RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 10a0124p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
-
EXPORT-IMPORT BANK OF THE UNITED
Plaintiff-Appellee, --
STATES,
-
No. 09-3414
,
>
-
v.
-
Defendant, -
ADVANCED POLYMER SCIENCES, INC.,
-
-
-
Defendants-Appellants. -
DONALD and ARLENE KEEHAN,
-
N
Appeal from the United States District Court
for the Northern District of Ohio at Cleveland.
No. 07-01138—Christopher A. Boyko, District Judge.
Argued: April 21, 2010
Decided and Filed: May 5, 2010
Before: MARTIN, SUHRHEINRICH, and WHITE, Circuit Judges.
_________________
COUNSEL
ARGUED: Nicholas Aristides Panagopoulos II, LAW OFFICE, Cleveland Heights, Ohio,
for Appellants. Alexander A. Rokakis, ASSISTANT UNITED STATES ATTORNEY,
Cleveland, Ohio, for Appellee. ON BRIEF: Jon P. Yormick, YORMICK & ASSOCIATES
CO., LPA, Cleveland, Ohio, for Appellants. Alexander A. Rokakis, ASSISTANT UNITED
STATES ATTORNEY, Cleveland, Ohio, for Appellee.
_________________
OPINION
_________________
BOYCE F. MARTIN, JR., Circuit Judge. Export-Import Bank (Ex-Im Bank), an
agency of the United States, was the holder of a promissory note by Advanced Polymer
Sciences, Inc. (APS) and of guaranties by Donald Keehan and Arlene Keehan guaranteeing
1
No. 09-3414 Export-Import Bank of the U.S. v. Page 2
Advanced Polymer Scis., et al.
the entirety of the APS obligation. Ex-Im Bank obtained the note and the guarantees by
assignment from Bank One, N.A., which had originally extended credit to APS. Both the
note and the guarantees contained cognovit provisions, allowing the beneficiary to confess
judgment against the obligor in the event of default. APS defaulted on the debt while the
note and the guarantees were in the hands of Bank One. Several years later, Ex-Im Bank,
as Bank One’s assignee, confessed judgment in the principle amount of $2,166,661.10
against APS and the Keehans. The Keehans moved to set aside the judgments in the district
court, alleging as meritorious the defenses of laches, res judicata, and that the guarantees
were unenforceable due to a fatal conflict among contractual terms. The district court
declined to set aside the judgments. Export-Import Bank of the U.S. v. Advanced Polymer
Scis., Inc., 624 F. Supp. 2d 696 (N.D. Ohio 2009). The Keehans now appeal, asserting that
the applicable statute of limitations had run before Ex-Im Bank obtained the judgments and
that an arbitration provision in the documents conflicts with the cognovit provision. We
AFFIRM.
I.
In the late nineteen-nineties, APS took out a series of loans from Bank One. These
loans were typically documented by promissory notes from APS. In August of 1998, the
Keehans executed a blanket commercial guarantee in which they each personally guaranteed
all debts from APS to Bank One. There are several important provisions in the guarantees.
First, the guarantees contain a confession of judgment, that the parties refer to as “cognovit,”
provision:
Guarantor hereby irrevocably authorizes and empowers any attorney-at-law
to appear in any court of record and to confess judgment against Guarantor
for the unpaid amount of this Guaranty, plus attorneys’ fees as provided in
this Guaranty, plus costs of suit, and to release all errors, and waive all rights
of appeal.
(Guaranty at 2.) Second, the guarantees contain an arbitration provision:
Lender and Guarantor agree that upon the written demand of either party,
whether made before or after the institution of any legal proceedings, but
prior to the rendering of any judgment in that proceeding, all disputes,
claims and controversies between them, whether individual, joint, or class
No. 09-3414 Export-Import Bank of the U.S. v. Page 3
Advanced Polymer Scis., et al.
in nature, arising from this Guaranty, any Related Document or otherwise,
including without limitation contract disputes and tort claims, shall be
arbitrated pursuant to the Commercial Rules of the American Arbitration
Association.
(Id.) Third, the guarantees contain a broad waiver of defenses:
Guarantor also waives any and all rights or defenses arising by reason of
. . . (d) any defenses given to guarantors at law or in equity other than actual
payment and performance of the indebtedness.
(Id.) Finally, the guarantees provide that they are governed by Ohio law. (Id.)
One of the loans from Bank One was an export line of credit to APS, which was
originally extended in 1999 in the amount of $1,300,000. Ex-Im Bank guaranteed the line
of credit, presumably as part of a federal trade program. In June of 2000, the line of credit
was increased to $2,050,000 and, by its terms, became due and payable on November 16,
2000. APS failed to make payment in full on the line of credit and several other obligations
to Bank One, and the Keehans did not step in to pay the debt on APS’s behalf.
On March 7, 2001, counsel for Bank One sent a letter to Donald Keehan declaring
APS in default of all of its obligations to Bank One and demanding payment from APS and
the Keehans. When APS and the Keehans failed to make payment, Bank One confessed
judgment against APS and the Keehans in Ohio state court on November 26, 2002 on all of
the APS obligations except for the line of credit.
The line of credit was excluded from Bank One’s confession of judgment because
it was guaranteed by Ex-Im Bank. So, instead of confessing judgment against APS on the
line of credit note and against the Keehans on the guarantees, Bank One made demand on
the Ex-Im Bank guaranty on October 30, 2002 in the amount of $1,302,448.99. Once Ex-Im
Bank made good on its guaranty to Bank One, Bank One transferred its interest in the line
of credit note and the guarantees to Ex-Im Bank by assignment dated January 23, 2003.
Ex-Im Bank did not immediately pursue its claim against APS and the Keehans,
either formally or informally. Instead, Ex-Im Bank, by the United States Attorney for the
Northern District of Ohio, filed suit as assignee of the cognovit note and guarantees in the
United States District Court for the Northern District of Ohio on April 18, 2007. The record
No. 09-3414 Export-Import Bank of the U.S. v. Page 4
Advanced Polymer Scis., et al.
does not reveal what occurred, if anything, between Ex-Im Bank and the Keehans in the
period between the January 2003 assignment and the April 2007 confession of judgment.
The district court entered judgment on May 23, 2007 against APS and the Keehans,
jointly and severally, in the principal amount of $2,166,661.10, plus interest and the costs
of suit. After obtaining the judgment, the government began negotiating with the Keehans.
1
When the negotiations proved unsuccessful, the Keehans moved on March 4, 2008 to
vacate the judgment pursuant to Federal Rule of Civil Procedure 60(b).
As the basis for their Rule 60(b) motion, the Keehans asserted three purportedly
meritorious defenses to the confessed judgments. First, they argued that, because Bank
One could have sued on the line of credit when it sued on all of APS’s other obligations,
the doctrine of res judicata barred Ex-Im Bank, as Bank One’s assignee, from suing later
on the line of credit. Second, they argued that the arbitration provision in the guarantees
conflicted with the confession of judgment provision and, because contracts are
construed against the drafter and because federal law favors arbitration, the confession
of judgment provision must give way to the arbitration provision, rendering the cognovit
judgments invalid. Third, they argued that the government’s failure to act in the more
than four years that elapsed between the assignment of the guarantees and filing suit on
the guarantees gave rise to the defense of laches. Notably, in addressing the laches
argument, neither party discussed the applicable or most analogous statute of limitations.
The district court denied the Rule 60(b) motion in an opinion and order dated
March 11, 2009. 624 F. Supp. 2d 696. The court focused on the requirement of a
meritorious defense in seeking to vacate a judgment under Rule 60(b). As relevant to
this appeal the court first found that, as a matter of Ohio law, res judicata and laches are
not meritorious defenses to cognovit judgments. It found that, under Ohio law on
confessed judgments:
1
Only the Keehans sought to vacate the judgment as, by that point, APS had ceased to do business
and had no assets.
No. 09-3414 Export-Import Bank of the U.S. v. Page 5
Advanced Polymer Scis., et al.
For purposes of a Rule 60(b) motion “a meritorious defense is one that
goes to the integrity and validity of the creation of the debt or note, the
state of the underlying debt at the time of confession of judgment, or the
procedure utilized in the confession of judgment on the note. A
judgment on a cognovit note will generally not be vacated for reasons
which do not encompass such matters of integrity and validity.”
Id. at 701 (quoting First Nat’l Bank of Pandora v. Freed, No. 5-03-36, 2004 Ohio App.
LEXIS 3209, at *7-8 (Ohio Ct. App. July 6, 2004)). From this, the court reasoned that
laches and res judicata do not fit within the narrow class of defenses to confessed
judgments, as neither defense affects the validity of the underlying debt, the validity of
the agreement at issue, or the procedures used to confess judgment. Id.
The court then proceeded to address the merits of the laches argument and found
them lacking. Among other reasons for this finding was that the Keehans could not
show that Ex-Im Bank lacked diligence in waiting several years to confess judgment.
In so doing, the court looked to the applicable statute of limitations as a guidepost in
determining whether Ex-Im Bank had acted in a timely fashion. Importantly, the court
found that Ohio’s fifteen-year limitation period for actions on written contracts, O.R.C.
§ 2305.06, was the applicable limitations period. With that in mind, the court found that
Ex-Im Bank’s approximately four-year delay in confessing judgment did not rise to the
level of lack of diligence necessary to support a laches defense. 624 F. Supp. 2d at 706.
Finally, the district court found that the Keehans’ argument regarding the
supposed inherent conflict between the arbitration provision and the cognovit provision
could be a meritorious defense to a cognovit judgment, as it went to the validity and
integrity of the cognovit provisions themselves. The court acknowledged that the
cognovit provision rendered the arbitration provision less useful because Ex-Im Bank
could obtain judgment, and thus cut off the right to arbitration, without the Keehans ever
knowing about it. However, the court found that just because the arbitration provision
was less useful in this case did not mean it was rendered useless by the cognovit
provision in all cases. The Keehans theoretically could have demanded arbitration
before Ex-Im Bank confessed judgment. The court concluded that, even if the facts of
No. 09-3414 Export-Import Bank of the U.S. v. Page 6
Advanced Polymer Scis., et al.
this case did not lend themselves to that result, this was no reason for finding the two
provisions inherently in conflict as a matter of contract interpretation. Id. at 707-08.
Thus, having rejected all of the Keehans’s supposedly meritorious defenses, the court
denied their motion to vacate the judgment. The Keehans timely appealed.
II.
A. Standard of Review
The district court found, and the Keehans do not dispute, that they bring their
motion to vacate the judgment under Federal Rule of Civil Procedure 60(b)(6). Under
this Rule, a court may vacate a judgment for “any other reason that justifies relief.” FED.
R. CIV. P. 60(b)(6). This Court has stated that Rule 60(b)(6) provides relief “only in
exceptional and extraordinary circumstances,” which are defined as those “unusual and
extreme situations where principles of equity mandate relief.” Jinks v. AlliedSignal, Inc.,
250 F.3d 381, 387 (6th Cir. 2001) (citations and emphases omitted). In addition to the
requirement of exceptional circumstances, a Rule 60(b)(6) movant must also satisfy the
three equitable factors required for Rule 55 relief: (1) lack of prejudice to the plaintiff;
(2) a meritorious defense; and (3) whether the defendant’s culpable conduct led to the
judgment. Thompson v. Am. Home Assur. Co., 95 F.3d 429, 433 (6th Cir. 1996). We
review a district court’s denial of a Rule 60(b) motion for abuse of discretion. Jinks, 250
F.3d at 385.
In this case, the district court focused solely on whether the Keehans satisfied the
requirement of asserting a meritorious defense, and the parties do the same. We follow
suit.
B. Statute of Limitations
On appeal, the Keehans argue that Ex-Im Bank’s suit to confess judgment on the
guarantees was barred by 28 U.S.C. § 2415(a)’s six-year limitations period for actions
No. 09-3414 Export-Import Bank of the U.S. v. Page 7
Advanced Polymer Scis., et al.
by the United States based on a contract.2 Ex-Im Bank responds that the Keehans have
waived the statute of limitations defense on appeal because they did not argue the issue
below. Instead, they argued laches, and it was the district court itself that first discussed
the applicable statute of limitations.
It is true that the Keehans did not assert the statute of limitations as a meritorious
defense in the district court—indeed, they never took any position on the applicable
limitations period. Normally, we deem issues not raised below to be waived for
purposes of appeal, but we have “deviated from the general rule in exceptional cases or
particular circumstances or when the rule would produce a plain miscarriage of justice.”
Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 552 (6th Cir. 2008) (internal quotation
marks and citation omitted). Whether to so deviate is based on several factors, such as
“whether the issue newly raised on appeal is a question of law, or whether it requires or
necessitates a determination of facts,” and “whether failure to take up the issue for the
first time on appeal will result in a miscarriage of justice or a denial of substantial
justice.” Id. (citations omitted).
In this case, the applicable statute of limitations is a question of law requiring no
further factual development, which cuts in favor of looking past the failure to raise the
issue below. However, we do not believe that a refusal to address the statute of
limitations defense would work a substantial miscarriage of justice on the Keehans. The
statute of limitations is merely an affirmative defense, which may be waived at the outset
of litigation by a party’s failure to assert it. FED. R. CIV. P. 8(c); Phelps v. McClellan,
2
Though we affirm the district court’s decision, we pause to note that, in considering the
Keehans’ laches argument, the district court incorrectly determined that Ohio’s fifteen-year statute of
limitations for actions on a written contract applied. Instead, as both parties now agree, the proper
limitations period is the six-year statute of limitations applicable to actions on a contract brought by the
United States or one of its agencies, 28 U.S.C. § 2415(a), because Ex-Im Bank is an agency of the United
States. Where the parties disagree is over the date on which the six-year period began to run: either the
date on which APS defaulted on the debt while it was still in the hands of Bank One or the date on which
Ex-Im Bank obtained the debt by assignment from Bank One. We have never addressed when section
2415’s clock begins to run on a claim brought by the United States based on a contract to which the United
States was not originally a party, and there appears to be a split among the authorities to have answered
the question. See SMS Fin., LLC v. ABCO Homes, Inc., 167 F.3d 235, 241 n.20 (5th Cir. 1999) (noting
split among authorities and detailing varying positions). However, because we ultimately find the statute
of limitations defense to have been waived, we leave for another day the question of section 2415’s accrual
date in a claim obtained by assignment.
No. 09-3414 Export-Import Bank of the U.S. v. Page 8
Advanced Polymer Scis., et al.
30 F.3d 658, 663 (6th Cir. 1994). As failure to assert the limitations period at the outset
of litigation results in a waiver as a matter of course, we cannot say that finding the
defense waived at this later stage of the proceedings due to the Keehans’ failure to timely
assert the defense to be so draconian as to result in a substantial miscarriage of justice.
We therefore deem the issue waived. E.g. Brunet v. City of Columbus, 1 F.3d 390, 402-
03 (6th Cir. 1993) (finding that statute of limitations defense was waived when raised
for first time on appeal).
C. Interpretation of the Guarantees
As an alternative to the statute of limitations argument, the Keehans argue that
the confession of judgment provision in the guarantees conflicts with the arbitration
provision and, thus, the confession of judgment provision is void. As the district court
correctly noted, this argument could constitute a meritorious defense under Ohio law
because it goes to the validity of the instrument creating the underlying debt. However,
we agree with the district court that the argument does not actually constitute a
meritorious defense3 because the Keehans are simply incorrect in their premise that the
two provisions inherently conflict.
Ohio law instructs courts to “attempt to reconcile inconsistent contract terms and
give effect to each term.” In re Graham Square, Inc., 126 F.3d 823, 830 (6th Cir. 1997).
This means that the law recognizes that, in certain circumstances, provisions in a
contract will seem to contradict. But courts must seek to find a construction that would
give effect to each term, and only if such a construction is impossible will the contract
be deemed unenforceable.
3
The Keehans take issue with the district court’s decision to address the merits of the contractual
conflict argument in denying the motion to vacate. According to the Keehans, once the district court
concluded that the argument could constitute a meritorious defense, the district court should have vacated
the confessed judgment and addressed the merits of the contractual conflict argument at a later date.
(Appellant’s Br. at 28 (citing Nat’l City Bank v. Rini, 834 N.E.2d 836 (Ohio Ct. App. 2005) for the
proposition that “in light of a proper allegation of a meritorious defense, any doubt should be resolved in
favor of setting aside the judgment so that the case may be decided on the merits.”).) We disagree.
Interpretation of a contract is a question of law, Taylor Building Corp. of America v. Benfield, 884 N.E.2d
12, 21 (Ohio 2008), so the district court already had all it needed to determine the merits of the argument.
Having found as a matter of law that the two provisions did not conflict, there was no residual doubt that
would cut in favor of further development of the merits.
No. 09-3414 Export-Import Bank of the U.S. v. Page 9
Advanced Polymer Scis., et al.
The arbitration provision in the guarantees provides that either party may demand
arbitration until entry of a judgment. The Keehans complain that this right to demand
arbitration is functionally worthless because the beneficiary of the guaranty could
confess judgment, and thus extinguish the right to compel arbitration, without the
guarantor knowing of it. The Keehans are correct that this is a possible scenario, and
indeed it appears to be what happened in this case. However, it is easy to imagine
several different fact patterns in which the arbitration provision could perform its
intended function. For instance, the beneficiary of the guaranty could demand or try to
negotiate voluntary payment prior to confessing judgment and proceeding with
collection efforts, in which case the guarantor could demand arbitration to dispute the
validity or amount of the debt. Or, the beneficiary of the guaranty could elect to compel
arbitration rather than confess judgment and then have to litigate the motions to vacate
the judgment that seem inevitably to follow confessed judgments, as Ex-Im Bank has
had to litigate the Keehans’ motion here. Furthermore, the arbitration clause covered all
disputes, including those that do not involve non-payment. Accordingly, the arbitration
provision does not facially conflict with the confession of judgment provision, so the
guarantees are not fatally ambiguous.
CONCLUSION
For the reasons set forth above, we AFFIRM.