Buckeye Retirement Co., L.L.C., Ltd. v. Busch

Rule of Law:

A sophisticated lender who is aware of and consistently ignores a borrower's numerous, substantial, and long-standing loan defaults cannot establish justifiable reliance for a fraudulent concealment claim. Furthermore, an attorney is not liable to a third party for tortious interference when providing good-faith legal advice to a client in preparation for bankruptcy, even if the advice leads to a breach of contract, absent evidence of malice, fraud, or bad faith.

Facts:

• In November 2000, U.S. Aeroteam, Inc. ('USAT') entered into an asset-based loan agreement with Provident Bank ('Provident'). John Busch was USAT's Chief Financial Officer and Thomas Noland was its legal counsel.
• From the first day of the loan, USAT was in continuous violation of major loan covenants. Provident was aware of these violations but repeatedly waived them, modified the loan terms, and continued to lend money to USAT.
• In the fall of 2002, Provident transferred the loan to its Special Assets Division due to USAT's continued losses, yet it allowed the loan balance to grow significantly through 2003.
• In July 2003, facing severe financial distress after a major customer cancelled a contract, USAT's management, including CEO Suhas Kakde and CFO John Busch, met with attorney Thomas Noland to discuss a potential Chapter 11 bankruptcy.
• During the meeting, Noland advised USAT to open a separate, non-lender bank account to 'park' funds to cover potential post-bankruptcy operating expenses and his legal retainer. He advised USAT not to inform Provident about the account unless asked directly.
• Following Noland's advice, USAT opened an account with Bank One in August 2003 and subsequently deposited over $544,000 in customer payments into it, violating the loan agreement which required those funds go to a Provident lock-box.
• During this period, Busch submitted Borrowing Base Certificates (BBCs) to Provident that inaccurately represented certain receivables as outstanding when they had already been collected and deposited into the secret Bank One account.
• In December 2004, after USAT had filed for bankruptcy, Buckeye Retirement Co. ('Buckeye') purchased the distressed USAT loan from Provident Bank.

Procedural Posture:

• Buckeye Retirement Co. sued John Busch, Thomas Noland, and Statman, Harris & Eyrich, LLC in the Greene County Common Pleas Court (trial court).
• The trial court initially granted summary judgment for Busch, but the Second District Court of Appeals reversed and remanded, holding that res judicata did not apply.
• On remand, the case proceeded to a bench trial before a magistrate.
• The magistrate issued a decision finding in favor of all defendants, concluding there was insufficient evidence to support Buckeye's claims.
• Buckeye filed objections to the magistrate's decision.
• The trial court judge overruled all objections and entered final judgment in favor of the defendants.
• Buckeye, as Plaintiff-Appellant, appealed the judgment to the Court of Appeals of Ohio, Second Appellate District. The defendants filed cross-appeals.