U.S. Bank v. Schubert

[Cite as U.S. Bank v. Schubert, 2014-Ohio-3868.]

STATE OF OHIO ) IN THE COURT OF APPEALS
)ss: NINTH JUDICIAL DISTRICT
COUNTY OF LORAIN )

US BANK C.A. No. 13CA010462

Appellee

v. APPEAL FROM JUDGMENT
ENTERED IN THE
DENNIS M. SCHUBERT, et al. COURT OF COMMON PLEAS
COUNTY OF LORAIN, OHIO
Appellants CASE No. 10CV170414

DECISION AND JOURNAL ENTRY

Dated: September 8, 2014

CARR, Presiding Judge.

{¶1} Appellants Dennis and Sue Schubert appeal the judgment of the Lorain County

Court of Common Pleas that dismissed their Fair Debt Collection Practices Act claim against

appellees U.S. Bank, N.A., and Ocwen Loan Servicing, LLC. This Court reverses and remands.

I.

{¶2} U.S. Bank filed a complaint for foreclosure against the Schuberts. In their fourth

amended answer and counterclaims, the Schuberts alleged nine counterclaims against U.S. Bank

and additional counterclaim defendant Ocwen Loan Servicing, as well as class action claims

against Litton Loan Servicing LP, JP Morgan Chase Bank NA, and Ocwen Financial

Corporation. U.S. Bank and Ocwen Loan filed a partial motion to dismiss pursuant to Civ.R.

12(B)(6) solely as to the nine counterclaims against them. The Schuberts opposed the motion,

and U.S. Bank and Ocwen Loan replied.
 2

{¶3} The trial court denied the motion to dismiss as to the Schuberts’ counterclaims

alleging breach of contract and breach of the covenants of good faith and fair dealing implied in

the mortgage. The trial court granted the motion and dismissed the Schuberts’ counterclaims

alleging wrongful foreclosure, intentional infliction of emotional distress, negligence, gross

negligence/willful and wanton conduct, mortgage servicing abuses, violations of the Real Estate

Settlement Procedures Act (RESPA), and violations of the Fair Debt Collection Practices Act

(FDCPA). The court appended the following language to the judgment entry: “Pursuant to

Civ.R. 54(B), this Court enters final judgment as to one or more but fewer than all of the claims

or parties upon an express determination that there is no just cause for delay.”

{¶4} One week later, the trial court issued a purported nunc pro tunc journal entry,

reiterating the substance of its prior order, but omitting the quoted language above, and prefacing

the judgment entry with the following language: “This order hereby corrects the Journal Entry

dated July 31, 2013 nunc pro tunc to remove Rule 54 language which was entered in error.”

{¶5} The Schuberts filed a timely appeal in which they raise one assignment of error

for review.

{¶6} As a preliminary matter, this Court analyzes whether the trial court’s judgment is

a final, appealable order. The Schuberts raised the issue in their brief, arguing that this Court has

jurisdiction to hear the merits of their appeal. U.S. Bank and Ocwen Loan responded, arguing

against finality and that we lack jurisdiction. A trial court lacks the authority to reopen and

modify a final judgment. See Levin v. George Framm & Sons, Inc. 65 Ohio App.3d 841, 848

(9th Dist.1990).
 3

{¶7} The trial court disposed of fewer than all of the pending claims in the matter

below and recited the relevant language pursuant to Civ.R. 54(B) indicating finality. Civ.R.

54(B) states:

When more than one claim for relief is presented in an action whether as a claim,
counterclaim, cross-claim, or third-party claim, and whether arising out of the
same or separate transactions, or when multiple parties are involved, the court
may enter final judgment as to one or more but fewer than all of the claims or
parties only upon an express determination that there is no just reason for delay.
In the absence of a determination that there is no just reason for delay, any order
or other form of decision, however designated, which adjudicates fewer than all
the claims or the rights and liabilities of fewer than all the parties, shall not
terminate the action as to any of the claims or parties, and the order or other form
of decision is subject to revision at any time before the entry of judgment
adjudicating all the claims and the rights and liabilities of all the parties.

{¶8} The trial court later issued a “nunc pro tunc journal entry” identical to its initial

disposition, except that it removed the Civ.R. 54(B) language and asserted that such language

had earlier been entered in error.

{¶9} The first issue is whether the trial court may effectively remove via nunc pro tunc

entry the Civ.R. 54(B) certification included in its initial judgment entry. This Court concludes

that the trial court’s use of the mechanism of a nunc pro tunc entry was not effective to convert a

prior final and appealable order into an interim order that is not subject to appellate review.

{¶10} Explaining the proper uses of a nunc pro tunc entry, this Court has written:

A nunc pro tunc order may be issued by a trial court, as an exercise of its inherent
power, to make its record speak the truth. It is used to record that which the trial
court did, but which has not been recorded. It is an order issued now, which has
the same legal force and effect as if it had been issued at an earlier time, when it
ought to have been issued. Thus, the office of a nunc pro tunc order is limited to
memorializing what the trial court actually did at an earlier point in time. It can
be used to supply information which existed but was not recorded, to correct
mathematical calculations, and to correct typographical or clerical errors.

A nunc pro tunc order cannot be used to supply omitted action, or to indicate what
the court might or should have decided, or what the trial court intended to decide.
Its proper use is limited to what the trial court actually did decide. That, of
 4

course, may include the addition of matters omitted from the record by
inadvertence or mistake of action taken. Therefore, a nunc pro tunc order is a
vehicle used to correct an order previously issued which fails to reflect the trial
court’s true action.

(Internal citations omitted.) State v. Greulich, 61 Ohio App.3d 22, 24-25 (9th Dist.1988).

{¶11} In addressing the significance of a Civ.R. 54(B) certification, the Ohio Supreme

Court held:

For purposes of Civ.R. 54(B) certification, in deciding that there is no just reason
for delay, the trial judge makes what is essentially a factual determination –
whether an interlocutory appeal is consistent with the interests of sound judicial
administration.

Where the record indicates that the interests of sound judicial administration
could be served by a finding of “no just reason for delay,” the trial court’s
certification determination must stand.

Wisintainer v. Elcen Power Strut Co., 67 Ohio St.3d 352 (1993), paragraphs one and two of the

syllabus. Although trial courts “should avoid a mechanical application of the Civ.R. 54(B)

language[,]” the trial court’s factual finding that allowing immediate appeal best serves the

administration of justice “is entitled to the same presumption of correctness that [] is accorded

regarding other factual findings.” Id. at 355. Nevertheless, this presumption “does not apply

where the judgment entry indicates the trial court acted reflexively and employed the language as

boilerplate.” Jeffrey v. Marietta Memorial Hosp., 10th Dist. Nos. 11AP-492, 11AP-502, 2013-

Ohio-1055, ¶ 66.

{¶12} In this case, the trial court’s initial judgment entry does not indicate on its face

that the trial court acted reflexively and appended the Civ.R. 54(B) certification merely as

boilerplate language. This is evidenced by the trial court’s “express determination” that not only

was there no just cause for delay, but that it was “enter[ing] final judgment as to one or more but

fewer than all of the claims or parties[.]” In its purported nunc pro tunc order, the trial court did

not assert that it had in fact originally found that the interests of sound judicial administration did
 5

not warrant the certification and that the certification was merely employed as boilerplate. It

merely asserted that the certification had been “entered in error.” The trial court lacks authority

to reconsider its final judgment to correct an error in this manner. On its face, the second

judgment entry indicates that the trial court omitted the Civ.R. 54(B) certification based on what

it subsequently determined it should have decided or intended to decide. Such a modification

does not constitute a proper nunc pro tunc order. Greulich, supra. Accordingly, the trial court’s

nunc pro tunc order was not effective to delete the earlier Civ.R. 54(B) certification in the July

31, 2013 judgment entry ruling on US Bank’s and Ocwen Loan’s partial motion to dismiss

pursuant to Civ.R. 12(B)(6).

{¶13} Having determined that the judgment appealed in this case contains Civ.R. 54(B)

certification, this Court must still determine whether the judgment is a final, appealable order. It

is well settled that a trial court cannot impute finality on a nonfinal order merely by certifying

that there is no just reason for delay. See LEH Properties, Inc. v. Pheasant Run Assn., 9th Dist.

Lorain No. 07CA009275, 2008-Ohio-4500, ¶ 11, citing Wisintainer, 67 Ohio St.3d at 354

(“[T]he phrase ‘no just reason for delay’ is not a mystical incantation which transforms a

nonfinal order into a final appealable order.”).

{¶14} This Court recognizes the two-part test developed by the Wisintainer court. We

must first determine whether the order is final pursuant to R.C. 2505.02(B) and second whether

competent, credible evidence supports the trial court’s factual determination underlying the

Civ.R. 54(B) certification. Ferraro v. B.F. Goodrich Co., 149 Ohio App.3d 301, 2002-Ohio-

4398, ¶ 16, 19-20 (9th Dist.).

{¶15} Pursuant to R.C. 2505.02(B)(1), “[a]n order is a final order that may be reviewed,

affirmed, modified, or reversed, with or without retrial, when it * * * affects a substantial right in
 6

an action that in effect determines the action and prevents a judgment[.]” The trial court’s

dismissal of the Schuberts’ FDCPA claims for failure to state a claim upon which relief may be

granted determined the viability of that claim and prevented a judgment in favor of the Schuberts

against the bank and loan servicer. A dismissal for failure to state a claim has determined

beyond doubt that “the plaintiff can prove no set of facts entitling him to relief[,]” or in other

words that the complaint is insufficient to allege a claim. Cincinnati v. Beretta U.S.A. Corp., 95

Ohio St.3d 416, 2002-Ohio-2480, ¶ 5. The plaintiff is, therefore, foreclosed from obtaining relief

on that claim.

{¶16} The Schuberts, moreover, would not be able to obtain comparable relief merely

by successfully defending against the bank’s foreclosure action. “If claims are factually separate

and independent, multiple claims are clearly present. Two legal theories that require proof of

substantially different facts are considered separate claims * * *.” Ferraro at ¶ 17. While the

bank must prove that the Schuberts failed to make their required mortgage payments to prevail

on the foreclosure action, the Schuberts need not merely prove that they made the requisite

payments to prevail on their FDCPA claims. Instead, to prevail, they must prove deception or

false or misleading representations by the debt collectors, i.e., substantially different facts from

those the bank must produce. Moreover, in addition to the bank, the Schuberts filed their claim

against Ocwen Loan, a separate and distinct party. Accordingly, dismissal of their FDCPA

claims affects a substantial right of the Schuberts.

{¶17} Next, we consider “whether the trial court’s determination that ‘there is no just

[reason] for delay’ was appropriate.” Id. at ¶ 16. This Court has recognized:

The paramount consideration to be made is whether the court’s determination
serves judicial economy at the trial level. In assessing the effect on judicial
economy: The trial court can best determine how the court’s and the parties’
resources may most effectively be utilized. * * * The trial court has seen the
 7

development of the case, is familiar with much of the evidence, is most familiar
with the trial court calendar, and can best determine any likely detrimental effect
of piecemeal litigation.

(Internal citations and quotations omitted.) Id. at ¶ 20-21.

{¶18} In this case, judicial economy would be better served by a trial of the claims and

counterclaims in a single action. The Schuberts’ remaining viable claims for breach of contract

and breach of the covenant of good faith and fair dealing implicate facts and issues which

overlap to some extent the facts and issues relevant to their FDCPA claims, as well as to the

bank’s foreclosure complaint. Without the opportunity for the Schuberts to immediately appeal

the dismissal of their FDCPA claims, trial would proceed to final judgment on the foreclosure

action and the Schuberts’ two breach claims (assuming the trial court either included Civ.R.

54(B) certification or otherwise fully disposed of the Schuberts’ pending class action claims).

Only then could the Schuberts appeal the dismissal of their FDCPA claims. Were we to reverse

the trial court’s dismissal of those claims, the trial court would have to conduct a second trial.

As we recognized in Ferraro at ¶ 22, the Ohio Supreme Court wrote: “More important than the

avoidance of piecemeal appeals is the avoidance of piecemeal trials. It conserves expense for the

parties and clarifies liability issues for jurors when cases are tried without ‘empty chairs.’”

Wisintainer, 67 Ohio St.3d at 355.

{¶19} We earlier concluded that it does not appear that the trial court acted reflexively

or included the Civ.R. 54(B) certification as boilerplate. The trial court’s determination that the

Schuberts should have an immediate right to appeal the dismissal of certain of their claims

comports with sound judicial administration.

{¶20} For the reasons enunciated above, this Court concludes that the trial court’s initial

judgment in which it dismissed certain of the Schuberts’ counterclaims constitutes a final,
 8

appealable order that this Court has jurisdiction to review. Accordingly, we turn now to a

consideration of the merits of the Schuberts’ appeal.

II.

ASSIGNMENT OF ERROR

THE TRIAL COURT REVERSIBLY ERRED TO THE PREJUDICE OF
APPELLANTS, DENNIS AND SUE SCHUBERT, WHEN THE TRIAL COURT
DISMISSED UNDER CIV.R. 12(B)(6) THE SCHUBERTS’ COUNTERCLAIM
AGAINST APPELLEES, US BANK AND OCWEN, FOR US BANK’S AND
OCWEN’S VIOLATIONS OF THE FEDERAL [FAIR] DEBT COLLECTION
PRACTICES ACT.

{¶21} The Schuberts argue that the trial court erred by dismissing their counterclaim

alleging violations of the Fair Debt Collection Practices Act for failure to state a claim upon

which relief can be granted. This Court agrees.

{¶22} This Court reviews a trial court order granting a motion to dismiss pursuant to

Civ.R. 12(B)(6) under a de novo standard of review. Perrysburg Twp. v. Rossford, 103 Ohio

St.3d 79, 2004-Ohio-4362, ¶ 5, citing Cincinnati v. Beretta U.S.A. Corp., 95 Ohio St.3d 416,

2002-Ohio- 2480, ¶ 4-5. In reviewing a motion to dismiss, this Court must accept as true all

factual allegations in the complaint and all reasonable inferences must be drawn in favor of the

nonmoving party. Rossford at ¶ 5; Mitchell v. Lawson Milk Co., 40 Ohio St.3d 190, 192 (1988).

“To prevail on a Civ.R. 12(B)(6) motion to dismiss, it must appear on the face of the complaint

that the plaintiff cannot prove any set of facts that would entitle him to recover.” Raub v.

Garwood, 9th Dist. No. 22210, 2005-Ohio-1279, ¶ 4, citing O’Brien v. Univ. Community

Tenants Union, 42 Ohio St.2d 242, 245 (1975).

{¶23} The Schuberts alleged that U.S. Bank and Ocwen Loan violated certain provisions

of the FDCPA, including 15 U.S.C. 1692e(2)(A), (5), and (10), all of which implicated false or

misleading representations regarding their mortgage debt and the collection thereof. The general
 9

proscription reads: “A debt collector may not use any false, deceptive, or misleading

representation or means in connection with the collection of any debt.” 15 U.S.C. 1692e. The

trial court dismissed the Schuberts’ FDCPA claims upon finding that “[U.S. Bank] and Ocwen

are collecting and servicing [U.S. Bank’s] debt and not the debt of a third party.” Accordingly,

the trial court dismissed the FDCPA claims solely upon the implicit finding that U.S. Bank and

Ocwen were not “debt collectors” as defined by the Act. Within the context of a FDCPA claim,

a “debt collector” is “any person who uses any instrumentality of interstate commerce or the

mails in any business the principal purpose of which is the collection of debts * * * owed or due

or asserted to be owed or due another.” 15 U.S.C. 1692a(6). There are several exceptions which

remove a person from the definition of debt collector. For example, creditors are expressly

excluded from the definition of debt collector. 15 U.S.C. 1692a(6)(a). A “creditor” is “any

person who offers or extends credit creating a debt or to whom a debt is owed, but such term

does not include any person to the extent that he receives an assignment or transfer of a debt in

default solely for the purpose of facilitating collection of such debt for another.” 15 U.S.C.

1692a(4). This notion is captured in another exception as follows: “The term [debt collector]

does not include * * * any person collecting or attempting to collect any debt owed or due or

asserted to be owed or due another to the extent such activity * * * concerns a debt which was

not in default at the time it was obtained by such person * * *.” 15 U.S.C. 1692a(6)(F)(iii).

{¶24} Citing RBS Citizens, N.A. v. Zigdon, 8th Dist. Cuyahoga No. 93945, 2010-Ohio-

3511, U.S. Bank and Ocwen argue that, as a matter of law, mortgage servicers are not debt

collectors. This proposition holds true when the servicing company is merely attempting to

collect a current debt, as it stands in the shoes of the mortgagee. Mortgagee banks, and others to

whom the mortgage is assigned, are creditors and fall outside the realm of liability under the
 10

FDCPA. McAnaney v. Astoria Fin. Corp., 357 F.Supp.2d 578, 592-593 (E.D.N.Y. 2005).

However, mortgagees and mortgage servicing companies become debt collectors when they

obtain a debt at a time it is already in default. Castrillo v. Am. Home Mtge. Servicing, Inc., 670

F.Supp.2d 516, 524 (E.D.La. 2009) (recognizing the significance of the timing of the assumption

of the debt).

{¶25} The Castrillo court distinguished the assumption of a mortgage debt before

default, which allowed the servicing company to remain a creditor not subject to the FDCPA,

and the assumption of the mortgage debt after default, which accords the servicing company the

status of debt collector subject to the FDCPA. Id. This reflects the purpose of the FDCPA.

{¶26} 15 U.S.C. 1692(e) addresses that purpose and states:

It is the purpose of this subchapter to eliminate abusive debt collection practices
by debt collectors, to insure that those debt collectors who refrain from using
abusive debt collection practices are not competitively disadvantaged, and to
promote consistent State action to protect consumers against debt collection
abuses.

{¶27} In effecting those purposes, Congress recognized the interest of creditors to use

appropriate methods to obtain payment in order to maintain good public relations and the

prospect of future business. McAnaney at 592. On the other hand, debt collectors are not so

constrained. Id. “In enacting the FDCPA, Congress targeted situations where natural constraints

would fail to inhibit debt collection practices: Unlike creditors, who generally are restrained by

the desire to protect their good will when collecting past due accounts, independent collectors are

likely to have no future contact with the consumer and often are unconcerned with the

consumer’s opinion of them.” Id., quoting S. Rpt. No. 95-382, 95th Cong., 1st Sess., reprinted in

1977 U.S.Code Cong. & Admin. News 1695, 1696.
 11

{¶28} Although courts have been clear that mortgagees who originated the debt or

assumed the debt pursuant to merger or assignment are creditors rather than debt collectors,

where the debt is first obtained after default, the entity obtaining such debt is a debt collector

subject to the FDCPA. See, e.g., Cyphers v. Litton Loan Servicing, L.L.P., 503 F.Supp.2d 547

(N.D.N.Y. 2007); Teeuwissen v. JP Morgan Chase Bank, N.A., 902 F.Supp.2d 826 (S.D.Miss.

2011); Ademiluyi v. PennyMac Mtge. Invest. Trust Holdings I, LLC, 929 F.Supp.2d 502 (D.Md.

2013); Deutsche Bank Trust Co. Americas v. Garst, 989 F.Supp.2d 1194, 2013 WL 4851493.

Further, one of our sister districts recognized that an assignee who obtains a debt in default is a

debt collector for purposes of the FDCPA. D.A.N. Joint Venture III, L.P. v. Armstrong, 11th

Dist. Lake No. 2006-L-089, 2007-Ohio-898, ¶ 45, citing Schlosser v. Fairbanks Capital Corp.,

323 F.3d 534, 536 (7th Cir.2003). Moreover, because the status of the mortgage company and

servicing company turns on whether the debt was in default at the time it was obtained, courts

have held that such claims cannot be resolved pursuant to a motion to dismiss. Castrillo, 670

F.Supp.2d at 524. For these reasons, we reject U.S. Bank’s and Ocwen’s argument that they

cannot be considered debt collector’s solely because this matter involves a mortgage debt.

{¶29} Because a debt collector includes anyone who attempts to collect a debt asserted

to be owed to another, i.e., an alleged debt, “a debt holder or servicer is a debt collector when it

engages in collection activities on a debt that is not, as it turns out, actually owed.” Bridge v.

Ocwen Fed. Bank, FSB, 681 F.3d 355, 361-362 (6th Cir.2012). Moreover, the Sixth Circuit has

recognized that

[t]he Fair Debt Collection Practices Act is an extraordinarily broad statute.
Congress addressed itself to what it considered to be a widespread problem, and
to remedy that problem it crafted a broad statute. Our actions are guided by the
hand of Congress, and thus we apply the Act broadly according to its terms. * * *
Therefore, we hold that the definition of debt collector pursuant to [section]
1692a(6)(F)(iii) includes any non-originating debt holder that either acquired a
 12

debt in default or has treated the debt as if it were in default at the time of
acquisition. It matters not whether such treatment was due to a clerical mistake,
other error, or intention. Thus, a FDCPA defendant cannot escape coverage under
the Act by asserting to the court that the debt was not actually in default, despite
having dunned plaintiffs for months or years in the face of plaintiffs’ pleas or
proof that the collector has made some error. A defendant may not retroactively
change the status of the plaintiff it has pursued as an alleged debtor. To hold
otherwise would defy the clear congressional mandate we are charged with
upholding.

(Internal citations and quotations omitted) Id. at 362-363.

{¶30} In this case, the Schuberts alleged in their fourth amended counterclaims that they

originally executed a promissory note and mortgage in favor of Bank One, and that Bank One

later assigned the note and mortgage to U.S. Bank at a time when the Schuberts were in default.

They alleged that they filed for bankruptcy in July 2003, fell further behind in their mortgage

payments in 2003 or 2004, and cured that arrearage with two lump sum payments sometime

shortly before August 25, 2004. The Schuberts alleged that Ocwen became their loan servicer on

July 1, 2004, at a time they allegedly would have still been in default. Moreover, the Schuberts

alleged that both U.S. Bank and Ocwen falsely represented the character, amount, or legal status

of the debt owed (15 U.S.C. 1692e(2)(A)). Specifically, they alleged that they paid off an

identified arrearage amount in full one month, only to be told the following month that they

maintained an arrearage amount of ten times the previous month’s amount. The Schuberts

dispute the accuracy of the amount they might owe, if any, on their mortgage. Assuming the

truth of all factual allegations in the complaint, the reasonable inference to be drawn in the

Schuberts’ favor is that U.S. Bank acquired by assignment the promissory note and mortgage

after the Schuberts were already in default. In addition, it is reasonable to infer that Ocwen Loan

became the loan servicer for the loan at a time when the homeowners were in default.

Furthermore, assuming the truth of the Schuberts’ assertion that they fully paid a $1709.76
 13

arrearage in July 2006, and that Ocwen informed them in August 2006 that their arrearage was

$11,135.72, they presented sufficient facts to state a claim that the bank and loan servicer as the

bank’s agent had falsely represented the character, amount, or legal status of the debt, if any.

Accordingly, the trial court erred by dismissing the Schuberts’ FDCPA claims against U.S. Bank

and Ocwen Loan for failure to state a claim upon which relief can be granted pursuant to Civ.R.

12(B)(6) based upon its sole finding that the bank and loan servicer were creditors as opposed to

debt collectors.

{¶31} To the extent that the parties argue regarding alternative theories for and against

dismissal, for example, recoupment and statute of limitations, this Court declines to address them

in the first instance, as the trial court made no findings of fact or rendered any conclusions of law

in regard to those issues.

{¶32} The Schuberts’ sole assignment of error is sustained.

III.

{¶33} The assignment of error is sustained. The judgment of the Lorain County Court

of Common Pleas is reversed and the cause 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 Lorain, 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.
 14

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 Appellees.

DONNA J. CARR
FOR THE COURT

WHITMORE, J.
MOORE, J.
CONCUR.

APPEARANCES:

JACK MALICKI, Attorney at Law, for Appellants.

THOMAS R. THEADO, Attorney at Law, for Appellants.

BENJAMIN D. CARNAHAM and HUNTER G. CAVELL, Attorneys at Law, for Appellee.