ABL Wholesale Distribs., Inc. v. Quick Shop

[Cite as ABL Wholesale Distribs., Inc. v. Quick Shop, 2012-Ohio-3576.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 97897
ABL WHOLESALE DISTRIBUTORS, INC.
PLAINTIFF-APPELLEE
vs.
QUICK SHOP, ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
REVERSED AND REMANDED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-729493
BEFORE: Kilbane, J., Blackmon, A.J., and E. Gallagher, J.
RELEASED AND JOURNALIZED: August 9, 2012
ATTORNEY FOR APPELLANTS
Nate N. Malek
Law Office of Nate N. Malek, LLC
29025 Bolingbrook Road
Cleveland, Ohio 44124
ATTORNEYS FOR APPELLEE
James Oh
Stephan P. Babik
Robert N. Lurie
Javitch, Block, Eisen & Rathbone, LLC
1100 Superior Avenue - 19th Floor
Cleveland, Ohio 44114
MARY EILEEN KILBANE, J.:
{¶1} This case came to be heard upon the accelerated calendar pursuant to
App.R. 11.1 and Loc.R. 11.1.
{¶2} Defendants-appellants, Quick Shop (“Quick Shop”) and Hamid Sarkis
(“Sarkis”), appeal from the order of the trial court that denied their motion for relief from
a cognovit judgment obtained by ABL Wholesale Distributors, Inc. (“ABL”). For the
reasons set forth below, we reverse and remand this matter for a hearing on defendants’
motion for relief from judgment.
{¶3} On June 17, 2010, ABL filed a complaint against Sarkis and Quick Shop
alleging that $25,927.14 is due on an account for merchandise. According to ABL,
Sarkis, as Individual Guarantor of Quick Shop, completed a credit application that
provided for the creation of an open account promissory note with cognovit provisions,
“such that if the Applicant fails to pay pursuant to the terms thereof, the undersigned
authorizes any attorney to appear on behalf of the undersigned Guarantor in an action to
collect upon such amount past due, to waive issuance of service of process, and to confess
judgment in favor of ABL Wholesale Distributors, Inc. against Guarantor.” This
document also contained a cognovit warning, pursuant to R.C. 2323.13(D).
{¶4} On June 17, 2010, an answer confessing judgment was filed on behalf of the
defendants through a warrant of attorney. The trial court entered judgment in favor of
ABL for $25,927.14.
{¶5} On December 17, 2010, defendants filed a motion to vacate the cognovit
judgment, alleging that there was no warrant of attorney in this matter as required under
R.C. 2323.13(A). Sarkis also averred that he did not sign the document at issue, and that
he “cannot speak, read, write or otherwise understand English [and the] statutorily
required warning was essentially useless as the Defendant could not have possibly
understood it.”
{¶6} The trial court scheduled a hearing on the motion on March 22, 2011, and
the hearing on the motion was reset to May 20, 2011, and then to October 13, 2011. The
court held telephone conferences on August 16, 2011, and December 12, 2011.
According to the parties, no hearing before the court was held on that date. In an order
journalized on January 3, 2012, the trial court denied the motion filed by defendants to
vacate the cognovit judgment.
{¶7} Defendants appeal, raising two assignments of error for our review.
ASSIGNMENT OF ERROR TWO
The trial court erred when it failed to hold an oral hearing on Defendants’
Motion to Vacate.
{¶8} Civ.R. 60(B) governs motions for relief from judgment and provides in
part:
On motion and upon such terms as are just, the court may relieve a party or
his legal representative from a final judgment, order or proceeding for the
following reasons: (1) mistake, inadvertence, surprise or excusable neglect;
(2) newly discovered evidence which by due diligence could not have been
discovered in time to move for a new trial under Rule 59(B); (3) fraud
(whether heretofore denominated intrinsic or extrinsic), misrepresentation
or other misconduct of an adverse party; (4) the judgment has been
satisfied, released or discharged, or a prior judgment upon which it is based
has been reversed or otherwise vacated, or it is no longer equitable that the
judgment should have prospective application; or (5) any other reason
justifying relief from the judgment. * * *
{¶9} To prevail on a Civ.R. 60(B) motion, the movant must demonstrate that:
(1) the party has a meritorious defense or claim to present if relief is
granted; (2) the party is entitled to relief under one of the grounds stated in
Civ.R. 60(B)(1) through (5); and (3) the motion is made within a reasonable
time, and, where the grounds of relief are Civ.R. 60(B)(1), (2) or (3), not
more than one year after the judgment, order or proceeding was entered or
taken.
GTE Automatic Elec., Inc. v. ARC Indus., Inc., 47 Ohio St.2d 146, 351 N.E.2d
113 (1976), paragraph two of the syllabus.
{¶10} The moving party fails the GTE test by not meeting any one of the three
requirements. Rose Chevrolet, Inc. v. Adams, 36 Ohio St.3d 17, 20, 520 N.E.2d 564(1988). Ohio courts have determined, however, that in cognovit proceedings, the movant
need only demonstrate that the motion was timely made and that he has a meritorious
defense. See Medina Supply Co. v. Corrado, 116 Ohio App.3d 847, 850-851, 689
N.E.2d 600 (8th Dist.1996), citing Soc. Natl. Bank v. Val Halla Athletic Club &
Recreation Ctr., Inc., 63 Ohio App.3d 413, 579 N.E.2d 234 (9th Dist.1989).
{¶11} A party who files a Civ.R. 60(B) motion for relief from judgment is not
automatically entitled to a hearing on the motion. Instead, the movant bears the burden
to demonstrate that he or she is entitled to a hearing on the motion. Id. To warrant a
hearing on a Civ.R. 60(B) motion, the movant must allege operative facts that would
warrant relief under Civ.R. 60(B). Kay v. Marc Glassman, Inc., 76 Ohio St.3d 18, 19,
1996-Ohio-430, 665 N.E.2d 1102. A movant is not required to submit evidentiary
material in support of the motion, but a movant must do more than make bare allegations
of entitlement to relief. Id.{¶12} If the movant files a motion for relief from judgment and it contains
allegations of operative facts that would warrant relief under Civil Rule 60(B), the trial
court should grant a hearing to take evidence and verify these facts before it rules on the
motion. Coulson v. Coulson, 5 Ohio St. 3d 12, 448 N.E.2d 809 (1983), citing Adomeit v.
Baltimore, 39 Ohio App.2d 97, 105, 316 N.E.2d 469 (8th Dist.1974). A “trial court
abuses its discretion in denying a hearing where grounds for relief from judgment are
sufficiently alleged and are supported with evidence which would warrant relief from
judgment.” Marc Glassman, 76 Ohio St.3d at 19.
{¶13} In the case at bar, defendants’ motion was filed six months after the entry of
the cognovit judgment, and plaintiff does not challenge the timeliness of the motion. As
to the issue of whether defendants demonstrated a meritorious defense, we note that in
general, “[a] cognovit note contains provisions designed to cut off defenses available to a
debtor in the event of default.” Classic Bar & Billiards, Inc. v. Fouad Samaan, 10th
Dist. No. 08AP-210, 2008-Ohio-5759, ¶ 8. By definition, cognovit notes cut off every
defense, except payment, which the maker of the note may have against enforcement of
the note. First Natl. Bank of Pandora v. Freed, 3d Dist. No. 5-03-36, 2004-Ohio-3554, ¶
9, quoting Advanced Clinical Mgmt., Inc. v. Salem Chiropractic Ctr., Inc., 5th Dist. No.
2003CA00108, 2004-Ohio-120, ¶ 18. Ohio courts have also recognized additional
meritorious defenses involving the integrity and validity of cognovit notes, including:
“improper conduct in obtaining the debtor’s signature on the note; deviation from proper
procedures in confessing judgment on the note; and miscalculation of the amount
remaining due on the note at the time of confession of judgment.” Freed at ¶ 9.
{¶14} Here, defendants maintained that the credit application that provided for the
creation of an open account promissory note failed to meet the requirements for cognovit
notes set forth in R.C. 2323.13 and, more specifically, did not contain a warrant of
attorney. Sarkis also averred that he did not sign the note, that he does not read or write
in the English language, and that he could not understand the provisions of the document
at issue, including the cognovit language. We find that Sarkis’s affidavit and allegations
set forth operative facts involving improper conduct in obtaining the debtor’s signature
and therefore challenge the integrity and validity of the cognovit note. Accordingly, we
conclude that defendants provided sufficient operative facts that would support a
meritorious defense to the judgment, and therefore, entitled defendants to a hearing to
take evidence and verify the facts before ruling upon the motion. As a result, the trial
court abused its discretion when it failed to conduct a hearing before denying the motion
for relief from judgment filed by defendants.
{¶15} This assignment of error is sustained, and the matter is remanded to the trial
court to conduct a hearing on the motion for relief from judgment.
ASSIGNMENT OF ERROR ONE
The trial court erred when it denied Defendants’ Motion to Vacate.
{¶16} In the first assignment of error, defendants argue that the trial court erred
and abused its discretion by denying their motion for relief from judgment. In light of
our disposition of the second assignment of error, we overrule the first assignment of
error as moot. See App.R. 12(A)(1)( c).
{¶17} Judgment is reversed and the matter is remanded for a hearing on the motion
for relief from judgment.
It is ordered that appellants recover from appellee costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment into
execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
MARY EILEEN KILBANE, JUDGE
PATRICIA A. BLACKMON, A.J., and
EILEEN A. GALLAGHER, J., CONCUR