Opinion
Case No. 19-55160 Adv. Pro No. 21-02003
2022-03-29
IN RE: Michael J. IANNARINO, Debtor. James A. Coutinho, Plaintiff, v. Stifel Financial Corp., Defendant.
Jeffrey Robert Corcoran, Allen Stovall Neuman & Ashton LLP, Columbus, OH, for Plaintiff. James A. Coutinho, Allen Stovall Neuman & Ashton LLP, Columbus, OH, Plaintiff, Pro Se. Daniel M. Anderson, Ice Miller LLP, Columbus, OH, for Defendant.
Jeffrey Robert Corcoran, Allen Stovall Neuman & Ashton LLP, Columbus, OH, for Plaintiff.
James A. Coutinho, Allen Stovall Neuman & Ashton LLP, Columbus, OH, Plaintiff, Pro Se.
Daniel M. Anderson, Ice Miller LLP, Columbus, OH, for Defendant.
MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT (DOC. #8) AND DEFENDANT STIFEL FINANCIAL CORPORATION'S CROSS-MOTION FOR SUMMARY JUDGMENT (DOC. #9)
Mina Name Khorrami, United States Banktuptcy Judge This cause came before the Court for oral hearing on January 13, 2022, to consider Plaintiff's Motion for Summary Judgment (Doc. #8) (the "Motion"), Defendant Stifel Financial Corporation's Memorandum in Opposition to Plaintiff's Motion for Summary Judgment and Cross-Motion for Summary Judgment (Doc. #9) (the "Cross-Motion"), and Plaintiff's Reply in Support of Motion for Summary Judgment and Memorandum in Opposition to Defendant's Cross-Motion for Summary Judgment (Doc. #10). Present at the hearing were Jeffrey R. Corcoran on behalf of the Plaintiff, James A. Coutinho, Chapter 7 Trustee, and Daniel M. Anderson on behalf of the Defendant, Stifel Financial Corporation. At the conclusion of the hearing, the Court allowed the parties an opportunity to file the following post-hearing briefs: Plaintiff's Supplemental Memorandum in Support of Motion for Summary Judgment and in Opposition to Defendant's Cross-Motion for Summary Judgment (Doc. #17), Defendant Stifel Financial Corporation's Supplemental Memorandum in Opposition to Plaintiff's Motion for Summary Judgment and in Support of Its Cross-Motion for Summary Judgment (Doc. #18), and Plaintiff's Supplemental Reply Memorandum in Support of Motion for Summary Judgment and in Opposition to Defendant's Cross-Motion for Summary Judgment (Doc. #21).
James A. Coutinho, Chapter 7 Trustee (the "Trustee"), seeks judgment as a matter of law against Stifel Financial Corporation ("Stifel") on the Trustee's complaint to avoid a preferential transfer under 11 U.S.C. § 547 and for the recovery of the value of the preferential transfer for the benefit of the estate under 11 U.S.C. § 550. More specifically, the Trustee argues that the prejudgment attachment orders obtained by Stifel are void and unenforceable. In response, Stifel argues that the prejudgment attachment orders are valid and it obtained a valid attachment lien as a result. In addition, the Trustee and Stifel dispute whether Stifel was required to register with the Ohio Secretary of State prior to filing a prejudgment attachment proceeding against the Debtor. For the reasons stated below, the Court concludes that it does not have the authority to determine if the prejudgment orders entered by the United States District Court for the Southern District of Ohio are void, and until that determination is made, summary judgment is not appropriate. In addition, the Court cannot determine as a matter of law whether Stifel was required to register with the Secretary of State under Ohio law because a genuine issue of material fact exists as to whether Stifel was required to do so.
I. Jurisdiction
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Amended General Order 05-02 entered by the United States District Court for the Southern District of Ohio, referring all bankruptcy matters to this Court. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F). Venue is properly before this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
II. Findings of Facts
The Debtor, Michael Iannarino, owned a successful investment-management company. In June 2018, the Debtor entered into an employment agreement with Stifel, Nicolaus & Company, Inc. Under the employment agreement, the Debtor was employed as a financial advisor and had the option of receiving an initial personal loan of up to $900,000 from Defendant, Stifel Financial Corp. ("Stifel"), as long as the Debtor met certain conditions, including continued employment. After entering into the employment agreement, the Debtor executed a demand promissory note with Stifel for $900,000. In early October 2018, the Debtor received $450,000 from Stifel pursuant to the agreement and note but was terminated from his employment on October 11, 2018. As a result of his termination, the Debtor was obligated to repay the loan proceeds in the amount of $450,000 to Stifel.
The day after the Debtor was terminated, Stifel filed a diversity action against the Debtor for payment on the promissory note in the United States District Court for the Southern District of Ohio ("District Court"). At the same time, Stifel filed a motion requesting prejudgment attachment in District Court (the "Original Motion") for the purpose of preventing the Debtor from using the $450,000. The funds were believed to have been deposited in the Debtor's account with CME Federal Credit Union and in a business account with PNC Bank. The Original Motion was accompanied by declarations in support of the motion for prejudgment attachment (the "First Affidavits"). Pl.’s Mot. for Summ. J. Ex. A 38-41, 63-66, ECF No. 8. The First Affidavits failed to contain a specific averment stating that "[t]o the best of the plaintiff's knowledge, after reasonable investigation, ... that the property is not exempt from attachment or execution" as required by Ohio Revised Code ("O.R.C.") § 2715.03(E). Pl.’s Mot. 38-41. The Original Motion, however, contained a statement that "the Loaned Funds are not exempt from attachment because the Loaned Funds are not personal earnings as defined under Ohio law." Pl.’s Mot. 33.
After considering the Original Motion, District Court entered an order (the "Original Order") granting the unopposed motion for prejudgment attachment on December 3, 2018. Pl.’s Mot. for Summ. J. Ex. B 67-73, ECF No. 8. District Court made the following findings in the Original Order: "The Court finds that plaintiff is entitled to prejudgment attachment under Ohio law. The affidavits submitted with the motion for prejudgment attachment satisfy the six requirements of O.R.C. § 2715.03(A) - (F)." Pl.’s Mot. 69. District Court further concluded that "[Stifel] has established that the property is not exempt from attachment. Ohio law exempts certain benefit payments, such as workers’ compensation, unemployment, and social security. O.R.C. § 2715.041(A). Under the employment agreement and note, the funds made available to [the Debtor] were a loan." Pl.’s Mot. 70.
Stifel later discovered that the funds that were initially believed to have been deposited in the Debtor's accounts with CME Federal Credit Union and PNC Bank were transferred by the Debtor to certain investment accounts held at Charles Schwab & Co., Inc. ("Schwab"). Consequently, Stifel filed an ex parte motion for amended prejudgment attachment order (the "Amended Motion") on December 18, 2018, requesting that the attachment be extended to include the Debtor's accounts at Schwab. Pl.’s Mot. for Summ. J. Ex. C 74-102, ECF No. 8. The Amended Motion was accompanied by declarations in support of the request for an amended prejudgment attachment order (the "Second Affidavits"). Pl.’s Mot. 83-102. The Second Affidavits failed to contain a specific averment stating that "[t]o the best of the plaintiff's knowledge, after reasonable investigation, ... that the property is not exempt from attachment or execution" as required by Ohio Revised Code ("O.R.C.") § 2715.03(E). Pl.’s Mot. 83-102. The Amended Motion, however, stated that "[t]he basis for prejudgment attachment has not changed. As such, Stifel incorporates as if fully restated herein, all previous arguments in support of prejudgment attachment." Pl.’s Mot. 80. In addition, the Amended Motion included a statement that "[i]n the December 3, 2018 Attachment Order, this court held that Stifel satisfied the requirements of O.R.C. § 2715.03 and there was probable cause supporting the motion." Pl.’s Mot. 78-79. After considering the Amended Motion, District Court entered an amended order of prejudgment attachment (the "Amended Order") on December 19, 2018, that granted the Amended Motion and extended the attachment to include the Schwab accounts. Pl.’s Mot. for Summ. J. Ex. D 103, ECF No. 8. The Amended Order specifically provided as follows:
This matter is before the Court on Plaintiff Stifel Financial Corporation's ex parte motion to amend the December 3, 2018 order of prejudgment attachment. Plaintiff has submitted evidence establishing that defendant has transferred the funds that were the subject of the order of attachment. Plaintiff has set forth specific facts showing that it will suffer irreparable injury if the order is not amended. For good cause shown, the motion to amend (doc. 19) is GRANTED.
Accordingly, Defendant Iannarino, either directly or through his business entity Cephas Capital Partners & Advisory, LLC, shall not transfer, move, sell or encumber the $450,000 drawn from his Stifel account, then placed in accounts with PNC Bank and CME Federal Credit Union, and later transferred (whether in whole or in part) to accounts held with Charles Schwab & Co., Inc., which are identified by account number in plaintiff's affidavits and supporting documentation, until further order of the Court.
Pl.’s Mot. 103. One of the Debtor's accounts at Schwab was an individual retirement account.
Approximately five months later, District Court granted default judgment against the Debtor on May 19, 2019. Subsequently, Stifel requested garnishment of the funds held in the Schwab accounts, and District Court ordered Schwab to pay the funds it was holding to Stifel. On July 9, 2019, Schwab sent a check for $234,376.66 to Stifel and those funds were transferred to Stifel's account. A month later, the Debtor filed for relief under Chapter 7 of the Bankruptcy Code on August 9, 2019.
III. Arguments of the Parties
The parties agree that the material facts relevant to this case are not in dispute. J. Prelim. Pretrial Stmt. 3, ECF. No. 7. The parties, however, dispute the impact of the Original Order and the Amended Order (the "Orders") entered by District Court and whether they created a valid attachment lien on the funds that Schwab ultimately paid to Stifel. The parties agree that if the Orders constitute valid prejudgment attachment orders, then the Trustee's cause of action to avoid the preferential transfer must fail.
The Trustee contends that District Court lacked jurisdiction to enter the Orders because Stifel did not strictly comply with the procedural requirements under Ohio law for obtaining a prejudgment attachment order. As such, the Trustee argues that the Orders are void ab initio and did not create valid attachment liens. In addition, the Trustee argues that Stifel failed to register with the Ohio Secretary of State, and thus, was prohibited from maintaining an action against the Debtor in District Court.
The only evidence on the issue of whether Stifel was required to register with the Ohio Secretary of State before it is permitted to bring an action in the state of Ohio is that Stifel had transacted business with the Debtor; there is no other evidence on this issue, so the Court will not consider it until the parties provide additional evidence in support of their respective positions.
In contrast, Stifel contends that it fully complied with the procedural requirements for obtaining prejudgment attachment orders under Ohio law and the Orders constitute valid attachment liens. Stifel further contends that a federal court only requires substantial compliance with the state law practice and procedure when a party is requesting a state law remedy such as prejudgment attachment. And finally, Stifel asserts that there is insufficient evidence in the record to support the proposition that it was required to register with the Ohio Secretary of State, and even if it was required to register, that defense was waived by the Debtor when he failed to raise it in District Court.
IV. Legal Analysis
A. Summary Judgment Standard
Federal Rule of Civil Procedure 56 governs a request for summary judgment and provides that "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The party requesting summary judgment bears the burden of establishing the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The opposing party must then "come forward with specific facts showing that there is a genuine issue for trial." Mounts v. Grand Trunk W. R.R. , 198 F.3d 578, 580 (6th Cir. 2000) (citation omitted).
Federal Rule of Civil Procedure 56 is made applicable to adversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7056.
When considering a motion for summary judgment, "[t]he court must view the evidence in the light most favorable to the nonmoving party. However, the party opposing the summary judgment motion must do more than simply show that there is some metaphysical doubt as to the material facts." Amini v. Oberlin Coll. , 440 F.3d 350, 357 (6th Cir. 2006) (citations and internal quotation marks omitted). "[A] mere ‘scintilla’ of evidence in support of the nonmoving party's position is insufficient to defeat summary judgment; rather, the non-moving party must present evidence upon which a reasonable jury could find in her favor." Tingle v. Arbors at Hilliard , 692 F.3d 523, 529 (6th Cir. 2012) (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 251, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ).
"[T]he standard of review for cross-motions of summary judgment does not differ from the standard applied when a motion is filed by only one party to the litigation." United States SEC v. Sierra Brokerage Servs. , 712 F.3d 321, 327 (6th Cir. 2013) (citing Taft Broad. Co. v. United States , 929 F.2d 240, 248 (6th Cir. 1991) ).
B. 11 U.S.C. § 547 – Preferences
A transfer of the debtor's interest in property may be avoided under certain circumstances pursuant to 11 U.S.C. § 547(b), which provides as follows:
(b) Except as provided in subsections (c), (i), and (j) of this section, the trustee may, based on reasonable due diligence in the circumstances of the case and taking into account a party's known or reasonably knowable affirmative defenses under subsection (c), avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
11 U.S.C. § 547(b). The trustee must prove all the elements under 11 U.S.C. § 547(b) to successfully avoid a preferential transfer. See Waldschmidt v. Ranier (In re Fulghum Constr. Corp.) , 706 F.2d 171, 172 (6th Cir. 1983) (citation omitted).
In this case, the Trustee and Stifel do not dispute that the first three elements of 11 U.S.C. § 547(b) have been satisfied. The dispute arises between the parties with respect to the fourth and fifth elements and whether Stifel received a transfer on or within 90 days of the filing of the bankruptcy case that enabled it to receive more than it would have if the transfer had not been made. The resolution of this turns on whether Stifel obtained a valid prejudgment attachment order in District Court. The Trustee urges this Court to determine that the process by which District Court issued the Original Order and Amended Order failed to comply with Ohio law, was unconstitutional, and as a result, the prejudgment attachment orders are void.
C. District Court Prejudgment Attachment Procedure
In a federal diversity action, Federal Rule of Civil Procedure 64 governs the seizure of the defendant's property. Baxter v. United Forest Prods. Co. , 406 F.2d 1120, 1125 (8th Cir. 1969). That rule "provides that every remedy that is available under the law of the state where the court is located, having to do with seizing property to satisfy a potential judgment, is also available in federal court. That includes the remedy of attachment." PCA-Corrections, LLC v. Akron Healthcare LLC , No. 20-428, 2021 WL 1582984, at *1, U.S. Dist. LEXIS 77769, at *2 (S.D. Ohio Apr. 22, 2021) (citations omitted). Federal courts in Ohio must apply O.R.C. § 2715.01, et seq. , when considering a motion requesting prejudgment attachment under Federal Rule of Civil Procedure 64. See, e.g. Nationwide Mut. Ins. Co. v. Whiteford Sys., Inc. , 787 F. Supp. 766, 768 (S.D. Ohio 1992).
1. Prejudgment Attachment under Ohio law
Ohio's attachment provisions, [O.R.C.] § 2715.01 -.56, permit a court to issue an attachment of defendant's property if the defendant is about to remove his property from the jurisdiction of the court, with the intent to defraud his creditors; or if he is about to convert his property into money to place it beyond the reach of creditors; or if he has property which he is concealing; or if he has disposed of his property with the intent to defraud creditors. Once the court authorizes prejudgment attachment, plaintiff must pay a bond equal to the value of the property to be attached, or, if not known, twice the value of plaintiff's claim. The court's order of attachment is then delivered to the levying officer who, without delay, will go to the location of the property, make an inventory and appraisal of its value, and take it into custody if personal property, or conspicuously place notice of attachment on it if real property.
EBSCO Indus., Inc. v. Lilly , 840 F.2d 333, 334 (6th Cir. 1988) (citations omitted). Once an action is commenced, a plaintiff may request the attachment of the defendant's property by filing a motion accompanied by an affidavit. Ohio Rev. Code § 2715.03. The affidavit must contain the following information:
(A) The nature and amount of the plaintiff's claim, and if the claim is based upon a written instrument, a copy of that instrument;
(B) The facts that support at least one of the grounds for an attachment contained in section 2715.01 of the Revised Code ;
(C) A description of the property sought and its approximate value, if known;
(D) To the best of plaintiff's knowledge, the location of the property;
(E) To the best of the plaintiff's knowledge, after reasonable investigation, the use to which the defendant has put the property and that the property is not exempt from attachment or execution.[;]
(F) If the property sought is in the possession of a third person, the name of the person possessing the property.
Ohio Rev. Code § 2715.03(A) - (F) (emphasis added).
D. The Trustee's Motion must be denied because this Court does not have jurisdiction to vacate orders entered by District Court on the basis that they are void.
The Trustee argues that District Court lacked subject-matter jurisdiction to enter the Orders because Stifel failed to comply with the requirements of O.R.C. § 2715 in that the First and Second Affidavits did not contain a specific averment as to whether the property sought was exempt from attachment or execution. The Trustee relies on State ex rel. Goldberg v. Mahoning Cty. Prob. Court , 93 Ohio St. 3d 160, 753 N.E.2d 192 (2001), in support of the proposition that a court lacks jurisdiction to issue a prejudgment attachment order when it fails to comply with either the statutory or constitutional prerequisites for issuing an attachment order.
In Goldberg , a state court probate judge began investigating allegations that were being made about a probate attorney, Mr. Goldberg, who practiced law before the probate judge. Mr. Goldberg was alleged to have concealed, embezzled, and conveyed away estate assets. The probate judge commenced concealment proceedings against Mr. Goldberg and determined, among other things, that he wrongfully deposited into his trustee account settlement checks intended for beneficiaries of several estates and used the funds for personal purposes. Based on these findings, the probate judge issued a prejudgment attachment order. The attachment order was not requested by any representative of the estates and there was no affidavit in support of its issuance as required by O.R.C. § 2715.03. The bailiff and several law enforcement officers executed the prejudgment attachment order at Mr. Goldberg's residence and seized property. Thereafter, Mrs. Goldberg sought a writ of prohibition in the Court of Appeals requesting that the probate judge and the probate court be prohibited from exercising any further authority under the prejudgment attachment order which was granted. The probate court and judge appealed to the Supreme Court of Ohio which ultimately decided that "[the probate court and judge] patently and unambiguously lacked jurisdiction to issue" the prejudgment attachment order in the context of concealment proceedings. Goldberg , 93 Ohio St. 3d at 162, 753 N.E.2d 192.
In making this determination, the Supreme Court of Ohio analyzed the specific statutory sections governing concealment proceedings and determined that they "do not confer subject-matter jurisdiction on probate courts to issue prejudgment attachment orders relating to personal property." Id. The court reiterated that probate courts have limited jurisdiction and as such the probate proceedings are restricted to those permitted by statute and the Ohio Constitution. Id. The court further discussed that concealment proceedings are limited in application to assets of the probate estate, and the court determined that "the assets allegedly concealed and embezzled [by Mr. Goldberg], i.e. , proceeds from settlements of wrongful death claims, are not estate assets. Id . at 163, 753 N.E.2d 192. Consequently, the court held that "[b]ecause the wrongful death settlement proceeds are not estate assets, the probate court and [judge] lacked jurisdiction to proceed under [the concealment statute]." Id . at 164, 753 N.E.2d 192. And finally, the court found that even if the settlement proceeds were assets of the probate estate, the prejudgment attachment order issued by the probate judge was done so without authority because the concealment statute only authorized "prejudgment attachment of persons , not property[.]" Id.
Additionally, the court discussed the statutory provisions under O.R.C. § 2715 that specifically govern prejudgment attachment and whether they provided any authority for the probate judge to issue a prejudgment attachment order. The court determined that attachment against personal property is only appropriate in a "civil action for the recovery of money." Id. at 164, 753 N.E.2d 192 (internal quotation marks omitted) (quoting O.R.C. § 2715.01(A) ). The court further held that a concealment action is not a civil action, but "[i]nstead, it is a quasi-criminal proceeding that is not intended to be a substitute for a civil action to recover a judgment for money owing to an administrator." Id. (citations omitted). Ultimately, the court held that "[n]o statutory section expressly confers jurisdiction on probate courts to consider concealment actions concerning proceeds from wrongful death claims or provides for prejudgment attachment of personal property in that or any other context." Id. at 165, 753 N.E.2d 192.
After determining that the probate judge lacked any statutory basis for issuing a prejudgment attachment order, the court also determined that the actions taken by the probate judge were unconstitutional because the process by which the probate judge issued the prejudgment attachment order failed to comply with the constitutional requirements relating to an affidavit and a bond. Id. at 166, 753 N.E.2d 192. The court ultimately determined that the probate court and judge "patently and unambiguously lacked jurisdiction to issue their prejudgment attachment order" based on the fact that "neither statute nor the Constitution permitted" the issuance of the prejudgment attachment by the probate court or judge. Id.
The Trustee's reliance on the Goldberg case is misplaced. One of the bases for the Supreme Court of Ohio's decision in Goldberg was that the issuance of the prejudgment attachment order by the probate court and judge was done without any statutory authority; neither the statutes governing concealment proceedings nor the statutes governing prejudgment attachment authorized the actions by the probate court or judge. District Court, unlike the probate court in Goldberg , had statutory authority to issue the prejudgment attachment orders. The action filed in District Court was filed as a diversity action pursuant to 28 U.S.C. § 1332 for payment on a promissory note. See Stifel Fin. Corp. v. Iannarino , No. 2:18-cv-1223, 2018 WL 6288020, at *1, 2018 U.S. Dist. LEXIS 204085, at *1 (S.D. Ohio Dec. 3, 2018). District Court granted the remedy of prejudgment attachment pursuant to the provisions of O.R.C. § 2715 and Federal Rule of Civil Procedure 64, which specifically authorizes a party to request that relief from a federal court. See Stifel , 2018 WL 6288020, at *2, 2018 U.S. Dist. LEXIS 204085, at *3-4. Clearly, District Court had statutory authority to issue the Orders.
The other basis upon which the Supreme Court of Ohio determined that the probate court and judge lacked jurisdiction was that they failed to comply with the constitutional requirements relating to an affidavit and a bond. The Goldberg court noted that because the probate judge acted unilaterally in issuing the prejudgment attachment order, he essentially eliminated the following constitutional requirements for issuing the prejudgment attachment: (1) "that an affidavit be filed alleging personal knowledge of specific facts forming a basis for prejudgment procedure"; (2) "that an independent judicial officer pass upon the sufficiency of those facts"; and (3) that the party seeking the attachment "furnish an appropriate bond or other security to compensate a defendant in the event of wrongful procedure." Goldberg, 93 Ohio St. 3d. at 165-66, 753 N.E.2d 192. The Goldberg court specifically held that "[p]rejudgment attachment is not a proceeding that allows the Judge to be both the one presenting the facts and the one deciding whether the facts were sufficient to meet the constitutional requirements for a prejudgment attachment." Id. at 166, 753 N.E.2d 192.
The facts of this case differ significantly from Goldberg . First, Stifel filed the Original Motion which was accompanied by supporting affidavits as required by O.R.C. § 2715.03. See Stifel , 2018 WL 6288020, at *2, 2018 U.S. Dist. LEXIS 204085, at *5-6. Second, an independent judicial officer, Judge Graham of District Court, reviewed the facts that were presented to him and made specific findings, among other things, that "[t]he affidavits submitted with the motion for prejudgment attachment satisfy the six requirements of O.R.C. § 2715.03(A) - (F)." Stifel , 2018 WL 6288020, at *2, 2018 U.S. Dist. LEXIS 204085, at *5-6. In addition, District Court specifically held that "plaintiff has established that the property is not exempt from attachment. Ohio law exempts certain benefit payments, such as workers' compensation, unemployment, and social security. O.R.C. § 2715.041(A). Under the employment agreement and note, the funds made available to Iannarino were a loan." Stifel , 2018 WL 6288020, at *3, 2018 U.S. Dist. LEXIS 204085, at *7. And finally, the District Court required Stifel to submit a $900,000 bond which was twice the value of the property that was subject to the attachment. Stifel, 2018 WL 6288020, at *4, 2018 U.S. Dist. LEXIS 204085, at *11. The constitutional infirmities that existed in the Goldberg case, clearly were not present in the case before District Court. As such, this Court finds that Goldberg is distinguishable and unpersuasive.
Nonetheless, the Trustee urges this Court to determine that strict compliance with O.R.C. § 2715.01, et seq. , is required for a prejudgment attachment order to be valid. Zeeb Holdings, LLC v. Johnson , 552 F.Supp.3d 709 (N.D. Ohio 2021) ; PCA-Corrections, LLC v. Akron Healthcare LLC , No. 1:20-cv-428, 2021 WL 1582984, 2021 U.S. Dist. LEXIS 77769 (S.D. Ohio Apr. 22, 2021). In contrast, Stifel contends that substantial compliance with state procedure is all that is required under Federal Rule of Civil Procedure 64. Williamson v. Recovery Ltd. P'ship , No. 2:06-cv-292, 2012 WL 13118448, 2012 U.S. Dist. LEXIS 201967 (S.D. Ohio July 31, 2012) ; see Holly v. Dayton View Terrace Improv. Corp. , 25 Ohio Misc. 57, 263 N.E.2d 337 (Ct. Com. Pl. 1970). This Court need not decide this issue, however, because the ultimate relief that the Trustee seeks (i.e., relief from District Court's judgment) is beyond this Court's jurisdiction to decide.
The Trustee requests that this Court make a determination as to whether the Original Order and the Amended Order are void on the basis that District Court lacked jurisdiction when they were entered. The Trustee contends that District Court lacked jurisdiction when it entered the Orders because the affidavits that were submitted in support of the request for prejudgment attachment did not strictly comply with the statutory requirements of O.R.C. § 2715.03. The Trustee, however, failed to provide any citation of authority that supports the proposition that a United States Bankruptcy Court can sit in review of a United States Federal District Court and determine whether it had jurisdiction in an action before it. Similarly, this Court was unable to find any authority and is of the opinion that the relief the Trustee seeks in this case exceeds the jurisdiction of this Court (i.e., determining a judgment of District Court is void on the basis that it lacked jurisdiction).
The Trustee also contends that the Orders were invalid for various other reasons such as they were not addressed to the sheriff, they did not order the sheriff to assume control over the Debtor's property, they did not direct the levying officer of what to do if he was unable to get possession of the property. Pl.’s Mot. for Summ. J. 12-14, ECF No. 8. The Trustee further argues that the doctrine of claim preclusion (res judicata) or issue preclusion (collateral estoppel) do not apply to the Trustee since these doctrines can only be applied against the parties to the original action and their privies and that the Trustee is not in privity with the Debtor. Pl.’s Reply 4-5, ECF No. 10. The Trustee is also seeking to disallow any claims held by Stifel against the estate until Stifel pays to the Trustee the amount of the preferential transfer. Pl.’s Mot. for Summ. J. 17, ECF No. 8. Stifel, in contrast, contends that the payment it received in July 2019 from Schwab relates back to the date the notice of the attachment lien was served on Schwab (i.e., December 24, 2018), and consequently is outside of the preference period. Def.’s Cross Mot. for Summ. J. 8-9, ECF No. 9. The Court cannot address these issues until a determination is made, or the argument is abandoned, regarding the Orders being void due to District Court lacking jurisdiction to enter them.
1. The Trustee must request relief from judgment from District Court pursuant to Federal Rule of Civil Procedure 60(b)(4).
The Trustee contends that District Court lacked jurisdiction to enter the Original Order and Amended Order and are void as a result because the statutory requirements for obtaining a prejudgment attachment order under Ohio law were not strictly complied with by Stifel. This Court, however, does not have the authority to make that determination because it was not the court that entered the Orders. "Generally, if a judgment is void, the trial court that entered that judgment must grant relief from that judgment on motion made pursuant to Rule 60(b)(4)." In re Acorn Hotels, LLC , 251 B.R. 696, 701 (Bankr. W.D. Tex. 2000) (footnote omitted). Federal Rule of Civil Procedure 60(b) provides in pertinent part that "[o]n motion and just terms, the court may relieve a party ... from a final judgment, order, or proceeding" when "the judgment is void[.]" Fed. R. Civ. P. 60(b)(4). "A judgment is void under 60(b)(4) ‘if the court that rendered it lacked jurisdiction of the subject matter, or of the parties, or if it acted in a manner inconsistent with due process of law.’ " Antoine v. Atlas Turner, Inc. , 66 F.3d 105, 108 (6th Cir. 1995) (quoting In re Edwards , 962 F.2d 641, 644 (7th Cir. 1992) ). "Although the term ‘void’ describes a result, rather than the conditions that render a judgment unenforceable, it suffices to say that a void judgment is one so affected by a fundamental infirmity that the infirmity may be raised even after the judgment becomes final." United Student Aid Funds, Inc. v. Espinosa , 559 U.S. 260, 270, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010) (citations omitted). A judgment, however, is not considered void if it is merely erroneous. Espinosa , 559 U.S. at 270, 130 S.Ct. 1367 ; see, e.g. , Jalapeno Prop. Mgmt., LLC v. Dukas , 265 F.3d 506, 515 (6th Cir. 2001). A request for relief from judgment pursuant to Federal Rule of Civil Procedure 60(b)(4) on the basis that the judgment is void, however, is not a substitute for a timely appeal. See Eglinton v. Loyer (In re G.A.D., Inc.) , 340 F.3d 331, 337 (6th Cir. 2003).
In this case, the Trustee is essentially requesting relief from the Orders that were entered by District Court on the basis that they are void for want of jurisdiction. This Court does not have the authority to grant such relief. The proper court to determine whether the relief requested by the Trustee is warranted is District Court. In doing so, District Court will also need to consider whether the delay in filing the request is reasonable.
A request for relief from judgment under Federal Rule of Civil Procedure 60(b)(4) must be "made within a reasonable time ...." Fed. R. Civ. P. 60(c)(1). When determining whether the delay in filing the request is reasonable, a court will consider "facts of a given case including the length and circumstances of the delay, the prejudice to the opposing party by reason of the delay, and the circumstances compelling equitable relief." Bridgeport Music, Inc. v. Smith , 714 F.3d 932, 942-43 (6th Cir. 2013) (citation and internal quotation marks omitted); see generally Spradlin v. Williams (In re Alma Energy, LLC) , 521 B.R. 1, 13-14 (Bankr. E.D. Ky. 2014) (collecting Sixth Circuit cases that illustrate the bounds of reasonableness with respect to the delay in filing a Rule 60(b)(4) motion). District Court, in this case, entered the Original Order on December 3, 2018, and the Amended Order on December 19, 2018. The Debtor filed his voluntary petition for relief under Chapter 7 of the Bankruptcy Code on August 9, 2019. Subsequently, the Trustee filed the adversary proceeding against Stifel on January 11, 2021. Whether the delay in seeking relief from the Orders is reasonable is an issue for consideration by District Court.
2. The Trustee is bound by any defenses that the Debtor may have waived pre-petition.
District Court will ultimately be confronted with the issue of whether the irregularities or defects, if any, in the prejudgment attachment proceeding before it were such that: (1) they deprived it of jurisdiction which resulted in void judgments being entered; or (2) they were non-jurisdictional and thereby waived by the Debtor for failing to raise them timely. See Pa. R.R. Co. v. Bell , 22 Ohio App. 67, 70, 153 N.E. 293, 294 (1925) (holding that "[a]s the defendant in attachment did not claim the money as exempt, he waived his exemption, and, unless there were irregularities in the proceedings, which were jurisdictional, and the order against the garnishee therefore invalid, the plaintiff in error cannot complain"). Here, if District Court determines that the defects, if any, in the prejudgment attachment proceeding were waived by the Debtor because he failed to assert them timely, the Trustee in this case will similarly be bound by that waiver. See In re Wey , 827 F.2d 140, 142 (7th Cir. 1987) (holding that the trustee was bound by the debtor's waiver of finality as a defense to the creation of the judgment lien); Bird v. White (In re White) , 591 B.R. 884, 891 (Bankr. D. Utah 2018) ("A trustee in bankruptcy is bound by any waiver of a defense made by a debtor before the filing of the petition.") (citation and internal quotation marks omitted); Kapila v. Bank of Am., N.A. (In re Pearlman) , 493 B.R. 878, 885 (Bankr. M.D. Fla. 2013) ("The Trustee, who has the same rights and defenses as the Debtors, is bound by the Debtors' waiver and is precluded from asserting a jury trial demand in this case.") (citation omitted).
E. Stifel's Cross-Motion must be denied because the Court cannot determine as a matter of law whether Stifel was required to register with the Ohio Secretary of State and summary judgment is not appropriate until the Trustee either abandons the argument that the Orders are void for want of jurisdiction or receives a determination from District Court regarding same.
The record fails to contain sufficient evidence for the Court to determine whether Stifel was required to obtain a license under O.R.C. § 1703.01 - 1703.31 prior to it maintaining an action in District Court.
In general, foreign corporations must be licensed to do business in the state of Ohio if they transact business in this state. A foreign corporation that should have obtained a license to do business in Ohio may not maintain any action in any court until it has obtained such license to do business.
Bosl v. First Fin. Inv. Fund I , 2011-Ohio-1938, ¶ 16, 2011 WL 1547511 (Ct. App. 2011) (citations and internal quotation marks omitted). "[A] foreign corporation engages in business within a state, and hence is not engaged ‘solely’ in interstate commerce, when it has entered the state by its agents and is there engaged in carrying on and transacting through them some substantial part of its ordinary or customary business, usually continuous in the sense that it may be distinguished from merely casual, sporadic, or occasional transactions and isolated acts." Dot Sys., Inc. v. Adams Robinson Enters. , 67 Ohio App. 3d 475, 481, 587 N.E.2d 844 (1990) (citations omitted). The Trustee contends that the prejudgment attachment proceeding in District Court is invalid because Stifel failed to obtain a license from the Ohio Secretary of State prior to filing that action in District Court. In contrast, Stifel asserts that a foreign corporation is required to register with the Ohio Secretary of State in instances where it permanently and continuously transacts business in Ohio. Stifel further claims that the Debtor waived the defense that Stifel lacked the capacity to maintain the prejudgment attachment proceeding in District Court by failing to assert it in that proceeding, and the Trustee is bound by that waiver. The only evidence before the Court regarding the business operations of Stifel with respect to the state of Ohio is the transaction with the Debtor. Accordingly, the record lacks sufficient evidence for the Court to be able to determine as a matter of law whether Stifel was required to register with the Ohio Secretary of State prior to maintaining its action in District Court.
Furthermore, the Court cannot make a determination as to whether Stifel is entitled to judgment as a matter of law until the Trustee either obtains relief from the judgment entered by District Court or abandons the argument that the Original Order and Amended Order are void for want of jurisdiction. As previously discussed, only District Court can decide whether the Orders are void for want of jurisdiction. Until such a determination is made, or the Trustee indicates that he is abandoning the argument that the orders entered by District Court are void, this Court is not able to determine as a matter of law that the Original Order and Amended Order constituted valid attachment orders. Accordingly, the Cross-Motion filed by Stifel must be denied.
V. Conclusion
For the foregoing reasons, the Court finds that neither the Trustee nor Stifel is entitled to judgment as a matter of law. The Trustee's Motion and Stifel's Cross-Motion are hereby DENIED .