Oral Argument Previews
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Tuesday, March 24, 2009
Lillie Alexander v. Wells Fargo Financial Ohio 1, Inc. Shelton Coleman v. American General Financial Services, Case nos. 2008-0905 and 2008-1009
8th District Court of Appeals (Cuyahoga County)
State of Ohio v. Jermaine Baker, Case nos. 2008-1094 and 2008-1304
9th District Court of Appeals (Summit County)
National Union Fire Insurance Co. of Pittsburgh, PA. v. Richard O. Wuerth; Lane, Alton & Horst, Case no. 2008-1334
U.S. Sixth Circuit Court of Appeals
Does Contract Arbitration Clause Apply to Statutory Claims Based on Lender’s Delay in Recording Loan Discharge?
Lillie Alexander v. Wells Fargo Financial Ohio 1, Inc. Shelton Coleman v. American General Financial Services, Case nos. 2008-0905 and 2008-1009
8th District Court of Appeals (Cuyahoga County)
ISSUE: When a lender and borrower have entered into a loan contract that includes an agreement to arbitrate all disputes arising out of the contract, does that arbitration agreement apply to statutory claims advanced by the borrower against the lender after the terms of the contract have been satisfied, based on the lender’s failure to comply with state laws that set mandatory time limits for a lender to record the discharge of a borrower’s debt obligation?
BACKGROUND: The Court has consolidated for oral argument two Cuyahoga County cases in which borrowers filed court actions to recover from lenders the civil damage award to which a borrower is entitled under state consumer protection laws when a lender fails to record the satisfaction of a borrower’s debt within specified time limits. In both cases, the lenders asked the trial court to dismiss the borrowers’ complaints, arguing that their claims were subject to mandatory arbitration under arbitration agreements the borrowers entered into with the lenders as part of their loan transactions.
In Case No. 2008-0905, property owner Lillie Alexander sought to recover a $250 statutory penalty from Wells Fargo Financial after she paid off her residential mortgage and the lender failed to record satisfaction of the debt and release its mortgage against her property within the 90-day time limit established by R.C. 5301.36. In Case No. 2008-1009, borrower Shelton Coleman paid off a secured consumer loan he obtained from American General Financial Services and subsequently sought to recover the $500 statutory damage award authorized in R.C. 1309.625(E) when a lender fails to record satisfaction of a consumer debt and release its security interest in the borrower’s property within 30 days of receiving full payment.
Following preliminary rulings by trial courts that were challenged on appeal, the 8th District Court of Appeals ruled that the arbitration agreements entered into by Alexander and Coleman with their respective lenders did not cover the types of post-satisfaction statutory claims advanced by the plaintiffs. Both cases were remanded to the trial court for adjudication on the merits. The lenders sought and were granted Supreme Court review of the 8th District’s rulings.
[NOTE: Attorneys representing Alexander and Coleman have also asserted class action claims against the lenders in their respective cases on behalf of other mortgage and consumer loan borrowers whose loan satisfactions were not recorded within the statutory time limits applicable to those transactions. However, the issue to be argued before the Supreme Court on March 24 is limited to whether or not the agreements entered into by Alexander and Coleman with their respective lenders to arbitrate all disputes arising out of their loan contracts require arbitration of statutory claims that arose after the terms of the loan contracts had been satisfied.]
Attorneys for the lenders argue that the broad language of the arbitration agreements they entered into with Alexander and Coleman at the time their loans were granted applied not only to disputes over the parties’ performance of their mutual duties under the terms of the loan contracts themselves, but also to any dispute that might arise between the parties because of the existence of the underlying contract. In these cases, they argue, it is undisputed that neither Alexander or Coleman could assert a statutory claim for delayed recording of their loan satisfactions unless they had first entered into the loan contracts themselves. They urge the Court to overrule the 8th District and hold that the terms of the arbitration agreements entered into by Alexander and Coleman did not terminate when the balance of their respective loans was paid off, but continued to apply to any and all disputes between borrower and lender that would not have arisen “but for” the existence of the underlying loan contracts.
Attorneys for Alexander and Coleman respond that the “but for the underlying contract” interpretation of arbitration agreements advanced by the lenders was previously considered and specifically rejected by the Supreme Court of Ohio in a 2006 decision, Academy of Medicine of Cincinnati v. Aetna Health. In Aetna, they assert, the Court stated that the standard for determining whether a dispute is covered by an arbitration clause in a contract is “whether the action could be maintained without reference to the contract or relationship at issue.” In both of these cases, they argue, Alexander and Coleman can establish their entitlement to the statutory awards they seek without any reference to the terms or conditions of the underlying contracts with their lenders simply by 1) establishing from bank records the date on which they paid off their loans and 2) establishing from public records the date on which the lender recorded satisfaction of the debt.
Contacts
Patrick J. Perotti, 440.352.3391, for Lillie Alexander.
Scott A. King, 937.443.6560, for Wells Fargo Financial.
Brian Ruschel, 216.621.3370, for Shelton Coleman.
Patrick M. McLaughlin, 216.623.0900, for American General Financial Services.
Does a Criminal Defendant Waive Sentencing Error By Failing to Object at the Time Sentence Pronounced?
State of Ohio v. Jermaine Baker, Case nos. 2008-1094 and 2008-1304
9th District Court of Appeals (Summit County)
ISSUES:
- In criminal prosecutions brought under state law in which establishing the defendant’s status as a prior felony offender is a required element of a crime with which he is currently charged, must Ohio courts follow the U.S. Supreme Court’s 1997 decision in Old Chief v. United States by allowing the defendant to “stipulate” (admit) his status and barring the state from presenting the jury with other evidence providing details of the defendant’s prior criminal history?
- When a trial court imposes a sentence that is contrary to law for one or more charges or specifications on which a defendant has been convicted, does the defendant waive (forfeit) his right to later appeal the sentencing error if he fails to enter an objection to it at his sentencing hearing?
- In cases where a trial court improperly imposes multiple sentence enhancements for firearm and body armor specifications when the underlying robberies were committed as part of a single incident, does the trial court’s failure to merge those sentences constitute “plain error” that must be reversed even though the erroneous sentences were ordered to be served concurrently, and their elimination would not shorten the defendant’s actual prison term?
BACKGROUND: Jermaine Baker of Akron was convicted on multiple felony counts for his role in a home invasion robbery of four persons and the non-fatal shootings of two of the victims. He was sentenced to prison terms totaling 32 years.
Baker appealed his convictions and portions of his sentence to the 9th District Court of Appeals. Among other claims of error, Baker argued that the trial court violated his fair trial rights and ignored the ruling in Old Chief by allowing the jury to be given detailed information about his three prior felony convictions rather than allowing him to stipulate that he had a qualifying prior conviction and therefore was barred from possessing a gun. Baker also argued that his sentence should be declared void because the trial court improperly increased his sentence on each of four counts of robbery by two years (adding a total of eight years) based on the fact that he wore body armor while committing those crimes when state law requires that multiple body-armor specifications arising from the same incident should be merged into a single two-year sentence enhancement.
On review, the 9th District Court of Appeals denied each of Baker’s assignments of error. The court of appeals ruled that Ohio courts are not required to follow the holding in Old Chief in criminal cases involving violations of state law. The 9th District also held that Baker waived any appeal of his multiple sentences for the body armor specifications when he failed to object to those sentences at the time sentence was pronounced. While noting that an appellate court can correct a sentencing mistake despite the absence of a timely objection if that mistake rises to the level of “plain error,” the 9th District declined to find plain error in this case on the basis that Baker’s multiple sentences for the body armor specifications were ordered to be served concurrent with his sentences for other crimes, and therefore the unmerged sentences did no actual harm to Baker because eliminating them would still leave him with a 32-year sentence.
The 9th District subsequently certified that its ruling on each of the issues detailed above were in conflict with rulings by other Ohio courts of appeals. The Supreme Court agreed to review each of the questions of law to resolve the conflict among appellate districts.
Attorneys for Baker cite rulings in two other Ohio appellate districts holding that Old Chief is controlling precedent that must be followed by Ohio courts when hearing state law criminal cases. They contend that, similar to the facts in Old Chief, Baker was willing to stipulate as a proven fact that he had a prior conviction for a violent or drug-related felony that barred him from legally possessing a firearm, and the trial court committed plain error by allowing the state to introduce documents informing the jury about irrelevant details of his past convictions that were likely to predispose jurors to improperly presume his guilt in the current case.
Baker’s attorneys point to courts of appeals decisions holding that, when a criminal sentence is contrary to law, the sentence is a nullity and a court of appeals has jurisdiction to vacate it or correct the error whether or not the defendant raised an objection to that error at the time he was sentenced. They also urge the Court to reject the 9th District’s reasoning that a clearly illegal sentence does not constitute plain error simply because of the coincidence that the years improperly added to the defendant’s sentence were to be served concurrently with his sentence for other offenses.
Attorneys for the state point out that the ruling in Old Chief addressed a question of federal law, and assert that no Ohio court has ever held that a trial court’s failure to allow a defendant to stipulate to a prior conviction constituted plain error requiring reversal where the defendant did not object to the introduction of other evidence of his prior offenses at the time it was proffered. With regard to the issue of a defendant’s waiver of a defective sentence, they point to this Court’s 2007 decision in State v. Payne holding that Ohio defendants who failed to object to judicially enhanced sentences at the time of sentencing following the U.S. Supreme Court’s ruling in Blakeley v. Washington had waived their right to later dispute their sentences on appeal.
Contacts
Donald Gallick, 330.631.6892, for Jermaine Baker.
Richard S. Kasay, 330.643.2800, for the state and Summit county prosecutor’s office.
Can Plaintiff Pursue Malpractice Suit Against Law Firm When All Claims Against Individual Lawyers Dismissed?
National Union Fire Insurance Co. of Pittsburgh, PA. v. Richard O. Wuerth; Lane, Alton & Horst, Case no. 2008-1334
U.S. Sixth Circuit Court of Appeals
ISSUE: Under Ohio law, can a legal malpractice claim be maintained directly against a law firm when all relevant principals and employees of the firm have either been dismissed from the case or were never sued in the first instance?
BACKGROUND: The National Union Fire Insurance Company of Pittsburgh retained the Columbus law firm of Lane Alton & Horst and a partner in that firm, attorney Richard Wuerth, to defend a claims adjustment firm, McLarens Toplis, and an individual claims adjustor, Lany Wood, who were insured by National Union against a civil lawsuit filed against them in federal court by Nationwide Insurance. In its complaint, Nationwide alleged that McLarens and Wood had exceeded their authority and made improper commitments on behalf of Nationwide to pay for hurricane damages to six Virginia Beach, VA hotels.
During the second week of an extended trial, Wuerth informed several Lane Alton partners and also mentioned to the trial judge that he was not feeling well. Later that week, while the trial was still underway, Wuerth collapsed at home and was taken to the hospital. His doctor subsequently advised the court that Wuerth was not physically or mentally capable of continuing with the trial, and would not be able to do so for a significant period of time. Lane Alton filed an unsuccessful motion for a mistrial, then assigned other firm attorneys to complete the trial. The case was submitted to the jury, and on Feb. 21, 2002, the jurors returned a verdict in favor of Nationwide for $16.2 million. As the result of a settlement agreement between the parties, National Union ultimately paid Nationwide $8.25 million.
On Feb. 21, 2003, National Union filed a malpractice action in federal district court naming both Wuerth and the Lane Alton law firm as defendants. In its complaint, National Union alleged that Wuerth had been grossly negligent and incompetent in preparing and presenting a defense against the Nationwide lawsuit, and that the Lane Alton firm had been negligent in assigning Wuerth rather than a more experienced trial attorney to represent them and had failed to take proper action when it learned that Wuerth was experiencing personal problems that affected his performance including alleged alcohol abuse. They also alleged that the law firm had failed to provide proper oversight or to assign adequate support resources to Wuerth, and that the firm’s neglect of these duties to its client had resulted in substandard legal representation that forced National Union to negotiate a settlement.
Lane Alton entered a motion for summary judgment dismissing all of National Union’s claims against Wuerth and the firm, on the basis that National Union had failed to initiate its lawsuit within Ohio’s one-year statute of limitations for filing legal malpractice actions. The trial court granted summary judgment, finding that: 1) National Union was aware of shortcomings in Wuerth’s representation as early as Feb. 11, 2002, and Wuerth’s representation was terminated on the day he was hospitalized Feb. 14, 2002; 2) After those events, more than one year passed before National Union’s suit was filed on Feb. 21, 2003; 3) National Union was therefore time-barred from suing Wuerth for malpractice; and 4) Because a law firm can only be held liable for malpractice damages if its agent or employee is found liable, and Wuerth (the only member of the firm sued individually) was judgment-proof because of the missed filing deadline, National Union could not maintain a viable malpractice claim against Lane Alton.
National Union appealed the district court’s judgment to the U.S. Sixth Circuit Court of Appeals. After reviewing written pleadings and hearing oral arguments in the case, the Sixth Circuit stayed its proceedings and asked the Supreme Court of Ohio to answer the question of state law set forth at the beginning of this summary: Does Ohio law allow a plaintiff to pursue a direct legal malpractice claim against a law firm independent of any underlying claim against one or more attorneys who are members or employees of that law firm?
Attorneys for National Union cite several prior decisions of the Supreme Court of Ohio and state appellate courts which they say have implicitly held that the acts or omissions of a law firm itself, considered separately from any acts or omissions by an individual member or agent of that firm, can constitute legal malpractice. They cite decisions by courts in many other states holding that law firms as well as individual attorneys engage in the “practice of law,” and point out that National Union signed letters of engagement and entered into contracts for representation with Lane Alton as a corporate entity, not with individual attorneys within that firm who the firm selected to perform legal work for its client. They assert that Ohio should not grant law firms an exemption from corporate liability for negligent performance of their duties to clients that is not granted to partnerships, corporations, or limited liability companies engaged in any other profession or business.
Attorneys for Lane Alton argue that case law including decisions of the Supreme Court of Ohio has established that legal malpractice claims can be asserted against a law firm, but that such claims are vicarious in nature, meaning that a firm’s liability can only derive from the negligent acts or omissions of one or more of its attorneys. Under the legal doctrine of respondeat superior (a master is responsible for his servant), they say, it is axiomatic that there must first be a finding of wrongdoing by an agent or employee of a company before the employer can be held liable for damages caused by that wrongdoing. For a law firm to be liable for legal malpractice, they assert, there must be a finding that one or more of the firm’s attorneys is liable, and if no attorney in the firm has been or can be adjudged liable, then the firm cannot be liable.
Contacts
Joseph M. Callow Jr., 513.579.6419, for National Union Fire Insurance Co.
Lawrence D. Walker, 614.221.2838, for Richard Wuerth and Lane Alton & Horst.
These informal previews are prepared by the Supreme Court's Office of Public Information to provide the news media and other interested persons with a brief overview of the legal issues and arguments advanced by the parties in upcoming cases scheduled for oral argument. The previews are not part of the case record, and are not considered by the Court during its deliberations.
Parties interested in receiving additional information are encouraged to review the case file available in the Supreme Court Clerk's Office (614.387.9530), or to contact counsel of record.