MidFirst Bank v. Biller

[Cite as MidFirst Bank v. Biller, 2010-Ohio-6067.]

IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
SENECA COUNTY

MIDFIRST BANK,

PLAINTIFF-APPELLEE, CASE NO. 13-10-13

v.

JOSEPH P. BILLER, ET AL., OPINION

DEFENDANTS-APPELLANTS.

Appeal from Seneca County Common Pleas Court
Trial Court No. 2008-CV-0649

Judgment Affirmed

Date of Decision: December 13, 2010

APPEARANCES:

Leslie O. Murray and John T. Murray for Appellants

Daniel JT McKenna, Martin C. Bryce, Jr. and Kevin L. Williams for
Appellee
Case No. 13-10-13

WILLAMOWSKI, P.J.,

{¶1} Defendants-Appellants, Joseph P. Biller, et al. (“the Billers”), appeal

the decision of the Seneca County Court of Common Pleas denying class

certification in their mortgage foreclosure case involving Appellee-Plaintiff,

MidFirst Bank (“MidFirst”). The Billers maintain that the trial court erred in

finding that their petition for class certification failed to meet the requirements of

Civil Rule 23. For the reasons set forth below, the judgment is affirmed.

{¶2} On October 18, 2000, Joseph and Deborah Biller (husband and wife)

signed a note for an $84,456 loan from Cendant Mortgage Corporation. The loan

was for thirty years, at 8.375% interest, and was secured by a mortgage on the

Billers’ home in Tiffin. MidFirst purchased the FHA loan and the mortgage was

assigned to MidFirst on January 10, 2004. Shortly thereafter, Midland Mortgage

Co. (“MMC”) began to service the loan. Non-party MMC1 is the entity that

services most loans for MidFirst.

{¶3} Between 2004 and early 2008, the Billers defaulted on their loan

several times resulting in three foreclosure actions and four separate loan

modifications. The Billers avoided each foreclosure by negotiating a loan

1
MMC is not a party to the foreclosure and Appellants have not filed a third party complaint or otherwise
joined MMC in this action. MMC has not been served with any legal process. Appellants assert that MMC
is wholly owned by MidFirst and services loans for MidFirst, thereby qualifying as a debt collector under
the FDCPA.

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modification and reinstatement of their loan with MMC. The Billers paid $3,449

in conjunction with the last modification and reinstatement.

{¶4} When the Billers again defaulted on their loan after this

modification, MidFirst initiated a fourth foreclosure action on December 18, 2008.

The Billers responded by filing an “Answer and Counterclaims *** with Class

Allegations” against MidFirst and MMC on February 13, 2009. The Billers

asserted class action counterclaims for breach of contract and unjust enrichment

against MidFirst and MMC and for violations of the Fair Debt Collection Practices

Act (“FDCPA”) against MMC.2 They submitted the following class definition:

All persons who were or are mortgagors of real estate of their
residence whose servicing rights of their mortgage is or was
owned by Midfirst Bank from December 1, 2003, to the present
and who were sued by Midfirst Bank in foreclosure and
subsequently signed a loan modification agreement with
Midfirst Bank. (Reply Brief in Support of Class Certification, p.
18.)

{¶5} Appellant’s primary complaint is that MidFirst and MMC

improperly applied payments to “unreasonable and excessive” fees before it

applied payments to principal, interest, taxes and insurance (or “PITI”), as

specified in the mortgage loan documents. At the time of their fourth loan

modification and reinstatement, the Billers owed over $7,000 in attorney fees

2
Appellants also asserted individual claims (common law actions separate from the class) for an
accounting against MidFirst and MMC and violation of the Real Estate Settlement Procedures Act against
MMC.

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associated with the previous foreclosure actions. After lengthy oral negotiations

with MMC, an agreement was reached and the Billers paid $3449. This payment

was applied to their outstanding fees. The Billers complain that this payment

should have been applied to their monthly payments of principal, interest and

escrow pursuant to the priority of payment order specified in Section 3 of the

mortgage note.3 Therefore, the Billers argue that MidFirst wrongly diverted funds

when it “unilaterally altered” the mortgage’s payment priority. The Billers state

that MidFirst calls this policy a “designation for special purposes” and that “no

explanation or documentation is sent to the borrower.”

{¶6} The Billers further contend that all class members are subject to this

“unfair system,” because this process occurs through a standardized automated

payment and collection system and is in contravention of the terms of the

standardized loan agreements. Furthermore, violations of the FDCPA affecting all

class members arise out of “the deception of the secret tally of fees never disclosed

to the borrower, the misrepresentations as to where the fees are being applied, and

the unfair and unconscionable practice of collecting fees not authorized by the

note and mortgage ***.” (Appellants’ Brief, p. 13.)

{¶7} MidFirst, however, explains that the Billers negotiated and orally

3
Section 3 of the mortgage states that the lender should apply payments in the following order: 1)
mortgage insurance premium, 2) taxes and insurance, 3) interest, 4) principal, and 5) late charges due under
the note.

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agreed to reimburse these sums as a precondition for the fourth reinstatement of

their loan. MMC had assessed attorneys’ fees and costs incurred in the previous

foreclosures, as was permitted by law and by the express language in the original

loan documents. However, MMC did not require the Billers to pay these fees

prior to entering into the first three modifications, although it was understood that

they would eventually have to be paid on the back end of the loan. On the last

occasion, MMC advised the Billers that before a fourth loan modification offer

would be extended, they had to reimburse MMC for the outstanding attorneys’

fees and costs incurred in the prior foreclosures, totaling over $7,000 at the time.

{¶8} After several months of negotiations, the parties agreed that the

Billers would pay a portion of the fees and costs incurred in the prior foreclosures,

totaling $3,449, as a precondition to reinstatement. The Billers orally agreed to

reimburse this amount and did pay these sums. Mr. Biller acknowledged in his

deposition that they understood that the precondition payment was not a payment

towards the PITI. (J. Biller Dep., p. 142:3-8.)

{¶9} On November 5, 2009, the Billers moved for class certification of

their FDCPA claims against non-party MMC, and their breach of contract and

unjust enrichment claims against MidFirst and MMC. After hearing oral

arguments, the trial court filed a detailed judgment entry denying the motion for

class certification on March 29, 2010.

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{¶10} The trial court found that the Billers’ claims did not satisfy the

standards for class certification set forth in Civ.R. 23. In order for a class action

certification to be granted, the petitioner must meet all seven requirements set

forth in Civ.R. 23(A). The trial court held that six of the seven requirements were

not met, and specifically discussed the following four reasons why class

certification was denied.

{¶11} (1) Identifiability of Class – The trial court found that the Billers’

class definition was overly broad, that it did not allow the court to easily identify

the class members, and that it did not specifically discuss the FDCPA claim of

out-of-pocket expenses. The definition did not specify the number of loan

modifications, prior foreclosures, whether the loan modifications had loans that

were already in default, whether any attorney’s fees had been assessed, or whether

those fees were paid. The trial court found that these issues provided for unique

and individualized outcomes that would make it nearly impossible to identify

whether individuals were members of the overly-broadly defined class.

{¶12} (2) Commonality -- The trial court held that the Billers failed to

show that there were questions of law or facts presented in their claims that were

common to the proposed class. The FDCPA violation was based upon the oral

negotiations and agreement to provide an additional $3,449 upfront prior to

reinstating the loan. The court stated that because oral negotiations were

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inherently individualized and inherently uncommon, a court would be required to

assess each individual oral negotiation in order to discern whether there was a

common nucleus of operative facts, and that such a process would directly conflict

with the purpose of Civ.R. 23.

{¶13} (3) Typicality – The trial court determined that the Billers’ claims

were unusual and atypical when placed against the class definition presented and it

would not likely match the claims raised by other members of the class. The

issues that the court believed were unique to the Billers were: their claim of

emotional distress, which is inherently individualized; their primary motivation for

the suit, which was to save their house (whereas loan modification may have

satisfied others); and, there was no indication in the class definition whether other

members paid any fees due to the loan modifications.

{¶14} (4) Failure to Satisfy One of the Three Requirements of Civ.R.

23(B) – Civ.R. 23(A) also states that the class must satisfy at least one of the

requirements set forth in Civ.R. 23(B). Although the Billers believed they

satisfied two of the three requirements, the trial court found that they did not

satisfy any. Specifically, the court determined that the Billers’ motion failed to

meet these requirements because, as previously stated, the facts pertinent to the

Billers were unique and specific to their situation; they failed to meet the

requirement of predominance; and, the fact that the court would be forced to

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assess each and every oral negotiation made pursuant to a loan modification would

negate the efficiency presented by a class action.

{¶15} The Billers now appeal this decision, presenting the following six

assignments of error for our review.

First Assignment of Error

The trial court committed error of law to the prejudice of the
Defendants-Appellants in finding that the requirements of Civil
Rule 23 were not met because the trial court did not apply the
elements of the Fair Debt Collection Practices Act Claim to the
Rule 23 analysis.

Second Assignment of Error

The trial court committed error of law to the prejudice of the
Defendants-Appellants in finding that the requirements of Civil
Rule 23 were not met because the court relied on inadmissible
oral negotiations in its analysis for breach of a written mortgage
contract.

Third Assignment of Error

The trial court erred to the prejudice of the Defendants-
Appellants in finding that the requirements of Civil Rule 23(A)
were not met because the court did not address the breach of
contract or unjust enrichment claims.

Fourth Assignment of Error

The trial court erred to the prejudice of the Defendants-
Appellants in finding that the requirements of Civil Rule 23(A)
were not met because the court sought information in the class
definition not required by Rule 23.

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Fifth Assignment of Error

The trial court erred to the prejudice of the Defendants-
Appellants in finding that the requirements of Civil Rule 23(A)
were not met because the court relied on issues not relevant to
the class claims and did not consider undisputed evidence of
standardized procedures for the application of payments in
finding there is no commonality and typicality.

Sixth Assignment of Error

The trial court erred to the prejudice of the Defendants-
Appellants in finding that the requirements of Civil Rule 23(B)
were not met because the court abused its discretion in finding
that the Defendants-Appellants[’] situation is unique based on
issues not relevant to their claims.

{¶16} The Ohio Supreme Court has held that “[a] trial judge has broad

discretion in determining whether a class action may be maintained and that

determination will not be disturbed absent a showing of an abuse of discretion.”

Marks v. C.P. Chem. Co., Inc. (1987), 31 Ohio St.3d 200, 509 N.E.2d 1249, at the

syllabus. The application of the abuse-of-discretion standard in reviewing class

action determinations is not grounded in a credibility assessment, but in the trial

court's special expertise and familiarity with case-management problems and its

inherent power to manage its own docket. Hamilton v. Ohio Sav. Bank, 82 Ohio

St.3d 67, 70, 1998-Ohio-365, 694 N.E.2d 442, citing Marks. A trial court's

discretion in deciding whether to certify a class action is not unlimited and must be

exercised within the framework of conducting a rigorous analysis into whether the

prerequisites of Civ.R. 23 have been satisfied. However, “[a] finding of abuse of

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discretion, particularly if the trial court has refused to certify, should be made

cautiously.” Marks, 31 Ohio St.3d at 201, 509 N.E.2d at 1252.

{¶17} The following seven requirements must be satisfied before an action

may be maintained as a class action under Civ.R. 23: (1) an identifiable class

must exist and the definition of the class must be unambiguous; (2) the named

representatives must be members of the class; (3) the class must be so numerous

that joinder of all members is impracticable; (4) there must be questions of law or

fact common to the class; (5) the claims or defenses of the representative parties

must be typical of the claims or defenses of the class; (6) the representative parties

must fairly and adequately protect the interests of the class; and (7) one of the

three Civ.R. 23(B) requirements must be met. Civ.R. 23(A); Warner v. Waste

Mgt., Inc. (1988), 36 Ohio St.3d 91, 521 N.E.2d 1091. The three Civ.R. 23(B)

factors are: the case must present problems of inconsistent judgments; the case

must require injunctive relief to prevent a defendant from continuing to harm the

class; or, the case must present common issues of fact and law that predominate

individual issues.

{¶18} The burden of proving each of these requirements is on the party

seeking certification and the failure to prove any one element will result in the

denial of class certification. Robinson v. Johnston Coca-Cola Bottling Group,

Inc., 153 Ohio App.3d 764, 2003-Ohio-4417, 796 N.E.2d 1, ¶2; State ex rel. Ogan

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v. Teater (1978), 54 Ohio St.2d 235, 247, 375 N.E.2d 1233. Although a court may

not review the merits of the action at the class certification stage, it must examine

the nature of the underlying claims for the purpose of determining whether

common questions predominate. Petty v. Wal-Mart Stores, Inc., 148 Ohio App.3d

348, 2002-Ohio-1211, 773 N.E.2d 576, ¶24.

Second Assignment of Error

{¶19} We shall address the second assignment of error pertaining to oral

negotiations first because the oral negotiations between the Billers and MMC for

the payment of $3,449 and the application of that payment constitute the crux of

the controversy. The trial court found that oral negotiations were inherently

individualized and if the court had to assess each individual oral negotiation, the

process would directly conflict with the purposes of Civ.R. 23.

{¶20} In their second assignment of error, the Billers claim that the trial

court committed error of law by relying on “inadmissible oral negotiations”

pertaining to a written mortgage “which purports to modify the terms of that

written agreement.” The Billers contend that the oral negotiations were

inadmissible under the parol evidence rule and, therefore, whatever was said

between the Billers and MMC or Midland concerning a modification of the terms

of the contract would be inadmissible.

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{¶21} We disagree with the Billers assertions and do not find that the parol

evidence rule is applicable to the facts in this case. The parol-evidence rule is a

principle of substantive law providing that “a writing intended by the parties to be

a final embodiment of their agreement cannot be modified by evidence of earlier

or contemporaneous agreements that might add to, vary, or contradict the writing.”

Bellman v. Am. Internatl. Group, 113 Ohio St.3d 323, 2007-Ohio-2071, 865

N.E.2d 853, ¶7, quoting Black's Law Dictionary (8th Ed.2004) 1149. The rule

prevents a party from introducing extrinsic evidence of negotiations that occurred

before or while the agreement was being reduced to its final written form. Id. at

¶7. However, while the rule bars evidence of prior or contemporaneous oral

statements to vary the terms of a written agreement, it does not apply to evidence

regarding a subsequent oral modification of a written agreement or to the waiver

of contractual terms by language or conduct. (Emphasis added.) Hartley v.

Miller, 3d Dist. No. 8-08-33, 2009-Ohio-1923, ¶9; Uebelacker v. Cincom Systems,

Inc. (1988), 48 Ohio App.3d 268, 273, 549 N.E.2d 1210, 1217. BARRONS LAW

DICTIONARY further explains what is not included in the parol evidence rule:

Agreements relating to different subject matter and all
subsequent agreements (whether oral or written), regardless of
their effect on the writing, are not subject to the rule. A
subsequent written or oral agreement discharges and supercedes
prior agreements, whether oral or written. Even a clause in a
written agreement forbidding oral modification may be orally

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rescinded and the prior agreement orally modified unless
prohibited by a statute ***.4

BARRON’S LAW DICTIONARY (3rd Ed.1992) 342-43.

{¶22} Another exception to the parol evidence rule is the allowance of

extrinsic evidence to prove a condition precedent to a contract. Beatley v. Knisley,

183 Ohio App.3d 356, 2009-Ohio-2229, 917 N.E. 2d 280, ¶15. Parol evidence is

admissible to prove a separate oral agreement constituting a condition precedent to

the signing of a written instrument although the condition precedent was not

included in the contract language. Id., citing Roan v. Hale (1950), 102 N.E.2d

603, 604, 60 Ohio Law Abs. 559, 560. Courts admit extrinsic evidence of a

condition precedent because satisfaction of such a condition must occur before a

contract comes into existence. Id. at ¶16, citing Russell v. Daniels-Head & Assoc.,

Inc., 4th Dist. No. 1600, 1987 WL 13943.

{¶23} In the present case, the Billers entered into three successive loan

modifications without being required to pay any attorneys’ fees or other expenses

up-front. However, when the Billers defaulted on their payments under the third

modification, after not making even one payment under this modification, MMC’s

Delinquency Assistance Center sent the Billers a written letter on September 6,

4
Although mortgages usually involve statute of fraud considerations, those issues are not applicable here
for several reasons, i.e., the oral agreement did not modify the mortgage, but was a collateral agreement
involving a condition precedent to a separate loan payment modification; there were writings involved; and
the oral agreement did not take away or confer any interest in the land. See Nonamaker v. Amos (1905), 73
Ohio St. 163, 76 N.E. 949.

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2007, outlining the requirements that needed to be met before they would approve

another loan modification repayment plan. The letter stated that “[b]efore the plan

can be approved, the following conditions must be met ***.” (J. Biller Dep.,

Exhibit 13.) The letter then listed over $7,000 for outstanding attorneys’ fees that

had accrued pursuant to the previous foreclosure actions and reinstatements. Id.

Mr. Biller testified that he understood the letter to contain these terms.

Q. The letter reads, and I won’t read the entire thing, but the
gist of it, would you agree with me is that before a new loan
modification can be entered into, you’re being required to pay
some $7,118 in attorney’s fees?

A. Yes.

Q. Was that your understanding of the letter?

A. That was my understanding of the letter.

***
Q. What, if anything, did you do then after receiving this
letter?

A. *** I got into like negotiations with the bank to get this
money down to where we could send them a lump sum to go into
modification, we wouldn’t lose our house in foreclosure. So it
was over several months of phone calls.

***

Q. Did you have any understanding as to what that sum
represented?

A. It was the attorney fees.

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(Id. at pp. 134, 142, 147.) Mr. Biller further testified that they were able to orally

negotiate the amount they would have to pre-pay down to $3449 and that he

understood that they had to pay that amount in order to do another modification to

prevent a foreclosure. (Id. at 147.) The Billers agreed to the amount that they

would pay as a condition precedent to entering into a fourth loan modification, the

Billers sent the payment, and it was applied to the outstanding attorney fees.

{¶24} The Billers now argue that their oral agreement cannot be used to

alter the priority of payment terms in Section 3 of the written mortgage note and

that the parol evidence rule would bar the admission of any of these oral

agreements. The Billers maintain that “[t]he parol evidence rule prohibits the

court from assessing these oral negotiations.” (Appellants’ Br., p. 14.) Therefore,

the Billers conclude the trial court’s finding that it would have to review every oral

negotiation made pursuant to a loan modification was an error of law and could

not be a basis for finding that their claims did not meet the requirements for class

certification.

{¶25} After reviewing the correct meaning and usage of the parol evidence

rule, it is apparent that it has no application to the facts in this case and does not

operate to exclude any evidence of oral agreements pertinent to the claims of the

Billers’ or any other potential class members. The Billers could orally modify the

priority of payments in the mortgage loan agreement without violating the parol

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evidence rule because this would be a subsequent modification. However, the oral

agreement in this case was not a modification of the original agreement; it was a

condition precedent to a separate collateral agreement reinstating and modifying

the loan payment terms. Evidence regarding oral negotiations concerning

conditions precedent and collateral agreements are not barred by the parol

evidence rule. Therefore, the trial court did not err in finding that it would be

required to assess the individual oral negotiations affecting the loans and

modifications of each and every class member.5

{¶26} Based on the above, the second assignment of error is overruled.

Furthermore, we find that the resolution of this assignment of error is dispositive

as to the entire appeal. The Billers believed that because only the express terms of

the written contract were admissible, the individual oral agreements were not

relevant and could not be considered in determining class certification. However,

the trial court was correct in determining that the individual nature of the Billers’

oral agreement may not have been representative of any individual oral

agreements of the other potential class members.

5
We also note that the admission of evidence concerning the oral negotiations verified that the Billers
knew what the $3449 payment was for and how it was to be applied. Their consent to applying this
payment to the outstanding attorney fees as a precondition to the reinstatement and modification of their
loan abrogates their claims that MidFirst had a policy of charging “secret fees” and applying payments “in
contravention to the terms of the note and mortgage.” However, because a trial court does not review the
merits of the case at the class certification stage, the trial court did not assess the substantive content of the
Billers’ oral negotiation; it merely acknowledged that individual oral negotiations were involved in these
claims which would preclude class certification.

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{¶27} There was no evidence that the Billers’ claims would meet the

commonality and typicality requirements in order to qualify for class certification.

The unique and individualized situation of the Billers’ negotiated agreement

makes it uncertain as to whether any other potential class members would share

the same claims and a common nucleus of operative facts, even if they fell within

the class definition. See Hamilton, supra. In fact, the Billers themselves, although

meeting the broad class definition, did not appear to have any claims or complaints

against MidFirst and MMC relative to their first three foreclosures and loan

modifications.

{¶28} The trial court did not abuse its discretion in finding the need to

assess each individual oral negotiation would directly conflict with the purposes of

Civ.R. 23 and that the Billers’ claims were unusual and atypical when placed

against the class definition they presented. The Billers have failed to meet at least

two of the requirements of Civ.R. 23(A) required for class certification,

commonality and typicality. Because all seven requirements must be met in order

to grant class action certification, it is not necessary to examine the other Civ.R.

23 requirements nor to address the Billers’ remaining assignments of error. Based

on the above, the Billers’ assignments of error are either overruled or are moot.

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{¶29} Having found no error prejudicial to the appellants herein in the

particulars assigned and argued, we affirm the judgment of the trial court.

Judgment Affirmed

ROGERS, J., concurs in Judgment Only.

PRESTON, J., concurs.

/jlr

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