[Cite as HSBC Mtge. Servs., Inc. v. Watson, 2017-Ohio-680.]
IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
PAULDING COUNTY
HSBC MORTGAGE SERVICES, INC.,
CASE NO. 11-16-03
PLAINTIFF-APPELLEE,
v.
PAMELA J. WATSON, ET AL., OPINION
DEFENDANTS-APPELLANTS.
Appeal from Paulding County Common Pleas Court
Trial Court No. CI-12-178
Judgment Affirmed
Date of Decision: February 27, 2017
APPEARANCES:
George C. Rogers for Appellants
Jessica M. Wilson for Appellee
Case No. 11-16-03
WILLAMOWSKI, J.
{¶1} Defendants-appellants Pamela J. Watson (“Watson”), also known as
Pamela J. Lambert, and William L. Lambert (“Lambert”) jointly appeal the
judgment of the Paulding County Court of Common Pleas for denying Watson’s
motion for the imposition of sanctions against opposing counsel and for allowing
the plaintiff-appellee, U.S. Bank Trust, N.A., (“U.S. Bank”) to be substituted as
party plaintiff in place of HSBC Mortgage Services, Inc. (“HSBC”). For the reasons
set forth below, the judgment of the trial court is affirmed.
{¶2} On November 24, 2004, Watson signed a promissory note under which
she promised to pay HSBC $79,500.00 plus interest in monthly payments. Doc. 1.
This note was secured by a mortgage on real property. Id. Watson stopped making
payments on the note in April of 2011. Doc. 27. On August 22, 2012, the original
plaintiff in this action, HSBC, filed a complaint in foreclosure against Watson and
Lambert. Doc. 1. On April 29, 2013, HSBC submitted a motion for summary
judgment with a copy of the mortgage agreement. Doc. 27. Watson then served
HSBC with requests for admissions on May 24, 2013. Doc. 31. The trial court set
July 23, 2013, as the final cutoff date for discovery. Doc. 30.
{¶3} HSBC, however, did not reply to the discovery requests by the deadline
established by the court. Doc. 37. Consequently, Watson’s requests for admission
were deemed admitted. Doc. 37. One of these admissions states that “HSBC does
not have possession of the original note.” Doc. 31. Another states that “neither
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Melissa D. Clearly [the person allegedly authorized to assign the mortgage] nor
Mortgage Electronic Registration Systems, Inc. sought or received permission from
the Bankruptcy Trustee for Accredited Home Lenders, Inc. to execute the
assignment of [Watson’s] mortgage [to HSBC].” Doc. 31. On August 2, 2013,
Watson used these admissions to oppose HSBC’s earlier motion for summary
judgment and submitted her own motion for summary judgment. Doc. 32. HSBC
responded by filing a motion to withdraw the requests for admissions deemed
admitted. Doc. 37. On February 12, 2014, the trial court granted HSBC’s motion
to withdraw admissions deemed admitted on the same day that it granted HSBC’s
motion for summary judgment. Doc. 39. The trial court then denied Watson’s
motion for summary judgment. Id.
{¶4} Watson and Lambert then filed an appeal with this court. Id. On
January 26, 2015, we reversed the trial court. HSBC Mtge. Servs., Inc. v. Watson,
3d Dist. Paulding No. 11-14-03, 2015-Ohio-221, ¶ 6. A trial court has the discretion
to “permit withdrawal of an admission if it will aid in presenting the merits of the
case and the party who obtained the admission fails to demonstrate that withdrawal
would prejudice him in maintaining his action.” Id. at ¶ 18, quoting State ex rel.
Davila v. Bucyrus, 194 Ohio App.3d 325, 956 N.E.2d 332, 2011-Ohio-1731, ¶ 22
(3d Dist.). Since the time for discovery had closed at the time HSBC’s motion to
withdraw was submitted, Watson was able to demonstrate to the trial court that she
would have been prejudiced if the admissions were withdrawn and discovery was
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not reopened. Id. at ¶ 29. Because the trial court did not reopen discovery, we
determined that the trial court erred when it permitted HSBC to withdraw their
admissions. Id. When considered, the content of HSBC’s admissions was sufficient
to defeat HSBC’s motion for summary judgment. Id. at ¶ 27. Thus, the trial court’s
rulings on both HSBC’s and Watson’s motions for summary judgment needed to be
reconsidered. Id. at ¶ 35. We then remanded the case for further proceedings. Id.
at ¶ 30, 37.
{¶5} Following the remand, on March 13, 2015, HSBC submitted a motion
for substitution of plaintiff, alleging that U.S. Bank had been assigned Watson’s
mortgage on January 6, 2015, and was now the real party in interest. Doc. 51.
Attached to the motion was a copy of the mortgage assignment, which included a
limited power of attorney that purportedly authorized the transfer of Watson’s
mortgage to U.S. Bank. Id. HSBC, however, included the wrong power of attorney
document. Doc. 58. The limited power of attorney HSBC submitted was incorrect
and had expired. Id.
{¶6} On April 23, 2015, Watson responded with a motion opposing HSBC’s
motion to substitute plaintiff. Doc. 55. Relying upon HSBC’s admission that they
did not possess the original note, Watson argued that neither HSBC nor U.S. Bank
could be real parties in interest as HSBC had nothing to transfer to U.S. Bank that
would justify a substitution of plaintiff in this case. Id. Further, Watson pointed to
the incorrect limited power of attorney and also asserted this document could not
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establish U.S. Bank as a real party in interest since the expired document did not
reference Watson’s mortgage and could not, therefore, assign the mortgage from
HSBC to U.S. Bank. Id. Watson’s motion to oppose HSBC’s motion to substitute
plaintiff was accompanied by a motion to impose sanctions for frivolous conduct
under R.C. 2323.51. Id. In response, HSBC admitted that they had “inadvertently
attached” the incorrect power of attorney but contested the appropriateness of
sanctions in this situation. Doc. 58. HSBC also included a copy of the correct
limited power of attorney document in this filing. Id.
{¶7} On February 29, 2016, Watson filed a motion for summary judgment.
Doc. 65. On May 27, 2016, the trial court issued an order that granted HSBC’s
motion to substitute plaintiff. Doc. 67. The court determined that the defendants
did not have standing to challenge the validity of the assignment as Watson was
“not a party to the assignment between HSBC and U.S. Bank.” Id. On June 13,
2016, Watson and Lambert submitted a motion to reconsider the court’s decision to
allow U.S. Bank to be substituted for HSBC as plaintiff. Doc. 69. The court then
set June 24, 2016, as the date for the parties to have a hearing on frivolous conduct
sanctions. Id. At the hearing, HSBC argued that Watson’s motion for summary
judgment should be denied so that discovery could be reopened. Doc. 75. The court
declined to reopen discovery, deemed the admissions of HSBC admitted, and
granted Watson’s motion for summary judgment. Id.
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{¶8} In the final judgment, the court also addressed the defendants’ motion
to reconsider the May 27, 2016 journal entry granting HSBC’s motion to substitute
plaintiff and Watson’s motion for R.C. 2323.51 sanctions. Doc. 55, 75. The court
declined to reverse the order granting HSBC’s motion to substitute plaintiff. Doc.
75. Since the alleged frivolous conduct arose from HSBC’s motion to substitute
plaintiff, the court overruled Watson’s motion for sanctions because such a decision
would be inconsistent with the court’s order granting HSBC’s motion to substitute
plaintiff. Doc. 75. On appeal, appellants raise two assignments of error.
First Assignment of Error
The trial court erred in its judgment entry of July 5, 2016 in
denying the Watson motions for imposition of sanctions against
plaintiff’s counsel for submitting frivolous motions in relation to
the substitution of the party plaintiff.
Second Assignment of Error
As relating to its ruling denying sanctions, the trial court erred in
allowing the substitution of U.S. Bank as the party plaintiff, and
in denying the Watson motion to vacate such May 27, 2016
judgment in the courts final judgment entry of July 5, 2016.
We will evaluate the second assignment of error prior to consideration of the first
assignment of error.
Second Assignment of Error
{¶9} In appellants’ second assignment of error, appellants argue that the trial
court erred in permitting U.S. Bank to be substituted for HSBC as plaintiff. “A
party seeking to appeal bears the burden of proving that he or she has standing.”
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Guttentag v. Etna Twp. Bd. of Zoning Appeals, 177 Ohio App.3d 53, 2008-Ohio-
2642, 893 N.E.2d 890, ¶ 33 (5th Dist.). “[I]n order to have standing to appeal, a
person must be ‘able to demonstrate a present interest in the subject matter of the
litigation which has been prejudiced’ by the judgment appealed from.” Midwest
Fireworks Mfg. Co. v. Deerfield Twp. Bd. of Zoning Appeals, 91 Ohio St.3d 174,
177, 743 N.E.2d 894 (2001), quoting Willoughby Hills v. C.C. Bar's Sahara, Inc.,
64 Ohio St.3d 24, 26, 591 N.E.2d 1203 (1992). Further, “[a]ppeal lies only on behalf
of a party aggrieved by the final order appealed from.” Midwest Fireworks Mfg.
Co. at 177, quoting Ohio Contract Carriers Assn. v. Public Utilities Commission,
140 Ohio St. 160, 42 N.E.2d 758 (1942), syllabus. “Appeals are not allowed for the
purpose of settling abstract questions, but only to correct errors injuriously affecting
the appellant.” State ex rel. Gabriel v. Youngstown, 75 Ohio St.3d 618, 619, 1996–
Ohio–445, 665 N.E.2d 209 (1996), quoting Ohio Contract Carriers Assn. at
syllabus.
{¶10} In the present case, the trial court granted the motion to substitute U.S.
Bank for HSBC as plaintiff over appellants’ objections. We do not see any evidence
in the record that the trial court followed the dictates of Civ.R. 25(C), which required
the trial court to make a finding that a transfer of interest had occurred between
HSBC and U.S. Bank before ordering this substitution.1 See Union Bank Co. v.
1
Civ.R. 25(C) states in relevant part: “In 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.”
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North Carolina Furniture Express, L.L.C., 3d Dist. Auglaize Nos. 2-10-01 and 2-
10-02, 2010-Ohio-4176 (holding “[t]he decision of whether to allow a substitution
of parties is discretionary with the trial court and may be granted only upon a finding
of a transfer of interest.”).
{¶11} However, if the trial court made an error in this ruling, we do not see
any indication that appellants suffered prejudice as the result of this order. See
Board of Trustees for the Memorial Civic Center v. Carpenter Company, 3d Dist.
Allen No. 1-81-38, 1982 WL 4618 (August 9, 1982). If anything, this order is more
likely to operate in appellants’ favor as the substitution of U.S. Bank for HSBC
binds U.S. Bank to the summary judgment order that disposed of this case. Since
appellants have not demonstrated that they have suffered injury by the alleged error
of the trial court, appellants have not carried the burden of proving that either
Watson or Lambert are an aggrieved party with the standing to appeal this ruling.
For these reasons, appellants’ first assignment of error is overruled.
First Assignment of Error
{¶12} In their first assignment of error, appellants allege that the conduct of
HSBC in submitting a defective motion to substitute plaintiff constitutes frivolous
conduct under R.C. 2323.51(B) and argue that the trial court abused its discretion
by denying appellants’ motion for the imposition of sanctions. R.C. 2323.51(B)(1)
states in relevant part that
any party adversely affected by frivolous conduct may file a
motion for an award of court costs, reasonable attorney's fees,
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and other reasonable expenses incurred in connection with the
civil action or appeal. The court may assess and make an award
to any party to the civil action or appeal who was adversely
affected by frivolous conduct….
R.C. 2323.51(B)(1). However, before the court makes such an award, it must hold
a hearing
to determine whether particular conduct was frivolous, to
determine, if the conduct was frivolous, whether any party was
adversely affected by it, and to determine, if an award is to be
made, the amount of that award….
R.C. 2323.51(B)(2)(a).
{¶13} “By enacting R.C. 2323.51, the General Assembly intended to
sanction egregious conduct, not merely misjudgments or tactical errors.” Miller v.
Miller, 6th Dist. Wood No. WD-95-016, 1995 WL 557325 (Sept. 22, 1995), 2.
Since the decision to award sanctions is committed to the discretion of the trial court,
an appellate court “will not reverse a lower court’s decision on whether to award
sanctions under R.C. 2323.51 absent a showing of an abuse of discretion.” State ex
rel. DiFranco v. S. Euclid, 144 Ohio St.3d 571, 2015-Ohio-4915, 45 N.E.3d 987, ¶
13, citing State ex rel. Bell v. Madison Cty. Bd. of Commrs., 139 Ohio St.3d 106,
2014-Ohio-1564, 9 N.E.3d 1016, ¶ 10. “An abuse of discretion suggests the trial
court’s decision is unreasonable, arbitrary, or unconscionable.” Loyer v. Signature
Healthcare of Galion, 2016-Ohio-7736, 66 N.E. 3d 779, ¶ 7 (3d Dist.).
{¶14} In this case, the trial court, after the hearing on Watson’s motion for
sanctions, declined to reconsider its previous order that granted HSBC’s motion to
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substitute plaintiff. Doc. 75. The trial court then determined that the actions
surrounding the filing of a motion that the court granted did not amount to frivolous
conduct and denied Watson’s motion for sanctions. Id. The determination of
whether frivolous conduct exists precedes the determination of whether that conduct
adversely affected a party. R.C. 2323.51(B)(2)(a). Since the trial court found that
HSBC did not engage in frivolous conduct, it did not proceed to make a
determination for the record as to whether either appellant was a party adversely
affected by frivolous conduct. Doc. 75.
{¶15} Regardless of whether the trial court correctly granted the motion to
substitute plaintiff or whether HSBC’s actions amounted to frivolous conduct, we
do not see, in the particular circumstances of this case, how HSBC’s conduct
adversely affected appellants. The civil rules of procedure require that civil actions
“be prosecuted in the name of the real party in interest.” Civ.R. 17(A). Upon a
transfer of interest, Civ.R. 25(C) provides that the successor in interest can be
substituted into the action as the real party in interest. Civ.R. 25(C). However, the
substitution is to “have the same effect as if the action had been commenced in the
name of the real party in interest.” Civ.R. 17(A). These rules regarding the real
party in interest exist “to enable the defendant to avail himself of evidence and
defenses that the defendant has against the real party in interest, and to assure him
finality of the judgment, and that he will be protected against another suit brought
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by the real party [in] interest on the same matter.”2 Argent Mtge. Co. v. Ciemins,
8th Dist. Cuyahoga No. 90698, 2008-Ohio-5994, ¶ 10, quoting Shealy v. Campbell,
20 Ohio St.3d 23, 485 N.E.2d 701 (1985).
{¶16} The primary interests protected by Civ.R. 17 and Civ.R. 25 were not
endangered by HSBC’s motion to substitute plaintiff or by the trial court’s order
granting the motion to substitute plaintiff. First, the substitution of U.S. Bank for
HSBC had no effect on the defenses or evidence available to appellants. HSBC’s
admissions conclusively established that they had nothing to assign to U.S. Bank.
Upon substitution, U.S. Bank inherited this action as it was along with all of HSBC’s
admissions. Appellants could, therefore, mount identical defenses against HSBC
and U.S. Bank. Second, the finality of the judgment was not jeopardized by this
substitution. In filing this motion, HSBC admitted that they were no longer the real
party in interest and could not bring a future action based upon the same claim.
Third, bringing in U.S. Bank was not going to expose appellants to the risk of
enduring another suit on this same matter. HSBC and U.S. Bank would both be
barred by res judicata from filing this exact claim a second time as HSBC was bound
by the assignment, which effectively admitted that they are no longer a real party in
interest, and U.S. Bank was bound by HSBC’s admission that it did not have the
promissory note.
2
Civ.R. 17 provides the real party in interest rule. In Shealy, the Ohio Supreme Court was specifically
addressing the purposes behind Civ.R. 17. While Civ.R. 17 allows for the substitution of the real party in
interest, the rules for substitution are in Civ.R. 25. Decided by the Eighth District, Ciemins considers the
purposes and effects of Civ.R. 17 and Civ.R. 25 in combination as part of an extended analysis of the
substitution of a party.
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{¶17} Even looking beyond these primary interests protected by the civil
rules, we still do not see evidence in the record of an adverse effect on appellants.
Under the facts of this particular case, the disposition of HSBC’s motion to
substitute plaintiff did not threaten the interests of appellants or compel them to
respond. Appellants chose to intervene and dispute a motion that had no potential
to affect their interests adversely. The resources expended in challenging this
motion do not qualify as an adverse effect under R.C. 2323.51 as appellants chose
to expend resources to dispute HSBC’s motion and were not compelled to expend
resources in the defense of their interests by the actions of HSBC in filing this
motion. Even if we assume that HSBC’s actions amounted to frivolous conduct,
neither appellant is an adversely affected party that is eligible for an award of
sanctions for frivolous conduct. R.C. 2323.51(B)(1). We, therefore, decline to
disturb the trial court’s determination and overrule appellants’ second assignment
of error.
{¶18} Having found no error prejudicial to the appellants in the particulars
assigned and argued, the judgment of Paulding County Court of Common Pleas is
affirmed.
Judgment Affirmed
PRESTON, P.J. and SHAW, J., concur.
/hls
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