Berkshire Bank v. Macedonia Hospitality, L.L.C.

2024 Ohio 2485

• Court: Ohio Court of Appeals
• Decided: June 28, 2024
• Docket: 30613
• Status: Published

Opinion

[Cite as Berkshire Bank v. Macedonia Hospitality, L.L.C., 2024-Ohio-2485.]

STATE OF OHIO ) IN THE COURT OF APPEALS )ss: NINTH JUDICIAL DISTRICT COUNTY OF SUMMIT )

BERKSHIRE BANK C.A. No. 30613

Appellee

v. APPEAL FROM JUDGMENT ENTERED IN THE MACEDONIA HOSPITALITY, LLC, et al. COURT OF COMMON PLEAS COUNTY OF SUMMIT, OHIO Appellants CASE No. CV 2021-07-2067

DECISION AND JOURNAL ENTRY

Dated: June 28, 2024

FLAGG LANZINGER, Judge

{¶1} Macedonia Hospitality, LLC, (“Macedonia”) Dinaz Pooniwala (“Pooniwala”),

Burnsville Hospitality LLC (“Burnsville”), and Perdin L.L.C. (“Perdin”) (collectively

“Appellants”) appeal the judgment of the Summit County Court of Common Pleas, granting

summary judgment in favor of Berkshire Bank (“Berkshire”) on its foreclosure action. This Court

affirms.

I.

{¶2} On December 11, 2017, in exchange for a loan (“Loan”) of $2,000,000, Macedonia

executed a promissory note (“Note”) to Berkshire. The loan was secured by the Small Business

Administration (“SBA”). To secure repayment of the Loan, Macedonia executed and delivered a

mortgage (“Mortgage”) encumbering the property located at 311 East Highland Road, Macedonia,

OH 44056 (the “Property”). Berkshire has remained the holder of the Note and Mortgage since

their execution. As additional security for the Loan, Macedonia executed an assignment of leases 2

and rents (“Assignment”) assigning its rights to all present and future leases, rents, and income for

the Property to Berkshire. Macedonia also executed a commercial security agreement granting

Berkshire a security interest in all accounts, inventory, equipment, furniture, fixtures, general

intangibles, chattel paper, and instruments (the “Collateral”). Berkshire perfected its security

interest in the Collateral with a properly filed and recorded UCC financing statement.

{¶3} Also on December 11, 2017, as additional security for the Loan, Appellants

Pooniwala, Burnsville, and Perdin (the “Guarantors”) executed an unconditional guarantee as

Guarantors of the Loan. The Guarantors guaranteed payment of all amounts owing under the Note.

{¶4} In 2020, during the COVID-19 pandemic, Macedonia began receiving 100%

monthly payment assistance through the United States Government. In January 2021, Macedonia’s

payment assistance was lowered to $9,000.00/month and Macedonia was responsible for the

remaining balance. On January 8, 2021, Macedonia made its January 1, 2021 payment in full. The

February 1 and March 1, 2021 payments were paid by Macedonia on May 13, 2021 (four and a

half and three and a half months after the payments were due). The April 1 and May 1, 2021

payments were paid by Macedonia on June 17, 2021 (two and a half and one and a half months

after the payments were due).

{¶5} On May 27, 2021, Berkshire delivered a demand letter to Macedonia. The letter

stated that Berkshire was accelerating the Loan and demanding the immediate repayment of the

total outstanding balance of the Loan because (1) payments on the Loan were past due and unpaid

from April 1, 2021, (2) Macedonia had failed to provide certain financial information required

pursuant to the Loan documents, (3) taxes on the Property were delinquent, and (4) hazard

insurance on the Property and Collateral had lapsed. 3

{¶6} On July 2, 2021, Berkshire filed a complaint to obtain judgments against the

Appellants and to foreclose based upon (1) the Note and Mortgage against Macedonia, (2) the

Assignment, (3) the commercial security agreement against the Collateral, and (4) the

unconditional guarantees signed by the Guarantors.

{¶7} Berkshire moved for summary judgment. Appellants jointly filed a brief in

opposition to Berkshire’s motion for summary judgment. The trial court granted Berkshire’s

motion for summary judgment. The court issued a decree of foreclosure.

{¶8} Appellants have appealed raising one assignment of error for review.

II.

{¶9} Before turning to the merits, we must consider whether this appeal is properly

before us. “Mootness presents a question of jurisdiction * * *.” Tavenner v. Pittsfield Twp. Bd.

of Trustees, 9th Dist. Lorain No. 22CA011831, 2022-Ohio-4444, ¶ 7, quoting Brown v. Dayton,

2d Dist. Montgomery No. 24900, 2012-Ohio-3493, ¶ 10. It “prevents courts from deciding cases

in which no controversy remains.” C.S. v. M.S., 9th Dist. Summit No. 29672, 2021-Ohio-1943, ¶

3. “After the rights and obligations of the parties have been extinguished through satisfaction of

the judgment, a judgment on appeal becomes moot because it ‘cannot have any practical effect

upon the issues raised by the pleadings.’” Bankers Trust Co. of California, N.A. v. Tutin, 9th Dist.

Summit No. 24329, 2009-Ohio-1333, ¶ 8, quoting Sedlak v. Solon, 104 Ohio App.3d 170, 178 (8th

Dist.1995).

{¶10} In issuing a decree of foreclosure, the trial court found Appellants liable to

Berkshire for $2,108,914.09. Appellants moved the trial court to stay the execution of its

judgment, but the trial court denied their motion. The Property sold during the pendency of this

appeal. 4

{¶11} Following the sale of the Property, this Court issued a show cause order. We

ordered the parties to respond as to whether the appeal was moot due to the sale of the Property.

At that point, the sale had yet to be confirmed and the proceeds had yet to be distributed. Berkshire

argued the appeal would become moot once the proceeds were distributed. Appellants argued a

live controversy remained because the sale left a deficiency judgment. Within days of the parties

responding to our show cause order, the trial court entered an order confirming the sale of the

Property and ordering a distribution of the sale proceeds. Appellants moved the trial court to stay

the distribution of the proceeds, but the trial court denied their motion. The Property sold for

$536,000.00.

{¶12} “In foreclosure cases, as in all other civil actions, after the matter has been

extinguished through satisfaction of the judgment, the individual subject matter of the case is no

longer under the control of the court and the court cannot afford relief to the parties to the action.”

Tutin, 2009-Ohio-1333, at ¶ 16. Generally, “satisfaction of judgment occurs when the subject

property has been sold and the proceeds of the sheriff’s sale have been distributed.” Bayview Loan

Servicing, L.L.C. v. Salem, 9th Dist. Summit No. 27460, 2015-Ohio-2615, ¶ 7. Here, however, a

deficiency judgment exists. The trial court entered judgment in favor of Berkshire for

$2,108,914.09. The Property sold for $536,000.00. “Because there is an unsatisfied deficiency

judgment in this case, the mootness doctrine is not determinative of all of the issues * * *.” U.S.

Bank, N.A. v. Poff, 9th Dist. Wayne No. 14AP0023, 2016-Ohio-2874, ¶ 16. The appeal remains

viable to the extent it challenges the money judgment the trial court imposed upon Appellants. See

id. That portion of the appeal represents a live controversy. Accordingly, we have jurisdiction to

address it. 5

ASSIGNMENT OF ERROR

THE TRIAL COURT ERRED BY IMPROPERLY GRANTING SUMMARY JUDGMENT FOR BERKSHIRE BANK.

{¶13} In their sole assignment of error, Appellants argue that the trial court erred by

granting Berkshire’s motion for summary judgment on Berkshire’s foreclosure action because

genuine issues of material fact exist. For the following reasons, this Court disagrees.

{¶14} Initially we note, while Berkshire asserts this Court’s May 17, 2023 order extended

only Pooniwala’s deadline to submit an appellate brief and did not extend the deadline for the other

appellants, Local Rule 14(C) states “[w]hen one party receives an extension of time, * * * the

extension shall apply to all other parties on that side.” Therefore, all Appellant’s briefs are timely.

{¶15} Under Civil Rule 56(C), summary judgment is appropriate if:

(1) [n]o genuine issue as to any material fact remains to be litigated; (2) the moving party is entitled to judgment as a matter of law; and (3) it appears from the evidence that reasonable minds can come to but one conclusion, and viewing such evidence most strongly in favor of the party against whom the motion for summary judgment is made, that conclusion is adverse to that party.

Temple v. Wean United, Inc., 50 Ohio St.2d 317, 327 (1977). To succeed on a motion for summary

judgment, the party moving for summary judgment must first be able to point to evidentiary

materials that demonstrate there is no genuine issue as to any material fact, and that it is entitled

to judgment as a matter of law. Dresher v. Burt, 75 Ohio St.3d 280, 292 (1996). If the movant

satisfies this burden, the nonmoving party “must set forth specific facts showing that there is a

genuine issue for trial.” Id. at 293, quoting Civ.R. 56(E). This Court reviews an award of summary

judgment de novo. Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105 (1996).

{¶16} In a foreclosure action, the plaintiff moving for summary judgment must present:

evidentiary-quality materials showing: (1) the movant is the holder of the note and mortgage, or is a party entitled to enforce the instrument; (2) if the movant is not the original mortgagee, the chain of assignments and transfers; (3) the mortgagor is 6

in default; (4) all conditions precedent have been met; and (5) the amount of principal and interest due.

The Bank of New York Mellon v. Bridge, 9th Dist. Summit No. 28461, 2017-Ohio-7686, ¶ 10,

quoting Bank of Am., N.A. v. Edwards, 9th Dist. Lorain Nos. 15CA010848, 15CA010851, 2017-

Ohio-4343, ¶ 10. Here, Appellants only dispute the 4th prong. Appellants raise multiple issues

relating to different conditions precedent which the Appellants assert remain genuine questions of

material fact.

{¶17} This Court’s review of the record indicates that Berkshire met its initial summary-

judgment burden by pointing to evidentiary materials demonstrating that there was no genuine

issue as to any material fact regarding its foreclosure action, and that they were entitled to judgment

as a matter of law. Dresher, 75 Ohio St.3d at 292. Berkshire presented evidence indicating that:

(1) Berkshire is the holder of the Note and Mortgage for the Property; (2) Berkshire had not

assigned the Note and Mortgage, and therefore no chain of assignments was pertinent to this case;

(3) Macedonia failed to pay its February, March, April, and May payments. After Macedonia failed

to timely make its payments, pursuant to the Loan agreement’s acceleration clause, Berkshire

delivered a demand letter indicating it was accelerating the Loan and demanded immediate

repayment of the total outstanding balance of the Loan. At the time of the initiation of the

foreclosure action, Macedonia did not pay the full accelerated amount owed and Macedonia was

in default of the Mortgage; (4) Berkshire provided notice to Macedonia of default and acceleration

of the Loan via a letter delivered by certified mail. Additionally, the Loan agreement and Mortgage

did not include any curative clause for Macedonia to cure default; and (5) the specific amounts of

principal and interest due total $2,265,322.71.

{¶18} Appellants dispute that all conditions precedent have been met. Appellants raise

three arguments relating to different conditions precedent which the Appellants assert remain 7

genuine questions of material fact: (1) Berkshire did not submit a litigation plan to the SBA; (2)

Berkshire did not mitigate its damages when it refused to sell the Property following the filing of

the foreclosure action to a ready, willing, and able buyer for approximately $1.8 million; and (3)

Berkshire failed to mitigate its damages when it failed to contact any of the Guarantors to attempt

to recover the amounts owing under the Note.

{¶19} First, a significant portion of Appellants’ appellate brief relates to Berkshire’s

failure to file a litigation plan with the SBA. Appellants argue that Berkshire did not meet all the

conditions precedent for filing for default because it did not submit a litigation plan in accordance

with its agreement with the SBA and pursuant to 13 C.F.R. 120.540(c). Appellants also assert that

Berkshire was required pursuant to 13 C.F.R. 120.540(e) to suspend its foreclosure action and

submit a litigation plan to the SBA upon learning that the matter was contested, and therefore

“non-routine.” Appellants also assert that Berkshire failed to mitigate its damages pursuant to 13

C.F.R. 120.540, which requires lenders of SBA loans to work with small businesses to avoid

foreclosure.

{¶20} Courts have frequently held that an SBA agreement is “between the bank and the

SBA and creates no right in the Defendants.” United States v. Martin, 344 F.Supp. 350, 356

(E.D.Mich. 1972); see also Id., quoting United States v. Fay T. Garner, et al., Civil No. 67-C-48

(D.Colo. 1968). (“The Participation Agreement * * * was clearly an agreement between the Bank

and the Small Business Administration for their mutual benefit and created no legal rights or duties

in the Defendants. The Defendants are not parties to the Agreement, nor are they third-party

beneficiaries of the Agreement.”); Hudson v. Sun Natl. Bank, Nos. CIV.A. 10-6401, 10-5481, 11-

0432, 2014 WL 3700147, *3 (E.D.Pa. July 25, 2014), fn. 29 (“But what appears to have always

been true is the SBA’s guarantees–of those funds lent to borrowers by banks–have been 8

agreements between the lending institutions and the SBA, and have been entirely independent of,

and have created no rights in, the borrowers.”); United States v. Healy, 923 F.Supp. 1424, 1429

(D.Kan. 1996) (“The provisions of the Loan agreement * * * were for the benefit of the SBA. * *

*Any benefits that the personal guarantors derived from the Loan agreement were merely

incidental.”)

{¶21} Here, the loan at issue was secured with a guarantee from the SBA and Macedonia

was able to secure a $2,000,000.00 commercial loan due to the SBA guarantee. However, the Loan

agreement and Mortgage do not require Berkshire to submit a litigation plan to the SBA prior to

initiating a foreclosure action. Berkshire’s agreement with the SBA, and any requirements outlined

within 13 C.F.R. 120.540, do not benefit Appellants. We agree with the trial court’s finding that

Berkshire did not fail to satisfy a condition precedent when it (1) did not submit a litigation plan

to the SBA prior to initiating its foreclosure action, and (2) did not submit a litigation plan to the

SBA once the foreclosure action was contested and non-routine. Appellants’ various arguments

relating to any agreement between Berkshire and the SBA have no merit.

{¶22} Second, Appellants argue that Berkshire did not meet all the conditions precedent

for filing its foreclosure action because it did not mitigate its damages prior to filing. Appellants

argue that Berkshire failed to mitigate its damages when it refused to sell the Property following

the filing of the foreclosure action to a ready, willing, and able buyer for approximately $1.8

million. This Court notes that the Appellants did not challenge the refusal to sell the Property

following the filing of the foreclosure action to a ready, willing, and able buyer in the Appellants’

motion for summary judgment. Appellants cannot challenge the refusal to sell for the first time on

appeal. See State ex rel. Perkins v. Medina Cty. Bd. of Commrs., 9th Dist. Medina No. 19CA0051-

M, 2020-Ohio-3913, ¶ 16 (providing that a party cannot raise a new argument for the first time on 9

appeal when the party failed to raise that argument in its brief in opposition to a dispositive

motion).

{¶23} Third, Appellants argue that Berkshire failed to mitigate its damages when it failed

to contact any of the Guarantors to attempt to recover the guaranteed payment of all amounts owing

under the Note. Appellants’ argument that Berkshire failed to mitigate its damages by not

contacting the Guarantors, or providing the Guarantors with a written demand, is not supported by

the record. Each unconditional guarantee executed by the Guarantors states that “Guarantor waives

any notice of * * * demand[.]” Given the terms outlined within the unconditional guarantee,

Berkshire was not required to provide prior notice to the Guarantors before initiating its foreclosure

action against Macedonia. Appellants’ arguments relating to Berkshire’s failure to notify the

Guarantors or mitigate its damages via the Guarantors have no merit.

{¶24} Having reviewed the record, this Court concludes that Appellants failed to meet

their reciprocal summary-judgment burden of setting forth specific facts showing that there was a

genuine issue for trial. Dresher, 75 Ohio St.3d at 293; Civ.R. 56(E). The trial court, therefore, did

not err when it granted summary judgment in favor of Berkshire on Berkshire’s foreclosure action.

Accordingly, Appellants’ assignment of error is overruled.

III.

{¶25} Appellants’ assignment of error is overruled. The judgment of the Summit County

Court of Common Pleas is affirmed.

Judgment affirmed.

There were reasonable grounds for this appeal. 10

We order that a special mandate issue out of this Court, directing the Court of Common

Pleas, County of Summit, State of Ohio, to carry this judgment into execution. A certified copy

of this journal entry shall constitute the mandate, pursuant to App.R. 27.

Immediately upon the filing hereof, this document shall constitute the journal entry of

judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the period

for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is instructed to

mail a notice of entry of this judgment to the parties and to make a notation of the mailing in the

docket, pursuant to App.R. 30.

Costs taxed to Appellants.

JILL FLAGG LANZINGER FOR THE COURT

HENSAL, P. J. CONCURS.

CARR, J. CONCURRING IN PART, AND DISSENTING IN PART.

{¶26} While I concur in the majority’s determination that this matter is not moot, I

respectfully dissent regarding the resolution of the Appellants’ sole assignment of error. In

granting summary judgment, the trial court concluded that the requirement to file a litigation plan

set forth in 13 C.F.R. 120.540(c) does not establish a condition precedent. In reaching this

conclusion, the trial court observed that the SBA litigation regulations were germane only to the

SBA’s relationship with the lender and had no bearing on the lender’s ability to accelerate the loan

and file suit upon a breach of the terms of the note. 11

{¶27} The overarching purpose of the SBA regulations are “to aid, counsel, assist, and

protect the interest of small business concerns as well as to help victims of disasters.” Ameritrust

Co. Natl. Assn. v. J & J Soap Box, Inc., 10th Dist. Franklin No. 90AP-1086, 1991 WL 4930, *2

(Jan. 17, 1991). “Hence, one of the primary functions of the SBA is to make loans to small

business[es] * * * who do not otherwise qualify for loans by traditional banking standards, either

directly or pursuant to a guarantee agreement with a financial institution.” Id.

{¶28} 13 C.F.R. 120.540(c) provides that “[a]n [a]uthorized * * * [l]ender must obtain

SBA’s prior approval of a litigation plan before proceeding with any [n]on-[r]outine [l]itigation[.]”

Furthermore, the SBA’s Standard Operating Procedure contains a provision stating that “[l]enders

must obtain SBA’s prior written approval before taking any [l]oan [a]ction that involves a[] * * *

[l]itigation [p]lan and any amendments to a [l]itigation [p]lan for [n]on-[r]outine [l]itigation[.]”

S.B.A. S.O.P. 50 57 (Third Edition), Chapter 3, Section C(3)(l), 2023 WL 5036027. 13 C.F.R.

120.540(c)(1) defines non-routine litigation as “(i) [a]ll litigation where factual or legal issues are

in dispute and require resolution through adjudication; (ii) [a]ny litigation where legal fees are

estimated to exceed $10,000; (iii) [a]ny litigation involving a loan where a [l]ender or [a]uthorized

CDC [l]iquidator has an actual or potential conflict of interest with SBA; and (iv) [a]ny litigation

involving a 7(a) or 504 loan where the [l]ender or CDC has made a separate loan to the same

borrower which is not a 7(a) or 504 loan.” The requirement to obtain written consent prior to

accelerating the loan and suing on the note is consistent with the overarching purpose of the

regulations. J & J Soap Box, Inc. at *3. “The general duty to service the loan does not grant the

lender the authority to unilaterally accelerate or to sue upon an SBA guaranteed loan which is in

default. This interpretation is consistent with the policy of the SBA and is necessary to effectuate 12

the stated purposes of the SBA to protect and to aid small businesses in their relationship with

financial institutions.” Id.

{¶29} Here, I would hold that the trial court erred in concluding that the requirement to

file a litigation plan set forth in 13 C.F.R. 120.540(c) does not establish a condition precedent to

filing suit upon an SBA loan that was in default. To hold otherwise would be to disregard the core

public policy consideration underpinning the SBA regulatory scheme. Accordingly, I would

sustain the Appellants’ sole assignment of error and reverse the trial court’s summary judgment

order.

APPEARANCES:

MARISSA K. VARCHO and TROY J. DOUCET, Attorneys at Law, for Appellants.

ROBERT L. DAWSON and JOHN R. WIRTHLIN, Attorneys at Law, for Appellee.