Daily Court Reporter - News Supreme Court of Ohio hears arguments in medical malpractice suit, considers state securities law
Supreme Court of Ohio hears arguments in medical malpractice suit, considers state securities law
Kathleen Maloney and Dan Trevas, Supreme Court of Ohio
The Ohio Supreme Court on Tuesday, May 22nd, heard four oral arguments, consisting of a medical malpractice lawsuit, a federal court’s question about the state securities law, and two disciplinary cases.
Oral Arguments Scheduled
The session started at 9 a.m. with the cases being heard at the Thomas J. Moyer Ohio Judicial Center in Columbus. All arguments are streamed live online at sc.ohio.gov and broadcast live and archived on The Ohio Channel.
Along with the descriptions in this article, the Office of Public Information has released in-depth summaries of the cases available online at: http://www.courtnewsohio.gov/cases/previews/18/0522/0522.asp#OA180257
Cynthia Boyd; Thomas Flanders v. Kingdom Trust Company; PENSCO Trust Company; John Does 1-25, Case no. 2017-1336
U.S. District Court, Southern District of Ohio
Does R.C. 1707.43 impose joint and several liability on the custodian of a self-directed IRA, who purchased an illegal security on behalf of, and at the direction of, the owner of the self-directed IRA?
Cynthia Boyd and Thomas Flanders are victims of a Ponzi scheme operated by William Apostelos of Warren County, and are representatives of a class-action lawsuit against Apostelos filed in U.S. District Court for the Southern District of Ohio. Apostelos persuaded Boyd, Flanders, and the other investors to open self-directed individual retirement accounts (IRAs) with one or more trust companies, including PENSCO and Kingdom Trust.
IRAs were authorized by federal law in 1974, and traditional IRAs are offered by financial institutions that typically invest in easily tracked and valued assets such as publicly traded stocks, bonds, and mutual funds. Because the law doesn’t limit the types of investments that can be held in an IRA, companies entered the market agreeing to serve as the “custodians” of “self-directed IRAs.” Self-directed IRAs could invest in real estate, precious metals, livestock, and other assets. The IRA owner directs the custodian to purchase assets to hold in the IRA, but the custodian doesn’t evaluate the risk of the asset and charges a lower fee to manage the IRA than a traditional financial institution.
Once the self-directed IRA accounts were established, Apostelos would either have the investors request that the trust companies purchase his illegal securities, or would have the investors execute powers-of- attorney giving him the ability to request that the trusts purchase the illegal securities. Other than purchasing the securities, Boyd and Flanders don’t allege the trust companies knew Apostelos was attempting to defraud investors or were involved in the Ponzi scheme.
The investors sued the trust companies claiming that the “Ohio Securities Act” imposed liability on the trust companies for having “participated in or aided the seller in any way” in selling the fraudulent securities. The trusts asked the federal district court to dismiss the case at the initial stages, citing R.C. 1707.43. They argued that the law shields trusts from liability when the financial institutions are engaged in “normal commercial banking activities.” The court found that because the investors hadn’t alleged the trusts were engaged in anything other than normal banking activities, they couldn’t be held liable for the money the investors lost in Apostelos’ Ponzi scheme.
The investors appealed to the Sixth U.S. Circuit Court of Appeals, arguing the district court dismissed the case at such an early stage that they couldn’t conduct discovery to learn more about the trusts’ involvement with Apostelos. They also argued that while Ohio courts have found R.C. 1707.43 to have exempted “financial institutions” from liability when conducting normal banking activities, the law has never been applied to a trust company. A three-member panel of the Sixth Circuit determined this question was unsettled in Ohio and that the panel shouldn’t move ahead with the appeal until giving the Ohio Supreme Court the opportunity to decide whether the trust companies can be held liable under state law. The Sixth Circuit submitted the question to the Supreme Court, which agreed to consider the legal question.
Pamela Portee et al. v. Cleveland Clinic Foundation et al., Case no. 2017-0616
Eighth District Court of Appeals (Cuyahoga County)
Does Ohio’s “savings statute,” R.C. 2305.19, permit a lawsuit that was filed and dismissed in a federal court located in another state to be refiled in an Ohio state court?
Pamela Portee, an Indiana resident, traveled to Cleveland to have elbow surgery on Oct. 3, 2012, at the Cleveland Clinic. She underwent a second surgery on May 8, 2013.
Portee and her husband, Daniel, sued the Cleveland Clinic Foundation and two doctors, alleging that a nerve in her arm was severed during the first surgery, requiring the second procedure. She filed the medical malpractice lawsuit on Oct. 2, 2013, in a federal court located in Indiana. The clinic and the doctors asked the federal court to dismiss the case, arguing that the court didn’t have jurisdiction in the matter. The court agreed, dismissing the lawsuit on July 28, 2014, because the clinic and the doctors didn’t have sufficient contacts in Indiana for the federal court to have authority to consider the case.
On July 17, 2015, the Portees filed the medical malpractice suit against the clinic and the doctors in Cuyahoga County Common Pleas Court. The clinic defendants filed a motion for summary judgment, contending that the claims were made after the one-year statute of limitations had passed. The court granted the motion and dismissed the case in June 2016.
Portee appealed to the Eighth District Court of Appeals, which reversed the trial court’s decision and found that the Portees filed the claims within the appropriate time frame under R.C. 2305.19 after the federal court dismissed the suit. The clinic and the doctors appealed to the Ohio Supreme Court, which agreed to the review the case.
Disciplinary Counsel v. Robert M. Owens, Case no. 2018-0257
The Ohio Board of Professional Conduct recommends to the Ohio Supreme Court that Delaware attorney Robert M. Owens be suspended from practicing law for six months. The board’s proposed sanction stems from Owens’ handling of a payment of a client’s overdue spousal support to keep the client out of jail.
Owens represented Edward Bittner in a divorce from his wife, Dolores, in Delaware County. The final divorce decree, issued in November 2012, required Edward to pay $8,000 per month in spousal support for 12 years.
About a year later, Dolores filed a motion for contempt stating that Edward hadn’t paid more than $26,000 in spousal support. After several continuances and a hearing before a magistrate, a judge concluded in February 2015 that Edward was nearly $61,000 behind on his spousal support payments. The judge ordered Edward to serve 30 days in jail unless he brought his payments up to date within 30 days.
The decision was appealed and eventually returned to the common pleas court where, on Friday, July 29, 2016, the judge ordered Edward to immediately serve 30 days in jail, adding that Edward could be released if he paid his ex-wife $58,242.93 in overdue spousal support. After the hearing, Edward told Owens that his new wife, Yulia Nedelko, would wire that amount of money to the attorneys’ client trust account (IOLTA) to obtain his release from jail.
Owens went to his bank that day, but found that Nedelko hadn’t yet wired the money into his account. The professional conduct board determined that Owens had $79,070 in his IOLTA account, and $73,918 of that amount was being held in trust for 19 other clients. However, Owens obtained a check drawn on the account for $58,242.93 to pay Edward’s spousal support. Owens gave the check to the Delaware County Child Support Enforcement Agency (CSEA), which handles spousal, as well as child, support payments, and took the receipt to the court. Edward was released from jail.
On Monday, Aug. 1, Nedelko, having not wired money, wrote a check payable to Owens and overnighted it to him for Tuesday delivery. Owens stopped payment on the check he had given to CSEA, and went to the agency to give them Nedelko’s check as a replacement. He had signed over Nedelko’s check to the payment processor, but the agency said it couldn’t accept a check that wasn’t directly payable to the organization. Owens didn’t tell CSEA staff that he had stopped payment on the first check.
The agency director contacted Owens soon after because the first check from his IOLTA account was returned due to the stop-payment order. The agency eventually received a check directly from Nedelko. The director said she didn’t know when it was received, but it was processed on Sept. 16.
The professional conduct board agreed with its panel that reviewed the case that Owens violated three rules governing Ohio attorneys. The board concluded that Owens misrepresented to the court and the CSEA that Edward had paid his overdue spousal support with the July 29 check, even though Owens knew the money hadn’t been received. Owens placed the funds of 19 clients “in jeopardy for the sole purpose of having Edward released from jail” and participated in actions that deprived Dolores of overdue spousal support, the board report to the Court stated.
After reviewing aggravating factors and mitigating circumstances, the board recommended that Owens receive a six-month suspension and complete a two-hour continuing legal education course on IOLTA compliance as a condition of reinstatement.
Owens, who is representing himself, objects to the board’s factual findings, legal conclusions, and proposed sanction.
The attorney states that he expected Nedelko’s funds to be deposited on July 29 in his IOLTA account “at any moment” and that he explained the situation to CSEA staff. He said CSEA told him the check wouldn’t be processed anyway until the following Wednesday. When the money hadn’t been deposited on Monday into the attorney’s IOLTA account, Owens maintains that he contacted Edward and told him the funds must be wired immediately into the account. But Edward and Nedelko mailed a check, which added to the delay for Dolores because CSEA wouldn’t accept a third-party check. Owens adds that Nedelko’s check made payable directly to CSEA was dated Aug. 19, received by the agency on Aug. 21 or 22, but not processed until Sept. 16.
Given the time it would take CSEA to process the first check from his IOLTA, Owens argues that his clients’ funds were never in jeopardy. He testified at the hearing that he told CSEA he had stopped payment on the first check and contends that the Office of Disciplinary Counsel, which submitted the disciplinary complaint to the board, has offered no evidence showing that he intended to mislead the court or the CSEA.
Overall, Owens concludes that the board’s determinations aren’t supported by clear and convincing evidence and that the case should be dismissed. However, if the Supreme Court doesn’t dismiss the matter, he asks for the lesser sanction of a public reprimand because the “payment snafus” were an isolated incident in his legal career that resulted in “little or no harm.”
In its 35-page answer to the Owens’ objections, the disciplinary counsel details the evidence it presented to support the misconduct allegations. The office notes that Edward was years behind on spousal support and, after being sent to jail for non-payment, was released within hours without paying any of what he owed, in direct violation of the court’s order. Dolores incurred additional attorney fees to ask the court to impose the sentence and deal with the further lack of payment. Contrary to Owens’ view, Dolores was harmed, the disciplinary counsel maintains. The office also asserts that Owens has been misleading and hasn’t acknowledged his misconduct, and it supports a six-month suspension for the attorney.
Mahoning County Bar Association v. Michael V. Sciortino, Case no. 2018-0259
The Board of Professional Conduct recommends that the Ohio Supreme Court indefinitely suspend from practicing law the former Mahoning County auditor who was indicted on 96 charges, mostly related to an influence-peddling scandal that led to the criminal conviction of prominent public officials.
The Mahoning County Commissioners leased space in Garland Plaza, owned by the Carfaro Company, to house the offices of the county department of job and family services (JFS). At the time Sciortino was appointed auditor in 2005, the office space lease had lapsed, the county was proceeding with a month-to-month lease, and the commissioners were discussing moving the JFS offices. In 2006, the commissioners voted to acquire the former Southside Hospital on Oakhill Avenue in Youngstown to use as a county office building. The local organization that owned the building was struggling to operate and filed for bankruptcy in 2006.
Sciortino objected to the commissioners’ attempts to purchase the building, indicating the liens on the Oakhill property would be a significant burden on the county. The commissioners voted to assume $430,000 in debt owed by the current operators to the state. Sciortino and two other county officials asked the bankruptcy judge to block the sale, but the judge authorized it, and the county purchased the property. Sciortino refused to issue a warrant authorizing the commissioners to make the payment.
Mahoning County Prosecutor Paul Gains filed a writ of mandamus with the Ohio Supreme Court seeking to compel Sciortino to make the payment. In the meantime, a company owned by Anthony and John J. Carfaro filed a taxpayer lawsuit attempting to rescind the county’s purchase of Oakhill and to keep JFS at their Garland Plaza property. The Carfaros then filed a breach of contract claim against the county, seeking $1 million in renovations and repairs for the time JFS was a Garland Plaza tenant. Gains concluded from the litigation that Sciortino was working in concert with the Carfaros to defeat the Oakhill purchase.
Prosecutor Gains began to pursue Sciortino, writing a letter of complaint to the Ohio Ethics Commission and convening a grand jury in which he subpoenaed several individuals including Sciortino. The investigation eventually led to a 2010 indictment against Sciortino, other public officials, members of the Carfaro family, and the county JFS former director.
Objections to the indictment in Mahoning County derailed immediate action, but in 2014, a Cuyahoga County grand jury indicted Sciortino on 71 counts, including tampering with records, perjury, money laundering, bribery, and receiving improper compensation. A year later, a Mahoning County grand jury issued 25 charges against Sciortino, including 21 counts of unauthorized use of government property.
Sciortino agreed to plead guilty to three charges in Cuyahoga County that resulted in a seven-year prohibition against holding public office along with three years of community control. He pleaded guilty to two counts in Mahoning County and received two years of community control, including attendance of three Alcoholics Anonymous (AA) or similar group, meetings a week.
The panel that reviewed the disciplinary case noted that the Supreme Court has held lawyers acting as public officials to a higher standard than others. In cases where lawyers have pleaded guilty to felony charges, indefinite suspensions have been imposed.
The panel determined that Sciortino doesn’t present a risk to the public as long as he doesn’t abuse alcohol and be evaluated evaluated by the Ohio Lawyers Assistance Program (OLAP) and enter into an OLAP contract, if appropriate, and remain in compliance with any terms imposed by OLAP.
Sciortino doesn’t object to the board’s findings, but notes that he has been actively participating in alcohol treatment since 2014 and shouldn’t be subjected to an OLAP contract that would direct his care from outside of Mahoning County. Sciortino’s brief states he has no complaints about the OLAP program, but believes a more effective treatment program would be one where he reports to a local monitor. He has recommended that attorney William S. Fowler be the monitor and suspects the bar association wouldn’t object to the appointment.
Date Published: May 31, 2018