Opinion ID: 2982727
Heading Depth: 3
Heading Rank: 1

Heading: Prosper’s Abuse of Process Counterclaim

Text: The parties agree that Ohio law governs Prosper’s abuse of process counterclaim, which requires proof of three elements: “(1) that a legal proceeding has been set in motion in proper form and with probable cause; (2) that the proceeding has been perverted to attempt to accomplish an ulterior purpose for which it was not designed; and (3) that direct damage has resulted from the wrongful use of process.” Yaklevich v. Kemp, Schaeffer & Rowe Co., L.P.A., 626 N.E.2d 115, 118 (Ohio 1994). Penn challenges the district court’s ruling that Prosper presented evidence “of an attempt to accomplish an ulterior purpose” sufficient to sustain the judgment. At trial, Prosper primarily argued that “Penn had an ulterior collateral purpose in filing this lawsuit, namely, as a bargaining chip to extract a more favorable settlement in the Ohio state court actions—specifically, to recoup the arbitration award that the state court cut in half.” (Prosper’s Br. at 27; see also R. 315, JMOL Order at 5–7.) To support its theory of liability, Prosper relied on Arnold’s testimony regarding settlement negotiations. Penn moved for judgment as a matter of law, contending that none of Prosper’s evidence supported the theory that Penn’s filing suit and global settlement offers were designed to pursue a collateral advantage. The district court rejected Penn’s challenge, reasoning: -6- Case No. 14-3107 Penn, LLC, et al. v. Prosper Bus. Dev. Corp., et al. [T]he evidence at trial led to the reasonable conclusion that Plaintiff Penn instituted this lawsuit with the ulterior motive of using it as a bargaining chip to extract a more favorable settlement in the Ohio state court action arising from the parties’ prior arbitration. This Court was, of course, powerless to itself make any order with respect to the confirmation of the arbitration award, much less the amount of the award. (R. 315, JMOL Order at 6.) Based on Arnold’s testimony, the court found that “the jury could have reasonably found that Mr. Cochran was pursuing not a ‘global’ settlement but, in actuality, was leveraging this case to obtain a more favorable resolution of the state court and arbitration proceedings between the parties—a collateral objective.” (Id. at 7.) We disagree. A defendant’s “improper purpose usually takes the form of coercion to obtain a collateral advantage, not properly involved in the proceeding itself, such as the surrender of property or the payment of money, by the use of the process as a threat or a club.” Robb v. Chagrin Lagoons Yacht Club, Inc., 662 N.E.2d 9, 14 (Ohio 1996) (quoting W. Page Keeton, et al., Prosser & Keeton on the Law of Torts § 121 (5th ed. 1984)). “Generally, if a suit is instituted in an attempt to settle a case, there is no abuse of process.” Luciani v. Schiavone, 210 F.3d 372, at  (6th Cir. 2000) (table); see also Edward D. Jones & Co., L.P. v. Wentz, No. 23535, 2007 WL 1827628, at  (Ohio Ct. App. June 27, 2007) (“[A]s the public policy of this State unquestionably encourages settlement negotiations, Cambridge’s position that any such demand subjects a party to an abuse of process claim is untenable.”); Tilberry v. McIntyre, 733 N.E.2d 636, 644 (Ohio Ct. App. 1999) (“[A] threat to pursue a civil action, even if the action would be entirely frivolous or brought in bad faith, does not constitute extortion.”). But the general rule that a party does not commit abuse of process by instituting a suit in an attempt to settle “does not apply if the attempt . . . involves issues that are not properly before the court.” Luciani, 210 F.3d 372, at ; see also Robb, 662 N.E.2d at 14 (“Simply, abuse of process occurs where someone attempts to achieve -7- Case No. 14-3107 Penn, LLC, et al. v. Prosper Bus. Dev. Corp., et al. through use of the court that which the court is itself powerless to order.”); Edward D. Jones, 2007 WL 1827628, at  (“[W]e cannot say that Jones’ settlement demands constituted a perversion of the legal process. Rather, each of the demands made by Jones was properly tied to the subject matter of its initial lawsuit.”). Luciani provides an example of when filing suit in an attempt to settle comes within the narrow exception supporting abuse of process liability. The Lucianis married in Ohio, but later moved to New Mexico. Luciani, 210 F.3d 372, at . After the marriage deteriorated, Mrs. Luciani filed for divorce in New Mexico and presented her husband with a divorce proposal that he rejected. Id. at –3. She later dismissed the New Mexico action, returned to Ohio with the children, and filed a complaint seeking separation, child custody, and distribution of the marital assets. Ohio courts, however, lacked jurisdiction over child custody and the distribution of marital assets until Mrs. Luciani resided in the state for six months. Mrs. Luciani then acquiesced to New Mexico’s jurisdiction. Id. Upon finalization, Dr. Luciani sued Mrs. Luciani’s Ohio attorney for abuse of process. Id. at –4. We found “that there [was] a genuine issue of material fact whether [the attorney] was trying to settle issues that were not properly before the court or to force Dr. Luciani to acquiesce in the Ohio court’s jurisdiction.” Id. at . And we concluded that a jury reasonably could find that the attorney “was using the Ohio action as a bargaining chip to obtain a custody arrangement and property settlement that the Ohio court had no power to order.” Id. at . The district court here relied on Luciani in finding that Prosper presented sufficient evidence for the jury to conclude that Penn filed the federal action in an attempt to settle claims not properly before the court—i.e., the state-court dispute over the arbitration award. But because the Luciani complaint included two forms of relief the court could not grant, the cases -8- Case No. 14-3107 Penn, LLC, et al. v. Prosper Bus. Dev. Corp., et al. are distinguishable. Thus, the jury could find that the attorney filed the complaint in an attempt to pressure Dr. Luciani to settle these two issues on terms favorable to his client rather than with the intent to prosecute the Ohio divorce action to completion. Conversely, Penn’s action never asked the court to reach beyond its authority. Penn requested money damages in a tort action that Prosper concedes Penn had probable cause to file. (R. 307, Trial Tr. at 25.) No one disputes that Penn could assert its claims or that the district court could order Prosper to pay damages in the event that Penn prevailed. See Robb, 662 N.E.2d at 14; Kavlich v. Hildebrand, No. 91489, 2009 WL 625725, at  (Ohio Ct. App. Mar. 12, 2009) (holding that a defendant’s decision to file a counterclaim was “a legitimate objective under the law, despite the fact that any money damages that [the defendant] obtained thereby might be offset from [the] plaintiff’s collection case”); Havens-Tobias v. Eagle, No. 19562, 2003 WL 1601461, at  (Ohio Ct. App. Mar. 28, 2003) (holding the plaintiffs failed to state an abuse of process claim where “the court had the power to order them to pay a monetary award”). This case instead falls within the general rule that filing suit in an attempt to settle does not constitute an abuse of process. Before filing the federal action, Cochran warned Arnold that Penn had colorable claims it could still bring against Prosper unless the parties agreed to settle all claims for $1.75 million. When Prosper rejected the offer, Penn followed through and asserted its remaining claims in an attempt to achieve a global settlement on the same terms it offered before filing suit. See Knief v. Minnich, 658 N.E.2d 1072, 1074 (Ohio Ct. App. 1995) (holding that an “unreasonably high” settlement demand following a restraining order failed to raise a factual dispute over ulterior purpose because the defendant could show “a reasonable belief” that the restraining order was necessary to protect his client’s assets). Moreover, Penn’s post-filing offer of $900,000 from BIGresearch’s assets “was properly tied to the subject matter of [this] -9- Case No. 14-3107 Penn, LLC, et al. v. Prosper Bus. Dev. Corp., et al. lawsuit.” Edward D. Jones, 2007 WL 1827628, at –4 (citing Robb, 662 N.E.2d at 14) (holding that even a settlement demand extending “beyond the relief requested in the complaint” failed to demonstrate an ulterior purpose because it related to a prior, related lawsuit). Prosper fails to demonstrate how the jury could reasonably find that Penn sought to achieve a collateral objective when it asserted viable claims, requested appropriate relief, then offered to release all related claims in exchange for a portion of its requested damages. In the alternative, Prosper argues that the jury could find Penn instituted this action as part of an ongoing effort to disqualify Arnold from representing Prosper in federal proceedings. In support, Prosper points to evidence that: (1) in 2009, Penn sought to disqualify Arnold’s firm from representing Prosper in arbitration proceedings (R. 305, Trial Tr. at 45), and (2) “Penn’s attorney demanded Arnold withdraw from representing [BIGresearch] in . . . the pending state court matters[] because she ‘represented’ [BIGresearch] derivatively in this lawsuit” (Prosper’s Br. at 29). Prosper’s second theory of liability also fails. To the extent Prosper complains that Penn sought to disqualify Arnold from representing it in this action, Penn’s actions were not collateral to the proceedings. See Robb, 662 N.E.2d at 14; cf. Wolfe v. Little, No. 18718, 2001 WL 427408, at –5 (Ohio Ct. App. Apr. 27, 2001) (holding that strategically filing a false affidavit and conducting improper ex parte communications failed to satisfy the ulterior purpose element because the defendants “were acting to advance the interests of their client and succeed in the lawsuit”). If Prosper means to argue that Penn intended to disqualify Arnold from representing Prosper in other pending actions, Prosper failed to adduce evidence sufficient to raise a genuine dispute of fact. Penn never moved to disqualify Arnold in any action after filing the federal lawsuit. As such, Prosper cannot establish a perversion of the federal action because Penn never - 10 - Case No. 14-3107 Penn, LLC, et al. v. Prosper Bus. Dev. Corp., et al. “attempt[ed] to accomplish” its alleged ulterior purpose. See Yaklevich, 626 N.E.2d at 118. The court cannot punish Penn for a bad intention never acted upon. Id. at 118 n.2. The fact that Penn’s attorney demanded by phone that Arnold withdraw from representing BIGresearch in the state proceedings might support an abuse of process claim by BIGresearch or Arnold. But Prosper fails to explain how the demand injured it. Finally, Prosper argues that “Penn’s ulterior purpose could also be inferred from the nature of Penn’s Complaint itself, which included highly inflammatory RICO and Fraud claims against [Prosper] and Mr. Arnold.” (Prosper’s Br. at 28.) But Prosper stipulated that Penn had probable cause to bring RICO and fraud claims against it, “inflammatory” or otherwise. (R. 307, Trial Tr. at 25.) And Prosper nowhere articulates how Penn’s claims against Arnold support its own abuse of process claim beyond the disqualification theory rejected above. In short, the evidence does not support the judgment, and the district court should have granted judgment as a matter of law. Accordingly, we REVERSE the judgment with respect to Prosper’s abuse of process counterclaim.