SHJ Co. v. Avani Hospitality & Fin., L.L.C.

2022 Ohio 1173, 187 N.E.3d 1121

• Court: Ohio Court of Appeals
• Decided: April 7, 2022
• Docket: 110771
• Status: Published

Opinion

[Cite as SHJ Co. v. Avani Hospitality & Fin., L.L.C., 2022-Ohio-1173.]

COURT OF APPEALS OF OHIO

EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA

SHJ CO., :

Plaintiff-Appellee, : No. 110771 v. :

AVANI HOSPITALITY AND FINANCE, L.L.C., ET AL., :

Defendants-Appellants. :

JOURNAL ENTRY AND OPINION

JUDGMENT: AFFIRMED RELEASED AND JOURNALIZED: April 7, 2022

Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-21-950513

Appearances:

Tucker Ellis L.L.P., William Stavole, and Anna L. Gecht, for appellee.

Harold Pollock Co., L.P.A. and Harold Pollock, for appellants. CORNELIUS J. O’SULLIVAN, JR., J.:

Defendants-appellants Avani Hospitality and Finance L.L.C. (“Avani”),

Atul Patel (“Atul”), and Archana Patel (individually, “Archana,” and collectively,

“appellants”) appeal the trial court’s judgment granting the plaintiff-appellee’s, SHJ

Co.’s (“appellee”), cognovit judgment against them. They also appeal the court’s

denial of their motion to vacate void judgment. After a thorough review of the

applicable law and record, we affirm.

Appellee is an Ohio limited liability company involved in money

lending. Avani is an Ohio limited liability company engaged in business and real

estate transactions. Atul is the sole managing member of Avani and is married to

Archana. In August 2019, Atul met with appellee and told appellee that he was

involved in operating hotels, assisted living developments, and other business deals

and was seeking funds to pursue various new business opportunities. As a result of

this meeting, appellee agreed to loan money to appellants, and appellants executed

three cognovit promissory notes: the “407 Note” in the amount of $407,000, the

“200 Note” in the amount of $200,000, and the “75 Note” in the amount of $75,000.

The 75 Note also contained a cognovit guaranty, executed by Atul on behalf of Avani.

The 407 Note, 200 Note, and 75 Note each contained the language

below:

Borrower’s Representations and Warranties

Commercial Loan. Borrower represents and warrants that the proceeds of this loan will be used by Borrower only for business purposes and that Borrower does not intend to, and will not, establish residence on the Property so long as the Loan remains outstanding.

***

THE MAKER EXPRESSLY AGREES THAT THIS PROMISSORY NOTE IS NOT TO BE INTERPRETED OR CONSIDERED AS ARISING OUT OF A CONSUMER LOAN OR CONSUMER TRANSACTION.

(Emphasis sic.)

Appellants contend that, despite their intention in using the loan

proceeds for commercial purposes, they primarily spent the proceeds on “personal,

family, educational, or household purposes.” The loans eventually went into default

and appellee filed the instant action. Pursuant to a warrant of attorney contained in

each cognovit note, appellants confessed judgment on the complaint in favor of SHJ

on July 27, 2021.

The trial court issued a judgment entry finding that the cognovit notes

and the guaranty did not arise out of a consumer loan or a consumer transaction and

entered judgment as follows: (1) against Avani and Atul, jointly and severally, in the

amount of $385,136.28 plus interest on the unpaid principal balance of

$384,006.66 from July 9, 2021, at the default interest rate 0f 25 percent per annum;

(2) against Avani, Atul, and Archana, jointly and severally, in the amount of

$178,295.52 plus interest on the unpaid principal balance of $177,236.01 from July

12, 2021, at the interest rate of 10 percent per annum; (3) against Avani and Atul,

jointly and severally, in the amount of $50,329.01 plus interest on the unpaid

principal balance of $43,058.05 from July 12, 2021, at the interest rate of 10 percent per annum; (4) all costs and expenses, including reasonable attorney fees incurred

by SHJ in collecting or enforcing the terms of each note and the guaranty; and (5)

all other relief to which SHJ is entitled. Judgment Entry on Cognovit Complaint,

No. 119022747 (July 27, 2021). The entry included the language that “[t]his is a final

judgment entry. Pursuant to Rule 54(B) of the Ohio Rules of Civil Procedure, this

Court hereby determines there is no just cause for delay.” Id.

On July 30, 2021, appellants filed a motion to consolidate cases, asking

the trial court to transfer an action Atul had filed against several defendants,

including SHJ, so that both cases could be heard before the same judge. See Patel

v. Thakkar, Cuyahoga C.P. No. CV-21-950070. The appellants simultaneously filed

a motion to vacate void judgment and stay execution.

On August 11, 2021, the court denied the motion to consolidate:

“Motion to consolidate cases CV-21-950070 and CV-21-950513 filed 07/30/2021 is

denied. This case is not active and cannot be consolidated with an active case.”

Journal Entry No. 118227628 (Aug. 11, 2021).

The trial court also denied the motion to vacate, determining it was a

Civ.R. 60(B) motion for relief from judgment and finding, in part: “Defendants were

aware of all the terms of the loans upon signing the agreement between the parties.

That the defendants now disfavor the terms of the loans is not a sufficient reason for

the court to overturn a valid judgment.” Journal Entry No. 118319195 (Aug. 18,

2021).

Appellants filed the instant appeal. Assignments of Error

I. The trial court erred in failing to make a finding as to whether or not the loans underlying the cognovit notes constituted consumer loans as required by [Shore W. Constr. Co. v. Sroka, 61 Ohio St.3d 45, 572 N.E.2d 646 (1991)] and Agarwal v. Matthews, [8th Dist. Cuyahoga No. 96950, 2012-Ohio-161].

II. The trial court failed to find that the cognovit notes arose from consumer loans thereby rendering the warrants of attorney to confess judgment granted to Plaintiff-Appellee in those cognovit notes invalid.

III. The trial court erred in failing to conduct an evidentiary hearing on the elements of R.C. 2323.13(E)(1) as required by [Shore W. Constr. Co. v. Sroka, 61 Ohio St.3d 45, 572 N.E.2d 646 (1991)] and Agarwal v. Matthews, [8th Dist. Cuyahoga No. 96950, 2012-Ohio-161].

IV. The trial court erred in failing to classify the loans as a consumer loan where the unrefuted testimony of Appellants showed that the loan proceeds were used primarily for “primarily for a personal, family, educational or household purposes” within the meaning of ORC §2323.13(E).

V. The trial court erred in denying Appellants’ motion to vacate judgment under Civil Rule 60(B) where Appellants had alleged a meritorious defense and did not need to prove that they would prevail on that defense.

VI. The trial court lacked subject-matter jurisdiction because the notes were subject to the prior exclusive jurisdiction of [a different trial judge] in the declaratory judgment action.

VII. The trial court erred in failing to reduce the amounts of the personal judgments against Appellants Patel to reflect a lawful interest rate.

Noncompliance with Appellate Rules

Appellants raise seven assignments of error for our review. As an

initial matter, we note that appellants consolidate their first five assignments of error into a single argument. Appellants also fail to identify those places in the

record on which these assignments of error are based.

App.R. 16 requires that the appellant shall include in its brief: “An

argument containing the contentions of the appellant with respect to each

assignment of error presented for review and the reasons in support of the

contentions, with citations to the authorities, statutes, and parts of the record on

which appellant relies.” App.R. 16(A)(17). App.R. 12(A)(2) provides that we “may

disregard an assignment of error presented for review if the party raising it fails to

identify in the record the error on which the assignment of error is based or fails to

argue the assignment separately in the brief, as required under App.R. 16(A).”

It is not the reviewing court’s obligation to search the record for

evidence to support an appellant’s argument as to any alleged error, Pond v. Pond,

10th Dist. Franklin No. 20AP-262, 2021-Ohio-1708, ¶ 10, citing State v. Ozeta, 4th

Dist. Adams No. 02CA746, 2004-Ohio-329, let alone five alleged errors that

appellants have lumped into a single argument. However, because cases are best

decided on their merits, this court will employ its discretion to briefly address the

appellants’ first five assignments of error in a consolidated fashion.1

Finally, appellants argue they are entitled to a stay of execution

pending the disposition of their motion to vacate, but this is not an argument that

1 Appellants’ counsel is admonished that future failure to conform with the appellate rules could result in the striking of the appellate brief or further sanctions. they have assigned as error. We decline to address appellants’ unassigned

argument. See App.R. 12, App.R. 16.

Assignments of Error I. – V.

In assigned errors one through five, appellants claim that the trial

court erred in finding that the cognovit promissory notes were commercial loans,

erred when it did not hold an evidentiary hearing to determine the type of loan prior

to entering judgment or deciding their motion to vacate, and erred when it denied

their motion to vacate. Essentially, appellants challenge the validity of the cognovit

note.

Standard of Review

A debtor relinquishes the possibility of notice, hearing, or appearance

at an action to collect in the event of nonrepayment by signing a cognovit note.

Buzby v. Chamoun, 2014-Ohio-4676, 22 N.E.3d 202, ¶ 5 (8th Dist.), citing Medina

Supply Co., Inc. v. Corrado, 116 Ohio App.3d 847, 689 N.E.2d 600 (8th Dist.1996).

The purpose of a cognovit note is to allow the holder of the note to quickly obtain

judgment, without the possibility of a trial. Buzby at id., citing Fogg v. Friesner, 55

Ohio App.3d 139, 140, 562 N.E.2d 937 (6th Dist.1988). To accomplish this, cognovit

notes are accompanied by a warrant of attorney by which the debtor provides a

waiver of the prejudgment notice and hearing requirements. Buzby at id.

If a debtor wants to challenge a judgment obtained by cognovit note,

the debtor may file a Civ.R. 60(B) motion for relief from judgment. Id. at ¶ 6, citing

Masters Tuxedo Charleston, Inc. v. Krainock, 7th Dist. Mahoning No. 02 CA 80, 2002-Ohio-5235. To establish that the debtor is entitled to relief from judgment on

a cognovit note, the debtor “need only establish (1) a meritorious defense and (2)

that the motion was timely made.” Buzby at id. citing Buehler v. Mallo, 10th Dist.

Franklin No. 10AP-84, 2010-Ohio-6349, ¶ 8. We review the trial court’s decision

regarding a Civ.R. 60(B) motion for an abuse of discretion. Buzby at id., citing State

ex rel. Russo v. Deters, 80 Ohio St.3d 152, 684 N.E.2d 1237 (1997). An abuse of

discretion is when a legal rule entrusts a decision to a judge’s discretion and the

judge’s exercise of that discretion is outside of the legally permissible range of

choices. State v. Hackett, 164 Ohio St.3d 74, 2020-Ohio-6699, 172 N.E.3d 75, ¶ 19.

Appellants’ Commercial Loan

The statutory provisions set forth in R.C. 2323.12 and 2323.13 govern

subject-matter jurisdiction over cognovit notes. Buzby at ¶ 9. A trial court can enter

judgment on a cognovit note arising out of a commercial loan, assuming all other

statutory requirements are satisfied, but a trial court lacks jurisdiction to enter

judgment on a cognovit note arising out of a consumer loan. See R.C. 2323.13(E)(1).

A “consumer loan” is defined in R.C. 2323.13(E)(1) as “a loan to a natural person

and the debt is incurred for primarily personal, family, educational, or household

purpose.”

Appellants contend that the trial court lacked jurisdiction to enter the

cognovit judgment pursuant to R.C. 2313.13(E)(1) because the cognovit notes arose

from “consumer loans.” When interpreting a cognovit note, a court must give meaning to the

language of the contract in a way that reflects the intent of the parties. See Sutton

Bank v. Progressive Polymers, L.L.C., 161 Ohio St.3d 387, 2020-Ohio-5101, 163

N.E.3d 546, ¶ 15-16 (holding that traditional rules of contract interpretation apply

to cognovit provisions in a contract).

The three cognovit notes at issue in this case clearly and

unambiguously provide that they are commercial loans for business purposes only

and are not to be interpreted or considered as arising out of consumer transactions.

As stated earlier, each of the three cognovit promissory notes contain the following

identical language:

Commercial Loan. Borrower represents and warrants that the proceeds of this loan will be used by Borrower only for business purposes and that Borrower does not intend to, and will not, establish residence on the Property so long as the Loan remains outstanding.

THE MAKER EXPRESSLY AGREES THAT THIS PROMISSORY NOTE IS NOT TO BE INTERPRETED OR CONSIDERED AS ARISING OUT OF A CONSUMER LOAN OR CONSUMER TRANSACTION.

There is no evidence in the record that either party endeavored to

renegotiate the terms of these notes to alter these specific provisions prior to default.

To support their claim that their loans were for consumer, not

commercial, purposes, appellants rely on 1st Natl. Fin. Servs. v. Ashley, 2018-Ohio-

3134, 118 N.E.3d 432, ¶ 13 (10th Dist.). In Ashley, the appellant appealed after the trial court denied her motion for relief from judgment, which challenged the trial

court’s subject-matter jurisdiction after a cognovit judgment. The appellant

asserted in her motion that the trial court lacked subject-matter jurisdiction because

the underlying loan was a consumer loan; therefore, pursuant to R.C. 2323.13(E),

the warrant to confess judgment contained in the cognovit note was invalid. She

supported her motion to vacate with an affidavit in which she averred she obtained

the original loan to help pay personal bills and the funds she obtained from that loan

were used for family and household purposes, she did not own a business and had

never owned a business, and she did not understand the significance of the cognovit

note when she signed it. Ashley at ¶ 11. The Tenth District found that because the

appellant alleged facts that would have precluded the court from exercising subject-

matter jurisdiction, the trial court should have placed the burden on the appellee to

prove that subject-matter jurisdiction existed and reversed the trial court’s decision.

Ashley is clearly distinguishable from this case. Here, the appellants

did not support their motion to vacate with an affidavit stating that the proceeds of

the loan were used for consumer purposes nor is there any evidence in the record to

support their claim. The appellants simply make assertions. Unlike Ashley, the

appellants are involved in business transactions; Atul acknowledges that he is a

“businessman” who “is actively engaged in business and frequently in need of capital

for new business and real estate ventures.” The company, Avani, of which Atul is

the sole managing member, is a limited liability company that engages “in business

and real estate transactions.” Here, appellants claim that they borrowed money with the intention

of utilizing it for business transactions, however, none of those transactions

materialized so they used the proceeds primarily for personal purposes. How

appellants chose to use the loan proceeds does not change the type or purpose for

which the loan was made. Appellants do not assert that they were fraudulently

induced into entering into the cognovit notes and have provided no evidence to

support their claims.

The other cases appellants rely on differ because they were brought in

federal court under the Truth in Lending Act (“TILA”). See Riviere v. Banner

Chevrolet, 184 F.3d 457 (5th Cir.1999) (holding that the district court should look to

substance of the transaction and the borrower’s purpose in obtaining a loan); St. Hill

v. Tribeca Lending Corp., 403 Fed.Appx. 717 (3d Cir.2010) (holding that the

primary purpose of the appellant’s loan was commercial; therefore, the TILA did not

apply to the loan as a matter of law.) Even if we were to rely on these cases and

consider both the loan documents and the primary purpose of the loan, appellants

readily admit that their primary purpose in obtaining the cognovit notes was

commercial.

No Requirement for Evidentiary Hearing

Appellants claim that the trial court erred in failing to hold a hearing

pursuant to R.C. 2313.13(E) to determine the nature of the cognovit note —

commercial or consumer — and failed to hold a hearing on their motion to vacate

motion for reconsideration. The plain language of R.C. 2313.13(E) does not provide for a hearing.

In Shore W. Constr. Co. v. Sroka, 61 Ohio St.3d 45, 48, 572 N.E.2d 646 (1991), the

Ohio Supreme Court vacated a judgment based on a cognovit note against

defendants who had taken out the loan in order to purchase a home, holding that

such a loan fell squarely within the statute’s definition of a “debt incurred * * *

primarily for a personal, family, educational, or household purpose.” The court

found that the “undisputed facts” showed that the loan qualified as a consumer loan

under the statute; thus, it was “unnecessary to remand the case for an evidentiary

hearing on the elements of R.C. 2323.13(E)(1).” Id. at 49.

In Agarwal v. Matthews, 8th Dist. Cuyahoga No. 96950, 2012-Ohio-

161, the defendants claimed that the trial court erred in entering a cognovit

judgment against them because their underlying loan was a consumer loan and the

trial court’s judgment granting the cognovit judgment was silent on the matter. A

panel of this court interpreted Shore W. Constr. Co. to require an evidentiary

hearing if the parties disagree as to the nature of a cognovit note and the trial court

makes no finding as to whether the loan underlying the present cognovit note

constituted a consumer loan:

We note that the trial court made no finding as to whether or not the loan underlying the present cognovit note constituted a consumer loan. Agarwal opposed appellants’ motion for relief and attached his own affidavit to support his argument that the underlying transaction was not a consumer loan but rather a commercial transaction between himself and Mt. Sinai Church. In Shore W., the Ohio Supreme Court noted that the appropriate course under the present circumstances is a remand, “for an evidentiary hearing on the elements of R.C. 2323.13(E)(1).” Shore W., 61 Ohio St.3d at 49. Agarwal at ¶ 10. See also 1st Natl. Fin. Servs. v. Ashley, 10th Dist. Franklin No.

16AP-18, 2016-Ohio-5497, ¶ 27 (finding that when there has been no finding by the

trial court as to the type of underlying loan, “Shore W. Construction Co. suggests

that the proper procedure to follow when the parties contest whether the cognovit

note arose from a ‘consumer loan’ is to hold an evidentiary hearing and make a

determination on the issue”).

In this case, not only did appellants fail to support their claims with

affidavits or any other evidence that their loans were consumer loans, but the trial

court affirmatively found that the cognovit note “did not arise out of a consumer

loan or a consumer transaction.” Thus, a hearing was not warranted.

There was also no reason to hold a hearing on appellants’ motion to

vacate/motion for reconsideration. A party filing a motion for relief from judgment

under Civ.R. 60(B) is not automatically entitled a hearing on the motion. Saponari

v. Century Limousine Serv., 8th Dist. Cuyahoga No. 83018, 2003-Ohio-6501, ¶ 8.

To be entitled to a hearing on a motion for relief from judgment, “the movant must

do more than make bare allegations that [they are] entitled to relief.” Id., quoting

Kay v. Marc Glassman, Inc., 76 Ohio St.3d 18, 20, 665 N.E.2d 1102 (1996). A trial

court has broad discretion to deny a motion for relief from judgment. “Where the

movant’s motion and accompanying materials fail to provide the operative facts to

support relief under Civ.R. 60(B), the trial court may refuse to grant a hearing and

summarily dismiss the motion for relief from judgment * * *.” Saponari at ¶ 9, citing Bates & Springer, Inc. v. Stallworth, 56 Ohio App.2d 223, 382 N.E.2d 1179 (8th

Dist. 1978).

Here, appellants never requested a hearing and, although they alleged

they were entitled to relief, they did not present operative facts in support of their

motion. Appellants concede that they entered into the loans for business purposes

and have shown no evidence to create a factual dispute that would warrant a hearing

on their motion.

Accordingly, assignments of error one through five are overruled.

Assignment of Error VI – Court’s Jurisdiction

In the sixth assignment of error, appellants contend that the trial court

erred when it found that it had jurisdiction over their claim because the case should

have been assigned or transferred to the trial judge handling their other action

against SHJ, Case No. CV-21-950070.

Appellants note in their brief that they have dismissed their claims

without prejudice against SHJ in Case No. CV-21-950070.2 They concede that

because of the dismissal, “the issues of consolidation and transfer initially raised by

this appeal are moot.” Despite this admission, appellants argue that the issue of

whether the trial court issued a “valid” judgment remains because the court issued

the judgment while another court had concurrent jurisdiction over “the notes.”

2 On September 23, 2021, appellants, as plaintiffs in Case No. CV-21-950070, filed for leave to amend their complaint to dismiss certain counts that applied to SHJ. The trial court in that case granted the motion on October 12, 2021, dismissing the claims against SHJ. As appellants concede, their action in dismissing their claims against

SHJ in Case No. CV-21-950070 renders their claim on appeal moot. Because no

actual controversy remains to be litigated on this issue and there is no available

remedy to be granted, we conclude that the issue raised under this assignment of

error is moot.

Accordingly, the trial court did not err in finding it had jurisdiction

over the case and the sixth assignment of error is overruled.

Assignment of Error VII – Usury Statute does not Apply

In the seventh assignment of error, appellants argue that the trial

court erred in failing to invoke Ohio’s usury statute to reduce the principal balance

and interest rate due on each cognovit note.

R.C. 1343.01, Ohio’s Usuary Statute, provides for setoff of excess

usurious interest against the principal balance due, not to exceed eight percent,

subject to six exceptions:

(B) Any party may agree to pay a rate of interest in excess of the maximum rate provided in division (A) of this section when:

(1) The original amount of the principal indebtedness stipulated in the bond, bill, promissory note, or other instrument of writing exceeds one hundred thousand dollars;

(6)(a) The loan is a business loan to a business association or partnership, a person owning and operating a business as a sole proprietor; any persons owning and operating a business as joint venturers, joint tenants, or tenants in common; any limited partnership; or any trustee owning or operating a business or whose beneficiaries own or operate a business * * *. R.C. 1343.01(B)(1)-(6).

Both the 407 Note and the 200 Note exceed $100,000; thus, the usury

statute does not apply. R.C. 1343.01(B)(6)(b) defines a “business” as: “[A]

commercial, agricultural, or industrial enterprise which is carried on for the purpose

of investment or profit. ‘Business’ does not mean the ownership or maintenance of

real estate occupied by an individual obligor solely as his residence.” The 75 Note

was entered into by Atul, as the sole managing member of Avani, in connection with

a commercial loan. There is no dispute that Avani was a limited liability company.

Thus, the usury statute also does not apply to the 75 Note.

Accordingly, the usuary statute does not apply to the cognovit notes

in this case.

The seventh assignment of error is overruled.

Judgment affirmed.

It is ordered that appellee recover from appellants costs herein taxed.

The court finds there were reasonable grounds for this appeal. It is ordered that a special mandate be sent to the common pleas court to carry

this judgment into execution.

A certified copy of this entry shall constitute the mandate pursuant to Rule 27

of the Rules of Appellate Procedure.

CORNELIUS J. O’SULLIVAN, JR., JUDGE

ANITA LASTER MAYS, P.J., and JAMES A. BROGAN, J.,* CONCUR

(Sitting by assignment: James A. Brogan, J., retired, of the Second District Court of Appeals.)