Huntington Natl. Bank v. Bywood, Inc.

[Cite as Huntington Natl. Bank v. Bywood, Inc., 2017-Ohio-2740.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
The Huntington National Bank, :
Plaintiff-Appellee, :
v. : No. 16AP-358
(C.P.C. No. 12CV-1129)
Bywood, Inc., :
(ACCELERATED CALENDAR)
Defendant-Appellee, :
(Ashraf Ettayem, :
Defendant-Appellant). :
D E C I S I O N
Rendered on May 9, 2017
On brief: Thomas R. Merry and Beth M. Miller, for
plaintiff-appellee. Argued: Beth M. Miller.
On brief: Ashraf A. Ettayem, pro se. Argued: Ashraf
Ettayem.
APPEAL from the Franklin County Court of Common Pleas
KLATT, J.
{¶ 1} Defendant-appellant, Ashraf Ettayem, appeals a judgment of the Franklin
County Court of Common Pleas that aided plaintiff-appellee, The Huntington National
Bank ("Huntington"), in the execution of a judgment against Ettayem. Ettayem also
challenges the trial court's ruling that he admitted the matters contained within
Huntington's requests for admissions when he failed to timely respond to those requests.
For the following reasons, we affirm in part and reverse in part the judgment aiding in the
No. 16AP-358 2
execution of a prior judgment. Because the trial court lacked the jurisdiction necessary to
enter the judgment deeming the discovery requests admitted, we conclude that that
judgment is void and a nullity.
{¶ 2} On January 27, 2012, Huntington filed suit against Bywood, Inc. and
Ettayem. In its complaint, Huntington alleged that it had extended to Bywood a business
credit line loan and a business overdraft protection loan, and that Bywood had breached
the terms of the contracts governing those loans. Additionally, Huntington alleged that
Ettayem had executed and delivered to Huntington a guaranty covering both loans.
Huntington sought judgment against Bywood and Ettayem for the amounts due on both
loans.
{¶ 3} Ultimately, the trial court granted Huntington summary judgment on its
claims. In a judgment dated November 20, 2012, the trial court awarded Huntington
damages in the amount of $56,537.96, plus interest, late fees, and charges. Bywood and
Huntington appealed the November 30, 2012 judgment to this court, and we affirmed it.
Huntington Natl. Bank v. Bywood, Inc., 10th Dist. No. 12AP-994, 2013-Ohio-2780, ¶ 1,
11.
{¶ 4} Huntington conducted debtor examinations of Ettayem on March 14, 2014
and May 1, 2015. During those examinations, Ettayem testified regarding The Limited
Investment Group Corp. ("Limited"), a business that Ettayem incorporated in 2003.
Ettayem explained that he served as Limited's president and chief executive officer.
Limited employed no other officers and had no directors.
{¶ 5} According to Ettayem, he owned 100 percent of the stock that Limited
issued. Although a stock certificate for Ettayem's Limited shares existed, Ettayem did not
have physical possession of it. To Ettayem's knowledge, the stock certificate was located
in the business office of a commercial building that Limited had previously owned on
Central Avenue. However, that building had been sold in July 2012 by a receiver
appointed by the Franklin County Court of Common Pleas. Prior to the sale, the receiver
had inspected the Central Avenue building's business office, but he did not find any
Limited stock certificates.
{¶ 6} Huntington used the information it had collected regarding Ettayem's
ownership of Limited stock to file an ex parte motion in aid of execution of its
No. 16AP-358 3
November 20, 2012 judgment. Specifically, Huntington moved the trial court to
(1) prohibit Ettayem from transferring, selling, or pledging his shares of stock in Limited
and (2) issue a replacement stock certificate for Ettayem's Limited shares and turn that
certificate over to the Franklin County Sheriff for levy and sale. The trial court granted
Huntington's motion in a judgment entered April 8, 2016.
{¶ 7} When Huntington sought the trial court's aid in execution of its judgment,
Huntington raised with the trial court the parties' ongoing controversy over discovery. In
December 2016, Huntington served upon Ettayem interrogatories, requests for
admission, and requests for the production of documents. Ettayem objected to the
discovery requests and moved to strike them. The trial court denied Ettayem's objections
and motion to strike in an entry dated February 11, 2016. Ettayem appealed that denial by
filing a timely notice of appeal. Despite the pendency of the appeal, Huntington asked the
trial court to enter an order deeming admitted the matters contained in Huntington's
requests for admission. On April 7, 2016, the trial court entered the order Huntington
requested.1
{¶ 8} Ettayem now appeals the trial court's April 7 and 8 judgments, and he
assigns the following errors:
[1.] THE TRIAL COURT ERRED IN GRANTING
PLAINTIFF'S ORAL MOTION IN [AN] EX-PARTE
PROCEEDING TO HAVE ITS FIRST REQUESTS FOR
ADMISSION TO DEFENDANT ASHRAF ETTAYEM
DEEMED ADMITTED.
[2.] THE TRIAL COURT ERRED IN GRANTING
PLAINTIFF'S MOTION IN [AN] EX-PARTE PROCEEDING
IN AID OF EXECUTION UPON JUDGMENT FOR AN
ORDER: 1- PROHIBITING THE TRANSFER, SALE, OR
PLEDGE OF [THE] STOCK CERTIFICATE AND 2-
AUTHORIZING ISSUANCE OF [A] REPLACEMENT STOCK
CERTIFICATE BY [THE] COURT FOR TURNOVER TO THE
FRANKLIN COUNTY SHERIFF[.]
(Emphasis sic.)
1On April 17, 2016, Ettayem filed a motion to voluntarily dismiss his appeal of the denial of his objections
and motion to strike. We entered a journal entry granting the dismissal of the appeal on April 19, 2016.
No. 16AP-358 4
{¶ 9} By his first assignment of error, Ettayem argues that the trial court lacked
the jurisdiction necessary to enter its April 7, 2016 order deeming admitted the matters
contained in Huntington's requests for admission. We agree.
{¶ 10} " '[O]nce an appeal is perfected, the trial court is divested of jurisdiction
over matters that are inconsistent with the reviewing court's jurisdiction to reverse,
modify, or affirm the judgment.' " State ex rel. Electronic Classroom of Tomorrow v.
Cuyahoga Cty. Court of Common Pleas, 129 Ohio St.3d 30, 2011-Ohio-626, ¶ 13, quoting
State ex rel. Rock v. School Emps. Retirement Bd., 96 Ohio St.3d 206, 2002-Ohio-3957,
¶ 8. Thus, generally, the timely filing of a notice of appeal precludes a trial court from
issuing further orders affecting matters at issue in the appeal. Horvath v. Packo, 6th Dist.
No. L-11-1318, 2013-Ohio-56, ¶ 45; see Electronic Classroom of Tomorrow at ¶ 14
(holding that the trial court lacked the authority to enter final judgment on those claims
implicated in the order challenged and issue raised in the appeal); Whipps v. Ryan, 10th
Dist. No. 14AP-67, 2014-Ohio-5302, ¶ 42 (holding that the trial court lacked jurisdiction
to entertain a motion that raised issues subject to determination by the appellate court in
an earlier filed appeal). "When a trial court acts beyond its jurisdiction while an appeal is
pending, its order is void." Kitson v. Gordon Food Serv., 9th Dist. No. 15CA0078-M,
2016-Ohio-7079, ¶ 6. A void judgment is a nullity. Lingo v. State, 138 Ohio St.3d 427,
2014-Ohio-1052, paragraph two of the syllabus, ¶ 46.
{¶ 11} Here, Ettayem appealed the February 11, 2016 order overruling his
objections to Huntington's discovery and denying his motion to strike that discovery.
Once Ettayem perfected his appeal of that order, the trial court lost its authority to take
any further action regarding the disputed discovery requests because that matter was
within our jurisdiction on review. By issuing its April 7, 2016 ruling deeming the requests
for admission admitted, the trial court necessarily assumed that the requests were valid.
The jurisdiction to consider and determine that question, however, had passed to this
court with the filing of the appeal from the February 11, 2016 order. Thus, the pendency
of the appeal divested the trial court of the jurisdiction necessary for it to issue its April 7,
2016 order. That order, therefore, is void.
{¶ 12} Huntington argues that the February 11, 2016 order was not a final,
appealable order and, consequently, Ettayem's appeal of that order did not divest the trial
No. 16AP-358 5
court of jurisdiction to act during the pendency of the appeal. The Supreme Court of Ohio
has rejected this argument. That court has held that "[a] trial court judge's opinion that
the order appealed from is not a final, appealable order does not alter the fact that the
filing of the notice of appeal divests the trial court of jurisdiction to proceed with the
adjudication during the pendency of the appeal." Electronic Classroom of Tomorrow at
¶ 16. Moreover, a court of appeals' ultimate determination that the appealed order is not
a final, appealable order does not retroactively sanction a trial court's action on appealed
matters during the pendency of the appeal. Id. Thus, once a party perfects an appeal of a
journalized order, the trial court loses jurisdiction over matters inconsistent with the
reviewing court's consideration and determination of the appeal, regardless of whether
the order appealed is actually a final, appealable order. Brannon v. Persons, 2d Dist. No.
27266, 2016-Ohio-8591, ¶ 4; Horvath at ¶ 30.
{¶ 13} As a final matter, we recognize that our resolution of this assignment of
error may ultimately have little practical impact. Civ.R. 36(A)(1) is self-executing; absent
a timely answer or objection, a matter is admitted without the necessity of a court order.
Samaan v. Walker, 10th Dist. No. 07AP-767, 2008-Ohio-5370, ¶ 8; Farah v. Chatman,
10th Dist. No. 06AP-502, 2007-Ohio-697, ¶ 10. Nevertheless, a court order that deems
matters admitted remains a court order, regardless of its redundancy, and a trial court
must possess jurisdiction to enter such an order. Because the trial court lacked the
necessary jurisdiction in this case, its February 11, 2016 order is void and, thus, a nullity.
{¶ 14} Void judgments do not constitute final, appealable orders. State ex rel.
Carnail v. McCormick, 126 Ohio St.3d 124, 2010-Ohio-2671, ¶ 36. If an order is not final,
then a court of appeals has no jurisdiction to review it. Gehm v. Timberline Post &
Frame, 112 Ohio St.3d 514, 2007-Ohio-607, ¶ 14. As the February 11, 2016 order is void,
we lack jurisdiction over it, and we thus dismiss Ettayem's first assignment of error.
{¶ 15} By his second assignment of error, Ettayem argues that the trial court erred
in granting Huntington's motion seeking aid in the execution of the November 20, 2012
judgment. In granting Huntington's motion, the trial court: (1) prohibited Ettayem,
acting individually and as a Limited corporate officer, from transferring, issuing, selling,
pledging, encumbering, or otherwise disposing of any shares of Limited stock, and (2)
issued a new Limited stock certificate to replace the original stock certificate that Limited
No. 16AP-358 6
had executed and delivered to Ettayem. On appeal, Ettayem presents no legal argument
challenging the trial court's prohibition regarding the Limited stock. Consequently, we
overrule the second assignment of error to the extent that it alleges error in that
prohibition. We thus turn to Ettayem's primary appellate argument: the trial court erred
in issuing a new Limited stock certificate.
{¶ 16} Huntington asked the trial court to issue a new stock certificate so that
Huntington could execute upon it, affect the stock certificate's sale, and use the proceeds
to satisfy the outstanding judgment against Ettayem. Huntington relied on R.C. 1308.32
to achieve its purpose. In R.C. 1308.32, Ohio has adopted Uniform Commercial Code
("UCC") 8-112, which specifies the methods by which a creditor may reach a certificated
security owned by a debtor. Domo v. Boulder Bluff Corp., 6th Dist. No. 92OT065
(Dec. 17, 1993). In relevant part, R.C. 1308.32 states:
(A) The interest of a debtor in a certificated security may be
reached by a creditor only by actual seizure of the security
certificate by the officer making the attachment or levy, except
as otherwise provided in division (D) of this section.
However, a certificated security for which the certificate has
been surrendered to the issuer may be reached by a creditor
by legal process upon the issuer.
***
(D) The interest of a debtor in a certificated security for which
the certificate is in the possession of a secured party * * * may
be reached by a creditor by legal process upon the secured
party.
(E) A creditor whose debtor is the owner of a certificated
security * * * is entitled to aid from a court of competent
jurisdiction, by injunction or otherwise, in reaching the
certificated security * * * or in satisfying the claim by means
allowed at law or in equity in regard to property that cannot
readily be reached by other legal process.
{¶ 17} R.C. 1308.32, thus, creates a general rule and two exceptions governing
execution against a certificated security. Under the general rule, for a creditor to reach a
debtor's interest in a stock certificate, actual seizure of the stock certificate must occur.
Domo; accord Hastings v. Furr, 177 B.R. 723, 727 (S.D.Fla.1995) (interpreting Florida's
version of former UCC 8-317 (a similarly worded predecessor to UCC 8-112) and holding
No. 16AP-358 7
that "[c]ertificated securities must be actually seized to perfect a creditor's lien against a
debtor's certificated securities"); Wolverine Flagship Fund Trading Ltd. v. American
Oriental Bioengineering, Inc., 444 N.J.Super. 530, 535 (2016) (construing New Jersey's
version of UCC 8-112); Ho v. Hsieh, 181 Cal.App.4th 337, 345 (2010) (construing
California's version of UCC 8-112). However, a creditor may instead secure an interest in
the debtor's stock certificate through ordinary legal process (1) on the issuing corporation,
where the stock certificate has been surrendered to that corporation or (2) on a secured
party in possession of the stock certificate, where the debtor has transferred the certificate
to another party to secure a debt. Wolverine Flagship Fund Trading Ltd. at 535; Ho at
345; accord Domo ("When certificated securities are in the hands of a secured party, '* * *
an effective lien can be established by service on the secured party * * *.' ").
{¶ 18} Initially, Ettayem argues that the evidence establishes that the second
exception applies here. Ettayem is mistaken. Although Ettayem stated that he has
"borrowed repeatedly against [his] stocks in the business [he] own[s]," Ettayem did not
testify that he transferred his Limited stock certificate to a secured lender. (Mar. 14, 2014
Tr. at 40). Therefore, the general rule controlled here and required actual seizure of
Ettayem's Limited stock certificate.
{¶ 19} Huntington, however, faced a major obstacle in accomplishing the actual
seizure of the Limited stock certificate: Ettayem apparently lost it. While Ettayem never
explicitly testified that he had lost the Limited stock certificate, the evidence supports that
conclusion. Ettayem admitted during the March 14, 2014 debtor examination that he did
not then possess the Limited stock certificate, but "it should be there at the Central
Avenue location." Id. at 39. However, the receiver appointed to sell the Central Avenue
building inspected the building prior to the sale and did not find a Limited stock
certificate. Ettayem, therefore, lost his Limited stock certificate.
{¶ 20} Practically, a stock certificate that cannot be found cannot be seized.
Pursuant to R.C. 1308.32(A), a stock certificate that cannot be seized cannot be sold to
pay the owner's debt. Huntington, however, turned to R.C. 1308.32(E) to engineer a
solution to the problem presented by the lost stock certificate. R.C. 1308.32(E) provides
that a creditor whose debtor is the owner of a certificated security "is entitled to aid from a
court of competent jurisdiction, by injunction or otherwise, * * * in satisfying the claim by
No. 16AP-358 8
means allowed at law or in equity in regard to property that cannot readily be reached by
other legal process." Relying on R.C. 1308.32(E), Huntington asked the trial court to
issue a stock certificate to replace Ettayem's lost Limited stock certificate. Once the trial
court created a new Limited stock certificate, Huntington could effectuate the actual
seizure of that certificate, thus satisfying R.C. 1308.32(A).
{¶ 21} R.C. 1308.32(E) "simply makes clear that a creditor [seeking to reach a
certificated security] is entitled to appropriate aid from courts of competent jurisdiction, a
proposition that would surely follow from other state law even in [division (E)]'s absence."
7A Hawkland, Uniform Commercial Code Series, Section 8-112:01 [Rev.] (2007
Cumulative Supplement). In other words, R.C. 1308.32(E) does not endow a court with
any new, additional authority, but rather, merely affirms the extension of a court's
existing authority to aid in the execution of judgments to executions against certificated
securities. 8 Lawrence, Anderson on the Uniform Commercial Code, Section [Rev] 8-
112:11 (3d Ed.1996).
{¶ 22} Ettayem argues that Huntington's reliance on R.C. 1308.32(E) was not
proper. To address this argument, we must analyze whether Ohio law permits a trial
court to issue a new certificated security as a replacement for a lost certificated security. If
Ohio law does not authorize the trial court's issuance of a replacement stock certificate,
then the trial court erred in issuing the replacement Limited stock certificate.
{¶ 23} R.C. 1308.41, which adopts UCC 8-405 and 8-406, governs the replacement
of lost, destroyed, or wrongfully taken certificated securities. R.C. 1308.41(B) specifies:
If the owner of a certificated security, whether in registered or
bearer form, claims that the security has been lost, destroyed,
or wrongfully taken, the issuer shall issue a new certificate if
the owner:
(1) So requests before the issuer has notice that the security
has been acquired by a protected purchaser;
(2) Files with the issuer a sufficient indemnity bond; and
(3) Satisfies other reasonable requirements imposed by the
issuer.
{¶ 24} If an issuing corporation refuses to issue a replacement stock certificate
even though the owner has met the requirements of R.C. 1308.41(B), a court may compel
No. 16AP-358 9
the recalcitrant issuer to take action. UCC Official Comment, UCC 8-405, Comment 2
(1962 and 1977); 8A Lawrence at [Rev] 8-405:4. In such an action:
the court of common pleas or the probate court of the county
in which the principal office of the corporation is located shall
have jurisdiction to hear and determine all questions
respecting such loss, theft, or destruction, the person
interested therein, the bond required to be given to protect the
corporation or any person injured by the execution and
delivery of a new certificate, the terms on which a new
certificate shall be executed and delivered, and the costs and
counsel fees, if any, to be allowed to the corporation.
R.C. 1701.27(A).
{¶ 25} Thus, under Ohio law, a common pleas court possesses the authority to
order a corporation to issue a new stock certificate to replace a lost stock certificate.
However, nothing in Ohio law allows the court itself to issue a new stock certificate on
behalf of a corporation. Indeed, we fail to see how a court could accomplish such an
action, as a stock certificate must be "signed by the chairperson of the board or the
president or a vice-president and by the secretary, an assistant secretary, the treasurer, or
an assistant treasurer of the corporation" unless the corporation's articles or regulations
provide otherwise. R.C. 1701.24(B). Normally, a trial court judge holds none of the
relevant positions, so he or she cannot execute a replacement stock certificate.
{¶ 26} Our conclusion should come as no surprise to Huntington. In its motion in
aid of execution of the judgment, Huntington stated, "Huntington has been unable to
reach Ettayem's shares in Limited pursuant to other legal means, and accordingly, this
Court has the authority under R.C. 1308.32(E) to order Ettayem to obtain and Limited
to issue the Replacement Stock Certificate." (Emphasis added.) (Apr. 7, 2016 Mot. in Aid
of Execution at 8.) We agree with this statement; the trial court has the authority to order
Ettayem to comply with R.C. 1308.41(B) and to require Limited to issue a replacement
stock certificate upon Ettayem's compliance.2 We understand that Huntington would
prefer that the trial court go further. Huntington wishes to remove Ettayem from the
process of obtaining a new stock certificate because it fears that Ettayem will impede that
2 We note that the Franklin County Court of Common Pleas has jurisdiction to hear and determine all
questions regarding the loss of Ettayem's stock certificate and the issuance of a replacement stock
certificate because, as Ettayem admitted, Limited's principal place of business is in Franklin County.
(May 1, 2015 Tr. at 5.)
No. 16AP-358 10
process. Whether valid or not, that fear cannot justify contravention of Ohio law. Quite
simply, Ohio law does not authorize a trial court to issue a stock certificate. Accordingly,
we conclude that the trial court erred in issuing a new Limited stock certificate, and we
sustain Ettayem's second assignment of error to the extent that he alleges error in the
issuance of that stock certificate.
{¶ 27} For the following reasons, we dismiss Ettayem's first assignment of error
because we lack jurisdiction to review it. We sustain in part and overrule in part
Ettayem's second assignment of error. We affirm the April 8, 2016 judgment of the
Franklin County Court of Common Pleas to the extent that it prohibited the transfer of
Ettayem's Limited stock, and we reverse that judgment to the extent that it issued a new
stock certificate to replace Ettayem's original Limited stock certificate.
Judgment affirmed in part, reversed in part.
TYACK and HORTON, JJ., concur.