Ellison v. K 2 Motors, L.L.C.Ellison v. K 2 Motors, L.L.C.
DECISION
Rendered on June 6, 2023
On brief: Sean M. Kohl, Timothy J. Cook, and Sean P. Costello for appellee. Argued: Sean M. Kohl.
On brief: John F. Burke, III, for appellant. Argued: John F. Burke.
BOGGS, J.
{1} Defendant-appellant, K 2 Motors, L.L.C. (“K 2“), appeals the judgment of the Franklin County Court of Common Pleas, which denied K 2‘s Civ.R. 60(B) motion for relief from a default judgment entered in favor of plaintiff-appellee, Matthew Ellison, on Ellison‘s claims for fraud and violations of the Ohio Consumer Sales Practices Act (“CSPA“),
I. FACTS AND PROCEDURAL BACKGROUND
{2} Ellison sued K 2 for violations of the CSPA and for fraud in relation to his purchase of a 2012 Infiniti G37 sedan from K 2‘s used car dealership in Brunswick, Ohio, on September 19, 2021. Ellison alleges that K 2 knew the vehicle had been damaged in a prior accident and that it had significant frame damage; faulty brakes, brake rotors, and dirty brake fluid;
{3} Ellison maintains that K 2 repainted some of the vehicle‘s parts to hide rust and damage to the vehicle. He further alleges that, despite its knowledge of the vehicle, K 2 represented to him that the vehicle had been inspected, was in great condition, and had never been in an accident. Ellison claims that he purchased the vehicle in reliance on K 2‘s representations for the total sales price of $19,649.28.1
{4} Ellison alleges that the day after he purchased the vehicle its sunroof leaked, causing damage to the interior, and that, soon thereafter, the vehicle‘s steering began continually locking. On September 22, 2021, Ellison attempted to return the vehicle to K 2 for a refund, but K 2 refused. Ellison alleges that K 2 instead promised to repair the vehicle, but that it has not honored that promise. Ellison claims that a third-party mechanic inspected the vehicle on October 25, 2021, determined that the vehicle was unsafe to drive, and estimated that the cost to return the vehicle to a safe condition would exceed $7,352.
{5} Ellison alleges that, because of K 2‘s actions, he had to lease another vehicle for $31,882.07, and that he has suffered from anxiety, stress, frustration, lack of sleep, and worry. Ellison claims that K 2‘s actions constitute both common-law fraud and unfair, deceptive, and unconscionable acts and practices in violation of the CSPA.2 Ellison sought damages greater than $25,000, including treble damages for K 2‘s violations of the CSPA.
{6} Ellison served K 2‘s statutory agent, David A. Streeter, by personal process server with a summons and complaint on March 17, 2022. Although K 2 does not dispute that it was properly served, it did not file an appearance, an answer, or a motion to dismiss within the time permitted by the Rules of Civil Procedure.
{7} On April 20, 2022, Ellison filed a motion for default judgment. For violations of the CSPA, Ellison claimed he was entitled to recover as damages the amount necessary to repair the vehicle to a safe condition ($8,336.10 according to Ellison‘s supporting affidavit), the monthly payments he had made under his lease of a replacement vehicle ($2,683.50), and $5,000 in damages for emotional distress, all trebled, for a cumulative total of $48,058.80. He additionally requested an award of reasonable attorney fees in the amount of $4,441.503 and costs of $389.75. Ellison claimed he was entitled to his actual damages in the amount of $11,019.60, plus punitive damages, attorney fees, and costs, on his fraud claim.
{8} The trial court granted Ellison‘s motion for default judgment on May 11, 2022. Based solely on the complaint, the motion for default judgments, and the attachments
{9} Counsel for K 2 filed a notice of appearance on May 20, 2022—nine days after the trial court entered the default judgment. Approximately a month later, K 2 filed a motion for relief from judgment, pursuant to
Defendant here meets all the requirements [for relief] and judgment should be vacated. The affidavit of RJ Elser outlines the reason [why] the underlying complaint was not answered. It was clearly not answered due to mistake, inadvertence and/or excusable neglect * * *. Additionally, this matter should not have proceeded in this Court as this Court had no jurisdiction as the entire transaction occurred in Medina County. Moreover, the purchase was governed by a mandatory arbitration clause * * *. Defendant had no legal liability for the vehicle in question and * * * even if [it] did the damages were not in the amount that the plaintiff sought. Finally, this motion for relief from judgment has been timely filed.
(June 24, 2022 Mot. for Relief from Jgmt. at 5.)
{10} The trial court denied K 2‘s motion for relief from judgment. It rejected K 2‘s argument that the default judgment was void because Ellison did not serve the motion for default judgment on K 2. It also held that K 2 was not entitled to relief from judgment under
{11} K 2 has appealed and now presents two assignments of error. Because both assignments of error essentially contend that the trial court erred by denying K 2‘s motion for relief from judgment, we address them together.
II. ANALYSIS
A. Service of the motion for default judgment on K 2 was not required
{12} Before turning to K 2‘s arguments under
{13}
{14} In support of its argument, K 2 points to
{15} We liberally construe the term “appeared” for purposes of
{16} K 2 fares no better with its invocation of Loc.R. 19.01 as a source of a duty for Ellison to serve K 2 with his motion for default judgment. Loc.R. 19.01 states:
Every * * *motion * * * filed with the Court or a judge shall be served upon all opposing counsel and upon all parties not represented by counsel. Proof of service in writing shall be shown on or attached to the * * * motion * * *. No paper delivered to the Court or a judge without a certificate of service shall be considered by any judge of this Court
except trial briefs where it has been agreed by counsel that they shall not be exchanged.
Loc.R. 19.01 does not specifically exempt from its requirements motions for default judgment, but the local rule may not impose a service requirement that is inconsistent with the Rules of Civil Procedure. See
{17} Because
B. The trial court did not abuse its discretion by denying K 2‘s motion for relief from judgment
{18} We now turn to K 2‘s argument that the trial court erred in denying relief from judgment pursuant to
{19} Pursuant to
{20} A party who moves for relief from judgment is not automatically entitled to a hearing. Davis v. Davis, 10th Dist. No. 15AP-1078, 2016-Ohio-7790, ¶ 13, citing Kay v. Marc Glassman, Inc., 76 Ohio St.3d 18, 19 (1996). “If the material submitted by the movant in support of a motion for relief from judgment under Civil Rule 60(B) contains no operative facts or meager and limited facts and conclusions of law, it will not be an abuse of discretion for the trial court to overrule the motion and refuse to grant a hearing.” U.S. Bank Natl. Assn. v. Lewis, 10th Dist. No. 18AP-550, 2019-Ohio-3014, ¶ 28, quoting Adomeit v. Baltimore, 39 Ohio App.2d 97 (8th Dist.1974), paragraph four of the syllabus. Although Ohio courts should strive to decide cases on their merits, “we refuse to let
{21} K 2 claims it is entitled to relief under
{22} K 2 filed an affidavit from Elser, its General Manager, in support of its motion for relief from judgment. Elser explained that “normal procedure” was for Streeter, K 2‘s statutory agent, to forward legal documents to Elser by email and then to mail the original documents to KDK Mitsubishi, the name under which K 2 does business. (Elser Aff. at ¶ 3, attached to June 24, 2022 Mot. for Relief from Jgmt.) It was Elser‘s responsibility to forward legal complaints to the company‘s attorney. Elser admits that he received an email from Streeter, alerting him to Ellison‘s complaint, on March 27, 2022, but claims he did not receive a paper copy of the complaint. He states, “because I never received the paper copies of the complaint, and despite my usual practice, I neglected to forward the complaint to” K 2‘s attorney. Id. at ¶ 4. Elser‘s affidavit establishes that both Streeter (an attorney) and Elser knew of Ellison‘s lawsuit by March 27, 2022. The issue before us therefore resolves to whether, despite that knowledge, Elser‘s failure to forward the
{23} A party‘s failure to plead after receiving a copy of a complaint generally does not amount to excusable neglect. Kormanik v. Haley, 10th Dist. No. 12AP-18, 2012-Ohio-5975, ¶ 19, citing LaSalle Natl. Bank v. Mesas, 9th Dist. No. 02CA008028, 2002-Ohio-6117, ¶ 13. In some circumstances, however, relief from a default judgment may be warranted for excusable neglect when a corporate employee has failed to forward the summons and complaint that has been validly served on the corporation to the appropriate person in the corporate hierarchy. Perry v. GMC, 113 Ohio App.3d 318, 322 (10th Dist.1996), citing Hopkins v. Quality Chevrolet, Inc., 79 Ohio App.3d 578, 582 (4th Dist.1992).
{24} This court has adopted a two-part test from Hopkins for determining whether internal corporate errors are excusable under
{25} The complaints in both Perry and Hopkins, although properly served on the corporations, never reached the appropriate person in each defendant‘s corporate hierarchy. See Perry at 324 (complaint did not reach in-house general counsel, whose duty it was to alert outside counsel); Hopkins at 583 (neither of the two persons charged with dealing with the corporation‘s legal matters—its President and its General Manager—was made aware of the case until after the default judgement had been entered). Perry and Hopkins are distinguishable from this case because, here, notice of Ellison‘s lawsuit did reach the appropriate person within the corporation. That person was Elser, who learned of the complaint from Streeter on March 27, 2022 but failed to act to safeguard K 2‘s ability to defend against Ellison‘s claims.
{26} The only fact K 2 has presented to justify that failure is that Elser never received a physical copy of the complaint from Streeter after he learned of Ellison‘s lawsuit. In light of his knowledge of Ellison‘s lawsuit, Elser‘s failure to act is not excusable in the same way that a corporation‘s failure to act is excusable when the responsible corporate employee remains unaware that a case has been filed until after default judgment has been entered. See Morgan Adhesives Co. v. Sonicor Instrument Corp., 107 Ohio App.3d 327, 335 (9th Dist.1995) (rejecting corporation‘s claim of excusable neglect where evidence established defendant‘s knowledge of the suit and of the consequences of its failure to participate).
{27} Both Streeter and Elser knew of Ellison‘s lawsuit before the time for filing an answer had passed. As an attorney, Streeter should have appreciated the limited time allowed for answering the complaint,
The trial court also found that K 2 failed to establish that it had a meritorious defense to Ellison‘s claims. “Meritorious,” in this context, “refers to the substantive merits of the underlying claim.” Meyer v. Geyman, 6th Dist. No. WD-07-018, 2007-Ohio-5474, ¶ 13. “[A] proffered defense is meritorious if it is not a sham and when, if true, it states a defense in part, or in whole, to the claims for relief set forth in the complaint.” Amzee Corp. v. Comerica Bank-Midwest, 10th Dist. No. 01AP-465, 2002-Ohio-3084, ¶ 20, citing The Pool Man, Inc. v. Rea, 10th Dist. No. 95APG04-438, 1995 Ohio App. LEXIS 4577 (Oct. 17, 1995). To establish a right to relief from judgment under
{28} Neither K 2‘s bare denial of liability nor its bare denial that it failed to disclose known defects with the vehicle is sufficient to demonstrate the existence of a meritorious defense. Nor do K 2 and Elser‘s statements that K 2 sold the vehicle “as is” suffice to establish a meritorious defense. K 2 offers no argument why an “as is” provision in its contract would create a defense to Ellison‘s tort claim of fraud or claim for statutory violations of the CSPA. While an “as is” clause relieves a seller of a duty to disclose, it “does not bar a claim for ‘positive’ fraud, a fraud of commission rather than omission.” Brewer v. Bros., 82 Ohio App.3d 148, 151 (12th Dist.1992). And several Ohio courts have expressly concluded that an “as is” or “no warranty” clause in a contract does not provide a defense to a claim for a violation of the CSPA. Hamilton v. Ball, 4th Dist. No. 13CA3533, 2014-Ohio-1118, ¶ 47 (“While an ‘as is’ clause may be effective in defending a breach of contract or warranty claim, it does not have a similar effect on CSPA claims, which are a creature of statutory law“); Keel v. Toledo Harley-Davidson/Buell, 184 Ohio App.3d 348, 2009-Ohio-5190, ¶ 17 (6th Dist.) (“Violations of the CSPA are enumerated by the act, and any disclaimer of a warranty is ineffective against a claim based on an enumerated violation“); Gallagher v. WMK Inc., 9th Dist. No. 23564, 2007-Ohio-6615, ¶ 24; contra Tisdale v. Direct Detail, 8th Dist. No. 97503, 2012-Ohio-3252 (holding that a disclaimer of warranties precluded a consumer from asserting a CSPA claim based on undisclosed defects).
{29} We turn now to Ellison‘s procedural arguments regarding improper venue and the existence of an arbitration agreement and conclude that neither constitutes a meritorious defense for purposes of
{30} K 2 asserts that the trial court lacked jurisdiction over Ellison‘s claims because the sale out of which those claims arose occurred in Medina County. Although K 2 raises this issue as one of jurisdiction, it is instead one of venue. Venue and jurisdiction are distinct legal concepts. “Jurisdiction connotes the power to hear and decide a case on its merits, while venue connotes locality, the place where the suit should be heard.” State ex rel. Dunbar v. Ham, 45 Ohio St.2d 112, 115 (1976), quoting The New York, Chicago, and St. Louis RR. Co. v. Matzinger, 136 Ohio St. 271, 276 (1940).
{31} Ohio‘s common pleas courts have “original jurisdiction over all justiciable matters and such powers of review of proceedings of administrative officers and agencies as may be provided by law.” Article IV, Section 4(B), Ohio Constitution. A common pleas court‘s subject-matter jurisdiction “extends to ‘all matters at law and in equity that are not denied to it.‘” Bank of Am., N.A. v. Kuchta, 141 Ohio St.3d 75, 2014-Ohio-4275, ¶ 20, quoting Saxton v. Seiberling, 48 Ohio St. 554, 558-59 (1891). K 2‘s argument is not that the trial court lacked subject-matter jurisdiction, but that the matter should have been adjudicated in Summit County, where the vehicle sale occurred. That is actually an argument about venue.
{32} Venue is a procedural matter. Morrison v. Steiner, 32 Ohio St.2d 86, 88 (1972).
{33} In conjunction with
{34} Nonetheless, even assuming K 2 had valid grounds for moving the trial court to transfer this matter to Summit County pursuant to
{35} Finally, K 2 argues that the trial court lacked jurisdiction over Ellison‘s complaint because the parties’ contract contained a mandatory arbitration clause. The copy of the purchase contract attached to Ellison‘s complaint confirms the existence of an arbitration agreement, but not K 2‘s contention that the agreement called for mandatory arbitration. The agreement states, “Any claim or dispute * * * between you and us which arises out of or relates to your * * * purchase or condition of this vehicle * * * shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.” (Emphasis added.) (Dec. 22, 2021 Compl., Ex. A at 8.) Elsewhere, it states, “EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION.” (Emphasis sic.) Id. By its plain language, the arbitration agreement afforded the parties the opportunity to resolve disputes by arbitration, but it did not require them to do so. Rather, to invoke the arbitration agreement, one party would have to “elect” or “choose” to submit a dispute to arbitration. Id. By filing his complaint with the trial court, Ellison chose not to invoke the arbitration provision, and by not timely responding to Ellison‘s complaint, K 2 failed to elect to have Ellison‘s claims resolved by arbitration.
{36} A failure to appear not only admits liability but also waives defenses to the allegations in the complaint, so the failure to act to preserve the opportunity to arbitrate waives the contractual right to demand arbitration. Baumann v. Purchase Plus Buyer‘s Group, Inc., 10th Dist. No. 01AP-297, 2001 Ohio App. LEXIS 5266, *12 (Nov. 29, 2001). “If defendants received proper service of process, their failure to take any action prior to judgment to enforce the arbitration clause in the contract at issue is a waiver of the right to arbitration.” Id. Applying that rationale here, K 2 waived the right to demand arbitration by not asserting it prior to the entry of judgment. Moreover, the agreement for non-mandatory arbitration does not constitute a meritorious defense for purposes of
{37} For these reasons, we conclude that the trial court did not abuse its discretion in denying K 2‘s motion for relief from judgment.
III. CONCLUSION
{38} Having rejected each of K 2‘s arguments, we affirm the judgment of the Franklin County Court Common Pleas.
Judgment affirmed.
JAMISON and LELAND, JJ., concur.