Starner v. Merchants Holding, L.L.C.
2018 Ohio 1165
Ohio Ct. App.2018Background
- In July 2014 Starner and Merchants executed a Stock and Membership Interest Purchase Agreement and a cognovit note for $400,000 with 6% interest and an express default provision raising interest to 10% after default and authorizing confession of judgment.
- The note required interest-only payments of $2,000 beginning Feb. 15, 2015, with a 30-day cure period after written notice for any Event of Default; it contained a cognovit confession clause waiving notice and trial.
- Starner sued on the cognovit note (Oct. 13, 2015) seeking $400,000 plus 10% default interest from Feb. 15, 2015, attorneys’ fees, and costs; Merchants’ counsel filed an answer confessing judgment and waiving appeal rights.
- Merchants moved for relief from judgment under Civ.R. 60(B), arguing a meritorious defense of payment (pointing to a $2,000 check cashed by Starner) and asserting failure to give required notice/cure and alleged misappropriation by Starner.
- The magistrate denied the Civ.R. 60(B) motion; the trial court adopted the magistrate’s decision, finding Merchants failed to establish a meritorious defense and waived arguments not raised below. Merchants appealed.
Issues
| Issue | Plaintiff's Argument (Starner) | Defendant's Argument (Merchants) | Held |
|---|---|---|---|
| Whether Merchants established a meritorious defense of payment to justify relief from a cognovit judgment | Starner argued he was entitled to judgment on principal and default interest because of Merchants’ default under the note | Merchants argued it made the Feb. 15, 2015 $2,000 payment (check cashed) so it was not in default and thus has a meritorious defense of payment | Court held the untimely $2,000 payment was an interest-only payment that did not negate default; it did not meet the substance of Starner’s claim and is not a meritorious defense |
| Whether Starner failed to provide written notice and a 30-day cure period before imposing default interest | Starner maintained he complied with the note and was entitled to accelerate and default interest per the complaint | Merchants argued Starner never gave the required written notice and thus default interest should not apply from Feb 15, 2015 | Court declined to address this claim because Merchants failed to raise it in the Civ.R. 60(B) motion or before the magistrate; issue waived |
| Whether Merchants was entitled to setoffs/credits for sums it alleges Starner misappropriated | Starner sought full judgment without crediting any alleged misappropriations | Merchants contended Starner took funds that should have been credited against the debt | Court found Merchants raised this theory for the first time in objections and thus waived it; not considered on appeal |
Key Cases Cited
- Bank of Am., N.A. v. Kuchta, 141 Ohio St.3d 75 (Ohio 2014) (elements for Civ.R. 60(B) relief)
- GTE Automatic Elec., Inc. v. ARC Indus., Inc., 47 Ohio St.2d 146 (Ohio 1976) (framework for meritorious defense requirement in Civ.R. 60(B))
- Blakemore v. Blakemore, 5 Ohio St.3d 217 (Ohio 1983) (abuse of discretion standard)
- Perry v. Gen. Motors Corp., 113 Ohio App.3d 318 (10th Dist. 1996) (standard for review of Civ.R. 60(B) denial)