IN THE SUPREIVIE COURT OF OHIO. Case No.: On Appeal From the Court of Appeals Eleventh Appellate District Geauga County, Ohio

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1 ^^^ ^ 7n, ^"^ ^Y^^ ^^ ^ IN THE SUPREIVIE COURT OF OHIO Case No.: On Appeal From the Court of Appeals Eleventh Appellate District Geauga County, Ohio HSBC Bank USA, National Association, as Trustee under Pooling and Servicing Agreement dated as of November 1, 2006, Fremont Home Loan Trust 2006-D Plaintiff-Appellee V. Michelle Scacchi, et al. Defendant-Appellants PLAINTIFF-APPELLEE'S MEMORANDUM IN RESPONSE Dean Kanellis ( ) Keith D. Weiner & Associates Co., LPA 75 Public Square, 4th Floor Cleveland, OH Tel: Fax: dkanellis@weinerlaw.com Attorney for Plaintiff-Appellee James R. Douglass ( ) James R. Douglass Co. LPA Chagrin Boulevard, Suite D Shaker Heights, OH Tel: Fax: firedcoach@aol.com Attorney for Defendant-Appellants, Michelle Scacchi and Richard Scacchi APR CLERK OF COURT SUPREME COURT OF OHIO

2 MEMORANDUM IN RESPONSE The appellate court affirmed the denial of the Scacchis' Rule 60(B) Motion, holding that the motion's sole argument could have been raised only via direct appeal. The Scacchis fail even to mention the holding in their memorandum of jurisdiction, arguing instead about matters addressed (if at 1 all) by the appellate court only for the sake of argument. Can discretionary jurisdiction exist when the appellant fails to state the actual holding appealed or argue how the holding presents any question of public or general concern? Plaintiff-Appellee HSBC Bank USA, National Association, as Tnistee under Pooling and Servicing Agreement dated as of November 1, 2006, Fremont Home Loan Trust 2006-D ("HSBC") submits this Memorandum in Response to Defendant- Appellants Michelle and Richard Scacchi's Memorandum in Support of Jurisdiction, pursuant to S.Ct.Prac.R This Case Does Not Involve A Question Of Public Or Great General Interest.' A. This appeal revolves around whether a party is permitted to raise arguments in a Rule 60(B) motion that properly can be raised only in a direct appeal. The primary holding of the Court of Appeals for the Eleventh Appellate District was that the Scacchis' Rule 60(B) motion was correctly denied because they used it to raise arguments that could have been raised only in a direct appeal. Decision This straight-forward application of procedural rules is not of interest to the general public or 1 The Scacchis do riot allege that any constitutional question is presented, so that basis of jurisdiction is not addressed. 2

3 even the legal community. In fact, it is so pedestrian that it is not even mentioned in the Scacchis' memorandum of jurisdiction. This Court should decline jurisdiction. This case is ultimately an appeal from the trial court's denial of the Scacchis' Motion for Relief From Judgment. After intentionally choosing to allow a default judgment to be entered in the foreclosure action and choosing not to file any direct appeal of that judgment, the Scacchis filed a Motion for Relief From Judgment in which they argued that HSBC lacked standing to foreclose. Decision 2. This is an argument that could have and should have been brought in a direct appeal, but the Scacchis failed to do so. Id The Court of Appeals held: "In short, appellants cannot use a Civ.R. 60(B) motion to raise an issue that should have been raised in a direct appeal." Id. 10 (quotations and citations omitted). The Scacchis do not even mention the appellate court's holding, much less attempt to argue that it is a matter of public or great general interest. Accordingly, the Court should decline jurisdiction.2 B. The issue of standing was dealt with by the appellate court only in dicta to show that the Scacchis would have lost even if their arguments had been considered on the merits. Instead of dealing with the holding, the Scacchis attempt to create an issue of public or great general interest by claiming the appellate court's decision somehow threatens to upend negotiable instrument law in Ohio. Although there is little analysis of how this claim fits with the facts of this case, they may think it relates to dicta from the Opinion and from the Judgment Entry Denying Requests for Reconsideration and En Banc Review. 2 The rest of this memorandum is noi su-ictly necessary but is offered in an attempt to respond the Scacchis' various off-point allegations. 3

4 To even attempt to link their claim with this case, they are forced to misstate the appellate court's holding in their attempt. Memorandum in Support of Jurisdiction, at 5. They claim that the court of appeals based its decision on the legal rule that "standing is not a jurisdictional prerequisite and that a lack of standing may be cured by substituting the real party in interest for an original party pursuant to Civ.R.17(A)." Id. But this appears nowhere in the court of appeals' decision. It cannot have been the basis of the Opinion because, among other things, nowhere in this litigation has HSBC ever admitted that it lacked standing, ever admitted that any other party was the real party in interest, ever attempted to substitute parties, or ever filed any motion pursuant to Rule 17(A). The Scacchis' attempt to incorrectly state the basis of the appellate court's decision is understandable only as a bold attempt to artificially contort this case into something that might be related to the Schwartzwald3 case. The only part of the court of appeals' decision that might be tangentially related to any part of the Scacchis' memorandum of jurisdiction are the paragraphs addressing, in dicta, the merits of their Motion for Relief from Judgment. Although the appellate court stated that the merits of the Scacchis' motion could not be considered, the appellate court did then address them only for the sake of argument to point out that the Scacchis would have lost anyway. The first of those paragraphs begin with the sentence: "Assuming the merits of the Civ.R. 60(B) motion could be considered, appellants' arguments nonetheless fail." Opinion 11; see also id Fed. Home Loan Mortgage Corp. v. Schwartzwald, 2012-Ohio-5017, 134 Ohio St. 3d 13, 979 N.E.2d 1214, reconsideration denied, 2012-Ohio-5693, 133 Ohio St. 3d 1501, 979 N.E.2d 347 (2012). See also, infra, I.C. 4

5 In those paragraphs, the appellate court did cite prior Ohio cases stating that a "lack of standing" argument was not jurisdictional and could be waived. After Schwartzwaldwas decided, the Scacchis applied for rehearing based on a claim that Schwartzwald would change the outcome. It did not and could not, so the appellate court denied the application for rehearing. In its denial, the appellate court acknowledged that Schwartzwaldhad changed the law regarding the standing issue and that the cases the appellate court had mentioned were no longer valid for the standing issue. The appellate court then pointed out, though, that it had recently discussed the impact of Schwattzwald in the Rufo4 case and stated that under both Schwartzwald and Rufo, HSBC had an interest sufficient to justify filing the foreclosure complaint, so the Scacchis would have lost even if those cases had been applied and the merits considered. Judgment Entry Denying Requests for Reconsideration and En Banc Review, at 3-4. But this is superfluous because the appellate court's discussion of the merits in its opinion and in its denial of the application for reconsideration is all dicta-an analysis offered only for the sake of argument. In other words, the Scacchis are appealing here only because they disagree with how the Appellate Court would have ruled on the merits if it had not held that the Scacchis must lose on procedural grounds. The Scacchis do not even mention the essential holding of the appellate court, much less argue that it was somehow incorrect or otherwise presents any issue of public or great general interest. Accordingly, jurisdiction of this appeal should be denied. 4Fed. Home Loan Mtge. Corp. v. Rufo, 2012-Ohio-5930, 90"3 N.E.2d 406 (Ohio Ct. App. 2012). 5

6 C. Even if the merits were reached, Schwartzwald would be irrelevant here because HSBC is the holder of the note and mortgage. Schwatttzwald is not a magic bullet that can undo every foreclosure in Ohio. Schwartzwald involved a very specific circumstance in which the plaintiff admitted that it did not have an interest in the property on which it foreclosed at the time it filed the complaint, and asserted merely that it later acquired an interest by an assignment of the mortgage signed after the complaint was filed and by use of Rule 17. Schwartzwald, at 9-10, The Schwartzwald Court held that Rule 17 and an assignment of the mortgage subsequent to initiating the foreclosure did not provide a way remedy plaintiff's lack of an interest in the lawsuit when it was filed. See id. at 34 and 41. Schwartzwald has no applicability when the plaintiff is entitled to enforce a note and mortgage when the complaint is filed. Here, HSBC owned the note and mortgage when it filed the Complaint, and has certainly never conceded that it did not. HSBC never relied on a motion under Rule 17; there was never a need because HSBC owned the note and mortgage since before the Complaint was filed. Therefore, Schwartzwald is inapposite. There was ample evidence before the trial court showing that HSBC had stated a case that it was entitled to enforce the note and mortgage. "[I]f a party fails to deny the specific allegations of a complaint against it, those allegations are considered admitted by the party." Burdge v. On Guard Sec. Servs. Inc., 2006-Ohio-2092 (not reported) (Ohio Ct. App. Apr. 28, 2006) (citing Civ.R. 8(i i)); see also r irstlvierit Bank, lv A. v. Shaheen, 2011-Ohio-6146, at (Ohio Ct. App. Nov. 28, 2011) (holding that a party's failure to challenge the technical sufficiency of an afi.davit before the trial court waives that 6

7 argument on appeal). In Burdge, the plaintiff moved for default judgment because the defendants did not answer, but the trial court denied the motion. Burdge at 4. The appellate court reversed and ordered the trial court to accept the allegations in the complaint as being admitted because the complaint contained averments that were never answered, so the trial court was required to construe them as admitted by the defendants. Id. at 7-8. Here, paragraph 5 of the Complaint asserted that "[p]laintiff is the owner and holder of the Note.'.' Likewise, Paragraph 15 of the Complaint asserted that "[p]laintiff is the owner and holder of the Mortgage, and is entitled to all of its benefits and advantages." Under Rule 8(D), the Scacchis admitted the allegations in the Complaint by choosing not to respond to them. In fact, the trial court would have abused its discretion if it had found that HSBC was not entitled to enforce the note and mortgage.5 Other evidence of HSBC's ownership includes the affidavit from Marti Noriega, which was filed with the motion for default judgment on September 30, Noriega, as an authorized records custodian, testified in paragraph 6 as to her personal knowledge that "Plaintiff is the holder and owner of the Note and Mortgage." Additionally, she swore in paragraph 9 that "[a] Loan Modification Agreement dated March 22, 2010 was entered into between Plaintiff and Defendants..." The Complaint was not filed until August 2010, so Noriega effectively testified that HSBC held the note and mortgage at least five months before the Complaint was filed. 5 Also, the Scacchis framed their first appeal as being that the trial court abused its discretion in denying their Motion for Relief From Judgment because of a purported failure to state a claim upon which relief can be granted. Appellant's Brief at 4-5. In reviewing for failure to state a c'laim, the trial court would be bound to accept all allegations in the Complaint as true, which would have led to the same result. 7

8 Schwartzwald, have held that this is sufficient to prove standing. In their "Explanation" section, the Scacchis seem to fixate on this issue. See generally Memorandum In Support of Jurisdiction. They criticize Rufo's application ofschwartzwald's statement that possession of the note or the assignm.ent of mortgage can create standing. Memorandum In Support of Jurisdiction, at 2-3. But that could be an issue only in a case where there was no evidence that the note was held by the plaintiff before the complaint was filed. Here, as shown above, there are several facts and admissions supporting HSBC's claim that it was the holder of the note and entitled to enforce the mortgage when it filed the Complaint, so HSBC need not rely on that argument here. HSBC merely points out that an assignment of the mortgage makes no sense unless the note was transferred with it, which is at least some evidence that the note was transferred to HSBC in Even if the appellate court had been able to reach the merits of the Scacchis' standing claims, they would have lost for the reasons stated and because the overwhelming weight of the facts proved that HSBC held the note when it filed the Complaint. At the very least, the trial court did not abuse its discretion in denying the Scacchis' Motion for Relief From Judgment because, among other things, the Scacchis failed to present a meritorious defense based on these uncontested facts and admissions. See generally Decision, There may eventually be a case in which the issue to be resolved is whether an assignment of a mortgage can, at least sometimes, carry with it a transfer of the note. But that is not this case. This case turns on whether the Scacchis are able to use a Rule 60(B) motion to raise arguments that must be raised in a direct appeal. Because they cannot and 9

9 because they fail to even address this in their Memorandum of Jurisdiction, this Court should refuse jurisdiction. H. A brief and concise argument in support of the HSBC's position regarding each proposition of law raised in the Scacchis' memorandum in support of jurisdiction. A. Proposition of Law No. I No statement in Proposition of Law No. I is relevant to this appeal. The Scacchis simply repeat some basic law regarding negotiable instruments, but they do not makenor can they make-any application of that law to their appeal because nothing in this section addresses the inadequacy of Rule 60(B) to serve as a vehicle for arguments that should have been raised in a direct appeal. See supra, I.A. Moreover, nothing in this section even explains how the cited law applies in a case where the plaintiff was entitled to enforce the note and mortgage at the time the Complaint was filed. See supra, I.C. The Scacchis' case is fatally flawed because they willingly allowed default judgment to be entered against them and they sought to avoid the consequences of their inaction by filing a Rule 60(B) motion solely on grounds that can only be raised by a direct appeal. Procedurally, the Scacchis simply cannot raise the arguments they want to make, so the trial court did not abuse its discretion in denying their motion, and the appellate court correctly affirmed that denial. B. Proposition of Law No. II The statements in Proposition of Law No. II are similarly irrelevant to this appeal. Proposition of Law No. II does not contain a discussion of Rule 60(B), including whether defendants who intentionally chose to allow entry of default judgment against them ought 10

10 to be able to raise arguments in a motion for relief from judgment when such matters are subject to review only in a direct appeal. This section does end with a conclusory sentence that at least mentions HSBC. But it still contains no analysis and is predicated on an assumption that the trial and appellate courts failed to consider whether HSBC was entitled to enforce its note. That assumption is false. As discussed above in section I.C., there was abundant evidence that HSBC is entitled to enforce the note. CONCLUSION This case turns on a straight-forward application of well-established law that a litigant may not use Rule 60(B) to raise arguments that could have been raised in a direct appeal. The Scacchis seek to avoid the barrier posed by the procedural history of this case by wholly ignoring the basis upon which the court of appeals affirmed the trial court. Instead, they argue that the holding came from the portion of the Opinion that the appellate court included merely for the sake of argument, and from the denial of reconsideration, which addressed only the arguments the court would have relied upon but for the procedural barrier. Consequently, the Scacchis fail to offer any argument of how the holding presents any question of public or general concern. 11

11 Nothing about this case is a matter of public or general concern, so jurisdiction should be denied. 1%0^m CI Dean Kanellis ( ) Keith D. Weiner & Associates Co., LPA 75 Public Square, 4th Floor Cleveland, OH Tel: Fax: dkanellis@weinerlaw.com 12

12 CERTIFICATE OF SERVICE I hereby certify that a copy of this Answer in Opposition was sent by ordinary U.S. Mail on April 29, 2013, to the following: James R. Douglass ( ) James R. Douglass Co. LPA Chagrin Boulevard, Suite D Shaker Heights, OH Attotneyfor Defendants-Appellants, Michelle and Richard Scacchi Marlon A. Primes ( ) Assistant U.S. Attorney 400 U.S. Court House 801 West Superior Avenue Cleveland, Ohio Attorney for The United States ofamerica Bridey Matheney ( ) Assistant Prosecuting Attorney 231 Main Street Suite 3-A Chardon, Ohio Attorney for Geauga County Treasurer ^ 15&ajiKanellis ( ) Keith D. Weiner & Associates Co., LPA Attorn.ey for Plaintiff-Appellee 75 Public Square, 4th Floor Cleveland, OH Tel: Fax: dkanellis@weinerlaw.com 13