IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF OHIO

EASTERN DIVISION

Vorys, Sater, Seymour and Pease LLP,

Plaintif

 v.

IP of A Columbus Works 1, LLC, et al.,

Defendants

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:

:

:

:

Civil Action 2:12-cv-01072

Judge Sargus

Magistrate Judge Abel

DECISION

This matter of before the Court on plaintiff Vorys, Sater, Seymour and Pease

LLP’s (“Vorys”) March 6, 2013 motion to dismiss the counterclaims asserted by

defendants (doc. 24).

I. Background

Vorys maintains that the IPofA Columbus Works 1 through 6, 8 through 18, 21

through 23, 25, 27 through 29, 31 and 32 entities owe a total of $251,130.2 for

professional services, expenses and disbursements. The complaint makes the following

allegations. On November 15, 2007, Vorys, Sater, Seymour and Pease LLP and the IPofA

Columbus Works entities, who were known as Tenants in Common and TIC owners of

real property located at 6200 East Broad Street, Columbus, Ohio, entered an

engagement agreement. Defendants agreed that certain TIC owners were to manage the

entities' legal affairs and direct plaintiff regarding its legal services. Paragraph 39 of the

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complaint pleads that amounts allegedly due and owing Vorys, Sater, Seymour and

Pease LLP from each IPofA Columbus Works entity.

Defendants filed counterclaims against plaintiff asserting fraud and intentional

misrepresentation, legal malpractice, breach of fiduciary duty, breach of contract, unjust

enrichment, and for an accounting.

The counterclaims make the following allegations. In 2005 and 2006, Edward H.

Okun by and through an entity that he controlled known as the 1031 Tax Group, LLC

(“1031 Tax Group”) acquired six business that were engaged in the business of acting as

a “qualified intermediary” for deferred exchanges of real property pursuant to section

1031 of the Internal Revenue Code, 26 U.S.C. § 1031. Counterclaim at ¶ 4. Okun

acquired and used these entities to fraudulently obtain monies from investors that he

ultimately used for his own purposes. Id.

In 2005, IPofA Columbus Works, LLC, (“IPofA Columbus”) an entity controlled

by Okun, acquired the real property located at 6200 East Broad Street, Columbus, Ohio

for the purposes of fraudulently marketing and selling portions of the property to

investors. Id. at ¶ 5. IPofA Columbus and Columbus Works Virginia Trust, (“Trust”)

another entity controlled by Okun, executed a promissory note, mortgage, and security

agreement and fixture filing evidencing a $27,000,000.00 loan from the Trust to IPofA

Columbus. Id. at ¶ 6.

To perpetuate his scheme, Okun, and entities controlled by him, prepared and

circulated a private placement memorandum to each of the defendants which described

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in detail the alleged value of the real property and the alleged benefits of the proposed

investment. Id. at ¶ 7. After reviewing the private placement memorandum, each

defendant purchased an interest as tenants in common in the real property. Id. at ¶ 8.

In May 2006, Cordell Funding, LLLP (“Cordell”) loaned $26,500,000.00 to Sam

Trustee Services, LLC (“Sam Trustee”) in capacity as trustee of the Trust. The Sam Loan

was secured by a security interest in the Trust Note and Mortgage. The Trust endorsed

the Trust Note to Cordell and executed a Collateral Assignment assigning the Trust’s

interest in the Trust Mortgage and other loan documents to Cordell. Id. at ¶ 10.

In May 2007, Sam Trustee defaulted on the Sam Loan. Id. at ¶ 11. In July 2007, a

group of entities related to IPofA Columbus, Sam Trustee and the Columbus Works

Trust filed for bankruptcy in the Southern District of New York. Id. at ¶ 12.

On October 19, 2007, Cordell issued a notice of foreclosure sale on the Trust Note

and Trust Mortgage and filed a foreclosure action in a New York State Supreme Court.

Id. at ¶ 13. In November 2007, additional Okun entities filed bankruptcy petitions. Id. at

¶ 14. By virtue of the automatic stay provision of 11 U.S.C. § 362, Cordell was restrained

from proceeding with foreclosure action. Id.

During the bankruptcy proceedings, the property was primarily occupied by

Lucent Technologies Inc. (“Lucent”). Under the terms of the master lease, Lucent was

supposed to pay defendants, and the other tenants in common who are not parties to

this action, a percentage of their net cash investment in the real property. Additionally,

Lucent was also required to pay debt service to Cordell. The Lucent lease did not

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generate enough revenue to pay both defendants and make debt service to Cordell. Id.

at ¶ 16.

Gerald A. McHale, Jr. was appointed as Chapter 11 Trustee and took possession

of the assets of the debtors. Id. at ¶ 19. McHale collected the rent from the Lucent Lease

and made adequate protection payments to Cordell in the amount of the monthly

payments due under the Trust Note. Id.

After the bankruptcies were filed, defendants hired plaintiff and its partner,

Randall LaTour. Id. at ¶ 20. On January 24, 2008, plaintiff filed a motion in the

bankruptcy court seeking payment of an alleged administrative claim for unpaid rent,

additional rent, taxes, property insurance and other items by IPofA Columbus, and

other IPofA debtors, McHale and the 1031 Debtors. After the motion was filed, McHale

indicated to plaintiff that if LaTour continued to press the claim, McHale’s only viable

option was to move to reject the Master Lease in accordance with the provisions of 11

U.S.C. § 365(a). Id. at ¶ 22. On February 15, 2008, McHale filed a motion seeking to

reject the Master Lease based on plaintiff’s motion. Plaintiff was aware that if McHale

was granted leave to reject the Master Lease, the bankruptcy estate would not have any

further interest in seeking to prevent Cordell from foreclosing on the Trust Mortgage.

McHale indicated he would not object to Cordell obtaining relief from the automatic

stay in order to do so. It was also clear based on the motion to reject the lease, McHale

would no longer make adequate protection payments to Cordell after February 2008

because such payments would not benefit the bankruptcy estate. Id. at ¶ 25.

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On March 7, 2008, Cordell obtained relief from the automatic stay to enforce its

right and remedies in connection with the collateral assignment. Id. at ¶ 26. In a March

11, 2008 hearing, McHale's attorney told the bankruptcy court that the Trustee and

plaintiff had entered into a stipulation to permit McHale to reject the Master Lease and

turn over the remaining monies generated by the Lucent Lease to plaintiff. McHale

would not be making payment to Cordell. Id. On March 11, 2008, Cordell sent out

notices of impending foreclosures sales of the Trust Note and Trust Mortgage. Id. at ¶

30. 

The monies held by the Trustee were transferred to plaintiff, but plaintiff failed

to make the March payment to Cordell despite defendants’ clear expectations that the

payment would be made. Id. at ¶ 31. When the payment was missed, defendants began

questioning plaintiff why this had occurred. Id. at ¶ 33. LaTour falsely claimed that

plaintiff had not received the demand letters, but there was proof that the demand

letters had been delivered to Vorys. LaTour was forced to admit that Vorys had

received the letters as Cordell had claimed. Id. LaTour then falsely claimed that McHale

had missed the March payment and that plaintiff was powerless to prevent the default.

In an effort to conceal its actions and omissions, plaintiff filed an adversary action

against Cordell, which was voluntarily dismissed within three months. Id. at ¶ 35.

On May 22, 2008, Cordell filed a foreclosure proceeding on the real property. Id.

at ¶ 36. Although Vorys initially represented defendants in connection with the action,

they retained new counsel in February 2009. Id.

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II. Motion to Dismiss

When considering a motion to dismiss pursuant to Rule 12(b)(6) of the Federal

Rules of Civil Procedure, a court must construe the complaint in the light most

favorable to the plaintiff and accept all well-pleaded material allegations in the

complaint as true. See Erickson v. Pardus, 127 S.Ct. 2197, 2200 (U.S. 2007) (citing Bell v.

Atlantic Corp. v. Twombly, 127 S.Ct. 1955 (2007)); Miller v. Currie, 50 F.3d 373, 377 (6th

Cir. 1995); Roth Steel Prods. v. Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir. 1982). 

Although the court must apply a liberal construction of the complaint in favor of the

party opposing the motion to dismiss, see Davis H. Elliot Co. v. Caribbean Utilities Co., 513

F.2d 1176, 1182 (6th Cir. 1975), a court will not accept conclusions of law or

unwarranted inferences of fact cast in the form of factual allegations, see Mezibov v.

Allen, 411 F.3d 712, 716 (6th Cir. 2005); Blackburn v. Fisk Univ., 443 F.2d 121, 123-124 (6th

Cir. 1971). In reading a complaint, however, a court will indulge all reasonable

inferences that might be drawn from the pleading. See Fitzke v. Shappell, 468 F.2d 1072,

1076 n.6 (6th Cir. 1972). Because the motion under Rule 12(b)(6) is directed solely to the

complaint itself, see Roth Steel Prods., 705 F.2d at 155; Sims v. Mercy Hosp. of Monroe, 451

F.2d 171, 173 (6th Cir. 1983), the court must focus on whether the claimant is entitled to

offer evidence to support the claims, rather than whether the plaintiff will ultimately

prevail, see McDaniel v. Rhodes, 512 F. Supp. 117, 120 (S.D. Ohio 1981). A federal court

cannot consider extrinsic evidence in determining whether a complaint states a claim

upon which relief can be granted. See Roth Steel Prods., 705 F.2d at 155-56.

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III. Arguments of the Parties

A. Plaintiff

Plaintiff argues that defendants have asserted counterclaims against it in an

effort to avoid paying what they owe. Plaintiff argues that the counterclaims must be

dismissed because it is clear from the face of the pleadings that the claims all sound in

legal malpractice and are subject to the one year statute of limitations that governs legal

malpractice claims under Ohio law. 

Plaintiff argues that all counts of the counterclaims are subsumed into a single

legal malpractice claim because they are premised on allegations of professional

misconduct in connection with Vorys’ representation of the defendants. Plaintiff further

argues that the counterclaims are barred by Ohio’s one year statute of limitations for

legal malpractice claims. Courts must examine the actual nature of the case rather than

the form in which the action is pleaded to defeat attempts to avoid the statue of

limitations by pleading alternative theories of recovery.

Plaintiff argues that under Ohio law, the limitations period begins to run when a

cognizable event occurs that puts the client on notice of a need to pursue possible

remedies against the attorney or when the attorney-client relationship for the particular

transaction terminates, whichever occurs later. Plaintiff argues that defendants’

counterclaims against Vorys are time-barred because those claims clearly accrued more

than one year before the counterclaims were filed on February 14, 2013. Defendants’

attorney-client relationship with Vorys ended in February 2009. Plaintiff maintains it is

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clear that cognizable events occurred that should have alerted defendants to the

purported malpractice claims more than one year before the counterclaims were

asserted. An injured party need not be aware of the full extent of the injury; it is enough

that some noteworthy event occurred which should have alerted a reasonable person

that a questionable legal practice may have occurred. According to Vorys, constructive

knowledge of facts, rather than actual knowledge of their legal significance, triggers the

running of the limitations period under the discovery rule. The bankruptcy proceedings

that defendants challenge all occurred almost five years before the counterclaims were

asserted. 

B. Defendants

Defendants argue that they have adequately pled a claim for fraud and unjust

enrichment against plaintiff and that these claims are not barred by the one year statute

of limitations for legal malpractice. Defendants assert that LaTour carefully and

fraudulently concealed the fact that plaintiff had ignored Cordell’s request for payment

and the fact that plaintiff had caused the issue to begin with by demanding the monies

be turned over to plaintiff, ignoring the trustee’s warnings and triggering rejection of

the master lease. Counterclaims at ¶ 34. Defendants argue that LaTour’s lies and

concealments were purposely designed to conceal his malpractice and insure that he

would be able to continue to collect further legal fees. Defendants argue that under

Ohio law, not all fraudulent conduct falls under the umbrella of a general malpractice

claim. Defendants maintain that plaintiff lied for its own personal gain. 

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Defendants further argue that a factual issue exists as to when the defendants

became aware of plaintiff’s alleged malpractice. Defendants maintain that due to

plaintiff’s fraudulent concealment, they did not become aware of the malpractice until

2012. Although plaintiff maintains that defendants should have been aware because the

bankruptcy proceedings were open to the public, plaintiff does not indicate which

pleading or portion of the record should have alerted defendants to plaintiff’s errors

and omissions or when those documents were reviewed or made available to

defendants. Defendants maintain that this issue cannot be resolved based on a review of

the pleadings because it is a contested issue of fact. 

Defendants argue that to the extent that Ohio Revised Code § 2305.11(A) bars

their claim, it is unconstitutional. Plaintiff has brought a claim for breach of contract

over three years after the termination of its legal representation of defendants.

Defendants, on the other hand, believe that they are entitled to damages against

plaintiff for breach of contract. Defendants maintain that plaintiffs cannot be entitled to

sue for breach of contract pursuant to a fifteen year statute of limitations and that they

would be denied the right to sue on the same contract based on a one year statute of

limitations. Defendants argue that permitting attorneys fifteen times longer to sue on a

written contract than their clients violates their right to equal protection under the laws

in violation of the Fourteenth Amendment. 

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IV. Discussion

Under Ohio Revised Code § 2305.11(A) an action for legal malpractice accrues

and the statute of limitations begins to run when there is a cognizable event whereby

the client discovers or should have discovered that his injury was related to his

attorney’s act or failure to act and the client is put on notice of a need to pursue possible

remedies against the attorney or when the attorney-client relationship end for that

particular transaction or undertaking terminates, whichever occurs later. Omni-Food &

Fashion, Inc. v. Smith, 38 Ohio St. 3d 385 (1988). Under the discovery rule, a court must

explore the particular facts of the action and determine:

when the injured party became aware, or should have become aware, of

the extent and seriousness of his or her alleged legal problem; whether the

injured party was aware, or should have been aware, that the damage or

injury alleged was related to a specific legal transaction or undertaking

previously rendered him or her; and whether such damage or injury

would put a reasonable person on notice of the need for further inquiry as

to the cause of such damage or injury.

Id. at 944 - 945. Defendants maintain they did not become aware of the alleged

malpractice until 2012. The specific events defendants maintain constituted malpractice

were the continued prosecution of the TIC claim despite knowledge that the Trustee

would not make further payments to Cordell and that Cordell would obtain relief from

the automatic stay to pursue its remedies under the Collateral Assignment.

The counterclaims state,”[a]fter the payment was missed, the Defendants began

to question Plaintiff as to why this had been permitted to happen.” Doc. 17 at 11,

Counterclaims ¶ 33. From the allegations in the counterclaims, it is apparent that as

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early as March 2008, defendants were on notice of the need for further inquiry as to the

cause of the damage. Subsequent events also should have alerted defendants to the

extent and seriousness of their legal problems. In May 2008, Cordell filed a foreclosure

action against the property. Although defendants may not have been aware of the full

extent of their injury, “[i]t is enough that some noteworthy event . . . has occurred which

does or should alert a reasonable person” that a questionable legal practice may have

occurred. Allenius v. Thomas, et al., 42 Ohio St. 3d 131, 133-134 (1989)(applying discovery

rule in the context of medical malpractice). Because the factual allegations in the

counterclaims demonstrate that defendants either knew or should have known that

further inquiry was warranted in May 2008, the statute of limitations began to run in

February 2009, when the attorney-client relationship between plaintiff and defendants

ended. As a result, defendants’ claims for legal malpractice must be dismissed.

Defendants further argue that not all of their claims are subsumed in their claim

for legal malpractice. In Endicott v. Johrendt, No. 99AP-935, 2000 WL 796576 (Ohio App.

10 Dist., June 22, 2000), the court recognized that not all fraudulent conduct will always

be subsumed by a malpractice claim. In such cases, a plaintiff must specifically allege

that the attorney committed the action for his or her own personal gain. Id. at * 5. Here,

defendants have alleged that plaintiff’s actions were for its personal gain. In Endicott,

however, the court concluded that the allegations that the attorneys made fraudulent

statements in order to obtain a settlement with as little effort and delay as possible and

to maintain a financially rewarding relationship with co-counsel in an unrelated case

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were not sufficient to maintain a fraud claim separately from the underlying

malpractice action. Id. Defendants here maintain that plaintiff billed for unnecessary

work that was not beneficial to them. “When alleged fraudulent conduct is integral to a

malpractice claim, the conduct does not independently extend the statute of limitations

for malpractice.” Gullatte v. Rion, 145 Ohio App. 3d 620, 626,(Ohio App. 2 Dist., 2000).

Here, the alleged fraud is integral to the malpractice claim and the same acts comprise

the conduct underlying both claims. 

Defendants' reliance on Divine Tower International Corp. v. Kegler, Brown, Hill &

Ritter Co., 2007 WL 2572258 (S.D. Ohio September 4, 2007) is misplaced. Divine Tower

International Corp.'s fraud and unjust enrichment claims were based on the allegation

that the law firm billed the corporation for legal services rendered to members of the

Divine family. The allegation of fraudulent billings were unrelated to the legal services

performed for the corporation. Defendants' allegation here that Vorys billed them for

legal services that did not benefit them is a garden variety fraud claim that is directly

tied to their allegations of legal malpractice and, consequently, subsumed in the

malpractice claim. 

Defendants further argue that the Ohio Revised Code § 2305.11(A) is

unconstitutional under the Fourteenth Amendment to the extent that it bars defendants’

claim for breach of contract. Rule 5.1 of the Federal Rules of Civil Procedure governs the

process for challenging the constitutionality of statues:

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(a) Notice by a Party. A party that files a pleading, written motion, or

other paper drawing into question the constitutionality of a . . . state

statute must promptly:

(1) file a notice of constitutional question stating the question and

identifying the paper that raises it, if:

. . . 

(B) a state statute is questioned and the parties do not include the state,

one of its agencies, or one of its officers or employees in an official

capacity; and

(2) serve the notice and paper on . . . the state attorney general . . . either

by certified or registered mail or by sending it to an electronic address

designated by the attorney general for this purpose.

Fed. R. Civ. P. 5.1(a). Defendants have not filed that notice. Until defendants properly

raise this question of constitutionality, the Court will not consider it or certify it to the

Ohio Attorney General under Rule 5.1(b).

IV. Conclusion

For the reasons stated above, plaintiff Vorys, Sater, Seymour and Pease LLP’s

(“Vorys”) March 6, 2013 motion to dismiss the counterclaims asserted by defendants

(doc. 24) is GRANTED in part. The Court has made no ruling on defendants’

constitutional challenge to section 2305.11(A) of the Ohio Revised Code. The

counterclaim for legal malpractice, fraud and intentional misrepresentation, breach of

fiduciary duty, unjust enrichment, and accounting are DISMISSED as barred by the

statute of limitations for legal malpractice.

s/Mark R. Abel 

United States Magistrate Judge

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