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Wednesday, April 4, 2012

Beth Miller v. Norman Miller, Case no. 2011-1172
Fifth District Court of Appeals (Delaware County)

Federal Home Loan Mortgage Corp. v. Duane Schwartzwald et al., Case nos. 2011-1201 and 2011-1362
Second District Court of Appeals (Greene County)

Westfield Insurance Co. v. Custom Agri Systems, Inc., Case no. 2011-1486
U.S. Sixth Circuit Court of Appeals

Mark A. Bennett v. Goodremont's, Inc., et al., Case no. 2011-0902
Sixth District Court of Appeals (Lucas County)

Is Divorce Decree Signed by Magistrate on Judge's Behalf Void, or Merely 'Voidable' by Timely Direct Appeal?

Beth Miller v. Norman Miller, Case no. 2011-1172
Fifth District Court of Appeals (Delaware County)

ISSUE: When the final decree in a divorce case is signed by a magistrate on behalf of a judge, rather than by the judge himself as required under Civil Rule 58, is the decree a legal nullity that was never valid, or is it a voidable judgment that may be challenged on direct appeal, but may not be collaterally attacked by a party after the appeal period has expired?

BACKGROUND: In 2004, Beth and Norman Miller sought to terminate their marriage through divorce proceedings in the Delaware County Domestic Relations Court. On December 27, 2004, Beth and  Norman jointly filed with the court a shared parenting agreement, a child support worksheet, and a typewritten document with handwritten changes initialed by the parties that bore the title “Memorandum of Agreement.” The documents were signed by Beth, Norman and their respective attorneys.  On a signature line provided for the trial court judge, the name of the judge was hand signed, followed by a slash and the initials “LS.”  It was later stipulated by all parties that the documents had actually been signed by a magistrate, acting with the permission of the judge. 

Ten months later, in October 2005, the court made an entry in its docket declaring that it had sua sponte (on the court’s own initiative) adopted the “Memorandum of Agreement” document filed December 27, 2004 “as an Agreed Judgment Entry (Decree of Divorce)” and as a “final Journal Entry, Decree of Divorce.”  The entry bore a signature on the line provided for the trial judge that was adjoined by the initials of the magistrate. It was later stipulated by all parties that this entry had actually been signed by the magistrate, acting with the judge’s permission.

Beth and Norman proceeded to divide their property according to the memorandum of agreement, share custody of their daughter and follow the child support and shared parenting agreement. Both eventually remarried, Beth in 2007 and Norman in 2008. In 2007, Norman filed motions in the domestic relations court to amend the shared parenting plan and recalculate child support payments. The parties reached an agreement, and the court recorded agreed judgment entries resolving those issues.

In April 2009, Beth, now known as Beth Knece, moved to vacate the court’s October 2005 judgment entry recording a “Decree of Divorce” and to strike the memorandum of agreement filed in December 2004 as invalid because they had not been personally signed by the trial judge. Norman opposed those motions. Prior to a magistrate hearing on Beth’s motions, the domestic relations judge submitted an affidavit stating that he had given his magistrate permission to sign the documents at issue in this case on his behalf.  The judge indicated further that it was his standard practice to permit a magistrate to sign his name “to all judgment entries that were agreed to and approved by the parties.” 

On January 25, 2010, Norman Miller died, leaving his second wife, Rebecca Nelson-Miller as his heir and administrator of his estate. Rebecca was substituted for Norman as a party in the still-pending litigation.

On January 26, 2010, the magistrate issued a written opinion in which he denied Beth’s motions, holding that the judge had acted within his discretion in authorizing a magistrate to sign agreed judgment entries on his behalf; but even if delegating his signing authority was error, the divorce decree was at worst “voidable,” and Beth had waived her right to challenge it by using the terms of the decree to her advantage (for example, by remarrying), by failing to raise the signature issue during the 2007 proceedings modifying the 2005 decree, and by failing to file an appeal of the alleged error within the statutory appeal period after the decree was issued.

Beth entered objections to the magistrate’s ruling. The trial court overruled the objections and adopted the magistrate’s decision as its final judgment in August 2010. Beth appealed that ruling to the Fifth District Court of Appeals, which reversed the trial court’s judgment and held that the 2005 decree of divorce had never been a valid final order in the case because it had not been personally signed by the judge as required by Ohio Civil Rule 58(A). The case was remanded to the domestic relations judge, with a directive to enter a final decree of divorce retroactive to October 2005, and then to consider Beth’s challenge to the validity of the underlying December 2004  memorandum of agreement.

Both Beth Knece and Rebecca Nelson-Miller sought Supreme Court review of the Fifth District’s decision. The court agreed to hear arguments only on Nelson-Miller’s appeal, which urges the justices to reverse the court of appeals and hold that a trial court’s error in allowing a magistrate to sign a judgment entry in place of the judge does not render that judgment a legal nullity, but merely renders it “voidable” if a party challenges the order on direct appeal within 30 days after the judgment is entered. 

Attorneys for Nelson-Miller urge the court to follow its 1981 decision in State ex rel. Lesher v. Kainrad.  In Kainrad, they assert, the court held that a domestic relations court’s issuance of a final order that did not comply with a mandatory provision of the Civil Rules did not render the order void and of no legal effect, but rather was an error that a party could raise on direct appeal within the statutory appeal period, but could not assert as the basis for a collateral attack on the order after the appeal period has expired. As in Kainrad, they argue, the documents improperly entered as final orders of the court in this case had been agreed to in their entirety and signed by both divorcing spouses and their attorneys, so the lack of the judge’s personal signature clearly caused no prejudice to any party.

They also argue that, in light of the admission by the judge in this case that he routinely authorized magistrates to sign his name on agreed judgment entries, affirmance of the Fifth District’s holding could cause hundreds of other Delaware County divorces and dissolutions over a number of years to be declared  legal nullities based on the same technical error. They point out that invalidating all of those decrees could cause severe and wholly unintended legal consequences for divorced couples who have remarried and otherwise relied on the court’s judgments as final and legally binding. As one example of such consequences, they note that because of the unresolved challenge to Norman Miller’s  divorce from Beth in this case, Nelson-Miller remains unable to obtain title to her husband’s car or to gain access to financial assets in his estate more than two years after his death.

Attorneys for Knece urge the court to affirm the Fifth District’s holding that the “Decree of Divorce” adopted by the trial court in October 2005 was invalid from the moment it was entered, because it did not meet the specific requirement of Civil Rule 58 that the judgment of a court is final only after it has been signed by the judge. Because a judge may not delegate that authority to a magistrate or anyone else, they assert, neither the December 2004 memorandum of agreement nor the October 2005 judgment of divorce signed by the magistrate in place of the judge were of any legal force.

With regard to Nelson-Miller’s argument that a judgment entry signed by a magistrate with the permission of  a judge merely renders the judgment voidable through a direct appeal, they assert that in order for a court of appeals to obtain jurisdiction over a case, there must first be a “final appealable order” of a trial court to appeal.  Because there can be no “final order” of a trial court without the signature of the judge, they contend, there is no way Knece could have pursued a direct appeal of the defective judgment entry in this case.

Elizabeth N. Gaba, 614.586.1586, for Beth Miller (nka Beth Knece).

Douglas W. Warnock, 740.363.3100, for Rebecca Nelson-Miller and Estate of Normal Miller.

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Must Lender Have Current Ownership Interest in Promissory Note or Mortgage at the Time Foreclosure Action Is Filed?

Or May Lack of Standing Be 'Cured' Through Mortgage Assignment Before Judgment?

Federal Home Loan Mortgage Corp. v. Duane Schwartzwald et al., Case nos. 2011-1201 and 2011-1362
Second District Court of Appeals (Greene County)

ISSUE:  If a party files a lawsuit to foreclose on a mortgage and it is later shown that party did not have a current ownership interest in the mortgage or the underlying promissory note on the date the foreclosure action was filed, is the court required to dismiss the suit based on the plaintiff’s lack of standing to bring it?  Or may the plaintiff “cure” a defect in standing or in naming the actual party in interest under Civil Rule 17(A) by obtaining an assignment of the mortgage prior to the court’s entry of a judgment in the case?

BACKGROUND: In 2006, Duane and Julie Schwartzwald purchased a home in Xenia. They financed the purchase through a mortgage and promissory note they executed with Legacy Mortgage.  Because of loss of employment, the Schwartzwalds could not make the scheduled payments and defaulted on the mortgage.

On April 15, 2009, a complaint seeking to foreclose on the mortgage and underlying promissory note was filed in the Greene County Court of Common Pleas by the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac.  In its complaint, Freddie Mac stated that it was the “holder” of the promissory note, but did not attach a copy of the note, and also stated that it had obtained an assignment of the mortgage, but did not attach documentation of an assignment.

Six months later, Freddie Mac filed a Notice of Filing Assignment of Mortgage. Attached to the notice was documentation that the Schwartzwald’s mortgage and promissory note had been assigned to Freddie Mac by Wells Fargo Bank on May 15, 2009, one month after the foreclosure action was filed. Freddie Mac subsequently filed additional paperwork indicating that Legacy Mortgage had assigned the mortgage to Wells Fargo in November 2006.

The Schwartzwalds filed an answer asserting that the foreclosure complaint should be dismissed because Freddie Mac had no ownership interest in their mortgage or promissory note at the time its foreclosure action was filed, and therefore had no legal standing to sue for foreclosure.  Both sides entered motions for summary judgment. Without addressing the Schwartzwalds’ argument based on standing, the trial court entered summary judgment in favor of Freddie Mac.

The Schwartzwalds appealed.  On review, the Second District Court of Appeals affirmed the action of the trial court.  In its decision, the court of appeals held that although Freddie Mac was not the “holder” of the note or a true party at interest in the mortgage at the time its complaint was filed, it had acquired an enforceable ownership interest by obtaining an assignment of the mortgage prior to the trial court’s entry of summary judgment, and under Civil Rule 17(A), that action had “cured” the defects in standing and identification of Freddie Mac the real party in interest.

The Second District certified, however, that its ruling on the curative effect of the mortgage assignment before judgment was in conflict with decisions of the First and Eighth districts.  The Supreme Court agreed to review the case to resolve the conflict among appellate districts.

Attorneys for the Schwartzwalds urge the court to reject the legal analysis of the Second District and instead follow decisions of the First and Eight districts which have held that the question of whether  a party has standing to initiate a lawsuit is not a mere procedural concern that can be remedied by amending a plaintiff’s complaint, but is rather an absolute threshold requirement that must be met in order to invoke the jurisdiction of a trial court over a dispute in the first instance. 

In this case, they argue, Freddie Mac initiated a foreclosure action against them by falsely stating in the complaint it filed with the trial court that Freddie Mac was the current holder of their promissory note and had obtained an assignment of their mortgage, when in fact Freddie Mac had no current ownership interest in either, and therefore had no legal standing to initiate a court proceeding to enforce those documents. They assert that the purpose of Civil Rule 17(A)is not to allow a “stranger” like Freddie Mac in this case to file a lawsuit and then later acquire an interest in the dispute, but is rather to permit a civil complaint to be amended prior to judgment if, after suit is filed by a party with standing to sue, it is later determined that a specific legal right of recovery asserted in the complaint (e.g., the right to foreclose on a mortgage or to demand specific performance of a contract) actually belongs to a person or legal entity (the “real party in interest”) who also had standing to sue but was not named as a plaintiff in the original complaint. 

Attorneys for Freddie Mac assert that because the Schwartzwald’s promissory note was a negotiable financial “instrument” subject to the Uniform Commercial Code (UCC), and the mortgage securing the  note was incorporated in the terms of the note, all that was required to confer standing on Freddie Mac to prosecute a foreclosure action against the Schwartzwalds was to demonstrate to the trial court that Freddie Mac was a “party entitled to enforce” the note under the UCC.

They urge the justices  to affirm the Second District’s holding that, by obtaining possession of the Schwartzwald’s promissory note and an assignment of their mortgage from Wells Fargo Bank prior to judgment, Freddie Mac demonstrated that it was a “party entitled to enforce” those documents and therefore had standing as a “real party in interest” to pursue and obtain a judgment of foreclosure.

Andrew M. Engle, 937.938.9412, for Duane and Julie Schwartzwald.

Scott A. King, 937.443.6560, for the Federal Home Loan Mortgage Corporation.

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Does 'Property Damage' Insurance in Contractor's Policy Cover Liability to Property Owner for Defective Workmanship?

Westfield Insurance Co. v. Custom Agri Systems, Inc., Case no. 2011-1486
U.S. Sixth Circuit Court of Appeals


BACKGROUND: In 2006, Younglove Construction LLC entered into an $8.5 million contract to design and construct a feed manufacturing plant in Upper Sandusky for PSD Development LLC. As part of that project, Younglove subcontracted with Custom Agri Systems (CAS) to construct and install a large steel grain bin on the plant site.

During the construction process, a dispute arose between PSD and Younglove regarding the compressive strength of some of the concrete installed at the site, and that dispute evolved into an ongoing dispute regarding the quality of all the work and materials being employed by Youngblood and its subcontractors.

After the project was substantially complete, PSD notified Younglove that it was withholding over $1 million in payments due under the contract.  Younglove filed a mechanic’s lien against the project, and later filed suit in federal district court seeking recovery of the withheld payment and additional damages for breach of contract and related claims. 

In its answer to Younglove’s complaint, PSD asserted counter-claims alleging that it had suffered financial losses including repair costs and loss of use of the feed plant arising from faulty materials and workmanship by Younglove and its subcontractors in the construction process. PSD specifically alleged that it sustained damages as a result of defects in the steel grain bin that had been constructed and installed by CAS. Younglove subsequently filed a third-party complaint against CAS, seeking indemnification from CAS for any payments the court might allow PSD to withhold from Younglove, or any damages the court might award to PSD, based on the alleged problems with the grain bin.

CAS, which had a commercial general liability (CGL) insurance policy issued by Westfield Insurance Company, filed a claim under that policy requesting that Westfield cover CAS’ costs of legal defense and indemnify CAS for any damages that might be awarded against it in the lawsuit. Westfield initially provided CAS with legal defense services, but subsequently asked the district court to issue a declaratory judgment that its policy did not provide coverage for the types of claims being asserted by PSD.  Both CAS and Westfield moved for summary judgment.

The district court found that PSD’s countersuit asserted two different types of claims against CAS:
“defective workmanship” claims alleging that CAS had failed to construct the grain bin according to the terms and specifications in the construction contract, and claims that PSD had suffered “consequential damages” (had incurred financial costs and/or loss of revenue) as direct a result of CAS’ substandard workmanship.

The court found that there was no controlling legal authority (line of state court decisions) establishing whether, under Ohio’s insurance laws, the coverage in a CGL policy for “property damage” extends to claims by a property owner against a contractor based on alleged defective construction or workmanship.  Assuming that such coverage did exist, however, the district court went on to find that an exclusion in the Westfield policy issued to CAS for damages that arise from “contractual obligations” excluded coverage for PSD’s claims based on defective workmanship. Accordingly, the court granted summary judgment to Westfield holding that the insurer was not obliged to provide a legal defense or indemnify CAS for any damages that might be awarded against it based on the defective workmanship claims.

With regard to PSD’s claims based on “consequential damages” the court initially granted summary judgment to CAS, holding that because those claims were not contract-based, Westfield was required to defend DAS against them.  Westfield moved for reconsideration of that holding, and on review the court reversed itself and granted a summary judgment holding that Westfield’s policy did not provide CAS with coverage for any of the claims asserted by PSD.

CAS appealed the district court’s decision to the U.S. Sixth Circuit Court of Appeals. Westfield moved that court to submit the underlying issues of state insurance law to the Supreme Court of Ohio.
CAS did not oppose that motion.  The Sixth Circuit granted Westfield’s motion and asked the Ohio Supreme Court to answer  the two questions of law listed at the beginning of this preview.

In its brief, Westfield urges the court to establish a clear rule of law in Ohio that the standard provisions in a commercial general liability insurance policy providing coverage for “property damage” arising from an “occurrence” cover only accidental physical injury to the tangible property of another,  or loss of use of such property because of a physical injury, and do not cover claims such as those advanced by PSD in this case, which are based solely on the insured’s defective or incomplete performance of duties imposed by a contract.

With regard to the second certified question of law, Westfield urges the court to hold that, even if a claim based on defective construction or workmanship were found to qualify as “property damage” under the terms of a general liability policy, the policyholder would still be barred from asserting claims against the insurer if the policy includes an exclusion for claims based on the insured’s failure to comply with the terms of a contract.  

Custom Agri Systems did not submit a brief within the time limit imposed by the Supreme Court’s rules of  practice and procedure, and therefore will not present an oral argument in the case.

Richard M. Garner, 216,348.1700, for Westfield Insurance Company.

Daniel G. Hazard, 419.865.8021, for Custom Agri Systems.

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Is Court Review of Denied Workers' Compensation Claim Limited to Issue(s) Addressed In Order Being Appealed?

Or Must Claimant Present Medical Evidence Not Considered by Industrial Commission?

Mark A. Bennett v. Goodremont's, Inc., et al., Case no. 2011-0902
Sixth District Court of Appeals (Lucas County)

ISSUE: When the administrative order denying a workers’ compensation claim is based solely on a finding that the claim is invalid because it arose while the claimant was “going to or coming from work,” and does not address the existence or cause of the claimant’s alleged injury, does a court reviewing that order under  R.C. 2143.512 err when it finds that the claim should not have been denied based on the “going to or coming from” rule, but affirms denial of the claim based on the claimant’s failure to present evidence of a work-related injury during the appeal proceeding?

BACKGROUND: Mark Bennett’s car was rear-ended by another vehicle while he was on his way to make a sales presentation to a customer at the central office of his employer, Goodremont’s Inc.  Bennett filed a claim with the Ohio Bureau of Workers’ Compensation (BWC) by submitting a “First Report of Injury” form in which he  asserted eligibility for workers’ compensation benefits for alleged  neck and back injuries arising from the accident.

Goodremont’s opposed the claim based on a specific exclusion from workers’ compensation coverage for injuries incurred while a worker is “going to or coming from” his place of employment. Two days after Goodremont’s filed its objections, BWC denied Bennett’s claim without asking for or considering any medical evidence, on the sole basis that his claim was invalid under the “coming and going” rule. Bennett pursued unsuccessful administrative appeals, and the Industrial Commission issued a final order denying his claim based on the coming-and-going rule. 

Bennett exercised his right under R.C. 2143.512 to appeal the Industrial Commission’s order to the Lucas County Common Pleas Court. The court granted summary judgment in favor of BWC and Goodremont’s based on its finding that Goodremont’s central office was Bennett’s “primary workplace” and the accident occurred while he was on his way there. Bennett appealed that decision to the Sixth District Court of Appeals. The appellate panel found that because Bennett had produced evidence that he typically spent up to 80 percent of his work hours making sales presentations at customers’ offices, there was a material question of fact about whether Goodremont’s central office was his primary place of employment, and therefore summary judgment based on the coming-and-going rule was inappropriate. Accordingly, the Sixth District remanded the case to the common pleas court for trial.

On remand, the trial court found that Bennett’s claim was not barred by the coming-and-going rule, but nevertheless entered a directed verdict affirming the Industrial Commission’s denial of benefits based on Bennett’s failure to produce during the appeal proceedings evidence that he had suffered an actual injury, or that injuries he suffered resulted from the traffic accident. The Sixth District affirmed the ruling of the trial court. Bennett sought and was granted Supreme Court review of the Sixth District’s decision.

Attorneys for Bennett argue that the Sixth District’s ruling in this case is in conflict with the Supreme Court of Ohio’s 2005 holding in Ward v. Kroger. In Ward, they assert, the court  held that in workers’ compensation appeal proceedings under R.C. 2143.512, a reviewing court may address only issues that were addressed in the Industrial Commission’s administrative order and raised in a claimant’s appeal petition. Because the Industrial Commission’s order in this case denied Bennett’s claim on the sole basis that his alleged injuries were incurred while he was coming or going from work, and that issue was the only one raised in Bennett’s appeal, they argue that the trial court and Sixth District erred in holding that Bennett was obliged to introduce medical evidence regarding his injuries for the first time at a judicial appeal proceeding under R.C. 2143.512.

Attorneys for the BWC administrator respond that the statutory scheme governing judicial appeals of workers’ compensation claims, and case law interpreting R.C. 2143.512 and related statutes, require that when a claimant appeals an order of the Industrial Commission denying benefits, the claimant must prove to the reviewing court that he or she is “eligible to participate in the workers’ compensation fund.”  They cite multiple court decisions holding that proof of a claimant’s eligibility must include medical evidence showing that the applicant suffered an actual injury, and evidence that the injury was incurred in the course of the claimant’s employment.  In this case, they assert, the trial court and Sixth District correctly denied Bennett’s appeal because he failed to produce the required evidence of actual injury or to link his injury to his job duties.

With regard to the Ward decision, the administrator points out that the Supreme Court’s holding in that case addressed an attempt by an employee whose claim for one medical condition had been denied by the Industrial Commission to introduce for the first time in his judicial appeal evidence of a different medical condition that had not been addressed in the commission’s order. In holding that  a new or different medical condition may not be asserted for the first time during  appeal proceedings, they contend, Ward did not relieve appellants of their duty to prove all of the required elements of a valid workers’ compensation claim, including the existence of an actual injury, in order to prevail in an R.C. 2143.512 appeal proceeding.

Paul A. Hoeffel, 419.562.4075, for Mark Bennett.

Alexandra T. Schimmer, 614.995.2273, for the BWC Administrator.

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These informal previews are prepared by the Supreme Court's Office of Public Information to provide the news media and other interested persons with a brief overview of the legal issues and arguments advanced by the parties in upcoming cases scheduled for oral argument. The previews are not part of the case record, and are not considered by the Court during its deliberations.

Parties interested in receiving additional information are encouraged to review the case file available in the Supreme Court Clerk's Office (614.387.9530), or to contact counsel of record.