For the second time in a year, the Ohio Supreme Court has blocked an attempt to use Ohio courts to derail collection of a $42 million civil judgment from the disbarred attorney Stan Chesley.
On April 17, the high court ordered the emergency stoppage of the liquidation of the now-defunct law firm Waite, Schneider, Bayless & Chesley in Hamilton County Probate Court. The firm's trustee, Thomas Rehme, sought the court's oversight last September, even though a Boone County court had already ruled, in 2014, that the firm's assets and income belonged to the 382 people who received a $200 million civil settlement from the makers of the fen-phen diet supplement, only to be shortchanged by Chesley and three other lawyers. Boone County Circuit Judge James Schrand held Chesley personally liable for $42 million.
The fen-phen victims' lawyer, Angela Ford of Lexington, says Chesley has been using Ohio courts to dodge collection ever since. In 2015, Chesley persuaded Hamilton County Common Pleas Judge Robert Ruehlman to block collection of the $42 million judgment. A year later, the Ohio Supreme Court ruled that Ruehlman had no business interfering with the matter.
With Hamilton County Probate Judge Ralph Winkler allowing the liquidation of Chesley's former law firm to proceed, Ford last year asked the U.S. District Court in Cincinnati to intervene. A year before Chesley was ordered to pay $42 million, her federal lawsuit contends, he transferred $59 million from his personal accounts to the law firm, then assigned his sole ownership of the firm to Rehme. Ford calls the assignment a sham and that Chesley still controls the firm. She is asking the federal court — where Chesley's wife Susan Dlott is a judge — to give the firm's assets to the fen-phen plaintiffs.
A visiting judge from Michigan, Robert Cleland, is hearing the federal case. Cleland acknowledged the fishiness of Chesley's financial and legal maneuvers in a temporary restraining order last October.
"It is not lost on the court that WSBC appears to be forum shopping," Cleland wrote. "The purported transfer of assets and new litigation is nothing more than an attempt to have an Ohio state court decide issues that are properly pending before this court."
Chesley is asking Cleland to dismiss the case.
The Hamilton County probate case has been gaining momentum in 2017. An "assignee" for the former Chesley law firm, Eric Goering, has hired appraisers for 29 exotic cars owned by the firm, including six Roll Royces, four Bentleys and three Aston Martins. A Fairborn, Ohio, firm auctioned off most of the furniture, rugs and art owned by the firm, including many antiques. Until the Ohio Supreme Court ordered an emergency stay on the proceeding Monday, the probate court was on the verge of authorizing an auction of the cars.
The Supreme Court made no comment in issuing the stay. But in his motion for the stay, an attorney representing Ford's clients, Brian Sullivan of Dinsmore & Shohl, wrote that Winkler should not be allowed to "preside over an action that enjoins collection of a valid and enforceable Kentucky judgment by allowing assets already awarded to (Ford's clients) to be claimed by others, including Chesley and his personal creditors." He said Winkler is "poised to exercise his authority in violation of law."
Winkler responded by asking the Supreme Court to dismiss the complaint. His motion states that he "not only has jursidiciton (sic), but exclusive jurisdiction over this matter. This court should dismiss this case at Realtors (sic) cost and expense and deny the peremptory and the alternative writ of prohibition."
Winkler's motion was filed by Hamilton County Prosecuting Attorney Joe Deters, who received $2 million during five years of moonlighting for the Chesley law firm before it went under.
Although the probate case was stayed, a document filed with the court April 21 shed new light on the precariousness of Waite, Schneider, Bayless & Chesley's financial condition. The U.S. Internal Revenue Service filed a claim stating that the defunct law firm owes $16.8 million in unpaid federal withholding taxes, plus interest and penalties, for every year from 2010 through 2015.
The unpaid taxes were due under the Federal Insurance Contributions Act for Social Security and Medicare. The IRS says the firm owes $11.5 million in unpaid FICA withholdings, $4.1 million in penalties and $1.2 million in interest.
The IRS had already filed liens on Chesley's Indian Hill mansion for $10 million in unpaid federal income taxes for the years 2004, 2008, 2009, 2014 and 2015. The latest of those, a $590,502 claim for 2015, was filed Feb. 16. Chesley listed the 25,000-square-foot home for sale last year for $8 million.
CONTACT JAMES McNAIR at [email protected], 513-914-2736 and @jmacnews on Twitter