Talmer Bank & Trust v. Norman MalekTalmer Bank & Trust v. Norman Malek
III
For the above reasons, we affirm.
DAMON J. KEITH, Circuit Judge.
Talmer Bank and Trust sought to enjoin Norman Malek in federal court from continuing to prosecute an arbitration action against it. Talmer alleged that the prosecution of the arbitration action violated a release (hereinafter, “Release“) executed between the two parties. In addition to seeking injunctive relief, Talmer sought a declaratory judgment stating that the Release was valid, enforceable, and barred the arbitration action. Talmer also asserted a claim for breach of contract. Malek countersued, claiming, among other things, that the Release was induced by fraud. Talmer moved for judgment on the pleadings. It argued that Malek failed to tender the consideration he received under the Release before attacking its enforceability, and his counterclaims were thus barred under Ohio law. The district court agreed and granted Talmer‘s motion. For the following reasons, we AFFIRM the district court‘s judgment in favor of Talmer.
I. FACTUAL AND PROCEDURAL BACKGROUND
1. Relevant Factual Allegations
Beginning in April 2010, Malek served as Corporate Vice President, Treasurer of First Place Bank. R. 1 at 2, ¶ 8; R. 8 at 107, ¶ 7. In 2010, First Place Bank experienced financial distress, which led to First Place Bank “entering into a Supervisory Agreement with the Office of Thrift Supervision on or about March 1, 2011.” R. 1 at 2-3, ¶ 9; R. 8 at 107, ¶ 8.
a. Change in Control Severance Agreement
On or about March 18, 2011, Malek and First Place Bank entered into a Change in Control Severance Agreement (“CICS Agreement“). R. 1 at 3, ¶ 10; R. 8 at 107, ¶ 9; see also R.1-2. Among other things, the CICS Agreement provided that Malek would be “entitled to a payment“—specifically, a “lump sum” based on Malek‘s “[a]verage [a]nnual [c]ompensation” if First Bank underwent a so-called “change in control” and if Malek was terminated without cause, or left with good cause, within a year of the change in control. R. 1 at 3, ¶ 11; R.1-2 at 22, ¶ 3(a); R. 8 at 113, ¶ 10. The CICS Agreement was set to expire on June 30, 2012, R. 8 at 113, ¶ 11; R1-2 at 22, ¶ 1, but an extension was sought in 2011, see R. 1 at 3, ¶ 13; R. 8 at 107, ¶ 12. While First Place Bank‘s board of directors approved the extension, First Place Bank informed Malek that the Officer of the Comptroller of the Currency (“OCC“) did not. R. 8 at 115, ¶ 23. Malek executed an “acknowledgment” of the CICS Agreement‘s termination. Id.; see also R. 1-3 at 31.
In October 2012, First Place Bank filed a petition for bankruptcy. R. 8 at 113-14, ¶ 13. As part of these proceedings, Talmer purchased substantially all of First Place Bank‘s assets. Id. Talmer‘s acquisition of First Place Bank took place on January 1, 2013. R. 1 at 4, ¶ 15; R. 8 at 107, ¶ 14. After the acquisition, Malek was “stripped” of “most of his authority and responsibility he previously had as Treasurer.” R. 8 at 114, ¶ 15. Thus, he alleges, it was “practically impossible for him to do his job as Treasurer competently and completely.” Id. at ¶ 18.
b. The Release
More than a year later, Malek‘s employment was terminated in February 2014. R.
unconditionally waive[s], release[s], and discharge[s] ... [Talmer] ... from liability for any and all claims or causes of action, both known and unknown, arising prior to [Malek‘s] signing this [Release] that [he] may have ... against [Talmer], including, but not limited to, claims arising under or related to [Malek‘s] employment and/or termination of [his] employment.
R. 1-1 at 16, ¶ 3(A). The Release also provides that the parties intend to “resolve, fully[,] and finally” matters relating to any “change-of-control, severance, or other such agreements.” Id. at 15.
c. The Claims
Malek now alleges that Talmer lied about the OCC‘s response to the extension request. R. 8 at 116-17, ¶¶ 25; 26; 29. Malek asserts that the OCC had not rejected the extension of the CICS Agreement, but rather, the OCC informed Talmer that it needed the “proper documentation” to approve the claim and provided instructions on how to proceed. Id. at 116, ¶ 25. Malek alleges that in order to avoid paying employees on the CICS Agreement, Talmer intentionally misrepresented the OCC‘s response, thereby committing fraud. Malek asserts that he would not have executed the Release in February 2014 if he knew that the OCC had not refused to approve the CICS Agreement‘s extension. Id. at 117, ¶ 30.
On February 6, 2015, Malek sent a Demand for Arbitration to the American Arbitration Association, asserting a claim for breach of the CICS Agreement. R. 1 at 8, ¶ 37; R. 8 at 109, ¶ 36. Talmer filed this complaint in federal court two weeks later on February 20, 2015. R. 1. Malek answered on March 17, 2015, and stated that the arbitration action against Talmer was “no longer pending.”1 See R. 3 at 37. Malek also asserted counterclaims for breach of the CICS Agreement, id. at 45, ¶¶ 35-37, and violation of an Ohio statute,
After replying to Malek‘s counterclaims, Talmer moved for judgment on the pleadings. Talmer argued that Malek violated Ohio‘s “tender-back rule“—namely, that Malek failed to tender back the consideration he received under the Release to Talmer before asserting his counterclaims. R. 6 at 88. Malek then amended his answer. In his Amended Answer and Counterclaim (“Amended Answer“), Malek states that he tendered back the consideration on April 14, 2015, after he filed his original Answer to Talmer‘s complaint, but Talmer had rejected the tender. R. 8 at 108, ¶ 9; see also R. 8-1 at 123-24. In his Amended Answer, Malek alleges three claims against Talmer: (1) fraud; (2) “civil theft;” and (3) rescission of the Release. R. 8 at 118-19. All of Malek‘s counterclaims relate to the execution of the Release. See id. Malek also alleges that Talmer owes him $99,980, which represents the difference between his average annual compensation of $133,293 and the $33,313 he received in February 2014 under the Release. Id. at 117-18, ¶ 35.
2. District Court Decision
Talmer renewed its motion for judgment on the pleadings after Malek amended his answer, arguing that the Release “extinguished” Malek‘s counterclaims and that Malek‘s tender of consideration was too late. R. 11 at 160. The district court granted the motion and dismissed Malek‘s counterclaims. R. 21. In granting the motion, the district court reasoned that Malek failed to timely tender his consideration to Talmer in violation of Ohio law, and was thus barred from asserting fraudulent-inducement and rescission claims. Additionally, the district court noted that the tender was “insufficient” because it was “conditioned on Talmer‘s rescinding the [Release].” Id. at 266. The district court further concluded that Malek breached the Release, and “in light of the declaratory judgment in favor of Talmer,” ordered Malek to pay nominal damages of $1.00 to Talmer. R. 21 at 267.
II. APPELLATE JURISDICTION
The district court exercised diversity jurisdiction under
A de novo standard of review applies to motions for judgment on the pleadings. Ziegler v. IBP Hog Mkt., Inc., 249 F.3d 509, 511-12 (6th Cir. 2001). “For purposes of a motion for judgment on the pleadings, all well-pleaded material allegations of the pleadings of the opposing party must be taken as true, and the motion may be granted only if the moving party is nevertheless clearly entitled to judgment.” JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 581 (6th Cir. 2007) (quoting S. Ohio Bank v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 479 F.2d 478, 480 (6th Cir. 1973)). An answer, like Malek‘s Amended Answer, is a pleading under the
“We review the district court‘s interpretation and application of state law de novo.” Ziegler, 249 F.3d at 512. “A federal court sitting in diversity must apply the [substantive] law of the [applicable] highest state court if that court has ruled on the matter in dispute; otherwise, the court may rely on case law from lower state
IV. ANALYSIS
On appeal, Malek argues that the district court‘s dismissal of his counterclaims was improper because his tender of the consideration was both timely and unconditional. For the following reasons, we conclude that dismissal of the counterclaims is appropriate because Malek‘s tender was untimely.2 3
1. Merits of Malek‘s Appeal
Under Ohio law, “a releasor“—like Malek here—“may not attack the validity of a release for fraud in the inducement unless he first tenders back the consideration he received for making the release.” Berry v. Javitch, Block & Rathbone, LLP, 127 Ohio St.3d 480, 940 N.E.2d 1265, 1270 (2010) (emphasis added); see Haller v. Borror Corp., 50 Ohio St.3d 10, 552 N.E.2d 207, 210 (1990) (emphasis added) (“A release of liability procured through fraud in the inducement is voidable only, and can be contested only after a return or tender of consideration.“); Shallenberger v. Motorists Mut. Ins. Co., 167 Ohio St. 494, 150 N.E.2d 295, 302 (1958); Picklesimer v. Baltimore & Ohio R.R. Co., 151 Ohio St. 1, 84 N.E.2d 214, 217 (1949).4 “Tender, in this context, refers to an offer, not a com-
In this case, Malek‘s counterclaims fall within the scope of the Release, and Malek tendered the consideration after he asserted his counterclaims. The Release provides that Malek:
[u]nconditionally waive[s], release[s], and discharge[s] ... [Talmer] ... from liability for any and all claims or causes of action, both known and unknown, arising prior to [Malek‘s] signing this [Release] that [he] may have against [Talmer], including, but not limited to, claims arising under or related to [Malek‘s] employment and/or termination of [his] employment.
R. 1-1 at 16, ¶ 3(A). The parties also intended to “resolve, fully[,] and finally” matters relating to any “change-of-control, severance, or other such agreements.” Id. at 15. Malek first alleged that the Release was induced by fraud on March 17, 2016, see R. 3 at 44, ¶ 28, and he then tendered the consideration on April 14, 2016, see R. 8-1 at 123.
Malek relies on
It is well-settled that under Ohio law Malek had to “first tender back the consideration—before [he] could bring [his] suit.” See Weisman, 2008 WL 192139, at *8 (first emphasis added) (emphasis omitted). He simply failed to do so, and absent an express exception under Ohio law to the contrary, he is stuck with this failure. Jacobs ex rel. v. Invisible Fence Co. Inc., 201 F.3d 440, 1999 WL 1204876, at *4 (6th Cir. Dec. 3, 1999) (unpublished table decision); see also Maust, 614 N.E.2d at 770.
Malek cannot turn back time to excuse his failure for at least two reasons. First, federal courts are reluctant to craft exceptions to state rules absent express intent from the state‘s highest court. See Kurczi v. Eli Lilly & Co., 113 F.3d 1426, 1429 (6th Cir.1997) (“A federal court in a diversity case is not free to engraft onto state rules exceptions or modifications which may commend themselves to the federal court, but which have not commended themselves to the [s]tate in which the federal court sits.“) (quoting Day & Zimmermann, Inc. v. Challoner, 423 U.S. 3, 4, 96 S.Ct. 167, 46 L.Ed.2d 3 (1975)); see also Jacobs, 1999 WL 1204876, 201 F.3d 440. In Jacobs, the plaintiffs asked us to “carve out an exception to the Ohio rule for those circumstances in which tendering back the consideration paid is either impossible or impracticable.” 1999 WL 1204876, at *3. We said that we could not. Id. at *4. We noted that absent “exceptional circumstances” or “clear indication that [the Ohio Supreme] [C]ourt would alter its rule if confronted with the facts of this case,” we could not carve out an exception to the general rule. Id. Nothing about the circumstances of Malek‘s case distinguishes it from a typical release agreement. See id. Therefore, permitting Malek to use
Second, Ohio courts have recognized that with respect to the tender-back rule, timing is critical. See, e.g., Weis v. Weis, 19 Ohio Dec. 451 (Com.Pl.1908) (rejecting a litigant‘s attempt to tender the consideration after the commencement of the lawsuit through an amendment to its prior pleading). In Weis, the plaintiff noted that he tendered the consideration in an amendment to his original complaint, but he had failed to make the tender at the beginning of the lawsuit.8 Id. at 451. The court rejected the plaintiff‘s attempt to excuse his failure to comply with a prerequisite to filing suit, reasoning that “it is difficult to understand how the tender can be made to have a retroactive effect so as to speak as of the time when the action was commenced.” Id. at 452. Weis’ reasoning is consistent with the decisions of other
Accordingly, Malek‘s untimely tender requires dismissal of his counterclaims.11
V. CONCLUSION
For these reasons, we AFFIRM the district court‘s judgment in favor of Talmer.
UNITED STATES of America, Plaintiff-Appellee, v. Michael STEPHENS, aka Michael Williams, Defendant-Appellant.
No. 15-5553
United States Court of Appeals, Sixth Circuit.
FILED June 09, 2016
Notes
Johnson v. Ventra Grp., Inc., 191 F.3d 732, 739 (6th Cir. 1999) (citinga contractual choice of law provision will be binding unless either:
(a) [t]he chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or
(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of [§] 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.