## Facts

- Lucas County, Ohio issued approximately $6.59 million in revenue bonds in 1998 to finance the “Villa North” healthcare facility; Huntington National Bank served as indenture trustee responsible for collecting and distributing payments to bondholders.
- The project’s initial obligor defaulted, replacement obligors also defaulted, and the trustee provided notices regarding defaults and obligor changes.
- After a Chapter 11 case involving a replacement obligor was dismissed and foreclosure pursued, the project was sold in 2014; bondholders recovered about $350,000 of principal.
- Paul Cheatham I.R.A. purchased the bonds on the secondary market from 2003 to 2007 at discounted prices.
- The bond purchase documents did not expressly assign to Cheatham any prior holders’ accrued causes of action.
- Cheatham filed a putative class action alleging, among other claims, that Huntington breached the trust indenture and related duties by failing to act to protect bondholders after defaults.

## Issues

1. Whether Ohio Rev. Code § 1308.16(A) causes a municipal bond purchaser to automatically acquire a seller’s pre-existing causes of action related to the bond, absent an express assignment.
2. Whether the court of appeals erred by relying on that interpretation to find commonality and reverse the trial court’s denial of class certification.

## Decision

- The Ohio Supreme Court reversed the court of appeals.
- The Court held that, absent a valid assignment, a municipal bond sale does not automatically transfer the seller’s accrued claims and causes of action that arose before the sale.
- The Court rejected the view that § 1308.16(A)’s transfer of “rights in the security” includes previously accrued breach-of-contract claims against the trustee.
- Because the appellate court’s commonality analysis rested on an incorrect legal premise, its reversal of the class-certification denial could not stand.

## Legal Principles

- Under Ohio Rev. Code § 1308.16(A), a purchaser acquires the transferor’s “rights in the security,” meaning the ownership and payment-related rights embodied in the bond.
- A previously accrued cause of action is a personal chose in action and does not pass to a subsequent security holder without a valid assignment.
- Transfer of a security and assignment of accrued litigation claims are distinct; the latter requires express assignment (or other legally effective transfer) rather than mere sale of the instrument.
- In bondholder class actions, when alleged breaches and ownership periods differ, the availability and scope of claims may depend on whether each holder owned the bond at the time the claim accrued or received a valid assignment.

## Conclusion

The Ohio Supreme Court held that § 1308.16(A) does not automatically transfer earlier bondholders’ accrued claims to later purchasers and reversed the appellate decision that had relied on automatic transfer to support class commonality in litigation against an indenture trustee.


Cheatham I.R.A. v. Huntington Nat'l Bank, 157 Ohio St. 3d 358 (Ohio 2019)