HSBC Mtge. Servs., Inc. v. Watson

2017 Ohio 680

• Court: Ohio Court of Appeals
• Decided: February 27, 2017
• Docket: 11-16-03
• Status: Published

Opinion

[Cite as HSBC Mtge. Servs., Inc. v. Watson, 2017-Ohio-680.]

IN THE COURT OF APPEALS OF OHIO THIRD APPELLATE DISTRICT PAULDING COUNTY

HSBC MORTGAGE SERVICES, INC., CASE NO. 11-16-03 PLAINTIFF-APPELLEE,

v.

PAMELA J. WATSON, ET AL., OPINION

DEFENDANTS-APPELLANTS.

Appeal from Paulding County Common Pleas Court

Trial Court No. CI-12-178

Judgment Affirmed

Date of Decision: February 27, 2017

APPEARANCES:

George C. Rogers for Appellants

Jessica M. Wilson for Appellee Case No. 11-16-03

WILLAMOWSKI, J.

{¶1} Defendants-appellants Pamela J. Watson (“Watson”), also known as

Pamela J. Lambert, and William L. Lambert (“Lambert”) jointly appeal the

judgment of the Paulding County Court of Common Pleas for denying Watson’s

motion for the imposition of sanctions against opposing counsel and for allowing

the plaintiff-appellee, U.S. Bank Trust, N.A., (“U.S. Bank”) to be substituted as

party plaintiff in place of HSBC Mortgage Services, Inc. (“HSBC”). For the reasons

set forth below, the judgment of the trial court is affirmed.

{¶2} On November 24, 2004, Watson signed a promissory note under which

she promised to pay HSBC $79,500.00 plus interest in monthly payments. Doc. 1.

This note was secured by a mortgage on real property. Id. Watson stopped making

payments on the note in April of 2011. Doc. 27. On August 22, 2012, the original

plaintiff in this action, HSBC, filed a complaint in foreclosure against Watson and

Lambert. Doc. 1. On April 29, 2013, HSBC submitted a motion for summary

judgment with a copy of the mortgage agreement. Doc. 27. Watson then served

HSBC with requests for admissions on May 24, 2013. Doc. 31. The trial court set

July 23, 2013, as the final cutoff date for discovery. Doc. 30.

{¶3} HSBC, however, did not reply to the discovery requests by the deadline

established by the court. Doc. 37. Consequently, Watson’s requests for admission

were deemed admitted. Doc. 37. One of these admissions states that “HSBC does

not have possession of the original note.” Doc. 31. Another states that “neither

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Melissa D. Clearly [the person allegedly authorized to assign the mortgage] nor

Mortgage Electronic Registration Systems, Inc. sought or received permission from

the Bankruptcy Trustee for Accredited Home Lenders, Inc. to execute the

assignment of [Watson’s] mortgage [to HSBC].” Doc. 31. On August 2, 2013,

Watson used these admissions to oppose HSBC’s earlier motion for summary

judgment and submitted her own motion for summary judgment. Doc. 32. HSBC

responded by filing a motion to withdraw the requests for admissions deemed

admitted. Doc. 37. On February 12, 2014, the trial court granted HSBC’s motion

to withdraw admissions deemed admitted on the same day that it granted HSBC’s

motion for summary judgment. Doc. 39. The trial court then denied Watson’s

motion for summary judgment. Id.

{¶4} Watson and Lambert then filed an appeal with this court. Id. On

January 26, 2015, we reversed the trial court. HSBC Mtge. Servs., Inc. v. Watson,

3d Dist. Paulding No. 11-14-03, 2015-Ohio-221, ¶ 6. A trial court has the discretion

to “permit withdrawal of an admission if it will aid in presenting the merits of the

case and the party who obtained the admission fails to demonstrate that withdrawal

would prejudice him in maintaining his action.” Id. at ¶ 18, quoting State ex rel.

Davila v. Bucyrus, 194 Ohio App.3d 325, 956 N.E.2d 332, 2011-Ohio-1731, ¶ 22

(3d Dist.). Since the time for discovery had closed at the time HSBC’s motion to

withdraw was submitted, Watson was able to demonstrate to the trial court that she

would have been prejudiced if the admissions were withdrawn and discovery was

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not reopened. Id. at ¶ 29. Because the trial court did not reopen discovery, we

determined that the trial court erred when it permitted HSBC to withdraw their

admissions. Id. When considered, the content of HSBC’s admissions was sufficient

to defeat HSBC’s motion for summary judgment. Id. at ¶ 27. Thus, the trial court’s

rulings on both HSBC’s and Watson’s motions for summary judgment needed to be

reconsidered. Id. at ¶ 35. We then remanded the case for further proceedings. Id.

at ¶ 30, 37.

{¶5} Following the remand, on March 13, 2015, HSBC submitted a motion

for substitution of plaintiff, alleging that U.S. Bank had been assigned Watson’s

mortgage on January 6, 2015, and was now the real party in interest. Doc. 51.

Attached to the motion was a copy of the mortgage assignment, which included a

limited power of attorney that purportedly authorized the transfer of Watson’s

mortgage to U.S. Bank. Id. HSBC, however, included the wrong power of attorney

document. Doc. 58. The limited power of attorney HSBC submitted was incorrect

and had expired. Id.

{¶6} On April 23, 2015, Watson responded with a motion opposing HSBC’s

motion to substitute plaintiff. Doc. 55. Relying upon HSBC’s admission that they

did not possess the original note, Watson argued that neither HSBC nor U.S. Bank

could be real parties in interest as HSBC had nothing to transfer to U.S. Bank that

would justify a substitution of plaintiff in this case. Id. Further, Watson pointed to

the incorrect limited power of attorney and also asserted this document could not

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establish U.S. Bank as a real party in interest since the expired document did not

reference Watson’s mortgage and could not, therefore, assign the mortgage from

HSBC to U.S. Bank. Id. Watson’s motion to oppose HSBC’s motion to substitute

plaintiff was accompanied by a motion to impose sanctions for frivolous conduct

under R.C. 2323.51. Id. In response, HSBC admitted that they had “inadvertently

attached” the incorrect power of attorney but contested the appropriateness of

sanctions in this situation. Doc. 58. HSBC also included a copy of the correct

limited power of attorney document in this filing. Id.

{¶7} On February 29, 2016, Watson filed a motion for summary judgment.

Doc. 65. On May 27, 2016, the trial court issued an order that granted HSBC’s

motion to substitute plaintiff. Doc. 67. The court determined that the defendants

did not have standing to challenge the validity of the assignment as Watson was

“not a party to the assignment between HSBC and U.S. Bank.” Id. On June 13,

2016, Watson and Lambert submitted a motion to reconsider the court’s decision to

allow U.S. Bank to be substituted for HSBC as plaintiff. Doc. 69. The court then

set June 24, 2016, as the date for the parties to have a hearing on frivolous conduct

sanctions. Id. At the hearing, HSBC argued that Watson’s motion for summary

judgment should be denied so that discovery could be reopened. Doc. 75. The court

declined to reopen discovery, deemed the admissions of HSBC admitted, and

granted Watson’s motion for summary judgment. Id.

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{¶8} In the final judgment, the court also addressed the defendants’ motion

to reconsider the May 27, 2016 journal entry granting HSBC’s motion to substitute

plaintiff and Watson’s motion for R.C. 2323.51 sanctions. Doc. 55, 75. The court

declined to reverse the order granting HSBC’s motion to substitute plaintiff. Doc.

75. Since the alleged frivolous conduct arose from HSBC’s motion to substitute

plaintiff, the court overruled Watson’s motion for sanctions because such a decision

would be inconsistent with the court’s order granting HSBC’s motion to substitute

plaintiff. Doc. 75. On appeal, appellants raise two assignments of error.

First Assignment of Error

The trial court erred in its judgment entry of July 5, 2016 in denying the Watson motions for imposition of sanctions against plaintiff’s counsel for submitting frivolous motions in relation to the substitution of the party plaintiff.

Second Assignment of Error

As relating to its ruling denying sanctions, the trial court erred in allowing the substitution of U.S. Bank as the party plaintiff, and in denying the Watson motion to vacate such May 27, 2016 judgment in the courts final judgment entry of July 5, 2016.

We will evaluate the second assignment of error prior to consideration of the first

assignment of error.

{¶9} In appellants’ second assignment of error, appellants argue that the trial

court erred in permitting U.S. Bank to be substituted for HSBC as plaintiff. “A

party seeking to appeal bears the burden of proving that he or she has standing.”

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Guttentag v. Etna Twp. Bd. of Zoning Appeals, 177 Ohio App.3d 53, 2008-Ohio-

2642, 893 N.E.2d 890, ¶ 33 (5th Dist.). “[I]n order to have standing to appeal, a

person must be ‘able to demonstrate a present interest in the subject matter of the

litigation which has been prejudiced’ by the judgment appealed from.” Midwest

Fireworks Mfg. Co. v. Deerfield Twp. Bd. of Zoning Appeals, 91 Ohio St.3d 174,

177, 743 N.E.2d 894 (2001), quoting Willoughby Hills v. C.C. Bar's Sahara, Inc.,

64 Ohio St.3d 24, 26, 591 N.E.2d 1203 (1992). Further, “[a]ppeal lies only on behalf

of a party aggrieved by the final order appealed from.” Midwest Fireworks Mfg.

Co. at 177, quoting Ohio Contract Carriers Assn. v. Public Utilities Commission,

140 Ohio St. 160, 42 N.E.2d 758 (1942), syllabus. “Appeals are not allowed for the

purpose of settling abstract questions, but only to correct errors injuriously affecting

the appellant.” State ex rel. Gabriel v. Youngstown, 75 Ohio St.3d 618, 619, 1996–

Ohio–445, 665 N.E.2d 209 (1996), quoting Ohio Contract Carriers Assn. at

syllabus.

{¶10} In the present case, the trial court granted the motion to substitute U.S.

Bank for HSBC as plaintiff over appellants’ objections. We do not see any evidence

in the record that the trial court followed the dictates of Civ.R. 25(C), which required

the trial court to make a finding that a transfer of interest had occurred between

HSBC and U.S. Bank before ordering this substitution.1 See Union Bank Co. v.

1 Civ.R. 25(C) states in relevant part: “In case of any transfer of interest, the action may be continued by or against the original party, unless the court upon motion directs the person to whom the interest is transferred to be substituted in the action or joined with the original party.” -7- Case No. 11-16-03

North Carolina Furniture Express, L.L.C., 3d Dist. Auglaize Nos. 2-10-01 and 2-

10-02, 2010-Ohio-4176 (holding “[t]he decision of whether to allow a substitution

of parties is discretionary with the trial court and may be granted only upon a finding

of a transfer of interest.”).

{¶11} However, if the trial court made an error in this ruling, we do not see

any indication that appellants suffered prejudice as the result of this order. See

Board of Trustees for the Memorial Civic Center v. Carpenter Company, 3d Dist.

Allen No. 1-81-38, 1982 WL 4618 (August 9, 1982). If anything, this order is more

likely to operate in appellants’ favor as the substitution of U.S. Bank for HSBC

binds U.S. Bank to the summary judgment order that disposed of this case. Since

appellants have not demonstrated that they have suffered injury by the alleged error

of the trial court, appellants have not carried the burden of proving that either

Watson or Lambert are an aggrieved party with the standing to appeal this ruling.

For these reasons, appellants’ first assignment of error is overruled.

{¶12} In their first assignment of error, appellants allege that the conduct of

HSBC in submitting a defective motion to substitute plaintiff constitutes frivolous

conduct under R.C. 2323.51(B) and argue that the trial court abused its discretion

by denying appellants’ motion for the imposition of sanctions. R.C. 2323.51(B)(1)

states in relevant part that

any party adversely affected by frivolous conduct may file a motion for an award of court costs, reasonable attorney's fees,

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and other reasonable expenses incurred in connection with the civil action or appeal. The court may assess and make an award to any party to the civil action or appeal who was adversely affected by frivolous conduct….

R.C. 2323.51(B)(1). However, before the court makes such an award, it must hold

a hearing

to determine whether particular conduct was frivolous, to determine, if the conduct was frivolous, whether any party was adversely affected by it, and to determine, if an award is to be made, the amount of that award….

R.C. 2323.51(B)(2)(a).

{¶13} “By enacting R.C. 2323.51, the General Assembly intended to

sanction egregious conduct, not merely misjudgments or tactical errors.” Miller v.

Miller, 6th Dist. Wood No. WD-95-016, 1995 WL 557325 (Sept. 22, 1995), 2.

Since the decision to award sanctions is committed to the discretion of the trial court,

an appellate court “will not reverse a lower court’s decision on whether to award

sanctions under R.C. 2323.51 absent a showing of an abuse of discretion.” State ex

rel. DiFranco v. S. Euclid, 144 Ohio St.3d 571, 2015-Ohio-4915, 45 N.E.3d 987, ¶

13, citing State ex rel. Bell v. Madison Cty. Bd. of Commrs., 139 Ohio St.3d 106,

2014-Ohio-1564, 9 N.E.3d 1016, ¶ 10. “An abuse of discretion suggests the trial

court’s decision is unreasonable, arbitrary, or unconscionable.” Loyer v. Signature

Healthcare of Galion, 2016-Ohio-7736, 66 N.E. 3d 779, ¶ 7 (3d Dist.).

{¶14} In this case, the trial court, after the hearing on Watson’s motion for

sanctions, declined to reconsider its previous order that granted HSBC’s motion to

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substitute plaintiff. Doc. 75. The trial court then determined that the actions

surrounding the filing of a motion that the court granted did not amount to frivolous

conduct and denied Watson’s motion for sanctions. Id. The determination of

whether frivolous conduct exists precedes the determination of whether that conduct

adversely affected a party. R.C. 2323.51(B)(2)(a). Since the trial court found that

HSBC did not engage in frivolous conduct, it did not proceed to make a

determination for the record as to whether either appellant was a party adversely

affected by frivolous conduct. Doc. 75.

{¶15} Regardless of whether the trial court correctly granted the motion to

substitute plaintiff or whether HSBC’s actions amounted to frivolous conduct, we

do not see, in the particular circumstances of this case, how HSBC’s conduct

adversely affected appellants. The civil rules of procedure require that civil actions

“be prosecuted in the name of the real party in interest.” Civ.R. 17(A). Upon a

transfer of interest, Civ.R. 25(C) provides that the successor in interest can be

substituted into the action as the real party in interest. Civ.R. 25(C). However, the

substitution is to “have the same effect as if the action had been commenced in the

name of the real party in interest.” Civ.R. 17(A). These rules regarding the real

party in interest exist “to enable the defendant to avail himself of evidence and

defenses that the defendant has against the real party in interest, and to assure him

finality of the judgment, and that he will be protected against another suit brought

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by the real party [in] interest on the same matter.”2 Argent Mtge. Co. v. Ciemins,

8th Dist. Cuyahoga No. 90698, 2008-Ohio-5994, ¶ 10, quoting Shealy v. Campbell,

20 Ohio St.3d 23, 485 N.E.2d 701 (1985).

{¶16} The primary interests protected by Civ.R. 17 and Civ.R. 25 were not

endangered by HSBC’s motion to substitute plaintiff or by the trial court’s order

granting the motion to substitute plaintiff. First, the substitution of U.S. Bank for

HSBC had no effect on the defenses or evidence available to appellants. HSBC’s

admissions conclusively established that they had nothing to assign to U.S. Bank.

Upon substitution, U.S. Bank inherited this action as it was along with all of HSBC’s

admissions. Appellants could, therefore, mount identical defenses against HSBC

and U.S. Bank. Second, the finality of the judgment was not jeopardized by this

substitution. In filing this motion, HSBC admitted that they were no longer the real

party in interest and could not bring a future action based upon the same claim.

Third, bringing in U.S. Bank was not going to expose appellants to the risk of

enduring another suit on this same matter. HSBC and U.S. Bank would both be

barred by res judicata from filing this exact claim a second time as HSBC was bound

by the assignment, which effectively admitted that they are no longer a real party in

interest, and U.S. Bank was bound by HSBC’s admission that it did not have the

promissory note.

2 Civ.R. 17 provides the real party in interest rule. In Shealy, the Ohio Supreme Court was specifically addressing the purposes behind Civ.R. 17. While Civ.R. 17 allows for the substitution of the real party in interest, the rules for substitution are in Civ.R. 25. Decided by the Eighth District, Ciemins considers the purposes and effects of Civ.R. 17 and Civ.R. 25 in combination as part of an extended analysis of the substitution of a party. -11- Case No. 11-16-03

{¶17} Even looking beyond these primary interests protected by the civil

rules, we still do not see evidence in the record of an adverse effect on appellants.

Under the facts of this particular case, the disposition of HSBC’s motion to

substitute plaintiff did not threaten the interests of appellants or compel them to

respond. Appellants chose to intervene and dispute a motion that had no potential

to affect their interests adversely. The resources expended in challenging this

motion do not qualify as an adverse effect under R.C. 2323.51 as appellants chose

to expend resources to dispute HSBC’s motion and were not compelled to expend

resources in the defense of their interests by the actions of HSBC in filing this

motion. Even if we assume that HSBC’s actions amounted to frivolous conduct,

neither appellant is an adversely affected party that is eligible for an award of

sanctions for frivolous conduct. R.C. 2323.51(B)(1). We, therefore, decline to

disturb the trial court’s determination and overrule appellants’ second assignment

of error.

{¶18} Having found no error prejudicial to the appellants in the particulars

assigned and argued, the judgment of Paulding County Court of Common Pleas is

affirmed.

PRESTON, P.J. and SHAW, J., concur.

/hls

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