Opinion
Case No. 3:19-CV-02210-JGC
08-04-2021
ZEEB HOLDINGS, LLC, et al., Plaintiffs v. Peter William JOHNSON, Jr., Defendant.
Christopher F. Parker, Goranson, Parker & Bella, Thomas D. Pigott, Law Office of Thomas D. Pigott, Toledo, OH, for Plaintiffs. Clint A. Corrie, Lewis Brisbois Bisgaard & Smith, Dallas, TX, Jeffrey R. Vaisa, Lewis Brisbois Bisgaard & Smith, Donald G. Slezak, Jackson Lewis, Cleveland, OH, for Defendant.
Christopher F. Parker, Goranson, Parker & Bella, Thomas D. Pigott, Law Office of Thomas D. Pigott, Toledo, OH, for Plaintiffs.
Clint A. Corrie, Lewis Brisbois Bisgaard & Smith, Dallas, TX, Jeffrey R. Vaisa, Lewis Brisbois Bisgaard & Smith, Donald G. Slezak, Jackson Lewis, Cleveland, OH, for Defendant.
ORDER
James G. Carr, Sr. U.S. District Judge
This is a dispute between two financial advisors, Ryan Zeeb and Peter Johnson, regarding the rights to service various client accounts.
Zeeb and Johnson were in business together. They entered into an Account Transfer Agreement (the Agreement), whereby Johnson transferred select client accounts to Zeeb's company, Zeeb Holdings, LLC. The business relationship between Zeeb and Johnson subsequently broke down, and this lawsuit resulted.
Zeeb claims that Johnson has not paid him the revenues to which he is entitled pursuant to the Agreement. He seeks to attach those funds until this case is resolved.
Pending is the Zeeb plaintiffs’ Substitute Motion for the Establishment of an Escrow or Attachment and Use of Funds Deposited (Doc. 30). For the reasons discussed below, I deny the motion.
Background
Peter Johnson is an investment advisor. He conducts his investment advisory business under the name of PW Johnson Wealth & Legacy LLC (PWJWL). The business is based in California.
According to Johnson, he met Ryan Zeeb in 2018, and Zeeb expressed an interest in consulting for PWJWL and possibly opening a branch office in Ohio. Johnson hired Zeeb to consult for the business.
After some time, the two agreed that they would continue their business relationship, and Zeeb would buy into the business by making payments to Johnson over the course of several years. Zeeb contacted Byline Bank to obtain a loan so that he could make these payments.
Byline Bank apparently told Zeeb that it would not loan him the money unless he purchased assets from PWJWL, so Johnson and Zeeb agreed that Zeeb would purchase a portion of PWJWL's client list.
To memorialize this arrangement, Johnson and Zeeb's company, Zeeb Holdings, LLC, entered into the Account Transfer Agreement on April 30, 2019. Pursuant to the Agreement, Johnson transferred the servicing of approximately 15 client accounts to Zeeb Holdings. (Doc. 24-1, pgID 197). The Agreement entitled Zeeb Holdings to the revenue associated with those client accounts. (Id. ).
After Johnson and Zeeb executed the Agreement, Johnson became dissatisfied with Zeeb's performance. Johnson asserts that Zeeb did not contact the clients for whom he was responsible, that he did not investigate their investments, and that he did not make any adjustments to their investments.
Zeeb alleges that after April 30, 2019, Johnson stopped paying him a consulting fee and never paid him the revenues that the client accounts generated.
Zeeb brought this lawsuit to recover the money to which he believes he is entitled pursuant to his agreements with Johnson. He asserts claims for breach of contract, fraud, and conversion, among others.
He now seeks pre-judgment attachment of the revenues from the transferred client accounts, claiming that Johnson is attempting to remove or convert the assets and is thereby defrauding Zeeb.
While the Zeeb plaintiffs formally style this motion as one for the establishment of an escrow or attachment, the motion focuses almost exclusively on attachment, and the only legal authority they provide relates to attachment. The Zeeb plaintiffs have not provided any legal authority in support of their request for the establishment of an escrow. I therefore interpret their motion as a motion for attachment.
Federal Rule of Civil Procedure 64(a) provides that "every remedy is available that, under the law of the state where the court is located, provides for seizing a person or property to secure satisfaction of the potential judgment." Fed. R. Civ. P. 64(a).
Accordingly, when considering motions for attachment, federal courts in Ohio apply Chapter 2715 of the Ohio Revised Code. Enable Healthcare, Inc. v. Cleveland Quality Healthnet, LLC , No. 1:16 CV 2395, 2016 WL 6821980, at *2 (N.D. Ohio) (Gaughan, J.). Section 2715.03 provides that "[a] plaintiff in an action for the recovery of money, upon or at any time after the commencement of the action, may apply to the court by written motion for the attachment of property, other than personal earnings, of the defendant." Ohio Rev. Code Ann. § 2715.03.
Section 2715.03 requires the plaintiff to submit an affidavit setting forth specific information about the claim and property to be attached, including the nature and amount of the plaintiff's claim, a description of the property, the location of the property, and facts supporting at least one of the grounds for attachment outlined in Section 2715.01. Id.
Additionally, Section 2715.041 requires that the plaintiff file a praecipe with the clerk of court, giving the defendant notice of the attachment proceeding. Id. at § 2715.041.
Once the plaintiff has satisfied these procedural requirements, the inquiry then shifts to the substance of the motion for attachment. The plaintiff must show that probable cause supports the motion. Enable Healthcare, supra , 2016 WL 6821980, at *2. Probable cause means that "it is likely that a plaintiff who files a motion for attachment [...] will obtain judgment against the defendant against whom the motion was filed that entitles the plaintiff to a money judgment that can be satisfied out of the property that is the subject of the motion." Ohio Rev. Code Ann. § 2715.011.
Pre-judgment attachment of a defendant's property or assets is "extraordinary relief," and the plaintiff has a "heavy burden" in establishing its entitlement to that relief. Data Processing Scis. Corp. v. Lumenate Techs., LP , No. 1:16-CV-295, 2016 WL 3144117, at *3 (S.D. Ohio). Discussion
1. Praecipe
As discussed above, Ohio law requires the plaintiff to file a praecipe with the clerk of court, "instructing the clerk to issue to the defendant against whom the motion was filed a notice of the proceeding." Ohio Rev. Code Ann. § 2715.041.
The clerk then issues the notice, advising the defendant, inter alia , of 1) the pendency of the attachment proceedings; 2) the assets that are exempt from attachment; 3) how to oppose the attachment; and 4) the right to request a hearing on the motion. Id.
The Zeeb plaintiffs have not complied with this procedural requirement. They have not filed a praecipe along with their motion for attachment. As I explained in Browning v. University of Findlay , No. 3:15CV2687, 2019 WL 582351, at *2 (N.D. Ohio), "[t]here is no room in the statute for procedural shortcuts." See also Selectronics, Inc. v. Millennia Grp., Inc. , No. 1:08-CV-1149, 2009 WL 10689608, at *2 (N.D. Ohio) (Aldrich, J.) (denying plaintiff's motion for attachment because it did not file a praecipe). I similarly decline to overlook plaintiff's omission here, especially in light of the significant due process concerns surrounding the attachment of a defendant's assets.
Accordingly, I deny the Zeeb plaintiffs’ motion on this basis alone.
2. Jurisdiction Over Assets
Even if the Zeeb plaintiffs had satisfied the procedural requirements and filed a praecipe, they would still need to establish that I have jurisdiction over the assets they seek to attach.
Defendant Johnson claims that I do not have jurisdiction over the assets because they are not located in Ohio.
The Zeeb plaintiffs disagree, arguing that I do have jurisdiction because the custodian of the assets, Charles Schwab & Co., is registered with the Ohio Secretary of State and does business in Ohio.
Ohio's attachment statute does not apply to property that is located outside of Ohio. EBSCO Indus., Inc. v. Lilly , 840 F.2d 333, 336 (6th Cir. 1988) ; Commodigy OG Vegas Holdings, LLC v. ADM Labs , No. 1:19-CV-01382, 2019 WL 6716457, at *2 (N.D. Ohio) (Barker, J.). It covers only property located within Ohio's "territorial boundary." Ashton Park Apartments, Ltd. v. Lebor , 252 F. Supp. 2d 539, 548 (N.D. Ohio 2003) (Katz, J.).
Ohio courts have applied this rule to both physical property and intangible assets, like the ones at issue here. For example, in Commodigy , the Court held that it could not attach the plaintiff's assets, which were located in accounts at a bank in Denver, Colorado. In PCA-Corrections, LLC v. Akron Healthcare LLC , No. 1:20-CV-428, 2021 WL 1582984 (S.D. Ohio), the Court similarly declined to attach the plaintiff's assets, which were located in an account associated with a Pennsylvania bank. And in Ashton Park , the Court held that the plaintiff failed to identify property or assets over which the court had jurisdiction, where in its affidavit, plaintiff described a payment it wired to a bank outside Ohio, as well as assets located in foreign countries.
Here, the Zeeb plaintiffs describe the property they seek to attach as "commissions earned, or Transfer Account Revenue, from the Transfer Accounts purchased by Zeeb Holdings, LLC." (Doc. 30-10, pgID 470). In other words, they seek to attach the revenues, or management fees, from the transferred client accounts.
The parties agree that Charles Schwab is the custodian of the client accounts from which the management fees are deducted. (Doc. 34, pgID 495; Doc. 37, pgID 525). Charles Schwab only removes management fees from the client accounts once the clients have given their permission. If they do give permission, Charles Schwab transfers the management fees to defendant Johnson's company, PWJWL, which is located in California.
Because the Zeeb plaintiffs have the burden of showing that they are entitled to attach the requested property, they have the burden of showing that the property is located in Ohio. See Data Processing, supra, 2016 WL 3144117, at *2. I find that they have not satisfied this burden.
As an initial matter, when discussing the location of the assets at issue, the Zeeb affidavit does not even mention Ohio. It states that the assets "would be located at Charles Schwab & Co., Inc. or PWJohnson Wealth and Legacy, LLC." (Doc. 30-10, pgID 470). It gives no further detail and does not identify a specific geographic location. Accordingly, the Zeeb plaintiffs have failed to provide sufficient supporting facts in their affidavit regarding the location of the property.
The Zeeb plaintiffs attempt to correct this deficiency by arguing in their reply brief that since Charles Schwab has branches in Ohio, that gives me jurisdiction over the management fees.
Plaintiffs rely on the holding in the PCA-Corrections case for this argument. In that case, the Court found that it did not have jurisdiction over the assets at issue because the bank did not have any branches in Ohio.
However, plaintiffs attempt to extend the reach of PCA-Corrections beyond its actual holding. The Court did not hold that just because a bank has branches in Ohio, the Court has jurisdiction to attach assets located at that bank. Here, Charles Schwab is a national bank with branches in nearly all fifty states. I decline to interpret PCA-Corrections as holding that I may attach any assets at such a bank, especially where this is the only purported connection to Ohio that plaintiffs identify.
Another issue with plaintiffs’ argument regarding Charles Schwab's presence in Ohio arises from the language of Section 2715.01. The statute allows attachment "against the property [...] of a defendant. " Ohio Rev. Code Ann. § 2715.03 (emphasis added). The assets in the Charles Schwab bank accounts are not defendant Johnson's assets. Rather, they belong to PWJWL's individual clients. (See Doc. 30-10, pgID 468; Doc. 34, pgID 496).
And once Charles Schwab transfers the management fees to PWJWL, they no longer have any connection to Ohio. Defendant Johnson represents that Charles Schwab deposits the management fees into PWJWL's bank account, which is associated with a California bank. (Doc. 34-1, pgID 516). Moreover, PWJWL is an entity registered in California with no apparent connection to Ohio. (Id. , pgID 512).
Again, it is plaintiffs’ burden to show that the assets they seek to attach are located in Ohio. For the reasons described above, I find that they have not met this burden. Therefore, I deny plaintiffs’ motion on that basis as well.
3. Probable Cause
Even if the Zeeb plaintiffs had filed a praecipe and had shown that the assets were located in Ohio, they would still need to establish probable cause.
As previously discussed, probable cause in the context of an attachment proceeding means that "it is likely that a plaintiff who files a motion for attachment [...] will obtain judgment against the defendant against whom the motion was filed that entitles the plaintiff to a money judgment that can be satisfied out of the property that is the subject of the motion." Ohio Rev. Code Ann. § 2715.011.
It is far from clear in this case whether the Zeeb plaintiffs will prevail on their underlying claims. The parties sharply contest a number of complex legal and factual issues and have offered conflicting evidence in support of their arguments. Therefore, I cannot find that it is "likely" that plaintiffs will obtain a judgment against defendant. See Enable Healthcare, supra , 2016 WL 6821980, at *3 (could not find it "likely" that plaintiff would prevail where there was "conflicting evidence on the material elements of the claims and counterclaims").
I therefore deny plaintiffs’ motion for failure to establish probable cause as well.
Conclusion
It is, therefore,
ORDERED THAT the Zeeb plaintiffs’ Substitute Motion for the Establishment of an Escrow or Attachment and Use of Funds Deposited (Doc. 30) be, and the same hereby is, denied.
So ordered.