Huntington Natl. Bank v. D&G Ents., Inc.

[Cite as Huntington Natl. Bank v. D&G Ents., Inc., 2013-Ohio-1117.]
STATE OF OHIO, MAHONING COUNTY

IN THE COURT OF APPEALS

SEVENTH DISTRICT

HUNTINGTON NATIONAL BANK, )
)
PLAINTIFF-APPELLEE, )
)
V. ) CASE NO. 12 MA 15
)
D&G ENTERPRISES, INC., et al., ) OPINION
)
DEFENDANTS-APPELLANTS. )

CHARACTER OF PROCEEDINGS: Civil Appeal from Court of Common
Pleas of Mahoning County, Ohio
Case No. 11CV2398

JUDGMENT: Affirmed

APPEARANCES:
For Plaintiff-Appellee Atty. Jerry M. Bryan
Atty. Joseph A. Pope
6 Federal Plaza Central, Suite 1300
Youngstown, Ohio 44503

For Defendants-Appellants Atty. Troy J. Doucet
Atty. Audra Lepi Tidball
4200 Regent St., Suite 200
Columbus, Ohio 43219

JUDGES:

Hon. Gene Donofrio
Hon. Cheryl L. Waite
Hon. Mary DeGenaro

Dated: March 20, 2013
[Cite as Huntington Natl. Bank v. D&G Ents., Inc., 2013-Ohio-1117.]
{¶1} Defendants-appellants, Teri Pahon and Arlene Griffis, appeal from a
Mahoning County Common Pleas Court judgment denying their motion for relief from
judgment and denying their request for attorney fees.
{¶2} Appellants are the executive officers of D&G Enterprises (D&G). Sky
Bank extended two loans to D&G in 2006 and 2007. Plaintiff-appellee, The
Huntington National Bank, is Sky Bank’s successor in interest.
{¶3} Note No. 34 was issued from Sky Bank to D&G on November 16, 2006,
in the amount of $50,000 (the first loan). Appellants signed a personal guarantee
that accompanied Note No. 34 and also included a confession of judgment provision.
On March 12, 2007, the parties signed a modification of the first loan. The
modification increased the loan to $100,000 and decreased the interest rate from 9.5
percent to 9.0 percent. Appellants once again signed a personal guarantee. Then
on August 17, 2007, the parties signed another modification of the first loan. This
modification increased the loan to $150,000 and decreased the interest rate to 8.5
percent. A new personal guarantee was not included with this modification.
{¶4} Note No. 67 was issued from Sky Bank to D&G on March 12, 2007, in
the amount of $230,000 (the second loan). Appellants again signed a personal
guarantee that accompanied Note No. 67 and included a confession of judgment
provision. On June 16, 2008, the parties signed a modification of the second loan.
The modification increased the loan to $305,297 and changed the interest rate. A
new personal guarantee was not included with the modification.
{¶5} On July 21, 2011, appellee filed a two-count cognovit complaint against
appellants and D&G demanding judgment (1) on Note No. 34 in the sum of
$100,197.48, plus interest and (2) on Note No. 67 in the sum of $258,023.16, plus
interest (Case No. 11-CV-2398).
{¶6} That same day, counsel for appellants, appointed pursuant to the
warrant of attorney provisions of the Notes and the guarantees, confessed judgment
in favor of appellee. The trial court then entered judgment against appellants and
D&G for the amounts set out in the complaint.
{¶7} Approximately a month later, appellee filed a motion to vacate the
judgment entry as to Note No. 67 only, without prejudice. In the motion, appellee
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stated that it was discovered that Note No. 67, dated March 12, 2007, had been
rewritten on June 16, 2008, as evidenced by a promissory note in the original amount
of $305,297.00. Appellee stated that while judgment was entered for the correct
amount due on Note No. 67, judgment was not entered on the current promissory
note. Subsequently, the trial court put on an order vacating the judgment as to Note
No. 67.
{¶8} Appellee filed a new cognovit complaint on August 31, 2011,
demanding judgment on Note No. 67, this time attaching the more recent promissory
note (Case No. 11-CV-2927). Judgment was again confessed in favor of appellee.
The trial court entered judgment against appellants and D&G that day.
{¶9} On September 9, 2011, appellants filed a Civ.R. 60(B) motion for relief
from judgment in Case No. 11-CV-2398. They asserted that the judgment against
them was erroneous because the guarantees appellee relied on in obtaining its
judgment were no longer valid. Appellants argued that they were no longer liable for
the obligation on Note No. 34 by virtue of a novation.
{¶10} On October 21, 2011, appellants filed a Civ.R. 60(B), motion for relief
from judgment in Case No. 11-CV-2927. They asserted that they were entitled to
relief from the judgment in this case due to a novation, judicial estoppel, a pending
case involving the same note, and a deviation from the proper procedure in
confessing judgment. Additionally, appellants filed a motion for attorney fees alleging
that appellee acted frivolously in filing its complaint in Case No. 11-CV-2927 when
Case No. 11-CV-2398 was still pending. They also moved the court to consolidate
Case No. 11-CV-2927 with Case No. 11-CV-2398.
{¶11} The trial court consolidated the two cases. And on January 3, 2012, the
court denied both of appellants’ motions for relief from judgment. In so ruling, it found
that the modifications of the loan documents were not novations, judicial estoppel did
not apply, and appellee was permitted to file the second complaint.
{¶12} Appellants filed a timely notice of appeal on January 27, 2011. This
court sent the case back to the trial court to rule on appellants’ motion for attorney’s
fees. The trial court then entered a judgment denying appellants’ request for
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attorney’s fees.
{¶13} Appellants now raise two assignments of error, the first of which states:

THE COURT ERRED IN DENYING DEFENDANTS-
APPELLANTS RELIEF FROM A COGNOVIT JUDGMENT.

{¶14} Appellants argue here that the trial court should have granted their
motion for relief from judgment. They contend that they presented sufficient facts to
show the meritorious defense of novation. Appellants assert that they were only
required to allege operative facts constituting a novation. They were not required to
affirmatively prove a novation occurred. Appellants assert that the trial court wrongly
determined the merits of the case instead of simply determining whether they had
presented facts to suggest a meritorious defense.
{¶15} As to Note No. 34, appellants point out that while they signed personal
guarantees on the original loan and the first replacement loan, they did not sign
personal guarantees on the final replacement loan. They further argue that terms of
each subsequent loan wholly replaced all of the language in the previous loan and
did not simply modify the terms.
{¶16} As to Note No. 67, appellants point out that while they signed a
personal guarantee on the original loan, they did not sign a personal guarantee on
the replacement loan. And again they argue that the terms of the second loan wholly
replaced the terms of the first loan.
{¶17} As to both loans, appellants argue that the new agreements increased
the amounts of the loans and changed the interest rates.
{¶18} When reviewing a decision granting or denying Civ.R. 60(B) relief,
appellate courts apply an abuse of discretion standard. State ex rel. Russo v. Deters,
80 Ohio St.3d 152, 153, 684 N.E.2d 1237 (1997). Abuse of discretion is more than
an error of law or judgment; it implies that the trial court's attitude was unreasonable,
arbitrary, or unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450
N.E.2d 1140 (1983).
{¶19} Cognovit judgments present special circumstances. Civ.R. 60(B)(5)
 -4-

warrants relief from a judgment taken upon a cognovit note, without prior notice,
when the movant (1) establishes a meritorious defense, (2) in a timely manner.
Meyers v. McGuire, 80 Ohio App.3d 644, 646, 610 N.E.2d 542 (9th Dist.1992). A trial
court abuses its discretion when, despite the existence of a valid defense, it overrules
a timely motion to vacate a judgment entered without prior notice upon confession
pursuant to a warrant of attorney. Id. at 647.
{¶20} By executing a cognovit provision in a note and allowing a confession of
judgment, the note’s maker waives his or her rights to notice and a prejudgment
hearing. D.H. Overmyer Co., Inc. of Ohio v. Frick Co., 405 U.S. 174, 176-177, 92
S.Ct. 775, 31 L.Ed.2d 124 (1972). For this reason, courts liberally permit collateral
attacks on cognovit judgments. Meyers, 80 Ohio App.3d 644. The movant’s burden
is somewhat lessened when the judgment was taken by confession on warrant of
attorney without prior notice. Society Natl. Bank v. Val Halla Athletic Club &
Recreation Ctr., Inc., 63 Ohio App.3d 413, 418, 579 N.E.2d 234 (9th Dist.1989).
{¶21} A novation can be a meritorious defense on a cognovit judgment where
sufficient operative facts alleging a novation are present. Cadillac Music Corp. v.
Kristosik, 8th Dist. Nos. 92677, 92678, 2009-Ohio-5830, ¶16.
{¶22} Novation requires an agreement between the creditor and his debtor
that is meant to extinguish the old obligation by substituting a new party, a new
obligation, or both. Fed. Land Bank of Louisville v. Taggart, 31 Ohio St.3d 8, 14, 508
N.E.2d 152 (1987). The party asserting a novation must make a positive showing of
such as a novation is never presumed. St. Elizabeth Hosp. Medical Center. v.
Moliterno, 7th Dist. No. 89 C.A. 185 (Dec. 11, 1991).
{¶23} In the present case, we must look to the terms of the various
modifications and guarantees.
{¶24} Both the first and second amendments to Note No. 34 contained the
following language:

CONTINUING VALIDITY. Except as expressly changed by this
Agreement, the terms of the original obligation or obligations, including
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all agreements evidenced or securing the obligation(s), remain
unchanged and in full force and effect. * * * It is the intention of Lender
to retain as liable parties all makers and endorsers of the original
obligation(s), including accommodation parties, unless a party is
expressly released by Lender in writing.

(Emphasis added.) This language clearly indicates the parties’ intention that the
personal guarantees signed by appellants were to remain in full force and effect
despite the fact that the parties altered the terms of the loan.
{¶25} The amendment to Note No. 67 did not contain the same provision as
the one set out for Note No. 34. However, as to both Notes, there was no novation
because the alteration of the loan amount and interest rate did not extinguish the old
obligation.
{¶26} In Society Nat. Bank v. Edmunds Management Co., 8th Dist. No.
65280, 1994 WL 317831 (June 30, 1994), the appellate court upheld a confessed
judgment against the guarantor even though the loan had been revised to increase
the principal amount, change the interest rate, and reduce the monthly payments.
And in Turtle Enterprises v. Liebowitz, 8th Dist. No. 59126, 1991 WL 204980 (Oct.
10, 1991), the court found that the modification of the repayment terms did not
constitute a novation because the modification merely modified the repayments terms
and did not demonstrate an intention by the parties to substitute or discharge any
parties liable for the debt.
{¶27} “Mere modification of an original contract will not suffice in establishing
novation. Anything that still remains in effect of the original obligation prevents
novation unless the contrary is particularly expressed or shown by the evidence.”
(Emphasis sic.) Parkway Business Plaza Ltd. Partnership v. Custom Zone, Inc., 8th
Dist. No.87434, 2006-Ohio-5255, ¶22, quoting Braun v. Danter, 10th Dist. No. 74AP-
606, 1975 WL 181364 (May 20, 1975). In this case, there is no particular expression
by the parties to create a novation or to not honor the terms of the original loans
including the personal guarantees.
 -6-

{¶28} Moreover, the personal guarantees themselves, to both Note No. 34
and Note No. 67, expressly secure D&G’s indebtedness:

The word “Indebtedness” as used in this Guaranty means all of the
principal amount outstanding from time to time and at any one or more
times, accrued unpaid interest thereon * * * arising from any and all
debts, liabilities and obligations of every nature or form, now existing or
hereafter arising or acquired, that Borrower individually or collectively or
interchangeably with others, owes or will owe Lender. “Indebtedness”
includes, without limitation, loans, advances, debts * * * other
obligations, and liabilities of Borrower, and any present or future
judgments against Borrower, future advances, loans or transactions
that renew, extend, modify, refinance, consolidate, or substitute these
debts, liabilities and obligations whether: * * * due or to become due by
their terms or acceleration * * * primary or secondary in nature or arising
from guaranty or surety * * * originated by Lender or another or others *
* * and originated then reduced or extinguished and then afterwards
increased or reinstated.

(Emphasis added.) These guarantees specifically contemplate that the loan may be
modified or replaced and that the guarantees will still apply.
{¶29} Based on the above, the trial court did not abuse its discretion in finding
that appellants failed to present a meritorious defense to the judgments against them.
{¶30} Accordingly, appellants’ first assignment of error is without merit.
{¶31} Appellants’ second assignment of error states:

THE COURT ERRED IN DENYING DEFENDANTS-
APPELLANTS’ MOTION FOR ATTORNEY’S FEES DUE TO
PLAINTIFF-APPELLEE’S FRIVOLOUS CONDUCT.

{¶32} In this assignment of error, appellants contend that the trial court should
have granted their motion for attorney fees. They assert that appellee engaged in
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frivolous conduct by filing Case No. 2927. Doing so, appellants argue, caused
unnecessary delay, wasted judicial resources, and increased litigation costs. They
contend that because Case No. 2927 involved a cognovit judgment, they were
unaware of it until after their counsel had already filed motions and an answer in
Case No. 2398 on the very subject of Case No. 2927 (Note No. 67). Appellants
assert that filing Case No. 2927 maliciously injured them by frustrating their ability to
file an answer in Case No. 2398 where the cognovit judgment was already vacated
and resulted in appellee obtaining a second cognovit judgment without their
knowledge despite the fact that they had retained counsel and were actively engaged
in defending Case No. 2398. They further point out that appellee obtained a cognovit
judgment and garnishment order before their counsel became aware of Case No.
2927. They contend that appellee’s conduct in doing so was particularly egregious
because it knew appellants were contesting the judgment as to both Note Nos. 34
and 67. At the least, appellants assert, the trial court should have held a hearing on
the motion.
{¶33} The standard of review on the issue of attorney fees is abuse of
discretion. Motorists Mut. Ins. Co. v. Brandenburg, 72 Ohio St.3d 157, 160, 648
N.E.2d 488 (1995). It is well-settled law that if there is no statutory provision for
attorney fees, the prevailing party is not entitled to fees under the American rule
unless the party against whom the fees are to be assessed is found to have acted in
bad faith, vexatiously, wantonly, obdurately, or for oppressive reasons. Sharp v.
Norfolk & W. Ry. Co., 72 Ohio St.3d 307, 314, 649 N.E.2d 1219 (1995), citing Sorin
v. Warrensville Hts. School Dist. Bd. of Edn., 46 Ohio St.2d 177, 181, 347 N.E.2d 527
(1976).
{¶34} In this case, there is a statutory provision for attorney fees. R.C.
2323.51(B)(1) permits the trial court to award reasonable attorney fees to a party
“adversely affected by frivolous conduct.” “Frivolous conduct” includes conduct that
“obviously serves merely to harass or maliciously injure another party to the civil
action or appeal or is for another improper purpose, including, but not limited to,
causing unnecessary delay or a needless increase in the cost of litigation.” R.C.
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2323.51(A)(2)(a)(i).
{¶35} As to R.C. 2323.51, the trial court found that nothing required appellee
to bring its Note No. 67 claim in Case No. 2398. The court reasoned that appellee
held two separate sets of loan documents pertaining to two separate and distinct
loans. As such, appellee was free to file two separate complaints. The court went on
to note that once it vacated its judgment entry as to Note No. 67 without prejudice,
appellee was free to assert this claim in a separate action as if for the first time.
Additionally, the court stated that even if appellee wanted to, it had no way to re-file
or amend its complaint in Case No. 2398 because the case was closed by virtue of
the final judgment entry entered, which remained final as to Note No. 34.
{¶36} Although R.C. 2323.51 requires a trial court to hold a hearing before it
grants a motion for attorney fees, the court is not required to hold a hearing when it
determines, upon consideration of the motion and in its discretion, that the motion
lacks merit. Bigelow v. Nguyen, 7th Dist. No. 08-CO-48, 2009-Ohio-3325, ¶24, citing
Papadelis v. Makris, 8th Dist. No. 84046, 2004-Ohio-4093, ¶12.
{¶37} In this case, the trial court did not abuse its discretion in denying
appellants’ motion for attorney fees without holding a hearing. Firstly, the trial court
was not required to hold a hearing. Secondly, the court gave a detailed, well-
reasoned explanation as to why appellee did not violate R.C. 2323.51. And as the
court found, Case No. 2398 was closed as it applied to Note No. 67. Appellee had
no choice but to file a new complaint to assert its claim on that Note.
{¶38} Accordingly, appellants’ second assignment of error is without merit.
{¶39} For the reasons stated above, the trial court’s judgment is hereby
affirmed.

Waite. J., concurs.

DeGenaro, P.J., concurs.