Natl. Collegiate Student Loan Trust 2003-1 v. Beverly , 2014 Ohio 4346 ( 2014 )

[Cite as Natl. Collegiate Student Loan Trust 2003-1 v. Beverly, 2014-Ohio-4346.]
IN THE COURT OF APPEALS OF OHIO
SIXTH APPELLATE DISTRICT
HURON COUNTY
National Collegiate Student Loan Court of Appeals No. H-13-010
Trust 2003-1, et al. H-13-011
Appellees Trial Court No. CVH 20120334
CVH 20120918
v.
Adam Beverly, et al. DECISION AND JUDGMENT
Appellants Decided: September 30, 2014
*****
Eric Wasserman, for appellees.
Gregory S. Reichenbach, for appellants.
*****
PIETRYKOWSKI, J.
{¶ 1} We consider two appeals brought by Adam and Linda Beverly that are
consolidated for proceedings in this court, appellate case Nos. H-13-010 and H-13-011.
Appellants appeal April 22, 2013 judgments of the Huron County Court of Common
Pleas that denied, in both cases, their Civ.R. 60(B) motions to vacate default judgments
against them. The National Collegiate Student Loan Trust 2003-1 (“2003 Trust”) is
appellee in appeal No. H-13-010 (common pleas case No. CvH 2012 0334). The
National Collegiate Student Loan Trust 2006-1 (“2006 Trust”) is appellee in appeal No.
H-13-011 (common pleas case No. CvH 2012 0918). Both cases concern student loans.
Appeal H-13-010
{¶ 2} Appeal H-13-010 concerns a student loan made by Bank One, N.A. to Adam
Beverly in September 2003. Adam’s mother, Linda Beverly, acted as cosigner on the
loan. On April 16, 2012, the 2003 Trust filed a complaint in the trial court alleging that
appellants failed to pay the promissory note on the loan according to the terms and
conditions of the loan. The complaint does not allege that the 2003 Trust has any interest
in the loan, whether by assignment or any other means. The 2003 loan promissory note is
attached as an exhibit to the complaint. The note makes no reference to the 2003 Trust
and identifies Bank One N.A. as the lender.
Appeal H-13-011
{¶ 3} Appeal H-13-011 concerns a student loan made by JPMorgan Chase Bank,
N.A. to Adam Beverly in December 2005. Linda Beverly also cosigned this loan. On
October 18, 2012, the 2006 Trust filed a complaint alleging that appellants failed to pay
the promissory note on the loan according to the terms and conditions of the loan. The
complaint did not allege that the 2006 Trust held any interest in the loan whether by
2.
assignment or any other means. The 2005 loan promissory note is attached as an exhibit
to the complaint. The note makes no reference to the 2006 Trust and identifies JPMorgan
Chase Bank, N.A. as the lender.
Default Judgments
{¶ 4} Appellants did not file answers to either complaint. The Trusts filed motions
for default judgment in both cases. The trial court granted the 2003 Trust default
judgment against appellants in the H-13-010 case on June 25, 2012. In the judgment the
court awarded the trust damages of $43,713.22, accrued interest of $5,017.42 through
April 4, 2012, and interest at a variable interest rate from April 5, 2012.
{¶ 5} The trial court granted the 2006 Trust default judgment against appellants in
the H-13-011case on January 11, 2013. In the judgment, the court awarded damages of
$16,165.21, plus accrued interest of $1,964.41, and interest at the rate of 3 percent on
$16,165.21 from the date of judgment.
{¶ 6} Appellants filed Civ.R. 60(B) motions for relief from judgment in both cases
on March 28, 2013, and submitted affidavits of both appellants in support of the motions.
Appellees opposed both motions and submitted additional documents with their
opposition briefs. Appellees claim that the documents establish that the promissory notes
on the loans were assigned to the respective trusts prior to the filing of the complaints in
both cases.
3.
{¶ 7} On April 22, 2013, the trial court, without opinion, denied both motions for
relief from judgment. Appellants timely appealed the trial court judgments to this court.
We ordered the two case consolidated for proceedings before this court on June 4, 2013.
{¶ 8} Appellants assert one assignment of error, applicable to both appeals:
Assignment of Error
1. The trial court erred by denying Defendant-Appellants’ motions
for relief from judgment.
{¶ 9} Under assignment of error No. 1, appellants argue that the trial court erred in
denying the motions for relief from judgment on two grounds. First, appellants argue that
appellees lacked standing to assert the claims for breach of the student loans and that the
trial court lacked subject matter jurisdiction over the claims. Second, appellants argue
that they are entitled to relief from the judgments pursuant to Civ.R. 60(B) and that the
trial court abused its discretion in overruling the motions.
{¶ 10} We consider the issues of subject matter jurisdiction and standing first.
Review on appeal of a challenge to the subject matter jurisdiction of a trial court is
conducted de novo. Biro v. Biro, 6th Dist. Ottawa No. OT-10-017, 2010-Ohio-5169, ¶ 7.
“Whether established facts confer standing to assert a claim is a matter of law. We
review questions of law de novo.” Portage Cty. Bd. of Commrs. v. Akron, 109 Ohio
St.3d 106, 2006-Ohio-954, 846 N.E.2d 478, ¶ 90; see Bank of Am., N.A. v. Pasqualone,
10th Dist. Franklin No. 13AP-87, 2013-Ohio-5795, ¶ 15
4.
Schwartzwald
{¶ 11} Appellants base their arguments of lack of subject matter jurisdiction and
lack of standing to bring suit for non-payment of the student loans on the Ohio Supreme
Court’s decision in Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13,
2012-Ohio-5017, 979 N.E.2d 1214. In Schwarzwald, the plaintiff filed a foreclosure
action while lacking an interest in the note or mortgage at the time it filed suit. Id. at ¶ 2.
{¶ 12} In Schwartzwald, the Ohio Supreme Court held that where a plaintiff who
has filed a foreclosure action “fails to establish ‘an interest in the note or mortgage at the
time it filed suit, it [has] no standing to invoke the jurisdiction of the common pleas
court.’” Sovereign Bank v. Flood, 6th Dist. Erie No. E-11-072, 2013-Ohio-725, ¶ 12,
quoting Schwartzwald at ¶ 28. The court held that lack of standing at the commencement
of a foreclosure action cannot be cured by subsequently obtaining an interest in the note
or mortgage. Schwartzwald at ¶ 39. Under the decision, “lack of standing at the
commencement of a foreclosure action requires dismissal of the complaint * * * without
prejudice.” Id. at ¶ 40.
{¶ 13} The decision in Schwartzwald is based upon the proposition that “‘[i]t is an
elementary concept of law that a party lacks standing to invoke the jurisdiction of the
court unless he has, in an individual or representative capacity, some real interest in the
subject matter of the action.’” Id. at ¶ 22, quoting State ex rel. Dallman v. Franklin Cty.
Court of Common Pleas, 35 Ohio St.2d 176, 179, 298 N.E.2d 515 (1973).
5.
Standing
{¶ 14} Appellants contend, under Schwarzwald, appellees lack standing to assert
claims arising from the student loans. Both Trusts opposed the motions for relief from
judgment and claimed that the notes had in fact been assigned to them before the
complaints were filed. Appellees submitted with their opposition briefs additional
documents they claim show the assignments.
{¶ 15} We agree with appellants’ contention that the complaints were deficient
and under Schwarzwald failed to state a claim upon which relief could be granted.
However, the failure to allege an interest in a loan in a complaint does not in itself
establish lack of standing in an action:
A plain reading of Schwartzwald reveals that the focus of the
decision centered on what needed to be proven, not when. The question
presented was “whether a lack of standing at the commencement of a
foreclosure action filed in a common pleas court may be cured by obtaining
an assignment of a note and mortgage sufficient to establish standing prior
to the entry of judgment.” Schwartzwald, 134 Ohio St.3d 13, 2012–Ohio–
5017, 979 N.E.2d 1214 at ¶ 19. In resolving this question, Schwartzwald
held that a plaintiff in a foreclosure action must in fact possess standing at
the time the complaint is filed, and cannot later gain standing through a
subsequent assignment of the note and mortgage. Id. at ¶ 41–42, 979
N.E.2d 1214.
6.
Notably, while a foreclosure plaintiff must allege sufficient facts in
its complaint to demonstrate that it has standing, Schwartzwald does not
stand for the proposition that a foreclosure plaintiff must definitively prove
in its complaint that it has standing. (Emphasis in the origninal.) Bank of
Am., N.A. v. Hafford, 6th Dist. Sandusky No. S-13-021, 2014-Ohio-739, ¶
13-14.
{¶ 16} Stated differently, “[a]lthough a party must prove that it had standing when
the foreclosure complaint was filed, such proof may be provided after the filing of the
complaint.” Wells Fargo Bank, N.A. v. Odita, 10th Dist. Franklin No. 13AP-663, 2014-
Ohio-2540, ¶ 9, citing Bank of New York Mellon v. Watkins, 10th Dist. Franklin No.
11AP-539, 2012-Ohio-4410, ¶ 18.
{¶ 17} These cases demonstrate that appellees’ failure to allege standing in the
complaints alone does not establish lack of standing on the merits.
Claimed Assignments
{¶ 18} Appellants argue that the documents were unauthenticated and
inadmissible as evidence on the issue. They argue further that the documents do not
establish assignment of the loans to the Trusts.
{¶ 19} Appellants did not raise any objection to the admissibility of the claimed
assignment documents in the trial court. Generally a failure to object in the trial court to
the admission of evidence in a civil case waives the right to raise the issue on appeal.
7.
Jacobsen v. Jacobsen, 7th Dist. Mahoning No. 03 MA 3, 2004-Ohio-3045, ¶ 11; see
Goldfuss v. Davidson, 79 Ohio St.3d 116, 679 N.E.2d 1099 (1997), syllabus.
{¶ 20} The documents submitted by appellees, however, do not establish
assignment of the loans to appellees. The documents in both cases refer to the
assignment of “each student loan set forth on the attached Schedule 2.” The Schedule 2
document, however, was not included in the documents filed by appellees with the trial
court in either case. Without the schedule, we cannot determine whether the assignments
applied to these specific loans.
{¶ 21} The purported assignment of the September 2005 loan to the 2006 Trust is
in fact an assignment to another entity—The National Collegiate Funding LLC.
According to the document, the other entity agreed that it “in turn will sell the
Transferred Bank One Loans to” the 2006 Trust. (Emphasis added.) Appellees
submitted no affidavit or other evidence showing that the contemplated assignment of the
loan note to the 2006 Trust occurred.
{¶ 22} Accordingly, although the pleadings fail to allege facts demonstrating
standing and a right to relief against appellants on either loan, the record is insufficient to
determine standing on the merits. Resolution of the standing issue, however, is
unnecessary to establish subject matter jurisdiction in these cases.
Subject Matter Jurisdiction
{¶ 23} Appellants argue that the default judgments in both cases are void for lack
of subject matter jurisdiction and that the trial court erred in failing to grant relief from
8.
the judgments on that basis. Appellants assert that the trial court held inherent authority
to vacate void judgments and that the requirements of Civ.R. 60(B) do not apply for relief
from judgment on subject matter jurisdiction grounds.
{¶ 24} The Tenth and Eleventh District Courts of Appeals have both addressed the
issue of whether lack of standing under Schwartzwald analysis establishes a lack of
subject matter jurisdiction for a trial court to proceed in a case. Both courts held that
although the Ohio Supreme Court discussed lack of standing in Schwartzwald in
jurisdictional terms, lack of standing under Schwartzwald does not deprive a trial court of
subject matter jurisdiction. Bank of New York Mellon v. Williams, 10th Dist. Franklin
No. 13AP-499, 2014-Ohio-3737, ¶ 9; HSBC Bank USA, Natl. Assn. v. Bailey, 11th Dist.
Trumbull No. 2012-T-0086, 2014-Ohio-246, ¶ 25. Both courts ruled that lack of standing
under Schwartzwald for a plaintiff to seek relief in a case renders a judgment awarding
relief voidable, not void. Williams at ¶ 9; HSBC Bank USA at ¶ 25.
{¶ 25} The decisions rely on the analysis of subject matter jurisdiction provided by
the Ohio Supreme Court in Pratts v. Hurley, 102 Ohio St.3d 81, 2004-Ohio-1980, 806
N.E.2d 992. In the case, the Ohio Supreme Court recognized “[t]here is a distinction
between a court that lacks subject-matter jurisdiction over a case and a court that
improperly exercises that subject-matter jurisdiction once conferred upon it.” Id. at ¶ 10.
{¶ 26} The Pratts court explained the distinction:
“Jurisdiction” means “the courts’ statutory or constitutional power to
adjudicate the case.” (Emphasis omitted.) Steel Co. v. Citizens for a Better
9.
Environment (1998), 523 U.S. 83, 89, 118 S.Ct. 1003, 140 L.Ed.2d 210;
Morrison v. Steiner (1972), 32 Ohio St.2d 86, 87, 61 O.O.2d 335, 290
N.E.2d 841, paragraph one of the syllabus. The term encompasses
jurisdiction over the subject matter and over the person. State v. Parker, 95
Ohio St.3d 524, 2002–Ohio–2833, 769 N.E.2d 846, ¶ 22 (Cook, J.,
dissenting). Because subject-matter jurisdiction goes to the power of the
court to adjudicate the merits of a case, it can never be waived and may be
challenged at any time. United States v. Cotton (2002), 535 U.S. 625, 630,
122 S.Ct. 1781, 152 L.Ed.2d 860; State ex rel. Tubbs Jones v. Suster
(1998), 84 Ohio St.3d 70, 75, 701 N.E.2d 1002. It is a “condition precedent
to the court’s ability to hear the case. If a court acts without jurisdiction,
then any proclamation by that court is void.” Id.; Patton v. Diemer (1988),
35 Ohio St.3d 68, 518 N.E.2d 941, paragraph three of the syllabus.
The term “jurisdiction” is also used when referring to a court’s
exercise of its jurisdiction over a particular case. See State v. Parker, 95
Ohio St.3d 524, 2002–Ohio–2833, 769 N.E.2d 846, ¶ 20 (Cook, J.,
dissenting); State v. Swiger (1998), 125 Ohio App.3d 456, 462, 708 N.E.2d
1033. “‘The third category of jurisdiction [i.e., jurisdiction over the
particular case] encompasses the trial court’s authority to determine a
specific case within that class of cases that is within its subject matter
jurisdiction. It is only when the trial court lacks subject matter jurisdiction
10.
that its judgment is void; lack of jurisdiction over the particular case merely
renders the judgment voidable.’” Parker at ¶ 22 (Cook, J., dissenting),
quoting Swiger, 125 Ohio App.3d at 462, 708 N.E.2d 1033. “Once a
tribunal has jurisdiction over both the subject matter of an action and the
parties to it, ‘* * * the right to hear and determine is perfect; and the
decision of every question thereafter arising is but the exercise of the
jurisdiction thus conferred * * *.’” State ex rel. Pizza v. Rayford (1992), 62
Ohio St.3d 382, 384, 582 N.E.2d 992, quoting Sheldon’s Lessee v. Newton
(1854), 3 Ohio St. 494, 499. Id. at ¶ 11-12.
{¶ 27} We find the analysis of the issue by the Tenth and Eleventh Districts
persuasive and adopt it. We conclude that the trial court held subject matter jurisdiction
in both actions regardless of whether appellees lacked standing under Schwartzwald to
assert claims for breach of the student loans.
{¶ 28} We also agree with the Tenth and Eleventh Districts that lack of standing
under Schwartzwald for a plaintiff to seek relief in a case renders a judgment awarding
relief voidable, not void. We conclude that appellants’ claims that the trial court
judgments are void for lack of subject matter jurisdiction on Schwartzwald grounds are
without merit.
Denial of Motions for Civ.R. 60(B) Relief
{¶ 29} We review trial court judgments granting or denying relief from judgments
under Civ.R. 60(B) on an abuse of discretion standard. Griffey v. Rajan, 33 Ohio St.3d
11.
75, 77, 514 N.E.2d 1122 (1987). 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).
{¶ 30} Civ.R. 60(B) provides for relief from a judgment or order:
(B) Mistakes; inadvertence; excusable neglect; newly discovered
evidence; fraud; etc.
On motion and upon such terms as are just, the court may relieve a
party or his legal representative from a final judgment, order or proceeding
for the following reasons: (1) mistake, inadvertence, surprise or excusable
neglect; (2) newly discovered evidence which by due diligence could not
have been discovered in time to move for a new trial under Rule 59(B); (3)
fraud (whether heretofore denominated intrinsic or extrinsic),
misrepresentation or other misconduct of an adverse party; (4) the judgment
has been satisfied, released or discharged, or a prior judgment upon which
it is based has been reversed or otherwise vacated, or it is no longer
equitable that the judgment should have prospective application; or (5) any
other reason justifying relief from the judgment. The motion shall be made
within a reasonable time, and for reasons (1), (2) and (3) not more than one
year after the judgment, order or proceeding was entered or taken. A
motion under this subdivision (B) does not affect the finality of a judgment
or suspend its operation.
12.
{¶ 31} The Ohio Supreme Court has identified what is required to prevail on a
Civ.R. 60(B) motion for relief from judgment. The movant must demonstrate:
(1) the party has a meritorious defense or claim to present if relief is
granted; (2) the party is entitled to relief under one of the grounds stated in
Civ.R. 60(B)(1) through (5); and (3) the motion is made within a reasonable
time, and, where the grounds of relief are Civ.R. 60(B)(1), (2) or (3), not
more than one year after the judgment, order or proceeding was entered or
taken. GTE Automatic Elec., Inc. v. ARC Industries, Inc., 47 Ohio St.2d
146, 351 N.E.2d 113 (1976), paragraph two of the syllabus.
{¶ 32} Civ.R. 60(B) relief will be denied where the movant fails to satisfy any of
the requirements under the GTE standard. Argo Plastic Products. Co. v. Cleveland, 15
Ohio St.3d 389, 391, 474 N.E.2d 328 (1984).
Meritorious Defense
{¶ 33} Civ.R. 8(D) provides that “[a]verments in a pleading to which a responsive
pleading is required, other than those as to the amount of damage, are admitted when not
denied in the responsive pleading.” The complaints in both cases, however, did not
allege that respective Trust had a right to relief against appellants based upon breach of
the student loan contracts.
{¶ 34} Appellants contend that the default judgments were contrary to law because
the complaints failed to state a claim upon which relief could be granted. We agree.
Here the failure to respond to the complaint created no admission upon which a judgment
13.
granting affirmative relief could be based. Furthermore, under Schwartzwald, the
complaints failed to set forth facts upon which appellees had standing to assert claims
under either loan.
{¶ 35} The grant of default judgment against a defendant where the complaint fails
to state a claim upon which relief can be granted is contrary to law and presents a
meritorious defense to the judgment for purposes of Civ.R. 60(B) relief. See Mercy
Franciscan Hosp. v. Willis, 1st. Dist. Hamilton No. C-030914, 2004-Ohio-5058, ¶ 6;
Michael D. Tully Co., L.P.A. v. Dollney, 42 Ohio App.3d 138, 140-141, 537 N.E.2d 242(9th Dist.1987).
Entitlement to Relief Under Civ.R. 60(B)
{¶ 36} The next element under GTE for relief from judgment under Civ.R. 60(B)
is demonstration of a right to relief under one of the grounds stated in Civ.R. 60(B)(1)
through (5). We consider first appellants’ contention that their affidavits demonstrate an
entitlement to relief under Civ.R. 60(B)(1) due to excusable neglect.
{¶ 37} According to the affidavits, appellants hired a debt negotiation company,
Student Loan Relief Organization (“SLRO”) to negotiate payment arrangements for both
student loans, prior to being served in either case. Linda Beverly states by affidavit that
she called SLRO contact person at SLRO immediately upon receipt of the summons and
complaint in the first case (case No. H-13-010) on April 20, 2012. The contact person
told her to fax him a copy of the complaint and the he would “take care of it.” In their
affidavits, both appellants state that they initially thought SLRO would handle to lawsuit.
14.
{¶ 38} Linda Beverly also stated in her affidavit that after reporting the lawsuit she
had not heard from SLRO for several weeks. She contacted them again. Her contact
person informed her that he had attempted to reach the plaintiff’s attorney but was
unsuccessful. In the conversation, the contact stated that it appeared that SLRO would be
unable to accomplish anything on the 2003 loan.
{¶ 39} Less than a week later, Ms. Beverly made the first of a series of calls
herself to the law firm representing appellees. Her requests to speak to speak to the
attorney representing appellees were refused. Adam Beverly also attempted to speak to
the appellees’ attorney with the same result.
{¶ 40} Both were instructed to speak to a person at the firm named Cathy, who
handled garnishments at the firm. Initially, Cathy refused to speak to either Adam or
Linda Beverly, stating that she could not speak with them because of a power of attorney
they had signed for SLRO to act on their behalf. According to the affidavits, appellees
stopped working with SLRO to get Cathy to speak with them. Even then, their
discussions with Cathy reached no agreement.
{¶ 41} The lawsuit on the 2005 loan was filed on October 18, 2012. Ms. Beverly
admitted in her affidavit that when she was served with the second lawsuit “I thought
there was nothing I could do, based on everything that happened in the first case.” Her
son continued to make phone calls to appellees’ attorney’s office on both their behalves
concerning both loan accounts.
15.
{¶ 42} Ms. Beverly stated in her affidavit that after she was served with the
complaint in the second case, she also attempted to speak directly to individuals at the
National Collegiate Student Loan Trust. According to her affidavit, Ms. Beverly spoke to
several people who could not find any record of the loans. Those persons provided other
phone numbers to call. Ms. Beverly states in her affidavit that she was unable to find
someone from National Collegiate Student Loan Trust who could help.
{¶ 43} Appellees did not file any affidavits or other evidentiary material in the
trial court disputing facts asserted by appellants.
{¶ 44} In Hai v. Flower Hosp., 6th Dist. Lucas No. L-07-1423, 2008-Ohio-5295, ¶
21, we considered a definition for the term excusable neglect:
The general definition of excusable neglect is some action “‘not in
consequence of the party’s own carelessness, inattention, or willful
disregard of the process of the court, but in consequence of some
unexpected or unavoidable hindrance or accident.’” Vanest v. Pillsbury Co.
(1997), 124 Ohio App.3d 525, 536 fn. 8, 706 N.E.2d 825, quoting Black’s
Law Dictionary (6 Ed.1990) 566. Courts generally find excusable neglect
in those instances where there are “unusual or special circumstances” that
justify the neglect of a party or her attorney. Id. at 536, 706 N.E.2d 825(citations omitted).
{¶ 45} In Colley v. Bazell, 64 Ohio St.2d 243, 416 N.E.2d 605 (1980), the Ohio
Supreme Court, reviewing case law from other jurisdictions, recognized that “[g]enerally,
16.
a default judgment is vacated upon motion where a defaulting party has notified his
insurer of the commencement of the suit and has relied, to his detriment, on its
undertaking to defend.” Id. at 247. The court outlined its inquiry in determining
excusable neglect where the defendant notified his insurer of suit and relied on the carrier
to defend:
Assuming, arguendo, that the defendant’s failure to check, by the
date the default judgment was granted, on the question of whether his
carrier had filed an answer or a similar responsive pleading constituted
neglect, the next inquiry is whether that neglect was excusable or
inexcusable. That inquiry must of necessity take into consideration all the
surrounding facts and circumstances. Among such circumstances is
whether the defendant promptly notified his carrier of the litigation. A
second circumstance is the lapse of time between the last day for the filing
of a timely answer and the granting of the default judgment. A third
circumstance is the amount of the judgment granted. A fourth, but not
decisive, circumstance is the experience and understanding of the defendant
with respect to litigation matters. (Footnotes omitted.) Id. at 248.
{¶ 46} Such an analysis has been applied in other contexts not involving
insurance. The Tenth District Court of Appeals upheld a finding of excusable neglect in
circumstances not involving reliance on an insurer to provide a legal defense. In the case
Estate of Orth v. Inman, 10th Dist. Franklin No. 99AP-504, 2002-Ohio-3728, ¶ 5, two
17.
defendants mistakenly believed an attorney, who had been attempting to negotiate a
settlement on behalf of all the defendants, was representing their interests in the case.
The court of appeals affirmed a trial court’s grant of Civ.R. 60(B)(1) relief finding that
the failure to respond to the complaint was not willful and did not demonstrate a total
disregard for the judicial system. Id. at ¶ 28-30.
{¶ 47} The record shows that service of the complaint in the 2003 student loan
case occurred by certified mail on both appellants on April 20, 2012. Under Civ.R.
12(A), appellants were required to serve their answers to the complaint by May 18, 2012.
The trial court granted default judgment against appellants on June 25, 2012. The default
judgment awarded the 2003 Trust damages of $43,713.22, accrued interest of $5,017.42
through April 4, 2012, and interest at a variable interest rate from April 5, 2012. The
defendants are inexperienced and unknowledgeable as to litigation matters.
{¶ 48} “[T]he inaction of a defendant is not ‘excusable neglect’ if it can be labeled
as a “complete disregard for the judicial system.’” Kay v. Marc Glassman, Inc., 76 Ohio
St.3d 18, 20, 665 N.E.2d 1102 (1996), quoting, GTE Automatic, 47 Ohio St.2d at 153,
351 N.E.2d 113.
{¶ 49} Although SLRO is not an insurer, the reliance by appellants on SLRO was
not willful or undertaken in a complete disregard for the judicial system or appellee’s
rights. See Estate of Orth v. Inman, 10th Dist. Franklin No. 99AP-504, 2002-Ohio-3728,
¶ 28. In Colley, the Ohio Supreme Court recognized that Civ.R. 60(B)(1) is a “remedial
rule to be liberally construed.” Colley, 64 Ohio St.2d at 248, 416 N.E.2d 605.
18.
{¶ 50} With respect to the 2003 student loan litigation, we conclude that under all
the circumstances excusable neglect was shown by appellants by their faxing a copy of
the complaint to SLRO on the day of service of the complaint upon them and their
reliance on an assurance by SLRO that the company would “take care of it.”
{¶ 51} With respect to the 2005 student loan case, H-13-011, the record does not
demonstrate excusable neglect for the failure to file answers to the complaint. Appellants
did not forward a copy of the complaint to SLRO and appellants’ inaction cannot be
attributed to any belief that SLRO would defend the action. By the time the second
litigation was filed, appellants knew that the company would not defend the case.
{¶ 52} We conclude that appellants have not established grounds for relief due to
excusable neglect with respect to the 2005 student loan case. However, we also conclude
that grounds for relief under Civ.R. 60(B)(5) does exist.
{¶ 53} Both the Eleventh and Ninth District Courts of Appeals have held that
grant of a default judgment on a complaint that fails to state a claim upon which relief
can be granted presents a basis for relief under Civ.R. 60(B)(5). Student Loan Marketing
Assn. v. Karnavas, 11th Dist. Trumbull No. 92-T-4718, 1993 WL 164709, *2 (May 14,
1993); Michael D. Tully Co., L.P.A, 42 Ohio App.3d at 141, 537 N.E.2d 242.
{¶ 54} In Student Loan Marketing Assn. v. Karnavas, the Eleventh District Court
of Appeals considered very similar facts to those presented in these cases:
There are substantial grounds for invoking Civ.R. 60(B)(5) in this
case. As previously discussed, appellee filed the complaint in this action,
19.
in its own name, on notes payable to another party. No assignment of the
notes was alleged or proven. Thus, appellee’s complaint failed to state a
cause of action against appellant. Zwick, 103 Ohio App. at 84. It is well
established that “a default judgment on a complaint which fails to state a
claim should not be upheld.” Michael D. Tully Co., L.P.A. v. Dollney
(1987), 42 Ohio App.3d 138, 141, citing Buckeye Supply Co. v. Northeast
Drilling Co. (1985), 24 Ohio App.3d 134, American Bankers Ins. Co. v.
Leist (1962), 117 Ohio App. 20. Thus relief pursuant to Civ.R. 60(B)(5) is
appropriate. Karnavas at *2.
{¶ 55} In Tully, the plaintiff was an attorney who had represented the defendants
in a personal injury action on a contingent fee basis. After rejecting a settlement offer,
the defendants hired a different attorney to handle the case. The dismissed attorney filed
suit against his former clients for expenses incurred in prosecuting the personal injury
claim and for compensation in an amount of one-third of the rejected settlement offer.
The court granted the attorney default judgment in the amount of $5,791.84 after the
defendants failed to file an answer to the complaint.
{¶ 56} In Tully, the Ninth District Court of Appeals ruled that there were
substantial grounds in the case to invoke Civ.R. 60(B)(5) relief. The court held:
We are mindful that relief from a default judgment pursuant to
Civ.R. 60(B)(5) should be granted judiciously. However, we find that in
the instant case, there are substantial grounds for invoking Civ.R. 60(B)(5).
20.
We have determined that Tully’s complaint does not state a claim upon
which relief can be granted. A default judgment on a complaint which fails
to state a claim should not be upheld. Buckeye Supply Co. v. Northeast
Drilling Co. (1985), 24 Ohio App.3d 134, 24 OBR 206, 493 N.E.2d 964;
American Bankers Ins. Co. v. Leist (1962), 117 Ohio App. 20, 22 O.O.2d
455, 189 N.E.2d 456. Moreover, it is against public policy to permit a
lawyer to recover $5,333.34 on a contingent fee basis when the client may
never recover any compensation at all. Tully, 42 Ohio App.3d at 141, 537
N.E.2d 242.
{¶ 57} The Tenth District Court of Appeals, however, has held that failure of the
complaint to state a claim upon which relief can be granted alone generally does not in
itself present a basis for Civ.R. 60(B)(5) grounds for relief from judgment. Lopez v.
Quezada, 10th District Franklin Nos. 13AP-389 and 13AP-664, 2014-Ohio-367, ¶ 36,
quoting Taris v. Jordan, 10th Dist. Franklin No. 95APE08-1075, 1996 WL 69717, *4
(Feb. 20, 1996). The court distinguished the Tully case on the ground that the default
judgment in Tully was found to be against public policy as it awarded a lawyer judgment
on a contingent fee contract when the client may never recover any compensation. Taris
at *4.
{¶ 58} Unlike the decisions in Lopez and Taris, these appeals involve default
judgments on complaints that not only failed to state a claim upon which relief could be
granted, but also failed to allege facts sufficient under Schwartzwald to demonstrate
21.
standing of the plaintiff to invoke the jurisdiction of the court to maintain suit. We
concur with the Eleventh District Court of Appeals in Student Loan Marketing Assn. v.
Karnavas that such default judgments present a substantial basis for relief under Civ.R.
60(B)(5).
{¶ 59} We conclude that appellants established an entitlement to Civ.R. 60(B)(5)
relief from the default judgments with respect to both the 2003 and 2005 student loans.
While excusable neglect is an element for relief under Civ.R. 60(B)(1), it is not an
element for Civ.R. 60(B)(5) relief.
Timeliness
{¶ 60} The final element under GTE for Civ.R. 60(B)(1) relief is the requirement
that the motion for relief from judgment be brought within a reasonable time and not
more than one year after the trial court entered judgment. Both motions for Civ.R. 60(B)
relief from judgment were filed within a year of the judgments for which relief is sought.
Whether a Civ.R. 60(B) motion for relief from judgment was filed within a reasonable
time is determined on a case by case basis, considering all the circumstances. Williams v.
Wilson-Walker, 8th Dist. Cuyahoga No. 95392, 2011-Ohio-1805, ¶ 15.
{¶ 61} In the 2003 student loan case, appellants acted promptly upon filing the
complaint to secure the assistance of SLRO to represent their interests. Upon SLRO’s
instructions, they faxed a copy of the complaint to it, under an assurance that the
company would “take care of it.” Appellants learned only several weeks later that SLRO
would be of no assistance in defense of the case.
22.
{¶ 62} Upon learning that SLRO would be of no assistance, appellants pursued
direct contact with attorney for appellants. Contact with appellees’ counsel was also
delayed. Appellants were unable to speak with appellees’ counsel. Because of a letter of
attorney previously provided SLRO to act on appellants’ behalf on the loans, discussions
with the person at the law firm to whom they were directed were delayed.
{¶ 63} The motion for relief from judgment was filed in the case approximately
nine months after default judgment was granted. Given these circumstances, we
conclude that appellants’ Civ.R. 60(B) motion for relief from judgment was filed within a
reasonable time.
{¶ 64} Default judgment in the 2005 loan case was granted on January 11, 2013,
and the motion for relief from the judgment was filed on March 28, 2013, within two and
one half months after default judgment was entered. We conclude that the motion for
default judgment in the 2005 loan case was also filed within a reasonable time.
{¶ 65} Appellants have established the elements under GTE for Civ.R. 60(B) relief
from the default judgments. We conclude that the trial court abused its discretion in
denying appellants’ Civ.R. 60 (B) motions for relief from judgment in both case No. H-
13-010 and case No. H-13-011.
{¶ 66} We find appellants’ assignment of error well-taken.
{¶ 67} We reverse the April 22, 2013 judgment of the Huron County Court of
Common Pleas in both case No. H-13-010 and case No. H-13-011 that denied appellants’
Civ.R. 60(B) motions for relief from judgment.
23.
{¶ 68} In case No. H-13-010, we grant the Civ.R. 60(B) motion for relief from the
June 25, 2012 default judgment and vacate the default judgment. In case No. H-13-011,
we grant appellants’ Civ.R. 60(B) motion for relief from the January 11, 2013 default
judgment and vacate the default judgment. We remand both cases to the Huron County
Court of Common Pleas for further proceedings. We order appellees to pay the costs of
their respective appeals pursuant to App.R. 24.
Judgments reversed.
A certified copy of this entry shall constitute the mandate pursuant to App.R. 27.
See also 6th Dist.Loc.App.R. 4.
Mark L. Pietrykowski, J. _______________________________
JUDGE
Stephen A. Yarbrough, P.J.
_______________________________
James D. Jensen, J. JUDGE
CONCUR.
_______________________________
JUDGE
This decision is subject to further editing by the Supreme Court of
Ohio’s Reporter of Decisions. Parties interested in viewing the final reported
version are advised to visit the Ohio Supreme Court’s web site at:
http://www.sconet.state.oh.us/rod/newpdf/?source=6.
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