McGlinchey Commercial Law Bulletin

Who has Standing to Assert a TILA Violation?

February 20, 2023

Ohio

Non-Signatory Compelling Arbitration

Duff v. Christopher, 11th Dist. Lake, No. 2023-Ohio-349.

In this appeal, the Eleventh Appellate District affirmed in part and reversed in part a trial court’s decision compelling arbitration, finding that the lower court erred in refusing to find a non-signatory could enforce an arbitration agreement. 

The Bullet Point: Under Ohio’s Arbitration Act, “Ohio public policy favors arbitration and, therefore, such provisions are ordinarily considered valid and enforceable.” “[A]n arbitration provision must be enforced unless it is not susceptible of an interpretation that covers the asserted dispute, with any doubt being resolved in favor of arbitration.” In support of this liberal policy favoring arbitration, Ohio courts will permit non-signatories to enforce arbitration in certain circumstances. For instance, “Ohio courts have recognized that a non-signatory agent may enforce an arbitration agreement between a plaintiff and the agent’s principal when ordinary principles of contract and agency law require.” 

Cognovit Notes

Hager v. Swickheimer, 11th Dist. Lake, No. 2023-Ohio-414

In this appeal, the Eleventh Appellate District reversed the trial court’s decision to deny a motion for relief from a judgment finding that the defendant had adequately alleged a meritorious defense to a cognovit note to warrant relief from judgment.

The Bullet Point: This appeal involved challenges to a cognovit note. As the Eleventh District noted, “[b]ecause the judgment debtor is not afforded notice or the opportunity to answer the complaint prior to the entry of a cognovit judgment, the judgment debtor is not required to show entitlement to relief under one of the specific grounds listed under Civ.R. 60(B).” “Therefore, a party seeking relief from a cognovit judgment is only required to demonstrate the existence of a meritorious defense and that the motion is made within a reasonable time.” While defenses to cognovit notes are very limited, here, the court found a challenge to the interest calculation constituted a meritorious defense sufficient to establish relief from judgment. 

Grounds to Vacate Arbitrator Award

Cleveland Const. Co. v. Ruscilli Const. Co., 10th Dist. Franklin No. 2023-Ohio-363.

In this appeal, the Tenth Appellate District affirmed an arbitrator’s award, finding that the arbitrator did not exceed his authority when awarding relief.

The Bullet Point: “Because Ohio law favors and encourages arbitration, courts only have limited authority to vacate an arbitrator’s award.” To that end, Ohio’s Arbitration Act “limits judicial review of arbitration to claims of fraud, corruption, misconduct, an imperfect award, or that the arbitrator exceeded his authority.” Regarding a claim that an arbitrator exceeded his or her authority, a court must vacate an arbitration award if “[t]he arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” “An arbitrator derives his power from the parties’ contract.” Thus, “an arbitrator exceeds his powers when the award conflicts with the express terms of the agreement or cannot be derived rationally from the terms of the agreement.” 

Florida

Equitable Contribution

Samieh v. HCB Financial Corp., et al, 1D21-1821 (Fla. 1st DCA Feb. 15, 2023)

The First District concluded that a settlement agreement did not sever the common obligation shared by co-obligors on a mortgage and promissory note.

The Bullet Point: Parties share a common obligation if they are guarantors on a promissory note that provides for their joint and several liability. Under the doctrine of equitable contribution, when one co-obligor pays more than his fair share of a common obligation, the payer is entitled to a contribution from the other. The doctrine applies to cases involving joint contractual obligations when the parties’ agreement does not address their rights to seek contribution. 

In this case, a bank brought a foreclosure action against two co-obligors after they defaulted on their mortgage and promissory note to purchase real property. Each of the co-obligors entered into separate settlement agreements with the bank. Pursuant to their respective agreement, the appellants agreed to pay the bank a settlement of $1 million. After that, the appellants brought an equitable contribution claim against the appellee co-obligor seeking half of the settlement amount. The co-obligors were jointly and severally liable under the mortgage, but neither instrument addressed their right to seek contribution from each other should either party default. The issue is whether the appellee co-obligor’s individual settlement agreement with the bank severed the parties’ common obligation, negating the appellants’ equitable contribution claim. The Eleventh Circuit concluded that it did not and further held that because the appellants paid more than their pro rata share of the common obligation in their settlement agreement with the bank, they had a right to demand equitable contribution from the co-obligor.

Standing to Bring TILA Claim

Gary Walters v. Fast AC, LLC et al., No. 21-13879 (11th Cir. Feb. 6, 2023)

The Eleventh Circuit examined the requisite elements for Article III standing to determine whether a plaintiff had standing to bring his TILA claim in federal court.

The Bullet Point: It is well-established that the party invoking federal jurisdiction bears the burden of proving injury, traceability, and redressability to have standing. In this appeal, the Eleventh Circuit examined the elements necessary to prove Article III standing to determine whether the plaintiff could bring his TILA claim in federal court. First, the Court examined the injury-in-fact element, finding that it was satisfied because the plaintiff established that, in addition to a statutory violation, he personally suffered concrete, particularized harms. For example, the plaintiff testified his credit score was negatively impacted, thus preventing him from purchasing a truck and refinancing his home. He spent money faxing documents and experienced emotional distress. The Court then addressed the question of redressability, concluding that the plaintiff’s injury was likely to be redressed with the award of damages. 

Finally, the Court turned to the question of traceability. The Court elaborated that traceability is not an exacting standard, meaning that the defendant’s challenged conduct need not be the last step in the chain of causation for it to be traceable to the plaintiff’s injury. Instead, the plaintiff must demonstrate factual causation between his injuries and the defendant’s misconduct. If an independent source would have caused the same injury, a plaintiff lacks standing to sue. Here, the Court determined that the plaintiff’s injury was traceable to the defendant under an agency theory, as the complaint asserted that the defendant was vicariously liable for the harm and losses caused by its agent’s misconduct. However, the Court was careful to note that where harm is caused by an independent source, Article III standing may not exist. 

Accordingly, because the plaintiff proved all the requisite elements of Article III standing, he has standing to litigate his claims in federal court. Therefore, the district court’s entry of summary judgment in favor of the defendant was reversed.

Setting Aside a Foreclosure Sale

Quest Systems, LLC v. Far, No. 2D22-1545 (Feb. 8, 2023)

The Second District reversed a trial court’s order vacating a foreclosure sale because the purchaser did not present competent substantial evidence of any ground that would support setting the sale aside.

The Bullet Point: To set aside a foreclosure sale, a litigant must allege one or more equitable factors and make a proper showing to the trial court that they exist. These factors can include gross inadequacy of consideration; surprise, accident, or mistake imposed on the complainant; and irregularity in the conduct of the sale. It is well established that an objection to a foreclosure sale must be directed toward conduct that occurred at or was directly related to the sale. In this case, the purchaser moved to set aside the foreclosure sale because he lacked notice of the superior mortgage on the property when he bid on it. On appeal, the Second District found the purchaser did not connect his lack of notice to anything that occurred at or related to the foreclosure sale. It further held that lack of knowledge, without more, is not enough to vacate the sale. Thus, because the purchaser presented no competent substantial evidence of any ground that would support setting the sale aside, the order vacating the sale was reversed.