Major financial institution prevails before Northern District of Ohio and Sixth Circuit in Ohio law claims arising from alleged Ponzi scheme
Client(s) Financial institution
On behalf of a major financial institution, Jones Day prevailed before both the Northern District of Ohio and the U.S. Court of Appeals for the Sixth Circuit against Ohio statutory and common law claims brought by investors who lost funds in an alleged Ponzi scheme operated by a non-party. The plaintiffs asserted claims for violations of the Ohio Uniform Fiduciary Act, negligence, fraud, aiding and abetting fraud, civil damages for criminal acts, and civil conspiracy, all under Ohio law. Jones Day represented the financial institution at both the trial and appellate level. At the trial level, Jones Day successfully removed the case from Ohio state court to the Northern District of Ohio before Judge J. Philip Calabrese, defeating plaintiffs' motion to remand, and then obtained a dismissal with prejudice of all claims in the amended complaint. The unanimous Sixth Circuit panel affirmed both decisions in a published opinion.
The Sixth Circuit first held that the case had been properly removed from Ohio state court to the Northern District of Ohio. While the plaintiffs named a local branch employee who was an Ohio citizen as a defendant, Jones Day successfully argued that, under the fraudulent joinder doctrine, the employee’s citizenship did not defeat federal diversity jurisdiction because the plaintiffs had no colorable basis to recover against the employee.
The Sixth Circuit also affirmed the grant of the motion to dismiss. The Court concluded that the Ohio Uniform Fiduciary Act—which eliminates a depository bank’s liability for processing transactions at a fiduciary’s request unless the bank acted with actual knowledge of the fiduciary’s breach or with knowledge of facts amounting to bad faith—barred all claims because the complaint fell short of pleading bad faith or actual knowledge. The Court also held that the claims were defective on their own terms because, among other reasons, banks do not owe duties to non-customers under Ohio law, the fraud claim was not supported by the necessary specificity required under Federal Rule of Civil Procedure 9(b), and Ohio law does not recognize a cause of action for aiding and abetting fraud.
