Banking and Finance Law Report : Banking & Finance Lawyer & Attorney : Porter Wright Morris & Arthur Law Firm : Bankruptcy, Commercial Lending

When Whiteman failed to answer the complaint, the Bank obtained a default judgment and scheduled a sheriff's sale.  Before the sale was held, Whiteman filed a motion for relief from the default judgment under Ohio Civil Rule 60(B); the motion was granted in no small part because Whiteman did not serve the motion on the Bank. After Whiteman notified the court that he had not served the motion on the Bank, the Bank successfully moved to vacate the order granting Whiteman's 60(B) motion, which was then fully briefed and denied without a hearing, as was Whiteman's motion to dismiss under Ohio Civil Rule 12(B)(1).

On appeal, Whiteman asserted that the trial court abused its discretion in denying his 60(B) motion without a hearing and erred in denying his 12(B)(1) motion to dismiss because there was no justiciable controversy between himself and the Bank.

The Tenth Appellate District rejected both assignments of error. Whiteman alleged that his "meritorious defense" under Civil Rule 60(B) and the three-pronged test set forth in GTE Automatic Electric v. ARC Industries, 47 Ohio St.2d 146 (1976) was that the Bank was not the owner and holder of the note and mortgage when it filed the foreclosure complaint, and that it submitted fraudulent proof of ownership when it filed the complaint. He further claimed that had he been granted a hearing, he could have challenged the authenticity of the Bank's documentation.

The Appellate Court rejected Whiteman's challenge based on his lack of standing, holding that "because a debtor is not a party to the assignment of the note and mortgage, the debtor lacks standing to change their validity" {¶17}, citing LSF6 Mercury REO Invests. Trust Series 2008-1 c/o Vericrest Fin., inc. v. Locke, 10^th Dist. No. 11AP-757, 2012-Ohio-4499, Bank of New York Mellon Trust Co. v. Unger, 8^th Dist. No. 97315, 2012-Ohio-1950 and Bridge v. Aames Capital Corp., Case No. 1:09 CV 2947 (N.D. Ohio 2010).

The Court further observed that the allegedly "invalid mortgage assignments did not alter the homeowners' obligations under the note and mortgage" {¶18}. Notably, Argent, the original creditor/ mortgagee and the Bank, the assignee/ foreclosing creditor/ mortgagee did not dispute the validity of the assignment between them; in addition, Whiteman's payment default was undisputed.

The appellate court also affirmed the trial court's denial of Whiteman's Civil Rule 60(B) motion on procedural grounds. Whiteman alleged that because the Bank did not own that note and mortgage when it filed the foreclosure, it commitment fraud justifying relief from judgment under Civil Rule 60(B)(3). However, the appellate court distinguished between fraud that prevents the losing party, here Whiteman, from fully and fairly presenting his claim or defense, which does justify relief under Civil Rule 60(B)(3), and fraud that actually serves as the basis for a claim or defense, which does not justify relief from judgment. Here, there was no allegation that the Bank prevented Whiteman from fully and fairly presenting his claim or defense. Whiteman defaulted, plain and simple. He could have, but did not, answer the complaint. Because the Bank did not prevent Whiteman from presenting his fraud defense, he was not entitled to relief under Civil Rule 60(B).

The appellate court also rejected Whiteman's claim that, due to the allegedly invalid assignment, the trial court lack of subject matter jurisdiction and therefore erred in denying his motion to dismiss under Civil Rule 12(B)(1), holding that a lack of standing does not deprive a court of subject matter jurisdiction.

The Bank was represented by Matthew J. Richardson of Manley Deas Kochalski, LLC; Whiteman was represented by Marc E. Dann and Grace Doberdruk of Dann, Doberdruk and Harshman, LLC.

• The bill clarifies and simplifies the process by which shareholders are notified of their right to dissent and exercise that right, and by allowing the corporation to require this process to be substantially completed prior to the shareholder vote, which simplifies and expedites the completion of transactions.
• For corporations with shares listed on a stock exchange, it confirms Ohio Supreme Court precedent that the fair value of the corporation’s shares is the market price on the stock exchange where they trade.
• Further, if a shareholder of such a company will receive other exchange traded shares in the transaction, the bill would dispense with the need for a court appraisal process.
• For companies without exchange listed shares, the bill confirms (consistent with Ohio Supreme Court precedent) that fair value of the corporation’s shares is to be determined without the application of premiums or discounts for control or marketability.
• Since most shareholders now hold their shares indirectly through brokers or other intermediaries, the bill would make it easier for them to exercise dissenter’s rights.  

Corporate Dissolutions: Ohio’s current procedures for dissolving corporations are out of date, having not changed substantially since 1955, leaving us out of step with other major commercial states.  Sub. House Bill 48 adopts changes to these procedures that will make them more efficient and less burdensome to implement.  The significant changes are:

• The bill creates a liquidation process that will expedite the determination and payment of creditor claims.  If claims are not disputed, the liquidation and payment process can proceed without court involvement, although the right of creditors and shareholders to obtain court intervention is preserved.
• It establishes time limits for the presentation of claims, providing certainty regarding the time period in which directors, officers and shareholders of the corporation face exposure to potential claims.
• It clarifies the standards to be followed by directors in determining the existence and amount of claims, and providing for their payment.
• It modernizes the process of notifying creditors and the public of the pending dissolution of a corporation by requiring the Secretary of State to list on its website the corporations that are being dissolved, while retaining for a five-year transition period the current requirement for publication of notice in a newspaper of general circulation.

Indemnification Provision.  The bill contains a provision making make it clear that rights of corporate directors and officers to indemnification under the corporation’s articles of incorporation or regulations cannot be abrogated retroactively as to past acts by a later amendment of these provisions.  Delaware recently adopted a statutory amendment to the same effect.

Limited Liability Company Amendments:  The bill makes a number of changes to the LLC Act. The bill:

• clarifies the provisions of ORC §1705.61, which was enacted in 2006, to insert language inadvertently omitted from this section in the legislative process;
• make it express in the statute that a limited liability company is bound by its operating agreement;
• confirms that the only remedy of a judgment creditor of a member with respect to his membership interest is to obtain a charging order (even for single member LLCs);
• confirms the power of the operating agreement to vary statutory default rules, subject to certain non-waivable provisions (based on what is now in Chapter 1776 for partnerships);
• defines the fiduciary duties of members and managers;
• expressly allows members to agree to arbitration (based on comparable provisions of Chapter 1776 for partnerships); and
• gives courts more guidance on when judicial dissolution would be appropriate (also based on Chapter 1776).