Business Development Corporation of South Carolina v. Rutter & Russin, LLC, No. 21-3673 (6th Cir. 2022)Annotate this Case
BDC lent $800,000 to a company owned by the Suggs, who personally guaranteed the loan and secured it with a $200,000 mortgage on their Shaker Heights home. Bank of America and MidFirst Bank held more senior mortgages on the home. The Suggs’ home suffered serious water damage from a burst pipe in 2014. State Farm insured the home for up to $352,130. State Farm denied their claim on the ground that the Suggs had failed to heat their home at a temperature required by their policy.
The Suggs sued State Farm in an Ohio state court and sued all three lenders with mortgages on their home, explaining that these lenders “have an interest in the policy proceeds” because the policy entitled them to payment even if State Farm had a valid defense against the Suggs. BDC did not appear. After the case settled, the state court found that BDC had no right to the proceeds. BDC did not seek relief in the state court but filed a federal suit alleging that State Farm, its lawyers, and the Suggs’ lawyers colluded to defraud it. The district court dismissed the suit under Ohio’s claim-preclusion law. The SIxth Circuit affirmed. BDC cannot meet the demanding test required to attack the state court’s judgment in this collateral fashion.