A federal judge has ruled the Fair Finance Co. trustee cannot seek punitive damages against a business that provided millions of dollars in financing to the bankrupt Akron firm and its now-imprisoned Indianapolis-based owners.
Trustee Brian Bash is seeking $72.2 million from Fortress Credit Corp., which loaned money to Fair Finance.
Bash’s lawsuit alleges that a $50 million credit facility from Fortress helped enable a massive fraud scheme at Fair Finance.
U.S. District Judge Patricia Gaughan in Cleveland also ruled late last year that Bash could not seek treble damages against Fortress, which is headquartered in New York City.
In Gaughan’s latest ruling, on Friday, she said Bash cannot seek punitive damages against Fortress, either.
Bash’s lawsuit against Fortress is still moving toward a trial date. Bash is an attorney in the Cleveland offices of law firm Baker Hostetler.
One of Bash’s associates in a hearing Tuesday morning in U.S. Bankruptcy Court in downtown Akron said the trustee and Fortress are discussing entering into mediation. Any settlement that could come out of mediation would still need court approval.
“I really encourage consensual resolution,” Bankruptcy Judge Marilyn Shea-Stonum said.
Bash’s lawsuit says that about $72 million flowed from Fortress Credit to Fair Finance.
Bash said he and his team continue to work to collect money in cases and default judgments the trustee has won. The trustee has more than $193.6 million in default judgments, but it remains to be seen how much of that is actually collectable.
The latest available figures show that there is a bit more than $6.2 million in money recovered by the trustee in the more than $200 million fraud case.
Fair Finance co-owners Timothy Durham and James Cochran are in prison after being convicted last year on numerous federal charges of defrauding about 5,300 Ohio residents out of more than $200 million.
Durham and Cochran bought Fair Finance in 2002.
Also convicted was Rick Snow, the company’s former chief financial officer.
Fair Finance never reopened after FBI raids on its offices in late November 2009. The accounts receivables and consumer loan company was forced into bankruptcy in February 2010. The company sold uninsured investment certificates to the Ohio public; the proceeds were supposed to provide business capital. Instead, investigators said, Durham and Cochran used the money for personal use and ran Fair Finance as a Ponzi-type scheme.
Tuesday’s regularly scheduled monthly status hearing lasted about 30 minutes. The discussions were all done via teleconference call in open court; other than the judge and staff, no one involved in the case was there in person. One woman who listened in identified herself as someone who had bought Fair Finance investment certificates.
Bash noted that Cochran voluntarily turned over $157,500 to the Fair Finance estate recently; the money was a refund from a club membership.
The thousands of Fair Finance creditors have not received any money recovered to date in the years-long case. Many creditors had invested their life savings with the company.
The next monthly status hearing is scheduled for 9:30 a.m. Aug. 20.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.