Waite, Schneider, Bayless & Chesley Co. v. Davis
191 F. Supp. 3d 743
S.D. Ohio2016Background
- Waite, Schneider sued former client Allen Davis to collect fees; Davis counterclaimed for malpractice. Parties settled after partial trial and filed a stipulated dismissal with prejudice in Sept–Oct 2015.
- After dismissal, movant Mary Lou White‑Lynch (representing Fen‑phen class victims of Stanley Chesley) sought disclosure of the settlement and asked the court to direct settlement proceeds to the class based on Kentucky proceedings against Chesley.
- In 2013 Chesley executed a Wind‑Up Agreement transferring nominal control of Waite, Schneider to a trustee while retaining a beneficial interest in fees; in June 2015 a Boone County, KY court entered a Turn‑Over Order directing Chesley’s distributions to the plaintiffs in that action.
- In Sept 2015 a Kentucky court found the Wind‑Up Agreement a sham and that Chesley continued to control Waite, Schneider and was diverting assets to frustrate creditors.
- The district judge issued an order to show cause whether counsel in the Ohio case perpetrated a fraud on the court by failing to disclose these matters, but later withdrew that order and denied White‑Lynch’s request to redirect funds for lack of jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether court may order transfer of settlement funds to White‑Lynch (Kentucky judgment creditors) | White‑Lynch: district court can direct transfer of settlement corpus to satisfy Kentucky Turn‑Over Order | Waite, Schneider/Davis: dismissal with prejudice and settlement did not preserve district court jurisdiction over settlement corpus | Denied for lack of jurisdiction: dismissal was stipulated and did not incorporate settlement terms, so Kokkonen governs; court cannot order transfer |
| Whether failure to disclose Wind‑Up Agreement/Turn‑Over Order constitutes fraud on the court | White‑Lynch: nondisclosure misled the court and enabled evasion of Kentucky orders; counsel participated in deception | Defense: either lacked knowledge or disclosure would not have deprived Davis of a full and fair trial; court lacked authority over settlement corpus | Court declined to find fraud on the court—insufficient proof that nondisclosure prevented Davis from presenting his case fully and fairly |
| Whether court retains jurisdiction post‑dismissal to investigate alleged fraud on the court | White‑Lynch: court should act to remedy misconduct and enforce justice | Respondents: dismissal divested court of authority over settlement implementation; any remedies are for state courts | Court: although it lacked remedial jurisdiction over funds, it retained jurisdiction to adjudicate whether a fraud on the court occurred; but finding of fraud not supported by clear and convincing evidence |
| Whether disclosure motion for settlement agreement should be granted | White‑Lynch sought copy of settlement | Defendants opposed on confidentiality/jurisdiction grounds | Denied in part as moot: movant already obtained a copy via Kentucky proceedings subject to protective order; other relief denied for lack of jurisdiction |
Key Cases Cited
- Abbott v. Chesley, 413 S.W.3d 589 (Ky. 2013) (describing Chesley’s misappropriation of Fen‑phen class settlement funds)
- Kentucky Bar Ass’n v. Chesley, 393 S.W.3d 584 (Ky. 2013) (disbarment order describing Chesley’s professional misconduct)
- Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375 (1994) (district court lacks post‑dismissal jurisdiction over settlement unless dismissal/settlement preserves such jurisdiction)
- Demjanjuk v. Petrovsky, 10 F.3d 338 (6th Cir. 1993) (fraud‑on‑the‑court doctrine requires conduct that prevented an adversary from presenting his case fully and fairly)
- Carter v. Anderson, 585 F.3d 1007 (6th Cir. 2009) (elements and scope of fraud on the court doctrine)
- United States v. Cunningham, 679 F.3d 355 (6th Cir. 2012) (criminal prosecution and sentencing of co‑conspirators involved in Fen‑phen scheme)