Jeffrey Starner, Plaintiff-Appellee, v. Merchants Holding LLC, Defendant-Appellant.
No. 17AP-621
IN THE COURT OF APPEALS OF OHIO TENTH APPELLATE DISTRICT
March 29, 2018
[Cite as Starner v. Merchants Holding, L.L.C., 2018-Ohio-1165.]
DORRIAN, J.
(C.P.C. No. 15CV-9115) (REGULAR CALENDAR)
Rendered on March 29, 2018
On brief: Thomas C. Loepp, Law Offices Co., LPA, and Thomas C. Loepp, for appellee. Argued: Thomas C. Loepp.
On brief: Brunner Quinn, Rick L. Brunner, and Patrick M. Quinn, for appellant. Argued: Patrick M. Quinn.
APPEAL from the Franklin County Court of Common Pleas
DORRIAN, J.
{1} Defendant-appellant, Merchants Holding LLC, appeals the July 28, 2017 decision and entry of the Franklin County Court of Common Pleas. For the following reasons, we affirm.
I. Facts and Procedural History
{2} This matter arises out of appellant‘s purchase of businesses from plaintiff-appellee, Jeffrey Starner. On July 18, 2014, the parties executed a Stock and Membership Interest Purchase Agreement (the “agreement“). Pursuant to the agreement, appellant received the businesses in exchange for its execution of a cognovit note for the principal amount of $400,000 together with interest as set forth in the note. The cognovit note provided in pertinent part as follows:
* * *
FOR VALUE RECEIVED, Merchants Holding, LLC (“Borrower“), promises to pay to the order of Jeffrey Starner (“Lender,” which term shall include any subsequent holder hereof), * * * the principal sum of Four Hundred Thousand Dollars (U.S. $400,000.00) (the “Principal Sum“), together with interest, at the rates and in the manner hereinafter set forth.
1. INTEREST
1.1 Interest will accrue on the outstanding balance of the Principal Sum from the date hereof until this Note is paid in full at a rate of Six and 00/100ths Percent (6.00%) per annum, subject to the applicability of the Default Rate as provided below.
2. PAYMENTS
2.1 This note shall be payable as follows:
(i) Commencing on February 15, 2015 and on the 15th day of each month thereafter thru and including June 15, 2016, interest only payments of $2,000;
(ii) Commencing July 15, 2016 and on the 15th day of each month thereafter thru and including June 15, 2019, principal and interest payments of $3,487.04; and
(iii) On July 15, 2019, unless sooner paid or declared due and payable in accordance with Subsection 5.2 of this Note, the balance, $359,119.84.
Payments received will be applied in the following order: (i) to accrued interest and (ii) to principal.
* * *
4. SECURITY
4.1 This Note is delivered in connection with the Stock and Membership Interest Purchase Agreement (“Purchase Agreement“) of even date.
* * *
5. DEFAULT
5.1 The term “Event of Default” shall mean: (a) A failure by Borrower to make any payment of principal or interest or both when due pursuant to the terms of this Note;
* * *
5.2 Upon the occurrence of any Event of Default, Lender shall provide notice of the perceived default in writing to Borrower. Borrower shall then have thirty (30) days to cure the default. If the default is not cured within thirty (30) days, the entire indebtedness shall thereupon bear interest at the Default Rate of Interest, and at the option of Lender, all the Indebtedness together with interest thereon at the Default Rate of Interest of Ten Percent (10%) per annum shall immediately become due and payable, and Lender shall have all remedies of a secured party under law and equity to enforce the payment of all of the indebtedness, time being of the essence in the Note. The Default Rate of Interest shall be charged to Borrower upon the occurrence of any Event of Default that is not cured by Borrower notwithstanding any invoices or billing statements sent by Lender to Borrower indicating an interest rate to the contrary. In addition, any waiver of Lender‘s right to charge the Default Rate of Interest or to declare the indebtedness immediately due and payable must be made in writing and cannot be waived by oral representation or the submission to Borrower of monthly billing statements.
6. MISCELLANEOUS
6.1 The failure of Lender to exercise any option herein provided upon the occurrence of any Event of Default shall not constitute a waiver of the right to exercise such option in the event of any continuing or subsequent Event of Default. Borrower hereby agrees that the maturity of all or any part of the indebtedness may be postponed or extended and that any covenants and conditions contained in the Note or in any of the other Loan Documents may be waived or modified without prejudice to the liability of Borrower on the Note or other Loan Documents.
* * *
6.8 Borrower hereby authorizes any attorney-at-law to appear in any court of record in the State of Ohio or in any other state or territory of the United States at any time after the Note becomes due, whether by acceleration or otherwise, to waive
the issuing and service of process, and to confess judgment against Borrower in favor of Lender for the amount due together with interest, expenses, the costs of suit and reasonable counsel fees, and thereupon to release and waive all errors, rights of appeal and stays of execution. * * *
WARNING--- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL.
(Emphasis sic.) (Mar. 21, 2016 Deft.‘s Ex. 6.)1
{3} On October 13, 2015, appellee filed a complaint on cognovit note asserting that, pursuant to a cognovit note executed July 18, 2014, appellant owed appellee $400,000 plus interest at 10 percent from February 15, 2015, in addition to court costs and reasonable attorney fees.
{4} On October 13, 2015, counsel for appellant filed an answer “waiv[ing] the issuance and service of process herein and confess[ing] judgment in favor of [appellee] against [appellant] in the amount of $400,000.00, plus interest at 10% on the amount owed under the Note as set forth in [the] Note, from February 15, 2015; reasonable attorneys’ fees; and the costs of this proceeding, taxed and to be taxed.” (Answer at 1.) Furthermore, counsel for appellant “release[d] and waive[d] all exceptions, errors and rights of appeal.” (Answer at 1.) On October 22, 2015, the trial court filed a judgment entry granting judgment in favor of appellee in the amount sought in the complaint.
{5} On November 17, 2015, appellant filed a motion for relief from judgment under
{6} On June 23, 2016, appellant filed objections to the magistrate‘s decision. On June 30, 2016, appellee filed a memo contra appellant‘s objections. On July 7, 2016, appellant filed a reply in support of objections to magistrate‘s decision. On the same day, appellee filed a motion to strike appellant‘s reply in support of objections to the magistrate‘s decision. On July 21, 2016, appellant filed a memorandum in opposition to appellee‘s motion to strike and alternative motion for leave to file reply in support of objections to the magistrate‘s decision. On July 22, 2016, appellee filed a reply in support of motion to strike and memo contra appellant‘s motion for leave to file reply.
{7} On September 29, 2016, appellant filed a motion for leave to supplement objections to magistrate‘s decision with new development and other matters. On October 13, 2016, appellee filed a memo contra appellant‘s motion for leave to supplement objections to magistrate‘s decision.
{8} On June 15, 2017, the trial court filed a decision and entry granting appellee‘s July 7, 2016 motion to strike appellant‘s reply in support of objections to the magistrate‘s decision and denying appellant‘s September 29, 2016 motion for leave to supplement objections to magistrate‘s decision. On July 28, 2017, the trial court filed a decision and entry overruling appellant‘s objections to the magistrate‘s decision and adopting the magistrate‘s decision.
II. Assignment of Error
{9} Appellant appeals and assigns the following sole assignment of error for our review:
The trial court erred in denying Appellant‘s motion for relief from judgment under Rule 60(B) where Appellant presented evidence of the meritorious defense of payment.
III. Discussion
{10} In its assignment of error, appellant asserts the trial court abused its discretion by denying its motion for relief from judgment under
A. Applicable Law
{11} Generally, in order to prevail on a motion for relief from judgment under
{12} However, when a debtor challenges a cognovit judgment by filing a
{13} This court has previously outlined defaults on cognovit notes as follows:
A cognovit note contains provisions designed to cut off defenses available to a debtor in the event of default. * * * The holder of a cognovit note in default obtains a judgment without a trial of possible defenses which the signers of the note might otherwise assert. * * * This is so because, under a cognovit note, the debtor consents in advance to the holder obtaining a judgment without notice or hearing. * * * An attorney, whom the note holder may designate, appears on behalf of the debtor and, pursuant to provisions of the cognovit note, confesses judgment and waives the debtor‘s right to notice of the proceedings.
Weber at ¶ 12, quoting Classic Bar & Billiards, Inc. v. Samaan, 10th Dist. No. 08AP-210, 2008-Ohio-5759, ¶ 8. Although cognovit notes traditionally contain provisions removing every defense available to a debtor in the event of default except payment, “Ohio courts have also recognized additional meritorious defenses involving the integrity and validity of cognovit notes, including: ’ “improper conduct in obtaining the debtor‘s signature on the
B. Standard of Review
{14}
{15} “The standard of review on appeal from a trial court judgment that adopts a magistrate‘s decision varies with the nature of the issues that were (1) preserved for review through objections before the trial court and (2) raised on appeal by assignment of error.” In re Guardianship of Schwarzbach, 10th Dist. No. 16AP-670, 2017-Ohio-7299, ¶ 14. The decision to grant or deny a
C. Analysis
{16} First, appellant asserts it established the defense of payment by demonstrating that it made one installment payment. In support of this assertion, appellant contends that a check dated March 23, 2015 in the amount of $2,000 payable to appellee demonstrated that it made the February 15, 2015 installment payment. Appellant contends that once it “made this payment, which was accepted and cashed by [a]ppellee, [a]ppellant was not in default, since it had paid all that was owed under the cognovit note.” (Appellant‘s Brief at 9.)
{17} In B & I Hotel, the defendant filed a
{18} Here, as in B & I Hotel, the trial court found appellee did not seek judgment for the interest only payments but, rather, for the “principal amount of $400,000 plus interest at the default rate of 10% per annum as provided in Section 5.2 of the note.” (July 28, 2017 Decision at 7.) The trial court found that appellant “does not contest * * * that, at the time it made the $2,000 payment to [appellee], it * * * was in default under the terms of [the] note and that ‘the $2000.00 check, dated March 23, 2015, only could be considered as an interest payment and applied to the interest owed on the debt.’ ” (July 28, 2017 Decision at 7.) As a result, the trial court applied the reasoning of B & I Hotel to find that the interest only payment made by appellant did not constitute a meritorious defense because such sum was not sought in appellee‘s complaint, nor included in the trial court‘s judgment.
{19} Here, it is undisputed that appellant failed to timely make the February 15, 2015 interest only payment, which constituted an event of default as defined by section 5.1 of the note. Furthermore, appellant does not dispute that appellee, in his complaint, sought only the principal sum and interest at the default rate. Thus, under the reasoning of B & I Hotel, appellant‘s untimely interest only payment “does not meet the substance of
{20} Next, appellant contends appellee was required to give appellant 30 days to cure the default under the terms of the note. Appellant argues, therefore, the trial court‘s judgment is “erroneous on its face” because it “imposes a higher, default rate of interest effective as of February 15, 2015, the first payment date” instead of after the “expiration of a 30 day cure period.” (Appellant‘s Brief at 11-12.) Furthermore, appellant argues that the “record is silent that [a]ppellee ever met the note‘s requirement of ‘notice of the perceived default in writing’ to [a]ppellant so as to trigger entitlement to the higher default interest rate.” (Appellant‘s Brief at 12.) Upon a review of the record, we find appellant failed to raise these claims before the trial court in the first instance, either in its
{21} Finally, appellant contends the trial court erred because it failed to credit as payment certain sums that it alleges appellee took from appellant. In its decision overruling appellant‘s objections to the magistrate‘s decision, the trial court stated appellant “never raised this [issue] in support of a partial payment defense in its [
{22} For the above reasons, we find the trial court did not abuse its discretion by overruling appellant‘s objections to the magistrate‘s decision denying appellant‘s
IV. Conclusion
{23} Having overruled appellant‘s sole assignment of error, we affirm the judgment of the Franklin County Court of Common Pleas.
Judgment affirmed.
SADLER and LUPER SCHUSTER, JJ., concur.