State v. Harding

2014 Ohio 1187

State of Ohio, Ohio Housing Finance Agency, Plaintiff-Appellee, v. Neal Harding et al., Defendants-Appellants.

No. 13AP-362

C.P.C. No. 11CVH-07-8954

No. 13AP-459

C.P.C. No. 13-JG-21487

COURT OF APPEALS OF OHIO TENTH APPELLATE DISTRICT

Rendered on March 25, 2014

(REGULAR CALENDAR)

DECISION

Michael DeWine, Attorney General; Michael H. Igoe & Associates, LLC, Michael H. Igoe and Daniel J. Igoe, for appellee.

Moore & Yaklevich, and John A. Yaklevich, for appellants.

APPEALS from the Franklin County Court of Common Pleas

KLATT, J.

{¶ 1} Defendants-appellants, Neal Harding and Heritage Construction Company, Inc. ("Heritage"), appeal two judgments rendered by the Franklin County Court of Common Pleas in favor of plaintiff-appellee, the Ohio Housing Finance Agency ("OHFA"). For the following reasons, we affirm both judgments.

{¶ 2} OHFA is a state agency that extends secured financing to qualified borrowers so that the borrowers may acquire, construct, and/or rehabilitate low and moderate income housing projects in Ohio. In 2002, Waterford Townhomes Limited Partnership ("Waterford") was constructing a 92-unit multi-family housing project inLima, Ohio. To facilitate that construction, Waterford sought a direct loan in the amount of $1,500,000 from OHFA. OHFA agreed to extend the loan.

{¶ 3} The parties executed a Direct Loan Agreement on September 18, 2002. On that same day, Waterford also executed a Cognovit Promissory Note in the amount of $1,500,000. According to Section 1.1 of the Direct Loan Agreement, Waterford agreed to repay the $1,500,000 in principal, "together with interest accruing on the outstanding balance thereof at the rate of two percent (2.0%) per annum, for a term of nine (9) years, in accordance with the terms of the Cognovit Promissory Note between Borrower and Lender evidencing the Loan." The Cognovit Promissory Note provided that Waterford would repay OHFA in nine annual installments of $183,773.16 due on or before September 18 of each year between 2004 and 2012. If Waterford did not pay as required, the terms of the Cognovit Promissory Note authorized an attorney to appear for Waterford in an Ohio court and confess judgment in favor of the holder of the note.

{¶ 4} Waterford secured the loan by submitting to OHFA two separate guaranties. The first guaranty, signed by Harding, stated:

Guarantor unconditionally guarantees to Lender (i) the prompt and full payment to Lender when due, whether by acceleration or otherwise, of the principal amount of the Loan, together with interest, late charges, collection costs, reasonable attorney fees, all as provided for in the Note in an amount up to, but not to exceed One Million One Hundred Fifteen Thousand Dollars ($1,115,000) * * *. Guarantor hereby promises that, if the Loan is not paid promptly when due * * *, Guarantor shall, upon request of Lender, pay the principal and accrued interest of the Loan to Lender in an amount up to, but not to exceed One Million One Hundred Fifteen Thousand Dollars ($1,115,000).

The second guaranty, signed by Heritage, included identical language, except that it did not monetarily limit Heritage's liability. Both guaranties provided that "[g]uarantor hereby waives all suretyship defenses."

{¶ 5} Waterford never made any loan repayments. On December 17, 2009, OHFA filed a complaint seeking immediate judgment on the Cognovit Promissory Note. That same day, the trial court issued a judgment against Waterford in the amount of $1,823,392.21, plus post-judgment interest of $164.61 per day, costs, and $100 in attorney fees.

{¶ 6} The December 17, 2009 judgment was a final, appealable order that terminated the case. Nevertheless, on January 28, 2010, OHFA moved to amend its complaint to add claims against Harding and Heritage for their failure to comply with their guaranties. The trial court granted that motion.

{¶ 7} After answering the amended complaint, Harding moved for dismissal of the complaint. Harding argued that the trial court lost subject-matter jurisdiction once it issued the December 17, 2009 judgment. Thus, Harding contended the trial court lacked the authority to allow OHFA to amend the complaint and continue to litigate the action. Heritage, like Harding, answered the complaint and filed a similar motion.

{¶ 8} In a judgment dated May 9, 2011, the trial court recognized its mistake in allowing amendment of the complaint after it had entered final judgment as to all claims and parties. It thus dismissed without prejudice all the claims that OHFA had pleaded in the amended complaint for lack of subject-matter jurisdiction.

{¶ 9} On July 20, 2011, OHFA filed a new complaint against Harding and Heritage that alleged that both defendants breached their guaranties by refusing to pay the amount due on the loan after Waterford defaulted. Both defendants answered and moved for summary judgment. In their motions for summary judgment, defendants argued that: (1) the trial court resolved the question of subject-matter jurisdiction in the May 9, 2011 judgment, and thus, the doctrine of issue preclusion required the trial court to apply that ruling in the subsequent litigation and dismiss the July 20, 2011 complaint for lack of subject-matter jurisdiction; and (2) OHFA could have raised its claims against defendants in the litigation commenced with the December 17, 2009 complaint against Waterford, and thus, the doctrine of claim preclusion barred OHFA from raising those claims in its July 20, 2011 complaint. The trial court rejected these arguments and denied defendants' motions.

{¶ 10} OHFA then moved for summary judgment. The trial court granted that motion. On April 2, 2013, the trial court entered judgment against Harding in the amount of $1,115,000, plus prejudgment interest of $388,325.48, and against Heritage in the amount of $1,500,000, plus prejudgment interest of $522,410.96.

{¶ 11} On April 19, 2013, Harding filed a motion before the trial court seeking a stay of execution of judgment pursuant to Civ.R. 62(B). The motion also asked the trialcourt to approve the posting of an unusual form of security in place of the normal supersedeas bond. Harding requested the trial court to allow him to post a supersedeas bond executed by him and secured by an irrevocable letter of credit issued by JPMorgan Chase ("Chase"). The trial court denied this motion.

{¶ 12} Defendants filed a notice of appeal on April 29, 2013. Soon thereafter, defendants moved this court to stay the execution of the April 2, 2013 judgment. While that motion was pending, the trial court issued to Chase a garnishment order. The order required Chase to state the amount of funds that it held in Harding's name and to pay those funds to the Franklin County Clerk of Courts if the amount was less than the amount listed on the order ($1,503,325.48).

{¶ 13} On May 15, 2013, this court stayed the execution of the April 2, 2013 judgment on condition that Harding post a supersedeas bond of $1,616,075. Harding immediately deposited the specified amount with the clerk. The next day, Harding moved the trial court to vacate the garnishment order. During the pendency of that motion, Chase responded to the garnishment order. In its response, Chase stated that Harding held an account with it and provided the account total, but it did not submit any of the funds in that account to the clerk. To this date, Chase has not deposited with the clerk any of the funds in Harding's account.

{¶ 14} In a judgment dated May 28, 2013, the trial court denied Harding's motion to vacate the garnishment order. Harding appealed that judgment to this court, where we consolidated the appeal with the appeal from the April 2, 2013 judgment.

{¶ 15} Defendants now assign the following errors:

Assignment Of Error No. 1

THE TRIAL COURT ERRED IN OVERRULING APPELLANTS' MOTIONS FOR SUMMARY JUDGMENT AND SUSTAINING APPELLEE'S MOTION FOR SUMMARY JUDGMENT WHERE APPELLANTS ESTABLISHED THAT APPELLEE'S COMPLAINT IS BARRED BY RES JUDICATA.

Assignment Of Error No. 2

THE TRIAL COURT ERRED IN SUSTAINING APPELLEE'S MOTION FOR SUMMARY JUDGMENT WHERE GENUINE ISSUES OF MATERIAL FACT EXISTED, AND APPELLEE

WAS NOT ENTITLED TO JUDGMENT AS A MATTER OF LAW.

Assignment Of Error No. 3

THE TRIAL COURT ERRED IN AWARDING PREJUDGMENT INTEREST ON APPELLANT HARDING'S GUARANTY.

Assignment Of Error No. 4

THE TRIAL COURT ERRED IN OVERRULING APPELLANTS' MOTIONS FOR STAY OF EXECUTION AND TO RELEASE GARNISHMENT.

{¶ 16} By their first assignment of error, defendants argue that the trial court erred in not applying res judicata to preclude OHFA's action against them. In Ohio, the doctrine of res judicata encompasses both issue preclusion, also known as collateral estoppel, and claim preclusion. State ex rel. Nickoli v. Erie MetroParks, 124 Ohio St.3d 449, 2010-Ohio-606, ¶ 21. Defendants assert two arguments, one of which relies on issue preclusion and one of which relies on claim preclusion. We will address the issue preclusion argument first.

{¶ 17} By their issue preclusion argument, defendants assert that the trial court's May 9, 2011 determination that it lacked subject-matter jurisdiction¹ precluded the relitigation of the jurisdictional question in OHFA's second action against defendants. According to defendants, the trial court should have applied its earlier holding to the second action and dismissed it. We disagree.

{¶ 18} Pursuant to the doctrine of issue preclusion, " 'a fact or a point that was actually and directly at issue in a previous action, and was passed upon and determined by a court of competent jurisdiction, may not be drawn into question in a subsequent action between the same parties or their privies, whether the cause of action in the two actions be identical or different.' " State ex rel. Davis v. Public Emps. Retirement Bd., 120 Ohio St.3d 386, 2008-Ohio-6254, ¶ 27, quoting Ft. Frye Teachers Assn., OEA/NEA v. State Emp. Relations Bd., 81 Ohio St.3d 392, 395 (1998). Essentially, issue preclusion prevents the...