Motion-Secondary: 13 CAE 08 0063 US BANK NATIONAL ASSOCIATION VS GREEN MEADOW SWC LLC

• 
• 
• 
• 
• 
• 
• 
• 

						
                                
Preview
                                FIFTH DISTRICT COURT OF APPEALS
DELAWARE COUNTY, OHIO

U.S. BANK NATIONAL
ASSOCIATION,

Plaintiff-A ppellee,

vs.

GREEN MEADOW SWC, LLC, ET AL., :

Defendants-Appellants.

Case No. 13 CAE 08 0063
REGULAR CALENDAR

On appeal from the Court of Common

 

 

BRIEF OF DEFENDANTS-APPELLANTS, GREEN MEADOW SWS, L’
- GREGGORY HARDY

Thomas R. Allen (0017513)

Rick L. Ashton (0077768)

ALLEN KUEHNLE STOVALL & NEUMAN LLP
17 South High Street, Suite 1220
Columbus, Ohio 43215

Telephone: (614) 221-8500
Facsimile: (614) 221-5988

E-mail: allen@aksnlaw.com

ashton@aksnlaw.com

Counsel for Defendants-Appellants Green
Meadow SWS, LLC and Greggory Hardy

Pleas, Delaware County, Ohio 2
Ge 3 oO
rw Re
= fm 52
> ~? na =F

O>z — Bho
mo GS Foot
zo NO
aS B TES
“2 om
Oe
o Qu
I@AND, =

Charles R. Dyas, Jr. (0034369)
BARNES & THORNBURG LLP
41 South High Street, Suite 3300
Columbus, Ohio 43215

Attorneys for Plaintiff-Appellee U.S. Bank
National Association

13 CAE 08
(MMA ws

09061779052
BRIETABLE OF CONTENTS

Table of Authorities ........0.--.:-sesseecsereeneesneeees evsesessseceeesvasesesanseessusseesnnveceesuuscesnuueeesianeeesnnneseeanseseen ii
Statement of Assignments Of Error.........sessssssssessssesseessessseessesseesseansesseeseessnesseessetseecseeseeeniecneeaneeesess 1
Statement Pursuant to Local Rule 9(B)(4).......c:sscsssssesssssssessesnessesessessssessesssseesesseesessessessseneaeeasenees 1
Introduction 2
Summary of Argument .........cscsssssssecssesseseesseessesesessvsesssansesssesersevesevsssessesseesssesuussecsensssesssuisassneesneess 4
Statement of The Facts......cccccccsesessssssesesesnsensesesesssssssenssessessseeassesseasseeseaseeesssessesneaessassesessescaeseeess 5
Statement of The Case ........ssccsssssssnssessssressessesessessesareneessssseassseseassessseesssssnssssessessseatsesssesseaneseced 6
Standard Of REViCW......cssecssssessssesseesscsessecneesenneenesnestsenseneseseseaneaseseesseases sseeseseeseseanssesseseeventenenensere® 10
ALQUMENE oo. cess eseeeesseneeeenssensesesseesecssneesensssesssesssassossesnesssnsessssesscaesesssseseeseeecseessessesecseescenssesnsnsanes 11

1. The Trial Court Erred in Granting U.S. Bank’s Motion for Summary Judgment............. 11

A. There Is, Ata Minimum, A Genuine Issue of Material Fact As to Whether
A “Reporting Default” Occurred oo... cesseseessessesesseessessessesessesseesececssccuceseenseeeseeaeenesee 11

1. U.S. Bank Has Provided Conflicting Evidence As To Whether Exhibits
Zand AA To Its Complaint 4 Are The Necessary Notices To Trigger A

 

 

“Reporting Default”.....
2. There Is A Genuine Issue Of Material Fact As To Whether U.S.
Bank Complied With Its Own Notice Procedures .........ccsssssessessesenesteeeteneseeneseee 17
B. The Scope of The Guaranty Is, At A Minimum, Ambiguous...........00.:cceeeeeeneeeeeeee 18
C. “Reporting Defaults” — Which Create Full Recourse Liability — Are Void
As Unenforceable Penalty Provisions.........ccccsssecsesseceessesessecssenssessessessesssesesaseasanesees 20
Conclusion... 22
Certificate Of Service .......scscssscsessecssessessecssesseessessuessuesscssescstsssecessseceasecueresereseavecarseaseenseaneeneeasers 23
APPeDix.....sceccesccsscsssesseesseeseeneesesnsssstsssssssssssssnsesseessessecsseassesssscsscauecaccaneesuscseearecsssenseessees AttachedTABLE OF AUTHORITIES

Ohio Case Law

Abrams v. Worthington, 169 Ohio App.3d 94 (10" Dist. 2011) .ccsesssssssesssssssessssssssnssssesessnsoees 10
Alexander v. Buckeye Pipe Line Co., 53 Ohio St.2d 241 (1978) ...csssssssesesesssssessescsecsseesiesesees 18
Byrd v. Smith, 110 Ohio St.3d 24 (2006) ........cecseeceesescsessessssssessesssecsuceseessessrsnnecessenreencenssenseenness 16
Carl Ralston Ins. Agency v. Nationwide Mut. Ins. Co., 2007 Ohio 507 (9" Dist. 2007)...........-+ 20
Cranberry Fin, LLC v. S&V Partnership, 186 Ohio App.3d 275 (6™ Dist. 2010) .escssssssscsssssesees 18
First Union v. Imperial Plaza, Ltd., 2010 Ohio 2009 (2"4 Dist. 2010) .sesssssssssssssssssssessssssssueenseess 20
Gilbert v. Summit Cty., 104 Ohio St.3d 660 (2004)... .ccseeccesecssesessecsecsesseeneesesecessesecueeneeneseesenneaee 10

19

 

McKay Machine Co. v. Rodman, 11 Ohio St.2d 77 (1967)...

Mergenthal v. Star Bone Corp., 122 Ohio App.3d 100 (12" Dist. 1997) sssssscsssesssssssessseneenssseseeee 10
Moraine Materials Co. v. Cardinal Operating Co., 1998 Ohio App. LEXIS 5387, *16

(2 Dist. 1998) .scsecccssssssssssssessscsssesssssssssssvsssvessessssessesssassssssssasssasesessseeseeeeeesseeesesssssssssssnanseeevees 13,17
Murphy v. Reynoldsburg, 65 Ohio St.3d 356 (1992) scssssesesssssesscesessssssssnsssssssssssssssssesseessssecesesseee 10
Norris v. Ohio Std. Oil Co., 70 Ohio St.2d 1 (1982) .ceceececcsessessessssesescessessesesssencsnsseeseeseeneeneeee 10
Rodgers v. Pahoundis, 178 Ohio App.3d 229 (5'" Dist. 2008) viccccssssssssssssssscssssssssssesssnsnsssnsseneeees 10
Rudd v. Online Resources, Inc., 1999 Ohio App. LEXIS 2733 *18 (2" Dist. 1999).....scssscssssse 13
Third Natl. Bank of Cincinnati v. Laidlaw, 86 Ohio St. 91 (1912)........c:.cessesseeseesceeeseeeseesseeneeeeee 18
Troha v. Troha, 105 Ohio App. 3d 327 (2" Dist. 1995) ..esssesssssssssssssssecssseessessssssassssssssssseseesesscss 13

Other Case Law
Au Rustproofing Center Inc. v. Gulf Oil Corp., 755 F. Supp.2d 1231 (6™ Cir. 1985) ...sssssseessweeeee 17

ING Real Estate Fin. (USA) LLC v. Park Ave. Hotel Acquisition LLC, 2010 NY Slip

OP 50276U (N.Y. Sup. Ct. Feb, 24, 2010).. +20, 21

 

Reynolds v. Milatzo, 2007 Wyo. 104 (2007) ...eecesessseseessessesscesstestesteneestersesecaessesseceresteaseateseesees 18

iiRules
_ Civil Rule 56(C)... ce sccccssssssessessseccuesseecnesseseeecorescesesesessressesseesatssssssnessessuesssessesssssesseeslessueeneeansene 10
Local Rule 9(B)(4)....csscescecssssessesssseseesessesessrsscesessesussessuesessesseeseasesassussesseasecsusseanesusensaeeatentsaeeneeerenee 1

iiiSTATEMENT OF ASSIGNMENTS OF ERROR
I. The trial court erred in granting Plaintiff U.S. Bank National Association’s Motion for

Summary Judgment (R. 28) in its July 9, 2013 Judgment Entry Granting Plaintiff's

Motion for Summary Judgment (R. 143), which re-entered the judgment granted in its

August 22, 2012 Judgment Entry Granting Plaintiff's Motion for Summary Judgment (R.

124).

STATEMENT PURSUANT TO LOCAL RULE 9(B)(4
Pursuant to Local Rule 9(B)(4), Defendants-Appellants Green Meadow SWS, LLC and
Greggory Hardy claim that the July 9, 2013 Judgment Entry Granting Plaintiff's Motion for
Summary Judgment is inappropriate in that genuine issues of material fact exist.
Solely with respect to the issues of fact, Defendants-Appellants Green Meadow SWS,
LLC and Greggory Hardy. state that genuine issues of material fact exist as to the following facts
and issues:

(1) Whether Plaintiff-Appellee U.S. Bank National Association satisfied all conditions
precedent necessary to invoke a “Reporting Default” in order to obtain full recourse
liability against Defendant-Appellant Greggory Hardy. Two specific subparts of this
position are at issue:

a. Does a genuine issue of material fact exist when a party (Plaintiff-Appellee
U.S. Bank National Association) specifically denies, via a request for
admission, that certain exhibits are the operative documents to meet its
condition precedent, but then, via an affidavit attached to its motion for
summary judgment, takes the opposite factual position?

b. Does a genuine issue of material fact exist when contractual noticerequirements contained in a loan document, such as proper name and “care
of” instructions, are not explicitly followed?
INTRODUCTION

This case involves Plaintiff-Appellee U.S. Bank National Association’s (“U.S. Bank”)
attempt to enforce, as a recourse debt, an obligation in excess of $8,140,153.40 (for which more
than $3,700,000 remains owing after disposition of the collateral) in connection with an
otherwise non-recourse loan secured by commercial real estate properties in Delaware County,
Ohio. Defendant-Appellant Green Meadow SWS, LLC (“Green Meadow”) was the primary
obligor. Defendant-Appeilant Greggory Hardy (“Hardy”) was a guarantor. The lending
relationship U.S. Bank had with Green Meadow and Hardy was generally one of non-recourse,
meaning that, except in certain limited instances, U.S. Bank must look, solely, to its specific
collateral and its proceeds therefrom for the repayment of the obligations under the series of loan
documents with Green Meadow, and not to any other assets of Green Meadow or Hardy.

As part of its Complaint filed July 22, 2010, and without regard to the non-recourse
nature of the debt, U.S. Bank alleged that Green Meadow was liable for the full amount of the
loan for failing to make monthly loan payments. U.S. Bank also alleged that Hardy was liable
for the full amount of the loan pursuant to specific portions of his Guaranty. No allegations
were made in the Complaint with respect to any facts which would constitute any of the actions -
that could contractually trigger recourse liability for the debt. On November 1, 2010, U.S. Bank
moved for summary judgment against Green Meadow for failing to make the monthly loan
payments and against Hardy seeking recourse liability due to an alleged “Reporting Default” (a

failure:to provide records upon request by U.S. Bank). Green Meadow and Hardy opposed the

i

' As explained hereinafter, a so-called “Reporting Default” is one of the factual events that could
cause non-recourse debt to become recourse.® @
motion for summary judgment on the basis that the affidavit attached in support should be
stricken, that the failure to pay a monthly loan payment results in only non-recourse liability, and
that a genuine issue of material fact existed as to whether a “Reporting Default” was invoked by
U.S. Bank.

U.S. Bank then changed course in its reply memorandum and brought new theories of the
case to assert recourse liability; namely, U.S. Bank alleged, for the first time, a “Reporting
Default” against Green Meadow. Without giving Green Meadow and Hardy a chance to respond
to these new theories of recourse liability — by explicitly denying their motion for leave to file a
surreply — the Delaware County Court of Common Pleas (“Trial Court”) granted summary
judgment to U.S. Bank.

Green Meadow and Hardy appealed to this Court on both procedural and substantive
grounds. The procedural grounds consisted of the Trial Court failing to permit Green Meadow
and Hardy an opportunity to file a surreply addressing the new claims raised by U.S. Bank in its
reply. The substantive grounds involved whether genuine issues of fact exist as to whether U.S.
Bank properly invoked a “Reporting Default,” whether Hardy’s guaranty was ambiguous, and
whether the Reporting Default is void as being against public policy.

, This Court agreed? with Green Meadow and Hardy with respect to their procedural
argument and remanded to the Trial Court. Because the case was resolved on the procedural
grounds, this Court did not address the substantive grounds. On remand, and after Green
Meadow and Hardy filed their surreply, the Trial Court adopted most of its prior decision and

again granted summary judgment to U.S. Bank. As a result, the Trial Court erred on the same

? This Court also agreed with Green Meadow and Hardy that the amount of the judgment was
wrong.substantive grounds as it did in its first opinion. Those substantive issues are now properly
before this Court to correct the Trial Court’s errors.
SUMMARY OF THE ARGUMENT

In reaching its final judgment, the Trial Court erred in multiple respects in concluding
that.no genuine issues of material fact exist. It first erred by accepting as true certain allegations
made by U.S. Bank’s witness, Jason Reed (“Mr. Reed”), in his affidavit, which allegations
directly conflict with his prior sworn discovery denials and interrogatory responses regarding the
necessary conditions precedent to invoke a “Reporting Default.” Another improper factual
determination was that Green Meadow and Hardy received “constructive notice” of the
contractually-required notices, despite the notices not complying with the notice requirements of
the loan documents.

Because a “Reporting Default” requires certain conditions precedent, and U.S. Bank has
either directly contradicted itself or has failed to adequately give the requisite notice, issues of
fact remain to be determined. Further, because Mr. Reed’s affidavit conflicts with his prior
sworn discovery denials and interrogatory responses, established Ohio case law mandates that
the trial court’s determination be reversed due to issues of fact remaining.

Additionally, the Trial Court erred in construing the Guaranty (defined below) to be one
of fulllrecourse despite clear language in the Guaranty to the contrary, and also holding that the
Reporting Default is not void as being against public policy even though any damages resulting

from a failure to provide financial information would be nominal.STATEMENT OF THE FACTS

A. The Loan Documents

On or about May 23, 2006, Green Meadow executed and delivered to Barclays Capital
Real Estate Inc. (“Barclays”) a series of loan documents, which include the following: (1) a
promissory note (the “Note”) in the principal amount of Seven Million Four Hundred Twenty
Thousand and 00/100 Dollars; (2) a loan agreement (the “Loan Agreement”); (3) an Open-End
Mortgage, Assignment of Rents, Leases, Security Agreement and Fixture Filing dated May 23,
2006 (the “Mortgage”), which covered the real property commonly known as 8303 and 8333
Green Meadow Drive, Lewis Center, Ohio (the “Real Property”); and (4) a certain Guaranty
executed by Hardy (the “Guaranty” and collectively with the Note, Loan Agreement, and
Mortgage, the “Loan Documents”). R. 1, Ex’s A, B, D, E. Through a series of assignments, the
Loan Documents ultimately were apparently transferred from Barclays to U.S. Bank.

The lending relationship under the Loan Documents was one of non-recourse, meaning
that, once a breach has been established, U.S. Bank can only look to the Real Property or other
collateral related thereto; Green Meadow and Hardy were generally not personally liable for any
of the obligations under the Loan Documents. R. 1, Ex. B, Section 12.01, p. 62 [Appendix C]
Only upon the occurrence of one of the items listed in Sections 12.02 or 12.03 of the Loan
Agreement would Green Meadow or Hardy be liable in their individual capacity. /d., pp. 62-63.

B. The Breach and the Alleged Requests for Information

On February 9, 2010, U.S. Bank purported to notify? Green Meadow and Hardy that
Green Meadow was in default of the Loan Documents for failing to make monthly payments and
demanded payment of $7,938,732.16. R. 1, Ex. Y. On May 25, 2010, U.S. Bank purported to

3 The issue of whether all notices were sent according to the Loan Documents is at issue in this
appeal. :send a request for information to Green Meadow and Hardy. /d. at Ex. Z [Appendix F]. The
request was for information pursuant to Section 9.11 of the Loan Agreement and demanded that
the requested information be provided within 5 days. /d. On June 8; 2010, U.S. Bank purported
to send a second demand for delivery of the information first requested on May 25, 2010. Jd. at
Ex. AA [Appendix G]. This second letter demanded delivery within 30 days. /d. The purported
notices did not strictly comply with the specific notice requirements in the Loan Agreement. Id.
at Ex. B, Section 18.01, pp. 70-71. [Appendix C]
STATEMENT OF THE CASE
A. The Lawsuit
U.S. Bank filed its Complaint for Breach of Contract, Foreclosure of Commercial

Mortgage, and Breach of Guaranty on July 22, 2010 (“Complaint”). R. 1. Count One of the
Complaint asserted a claim against Green Meadow for breach of contract based upon a failure to
“pay, when due, the Constant Monthly Payment.” Jd. at 456. Count Two of the Complaint was
for foreclosure of the Real Property. Id. at J]59-70. Count Three of the Complaint asserted a
claim against Hardy for breach of Sections 12.02 and 12.03 of the Loan Agreement (to which
Hardy was not a party). Jd. at 971-78. Count Four of the Complaint asserted a claim against
Hardy for breach of Article 2 of the Guaranty. /d., at §§79-88. U.S. Bank sought damages in the
amount of $8,140,153.48, plus attorneys’/professional fees and costs, with interest, default
interest, late fees, and costs continuing to accrue on the unpaid balance. Jd.

B. The Receivership and the Sale of the Real Property

The trial court appointed Charles Manofsky of NAI Ohio Equities, LLC (the “Receiver”)
as receiver. R. 22. On November 28, 2011, the Receiver filed Receiver Charles Manofsky’s

Motion for Approval of Sale Contracts (the “Receiver’s Motion”). R. 84. In the Receiver’sMotion, the Receiver outlined the efforts he took to market and sell the Real Property, the
interest received from potential purchasers, offers received from potential purchasers, and
requested the trial court’s approval to sell the Real Property at auction. Jd. The trial court
granted the Receiver’s Motion on January 19, 2012 via the Order Authorizing Receiver to Sell
Receivership Property and Approving Sale Contracts (the “Order Authorizing Sale”). R. 89.

Pursuant to the Order Authorizing Sale, the Receiver held an auction for the Real
Property on February 21, 2012 and received bids totaling $4,492,301.00. R. 99. Thereafter, the
Receiver filed Receiver’s Report Regarding Auction Sale Held on February 21, 2012, in which
the Receiver requested the trial court’s approval to the sale of the Real Property. Jd. The trial
court granted the Receiver’s request on March 9, 2012 and, thus, the sale of the Real Property
was final. R. 103. Total funds of $4,401,915 were to be paid to U.S. Bank. See R. 118, Ex. A.
Through the sale of the Real Property, the trial court effectively addressed Count Two of the
Complaint. R. 124, p. 9.

C. U.S. Bank Moves For, And Is Granted, Summary Judgment

On November 1, 2010, U.S. Bank filed Plaintiff U.S. Bank National Association’s Motion
Jor Summary Judgment (the “Motion for Summary Judgment”), in which U.S. Bank sought
judgment against both Green Meadow and Hardy. R. 28, pp. 18-23. Specifically, U.S. Bank
moved the trial court for summary judgment against Green Meadow for breach of contract based
upon its “failing to pay the amounts due and owing to the holder of the Note and Loan
Documents.” /d. at p. 18. As to Hardy, U.S. Bank moved for summary judgment based upon a
“Reporting Default” pursuant to Section 12.03(g) of the Loan Agreement. /d at p. 22 With
respect to the alleged “Reporting Default,” U.S. Bank claimed that it had “satisfied all necessary

conditions precedent...” Jd. at p. 23.In support of its Motion for Summary Judgment, U.S. Bank submitted the Affidavit of
Jason Reed in Support of Trustee’s Motion for Summary Judgment (the “Reed Affidavit”). Id.
Ex. A. In the Reed Affidavit, Mr. Reed stated his position as an Asset Manager of Helios AMC,
LLC (“Helios”)‘, purported to assert his ability to provide testimony on behalf of U.S. Bank, and
purported to support the Complaint and authenticate the documents attached to the Complaint.
Id.

In response, Green Meadow and Hardy filed Defendants’, Green Meadow SWS, LLC and
Greggory Hardy, Combined (1) Motion to Strike and (2) Memorandum in Opposition to
Plaintiff, U.S. Bank National Association’s, Motion for Summary Judgment (“First Motion to
Strike” or “Memorandum in Opposition”). R. 58. For their Memorandum in Opposition,
Appellants argued that, without regard to the Reed Affidavit, the Motion for Summary Judgment
should be denied for the following independent reasons: (1) U.S. Bank failed to demonstrate how
the non-recourse nature of the Loan Documents somehow became full recourse as to both Green
Meadow and Hardy; (2) U.S. Bank failed to establish the requisite notice, as a condition
precedent, to impose full recourse on Hardy as a guarantor under the theory of a “Reporting
Default”; (3) U.S. Bank did not provide admissible evidence to demonstrate how either Green
Meadow or Hardy have failed provide the requested documents and/or cure any allegations of a
“Reporting Default”; and (4) invoking full recourse for a “Reporting Default” is void as it
constitutes an impermissible penalty. Id.

U.S. Bank then filed. Plaintiff; U.S. Bank National Association’s Reply to Defendants’
Motion to Strike and Memorandum in Opposition to Plaintiff's Motion for Summary Judgment
(the “Reply”). R. 62. In the Reply, U.S. Bank sought to cure the defects raised by Appellants in

* Helios purported to be the special servicer acting for U.S. Bank solely as Trustee and
successor-in-interest to Wells Fargo Bank, N.A. R. 28, Ex. A, 42.

8the Memorandum in Opposition by attaching, for the first time, two separate documents —
Exhibits B and G — and also presenting new theories of liability never raised by U.S. Bank in
either its Complaint or its Motion for Summary Judgment. Jd. Appellants responded to the new
, documents and theory of liability by filing the Combined (1) Second Motion of Defendants,
Green Meadow SWS, LLC and Greggory Hardy, to Strike, and (2) Motion for Leave to File a
Surreply (the “Second Motion to Strike” or “Motion for Leave”). R. 64.

As part of the Motion for Leave, Green Meadow and Hardy requested leave to file a
surreply to address the newly-supplied documents (if not stricken) and U.S. Bank’s new theories
of liability. Jd Appellants argued that, unless they received the opportunity to respond to the
new documents and arguments, they would be deprived due process to contest the new
documents and theories introduced for the first time in the case by U.S. Bank through the Reply.
Id, at pp. 2-3.

With the matter fully briefed, the Trial Court entered its Judgment Entry Granting
Plaintiff's Motion for Summary Judgment (the “Final Judgment Entry”) (R. 124) [Appendix A]
on August 22, 2012. Through the Final Judgment Entry, the trial court granted judgment to U.S.
Bank on all counts. R. 124. Green Meadow and Hardy then appealed the Final Judgment Entry
to this Court. R. 128. This Court agreed with Green Meadow and Hardy as to the procedural
assignment of error, and therefore did not address the substantive assignment of error (i.e., that a
genuine issue of material fact exists). R. 138.

On remand, Green Meadow and Hardy filed their Surreply to Plaintiff, U.S. Bank
National Association’s Reply to Defendant’s Motion to Strike and Memorandum in Opposition to
Plaintiff's Motion for Summary Judgment. R. 142. Reluctant to change its position, the Trial

Court again granted summary judgment to U.S. Bank in its Judgment Entry Granting Plaintiff'sMotion for Summary Judgment (the “Post-Remand Final Judgment Entry”) (R. 143) [Appendix
B]. Green Meadow and Hardy now appeal the substantive errors contained in the Post-Remand
Final Judgment Entry.

STANDARD OF REVIEW

Appellate review of summary judgment motions is de novo. See, e.g., Andersen v.
Highland House Co., 93 Ohio St.3d 547, 548 (2001). “*‘When reviewing a trial court's ruling on
summary judgment, the court of appeals conducts an independent review of the record and
stands in the shoes of the trial court."" Abrams v. Worthington, 169 Ohio App.3d 94, 97-98 (10th
Dist.2011), quoting Mergenthal v. Star Bane Corp., 122 Ohio App.3d 100, 103 (12th Dist.1997).
Thus, an appellate court affords no deference to a trial court’s ruling on summary judgment and
must “independently review the records to determine whether summary judgment is
appropriate.” Rodgers v. Pahoundis, 178 Ohio App.3d 229, 238-239 (Sth Dist.2008).

Civ.R. 56(C) provides that summary judgment is only appropriate when the moving party
demonstrates that: (1) there is no genuine issue of material fact; (2) the moving party is entitled
to judgment as a matter of law; and (3) reasonable minds can come to but one conclusion and
that conclusion is adverse to the party against whom the motion for summary judgment is made.
See, e.g., Gilbert v. Summit Cty., 104 Ohio St.3d 660, 661 (2004). Because summary judgment
is a procedural device to terminate litigation, “[i]Jt must be awarded with caution, resolving
doubts and construing evidence against the moving party, and granted only when it appears from
the evidentiary material that reasonable minds can reach only an adverse conclusion as to the
party opposing the motion.” Murphy v. Reynoldsburg, 65 Ohio St.3d 356, 358-359 (1992),

quoting Norris v. Ohio Std. Oil Co., 70 Ohio St.2d 1, 2 (1982).

10ARGUMENT

THE TRIAL COURT ERRED IN GRANTING U.S. BANK’S MOTION
FOR SUMMARY JUDGMENT

A. There Is, At a Minimum, A Genuine Issue of Material Fact As To
Whether A “Reporting Default” Occurred

There is, at a minimum, a genuine issue of material fact as to whether U.S. Bank has met

the conditions precedent to invoke a “Reporting Default” in which to hold Green Meadow and

Hardy personally liable for over $3,700,000. As cited by the trial court, Section 12.03 of the

Loan Agreement provides:

Section 12.03 Full Personal Liability. Section 12.01 above shall BECOME
NULL AND VOID and the Loan FULLY RECOURSE to Borrower if: ... (g) a
Reporting Default occurs and is not cured within thirty (30) days after Lender’s
written notice thereof, which notice shall be a second notice given after the
expiration of the notice required under the definition of Reporting Default.

R. 143, p. 2, citing R. 1, Ex. B, Section 12.03. The Loan Agreement defines “Reporting Default”

as follows:

“Reporting Default” means, without reference to any cure period under Article
11, each instance that any of the following occur: (a) failure to deliver any of the
reports, information, statements or other materials required under Section 9.11
hereof within five (5) Business Days after written notice from Lender, (b) failure
to provide the Compliance Certificate within five (5) Business Days after written
notice from Lender, or (c) failure to permit Lender or its representatives to inspect
or copy books and records within two (2) Business Days of Lender’s written
request.

Id., citing R. 1, Ex. B, Section 1.01, p. 11.

As is evident from the two loan provisions above, in order for U.S. Bank to establish a

“Reporting Default”, the Loan Agreement requires that the following two things must happen:

. (1) US. Bank must give notice to Green Meadow requesting any of the reports, information,

: statements, or other materials required under Section 9.11 be provided within five business days

(R. 1,:Ex. B, p. 11) [Appendix C]; and (2) if Green Meadow fails to provide the materials

‘

11requested in part (1), then U.S. Bank must provide another notice giving a 30-day cure period.
Id. at p. 63. Thus, U.S. Bank can only use a Reporting Default to purportedly make Green
Meadow and Hardy personally liable if: (1) U.S Bank issues these two notices, (2) Green
Meadow fails to provide the materials requested under Section 9.11 of the Loan Agreement, and
(3) Green Meadow fails to cure any failure to provide the requested materials in the first
instance.

In entering judgment for U.S. Bank, the trial court reasoned that “Exhibits Z, AA, and
BB, as well as the affidavit of Mr. Reed, establish that the Defendants were provided written
requests for information and failed to cure the Reporting Defaults.” R. 143, p. 3 [Appendix B].
The trial court further found that “constructive notice” of any purported requests for information
sent by U.S. Bank suffices despite failing to meet the strict mandates of the Loan Agreement.
Id.at 5. As a result of this reasoning, the trial court held that: “Defendants are liable for the full
amount [of the Judgment Amount] as the non-recourse provisions became null and void upon
Defendant Green Meadow’s failure to cure the Reporting Default.” R. 124 at p. 17, R. 143, p. 6.

The trial court’s ruling is flawed in two respects. First, U.S. Bank, via the same affiant,

Mr. Reed, specifically denied that Exhibits Z and AA are the necessary notices to effectuate a

 

“Reporting Default.” R. 58, Ex. 1, pp. 7-9 [Appendix H]. Second, and even if the notices are
somehow effective, U.S. Bank has nonetheless not followed the strict notice requirements of its
own carefully drafted Loan Documents. Consequently, genuine issues of material fact exist as to

whether a “Reporting Default” has occurred.

121. U.S. Bank Has Provided Conflicting Evidence As To Whether
Exhibits Z And AA To Its Complaint Are The Necessary Notices To
Trigger A “Reporting Default”

“A condition precedent is a condition which must be performed before the obligations in
the contract become effective." Troha v. Troha, 105 Ohio App.3d 327, 334 (2nd Dist.1995).
“Thus, if a condition precedent is not fulfilled, a party is excused from performing the duty
promised under the contract.” Rudd v. Online Resources, Inc., 1999 Ohio App. LEXIS 2733,
*18 (2nd Dist. 1999). The burden of proving compliance with a condition precedent lies with the
party asserting a right of action on the contract. See, e.g., Moraine Materials Co. v. Cardinal
Operating Co., 1998 Ohio App. LEXIS 5387, *16 (2nd Dist. 1998).

As previously stated, the two conditions precedent to invoke a “Reporting Default” are:
(1) U.S. Bank must give notice to Green Meadow and, in the notice, request that any of the
reports, information, statements, or other materials required under Section 9.11 be provided
within five business days (R. 1, Ex. B, p. 11); and (2) if Green Meadow fails to provide the
materials requested in part (1), then U.S. Bank must provide another notice giving a 30-day cure
period. /d. at p. 63. Of all the exhibits documents attached to the Complaint and that the trial
court reviewed, only two documents can be construed as U.S. Bank’s attempt to meet these
conditions precedent: Exhibits Z and AA to the Complaint. R. 1 [Appendix F, G]. The relative
portions of each are below:

First Condition Precedent:
Section 1.01 of the Loan Agreement states as follows:
“Reporting Default” means, without reference to any cure period under

Article 11, each instance that any of the following occur: (a) failure to
deliver any of the reports, information, statements or other materials

13required under Section 9.11° hereof within five (5) Business Days after
written notice from Lender ...

R. 1, Ex. B, Section 1.01, p. 11 [Appendix C].
U.S. Bank’s document:
Exhibit Z to U.S. Bank’s Complaint states in pertinent part:

Pursuant to ... Section 9.11 of the Loan Agreement, in the Event of
Default, Lender may demand ... the following:

[list omitted]

...In light of your actions, on behalf of our client we are requesting the
information set forth above [itemized list for rent, revenues, income, rent
rolls, operating statements, bank statements, etc.] within five (5) Business
Days from receipt of this correspondence and advising you that we will
take the necessary and appropriate legal measures to enforce the terms of
the Loan Documents if you continue to put the collateral at risk.

R. 1, Ex. Z, p. 2 [Appendix F].

Second Condition Precedent:

Section 12.03 of the Loan Agreement states, in pertinent part:
Section 12.01 above shall BECOME NULL AND VOID and the Loan
FULLY RECOURSE to Borrower if: ***(g) a Reporting Default occurs
and is not cured within thirty (30) days after Lender’s written notice
thereof, which notice shall be a second notice given after the expiration of
the notice required under the definition of Reporting Default.

R. 1, Ex. B, Section12.03, p. 11 [Appendix C].

U.S. Bank’s document:

Exhibit AA to U.S. Bank’s Complaint states, in pertinent part:
...On behalf of our client, we make a second demand for delivery of the

information listed above [same itemized list from Exhibit Z] within thirty
(30) days from the date of this correspondence.

5 Section 9.11 of the Loan Agreement includes such information as Rent Rolls, operating
statements, budgets, etc. R. 1, Ex. B, p. 52-53.

14R. 1, Ex. AA, p. 2 [Appendix G].

U.S. Bank, through the Reed Affidavit, stated that Exhibit Z to the Complaint was the
_ initial request for information document and that Exhibit AA to the Complaint was the second
request. R. 28, Ex. A, §40-41. In conspicuous contrast to this statement, however, Mr. Reed

has specifically denied that Exhibits Z and AA are the operative notices to invoke the conditions

 

precedent identified above. R. 58, Ex. 1, pp. 7-9 [Appendix H]. Specifically, Green Meadow
and Hardy propounded the following requests for admission and interrogatories to U.S. Bank, to

which Mr. Reed, on behalf of U.S. Bank, provided the following responses:

REQUEST FOR ADMISSION NO. 4:

Admit that the letter attached to your Complaint as Exhibit Z° is your
attempt to provide written notice for information required under Section
9.11 of the Loan.

ANSWER:
Denied
INTERROGATORY NO. 8:

If your response to the previous Request for Admission is anything but an
unqualified admission, please provide the basis therefor.

ANSWER:

Exhibit Z attached to Plaintiff's Complaint is written notice directed to
Borrower regarding Borrower’s default of terms of the Loan Agreement
and provided after Borrower had previously received notice of the Default
provided by Plaintiff.

\
§ Exhibit Z was inadvertently referred to as Exhibit 2 in the original Request for Admission, but,
as indicated by U.S. Bank’s response, U.S. Bank recognized that Appellants were referring to
Exhibit Z.

15REQUEST FOR ADMISSION NO. 5:

Admit that the letter attached to your Complaint as Exhibit AA is your
second attempt to provide notice of a Reporting Default under Section
12.03 of the Loan.

ANSWER:

Denied

INTERROGATORY NO. 9:

If your response to the previous Request for Admission is anything but an
unqualified admission, please provide the basis therefor.

ANSWER:

Exhibit AA attached to Plaintiff's Complaint is written notice directed to

Borrower regarding Borrower’s default of terms of the Loan Agreement

and provided after Borrower had previously received notice of the Default

provided by Plaintiff.
Id.

In situations such as this — where the moving party has provided an affidavit in support of

a motion for summary judgment which is contradictory to prior testimony — the Ohio Supreme
Court has established a bright-line rule that summary judgment must be denied. See
Byrd v. Smith, 110 Ohio St.3d 24, 31 (2006) (holding: “[a] movant’s contradictory affidavit will
prevent summary judgment in that party’s favor.”). The trial court, in making its determination,
completely ignored U.S. Bank’s prior denials and interrogatory responses that Exhibits Z and
AA are the operative documents to establish a Reporting Default and, instead, relied on the
testimony contained in the Reed Affidavit. R. 124. Because these denials and interrogatory
responses, at a minimum, create a genuine issue of material fact as to whether U.S. Bank has

properly met the requirements for a Reporting Default, the trial court’s granting of summary

judgment to U.S. Bank was erroneous.

162. There Is A Genuine Issue Of Material Fact As To Whether U.S. Bank
Complied With Its Own Notice Procedures

“It is well established under Ohio Contract Law. that a party must comply with all express
conditions to be performed in case of breach before it can claim damages by reason of the
breach. * * * A right of action requiring notice as a condition precedent cannot be enforced
unless the notice provided for has been given.” (Emphasis added.) Moraine Materials Co.,
1998 Ohio App. LEXIS 5387, *16, quoting Au Rustproofing Center Inc. v. Gulf Oil Corp., 755
F. Supp.2d 1231, 1237 (6th Cir.1985).

Here, all correspondence from U.S. Bank to both Green Meadow and Hardy was
addressed and sent to the wrong entity (for Green Meadow) and without “care of” instructions
(for Hardy). As specifically mandated by the Loan Agreement, all notices to Borrower (Green

Meadow) and Guarantor (Gregg Hardy) were to be sent as follows:

Green Meadow SWS LLC Greggory Hardy

C/O Greggory Hardy C/O Quantum Management &
Quantum Management & Investment, LLC _ Investment, LLC

10170 Tipton Hwy 10170 Tipton Hwy

P.O. Box 156 P.O. Box 156

Tipton, MI 49287-9712 Tipton, MI 49287-9712

R. 1, Ex. B, p. 71 [Appendix C]; R. 1, Ex. E, p. 9 [Appendix E]. Yet, as to all of the pertinent

documents, U.S. Bank mailed all correspondence as follows:

Green Meadow SWC LLC, Borrower Greggory Hardy, Guarantor
C/O Greggory Hardy 10170 Tipton Hwy
Quantum Management & Investment, LLC P.O. Box 156

10170 Tipton Hwy Tipton, MI 49287

P.O. Box 156

Tipton, MI 49287-9712
R. 1, Ex. Z [Appendix F]; R. 1, Ex. AA [Appendix G].
When a default notice does not comply with the clear language of the parties’ agreement,

it is not effective to trigger default or cure provisions. See Reynolds v. Milatzo, 2007 Wyo. 104,

1720 (2007). Here, U.S. Bank failed this requirement in two respects. First, as to Green
Meadow, U.S. Bank did not even serve the proper entity. Instead of providing notice to “Green .
Meadow SWS LLC,” it provided notice to some unknown entity by the name of “Green Meadow
SWC LLC”. (Emphasis added) R. 1, Ex. B, Section 18.01, pp. 70-71 [Appendix C]; R. 1, Ex. Z
[Appendix F]; R. 1, Ex. AA [Appendix G]. Second, as to Hardy, U.S. Bank failed to provide
notice as directed in the Guaranty by failing to include “C/O Quantum Management &
Investment, LLC.” Jd. Because U.S. Bank failed to follow the exact and detailed mandates of its
own carefully drafted Loan Agreement and Guaranty, it failed to demonstrate the necessary
condition precedent of proper notice to invoke full recourse against Hardy (even though U.S.
Bank has denied that the only correspondence attached to the Complaint is the required notice).
Because strict notice provisions require strict compliance, the trial court’s reliance on
constructive notice is faulty and should be reversed.’

B. The Scope of The Guaranty Is, At A Minimum, Ambiguous

Ohio law is well-settled: “[if] a contract is clear and unambiguous, then its interpretation
is a matter of law and there is no issue of fact to be determined.” Cranberry Fin., LLC v. S&V
Partnership, 186 Ohio App.3d 275, 277 (6th Dist.2010), quoting Alexander v. Buckeye Pipe Line
Co., 53 Ohio St.2d 241 (1978). This rule applies to a guarantor, who “is bound only by the
words of his contract.” Third Natl. Bank of Cincinnati v. Laidlaw, 86 Ohio St. 91, 99-100
(1912). Thus, “[t]he language used, is to be understood in its plain, ordinary sense, as read in
light of surrounding circumstances, the situation of the parties, and the object of the guaranty,
7 The Trial Court apparently ridicules Green Meadow and Hardy by stating that “Ironically, the
caption of the Defendants’ surreply contains the name ‘GREEN MEADOW SWC, LLC, et al.’
as the name of the Defendants. However, this was intentional, as it was U.S. Bank’s mistake in
its own notices that carried forward to the complaint filed in this case; thus, this case has always
been captioned in the incorrect capacity in which U.S. Bank sued, i.e., Green Meadow SWC,

LLC.’ See, generally, Record.

1
1 18and that construction given which most nearly conforms to the intention of the parties.” Jd. at
100. Additionally, the contracts at issue were drafted by U.S. Bank’s predecessors, and all
ambiguities should be construed against the drafter. See, e.g., McKay Machine Co. v. Rodman,
11 Ohio St.2d 77, 80 (1967).

The trial court misinterpreted the clarity of the Guaranty by holding that “the Loan
Documents clearly indicate that the Guaranty executed by Defendant Hardy is not subject to the
nonrecourse obligation provision.” R. 124, p. 12.8 After specifically citing Section 12.01 of the
Loan ‘Agreement the trial court cited to the caption of the Guaranty - “GUARANTY:
Exceptions to Nonrecourse Liability” ~ to give meaning to the scope of the Guaranty. Jd In

doing so, however, the trial court did exactly what the Guaranty prohibits — used a heading to

define the terms contained therein. Specificaily, Section 5.06 of the Guaranty states that “Article

and section headings are for convenience only and shall not be used in interpretation of this

Guaranty.” (Emphasis added.) R.11, Ex. E, p. 7 [Appendix E]. The trial court’s use of the

heading to define and/or modify the terms of the Guaranty was fundamentally improper.

No less deficient was the trial court’s failure to review the actual terms of the Guaranty.
As stated in the Guaranty, Hardy only “...guarantees to Lender the prompt payment when due,
whether at stated maturity, my acceleration or otherwise, of all obligations and liabilities of
Boro er pursuant to the terms and provisions of Article 12 of the Loan Agreement ....”
(Emphasis added.) /d. at 1. Further, Paragraph C of the Guaranty states: “Lender requires as a
condition to making the Loan that Guarantors agree, jointly and severally, to guaranty for the

benefit of Lender, and its successors and assigns, all obligations and liabilities of Borrower with

 

|

1
§ After remand, the Trial Court addressed Green Meadow only. With respect to the analysis .
pertaining to Hardy, the Trial Court apparently incorporated its prior analysis in the Final
Judgment Entry. See R. 143, pp. 1-2, 6.

19Trespect to the Loan for which Borrower is personally liable.” (Emphasis added.) Id.
Accordingly, because Green Meadow, as the borrower, is not liable for any deficiency judgment,
neither is Hardy, as the guarantor. U.S. Bank must look solely to the Real Property and other
collateral for redress. The trial court’s determination to the contrary was in error.

C. “Reporting Defaults” — Which Create Full Recourse Liability — Are Void As
Unenforceable Penalty Provisions

Finally, the trial court held that “Reporting Defaults” are not void as being unenforceable
penalty provisions. In so holding, the trial court relied solely upon First Union v. Imperial
Plaza, Ltd., 2010 Ohio 2009 (2nd Dist. 2010). However, a close reading of First Union reveals
that it is neither persuasive nor even remotely applicable as it does not discuss or analyze any
loan provisions in light of public policy or unenforceable penalty provisions. Because punitive
remedies are not enforceable in Ohio, the trial court’s determination was in error.

“A liquidated damages provision provides for a party that breaches a contract to pay
damages in an amount agreed upon by the parties. Likewise, a punitive remedy, which is not
enforceable, exists where a liquidated damages clause ‘subjects the breaching party to a liability
disproportionate to the damage which could have been anticipated from breach of the contract.’”
Carl Ralston Ins. Agency v. Nationwide Mut. Ins. Co., 2007 Ohio 507, P12 (9th Dist. 2007).
Illustrative of this rule is the decision, and supporting logic, of a New York state court in ING
Real Estate Fin. (USA) LLC v Park Ave. Hotel Acquisition LLC, 2010 NY Slip Op 50276U (N.Y.
Sup. Ct. Feb. 24, 2010). R. 58, Ex.3. There, “[t]he question before the Court [was] whether, by
the terms of the contract, the nineteen-day tardiness in paying less than $300,000 in property
taxes i a full recourse obligation by the Guarantors of up to $90 million.” Id. at **7-8. In

holding that full recourse was not triggered, the court held:

psImmediate liability for the entire debt is not a reasonable measure of any
probable loss associated with the delinquent payment of a relatively small
amount of taxes. Here, pursuant to Section 9.3 (d), plaintiffs would have
moving defendants potentially liable for the entire debt of up to $ 145
million if the Borrower is just one day delinquent in paying a dollar in
property taxes or any other debt for which a lien may be imposed. Such an
unlikely outcome could not have been intended by the parties, sophisticated
commercial borrowers and lenders aided by competent counsel at the time
of the drafting, and is impermissible under New York law (see Truck Rent-
A-Center, Inc. v Puritan Farms 2nd, Inc., 41 NY2d 420, 425, 361 N.E.2d
1015, 393 N.Y.S.2d 365 [1977] ["The rule is now well established. A
contractual provision fixing damages in the event of breach will be
sustained if the amount liquidated bears a reasonable proportion to the
probable loss and the amount of actual loss is incapable or difficult of
precise estimation. If, however, the amount fixed is plainly or grossly
disproportionate to the probable loss, the provision calls for a penalty and
will not be enforced."] [internal citations omitted]).

Id. at **15-16.
The same issue is present here. The only Reporting Default that could possibly be

claimed (if admissible and proven) is that Green Meadow failed to provide such things as the
rents, rent rolls, and bank statements from the Real Property. See R. 1, Ex. Z. Even if it is true
that Green Meadow failed to provide these requested materials, and that this failure constitutes a
breach, the damages granted by the trial court—in excess of $4,700,000—is disproportionate to
any damages this failure could have caused.

To be sure, the Loan Agreement contains provision relating to the specific damages
attributable to a Reporting Default. Section 9.11(d) of the Loan Agreement states, among other
things, that “If a Reporting Default occurs, Borrower shall pay Lender, without demand, the
applicable Reporting Default Fee ....” R. 1, Ex. B, p. 54. “Reporting Default Fee” is defined as
“an amount of Five Hundred Dollars ($500.00) for the first Reporting Default, One Thousand
Dollars ($1,000.00) for the Second Reporting Default, Two Thousand Dollars ($2,000.00) for the
Third Reporting Default and each Reporting Default thereafter.” Id. at p. 11. Yet, despite this

clear valuation of damages attributable to a Reporting Default, the trial court springboarded

21liability upon both Green Meadow and Hardy from one Reporting Default ($500.00 per the Loan
| Agreement) to an amount in excess of the full amount of the Indebtedness ($8,140,153.48). As
a result, the Reporting Default provision in the Loan Agreement is an unenforceable penalty and
should not be enforced. The trial court’s determination should be reversed.
CONCLUSION
For the foregoing reasons, Green Meadow and Hardy respectfully request this Court
reverse the trial court’s Judgment Entry Granting Plaintiff's Motion for Summary Judgment (R.

143.

    

ee
<1

Thomas R. Allen (0017513)
Rick L. Ashton (0077768)
ALLEN KUEHNLE STOVALL & NEUMAN LLP
17 South High Street, Suite 1220
Columbus, OH 43215-4100
Telephone: (614) 221-8500
Facsimile: (614) 221-5988
Email: allen@aksnlaw.com
ashton@aksnlaw.com
Counsel for Defendants-Appellants Green Meadow
SWS, LLC and Greggory R. Hardy

2

  
    

22CERTIFICATE OF SERVICE

The undersigned hereby certifies that a true and accurate copy of the foregoing Brief of
Defendants-Appellants, Green Meadow SWS, LLC and Greggory Hardy was served via regular
US mail, postage prepaid, upon the parties listed below on this the 9th day of September, 2013:

Charles R. Dyas, Jr., Esq.
Barnes & Thornburg LLP

41 South High Street, Suite 3300
Columbus, OH 43215

Counsel for Plaintiff-Appellee
U.S. Bank National Association

  

Rick L. Ashton

 

23