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Tuesday, February 26, 2013

Disciplinary Counsel v. Donald Harris, Case no. 2012-1698
Erie County

Sondra Anderson v. Barclays Capital Real Estate Inc. d.b.a. HomEq Servicing, Case no. 2011-0908
From U.S. District Court, Northern District of Ohio

Lisa Vacha v. North Ridgeville, Ohio (City of), et al., Case nos. 2011-1050 and 2011-1327
Ninth District Court of Appeals (Lorain County)

Countrywide Home Loans Servicing, L.P. v. Michael Nichpor et al., Case no. 2012-0578
Sixth District Court of Appeals (Wood County)

Michael E. Cullen v. State Farm Mutual Automobile Insurance Co., Case no. 2012-0535
Eighth District Court of Appeals (Cuyahoga County)

Attorney Discipline

Disciplinary Counsel v. Donald Harris, Case no. 2012-1698
Erie County

The Board of Commissioners on Grievances & Discipline has recommended that Sandusky attorney Donald Harris, who is licensed to practice only in the District of Columbia and Ohio’s federal district courts, be indefinitely suspended from practice for multiple violations of the Ohio Rules of Professional Conduct.

The board adopted findings by a three-member hearing panel that Harris neglected the case of a bankruptcy client by failing to make timely filings of required paper and electronic documents, resulting in the dismissal of the client’s bankruptcy petition.  The board also found that Harris  failed to promptly respond to communications from the client, failed to refund the unearned portion of the client’s fee advances, and made inaccurate and misleading statements to disciplinary authorities about the amount of compensation he had received from the client.

In a different case, the board found that Harris engaged in the unlicensed practice of law in a state court matter by arranging for the transfer of a client’s real property to another party and drawing up organizational papers for a limited liability company on behalf of the purchaser of that property. The board also made findings that Harris engaged in inaccurate and deceptive business practices by representing in marketing materials for his law practice that he is a member of a multi-attorney firm whose members are licensed to practice law in Michigan, Ohio, and Tennessee, when in fact he merely shares office space with another attorney who is licensed in those jurisdictions, but has no documented  business arrangement with that attorney, and identifies himself for tax purposes as a sole practitioner.

Harris has filed objections to the board’s findings and recommended sanction. With regard to the alleged rule violations in connection with the dismissed bankruptcy case, Harris argues that it is unconstitutional for Ohio to pursue state disciplinary action against him based on his client’s allegations of neglect because the federal bankruptcy court has already reviewed those claims and found no basis for sanctions or disgorgement of fees.

He asserts that the legal work he performed in connection with the real estate transaction and LLC formation was directly related to his concurrent representation of the property seller in a bankruptcy case, and therefore fell under an exception to the unlicensed practice rule that allows a non-admitted attorney to undertake an incidental non-litigation matter that arises  in the course of a representation that attorney is authorized to conduct. 

Harris also urges the court to reject the board’s interpretation of the rules addressing what constitutes a “law firm,”  and instead to follow an American Bar Association guideline that he says permits multiple attorneys who share office space and occasionally consult or assist each other to hold themselves out to the community as a “firm,” and list their collective qualifications in marketing materials even though all attorneys in the firm may not possess all of the qualifications enumerated.

Representing Office of Disciplinary Counsel: Jonathan E. Coughlan, 614.461.0256

Representing Donald Harris: Geoffrey L. Oglesby, 419.625.9500

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Does a Mortgage Servicing Company Engage In ‘Consumer Transactions’ With Homeowners Whose Accounts It Services?

Borrower Seeks Damages Under Ohio Consumer Sales Practices Act

Sondra Anderson v. Barclays Capital Real Estate Inc. d.b.a. HomEq Servicing, Case no. 2011-0908
From U.S. District Court, Northern District of Ohio

ISSUE:  Does a mortgage servicing company that receives and allocates monthly payments made by homeowners, maintains records of their payment history, imposes and collects late charges and initiates foreclosure proceedings on behalf of the lending institution or investment pool that owns the mortgage fall within the category of businesses that are subject to the Ohio Consumer Sales Practices Act?

BACKGROUND: Sondra Anderson of Norwalk took out a mortgage loan to purchase a home in 2005.  Shortly after the purchase was completed, an investment pool purchased Anderson’s mortgage note from the original lender and contracted with Barclays Capital Real Estate, DBA HomeEq Servicing, to provide all of the day-to-day services necessary to administer the mortgage agreement.  Among other functions, HomeEq collected the monthly payments due on the note, credited specified portions of each payment to the principal, interest and escrow items set forth in the mortgage agreement, assessed and collected late charges, and responded to any questions or disputes that arose with regard to Anderson’s mortgage.

Following a period during which Anderson was irregular in making some payments due to a loss of income, she noted that unspecified add-on charges began appearing on her monthly statements from HomeEq, and determined that the servicing company was apparently applying significant portions of her payments to those charges rather than to the interest and principal due on the note. Anderson made repeated inquiries to HomeEq requesting clarification of how her payments were being applied, and complaining that the company appeared to be violating terms of the mortgage agreement that specified that funds from her payments would be diverted to cover other charges only after all currently due interest, principal and escrow items had been covered.

After failing to receive what she considered to be a satisfactory accounting for the amounts she had paid to HomeEq, Anderson filed suit against the company in federal court asserting claims for conversion and unjust enrichment, and also seeking statutory damages for alleged violations of the federal Real Estate Settlement Procedures Act (RESPA) and the Ohio Consumer Sales Practices Act (CSPA).

HomeEq entered a motion to dismiss all claims.  The court denied the motion with regard to the RESPA, conversion and unjust enrichment claims, but found that Ohio case law was not clear on  whether a mortgage servicing company’s dealings with mortgagees falls within the definition of “consumer transactions” subject to the CSPA.  Rather than attempting to address that issue itself, the federal court has asked, and the Supreme Court of Ohio has agreed to answer, several specific questions of state law that focus on whether or not specific language in the CSPA applies to HomeEq’s relationship and business dealings with the homeowners whose accounts it services.

Attorneys for HomeEq assert that the company cannot fall within the CSPA definition of a “supplier” that engages in “consumer transactions” with the homeowners whose loans it services because it does not sell borrowers any goods or services, and in fact has no direct business relationship with them at all. They argue that HomeEq  and similar mortgage servicing companies operate as independent contractors whose only client is the lender or investment group that owns a mortgage, and whose only obligation is to comply with the terms of their contractual agreement with the lender/mortgage holder. They say that obligation is to collect payments and otherwise interact as necessary with the lender’s customers according the express terms of the mortgage agreement between the borrower and lender – an agreement to which HomeEq is not a party and over which it has no control.

Attorneys for Anderson, supported by amicus curiae (friend of the court) briefs submitted by the Ohio Attorney General’s Office, Ohio Association for Justice and a coalition of legal services agencies, respond that the purchase of a home through monthly mortgage payments is by far the largest and most important “consumer transaction” that most Ohioans will undertake in their lives. They point out, however, that the mortgage at issue in this case, like hundreds of thousands of other Ohio mortgages, is owned by an investment pool that exists only on paper and that has no interactions with the homeowners whose loans merely appear as assets on its balance sheet. 

They argue that because mortgage servicing companies like HomeEq are the exclusive point of contact through which homeowners must conduct all of their mortgage-related business dealings, and interact directly with consumers in all of the day-to-day transactions through which the ongoing borrower/lender relationship is conducted − including directly receiving and controlling the distribution of borrowers’ monthly payments − such companies fall within the range of business entities that the legislature intended to subject to the provisions of the CSPA.

Representing Barclays Capital Real Estate d.b.a. HomeEq Servicing: James D. Curphey, 614.227.2047

Representing Sondra Anderson: John T. Murray, 419.624.3000

Representing Ohio Attorney General’s Office: Alexandra T. Schimmer, 614.995.2273

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Does Suit Against City Based on Workplace Sexual Assault Assert a Claim that ‘Arises Out of Employment Relationship?’

Victim Argues Her Claim Falls Under Exception to Political Subdivision Immunity Law

Lisa Vacha v. North Ridgeville, Ohio (City of), et al., Case nos. 2011-1050 and 2011-1327
Ninth District Court of Appeals (Lorain County)

ISSUE: Does an intentional workplace tort lawsuit filed by a city employee based on being sexually assaulted by a co-worker while both were on duty assert a claim “that arises out of the employment relationship” between the victim and the city, and therefore fall under an exception to the state law that provides political subdivisions with general immunity from civil lawsuits?

BACKGROUND:  Lisa Vacha was sexually assaulted in June 2006 by Charles Ralston, a co-worker at the City of North Ridgeville’s French Creek Wastewater Treatment plant, while both were on duty
at the plant.  Ralston was convicted of rape and sentenced to four years in prison.

Vacha filed a state workers’ compensation claim and received an award of permanent total disability based on the physical and psychological injuries she suffered as a result of the assault.

She also filed a civil lawsuit against the city in the Lorain County Court of Common Pleas, asserting among other causes of action an “intentional tort” claim in which she alleged that by failing to exercise reasonable care in hiring and supervising Ralston, who had a history of misdemeanor domestic violence arrests, the city had acted with willful and wanton disregard for the safety of Ralston’s co-workers, and had thereby created a workplace situation in which Vacha’s injuries were “substantially certain” to occur.

The city moved for summary judgment dismissing all of Vacha’s claims. The trial court dismissed several parts of the complaint, but allowed three claims, including the intentional tort claim, to go forward. The city appealed, arguing that it was immune from civil liability to Vacha under Ohio’s  “sovereign immunity” statute,  R.C. Chapter 2744,  which grants immunity to cities and other political subdivisions from lawsuits for injuries caused by the negligent conduct of a public agency or employee under most circumstances. 

The Ninth District Court of Appeals dismissed two of the remaining claims asserted by Vacha on the basis that she had already been compensated for her injuries through a workers’ compensation award, and was therefore barred by law from pursuing additional compensation by suing her employer for negligence. However, the court of appeals denied the city’s motion for summary judgment on Vacha’s intentional tort claim. A 2-1 majority of the appellate panel found that Vacha’s intentional tort claim fell under an exception to sovereign immunity set forth in R.C. 2744.09(B), which allows a a public employee to sue his or her  employer  when the employee’s claim “arises out of the employment relationship.”

North Ridgeville sought and was granted Supreme Court review of the Ninth District’s holding that the city was not immune from liability for Vacha’s intentional tort claim.

Attorneys for the city argue that in arriving at its ruling, the Ninth District majority misapplied the Ohio Supreme Court’s 2012 decision in Sampson v. Cleveland Metro Housing Authority.  In Sampson, they say, the court was asked to rule on whether a public employee’s intentional tort claim against his or her employer could ever fall under the exception to sovereign immunity for a “matter that arises out of the employment relationship.” They acknowledge that the Sampson court held that the employee in that case was entitled to invoke the R.C. 2744.09(B) exception to immunity, but argue  that the court’s opinion tied its ruling to the specific facts of that case, in which a city  employee was wrongfully fired based on a haphazard internal investigation of suspected on-the-job wrongdoing, and was subjected to public humiliation before his co-workers, loss of income, arrest, criminal prosecution and damaging publicity, all of which were the direct result of intentional actions by his public employer.

In contrast, they say, the harm suffered by Vacha in this case was not caused by any action of the city or her employing agency, but instead resulted from the unforeseeable criminal conduct of an individual co-worker who was not Vacha’s supervisor and with whom she had a friendly social relationship right up to the day of the assault. They also point out that Ralston’s conduct that caused Vacha’s injuries violated the city’s workplace rules and policies, had no connection to either Vacha’s or Ralston’s performance of their respective job duties, and did not advance any mission or interest of North Ridgeville.

Citing other court decisions which they say have held that there must be a “causal relationship” between an employee’s injury and her job in order to invoke the “employment relationship” exception to sovereign immunity, they urge the court to hold that there was no such nexus in this case, and on that basis distinguish this case from Sampson, reverse the ruling of the Ninth District, and hold that the city is entitled to statutory immunity from Vacha’s intentional tort claim.

Attorneys for Vacha assert that the Supreme Court has already answered the primary legal question posed in this case when it held in Sampson that the R.C. 2744.09(B) exception to political subdivision immunity for claims “arising out of the employment relationship” applies to cases in which a public worker asserts an intentional workplace tort complaint against his or her public employer.

They point out that while several of the claims Vacha raised in her original complaint alleged that the city was vicariously liable for Ralston’s actions, her intentional tort claim specifically alleges that the city willfully and wantonly failed to provide Vacha with a safe workplace by hiring Ralston despite knowing that he had multiple prior domestic violence arrests, and by failing to properly supervise Ralston and thereby exposing her to sexual assault at her place of employment.  They argue that Vacha’s allegation that the city exposed her to a dangerous work environment is plainly a claim “arising out the employment relationship,” and urge the court to affirm the Ninth District’s holding that the exception to statutory immunity set forth in R.C. 2744.09(B) applies.

Representing City of North Ridgeville: John T. McLandrich, 216.248.7906

Representing Lisa Vacha: John Hildebrand Sr., 440.333.3100

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May Lender Unilaterally Dismiss Foreclosure Action After a Decree and Final Judgment In the Case Have Been Journalized?

Under Civil Rule That Allows Dismissal ‘Prior to Commencement of Trial’

Countrywide Home Loans Servicing, L.P. v. Michael Nichpor et al., Case no. 2012-0578
Sixth District Court of Appeals (Wood County)

ISSUE:  Ohio Civil Rule 41(A)(1)(a) allows the plaintiff in a civil lawsuit one opportunity to unilaterally dismiss its complaint without prejudice (without forfeiting the right to later refile the same complaint). The rule specifies that the option to dismiss without leave of the court or agreement by the opposing party must be exercised “prior to the commencement of trial.”  In this case, the Supreme Court is asked whether trial and appellate courts committed reversible error when they allowed  a mortgage lender to unilaterally dismiss its foreclosure action pursuant to Civ.R. 41(A)(1)(a) after the court in which the case was pending had issued a decree of foreclosure and recorded  a final  judgment in its journal.   

BACKGROUND: After Michael and Joann Nichpor of Wood County were unable to keep up their home mortgage payments, the holder of the mortgage, Countrywide Home Loan Servicing, filed suit in the Wood County Court of Common Pleas seeking a decree of foreclosure and an order that the property be sold at a sheriff’s sale to satisfy the unpaid balance.

In May 2009, the court granted Countrywide’s motion for a default judgment in its favor, issued a decree of foreclosure, and recorded its decision in its journal, including  a certification that there was “no just reason for delay in entering final judgment” in the case.  A sheriff’s sale of the property was held  on July 1, 2009, and a third-party buyer, Jennifer Reichert, entered a winning bid of $132,000, which was two-thirds of the property’s appraised value of $198,000.  Countrywide did not attend or participate in the sheriff’s sale.

After the sheriff had accepted Reichert’s deposit and filed a writ of execution recording the sale with the clerk of court, Countrywide filed a notice in the trial court indicating that it was exercising its option under Civ.R. 41(A)(1)(a) to unilaterally dismiss the foreclosure action.  Reichert sought and was granted leave to intervene in the case, and filed a motion asking the trial court to invalidate Countrywide’s dismissal as untimely and confirm that her purchase of the property was a valid sale. 

The trial judge issued an order denying Reichert’s motion for confirmation of the sale and recognizing Countrywide’s voluntary dismissal as valid. The court based its ruling on NOIC v. Yarger, a 2006 decision in which the Sixth District Court of Appeals held that the granting of a default judgment in a foreclosure action did not constitute the “commencement of a trial,” and therefore did not bar a mortgage-holder from voluntarily dismissing its own foreclosure action under Civ.R. 41(A)(1)(a) even after a final judgment of foreclosure had been entered in the court’s journal.

Countrywide then filed a new foreclosure action asserting the same claims it had asserted in the first case.  The Nichpors moved for summary judgment dismissing the second foreclosure action, arguing that the trial court had entered a binding final judgment in the first case that could not be dismissed after it was entered in the court’s journal, and therefore Countrywide’s new foreclosure action was barred by res judicata (the legal doctrine that parties may not relitigate a matter that has previously been decided by a court).  The trial court overruled that motion and entered a new judgment of foreclosure. 

The Nichpors appealed, asserting that the trial court erred by failing to grant their motion for summary judgment based on res judicata.  The Sixth District affirmed the action of the trial court, relying on the same legal analysis it employed in the 2006 Yarger decision, but certified that its holding with regard to the dismissability of a foreclosure action after a final  judgment has been journalized was in conflict with a 1987 decision of the Second District Court of Appeals, Coates v. Navarro.  The Supreme Court agreed to review the case to resolve the conflict between appellate districts.

Attorneys for the Nichpors urge the court to reject the Sixth District’s holding in Yarger and again in this case that a trial court can review the petition and evidence submitted to it by a mortgage holder, issue an order granting the decree of foreclosure sought by the petitioner, and enter  a final judgment of foreclosure in the court’s  journal without “commencing a trial” in the case and thereby terminating the mortgage holder’s ability to unilaterally dismiss its complaint under Civ.R. 41(A)(1)(a). 

They  point to R.C. 2311.01, which defines a “trial” as “a judicial examination of the issues, whether of law or fact, in an action or proceeding,” and argue that the trial court’s actions in Countrywide’s  first foreclosure action plainly fell within that definition, regardless of the fact that there were no opening statements by the parties or other in-court “trial” proceedings for the simple reason that  the case was resolved through a default judgment. They urge the court to hold  that the only proper remedy available to lenders who obtain final judgments of foreclosure but then want a “do-over” when the results of the ensuing sheriff’s sale are unsatisfactory is to seek relief from judgment  under Civil Rule 60(B) if they can demonstrate that the original outcome of the case was incorrect because of  “mistake, inadvertence or excusable neglect.”

Attorneys for Countrywide urge the court to affirm the ruling of the Sixth District, which they say correctly held that a trial court’s review of the mortgage holder’s petition and issuance of a default decree in a foreclosure action does not “commence  a trial,” and therefore does not  terminate the plaintiff’s option to unilaterally dismiss its complaint.  With regard to the finality of the court’s decision in their first foreclosure action against the Nichpors, Countrywide  asserts that, unlike other civil lawsuits, the recording of a “final judgment” in a foreclosure action consists of two separate journal entries, the first granting a decree of foreclosure and the second confirming the completion of a sheriff’s sale.

In this case, they assert, the court of appeals correctly found that because their dismissal was filed with  the trial court before it had journalized confirmation of the sheriff’s sale and before title to the property had been transferred to Reichert, the judgment of foreclosure was not “final” and Countrywide retained its one-time right to dismiss and refile the case.

Representing Michael and Joann Nichpor: Kevin A. Heban, 419.662.3100

Representing Countrywide Home Loan Servicing L.P.: Matthew J. Richardson, 614.220.5611

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Did Court Err In Certifying Class Action By Policyholders Steered to Accept Windshield Repair v. Replacement Cost?

Michael E. Cullen v. State Farm Mutual Automobile Insurance Co., Case no. 2012-0535
Eighth District Court of Appeals (Cuyahoga County)

ISSUE: In certifying that legal claims asserted by multiple policyholders against an auto insurance company met the criteria for class-action certification set forth in Ohio Civil Rule 23, did the trial court abuse its discretion by giving insufficient weight to arguments advanced by the insurance company regarding the merits of the plaintiffs’ claims?

BACKGROUND: Michael Cullen and a group of other current and former customers of the State Farm Mutual Auto Insurance Company who had filed claims for cracked or chipped windshields under their State Farm policies filed suit against the insurer in the Cuyahoga County Common Pleas Court in 2005. 

The plaintiffs’ complaint alleged that, beginning in 1991, the company engaged in breach of its insurance contracts and bad-faith claim settlement practices by following a standardized procedure in which all customers who filed windshield-only claims were directed to customer service representatives who were trained to steer them to resolve their claims by accepting a chemical crack-patching service for which State Farm would waive the policy deductible and a company under contract with State Farm would perform the repair at no cost to the claimant.

The complaint alleged further that State Farm agents and the contractor’s customer service representatives were required to follow a script that mentioned only the crack-repair service, and were directed not to disclose to claimants that the comprehensive coverage in their policies entitled them to receive a “cash-out” check from State Farm for the value of a new windshield (between $500 and $600 depending on the car make and model) less any policy deductible.  The plaintiffs asserted that   they were also not told that they had the options to 1) use the proceeds of a cash-out check to purchase a replacement windshield from any repair shop, or 2) use the check proceeds to purchase the same type of repair service offered by State Farm’s contractor, which typically cost $30 to $50, and keep the rest of the money, or 3) forego repairing or replacing the damaged windshield and keep all the money.

Cullen and his fellow plaintiffs moved for certification by the trial court that their claims against State Farm were appropriate for litigation as a class action, i.e. as a single lawsuit through which multiple plaintiffs seek damages from the same defendant based on the same type of alleged wrongful conduct.  State Farm opposed the motion to certify the case as a class action.

Ohio Civil Rule 23 sets forth criteria that must be met in order for a trial court to “certify a class” of plaintiffs as eligible to pursue recovery from a defendant through a class action (as opposed to requiring each plaintiff to pursue recovery from the defendant through a separate lawsuit). Those criteria include providing the court with a definition of the proposed class that unambiguously describes an identifiable group of plaintiffs who all have a colorable claim to have suffered similar harm or loss as the result of the same type of conduct by the defendant.

After reviewing written pleadings submitted by the parties and conducting a hearing at which the plaintiffs and State Farm presented documentary evidence and witness testimony, the trial court ruled that the plaintiffs had met the requirements of Civ.R. 23, and certified the case to go forward as a class action. State Farm appealed the class certification. On review, a 2-1 majority of the Eighth District Court of Appeals affirmed the trial court’s certification order, but directed the trial judge to amend the definition of the class to exclude a small subset of plaintiffs.  State Farm sought and was granted Supreme Court review of the Eighth District’s decision.

Attorneys for State Farm assert that the trial court and the Eighth District committed reversible error by failing to give proper weight to merits-based evidence and arguments they raised in opposition to certification of the plaintiffs’ suit as a class action. They say these include arguments that the language of the plaintiffs’ insurance policies did not entitle them to a cash-out option if they accepted the company’s offer of repair; that the plaintiffs’ claims of non-disclosure of the cash-out option are not uniform across the class because different customers engaged in different discussions with service representatives regarding their options; and that the lower courts improperly relied on unsubstantiated testimony by a plaintiffs’ witness that the chemical patch service offered by State Farm never returns a cracked windshield to its pre-loss condition.

Attorneys for the plaintiffs note that the court of appeals standard of review in this case was an abuse of discretion, which means the appellate panel was legally required to affirm the grant of class certification unless it found that the trial judge’s ruling was not merely legally incorrect, but that it was “unreasonable, arbitrary or unconscionable.”  They point to specific findings in the trial judge’s opinion that they say support his conclusions that: 1) the putative class members were alleging substantially similar damage claims based on the same alleged wrongful conduct by State Farm, and 2) that litigating a single class action to approve or deny those claims, as opposed to requiring tens of thousands of plaintiffs to undertake separate lawsuits to recover a few hundred dollars apiece in damages, would plainly serve the interests of judicial efficiency and economy. 

They also assert that Civ.R. 23 does not require plaintiffs to prove the merits of their claims, or to disprove the merit-based arguments of the defendant, in order to gain preliminary approval to pursue those claims through a class action.  They urge the court to affirm the holdings of the trial court and Eighth District that they have met the threshold requirements to proceed to trial as a class rather than as individual plaintiffs, and argue that the proper arena for State Farm to challenge their claims of bad faith, interpretation of its policy language, and the reliability of the plaintiffs’ expert witnesses is before a judge and jury.

Representing State Farm Mutual Auto Insurance Co.: Mark A. Johnson, 614.462.2698

Representing Michael Cullen and other plaintiffs: Paul W. Flowers, 216.344.9393

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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.