[Cite as Paul Cheatham IRA v. Huntington Natl. Bank, 2017-Ohio-9234.]




                           IN THE COURT OF APPEALS OF OHIO
                               SIXTH APPELLATE DISTRICT
                                    LUCAS COUNTY


Paul Cheatham IRA                                       Court of Appeals No. L-16-1292

        Appellant                                       Trial Court No. CI0201502696

v.

The Huntington National Bank                            DECISION AND JUDGMENT

        Appellee                                        Decided: December 22, 2017

                                               *****

        Ronald R. Parry, for appellant.

        J. Philip Calabrese, Jay A. Yurkiw, Robert W. Trafford and
        Ryan L. Graham, for appellee.

                                               *****

        JENSEN, P.J.

        {¶ 1} This is an appeal from the judgment of the Lucas County Court of Common

Pleas, denying appellant’s, Paul Cheatham IRA, motion to certify a class. For the reasons

that follow, we reverse.
                         I. Facts and Procedural Background

       {¶ 2} The facts for purposes of this appeal are not in dispute. On May 19, 2015,

appellant filed this class action lawsuit against appellee, The Huntington National Bank,

on behalf of itself and other bondholders who invested funds into a municipal bond issue

described as “$6,590,000 COUNTY OF LUCAS OHIO HOSPITAL FACILITIES

REFUNDING REVENUE (NON-TAXABLE) BONDS, SERIES 1998 (VILLA NORTH

PROJECT) CUSIP 54309 BP6, 549309 BQ4, 549309 BR2, 549309 BS0.” The

complaint alleged that Lucas County was the technical obligor on the bonds for tax

purposes, but in reality, Foundation for the Elderly, Inc. (“Foundation”) was the obligor

and lessee of the Villa North nursing home project. Appellee served as the trustee for the

bondholders and as lessor of the project pursuant to a Trust Indenture entered into

between appellee and Lucas County.

       {¶ 3} Sometime before June 2003, Foundation went into default, and West Toledo

Healthcare became the substitute obligor. By December 2003, Benchmark Healthcare of

Toledo, Inc. (“Benchmark”) had become the obligor in place of West Toledo Healthcare,

and had defaulted on the bond payments. Notably, appellee provided notices to the

bondholders of the defaults and changes in obligors. In May 2004, Benchmark filed for

reorganization under Chapter 11 of the Bankruptcy Code, and in December 2007, filed its

First Amended Plan of Reorganization. After the bondholders voted in favor of the plan,

the bankruptcy court approved the plan. Relevant here, appellant began purchasing these




2.
bonds for a fraction of the face value on November 3, 2003, and continued to purchase

them through June 7, 2007.

       {¶ 4} By July 2009, Benchmark had failed to implement the amended

reorganization plan. Thus, the bankruptcy was dismissed, and appellee filed a

foreclosure action against Benchmark. In November 2014, the Villa North project was

sold and a final distribution was made to the bondholders. In the final distribution, the

bondholders only received approximately $350,000 of the $6,590,000 initial bond issue.

       {¶ 5} Within the class action complaint, appellant asserted claims for breach of

fiduciary duty, breach of trust under R.C. 5801.01 et seq., negligence, breach of contract,

and liability for mismanagement of the Villa North nursing home project. In general,

appellant alleged that appellee “did virtually nothing to protect the interest of the

Bondholders, while collecting substantial sums of Bondholder money as its

compensation.” Upon motion of appellee, the trial court dismissed all of the claims

except the breach of contract claim as being barred by the statute of limitations.

       {¶ 6} Thereafter, appellant moved to certify a class on the remaining breach of

contract claim, describing the class as “All persons or entities who own bonds.” Appellee

opposed the motion for class certification, arguing, inter alia, that appellant had not

satisfied the requirement under Civ.R. 23(B)(3) that, “the questions of law or fact

common to class members predominate over any questions affecting only individual

members, and that a class action is superior to other available methods for fairly and

efficiently adjudicating the controversy.” In particular, appellee argued that the class is




3.
comprised of bondholders who purchased the bonds at different times and after different

key events. Thus, the facts, evidence, and related legal issues of liability would differ

among class members based on when the members acquired the bonds, or whether the

members approved the bankruptcy reorganization plan. Appellant, on the other hand,

argued that the issue of whether appellee breached the Trust Indenture was common to all

current bondholders because under R.C. 1308.16(A), “[A] purchaser of a certificated or

uncertificated security acquires all rights in the security that the transferor had or had

power to transfer.” Appellant concluded, therefore, that the right to sue for breach of

contract that was held by bondholders at the time of the breach transferred to subsequent

purchasers of the bonds.

       {¶ 7} On November 16, 2016, the trial court entered its judgment denying

appellant’s motion to certify a class. The trial court reasoned that the term “rights in the

security” under R.C. 1308.16(A) does not include a claim against a third party for breach

of contract, such as appellant’s claim in the current action. Consequently, because

appellant has alleged numerous breaches over a significant period of time, and because

the claims do not transfer to subsequent purchasers, different class members would have

different potential damages and would emphasize different potential breaches. Therefore,

the trial court determined that appellant had not satisfied the requirement under Civ.R.

23(B)(3). Further, because the trial court found the predominance issue in Civ.R.

23(B)(3) to be determinative, it did not consider any of the other Civ.R. 23 requirements

for bringing a class action.




4.
                                 II. Assignment of Error

       {¶ 8} Appellant has timely appealed the trial court’s November 16, 2016

judgment, asserting one assignment of error for our review:

              1. The trial court incorrectly interpreted the provisions of R.C.

       1308.16(A) (§ 8-302 of the Uniform Commercial Code (UCC)) in ruling

       that the transferors’ right to file a lawsuit was not one of the rights that was

       transferred when a municipal bond (an investment security) was acquired

       by the transferee, the Plaintiff-Appellant.

                                        III. Analysis

       {¶ 9} We review the trial court’s decision in determining whether a class action

may be maintained for an abuse of discretion. State ex rel. Davis v. Pub. Emps.

Retirement Bd., 111 Ohio St.3d 118, 2006-Ohio-5339, 855 N.E.2d 444, ¶ 18. An abuse

of discretion connotes that the trial court’s attitude was unreasonable, arbitrary, or

unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450 N.E.2d 1140

(1983).

       {¶ 10} “[A]ppellate courts overwhelmingly, if not universally, give trial courts

broad discretion in deciding whether to certify a class.” Davis at ¶ 18, quoting Hamilton

v. Ohio Savs. Bank, 82 Ohio St.3d 67, 70, 694 N.E.2d 442 (1998). “[T]he

appropriateness of applying the abuse-of-discretion standard in reviewing class action

determinations is grounded not in credibility assessment, but in the trial court’s special

expertise and familiarity with case-management problems and its inherent power to




5.
manage its own docket.” Id. “Therefore, ‘while a trial court’s determination concerning

class certification is subject to appellate review on an abuse-of-discretion standard, due

deference must be given to the trial court’s decision’ and any ‘finding of abuse of

discretion, particularly if the trial court has refused to certify, should be made

cautiously.’” Id., quoting Marks v. C.P. Chem. Co., 31 Ohio St.3d 200, 201, 509 N.E.2d

1249 (1987).

       {¶ 11} The Ohio Supreme Court has recognized seven requirements that must be

satisfied before an action may be maintained as a class action under Civ.R. 23:

       (1) an identifiable class must exist and the definition of the class must be

       unambiguous; (2) the named representatives must be members of the class;

       (3) the class must be so numerous that joinder of all members is

       impracticable; (4) there must be questions of law or fact common to the

       class; (5) the claims or defenses of the representative parties must be typical

       of the claims or defenses of the class; (6) the representative parties must

       fairly and adequately protect the interests of the class; and (7) one of the

       three Civ.R. 23(B) requirements must be met. Hamilton at 71, 694 N.E.2d

       442, citing Civ.R. 23(A) and (B).

       {¶ 12} Here, the trial court’s decision, and this appeal, focuses on whether

appellant has satisfied Civ.R. 23(B)(3), which provides,




6.
              A class action may be maintained if Civ.R. 23(A) is satisfied, and if:

              ***

              (3) the court finds that the questions of law or fact common to class

       members predominate over any questions affecting only individual

       members, and that a class action is superior to other available methods for

       fairly and efficiently adjudicating the controversy. The matters pertinent to

       these findings include:

              (a) the class members’ interests in individually controlling the

       prosecution or defense of separate actions;

              (b) the extent and nature of any litigation concerning the controversy

       already begun by or against class members;

              (c) the desirability or undesirability of concentrating the litigation of

       the claims in the particular forum; and

              (d) the likely difficulties in managing a class action.

       {¶ 13} In its appellate brief, appellant frames the issue we must decide as “whether

the purchaser of a bond acquires causes of action that arose, under the terms of a Trust

Indenture, prior to the time that the bondholder acquired the bonds.” Appellant

acknowledges that if we determine that a subsequent purchaser does not acquire those

causes of action, then certification of the class is not appropriate. However, appellant

takes the position that the subsequent purchaser of a bond does acquire the cause of

action pursuant to R.C. 1308.16, which is Ohio’s version of U.C.C. § 8-302.




7.
       {¶ 14} R.C. 1308.16 provides, in its entirety,

              (A) Except as otherwise provided in divisions (B) and (C) of this

       section, a purchaser of a certificated or uncertificated security acquires all

       rights in the security that the transferor had or had power to transfer.

              (B) A purchaser of a limited interest acquires rights only to the

       extent of the interest purchased.

              (C) A purchaser of a certificated security who as a previous holder

       had notice of an adverse claim does not improve its position by taking from

       a protected purchaser.

       {¶ 15} Appellant argues that his claim against appellee is a “right in the security”

because the Trust Indenture explains that the trust is to be executed “for the equal and

proportionate benefit, security and protection of all present and future holders and owners

of the Bonds issued or to be issued under and secured by this Indenture.” The trial court,

recognizing that this is an issue of first impression, disagreed. In reaching its decision,

the trial court relied on the reasoning set forth in Consol. Edison, Inc. v. Northeast Util.,

318 F.Supp.2d 181 (S.D.N.Y.2004), rev’d on other grounds, Consol. Edison, Inc. v.

Northeast Util., 426 F.3d 524 (2d Cir.2005).

       {¶ 16} In Consolidated Edison, the dispute arose over a failed merger between

Consolidated Edison, Inc. (“Con Ed”) and Northeast Utilities (“NU”). As part of the

agreement, Con Ed agreed to purchase all outstanding shares of NU at a substantial

premium over the market price. Shortly before the merger was completed, though, Con




8.
Ed announced that it would not proceed. Con Ed then filed an action seeking a

declaratory judgment that it had no obligations under the merger agreement. NU

counterclaimed, arguing that Con Ed repudiated and breached the agreement. NU sought

to recover, in part, the “lost premium” on behalf of its current and future shareholders as

third-party beneficiaries to the merger agreement. Robert Rimkoski intervened as a

defendant and filed a claim against Con Ed, also seeking to recover the lost premium due

to Con Ed’s breach of the merger agreement. Rimkoski sought to represent a class of

similarly situated individuals who owned shares of NU on March 5, 2001, the date of the

alleged breach. The question before the court was whether “the third-party beneficiary

claim belong[s] to those who held NU shares at the time of Con Ed’s alleged breach on

March 5, 2001, * * * or to those who are holding NU shares at the time that a judgment

against Con Ed is entered, collected, or distributed.” Id. at 183. More specifically,

“Where shareholders are third-party beneficiaries of a contract between the corporate

issuer of the stock and a third party, is the right to sue that third party for breach of the

contract automatically transferred to a subsequent purchaser of the stock?” Id.

       {¶ 17} NU argued, as appellant does here, that the stock-related contract claims

against third parties were automatically assigned to subsequent purchasers of the stock by

virtue of New York’s version of U.C.C. § 8-302(a), which is identical to R.C.

1308.16(A). The trial court rejected this argument, finding that the legislative history and

structure of the U.C.C. “confirm that § 8-302(a), rather than defining what rights are in

the security, involves the mechanism for transferring rights and applies primarily to




9.
disputes over the quality of title and the competing ownership rights passed from

transferor to transferee.” Id. at 188. The court concluded that,

       Section 8-302 does not define “rights in a security” or codify a rule

       assigning to purchasers any claim accrued while possessing the security.

       The provision simply provides that whatever “rights in the security” are,

       they are automatically transferred to a purchaser unless (a) the transferor

       did not own or control them, (b) the purchase was for a limited interest, or

       (c) the purchaser is a prior holder with notice of an adverse claim taking

       from a protected purchaser. Id. at 189-190.

       {¶ 18} Having concluded that U.C.C. § 8-302 automatically conveys only the

“rights in the security,” the trial court then determined that the “rights in the security” do

not include the rights of “third-party beneficiaries arising out of agreements separate from

the contract embodied in the security.” Id. at 190. This is where we find Consolidated

Edison to be distinguishable.

       {¶ 19} Whereas the parties in Consolidated Edison were bringing counterclaims

against a separate and unrelated company based on its purported breach of an agreement

with the company that issued the shares, here, appellant is bringing a claim against the

trustee for the bondholders based on a breach of the Trust Indenture. The Trust Indenture

is part of the “bond proceedings.” R.C. 140.01(J) (“‘Bond proceedings’ means one or

more ordinances, resolutions, trust agreements, indentures, and other agreements or

documents, and amendments and supplements to the foregoing, or any combination




10.
thereof, authorizing or providing for the terms, including any variable interest rates, and

conditions applicable to, or providing for the security of, obligations and the provisions

contained in such obligations.”); see also R.C. 140.06(I) (“Such obligations may be

secured additionally by a trust agreement or indenture between the public hospital agency

and a corporate trustee which may be any trust company or bank * * *. Any such

agreement or indenture may contain, as part thereof, any of the bond proceedings, * * *

and other provisions which are customary or appropriate in an agreement or indenture of

such type, including but not limited to: * * * (3) The rights and remedies of the holders

of obligations and of the trustee, and provisions for protecting and enforcing them

* * *.”). Thus, a claim for breach of the Trust Indenture arises out of the contract with

the bondholders, and is therefore properly considered a “right in the security” that passes

to a subsequent purchaser under R.C. 1308.16(A).

       {¶ 20} Appellee argues that this result improperly transforms R.C. 1308.16(A) to

provide for the automatic transfer of all rights “related to” the security or “accrued while

possessing” the security, and cites two cases for the proposition that ownership of a

security does not automatically result in an assignment of any claims. We find the cases

cited by appellee to be inapposite.

       {¶ 21} In In re Nucorp Energy Secs. Litigation, 772 F.2d 1486 (9th Cir.1985), the

plaintiffs (the Phelps Committee) brought an action against the indenture trustee, raising

a federal claim for breach of trust under the Trust Indenture Act, as well as state-law

claims for breach of fiduciary duty, willful misconduct, fraud and deceit, and negligence.




11.
The action was related to a class action brought by parties who purchased debentures

between October 1, 1981, and January 20, 1982. In the class action, the class argued that

the indenture trustee knew that the disclosure documents accompanying the debenture

issue were misleading. The Phelps Committee represents purchasers who bought the

debentures from class members after January 20, 1982. In bringing its action, the Phelps

Committee argued that it automatically acquired the sellers’ causes of action when it

purchased the debentures from the class members. Thus, the issue before the court was

“whether, under federal or state law, the direct purchasers’ rights were automatically

transferred to the subsequent purchasers.” Id. at 1488.

       {¶ 22} As it pertains to the federal claim for breach of trust under the Trust

Indenture Act, the Ninth Circuit held that federal law applied to the assignability of such

claims, and under federal law, there was no remedy for “subsequent purchasers to whom

no misrepresentations were made directly or indirectly and to whom no statutorily

provided cause of action was expressly assigned.” Id. at 1490. As to the assignment of

the state-law claims, the court found that New York law applied, and under that law, the

state-law claims were not automatically transferred. In so holding, the Ninth Circuit

agreed with the rationale that “[i]f causes of action were automatically transferred,

defendants could be subject to double liability, and the transferees would recover

damages even though they had suffered no injury, while the injured transferors would

recover nothing.” Id. at 1493.




12.
       {¶ 23} Likewise in Bluebird Partners, L.P. v. First Fid. Bank, N.A., 85 F.3d 970,

971 (2d Cir.1996), the Second Circuit affirmed the trial court’s holding that “[A]

bondholder’s claim under the [Trust Indenture Act] against an indenture trustee is not

automatically assigned to a subsequent purchaser of the bond.”

       {¶ 24} However, Nucorp and Bluebird both involved claims under the Trust

Indenture Act, which is not relevant here. Further, neither Nucorp or Bluebird considered

U.C.C. § 8-302 to determine whether a claim for breach of the Trust Indenture Act was a

“right in the security.” Finally, to the extent that Nucorp addressed attendant state-law

claims against the indenture trustee, we note that those claims sounded in tort, not in

contract for breach of the trust indenture agreement. Thus, we do not find Nucorp or

Bluebird relevant to resolving the issue before us.

       {¶ 25} Instead, we find this case to be more closely analogous to R.A. Mackie &

Co., L.P. v. PetroCorp Inc., 329 F.Supp.2d 477 (S.D.N.Y.2004), which was decided by

the same court that decided Consolidated Edison. In R.A. Mackie, the plaintiffs were

secondary purchasers of warrant certificates that were issued pursuant to a Warrant

Agreement between Southern Mineral Corporation and American Stock Transfer and

Trust Company. Southern Mineral Corporation ultimately was purchased by and merged

into PetroCorp. Thereafter, plaintiffs filed a suit against PetroCorp, asserting, inter alia,

two contract claims for breach of the Warrant Agreement, where the breach occurred

prior to the plaintiffs acquiring the warrants. Relevant here, PetroCorp asserted as an




13.
affirmative defense that the right to bring claims for breach of the Warrant Agreement

was not transferred with the warrants when the plaintiffs purchased them.

       {¶ 26} Relying on Texas’ version of U.C.C. 8-302(a), the trial court rejected

PetroCorp’s argument. Specifically, the trial court noted that the claim was asserted

against the successor-in-interest to the issuer of the warrants, and was based on the

warrant agreement. The court found that “[t]he Warrants are a contract between

PetroCorp and the Warrant holders that provide rights through the terms of the Warrant

Certificate and the Warrant Agreement. The Warrant holders’ rights in the Warrants

‘thus include the rights against the issuer [here, PetroCorp] under the contract embodied

in the security [here, the Warrant Agreement] as supplemented by federal and state law.’”

Id. at 507, quoting Consolidated Edison, 318 F.Supp.2d at 192. Therefore, the court held

that the plaintiffs’ claim for breach of the warranty agreement was a “right in the

security” that automatically transferred with the purchase of the warrant. Id.

       {¶ 27} Similarly, in the case before us, appellant’s cause of action arises from a

breach of the Trust Indenture, which is part of the contract with the bondholders.

Appellee argues that R.A. Mackie is distinguishable because in that case the cause of

action was against the issuer, not the indenture trustee. However, we do not find that

distinction to be meaningful since the basis for the claim is grounded in the same

instrument that is part of the contract with the bondholders. Appellee’s position leads to

the incongruous result that breach of the trust indenture by an issuer is a “right in the

security,” but breach of the same trust indenture by the trustee is not. Therefore, we hold




14.
that a contract claim for breach of the Trust Indenture, whether asserted against the

trustee or the obligor, arises out of the contract with the bondholders and is thus a “right

in the security” that automatically transfers to subsequent purchasers pursuant to R.C.

1308.16(A).

       {¶ 28} Accordingly, appellant’s assignment of error is well-taken.

                           IV. Other Civ.R. 23 Requirements

       {¶ 29} In addition to arguing in opposition to appellant’s assignment of error,

appellee argues that class certification under Civ.R. 23 is still not appropriate as appellant

has failed to satisfy the other requirements of that rule. However, because the trial court

based its determination solely on Civ.R. 23(B)(3), and did not consider any of the other

requirements, we decline to rule on those issues for the first time on appeal. “If we were

to reach issues that had not been addressed by the trial court in the first instance, we

would be usurping the role of the trial court and exceed[ing] our authority on appeal.”

Catalanotto v. Byrd, 9th Dist. Summit No. 27824, 2016-Ohio-2815, ¶ 12, quoting State v.

M.D., 9th Dist. Lorain No. 14CA010657, 2015-Ohio-4003, ¶ 7. Therefore, we must

remand the matter to the trial court to consider the remaining Civ.R. 23 requirements.

                                      V. Conclusion

       {¶ 30} For the foregoing reasons, the judgment of the Lucas County Court of

Common Pleas is reversed. The matter is remanded to the trial court to consider the




15.
remaining Civ.R. 23 requirements for class certification and for further proceedings

consistent with this decision. Appellee is ordered to pay the costs of this appeal pursuant

to App.R. 24.


                                                                          Judgment reversed.




       A certified copy of this entry shall constitute the mandate pursuant to App.R. 27.
See also 6th Dist.Loc.App.R. 4.




Thomas J. Osowik, J.                             _______________________________
                                                             JUDGE
James D. Jensen, P.J.
CONCUR.                                          ________________________________
                                                             JUDGE

Christine E. Mayle, J.                           ________________________________
CONCURS AND                                                  JUDGE
WRITES SEPARATELY.



       MAYLE, J.

       {¶ 31} I concur with the majority’s conclusion that, when appellant purchased the

bonds at issue, it acquired “all rights in the security that the transferor had or had power

to transfer” under R.C. 1308.16(A) and, in this case, such “rights” included accrued

claims against appellee for breach of the Trust Indenture. The majority bases its




16.
conclusion on R.C. 140.01(J) and (I), which provide that a trust indenture is a part of the

“bond proceedings,” and therefore a “right” that passed to appellant under R.C.

1308.16(A). In my view, while that demonstrates that a bondholder has standing to sue

under a trust indenture, it does not answer the ultimate question of whether a bondholder

has standing to sue for prior breaches of that agreement. I believe that the answer to that

question depends upon the precise terms of the particular “security” at issue.

       {¶ 32} A case from the Supreme Court of California, National Reserve Co. v.

Metropolitan Trust Co., 17 Cal.2d 827, 112 P.2d 598 (1941), is instructive here, and has

been cited with approval by at least one Ohio court. See 17 Mile, L.L.C. v. Kruzel, 8th

Dist. Cuyahoga No. 99358, 2013-Ohio-3005, ¶ 13 (citing the rule announced by National

Reserve when considering whether the assignment of “all rights” to a lease agreement

included the right to accrued claims for past rent).

       {¶ 33} In National Reserve, the Metropolitan Trust Company of California, as

trustee, and the National Thrift Corporation of America, as trustor, entered into a written

trust agreement under which the Trust Company was to hold in trust a fund as security for

the bonds, contracts, certificates, and annuity agreements that the Thrift Company would

sell as investments. Ward Esplin purchased a participation certificate from the Thrift

Company, and then later assigned “all of his right, title, and interest” in the participation

certificate to the Reserve Company. The Reserve Company later instituted an action

against the Trust Company, on its behalf and on behalf of all other holders of such

contracts and certificates, seeking recovery for various breaches of the trust agreement




17.
that occurred before the assignment. The court considered whether Esplin’s assignment

of “all * * * right title and interest” in the participation certificate to the Reserve

Company included the right to sue for a prior breach of the trust agreement.

       {¶ 34} The court first recognized that “[i]n determining what rights or interests

pass under an assignment, the intention of the parties as manifested in the instrument is

controlling.” Natl. Res. at 832. The court then stated the following rule, based on its

review of case law across various states:

               Unless an assignment specifically or impliedly designates them,

       accrued causes of action arising out of an assigned contract, whether ex

       contractu or ex delicto, do not pass under the assignment as incidental to

       the contract if they can be asserted by the assignor independently of his

       continued ownership of the contract and are not essential to a continued

       enforcement of the contract.

               If, however, an accrued cause of action cannot be asserted apart from

       the contract out of which it arises or is essential to a complete and adequate

       enforcement of the contract, it passes with an assignment of the contract as

       an incident thereof. (Citations omitted.) Id. at 833.

       {¶ 35} The National Reserve court then examined the language of the trust

indenture at issue and determined that the accrued breach-of-contract claims were

transferred with the participation certificate to the plaintiff-assignee. The court offered

the following reasoning:




18.
              The trust indenture, upon which the present action is based,

       specifically provides that ownership of a certificate secured by the

       agreement is a condition precedent to the maintenance of a cause of action

       for violation of a covenant contained therein. The assertion of the cause of

       action is thus dependent upon ownership of the certificate. All right, title

       and interest in such certificate has been assigned to plaintiff. Only by

       virtue of its transfer to the plaintiff could the cause of action continue to

       exist. Id. at 833-834.

       {¶ 36} Interestingly, in the case relied upon by the majority, R.A. Mackie & Co.,

L.P. v. PetroCorp Inc., 329 F.Supp.2d 477 (S.D.N.Y.2004), although the court found that

the breach-of-contract claim was a “right in the security” that automatically transferred

with the purchase of the warrant under Texas’s version of U.C.C. 8-302(a) by

distinguishing the court’s prior decision in Consolidated Edison, Inc. v. Northeast

Utilities, 318 F.Supp.2d 181 (S.D.N.Y.2004), the court went on to recognize that the

language of the specific warranty agreement at issue was also “significant.” R.A. Mackie

at 507. The court stated:

              Significantly, the Warrant Agreement provides that “all covenants,

       conditions, stipulations, promises, and agreements in this Agreement

       contained shall be for the sole and exclusive benefit of the parties hereto

       and their successor and the holders of the Warrant Certificates.” That

       provision also limits to the “parties hereto and the holders of the Warrant




19.
      Certificates any right, remedy, or claim under or by reason of this

      Agreement * * *.” The Warrant Agreement thus authorizes holders of the

      Warrants, without limitation, to maintain a legal proceeding for breach of

      that Agreement. (Citations omitted.) Id. at 507-508.

      {¶ 37} The R.A. Mackie court then concluded that “[n]either the Warrant

Agreement itself nor § 8.302 of the Texas UCC prevents the plaintiffs from bringing

claims against PetroCorp as successor-in-interest to Southern Mineral based on Warrants

that were purchased after the date of the breach of the Warrant Agreement.” Id. at 508.

      {¶ 38} I believe R.A. Mackie could have framed the issue better: rather than

asking whether a contract “prevents” an assignee from asserting an accrued cause of

action, the court should have asked whether the accrued cause of action “can be asserted

by the assignor independently of his continued ownership of the contract and [is] not

essential to a continued enforcement of the contract.” Natl. Res., 17 Cal.2d at 833, 112

P.2d 598; 17 Mile, 8th Dist. Cuyahoga No. 99358, 2013-Ohio-3005, at ¶13. If R.A.

Mackie had applied that standard, I believe it would have reached the same result because

only “holders of the Warrant Certificates” had a right to make claims under the

agreement―thus, a claim for breach of the Warrant Agreement could not be asserted by

the assignor independently of his continued ownership of the contract.

      {¶ 39} In this case, the Trust Indenture contains language that is analogous to the

contracts in both National Reserve and R.A. Mackie and, in my view, demonstrates that

the breach-of-contract claims against appellee were transferred with the bonds.




20.
       {¶ 40} The general provisions for the bonds at issue state that they “are issued

under a Trust Indenture dated as of July 1, 1998, between the Issuer and the Trustee (the

‘Indenture’),” and further provide that

       [t]he Holder of this Bond shall have no right to enforce the provisions of

       the Indenture or to institute action to enforce the covenants therein, or to

       take any action with respect to any event of default thereunder, or to

       institute, appear in or defend any suit or other proceeding with respect

       thereto, except as provided in the Indenture.” (Emphasis added.)

Thus, we must look to the Trust Indenture to determine what “rights” can be transferred

to bondholders under 1308.16(A).

       {¶ 41} Section 11.03 of the Trust Indenture provides the following:

              Limitation of Rights. With the exception of rights herein expressly

       conferred, nothing expressed or mentioned in or to be implied from this

       Indenture or the Bonds is intended or shall be construed to give to any

       person other than the parties hereto, the Lessee, and the Bondholders any

       legal or equitable right, remedy or claim under or in respect to this

       Indenture or any covenants, conditions and provisions herein contained;

       this Indenture and all of the covenants, conditions and provisions hereof

       being intended to be and being for the sole and exclusive benefit of the

       parties hereto, the Lessee and the Bondholders as herein provided.

       (Emphasis added.)




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       {¶ 42} The Trust Indenture defines “Bondholder” to mean “as to any Bond, the

person in whose name such Bond is registered on the Bond Register.” Thus, similar to

the securities at issue in National Reserve and R.A. Mackie, actual ownership of the bond

“is a condition precedent to the maintenance of a cause of action” and “[o]nly by virtue of

its transfer to the plaintiff could the cause of action continue to exist.” Natl. Res., 17

Cal.2d at 833-834, 112 P.2d 827. Any breach-of-contract claims under the trust

indenture therefore transfer with the bond to subsequent bondholders because such claims

cannot be asserted apart from the contract out of which they arise and are essential to the

complete enforcement of the Trust Indenture.

       {¶ 43} For these reasons, I concur with the majority’s conclusion that the

judgment of the Lucas County Court of Common Pleas should be reversed and the matter

remanded to the trial court to consider the remaining Civ.R. 23 requirements for class

certification.




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