Cheatham I.R.A. v. Huntington National Bank

157 Ohio St. 3d 358, 2019-Ohio-3342, 137 N.E.3d 45 (2019)

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Cheatham I.R.A. v. Huntington National Bank

Ohio Supreme Court
157 Ohio St. 3d 358, 2019-Ohio-3342, 137 N.E.3d 45 (2019)

Facts

In 1998, an Ohio county issued municipal bonds on a foundation’s behalf to fund the construction of a healthcare center. Huntington National Bank (Huntington) (defendant) entered into a trust indenture with the county, under which Huntington agreed to collect payments and distribute funds to bondholders. In June 2003, Huntington informed bondholders that the foundation had defaulted. A new entity assumed the foundation’s obligations, but that entity also defaulted and eventually filed for reorganization. Also in 2003, Cheatham I.R.A. (Cheatham) (plaintiff) began purchasing the bonds at a discount in hopes that the bonds’ value would eventually increase. None of the bond purchases included an explicit assignment of the sellers’ rights to bring causes of action relating to the bonds. When the bonds’ value never increased, Cheatham sued Huntington in Ohio state court, asserting that Huntington had breached the trust indenture by not acting to protect bondholders when the foundation initially defaulted. Cheatham sought to certify a plaintiff class of over 50 bondholders. Huntington objected, arguing that class certification was improper because the proposed class members had purchased their bonds at different times during the construction project, which meant that the relevant evidence and legal issues for each member’s breach-of-contract claim would be different. Cheatham countered that the class’s breach-of-contract claims presented common issues of law and fact because of Ohio R.C. 1308.16(A), which provides that a purchaser of a security acquires the transferor’s rights in the security. According to Cheatham, the bondholders’ different purchase times were irrelevant because even those bondholders who purchased their bonds after Huntington’s alleged breach of the trust indenture had acquired the previous bondholders’ rights to sue for breach. The trial court denied class certification, but the appellate court reversed, holding that a bondholder’s claim for breach of the trust indenture automatically transferred to a subsequent purchaser of the bond under 1308.16(A). Huntington appealed to the Ohio Supreme Court.

Rule of Law

Issue

Holding and Reasoning (Stewart, J.)

Concurrence (Kennedy, J.)

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