 13,500.00Syseo Food Service Cleveland P.O. Box 94570 Clevaland, OH 44101-4570 38,314.25WDOK-FM 22286 Network Plaee Chicago, IL 60673-1222 1,994.00WFHM (Salam Broadrasting) 48ummitParkDrive SuitalSO Independence, OH 44131 3,750.00Wilhelmy Flowers, Inc. 17456 Lomin Avenue Kemms Plaza Cleveland, OH 44111 108.00Wineamerica 1200 G Street, N.W. Suite 360 Washington, DC 20005 345.00WQAL-QI04 One Radio Lane Cleveland, OH 44114 750.00Yagl, Jeanette 11019 Dmke Road North Royalton, OH 44133 42.76

Claire'e Orand River Winery

138,288.74

AdvencedGas&Welding 34355 Vokes Drive EasOake, OH 44095 163.90ASCAP 2690 Cumberland Parkway S.J? Suite 490 Atlentq GA 30339-9883 183.67Bureau of Workers' Comp Stale Insurance Fund Corporate Proeeaving Dept. Columbus, OH 43271-0821 2,536.41Cescade Fruit Marketing P.O. Box 749 Aurora, OR 97002-0749 4,271,20Coca-Cola BoW ing Compeny 135 South LaSalle Slrect DepaRment2329 Chingo, IL 606742329 448.65Central Hardware 44 South Broadway Avenue Geneva, OH 44041 163.56City Visitor Pub 5755 Grenger Road Suite 600 Independence, OH 44131 495.00Clear Chennel Broadcasting Inc. 3952 Collections Cenlor Drive Chicago, IL 60693 750.00Clear Chennel Ashtabula 3952 Colleetions Center Drive Chicago, IL 60693 940.00Comfort Supply Ine. 7 South Bmedway Geneva, OH 44041 428.39Complero Lawn Service 3978 North Broadway Avenue Geneve, OH 44041 480.00Crivellor Company Canada 6935 Oakwood Drive Niagn Falls, ONTARIO 1,2E 6S5 86.56Duke, John T. 1515 Northview Road Rocky River, OH 44116 167.62Duke, John T. 1515 Northviaw Roed Rocky River, OH 44116 68.82Eastern Logistics, Inc. 2016-C Naw Gmden Road Greensboro, NC 27410 344.48Eleotrieal Appt. Repair Service 5805 Valley Belt Road Clevelend, OH 44131-1423 534.06

,I

Exhibit 2.A

Emrech F-nterprises 1025 Herberich Avenue Akron, OH 44301 50.00Eugene Wine 255 Madison Stnxt Eugene, OR 97402 11,494.19Grainger 1035 Valley Belt Road Brooklyn Heights, OH 44131-1432 249.52Lemon Creek Fruit Farm 533 East Lemon Crmk Road Berrien Springs, MI 49103 4,032.00News-Huald 7085 Mentor Avenue Willoughby, OH 44094 128.40Newspaper Holings The Slarr Beaaon P.O. Box 2100 Ashtebula, OH 44005 307.50Orkin 6940 Wesl Snowville Road Brecksville, OH 44141-3216 74.73Orlando 7777 Grend Avenue Clevelend, OH 44104-3099 48.04OWPA P.O. Box 157 822 Norlh Tote Roed Austinburg, OH 44010 100.00The Plain Dealer P.O. Box 6955 Clevelend, OH 44190 1,492.00Presque Isie Wine Cellers 9440 West Main Road Nonh F.ast, PA 16428 29.75Scott Laboratories 4506 Main Sueet Buffalo, NY 14226 3,247.87Sysco Food Service Cleveland P.O. Box 94570 Cleveland, OH 441014570 8,631.79Vinquiry, Inc. 7795 Bell Road Windsor, CA 95492 64.09Wesle Menagement 10237 Cutts Road Chardon, OH 44024 156.52

42,168.72

Old Mill WineryAdelphia 3300 Lakeside Avenue Cievelend, OH 44114-3751 243.35ASCAP 2690 Cumberland Parkway S.E. Suite 490 Adanta, GA 30339-9883 183.67Broadcast Music, Inc. 10 Music Square Eest Nazhville, TN 37203-9901 257.40Brouse McDonwell, LPA 388 South Main Streel Akron, OH 44311 255.00Central Ace Hardware 44 Soulh Broadway Avenue Geneva, OH 44041 70.05City Visitor Pub. 5755 Gmnger Roed Suite 600 lndependence, OH 44131 495.00Ciear Channel Broad. 3952 Collections Center Drive Chicago, IL 60693 1,740.00Cleer Channel Ashtabula 3952 Collcctions Center Drive Chieago, IL 60693 752.00Comfort Supply, Inc. 7 South Bmadway Genevq OH 44041 309.15Commercial Repair Service 4351 WestSpngueRoad North Royalton, OH 44133 252.00Complete Lawn Service, Inc. 3978 North Broadwey Avenue Geneva, OH 44041 550.00Duke, John T. 1515 Northview Road Roeky Riva, OH 44116 64.11Duke, John T. 1515 Northview Road Rocky Riva, OH 44116 131,44Dominion East Ohio P.O. Box 26785 Richmond, VA 23261-6785 941.20Emtech Enterprises 1025 Herberich Avenue Akron, OH 44301 50.00FirstMerit Bank P.O. Box 1499 Akron, OH 44309-1499 1,553.14Geneva Area Chamber of Commerce P.O. Box 84 Geneva, OH 44041 90.00Multi-Flow Dispensers 5213 Grant Avenue Cleveland, OH 44125 405.75Naylor Wine Cellers 4069 Vineyard Road Stewertslown,PA 17363-8478 577.87News-Henld 7085 Mentor Avenue Willoughby, OH 44094 128.40Newspeper Holdings The Slar Beacon P.O. Box 2100 Ashtabula, OH 44005 307.50Interstate Logos, LLC 4384 Tuiler Road Dublin, OH 43017 756.00Odcin-CIe.Comm 6940 West Snowville Rcad Brecksville, OH 44141-3216 80.25Orland Baking Company 7777 Grand Avenue Cleveland, OH 44104-3099 353.97OWPA P.O. Box 157 822 Nonh Tote Road Austinburg, OH 44010 187.50

I I I I I

Exhibit 2.A

The Plain IXa1ar P.O. Box 630504 Cincinnati, OH 45263-0504 1,492.00Staples Credit Plen P.O. Box 9020 Des Moines, IA 50368-9020 95.24Sysco Food ServieesCleveland P.O. Box 94570 Cleveland, OH 44101-4570 13,205.97Wxste Menegemenl of Ohio 10237 Cutts Road Chardon, OH 44024 IS4.60

Winesmerica 1212 New York Avenue Suite 425 Washington, DC 20005 530.00

26,242.56Pearl Deveopment Company LLC

Air Control Pmducts 3800 Towpalh Clevelend, OH 44147 585.00

Broadway Contracting 3950 Fsst 651h Street Clevelend, OH 44105 15,134.17Brockman Coats 1735 Mertiman Roed Akron, OH 44313-9007 9,009.75Cempbell & Assoc. 1923 Bailey Road Cuyahoga Falls, OH 44221 14,020.0DForum Arohitects 1240 Huron Road Clevelend, OH 44115 137,105.35Illuminating Co P.O. Box 3638 Akron, OH 44309•3635 16,111.15Jacco and Associates P.O. Box 74778 Clcvcland, OH 44194-0861 1,050.D0

Muni Cap 8340 GovemorRidgeley Lene EllicotlCity, MD21043 100.00MuniCap. Inc. 8340 Oovemor Ridgeley Lane Ellicott City, MD21043 3,950.00National Constmction Rentals P.O. Box 4503 Pacoima, CA 91333-0503 32.40Ohio landsraping 6353 Mariena Drive Peuma Heights, OH 44130 2,052.00Ohio Statc Landscsping (snow plowing) 6353 Merfana Drive Parrme Heights, OH 44130 1,890.00PSI (Testing) P.O. Box 71168 Chicago, IL 60694-I 168 14,975.50R.M.D. Co., Inc. P.O. Box 1237 Medine, OH 44258 3,472.00RI Stovicek 2950 Broadway Avenue Lorain, OH 44055 10,855.00

S.A. Comunale 2900 Newperk Drive Barbenon, OH 44203-1050 19,278.00

Sidley Precast 6900 Madison Road P.O. Box 70 Thompson, OH 44066 34,317.50Struetuta 2251 Front Sveet Cuyahoga Falls, OH 44221 26,125.00ThyssenKrupp P.O. Box 1262 Memphis, TN 38101-1262 922.40Weao(Seeffolding) 4545 Spring Road Cleveiand, OH 44131 421.08Wercb Mete1 Fabriceling P.O. Box 843 Menlor, OH 44061-0843 39.46

311,445.76

Total thb page S 930,414.71

I

,

E:hiblt LB

SCHNEIDER MGMT CO. & RELATED ENTITJES PAYROLL PAYABLE

SehndderMgmt CompanyPryroll Paid Ealimmted Bahpee

Employee 1/31-2113/05 Payroll Due

Andm»a, Miciucl 500.00 1,355.48 855.48BJorklunQ Brian 500.00 2,692.31 2,192.31Brinlonan, Michelle 500.00 899.97 399.97Brown, Daniel 500,00 2,962.00 2,462.00Coots, Donald 500.00 1,428.38 928.38Dorsey Jr., Bonald 500.00 1,53&46 1,038.46Dmp, Dennis 500.00 1,040.00 540.00Dupfee, Peggy 500.00 1,044.52 544.52Eddy, Kmilee 500.00 2,480.01 1,980.01GayheartJr., Beginold 500.00 1,386.78 886.78Hanna, Rhe 500.00 1,468.30 968.30Helmr,Michelle 500.00 1,253.88 753.88Kora8oxzlti,Chesmr 500.00 2,089.46 1,589.46Laubenthel,David 500.00 2,178.62 1,678.62Lebanik, Brien 500.00 1,423.08 923.08Mellnry, Brien 500.00 2,500.00 2,n00.00Nagel, Charlee 500.00 2,307.69 1,807.69Ringer,Staphen 500.00 2,579.24 2,079.24Rivalsiry, Margmet 500.00 1,592.31 1,092.31Schulv, Chtisline 500.00 1926.59 1,426,59Schultz, Thomas 500.00 1,9917.50 1,497.50Seitz,Dougln 5oD,00 2,692.30 2,192.30Swm4 Cariepe 500.00 1,215.39 715.39Vallmaq Thomas 500.00 1,373.08 873,08Weiser,Dale 500.00 2,126.08 1,626.08

12,500.00 45,551.45 33,051.45

Old Mill Winery

EmployeePayrollPaid1/242/6l08

EetimatedPayroll

BalaaceDue

Gruher, Diene 500.00 887.19 387.19HellettAmy 500.00 833.65 333.65Beikes,Badwa 500.00 1,188.46 688.46Queen,Susun 500.00 1,041.71 541.71

2,000.00 3,951.01 1,951.01

i• EBhibit3.B

Cldra Gaud Bher Wluery, loaPeyrollPaid Eetimated Beineee

Emulayre 1J31-2113/05 Payroll Due

Duke, JohnMcMillin, ChristinaMcMilliq NichohuSnodgmse,Gene

500.00 761.22500.00 880.09500.00 818.69500.00 781b4

261.22380.09318.69251.64

2,000.00 3,241.64 1,241.64

Claira Folly, toa

EmpiovaPeyrollPdd Edimeted1/31-2/13/05 Peyroll

BdeaeeDue

Crespo,Viclone 500.00 615.02 115.02Dillon, Jema 500.00 688.65 188.65Danohee, Murk 500.00 1,466.33 966.33Hmehmaq Theadam 500.00 1,166.43 666.43Inn,Lise 500.00 94520 445.20Joyee,Michael 500.00 563.07 63.07Lijen0. Dylen 500.00 602.53 102.53Ramph, April 500.00 1.729,68 1,229.68Ruah,Gaurea 500.00 955.72 455.72Seddler,Damoo 500.00 601.50 101.50Smith, BarteLL 500.00 995.10 495.10Spia, ChrisOae 500.00 655.41 155.41Welers,Keyea 500.00 967.22 467.22Wat, Cadlerine 500.00 610.20 110.20

7,000.00 12,562.06 5,562.06

Total Wega Peyible S 41,806.16

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C

DOUG WHITE, DIRECTOR OF ) CASE NO. CV 04 548887 'THE OHIO DEPARTMENT OF ) (Consolidated with Cases 560633 _COMMERCE, ) 559117, 558095, 559879, 5648I4;

r

569073) -Plaintiff,

-vs-

JOANNE C. SCHNEIDER, et al.,

Defendants.

JudgeJos( ! A.ViIIanueva

THE RECEIVER'SPROPOSED DISTRIBUTIONOF SALE PROCEEDS TONON-INVESTOR CLAIMANTS

Pursuant to Section III(Bx2) of this Court's Findings and Order of Distribution

dated December 21, 2007, ("Plan of Distribution") the Receiver prepared for comment an

initial proposed distribution of sale proceeds to non-investor claimants claiming a secured

position in proceeds received from the sale of receivership property, which was

distributed for review on June 13, 2008. Non-investor claimants asserting secured claims

against receivership property commented on the initial proposed distribution. Pursuant to

Section III(Bx3) of the Plan of Distribution the following constitutes the Receiver's

Proposed Allowance.

CHERNETT WASSERMAN YARGER, LLC

;er (#0043781)(#0075293)Street, Suite 3300

d, OH 44114(216)737-5000(216) 737-0011 faximv(a.cwvlaw.comvdr acwylaw.com

I. Introduction

The Receiver received Non-Investor Claim Forms from 16 different claimants.

These claimants claimed secured status by virtue of judgment liens, mechanic's liens,

mortgages and tax liens. The Receiver also conducted title searches on the subject

properties. On June 13, 2008, the Receiver distributed for conunent an initial proposed

distribution to the 16 claimants. Comments were received from 13 parties. The Receiver

carefully reviewed all comments, did additional research and concluded that one change

in the proposed distribution was warranted. Specifically, the net proceeds from the

disposition of the property owed by Ruby Development Company, initially classified as

unencumbered, are encumbered by a mortgage in favor of Home Savings and Loan

Company. Significant factual and legal disputes remain, however, regarding all of the

claimants and the proposed distribution.

Several claimants also raised objections to unrelated aspects of the Plan of

Distribution, including the Secured Creditor Allocation. The Plan of Distribution does

not contemplate nor does it permit re-visiting issues already determined in connection

with the procedure governing the allowance process for creditors asserting secured claims

against Receivership Property, especially by claimants who may ultimately lack standing

to raise such objections. Accordingly, interested parties should not interpret the

Receiver's decision not to address these unrelated issues as acquiescence therein.

II. Proposed Allowance.

A. Properties owned by Alan C. and Joanne Schneider.

All the proceeds from the disposition of these properties are available for

distribution to all claimants.

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B. Property owned by Pearl Development.

After the payment of the 10% secured creditor allocation, the net proceeds from

the sale of the property owned by Pearl Development should be distributed to Home

Savings and Loan Company, up to the amount of its Allowed Secured Claim on this

property ($3,700,000). The balance, if any, is available for distribution to all claimants.

C. Property owned by Garnet Development Company.

After the allocation of 10'/o to the secured creditor allocation, the net proceeds

from the sale of property owned by Gamet Development Company should be paid to

Home Savings and Loan Company, up to the amount of its Allowed Secured Claim on

this property ($3,320,000). The balance, if any, is available for distribution to all

claimants.

-D. Property owned by Ruby Development Company.

Home Savings & Loan Company has a secured interest in the proceeds of the sale

of the property owned by Ruby Development Company, to the extent that its Allowed

Secured Claim is not satisfied from the proceeds of the sale of the property owned by

Pearl Development Company, and subject to the 10% secured creditor allocation.

E. Florida property owned and titled as Alan C. and Joanne Schneider.

All proceeds from the sale of the Florida property are available for distribution to

all claimants.

F. McGill Contempt Money.

The McGill contempt payment is available for distribution to all claimants.

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III. Conclusion.

Article Ill(B) of the Plan of Distribution sets forth the procedures which govera

the allowance process for all claimants asserting secured claims against Receivership

Property. In accordance with that process, the Receiver circulated for con ►ment an initial

proposed distn'bution of sale proceeds. Coaunents were received from claimants. The

foregoing constitutes the Receiver's Proposed Allowance (as defined in the Order of

Distribution). Any party in interest has 30 days from the date of service of this Proposed

Allowance to object to a Proposed Allowance. The Court will then determine the

propriety of objections in accordance with the applicable rules of civil procedure.


CHERNETT WASSERMAN YARGER, LLC

Jo on

. Ya^#0043781)Vi r Radel 0075293)13 1 Ninth t, Suite 3300Cle eland, OH 44114(216)737-5000(216) 737-0011faximyna.cwvlaw.com

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The undersigned hereby certifies that on September 17, 1008, a copy of the

foregoing Proposed Distribution of Sale Proceeds to Non-Investor Claimants will be

served by the Receiver upon the following persons:

Matthew J. Lampke, Esq.Attorney General's OfficeAssistant Chie& Executive AgenciesSection30 East Broad Street, 26°i FloorColumbus, Ohio 43215-3428;

Joanne C. and Alan C. Schneiderc/o Ian N. Friedman, Esq.700 West St. Clair Avenue, #110Cleveland, Ohio 44113

Cleveland Construction, Inc.Best Supply, Inc.c% Gary P. MartinCorporate CounselCleveland Conslruction, Inc.5390 Courseview DriveMason, Ohio 45040

Home Savings & Loan Companyof Youngstowndo Michael J. Sikora III, Esq.Sikora Law, LLCOhio Real Estate Building8532 Mentor AvenueMentor, Ohio 44060

and

Rick Thomas, Esq.Henderson, Covington, Messenger,Newman & Thomas Co., LPA6 Federal Plaza CentralYoungstown, Ohio 44503

Sky Bank (substituted for QualityCement) c% Rick Thinna, Esq.Jeny Bryan, Esq.Henderson, Covington, Messenger,Newman & Thomas Co., LPA6 Federal Plaza CentralYoungstown, Ohio 44503

Northem Valley Contractorsdo Joseph Isabella, Esq.2525 Market Ave. Suite BCleveland, Ohio 44113

G.Q. ContractingcJo Gary Werner3733 Park East DriveSuite 200Beachwood, Ohio 44122

Donleys, Inc.c/o Barry J. Miller, Esq.2300 BP America Building200 Public SquareCleveland, Ohio 44114

Harrington Electricc/o Audra Zarlinga3900 Key Center127 Public SquareCleveland, Ohio 44114

Lorain Glassc 1o James MoennichWickens, Herter, Panza, Cook & Batista35765 Chester RoadAvon, Ohio 44011

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Castle Heating & Air, Inc.c% Louis Licata, Esq.Licata & Torek6480 Rockside Woods Blvd. SouthSuite 390Independence, Ohio 44131

R.W. Sidley, Inc.c% John J. Hurley, Esq.8 North State StreetPainesville, Ohio 44077

Steinglass Mechanical Contracting, Inc.c% Michael L. Fortney, Esq.4040 Embassy ParkwaySuite 280Akron, Ohio 44333

Tomco Metal Fabricating, Inc.c% Jerome W. Cook, Esq.2100 Bank One Center600 Superior Avenue E.Cleveland, Ohio 44114

City of Parma Heights .c/o Darrell A. Clay, Esq.Walter & Haverfield LLP1301 E. Ninth Street, Suite 3500Cleveland, Ohio 44114

Tycor Roofing, Inc. fka Hal JonesConstructionR. Clint Zollinger, Jr. Esq.Day Ketterer, Ltd.Millennium Centre, Suite 300200 Market Avenue NorthPO Box 24213Canton, Ohio 44701

Stoney RunMichael R. Stavnicky, Esq.Singemian Mills Desberg & Kauntz Co.,LPA3401 Enterprise Parkway, Suite 200Beachwood, OH 44122

Timothy M. Kreuzer, Katherine Kreuzerand Sandra K. Kreuzerdo Sarah M. Donnersbach, Esq.323 West Lakeside Avenue, Suite 200Cleveland, Ohio 44113

All persons requesting Notice who have served a request for Notice on Garden City, Incor the Receiver.

The ProposedDistribution of Sale proceeds to Non-Investor Claimants will be posted onthe Receivership's website at www.szd.com.

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Case No. 08-2185 IN THE SUPREME COURT OF OHIO IN THE SUPREME COURT OF OHIO State ex rel: FIRSTMERIT...

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Transcript of Case No. 08-2185 IN THE SUPREME COURT OF OHIO IN THE SUPREME COURT OF OHIO State ex rel: FIRSTMERIT...