Paul Cheatham IRA v. Huntington Natl. Bank
102 N.E.3d 597
Ohio Ct. App.2017Background
- Plaintiff Paul Cheatham IRA bought municipal bonds issued under a 1998 Trust Indenture and later sued Huntington National Bank (the trustee) alleging breach of the Trust Indenture and related claims after the project default produced a small final distribution to bondholders.
- Plaintiff purchased bonds secondarily between 2003 and 2007; defaults, obligor changes, and a bankruptcy and foreclosure occurred earlier and during that period.
- The trial court dismissed all claims except breach of contract (Trust Indenture) as time-barred, then denied class certification under Civ.R. 23(B)(3), finding R.C. 1308.16(A) (U.C.C. § 8-302) does not transfer third-party breach claims to subsequent purchasers.
- Plaintiff appealed, arguing R.C. 1308.16(A) transfers “all rights in the security” — including accrued breach claims under the Trust Indenture — to subsequent purchasers.
- The appellate court reversed, holding breach-of-contract claims arising from the Trust Indenture are “rights in the security” that transfer under R.C. 1308.16(A), and remanded for the trial court to consider the remaining Civ.R. 23 requirements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a subsequent purchaser of bonds acquires accrued causes of action for breach of the Trust Indenture | R.C. 1308.16(A) transfers "all rights in the security" to the purchaser, so accrued breach claims transfer | § 1308.16(A) concerns title/ownership rights and does not automatically assign third‑party breach claims or accrued causes of action | The court held accrued contract claims arising from the Trust Indenture are "rights in the security" and transfer to subsequent purchasers under R.C. 1308.16(A) |
| Whether Consolidated Edison controllingly prevents transfer of such claims | Plaintiff distinguished Consolidated Edison because that case involved third‑party claims separate from the issuer’s contract with holders | Defendant relied on Consolidated Edison to show § 8‑302 does not define rights in the security and therefore does not assign accrued contractual claims | Court found Consolidated Edison distinguishable and followed authorities holding contract claims tied to the security transfer with it |
Key Cases Cited
- Consolidated Edison, Inc. v. Northeast Utilities, 318 F. Supp. 2d 181 (S.D.N.Y. 2004) (district court held UCC § 8‑302 is a transfer mechanism and does not itself define rights in a security)
- R.A. Mackie & Co., L.P. v. PetroCorp Inc., 329 F. Supp. 2d 477 (S.D.N.Y. 2004) (breach‑of‑contract claims under an agreement embodied in a warrant constitute rights in the security and transfer to subsequent purchasers)
- In re Nucorp Energy Secs. Litigation, 772 F.2d 1486 (9th Cir. 1985) (subsequent purchasers did not automatically acquire certain federal Trust Indenture Act claims or state tort claims)
- Bluebird Partners, L.P. v. First Fid. Bank, N.A., 85 F.3d 970 (2d Cir. 1996) (bondholder’s Trust Indenture Act claim not automatically assigned to subsequent purchasers)
- National Reserve Co. v. Metropolitan Trust Co., 17 Cal.2d 827 (Cal. 1941) (accrued contract claims pass with an assigned certificate when the right to sue depends on ownership of the certificate)