[Cite as BAC Home Loans Servicing, LP. v. Taylor, 2013-Ohio-355.]
STATE OF OHIO ) IN THE COURT OF APPEALS
)ss: NINTH JUDICIAL DISTRICT
COUNTY OF SUMMIT )
BAC HOME LOANS SERVICING, LP fka C.A. No. 26423
COUNTRYWIDE HOME LOANS
SERVICING, LP
Appellee APPEAL FROM JUDGMENT
ENTERED IN THE
v. COURT OF COMMON PLEAS
COUNTY OF SUMMIT, OHIO
VICKIE V. TAYLOR, et al. CASE No. CV 2011 02 0877
Appellants
DECISION AND JOURNAL ENTRY
Dated: February 6, 2013
BROGAN, Judge.
INTRODUCTION
{¶1} Shawn and Vickie Taylor have appealed the Summit County Common Pleas
Court’s grant of summary judgment in favor of BAC Home Loans Servicing, LP, fka
Countrywide Home Loans Servicing, LP in this foreclosure action. This Court reverses because
there is a genuine issue of material fact regarding whether BAC Home Loans satisfied the face-
to-face meeting requirement of Section 203.604 of Title 24 of the Code of Federal Regulations.
BACKGROUND
{¶2} In October 2009, the Taylors signed a promissory note for $309,270 plus 5.000%
interest in favor of Union National Mortgage Company. The note was secured by a mortgage on
real property located on Fairington Avenue in Copley, Ohio. In February 2011, BAC Home
Loans Servicing, LP fka Countrywide Home Loans Servicing, LP filed a complaint in
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foreclosure against the Taylors. BAC Home Loans alleged that it was owed $307,396.43 plus
interest on the note as a result of the Taylors’ default. BAC Home Loans attached copies of the
note and mortgage to its complaint along with a copy of an assignment of the mortgage from
Union National Mortgage Company to BAC Home Loans.
{¶3} BAC Home Loans moved for summary judgment and attached the affidavit of
Audrea M. King. By affidavit, Ms. King testified that she is an officer of Bank of America N.A.
“as successor by merger to BAC Home Loans Servicing, LP.” She testified that Bank of
America “maintains records for the [Taylors’] Loan in its capacity as . . . servicer [of the loan]”
and that it has possession of the note through its position as “successor by merger” to BAC
Home Loans. She further wrote that she had attached to her affidavit true and accurate copies of
business records showing that the Taylors had failed to make payments on their loan after May 1,
2010, leaving a principal balance of $307,396.43 plus interest from April 1, 2010. The Taylors
opposed the motion for summary judgment, and BAC Home Loans replied. The trial court
granted the motion, and the Taylors timely appealed.
REAL PARTY IN INTEREST
{¶4} The Taylors’ second assignment of error is that “the trial court erred when it
granted summary judgment to BAC Home Loans Servicing LP [because] BAC Home Loans . . .
failed to produce admissible evidence under Civ. R. 56(C) that it had standing in this case.” In
support of this assignment of error, the Taylors have argued that there is a genuine issue of
material fact regarding BAC Home Loans’ standing because the evidence it offered in support of
its summary judgment motion tended to show that Bank of America rather than BAC Home
Loans held the promissory note. Therefore, according to the argument, BAC Home Loans was
not the real party in interest when judgment was rendered.
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{¶5} In its complaint, BAC Home Loans alleged that it was the holder of the
promissory note and attached a copy of the note, the mortgage, and an assignment of the
mortgage issued to it from the lender. BAC Home Loans had standing to invoke the jurisdiction
of the trial court because, on the day it filed this foreclosure action, it presented an assignment of
the mortgage in its favor from the lender. See Fed. Home Loan Mortg. Corp. v. Schwartzwald,
134 Ohio St.3d 13, 2012-Ohio-5017, ¶ 24. The Taylors have argued, however, that BAC Home
Loans was no longer the real party in interest by the time it moved for summary judgment.
{¶6} Bank of America is first mentioned in the record in the affidavit in support of
BAC Home Loans’ motion for summary judgment. The Taylors acknowledge that, via affidavit,
Ms. King testified that Bank of America is the successor to BAC Home Loans via merger, but
argued that Ms. King “provided no factual basis for her statement regarding the merger and
provided no description of her position or job duties that would provide her qualification to make
such a factual assertion.”
{¶7} Under Rule 56(E) of the Ohio Rules of Civil Procedure, “affidavits shall be made
on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall
show affirmatively that the affiant is competent to testify to the matters stated in the affidavit. . . .
When a motion for summary judgment is made and supported as provided in this rule, an adverse
party may not rest upon the mere allegation or denials of the party’s pleadings, but the party’s
response, by affidavit or as otherwise provided in this rule, must set forth specific facts showing
that there is a genuine issue for trial.”
{¶8} Ms. King testified by affidavit that she is an Assistant Vice President of Bank of
America and that, in her capacity as an officer, she was “authorized to sign th[e] affidavit on
behalf of . . . Bank of America, N.A., as successor by merger to BAC Home Loans Servicing,
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LP[.]” She also testified that, due to her job responsibilities, she had personal knowledge of the
business records attached to the affidavit that showed the Taylors had defaulted on the loan. The
Taylors have not cited any authority for the proposition that the sworn testimony of a vice
president of a bank regarding the bank’s merger with another entity is incompetent evidence
under Civil Rule 56. They also have not explained why they believe that Ms. King’s testimony
about the merger required some additional “factual basis” or supporting documentation of the
merger. Ms. King testified that Bank of America is a successor by merger to the plaintiff in this
case and the Taylors failed to counter that evidence with admissible evidence setting forth
specific facts showing that there is a genuine issue for trial. See Civ.R. 56(E).
{¶9} The Taylors have also argued that Bank of America rather than BAC Home Loans
was the real party in interest at the time of the summary judgment motion so that Bank of
America should have been joined or substituted as the party plaintiff. Civil Rule 17(A) requires
that “[e]very action shall be prosecuted in the name of the real party in interest[,]” but also
provides that “[n]o action shall be dismissed on the ground that it is not prosecuted in the name
of the real party in interest until a reasonable time has been allowed after objection for
ratification of commencement of the action by, or joinder or substitution of, the real party in
interest.” Civil Rule 25, which addresses the substitution of parties, provides that, “[i]n case of
any transfer of interest, the action may be continued by or against the original party, unless the
court upon motion directs the person to whom the interest is transferred to be substituted in the
action or joined with the original party.” Civ.R. 25(C). The Rules of Civil Procedure did not
require a substitution of parties when Bank of America merged with the plaintiff in this action
and the failure to substitute parties did not render the judgment voidable. See GMAC Mortgage
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LLC v. Herring, 189 Ohio App.3d 200, 2010-Ohio-3650, ¶ 44 (2d Dist.). The Taylors’ second
assignment of error is overruled.
DEFENSIVE USE OF HUD VIOLATION
{¶10} The Taylors’ first assignment of error is that the trial court incorrectly granted
summary judgment to BAC Home Loans in the absence of evidence that it had complied with
federal regulations issued by the Secretary of Housing and Urban Development (HUD) requiring
a mortgagee to make a reasonable effort to arrange a face-to-face meeting with the mortgagor
before filing a foreclosure action. They have specifically argued that the promissory note and
mortgage limit the lender’s rights according to HUD regulations regarding default.
{¶11} “This Court reviews an award of summary judgment de novo.” Wells Fargo v.
Burrows, 9th Dist. No. 26326, 2012-Ohio-5995, ¶ 8. Under Civil Rule 56(C), summary
judgment is proper if: “(1) [n]o genuine issue as to any material fact remains to be litigated; (2)
the moving party is entitled to judgment as a matter of law; and (3) it appears from the evidence
that reasonable minds can come to but one conclusion, and viewing such evidence most strongly
in favor of the party against whom the motion for summary judgment is made, that conclusion is
adverse to that party.” LaSalle Bank, N.A. v. Kelly, 9th Dist. No. 09CA0067-M, 2010-Ohio-
2668, ¶ 6, quoting Temple v. Wean United, Inc., 50 Ohio St.2d 317, 327 (1977).
{¶12} Under Section 203.606(a) of Title 24 of the Code of Federal Regulations,
“[b]efore initiating foreclosure, the mortgagee must ensure that all servicing requirements of this
subpart have been met.” The servicing requirements of subpart C include Section 203.604(b),
which provides that “[t]he mortgagee must have a face-to-face interview with the mortgagor, or
make a reasonable effort to arrange such a meeting, before three full monthly installments due on
the mortgage are unpaid.” Although there are exceptions to the face-to-face meeting
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requirement, none apply in this case. In support of the Taylors’ brief in opposition to summary
judgment, they testified by affidavit that they “did not receive a notice of default regarding this
debt from Plaintiff or any other company which notified me of a right to meet face to face to
discuss my situation regarding the Note and Mortgage before I was sued for foreclosure. The
Plaintiff did not provide an affidavit attesting to the authenticity of or mailing of any such notice
of default to me prior to foreclosure.” The Taylors also testified that they continue to reside at
the subject property and that BAC Home Loans had local offices within 75 miles at which a
face-to-face meeting could have been held.
{¶13} The Taylors have cited this Court’s decision in LaSalle Bank, N.A. v. Kelly, 9th
Dist. No. 09CA0067-M, 2010-Ohio-2668, for the proposition that “where the note or mortgage
instrument requires prior notice, the provision of this notice is a condition precedent that must be
demonstrated by the moving party under Civ. R. 56.” See id. at ¶ 13-14. They have cited other
Ohio appellate courts for the proposition that, when a loan is subject to HUD regulations, those
regulations create conditions precedent to foreclosure. See Wells Fargo v. Phillabaum, 192 Ohio
App.3d 712, 2011-Ohio-1311, ¶ 11 (4th Dist.); Wells Fargo Bank, N.A. v. Isaacs, 1st Dist. No.
C-100111, 2010-Ohio-5811, ¶ 10; U.S. Bank, N.A. v. Detweiler, 191 Ohio App.3d 464, 2010-
Ohio-6408, ¶ 53 (5th Dist.); Washington Mut. Bank v. Mahaffey, 154 Ohio App.3d 44, 2003-
Ohio-4422, ¶ 22 (2d Dist.). BAC Home Loans has argued that HUD regulations “do not give
rise to any type of contractual condition precedent to foreclosure.” It has argued that the federal
regulations apply to obligations existing only between the Secretary of HUD and the mortgagee
and “do not place limitations on a mortgagee’s right to accelerate upon default.” There is no
evidence in the record tending to show that BAC Home Loans attempted to arrange a face-to-
face meeting with the Taylors prior to initiating this foreclosure action.
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{¶14} The dispositive issue for this Court is whether BAC Home Loans was required to
comply with the HUD regulation requiring a face-to-face meeting before initiating foreclosure.
Although this Court has not yet faced the question, other Ohio Courts have held that, if the terms
of the note and mortgage subject it to HUD regulations regarding default and acceleration, then a
homeowner may use a servicer’s failure to comply with those regulations to defend a foreclosure
action. See, e.g., U.S. Bank, N.A. v. Detweiler, 191 Ohio App.3d 464, 2010-Ohio-6408, ¶ 53
(5th Dist.) (holding loan was subject to HUD regulations and triable issue existed as to whether
bank satisfied all conditions precedent to foreclosure, including an effort to schedule a face-to-
face interview with mortgagor). The First District Court of Appeals, among others, has
determined that “under the HUD regulations, [a bank] c[an] not commence foreclosure
proceedings . . . until it ha[s] complied with the regulations.” Wells Fargo Bank, N.A. v. Isaacs,
1st Dist. No. C-100111, 2010-Ohio-5811, ¶ 11. Therefore, Ohio courts have held that a bank’s
noncompliance with HUD regulations may bar a foreclosure action if the bank fails to meet its
burden under Civil Rule 56 to support its summary judgment motion with acceptable evidence
that it satisfied the HUD regulations applicable to default and acceleration. Wells Fargo v.
Phillabaum, 192 Ohio App. 3d 712, 2011-Ohio-1311, ¶ 11 (4th Dist.) (holding bank failed to
provide Civil Rule 56 evidence of compliance with federal requirement of a face-to-face meeting
or show that an exception applied); Isaacs, 2010-Ohio-5811, ¶ 11 (holding bank did not show
compliance with HUD regulation regarding a face-to-face meeting before initiating foreclosure
action); U.S. Bank, N.A. v. Stewart, 2d Dist. No. 21775, 2007-Ohio-5669, ¶ 73 (noting various
HUD regulations that holder of note was required to satisfy before foreclosing, including 24
C.F.R. 203.604 regarding face-to-face meeting); Mahaffey, 2003-Ohio-4422, ¶ 33 (holding
evidentiary materials in support of summary judgment insufficient to establish that bank satisfied
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minimal requirement for a reasonable effort to arrange a face-to-face meeting before
foreclosure); GMAC Mortgage of Pennsylvania v. Gray, 10th Dist. No. 91AP-650, 1991 WL
268742, *6-7 (Dec. 10, 1991) (concluding that plaintiff’s failure to comply with HUD
regulations may be raised as an affirmative defense to a foreclosure action).
{¶15} BAC Home Loans has supported its position by citing federal cases holding that
there is no private right of action for breach of the National Housing Act, HUD regulations, or
FHA policy. BAC Home Loans’ argument is based on federal decisions such as Federal
National Mortgage Association v. LeCrone, 868 F.2d 190 (6th Cir.1989). It has cited LeCrone
for the proposition that “no express or implied right of action in favor of the mortgagor exists for
violation of HUD mortgage servicing policies.” Id. at 193. After the Federal National Mortgage
Association (FNMA) filed a foreclosure action against him, Robert LeCrone filed a third-party
complaint against the Secretary of HUD for refusing to accept an assignment of the mortgage.
He also defended the foreclosure action by arguing that FNMA had failed to comply with
applicable federal mortgage servicing rules, including the face-to-face meeting requirement. The
Sixth Circuit United States Court of Appeals did not reach the merits of the homeowner’s
arguments, however, because the case had been improperly removed to federal district court. Id.
at 191. Therefore, it dismissed the matter for lack of subject matter jurisdiction. Id. As part of a
discussion about why state courts do not have jurisdiction over cases brought against the federal
government under the Administrative Procedure Act, the Sixth Circuit wrote that “no express or
implied right of action . . . exists for violation of HUD mortgage servicing policies.” Id. at 193.
The Sixth Circuit then cited to a United States Supreme Court decision explaining that Congress
never intended to make a Federal Housing Authority appraisal the equivalent of a government
“guarantee to the purchaser that he was receiving a certain value for his money.” United States
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v. Neustadt, 366 U.S. 696, 709 (1961). Therefore, the Court explained in Neustadt, that
“Congress did not . . . intend to convert the FHA appraisal into a warranty of value, or otherwise
to extend to the purchaser any actionable right of redress against the Government in the event of
a faulty appraisal . . . .” Id. The Taylors have not made a claim against the government in this
case, so the LeCrone decision is not helpful.
{¶16} BAC Home Loans has also cited the federal district court case of Mitchell v.
Chase Home Finance, LLC, N.D.Texas No. 3:06-CV-2099-K, 2008 WL 623395 (Mar. 4, 2008).
In Mitchell, the homeowner sued his mortgage loan servicer for wrongful acceleration based on
violations of HUD regulations. The federal district court granted summary judgment to the
mortgage loan servicer because “the regulations promulgated under the National Housing Act
govern relations between the mortgagee and the government, and give the mortgagor no claim
for duty owed or for the mortgagee’s failure to follow said regulations.” Id. at *3; see also In re
Shirk, 437 B.R. 592 (Bankr.S.D.Ohio 2010) (granting bank’s motion to dismiss homeowner’s
claims against it under Rule 12(b)(6) of the Federal Rules of Civil Procedure in part because
National Housing Act and attending regulations do not create private right of action to
mortgagors based on mortgagee’s failure to comply with regulations). Strangely, BAC Home
Loans has also attempted to rely on Wells Fargo Bank, N.A. v. Favino, N.D.Ohio No. 1:10 CV
571, 2011 WL 1256771 (Mar. 31, 2011), despite the fact that it supports the Taylors’ position
that a servicer’s failure to follow HUD regulations may be used as a shield by homeowners sued
in foreclosure. In Favino, the federal district court explained that “[a] failure of a mortgagee to
adhere to the HUD servicing requirements in the regulations can be an affirmative defense to
foreclosure, but does not form the basis for a claim.” Id. at *12.
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{¶17} In this case, the Taylors are the defendants and they have not asserted any
counterclaims against BAC Home Loans. The federal cases cited by BAC Home Loans do not
address the question currently before this Court, that is, whether, under the circumstances of this
case, the homeowner may use his mortgage servicer’s failure to comply with HUD regulations as
a shield in a foreclosure action. The question this Court must decide is not whether a
homeowner may maintain a private right of action against the government or a loan servicer for
HUD violations, but whether HUD violations may be asserted as a defense in a foreclosure
action. BAC Home Loans has not cited any authority contrary to the rulings of the First, Second,
Fourth, Fifth, and Tenth District Courts of Appeal cited above on the question of whether a
servicer’s violation of HUD regulations may be used defensively in a foreclosure action, and this
Court has not found any. Further, in the absence of any argument that the Taylors waived their
right to argue noncompliance with HUD regulations, this Court need not consider whether the
defense is properly treated as an affirmative defense or condition precedent for pleading
purposes.
{¶18} In this case, the note provides that, “[i]f Borrower defaults by failing to pay in full
any monthly payment, then Lender may, except as limited by regulations of the Secretary in the
case of payment defaults, require immediate payment in full of the principal balance remaining
due and all accrued interest. . . . In many circumstances regulations issued by the Secretary will
limit Lender’s rights to require immediate payment in full in the case of payment defaults. This
Note does not authorize acceleration when not permitted by HUD regulations. As used in this
Note, ‘Secretary’ means the Secretary of Housing and Urban Development or his or her
designee.” In this case, the HUD regulations were incorporated into the note and made a part of
the contract. Three times in one paragraph the note provided that the Lender’s rights regarding
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default are subject to HUD regulations. The mortgage contains similar language. Under section
nine, captioned “Grounds for Acceleration of Debt[,]” the mortgage provides that, “Lender may,
except as limited by regulations issued by the Secretary, in the case of payment defaults, require
immediate payment in full . . . .” Under subsection (d) of that section, the mortgage provides
that “[i]n many circumstances regulations issued by the Secretary will limit Lender’s rights, in
the case of payment defaults, to require immediate payment in full and foreclose if not paid.
This Security Instrument does not authorize acceleration or foreclosure if not permitted by
regulations of the Secretary.” Contrary to BAC Home Loans’ argument that federal regulations
“do not place any limitations on the mortgagee’s right to accelerate upon default[,]” the contract
documents in this case subject the holder’s rights upon default to applicable HUD regulations.
{¶19} BAC Home Loans’ argument about a “private right of action” has no bearing on
whether the loan is subject to HUD regulations and whether failure to comply may be used
defensively to bar foreclosure. The note and mortgage at issue in this case unambiguously
provide that the rights of the lender in the case of default by the borrower are “limited by
regulations of the Secretary [of Housing and Urban Development or his or her designee] . . . .”
Those regulations include 24 C.F.R. 203.604, which requires a face-to-face interview with the
mortgagor prior to initiating a foreclosure action. BAC has not argued that it satisfied the
regulation or that some exception applied in this situation. It makes no difference whether HUD
regulations are meant to govern only the relationship between HUD and mortgagees. In this
case, the mortgagee and the mortgagor agreed to limit the mortgagee’s rights to accelerate and
foreclose based on applicable HUD regulations. Thus, by contract, BAC Home Loans was
required to comply with the HUD regulations governing acceleration and foreclosure, and the
Taylors were entitled to use any failure to do so as a shield in the subsequent foreclosure case.
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{¶20} BAC Home Loans has argued that, even if “the HUD regulations somehow
govern the relationship between a mortgagee and mortgagor . . . , it is not disputed that [the
plaintiff] did undertake loss mitigation efforts via the mediation process.” BAC Home Loans has
explained that the parties engaged in mediation after the complaint was filed, but the mediation
failed because the Taylors did not qualify for a loan modification. Its argument seems to be that
there was no point in complying with the HUD regulation before filing a complaint because, if
the Taylors did not qualify for a loan modification five months into the litigation, they would not
have qualified before the filing either, so any face-to-face meeting would have been
unproductive. Therefore, BAC Home Loans has urged this Court not to adopt a “rigid reading of
the HUD regulations.” It has also argued that summary judgment in its favor was appropriate,
regardless of whether it made any effort to comply with the HUD regulation before initiating the
foreclosure action because the issue of whether it complied with the regulation is not material to
the litigation.
{¶21} Evidence that a post-filing mediation failed is not evidence tending to show
compliance with the federal regulation. In the foreclosure case of Washington Mut. Bank v.
Mahaffey, 154 Ohio App.3d 44, 2003-Ohio-4422, the bank argued that the face-to-face meeting
requirement did not apply because that requirement only exists before three monthly installments
due on the mortgage are unpaid. Id. at ¶ 21. The bank argued that, after that time, the lender is
under no obligation to attempt to arrange such a meeting. The Second District Court of Appeals
held that, “[a] commonsense construction of the regulation is that it requires, subject to the
exceptions contained in division (c)(2), that a lender either have a face-to-face interview or make
a reasonable effort to arrange the interview before bringing a foreclosure action, and that the
mortgagee is urged, by the regulation, to have the interview, or to make a reasonable effort to
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arrange the interview, within the three-month default period. . . . Thus, the scheme of the
regulation is that a lender may not commence foreclosure until at least three full monthly
installments are due but unpaid, and the lender, before initiating foreclosure, must ensure that the
servicing requirements have been met, including the face-to-face interview requirement.” Id. at ¶
22, 24. The Taylors’ note and mortgage are subject to the mandatory language of the HUD
regulations for default and acceleration. Thus, whether the plaintiff satisfied those requirements
before initiating the foreclosure action is material to the litigation.
{¶22} It is not necessary for this Court to determine whether every federally insured
loan is subject to HUD servicing regulations so that any homeowner may use a servicer’s failure
to comply as a defense in foreclosure. In this case, it is a simple matter of applying the plain
language of the contract. As in Mahaffey, the evidentiary materials submitted by BAC Home
Loans in this case in support of its motion for summary judgment “fail to establish, as a matter of
law, that [BAC Home Loans] satisfied the minimal requirements for a ‘reasonable effort’ to
arrange a face-to-face interview with the mortgagor, required by Section 203.604 [of Title 24 of
the United States Code of Federal Regulations]. Accordingly, there is a genuine issue of
material fact, [BAC Home Loans] failed to establish that it is entitled to judgment as a matter of
law, and the trial court erred by awarding summary judgment.” Washington Mut. Bank v.
Mahaffey, 154 Ohio App.3d 44, 2003-Ohio-4422, ¶ 33 (2d Dist.). The Taylors’ first assignment
of error is sustained.
CONCLUSION
{¶23} The Taylors’ second assignment of error is overruled because BAC Home Loans
presented acceptable evidence of a merger and the Rules of Civil Procedure do not require a
substitution of parties after a transfer of interest occurs post-filing. The Taylors’ first assignment
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of error is sustained because the note and mortgage are subject to HUD regulations regarding
default and acceleration and the evidence in the record fails to establish, as a matter of law, that
BAC Home Loans satisfied 24 C.F.R. 203.604 requiring a face-to-face meeting with the
mortgagor before filing a foreclosure action. The judgment of the Summit County Common
Pleas Court is reversed and this matter is remanded for further proceedings consistent with this
opinion.
Judgment reversed,
and cause remanded.
There were reasonable grounds for this appeal.
We order that a special mandate issue out of this Court, directing the Court of Common
Pleas, County of Summit, State of Ohio, to carry this judgment into execution. A certified copy
of this journal entry shall constitute the mandate, pursuant to App.R. 27.
Immediately upon the filing hereof, this document shall constitute the journal entry of
judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the
period for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is
instructed to mail a notice of entry of this judgment to the parties and to make a notation of the
mailing in the docket, pursuant to App.R. 30.
Costs taxed to Appellee.
JAMES BROGAN
FOR THE COURT
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MOORE, P. J.
CARR, J.
CONCUR.
(Brogan, J., retired, of the Second District Court of Appeals, sitting by assignment pursuant to
§6(C), Article IV, Constitution.)
APPEARANCES:
JULIUS P. AMOURGIS and MARGARET A. MCDEVITT, Attorneys at Law, for Appellants.
MATTHEW T. ANDERSON and GREGORY H. MELICK, Attorneys at Law, for Appellee.