KRISTI L. PALLEN DARRYL E. GORMLEY Reimer, Arnovitz, Chernek & Jeffrey Co Solon Road Solon, OH 44139

Transcription

1 A ^ IN THE SUPREME COURT OF OHIO INDYMAC BANK, F.S.B. ^ U * On Appeal from the Cuyahoga Appellee County Court of Appeals, Eighth -vs- * Appellate District LAWRENCE P. BOROSH, ET AL. Appellants. * Court of Appeals Case No ^ MEMORANDUM IN SUPPORT OF JURISDICTION OF APPELLANTS JOHN MALONE, JR. ( ) Malone Law, L.L.C. 614 W. Superior Avenue, Suite 1150 Cleveland, OH (216) Fax: (216) jmaloneattorney@gmail.com ANDREW M. ENGEL ( ) Coxp_orate_ Way, Suite 201 Centerville, OH (937) Fax: (937) amengel@sbcglobal.net Attorney for Appellants Lawrence and Donna Borosh KRISTI L. PALLEN DARRYL E. GORMLEY Reimer, Arnovitz, Chernek & Jeffrey Co Solon Road Solon, OH APRIL A. BROWN KIMBERLEE S. ROHR Lerner, Sampson & Rothfuss E. Fo--urth Str_eet Cincinnati, OH MATTHEW J. RICHARDSON Manley Deas Kochalski, L.L.C. P.O. Box Columbus, OH Attorneys for Appellee Indymac Bank, FSB

2 I TABLE OF CONTENTS Page # An Explanation of Why This Case Is of Great General Interest and Involves a Substantial Constitutional Issue 3 A. This Case is of Great General Interest 3 B. This Case Involves A Substantial Constitutional Issue 4 Statement of the Case and The Facts 5 Argument in Support of Proposition of Law 6 Proposition of Law: In a civil action, a lack of standing at the outset of litigation cannot be cured by receipt of an assignment of the claim after commencement of the suit. Conclusion 7 Certificate of Service 9 2

3 AN EXPLANATION OF WHY THIS CASE IS OF GREAT GENERAL INTEREST AND INVOLVES A SUBSTANTIAL CONSTITUTIONAL ISSUE This case is of great general interest and involves a substantial constitutional issue. Following this Court's decision last fall in Federal Home Loan Mtg. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 979 N.E.2d 1214, 2012-Ohio-5017, Ohio appellate courts have struggled to apply the decision. Particularly problematic has been how courts should handle attacks on judgments premised on the absence of jurisdiction because of the plaintiff's lack of standing to institute the case. For example, this Court recently accepted an appeal on a certified conflict that addresses whether a party who fails to appeal a final judgment may seek relief from that judgment based on the plaintiffs lack of standing. Bank ofamerica v. Kuchta, Case No (conflict accepted 05/08/2013 Case Announcements, 2013-Ohio-1857). This case presents another of the many questions that have arisen post-schwartzwald. A. This case is of great general interest. In Schwartzwald, this Court addressed the following certified conflict issue: "In a mortgage foreclosure action, the lack of standing or a real party in interest defect can be cured by the assignment of the mortgage prior to judgment." It answered this query in the negative, holding that standing is a necessary part of a common pleas court's jurisdiction. Without standing, the plaintiff cannot invoke the jurisdiction of the common pleas court. And although raised in the context of a foreclosure case, the holding of Schwartzwald is applicable to all civil actions brought in Ohio's common pleas courts. The Court of Appeals in this case, however, carved out an exception to the holding of Schwartzwald by permitting a plaintiff to cure its lack of standing through the use of Civ, R. 15(A). It held that although the plaintiff, Indymac Bank, FSB, may not have had standing when it filed its original complaint, it cured that deficiency by amending the complaint to reflect the 3

4 post-complaint acquisition of the note and mortgage. It reasoned that the amendment related back to the date of the original complaint and took its place, thereby curing the lack of standing. This ruling calls into question this Court's holding in Schwartzwald and implies Schwartzwald is limited to cure attempts under Civ. R. 17(A). Obviously, the Court of Appeals's ruling could impact a large number of foreclosure cases. But just as Schwartzwald is broadly applicable, so too is the Court of Appeals's decision in this case. It is not limited to foreclosure cases, but rather is a general statement about the interplay of Ohio's Civil Rules and the constitutional requirement of standing. For these reasons, this case presents an issue of great general interest. B. This case involves a substantial constitutional issue. As this Court held in Schwartzwald, standing is a necessary part of the constitutional power of Ohio's common pleas courts to hear cases. This constitutional grant of judicial power resides in Section 4(B), Article IV, of the Ohio Constitution. The Court also held that, because of its jurisdictional element, a lack of standing could not be cured under Civ. R. 17(A) by acquiring an interest in the subject matter of the case after the filing of the initial complaint. The Court ofappeals held that the plaintiff's amendment of its original complaint to reflect its post-commencement acquisition of its interest in the subject matter of the action cured its initial lack of standing. This holding seemingly runs afoul of this Court's holding in Schwartzwald that a lack of standing cannot be cured through post-filing events. The decision suggests that the Rules of Procedure may be used to cure a standing defect. Thus, this case involves more than just the scope of the trial court's jurisdiction; it also involves this Court's exercise of its constitutional power to promulgate the Rules of Civil Procedure. This case explores whether a provision of the Civil Rules can be used to provide 4

5 standing even if standing was lacking at the commencement of the case. In other words, this case pits two constitutional grants of power against each other and asks whether this Court's rulemaking authority can provide an avenue to side-step the requirement of standing. For these reasons, this case presents a substantial constitutional issue. STATEMENT OF THE CASE AND THE FACTS Indymac Bank filed its complaint on February 25, 2008, seeking damages for breach of a promissory note and foreclosure of an associated mortgage. Attached to its complaint was a copy of a promissory note. Although the note was initially payable to Indymac, it had been endorsed in blank, meaning anyone in possession of the note could enforce it. A copy of the mortgage was also attached to the Complaint. The named mortgagee was Mortgage Electronic Registration Systems, Inc., as nominee for Indymac Bank. As of the filing of the Complaint, the mortgage had not been assigned to Indymac. The day after suit was filed, Mortgage Electronic Registration Systems, Inc. executed an Assignment of Mortgage to Indymac. The Assignment of Mortgage purported to "sell, transfer and set over" both the Mortgage and the Promissory Note to Indymac. After the assignment was executed, Indymac amended its complaint, attaching a copy of the Assignment of Mortgage. There is no other evidence in the record as to any transfers of the Promissory Note. Neither is there any evidence in the record that Indymac was in possession of the Promissory Note when suit was filed. Ultimately, Indymac obtained default judgment. In 2011, Appellant sought to vacate the judgment because, inter alia, Plaintiff lacked standing to file the suit in the first place. In his Decision, the Magistrate found that the Assignment of Mortgage transferred the Promissory Note to Indymac on February 26, 2008, the day after suit was filed. The Magistrate concluded, however, that resjudicata barred an attack on

6 the judgment for lack of standing. Without decision, the trial court overruled objections to the Magistrate's Decision and overruled the Motion for Relief From Judgment. The Eighth District Court of Appeals affirmed the trial court's decision. IndyMac Bank F.S.B. v. Borosh, 2013-Ohio In doing so, however, the Court held that Indymac cured its lack of standing through the amendment of its complaint to reflect the post-complaint Assignment of Mortgage. The Court of appeals held that the Amended Complaint related back and took the place of the original complaint. Id., 6. An amended complaint "takes the place of the original, which is then totally abandoned." Harris v. Ohio Edison Co., 7t" Dist. No. 91 CA 108, 1992 Ohio App. LEXIS 4085 (Aug. 3, 1992). We have recognized that attaching the note and assignment of mortgage to an amended complaint is sufficient to establish standing. See First Horizon Home Loan Corp. v. Roberts, 8th Dist. No , 2010-Ohio-60, 11. So even if Indymac lacked standing when it filed the original complaint, it cured that defect by filing the amended complaint and attaching the assignment of the mortgage. Thus, the Court of Appeals, like the trial court before it, never considered whether Indymac had standing when it filed the original complaint. ARGUMENT IN SUPPORT OF PROPOSITION OF LAW Proposition of Law: In a civil action, a lack of standing at the outset of litigation cannot be cured by receipt of an assignment of the claim after commencement of the suit. The proposition of law comes from Schwartzwa-ld itself. Schwartzwald, 134 OhioSt.3d 13, at 41. In Schwartzwald, this Court stated, "[b]ecause standing to sue is required to invoke the jurisdiction of the common pleas court, `standing is to be determined as of the commencement of suit."' Id. 24. It went on to state: "Thus, `[p]ost-filing events that supply standing that did not exist on filing may be disregarded, denying standing despite a showing of sufficient present injury caused by the challenged acts and capable of judicial redress."' Id

7 The Court also considered the interplay of the concept of standing with that of real party in interest status under Civ.R. 17(A). In concluding that a plaintiff may not rely on Rule 17(A) to cure its lack of standing, this Court stated: Pursuant to Civ.R. 82, the Rules of Civil Procedure do not extend the jurisdiction of the courts of this state, and a common pleas court cannot substitute a real party in interest for another party if no party with standing has invoked its jurisdiction in the first instance. Accordingly, a litigant cannot pursuant to Civ.R. 17(A) cure the lack of standing after commencement of the action by obtaining an interest in the subject of the litigation and substituting itself as the real party in interest. Id. At Under the holding of Schwartzwald a common pleas court's jurisdiction is not invoked by a plaintiff without standing. In proscribing the applicability of the Rules of Civil Procedure, Civ. R. 1(A) states that "The rules prescribe the procedure to be followed in all courts of this state in the exercise of civil jurisdiction at law or in equity...." It follows, then, that the Civil Rules apply only to cases in which the trial court has jurisdiction. In other words, if the trial court's jurisdiction was never invoked, the Civil Rules have no application. To hold otherwise would be to violate Civ.R. 82's proscription that the Civil Rules do not extend the jurisdiction of the courts. Just as Civ: R. 17(A) cannot be used to cure a lack of standing; neither-can-civ: R. 15(A). The Civil Rules are effective only if a court has and is exercising jurisdiction. If the jurisdiction of the Court is not invoked, the Rules have no force at all. CONCLUSION Appellants are not asking the Court to rule on the ultimate issue of standing. The issue on which they appeal is procedural. Both the trial court and the Court of Appeals failed to reach the merits of the issue. Instead, they disposed of Appellants' request on procedural grounds - res 7

8 judicata in the trial court and Civ.R. 15(A) in the Court of Appeals. This case considers the fundamental power of Ohio's common pleas courts to decide cases. It also considers whether that fundamental power can be supplemented through the employment of the Rules of Civil Procedure. In Schwartzwald, this Court seemed to say that the Civil Rules cannot supplement a court's jurisdiction. The Court of Appeals's decision states that they can. Left unresolved, the decision will only further muddy the waters surrounding standing and jurisdiction. For these reasons, Appellants request that the Court accept jurisdiction over this appeal. Respectfully submitted, An rew. Engel ( Corporate Way Suite 201 Centerville, OH (937) Fax: (937) amengel@sbcglobal.net John Malone, Jr. ( ) Malone Law, L.L.C. 614 W. Superior Avenue, Suite 1150 Cleveland, OH (216) Fax: (216) jmaloneattorney@gmail. com Attorneys for Appellants Attorney for Appellant 8

9 May 2013 upon: CERTIFICATE OF SERVICE I certify that a copy of the foregoing was served by ordinary mail this 13th day of Kristi L. Pallen, Esq. Darryl E. Gormley, Esq. Reimer, Arnovitz, Chernek & Jeffrey Co Solon Road Solon, OH April A. Brown, esq. Kimberlee S. Rohr, Esq. Lemer, Sampson & Rothfuss 120 E. Fourth Street Cincinnati, OH Matthew J. Richardson, Esq. Manley Deas Kochalski, L.L.C. P.O. Box Columbus, OH Andrew M. Engel 9

10 MAR 2 8 2fl13 CDUCt Df tppiat of Obt0 EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA JOURNAL ENTRY AND OPINION No INDYMAC BANK F.S.B. PLAINTIFF-APPELLEE vs. LAWRENCE P. BOROSH, ET AL. I D EFENDANTS-APP ELLANTS JUDGMENT: AFFIRMED Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV BEFORE: Stewart, A.J., Kilbane, J., and Blackmon, J. RELEASED AND JOURNALIZED: March 28, 2013

11 -1- ATTORNEY FOR APPELLANTS John P. Malone, Jr. Malone Law, L.L.C. 614 W. Superior Avenue, Suite 115Q Cleveland, OH ATTORNEYS FOR APPELLEE Kristi L. Pallen Darryl E. Gormley Reimer, Arnovitz, Chernek & Jeffrey Co., L.P.A Solon Road Solon, OH April A. Brown Kimberlee S. Rohr Lerner, Sampson & Rothfuss 120 E. Fourth Street Cincinnati, OH Matthew J. Richardson Manley Deas Kochalski, L.L.C. P.O. Box Columbus, OH _^jt.f-d AMID JOURRAt.1ZED PER APP.R. 224C1 MAR CU C CLERK Qp ^ RT f PPEALS BY Depub

12 MELODY J. STEWART, A.J.: { 1} Defendants-appellants Lawrence and Donna Borosh lost their home in foreclosure when the court granted a default judgment to plaintiff-appellee IndyMac Bank F.S.B. Three years after the default judgment, the Boroshes sought relief from judgment on grounds that (1) IndyMac lacked standing to bring the foreclosure action because it did not obtain an assignment of the mortgage until after it filed suit and (2) they were not given personal service of summons. A magistrate found the motion for relief from judgment untimely and the court adopted that decision over objection by the Boroshes. I { 2} We first address the Boroshes' claim that IndyMac lacked standing to bring the foreclosure action because it obtained an assignment of the mortgage after it filed the complaint. The Boroshes argue that a lack of standing is jurisdictional, so any judgment rendered to a party that lacked standing to bring suit is void ab initio. {113} IndyMac filed its complaint for foreclosure on February 25, It concedes that the Mortgage Electronic Recording System, Inc. (MERS) held the mortgage on that date and that a transfer of the mortgage from MERS to IndyMac was not executed until February 26, 2008 and not recorded until February 28, 2008.

13 {54} A party that fails to establish an interest in a note or mortgage at the time it files suit has no standing to invoke the jurisdiction of the court. Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 1, 2012-Ohio-5017, 979 N.E.2d 1214, 28. What is more, a party who lacks standing at the time of commencement cannot cure this defect "after commencement of the action by obtaining an interest in the subject of the litigation and substituting itself as the real party in interest." Id. at 39. { 5} Schwartzwald does not apply to this case, however, because IndyMac amended its complaint as a matter of right under Civ.R. 15(A) on March 10, 2008, before the Boroshes filed a responsive pleading. Attached to the amended complaint was the assignment of the mortgage An amended complaint "takes the place of the original, which is then totally abandoned." Harris v. Ohio Edison Co., 7th Dist. No. 91 C.A. 108, 1992 Ohio App. LEXIS 4085 (Aug. 3, 1992). We have recognized that attaching the note and assignment of mortgage to an amended complaint is sufficient to establish standing. See First Horizon Home Loan Corp. v. Roberts, 8th Dist. No , 2010-Ohio-60, 11. So even if IndyMac lacked standing when it filed the original complaint, it cured that defect by filing the amended complaint and attaching the assignment of the mortgage.

14 II { 7} The Boroshes next, raise two arguments in support of their contention that the court erred by failing to grant them relief from the default judgment: that they were not served with personal service of summons of the foreclosure complaint as required by Civ.R. 4.1(B) and that they were denied due process of the law because their original attorney was forced to withdraw from the case before filing a responsive pleading, and they were unable to obtain new counsel before the court entered a default judgment. A {18} Although not raised by the court as a basis for denying the motion for relief from the default judgment, we find that the record shows the Boroshes used their motion for relief from judgment as a substitute for an appeal. {19} It is well established that Civ.R. 60(B) cannot be used as a substitute for an appeal. See Doe v. Trumbull Cty. Children & Family Servs. Bd., 28 Ohio St.3d 128, 502 N.E.2d 605 (1986), paragraph two of the syllabus. All of the issues raised in the motion for relief from judgment could have been raised in a direct appeal from the default judgment. On this basis alone, the court should have refused to grant relief from judgment. { 10} In reaching this conclusion, we note that the Boroshes claim that they were not served with personal service of the summons was belied by their own admission that they retained an attorney to represent them in the "case."

15 ro ^ W ^ It is unclear how the Boroshes would have known to hire an attorney to represent them in this case if they had not been served with the complaint. Indeed, their due process claim solidifies our conclusion because that claim states that their retained counsel was forced to withdraw from the case because of a conflict of interest and they were unable to obtain new counsel to defend them. The Boroshes were at all events fully aware of this litigation and they could not plausibly argue that they lacked any notice that a complaint had been filed against them. B 1111} Even if we consider the merits of the motion for relief from judgment, we find that the court did not abuse its discretion by denying relief. {1"12} In order to prevail on a motion for relief from judgment under Civ.R. 60(B), the movant must demonstrate: (1) a meritorious claim or defense; (2) entitlement to relief under one of the grounds stated in Civ.R. 60(B)(1) through (5); and (3) timeliness of the motion. GTE Automatic Elec. v. ARC Industries, 47 Ohio St.2d 146, 351 N.E.2d 113 (1976), paragraph two of the syllabus. If any of these three requirements is not met, the motion should be overruled. Svoboda v. Brunswick, 6 Ohio St.3d 348, 351, 453 N.E.2d 648 (1983). The question of whether relief should be granted is addressed to the sound discretion of the trial court. Griffey u. Rajan, 33 Ohio St.3d 75, 77, 514 N.E.2d 1122 (1987).

16 r ^ 3 f 0 { 13} The Boroshes did not base their motion for relief from judgment on a specific subsection of Civ.R. 60(B), so we presume it was filed under Civ.R. 60(B)(5), the catchall provision of the rule. Although this subsection does not state a specific time period in which a motion for relief from judgment must be filed, it does state that the motion "shall be made within a reasonable time." What is "reasonable" depends on the facts and circumstances of the case. Cleveland Elec. Illum. Co. v. Tomson, 8th Dist. No , 1992 Ohio App. LEXIS 471 (Feb. 6, 1992). 41f14} The court adopted the magistrate's finding that the more than three-year difference between the judgment in foreclosure and the filing of the motion for relief from judgment rendered the motion untimely. The court did not abuse its discretion by reaching this conclusion. This was not a case where the Boroshes were unaware that a foreclosure judgment had been entered against them -the property was sold at a sheriff's sale, the court confirmed the sale of the property, and it issued a writ of possession against the Boroshes. Not only is it inconceivable that the Boroshes were unaware of the judgment against them such that they could have sought relief in a more timely manner, their motion makes no argument justifying the three-year delay in filing the motion. They thus failed to establish an essential element of a motion for relief from judgment. { 15} Judgment affirmed.

17 It is ordered that appellee recover of appellants its costs herein taxed. The court finds there were reasonable grounds for this appeal. It is ordered that a special mandate issue out of this court directing the Cuyahoga County Court of Common Pleas to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 o the Rules pf Appellate Procedure. MELOI1 J.^BTEVI^"ART, ADMINISTRATIVE J U1.Jlxt+; MAR IL/EEN KILBANE, J., and PATRICIA ANN BLACKMON, J., CONCUR