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1st National Financial Services v. Ashley

Court of Appeals of Ohio, Tenth District

December 24, 2019

1st National Financial Services, Plaintiff-Appellee,
v.
Stacia Ashley, Defendant-Appellant.

          APPEAL from the Franklin County Municipal Court M.C. No. 2015CVF013668.

         On brief:

          Jeffrey A. Catri Co., LLC, and Jeffrey A. Catri, for appellee.

          The Legal Aid Society of Columbus, Jacqueline Gutter, Scott E. Torguson, and Catherine L. Beck, for appellant.

         Argued:

          Scott E. Torguson.

          Jeffrey A. Catri.

          DECISION

          BROWN, J.

         {¶ 1} Stacia Ashley, defendant-appellant, appeals from a judgment of the Franklin County Municipal Court, in which the court denied appellant's motion to vacate.

         {¶ 2} In 2013, appellant obtained a loan from plaintiff-appellee, 1st National Financial Services ("1st National") for $1, 998.31. Appellant failed to pay according to the terms of the loan, and on September 24, 2014, 1st National filed a debt collection action. The parties subsequently entered into a written payment agreement, which included monthly payments and a lump sum payment. Appellant did not pay according to the terms of the agreement. The parties entered negotiations again and, on February 28, 2015, appellant signed a cognovit note drafted by 1st National's counsel, which set forth terms for repayment of the loan and indicated it was for the settlement of a commercial matter rather than a consumer loan, which would be prohibited by R.C. 2323.13(E). On March 2, 2015, 1st National dismissed its 2014 debt collection action.

         {¶ 3} However, appellant failed to pay according to the terms of the cognovit note. Therefore, on April 27, 2015, 1st National commenced the present action to enforce the cognovit note. On April 30, 2015, the trial court entered a judgment in favor of 1st National in the amount of $1, 073.70. On July 15, 2015, the court entered a garnishment order which ordered appellant's wages garnished to satisfy the judgment.

         {¶ 4} On September 8, 2015, appellant filed a motion to vacate the trial court's April 30, 2015 judgment, asserting the trial court lacked subject-matter jurisdiction over the cognovit note because it arose from a consumer loan, and a cognovit note can only arise out of a commercial loan. On November 23, 2015, 1st National filed a "Satisfaction of Judgment" because it had received all or substantially all of the funds requested in the garnishment order. On the same date, 1st National responded to appellant's motion to vacate, claiming the motion was moot due to the "Satisfaction of Judgment."

         {¶ 5} On December 11, 2015, the trial court issued an entry stating that all pending motions were moot without further explanation.

         {¶ 6} Appellant appealed, and in 1st Natl. Fin. Servs. v. Ashley, 10th Dist. No. 16AP-18, 2016-Ohio-5497 ("Ashley I"), this court reversed the trial court's judgment, finding the trial court erred when it dismissed appellant's motions as moot without examining whether it had subject-matter jurisdiction to enter judgment. We remanded the matter for a hearing on whether the cognovit note arose out of a consumer loan and whether the trial court had subject-matter jurisdiction.

         {¶ 7} On May 11, 2017, the trial court held an evidentiary hearing. On August 15, 2017, the trial court issued judgment in favor of 1st National, finding that appellant failed to sustain her burden to prove that the cognovit note arose out of a commercial loan.

         {¶ 8} Appellant appealed and, in 1st Natl. Fin. Servs. v. Ashley, 10th Dist. No. 17AP-638, 2018-Ohio-3134 ("Ashley II"), this court reversed the trial court's judgment, finding the trial court erred when it placed the burden of proof on appellant and should have placed the burden of proof on 1st National to prove the cognovit note arose from a commercial transaction. We remanded the matter to the trial court.

         {¶ 9} On September 11, 2018, the trial court issued another judgment, in which it denied appellant's motion to vacate, finding that 1st National sustained its burden to prove that the court had subject-matter jurisdiction. Appellant appeals the judgment of the trial court, asserting the following assignment of error:

The Trial Court Abused Its Discretion When it Denied Ms. Ashley's Motion to Vacate.

         {¶ 10} Appellant argues in her sole assignment of error the trial court abused its discretion when it denied her motion to vacate. In Ashley II, we already discussed the applicable standard of review, general law regarding cognovit notes, and much of the relevant evidence presented. Rather than reinvent these elements, we will reiterate them nearly verbatim herein. Generally, we review a trial court's decision on a motion to vacate for abuse of discretion. Young v. Locke, 10th Dist. No. 13AP-608, 2014-Ohio-2500, ¶ 20. However, in the present case, appellant's motion to vacate implicated the trial court's subject-matter jurisdiction. We review questions of subject-matter jurisdiction de novo. Klosterman v. Turnkey-Ohio, LLC, 182 Ohio App.3d 515, 2009-Ohio-2508, ¶ 19 (10th Dist.).

         {¶ 11} "The cognovit is the ancient legal device by which the debtor consents in advance to the holder's obtaining a judgment without notice or hearing, and possibly even with the appearance, on the debtor's behalf, of an attorney designated by the holder." D.H. Overmyer Co., Inc. v. Frick Co., 405 U.S. 174, 176 (1972). "[T]he cognovit has long been recognized [in Ohio] by both statute and court decision." Id. at 178. Strict compliance with statutory requirements is required to obtain judgment on a cognovit note. "A cognovit judgment is valid if the warrant of attorney to confess judgment and all note terms are strictly construed against the person obtaining the judgment, and court proceedings, based upon such warrant, must conform to every essential detail with the statutory law governing the subject." Fifth Third Bank v. Pezzo Constr., Inc., 10th Dist. No. 11AP-251, 2011-Ohio-5064, ¶ 11, citing Lathrem v. Foreman, 168 Ohio St. 186 (1958).

         {¶ 12} Notwithstanding the long legal recognition of cognovit notes in Ohio, the General Assembly has curtailed the use of cognovit notes in consumer transactions. R.C. 2323.13(E) provides that "[a] warrant of attorney to confess judgment contained in any instrument executed on or after January 1, 1974, arising out of a consumer loan or consumer transaction, is invalid and the court shall have no jurisdiction to render a judgment based upon such a warrant." The statute defines a consumer loan as "a loan to a natural person and the debt incurred is primarily for a personal, family, educational, or household purpose." R.C. 2323.13(E)(1). If a cognovit note arises out of a consumer loan or a consumer transaction, then a judgment entered based on that cognovit note is void and must be vacated for lack of subject-matter jurisdiction. Shore W. Constr. Co. v. Sroka, 61 Ohio St.3d 45, 48 (1991).

         {¶ 13} "By its very terms, a cognovit note allows for judgment to be taken against the debtor-party without notice or hearing." Dollar Bank v. Bernstein Group, Inc., 71 Ohio App.3d 530, 533 (10th Dist.1991). Thus, the issue of subject-matter jurisdiction or any other defenses available to a defendant may not be fully and fairly litigated by a trial court prior to entering judgment on a cognovit note. Id. In recognition of the unique circumstances presented by cognovit judgments, Ohio courts have held that when a party files a motion to vacate a cognovit judgment pursuant to Civ.R. 60(B), a modified test is appropriate. "Where the relief from judgment sought is on a cognovit note, '[t]he prevailing view is that relief from a judgment taken upon a cognovit note, without prior notice, is warranted by authority of Civ.R. 60(B)(5) when the movant: (1) establishes a meritorious defense, (2) in a timely application.'" Fifth Third Bank at ¶ 8, quoting Meyers v. McGuire, 80 Ohio App.3d 644, 646 (9th Dist.1992). Further, "[u]nder Civ.R. 60(B), a movant's burden is only to allege a meritorious defense, not to prove that he will prevail on that defense." Rose Chevrolet v. Adams, 36 Ohio St.3d 17, 20 (1988).

         {¶ 14} In the present case, appellant filed a common law motion to vacate judgment rather than a motion for relief from judgment pursuant to Civ.R. 60(B). However, as we stated in Ashley II, "similar considerations arise because of the nature of a cognovit judgment. [Appellant's] motion challenged the trial court's subject-matter jurisdiction, which is an issue that can be raised at any time and renders a court's judgment void ab initio." Id. at ¶ 11, citing Bank of Am., NA. v. Kuchta,141 Ohio St.3d 75, 2014-Ohio-4275, ΒΆ 17. Appellant argued in her motion to vacate that the underlying loan was a consumer loan and, therefore, pursuant to R.C. 2323.13(E), the warrant to confess judgment contained in the cognovit note was invalid and the court lacked subject-matter jurisdiction to enter judgment on it. Appellant averred that she obtained the original loan to help pay personal bills and all funds she obtained from that loan were used for family and household purposes. ...


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