Yost v. Schaffner

2020 Ohio 4225

• Court: Ohio Court of Appeals
• Decided: August 27, 2020
• Docket: 19 CA 000030
• Status: Published

Opinion

[Cite as Yost v. Schaffner, 2020-Ohio-4225.]

COURT OF APPEALS GUERNSEY COUNTY, OHIO FIFTH APPELLATE DISTRICT

DAVE YOST, ATTORNEY GENERAL JUDGES: OF OHIO Hon. W. Scott Gwin, P. J. Hon. John W. Wise, J. Plaintiff-Appellee Hon. Earle E. Wise, Jr., J.

-vs- Case No. 19 CA 000030

DAVID K. SCHAFFNER, et al. OPINION Defendants-Appellants

CHARACTER OF PROCEEDING: Civil Appeal from the Court of Common Pleas, Case No. 16 CV 000335

JUDGMENT: Affirmed

DATE OF JUDGMENT ENTRY: August 27, 2020

APPEARANCES:

For Plaintiff-Appellee For Defendants-Appellants

THADDIUS A. TOWNSEND CRAIG G. PELINI ASSISTANT ATTORNEY GENERAL WILLIAM M. SHACKELFORD 150 East Gay Street PAUL B. RICARD 23rd Floor PELINI, CAMPBELL, & WILLIAMS, LLC Columbus, Ohio 43215 8040 Cleveland Avenue, NW, Suite 400 North Canton, Ohio 44720 Guernsey County, Case No. 19 CA 000030 2

Wise, John, J.

{¶1} Defendants-Appellants David K. Schaffner And Schaffner Law Offices, Co.,

LPA, appeal the decision of the Guernsey County Court of Common Pleas denying their

Motion to Quash Subpoena and Motion for Protective Order related to Appellants' IOLTA

records.

{¶2} Appellee is the Intervenor Plaintiff Ohio Attorney General. The original

Plaintiff in this action was the Guernsey County Community Development Group.

STATEMENT OF THE FACTS AND CASE

{¶3} This matter involves the conversion of assets from a non-profit charitable

corporation in Guernsey County, Ohio.

{¶4} For purposes of this appeal, the relevant facts and procedural history are

as follows:

{¶5} It is undisputed that between 2010 and 2016, Defendants-Appellants David

K. Schaffner and Schaffner Law Offices, Co., LPA, handled more than ten million dollars

belonging to the Guernsey County Community Development Corporation (GCCDC), a

non-profit charitable corporation, which it deposited into its IOLTA account. These funds

consisted mainly of revenue from oil and gas leases.

{¶6} The CDC's former board members denied having knowledge of the lOLTA

activity and further denied that they and the Schaffner Defendants negotiated the deals

resulting in the deposit of oil and gas revenue into the IOLTA. The Schaffner Appellants

denied having knowledge of and involvement in the deals precipitating the receipt of

revenue into the IOLTA, but they did not deny that they had possession and control of the

revenue. Guernsey County, Case No. 19 CA 000030 3

{¶1} Prior to the filing of the Complaint in this matter, the GCCDC engaged the

services of Attorney Mark Stubbins and a forensic accountant from Perry & Associates

with regard to an investigation concerning the conversion of assets by its former executive

director, former legal counsel, and former board members through various fraudulent and

intentional schemes, including but not limited to: self-serving real estate and oil and gas

transactions, and the conversion of millions of dollars for fraudulent "equipment"

purchases.

{¶2} On May 9, 2016, former legal counsel, the Schaffner Appellants, produced

a purported IOLTA account ledger to Attorney Stubbins. The ledger was subsequently

provided to Perry & Associates for review. The ledger contained a number of

inaccuracies, including duplicative check numbers, missing check numbers, and negative

balances.

{¶3} On February 2, 2018, the Guernsey County Community Development

Group (GCCDC) filed its Amended Complaint against its former Executive Director Daniel

L. Speedy, and his spouse, Dora Speedy; former counsel David K. Schaffner and

Schaffner Law Offices Co., LPA; Ohio limited liability companies formed by Defendants

Daniel L. Speedy, David K. Schaffner, and/or former Board President Steve Allen, being

One Percent, LLC, Monster Management, LLC, Whispering Pines, LLC, Synergy Land

Company, LLC, and Homestead Utica, LLC; Defendant Kimberly Allen, the spouse of

former Board President Steve Allen (deceased), and member of Defendant Homestead

Utica, LLC; and former Board Members Gerald Leister, Bonnie Braden, Robert E. Oakley,

Frank Fleischer, and Kenneth Hill. The GCCDG attached the IOLTA ledger to its

Amended Complaint. Guernsey County, Case No. 19 CA 000030 4

{¶4} In said Complaint, the GCCDC alleged intentional and fraudulent acts on

behalf of the Schaffner Defendants, which included claims of civil conspiracy, civil RICO,

conversion, fraud, and breach of fiduciary duty. Notably, Defendant David K. Schaffner's

role as a member of Defendants Whispering Pines, LLC, and Synergy, LLC, do not

involve the provision of legal services to the GCCDC in any capacity.

{¶5} On September 20, 2018, the Ohio Attorney General, through its Charitable

Law Section, subsequently intervened as a Plaintiff, and filed its Amended Complaint

against Defendants Daniel Speedy, Dora Speedy, One Percent, LLC, Monster

Management, LLC, and Kimberly Allen.

{¶6} In its brief, the GCCDC stated that it and the Ohio Attorney General have

been working together on discovery cooperatively in an attempt to reduce costs and

duplication of efforts, and to ensure coordination where the claims align.

{¶7} During discovery, questions arose as to the whereabouts of millions of

dollars belonging to the GCCDC and why those funds were or had been in Atty. Schaffer’s

IOLTA account.

{¶8} In anticipation of Atty. David Schaffer's deposition, the Attorney General

subpoenaed bank records from First Federal Community Bank, NA, including as bank

statements, canceled checks, account application records, deposit tickets, and wire

transfer records. First Federal did not file or serve written objections to the subpoena.

{¶9} On August 19, 2019, the Schaffner Defendants filed a Motion to Quash

Subpoena and for a Protective Order, arguing that the bank records contain “financial

information relating to clients … in regards to the legal services provided.”

{¶10} By Order filed September 11, 2019, the trial court denied the motion. Guernsey County, Case No. 19 CA 000030 5

{¶11} On October 3, 2019, Appellants filed a motion to stay enforcement of the

subpoena, which the trial court granted.

{¶12} Appellants assign the following error for review:

ASSIGNMENT OF ERROR

{¶13} “I. THE TRIAL COURT ERRED IN DENYING DEFENDANTS-

APPELLANTS' MOTION TO QUASH SUBPOENA AND MOTION FOR PROTECTIVE

ORDER RELATED TO DEFENDANTS-APPELLANTS' IOLTA RECORDS.”

I.

{¶14} In their sole assignment of error, Appellants challenge the trial court’s

decision denying the motion to quash subpoena and for a protective order.

{¶15} Generally, a ruling on a discovery request by a trial court is not a final,

appealable order. Walters v. Enrichment Ctr. of Wishing Well, Inc. (1997), 78 Ohio St.3d

118, 121. R.C. §2505.02(A)(3) states that a “provisional remedy,” a proceeding ancillary

to an action can be a final, appealable order. Very few discovery proceedings qualify as

provisional remedies. Myers v. Toledo, 110 Ohio St.3d 218, 2006-Ohio-4353, ¶ 24. R.C.

§2505.02(A)(3) itself names only one - a proceeding that results in the discovery of

privileged matter. Northeast Professional Home Care, Inc. v. Advantage Home Health

Servs., Inc., 5th Dist. No. 2009-CA-00180, 188 Ohio App.3d 704, 2010-Ohio-1640, ¶ 30

citing Bennett v. Martin, 186 Ohio App.3d 412, 2009-Ohio-6195, ¶ 33. See also, Scott

Process Sys. v. Mitchell, 5th Dist. No. 2012 CA 00021, 2012-Ohio-5971.

{¶16} In the case of an order compelling the production or disclosure of material

allegedly protected by attorney-client privilege, an interlocutory appeal will lie. Shaffer v.

OhioHealth Corp., Franklin App. No. 03AP-102, 2004-Ohio-63, at ¶ 6. Guernsey County, Case No. 19 CA 000030 6

{¶17} In general, discovery orders are reviewed under an abuse-of-discretion

standard.” Med. Mut. of Ohio v. Schlotterer, 122 Ohio St.3d 181, 2009-Ohio-2496, 909

N.E.2d 1237, ¶ 13; Mauzy v. Kelly Servs., Inc., 75 Ohio St.3d 578, 592, 664 N.E.2d 1272

(1996). When the discovery of confidential or privileged information is at issue, however,

the reviewing court applies a de novo standard. Roe v. Planned Parenthood Southwest

Ohio Region, 122 Ohio St.3d 399, 2009-Ohio-2973, 912 N.E.2d 61, ¶ 29; Schlotterer at ¶

13.

{¶18} “It is well-settled that the burden of showing that testimony sought to be

excluded under the doctrine of privileged attorney-client communications rests upon the

party seeking to exclude it.” Waldmann v. Waldmann, 48 Ohio St.2d 176, 178, 358 N.E.2d

521 (1976); Moskovitz v. Mt. Sinai Med. Ctr., 69 Ohio St.3d 638, 660-661, 635 N.E.2d

331 (1994) (“the mere relation of attorney and client does not raise a presumption of

confidentiality of all communications made between them”).

{¶19} In general, “[p]arties may obtain discovery regarding any matter, not

privileged, which is relevant to the subject matter involved in the pending action.” Civ.R.

26(B).

{¶20} “In Ohio, the attorney-client privilege is governed by statute, R.C.

2317.02(A), and in cases that are not addressed in R.C. 2317.02(A), by common law.”

State ex rel. Leslie v. Ohio Hous. Fin. Agency, 105 Ohio St.3d 261, 2005-Ohio-1508, 824

N.E.2d 990, ¶ 18. The statute provides in relevant part that an attorney “shall not testify

in certain respects * * * concerning a communication made to the attorney by a client in

that relation or concerning the attorney's advice to a client” unless “the client voluntarily

reveals the substance of attorney-client communications in a nonprivileged context.” R.C. Guernsey County, Case No. 19 CA 000030 7

2317.02(A)(1). The common-law attorney-client privilege “reaches far beyond [the]

proscription against testimonial speech” afforded by the statute and “protects against any

dissemination of information obtained in the confidential relationship.” (Citation omitted.)

Leslie at ¶ 26; See Smith v. Technology House, Ltd., 11th Dist. Portage No. 2018-P-0080,

2019-Ohio-2670, ¶¶ 14-17

{¶21} In Pales v. Fedor, 8th Dist. No. 106024, 2018-Ohio-2056, the Eighth District

Court of Appeals reviewed the issue of attorney-client privilege as it applied to IOLTA

banking transactions and found:

Although we are aware of no Ohio appellate court that has addressed

the issue, federal courts that have considered the issue have long held that

bank records relating to the transfer of funds into or out of a lawyer's trust

account are not in and of themselves privileged communications. See, e.g.,

SEC v. First Sec. Bank of Utah, NA., 447 F.2d 166, 167 (10th Cir. 1971),

cert. denied, 404 U.S. 1038, 92 S.Ct. 710, 30 L.Ed.2d 729 (1972); see also

Harris v. United States, 413 F.2d 316, 320 (9th Cir. 1969) (“[C]ourts have

repeatedly held that checks and bank records are not subject to the

protection of the attorney-client privilege.”); In re Grand Jury Subpoena, 831

F.2d 225, 227–228 (11th Cir. 1987) (“An attorney who acts as his client's

agent for receipt or disbursement of money or property to or from third

parties is not acting in a legal capacity, and records of such transactions

are not privileged.”); Nimmer v. SEC, D.Neb. No. 11–CV–162, 2011 WL

3156791, at *3 (July 26, 2011) (“When an attorney acts as a conduit for a

client's funds, attorney-client privilege does not apply.”); Grewal & Assocs., Guernsey County, Case No. 19 CA 000030 8

P.C. v. Hartford Cas. Ins. Co., 2010 WL 3909491, at *3 (Sept. 30, 2010)

(noting that “[f]or at least forty *1036 years * * *, the federal courts have

squarely rejected the recognition of any privilege attaching to an attorney's

bank records, whether those records relate to the attorney's general

account or client trust accounts”). This is because the attorney-client

privilege extends only to “ ‘the substance of matters communicated to an

attorney in professional confidence’ ” and “[t]he deposit and disbursement

of money in a commercial checking account are not confidential

communications.” First Sec. Bank at 167, quoting Colton v. United States,

306 F.2d 633, 637 (2d Cir.1962).

As one court explained in rejecting a claim that bank records relating

to a lawyer's IOLTA account contained privileged or confidential client

information:

Generally, there is no legitimate expectation of privacy in the

contents of checks, deposit slips or bank statements in a bank's possession.

* * * Checks are negotiable instruments used in commercial transactions,

voluntarily conveyed to banks, and exposed to the banks' employees in the

ordinary course. * * * Case law establishes that [the lawyer's] bank records

are not protected by the attorney-client privilege. * * * The [lawyer's]

arguments ignore the basic nature of such banking transactions. They are

not confidential communications among attorney and client. They are

commercial transactions which disclose the identity and other identifiers of

the parties to the transaction to the third party banking institution. Even if Guernsey County, Case No. 19 CA 000030 9

the transactions could be viewed by a large stretch of the imagination to be

communicative, in no way could they be considered confidential. If the

[lawyers] and their clients sought confidentiality regarding the monetary

transactions, they blew any cover of secrecy by utilizing a commercial

banking enterprise. Najjar v. United States, S.D.Ind. No. 1:02–cv–1807–

JDT–WTL, 2003 WL 21254772, at *2–3 (Apr. 11, 2003); see also SEC v. W

Fin. Group, LLC, N.D.Tex. No. 3–08–CV–0499–N, 2009 WL 636540, at *1–

2 (Mar. 9, 2009) (rejecting contention that bank records relating to the

transfer of funds into and out of attorney's IOLTA account were privileged).

Similarly, the Ninth Circuit Court of Appeals, in affirming the denial

of a motion to quash an IRS summons issued to the Bank of America for

production of an attorney's bank records, stated:

It is well settled that there is no privilege between a bank and

a depositor[.] * * * In refusing to extend the privilege, we stated [in

Harris v. United States, 413 F.2d 316 (9th Cir. 1969) ]:

The reasons which led to the attorney-client privilege, such as

the aim of encouraging full disclosure in order to enable proper

representation, do not exist in the case of a bank and its depositor.

Moreover, the client, by writing the check which the attorney will later

cash or deposit at the bank, has set the check afloat on a sea of

strangers. The client knows when delivering the check, and the

attorney knows when cashing or depositing it, that the check will be

viewed by various employees at the bank where it is cashed or Guernsey County, Case No. 19 CA 000030 10

deposited, at the clearing house through which it must pass, and at

his own bank to which it will eventually return. Thus, the check is not

a confidential communication, as is the consultation between

attorney and client. Id. at 319–20. * * * [T]here is no confidentiality

where a third party such as a bank either receives or generates the

documents sought by the IRS. Because the attorney-client privilege

applies only where the communication between attorney and client

is confidential, there is no privilege protecting the documents the IRS

seeks in the present action. * * * “[T]he attorney-client privilege

ordinarily protects neither the client's identity nor information

regarding the fee arrangements reached with the client.” United

States v. Horn (In re Horn), 976 F.2d 1314, 1317 (9th Cir. 1992).

Reiserer v. United States, 479 F.3d 1160, 1165 (9th Cir. 2007).

{¶22} Pales v. Fedor, 8th Dist. No. 106024, 2018-Ohio-2056, ¶¶ 45-47

{¶23} We agree with the reasoning of Eighth District and find that IOLTA banking

transactions are not confidential communications between an attorney and his or her

client. Accordingly, the attorney-client privilege does not apply. Appellants herein have

not cited any authority to the contrary.

{¶24} Furthermore, the GCCDC states in their brief, and by their actions in

bringing this lawsuit against its former counsel, that it has waived the attorney-client

privilege.

{¶25} Based on the foregoing, we find the trial court did not err in denying

Appellants’ motion to quash and for a protective order. Guernsey County, Case No. 19 CA 000030 11

{¶26} Appellants’ sole assignment of error is overruled.

{¶27} Accordingly the judgment of the Guernsey County Court of Common Pleas

is affirmed.

By: Wise, John, J.

Gwin, P. J., and

Wise, Earle, J., concur.

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