Kostoglou v. Fortuna

          Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-15-845367

          Kaufman, Drozdowski & Grendell, L.L.C., and Evan T. Byron, for appellee.

          Harvey B. Bruner Co., L.PA., and Harvey Bruner, for appellants.

          JOURNAL ENTRY AND OPINION

          FRANK D. CELEBREZZE, JR., J.

         {¶ 1} Defendants-appellants, John Fortuna ("Fortuna"), Parmatown Spinal Rehabilitation Center, Inc. ("Parmatown Spinal"), and Parmatown Physical Therapy, L.L.C. ("Parmatown PT") (collectively "appellants"), bring the instant appeal challenging the trial court's denial of their motion for relief from judgment. Specifically, appellants argue that the trial court abused its discretion in failing to hold a hearing on appellants' motion for relief from judgment. After a thorough review of the record and law, this court affirms.

         I. Factual and Procedural History

         {¶ 2} This matter arose out of a ten-year promissory note executed on February 29, 2008, by Fortuna to plaintiff-appellee, John Kostoglou ("Kostoglou"), in the amount of $250, 000. Fortuna is a licensed chiropractor and operated a chiropractic practice. Kostoglou is also a licensed chiropractor and owned and operated Parmatown Spinal. Fortuna became an employee of Parmatown Spinal in 2007. Thereafter, Kostoglou sold all of his shares in Parmatown Spinal to Fortuna for a total amount of $750, 000. The transaction included a payment of $500, 000 from Fortuna to Kostoglou, and also included the promissory note for an additional $250, 000. The promissory note required Fortuna to pay Kostoglou monthly payments in the amount of $3, 303.77, plus interest at 10 percent annum, for a period of 120 months with the first payment due on April 1, 2008.

         {¶ 3} Fortuna failed to make any payments on the note, and as a result, on May 10, 2015, Kostoglou filed a complaint against Fortuna to enforce the note. The note contained a warranty of attorney clause that mandated a confession of judgment on behalf of Fortuna if Fortuna failed to make payments on the note. On May 12, 2015, an attorney filed the confession of judgment against Fortuna. On May 26, 2015, the trial court awarded judgment in favor of Kostoglou based on this confession of judgment.

         {¶ 4} On June 24, 2015, Fortuna filed a motion for relief from judgment pursuant to Civ.R. 60(B). Fortuna argued that he was never presented with the note for payment. Fortuna further argued that the note had in effect been replaced by a subsequent agreement between Fortuna and Kostoglou. Fortuna contended that he and Kostoglou entered into a partnership agreement, after execution of the promissory note, where Fortuna received 80 percent of the profits of Parmatown Spinal and Kostoglou received 20 percent. Fortuna further argued that the $250, 000 had been satisfied because the parties had entered into an accord subsequent to the payments on the note. On December 1, 2015, the trial court granted Fortuna's motion for relief from judgment.

         {¶ 5} On February 16, 2016, Kostoglou filed an amended complaint. Kostoglou joined Parmatown Spinal and Parmatown PT as defendants in the amended complaint^[1] Kostoglou's amended complaint alleged a breach of fiduciary duty, breach of care, breach of loyalty, and various other claims against appellants. On March 16, 2016, Kostoglou filed a motion to appoint a receiver. On May 20, 2016, Fortuna filed an answer to the amended complaint, and asserted a counterclaim against Kostoglou for overpayments in excess of the original purchase price of $750, 000 for Parmatown Spinal. On June 2, 2016, Parmatown Spinal and Parmatown PT filed an answer to Kostoglou's amended complaint.

         {¶ 6} Thereafter, Kostoglou alleged that Parmatown Spinal and Parmatown PT had not engaged in discovery, and on August 11, 2016, Kostoglou filed a motion to compel discovery, which was unopposed by appellants. Then, on August 22, 2016, the trial court granted Kostoglou's motion to compel discovery and issued an order compelling appellants to comply with discovery. The trial court's order stated "[appellants] are ordered to respond to [Kostoglou's] discovery requests within seven days of this order."

         {¶ 7} On August 30, 2016, based on appellants' failure to comply with discovery in accordance with the trial court's August 22, 2016 order, Kostoglou filed a motion for sanctions, and again asked the trial court for an appointment of a receiver. On October 26, 2016, the trial court granted Kostoglou's motion for sanctions, and entered an order granting sanctions and appointing a receiver. In its order, the trial court found that appellants willfully failed to comply in a meaningful way with discovery requests and "have willfully failed to comply with the [c]ourt [o]rder and that [appellants] should be sanctioned for their failure to comply with the [o]rder." The trial court further ordered appellants to pay the receivers fees. On March 22, 2017, the receiver filed a motion seeking to have his bill reduced to judgment because appellants had not paid the bill within five business days as required by the trial court's sanctions order.

         {¶ 8} After the trial court's order, appellants provided certain paper documents, but failed to fully provide certain requested documents, namely "electronically stored information" ("ESI") documents. Then, on April 7, 2017, Kostoglou filed a motion for entry of judgment against appellants for their continued failure to provide discovery documents. Appellants responded to Kostoglou's motion for entry of judgment, and argued that they had provided the ESI documents to the receiver.

         {¶ 9} On October 30, 2017, the trial court granted Kostoglou's motion for entry of judgment, and entered judgment in favor of Kostoglou in the amount of $250, 000 plus 10 percent interest annum.

         {¶ 10} On November 22, 2017, appellants filed a notice of appeal. However, this court, sua sponte, on December 4, 2017, issued an order dismissing appellants' appeal for lack of a final appealable order. R.C. 2505.02; Civ.R. 54(B). See motion No. 512496.

         {¶ 11} Upon remand, on May 7, 2018, Kostoglou filed another motion for entry of judgment on the basis of repeated failures on the part of appellants to comply with discovery requests, and noting that appellants failed to appear at a scheduled deposition on March 21, 2018. Appellants sought an extension of time to respond to Kostoglou's May 7, 2018 motion for entry of judgment, and the trial court granted this extension. However, appellants did not file a response motion to Kostoglou's motion for entry of judgment, and instead, on June 15, 2018, appellants filed a motion for relief from judgment pursuant to Civ.R. 60(B). Appellants argued that appellants' counsel

did not have access to all of [Fortuna's] checks issued from [Parmatown Spinal] because they were initially in the hands of the [f]ederal [government, ^[2] who was investigating [Fortuna] and in the hands of Kenneth Callahan, the receiver in this case.

After retrieving the checks, [Fortuna] had an accountant, Richard Lemongello, go through all of the checks, and for the period of 2009 through 2016 at the time of the closing of the [Parmatown Spinal], [Fortuna] had paid [Kostoglou] $685, 354.00, which included both rent and charges for the building, as well as full payment on the note of $250, 000.00 between [Fortuna] and [Kostoglou].

It is requested that the [c]ourt have hearing on this matter so that [Fortuna] can put forth the evidence mentioned herein showing that he has fully paid [Kostoglou].

Attached and marked as Exhibit A are a letter from accountant Richard Lemongello, and list of the checks, as well as copies of canceled checks to [Kostoglou].

         Although referenced in appellants' motion, appellants failed to actually attach "Exhibit A." The trial court scheduled appellants' motion for a hearing on July 31, 2018.

         {¶ 12} On July 27, 2018, appellants filed a motion to continue the July 31 hearing. As a result, the trial court converted the July 31 hearing on appellants' motion for relief from judgment to a settlement conference. Appellants did not object to the trial court's order converting the hearing to a settlement conference. Appellants' counsel and Kostoglou's counsel conducted a settlement conference on July 31, 2018. Then, on October 31, 2018, the trial court issued ...