At the end of April, the Ohio Supreme Court agreed to hear three notable cases that readers of this blog may wish to monitor – or perhaps even participate in as amici curiae. First, the Court has agreed to resolve a conflict among Ohio’s appellate districts regarding whether the Statute of Frauds precludes a foreclosure defendant from asserting an oral forbearance agreement as a defense. Next, the Court has agreed to answer a question certified from federal court as to whether Ohio recognizes the tort of “wrongful attempted foreclosure.” Third, the Court has agreed to hear a payday-lending case that has attracted media attention, concerning the interplay between Ohio’s Mortgage Lending Act and the more recent Short-Term Lender Law. For additional information about these three cases, read more here.

The three noteworthy lending cases that the Ohio Supreme Court accepted on April 24 reflect three distinctly different ways that the Supreme Court resolves questions of significance to our readers: (1) certified-conflict cases, in which one of Ohio’s appellate district courts certifies that its decision conflicts with that of one or more other appellate districts; (2) certified-question cases, in which a federal court asks the Supreme Court to answer a question of Ohio law for which there is no controlling precedent; and (3) discretionary appeals, in which the Supreme Court agrees to resolve a question of public or great general interest.

FirstMerit Bank, N.A. v. Inks

In the certified-conflict case, FirstMerit Bank, N.A. v. Inks, Supreme Court Case No. 2013-0091, the Supreme Court has determined that a conflict exists among Ohio’s appellate districts about whether the Statute of Frauds bars a foreclosure defendant from asserting an oral forbearance agreement as a defense.  Daniel Inks, Deborah Inks, David Slyman, and Jacqueline Slyman guaranteed that Ashland Lakes LLC would repay a $3.5 million loan from FirstMerit Bank. When the LLC defaulted, FirstMerit sued the guarantors, and the trial court awarded judgment to FirstMerit based on confessions of judgment entered by the defendants under warrants of attorney. The Slymans and Inkses then appealed to Ohio’s Ninth District Court of Appeals on the basis that the confessing lawyer did not produce the original warrants of attorney. After filing that (ultimately unsuccessful) appeal, the Slymans and Inkses also moved the trial court for relief from judgment, arguing that FirstMerit was not entitled to recover because it had entered into an oral forbearance agreement with the LLC. The trial court concluded that this argument was barred by Ohio’s Statute of Frauds, and the Slymans and Inkses appealed from that decision as well. The Ninth District reversed the trial court’s decision on the Statute of Frauds, saying:

By its plain language, the [Statute of Frauds] prohibits a party from “bringing an action on a loan agreement” unless the agreement is in writing. In this case, the Slymans and Inkses did not attempt to “bring an action” against FirstMerit, they merely raised the oral forbearance agreement as a defense to FirstMerit’s action against them.

FirstMerit asked the Ninth District to certify a conflict between its decision and that of multiple other appellate districts, and the Ninth District agreed that its judgment conflicted with that of Ohio’s Tenth District Court of Appeals more than a decade ago in Nicolozakes v. Deryk Babrield Tangeman Irrevocable Trust, 10th Dist. No. 00AP-7, 2000 WL 1877521 (Dec. 26, 2000). In Nicolozakes, the Tenth District held that the Statute of Frauds barred Ms. Tangeman from defending against a foreclosure action by alleging that Mr. Nicolozakes had orally released her from a note and mortgage. 

If you are interested in following the FirstMerit case to see how the Ohio Supreme Court resolves this conflict about oral forbearance agreements, please stay tuned to the Banking & Finance Law Report. You can also receive e-mail updates about filings in the case directly from the Ohio Supreme Court by registering at this link. And the FirstMerit docket filings are publicly available here

Corbett v. Beneficial Ohio, Inc.

In the certified-question case, Corbett v. Beneficial Ohio, Inc., Supreme Court Case No. 2013-0213, Beneficial Mortgage Co. is the assignee of a mortgage with Mr. Corbett. A scrivener’s error during the loan process caused the loan to be secured by Corbett’s house rather than his six-unit apartment building, as the parties intended. Corbett obtained Rule 60(B) relief in the foreclosure proceeding on this basis, the foreclosure action was dismissed, and Beneficial took no further action to collect or foreclose. Even so, Corbett sued Beneficial in a multi-count complaint sounding in fraud, attempted theft, violations of the Consumer Sales/Fair Debt Collection Practices Acts, and a separate cause of action for “wrongful attempted foreclosure.” After the case was removed to federal court, the U.S. District Court for the Southern District of Ohio sua sponte certified two questions to the Ohio Supreme Court, which the Supreme Court has now agreed to resolve: 

(1) Does Ohio recognize a freestanding cause of action for “wrongful attempted foreclosure?”

(2)  If so, what are the elements of such a claim, and what damages are available? 

Papers filed on the Corbett docket, available here, assert that only three states currently recognize a separate cause of action for wrongful attempted foreclosure, including Georgia, North Carolina, and Massachusetts. Stay tuned to the Banking & Finance Law Report to see where the Ohio Supreme Court comes down on this question.

Ohio Neighborhood Fin., Inc., d/b/a Cashland v. Scott

The payday lending case, like the FirstMerit case described above, comes from Ohio’s Ninth District Court of Appeals, and has garnered some attention from the press, such as this article from the Cleveland Plain Dealer. In Ohio Neighborhood Fin. Inc. v. Scott,Supreme Court Case No. 2013-0103, the dispute concerns a $500 loan that Cashland made to Rodney Scott back in 2008. The Customer Agreement that Scott signed established a “one payment” schedule, under which Scott would repay Cashland $545.16 just two weeks later. When the loan was not repaid, Cashland sued, arguing that, as a registered lender under the Ohio Mortgage Loan Act (“MLA”) (R.C. 1321.51 et seq.), it was entitled to a judgment of $570.16, along with 25% yearly interest. The trial court and Ninth District Court of Appeals, however, agreed that Cashland had issued a loan not permitted by the MLA, and that by invoking the MLA, Cashland was attempting an end-run around Ohio’s 2008 Short-Term Lender Law (R.C. 1321.35 et seq.), which caps total loan amounts at $500, requires the duration of the loan to be not less than 31 days, and prohibits registrants from charging interest rates higher than 28% or additional fees (such as loan initiation fees). As the Ninth District explained in its majority opinion:

Cashland argues that, as a registrant under the [MLA], it was permitted to issue the loan in this case because the [MLA] permits single-payment loans. However, to construe [the statutes] in the manner Cashland suggests would permit the registrants under the [MLA] to issue the payday loans that the Short-Term Lender Law seeks to regulate. Cashland suggests that the General Assembly intended to allow lenders to choose between the Short-Term Lender Law and the [MLA]. If true, however, no payday lender will ever register under the Short-Term Lender Law, and payday-loan lenders would be allowed to issue loans in greater amounts and shorter durations than allowed by the Short-Term Lender Law, all the while charging fees prohibited by the Short-Term Lender Law. *** The effect would be to nullify the very legislation that is designed to regulate payday-type loans – a result at odds with the intent of the General Assembly.

Ohio Neighborhood Fin. Inc. v. Scott, 2012-Ohio-5566, ¶ 11. Dissenting, Judge Dickinson opined that “the majority has suggested that the General Assembly intended the Short-Term Lender Act to regulate this type of loan. Regardless of the intent of the General Assembly in [enacting] the Short-Term Lender Act, nothing in [that Act] prohibits a loan under the [MLA] that satisfies the requirements of the Mortgage Loan Act.” Id. at ¶ 24. 

The Supreme Court has now agreed to hear Cashland’s discretionary appeal by a vote of 5-2. Notably, the retired Deputy Superintendent and Chief Examiner of the Department of Commerce’s Division of Financial Institutions filed an amicus brief urging the Court to take the case, contending that the Ninth District’s decision “threatens to overthrow Ohio’s consistent interpretation and enforcement of the MLA based on nothing more than an erroneous reading of the statute.”

As these recently accepted cases demonstrate, 2013 promises to be a meaningful year for lenders before the Ohio Supreme Court. If your organization would like to chime in on the merits of any of the foregoing cases, remember that the Court’s Rules of Practice permit participation by amici curiae, and that having your voices heard in a court of last resort on issues critical to your business can be every bit as meaningful as lobbying to be heard in the General Assembly.