Five Star Financial Corp. v. Merchant's Bank & Trust Co.
949 N.E.2d 1016
Ohio Ct. App.2011Background
- Five Star Financial, led by Steven Winter, had a 2004 $2 million revolving line of credit with Merchant’s Bank with a cognovit provision, and Winter signed a guaranty for Five Star’s obligations.
- The 2004 note was amended four times, with cognovit provisions in the second and third amendments and a 2007 fourth modification that included a release of all Five Star claims against Merchant’s.
- Five Star funded loans and mortgages using Five Star resources, Winter’s assets, or lines of credit at various banks; Five Star subsequently defaulted in 2007.
- Merchant’s obtained a cognovit judgment in case A-0800266; Five Star filed A-0911042 alleging fraud, fraud in the inducement, breach of fiduciary duty, negligence, intentional infliction of emotional distress, and intentional interference with business relations, which were consolidated with A-0800266.
- Merchant’s moved to dismiss under Civ.R. 12(B)(6), arguing (i) the release forecloses the claims, (ii) collateral estoppel, (iii) statute of limitations, and (iv) no fiduciary duty; the trial court granted the motion.
- The court reversed in part and remanded for further proceedings on the remaining claims, holding that some bases for dismissal were improper while others (fraud dismissal, fiduciary duty) were proper.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Release as a basis for dismissal under Civ.R. 12(B)(6) | Five Star argues the release is unconscionable and cannot justify dismissal. | Merchant’s contends the release bars the claims. | Release cannot support 12(B)(6) dismissal; factual questions exist. |
| Collateral estoppel as a basis for dismissal under Civ.R. 12(B)(6) | Five Star asserts estoppel applies to bar fraud claims. | Merchant’s asserts estoppel based on denial of relief from judgment. | Collateral estoppel cannot justify dismissal via Civ.R. 12(B)(6); not proper vehicle. |
| Statute of limitations on fraud | Fraud claim timely due to ongoing concealment through 2007 modifications. | Fraud claim barred by four-year limitations period from 2004 discovery. | Fraud claim time-barred; properly dismissed. |
| Fiduciary duty between Merchant’s and Five Star | Merchant’s controlled loans and used a conflicted law firm breach fiduciary duty. | No fiduciary relationship arising from debtor-creditor arrangement. | No fiduciary duty; claim properly dismissed. |
| Overall disposition of remaining claims | Release and collateral estoppel do not warrant dismissal of all remaining claims. | Dismissal of certain claims is proper under release, collateral estoppel, limitations, or lack of fiduciary duty. | Court erred in dismissing some remaining claims; reversed in part and remanded for fraud in the inducement, negligence, IIED, and interference claims; other aspects affirmed. |
Key Cases Cited
- Battersby v. Avatar, Inc., 157 Ohio App.3d 648 (2004-Ohio-3324) (cites for procedural standards (specifics not shown in excerpt))
- LaBonte v. LaBonte, 61 Ohio App.3d 209 (1988) (fiduciary and related duties in Ohio law)
- State ex rel. Felson v. McHenry, 146 Ohio App.3d 542 (2001) (relates to procedural and statutory interpretation in Ohio courts)
- Ed. Schory & Sons, Inc. v. Francis, 75 Ohio St.3d 433 (1996) (standard for Civ.R. 12(B)(6) and evidentiary considerations)
- Provident Bank v. Adriatic, Inc., 2005-Ohio-5774 (Ohio App. 5th/12th Dist. 2005) (discussion of limitations and related doctrines)