Case Title: Flagstar Bank, F.S.B. v. Airline Union’s Mortgage Co.

Citation: 2011-Ohio-1961

Docket Number: 20100508, 20100511

State: ohio

Court: Ohio Supreme Court

Date: 2011-04-27T00:00:00Z

Document:
[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as 
Flagstar Bank, F.S.B. v. Airline Union’s Mtge. Co., Slip Opinion No. 2011-Ohio-1961.] 
 
 
NOTICE 
This slip opinion is subject to formal revision before it is published in 
an advance sheet of the Ohio Official Reports.  Readers are requested 
to promptly notify the Reporter of Decisions, Supreme Court of Ohio, 
65 South Front Street, Columbus, Ohio 43215, of any typographical or 
other formal errors in the opinion, in order that corrections may be 
made before the opinion is published. 
 
SLIP OPINION NO. 2011-OHIO-1961 
FLAGSTAR BANK, F.S.B., APPELLANT, v. AIRLINE UNION’S MORTGAGE 
COMPANY ET AL.; REINHOLD, APPELLEE. 
[Until this opinion appears in the Ohio Official Reports advance sheets, it 
may be cited as Flagstar Bank, F.S.B., v. Airline Union’s Mtge. Co.,  
Slip Opinion No. 2011-Ohio-1961.] 
Statutes of limitations — R.C. 2305.09(D) — Professional negligence — Accrual 
— Delayed-damages rule. 
(Nos. 2010-0508 and 2010-0511 — Submitted February 1, 2011 — Decided  
April 27, 2011.) 
CERTIFIED by and APPEAL from the Court of Appeals for Hamilton County, 
No. C-090166. 
__________________ 
SYLLABUS OF THE COURT 
A cause of action for professional negligence against a property appraiser 
accrues on the date that the negligent act is committed, and the four-year 
statute of limitations commences on that date.  (R.C. 2305.09(D) and 
SUPREME COURT OF OHIO 
2 
 
Investors REIT One v. Jacobs (1989), 46 Ohio St.3d 176, 546 N.E.2d 206, 
followed.) 
__________________ 
 
LANZINGER, J. 
{¶ 1} We have accepted a certified-conflict question asking when the 
statute of limitation begins to run against a property appraiser in a case involving 
professional negligence. We hold that the four-year statute of limitations for 
professional negligence, R.C. 2305.09(D), starts to run on the date of the alleged 
negligent act, the date of accrual of the cause of action against the appraiser. 
Factual Background 
{¶ 2} The relevant facts of this case are not disputed.  Appellee, John 
Reinhold, was an appraiser.1  In 2001 and 2002, he performed appraisals on three 
properties that served as collateral for three separate mortgage loans made by 
Airline Union’s Mortgage Company (“AUM”).  The last of these appraisals was 
completed on June 12, 2002. 
{¶ 3} In various transactions in 2001 and 2002, appellant, Flagstar Bank, 
FSB (“Flagstar”), purchased the mortgage loans from AUM after having received 
and reviewed Reinhold’s three appraisals.  According to Flagstar, it sold on the 
secondary market two of the mortgage loans on two of the properties that 
Reinhold had appraised.  These properties were later subjected to foreclosure after 
the owners defaulted, leaving deficiency balances on both loans.  The secondary 
creditors sought reimbursement from Flagstar, which paid the deficiencies on the 
two loans.  Flagstar kept the mortgage loan on the third appraised property in its 
portfolio.  After this property burned down, the owner defaulted, and the 
insurance proceeds from the fire left a deficiency balance on the third loan. 
                                                 
1 According to his affidavit, Reinhold has retired. 
January Term, 2011 
3 
 
{¶ 4} On April 28, 2008, Flagstar filed a complaint against the initial 
lender, AUM, and the appraiser, Reinhold, alleging that the three property 
appraisals were materially inaccurate and that the actual fair market value of each 
property was significantly less than the appraised value.2  Reinhold denied any 
negligence and filed a motion for summary judgment.  He argued that the bank’s 
claims were barred by the statute of limitations in R.C. 2305.09 because the 
complaint was filed more than four years after the appraisals were performed.  
Flagstar responded that the statute of limitations did not begin to run until after 
the bank sustained a compensable injury. The bank contended that it did not suffer 
actual damages until the properties were sold at foreclosure and there was a 
deficiency balance or until the receipt of the insurance proceeds that were 
insufficient to cover the balance of the loan.  Because the complaint was filed 
within four years of those dates, Flagstar maintained that the complaint was 
timely. 
{¶ 5} The trial court determined that Flagstar was requesting that the 
court adopt a discovery rule with regard to claims for professional negligence.  
Citing cases in which courts had rejected a discovery rule for such claims, the trial 
court granted summary judgment to Reinhold.  Flagstar appealed, but the First 
District Court of Appeals affirmed. 
{¶ 6} We accepted the certified-conflict question and ordered the parties 
to brief the issue of whether under R.C. 2305.09(D) a cause of action for 
professional negligence accrues on the date that the negligent act is committed or 
on the date that the negligent act causes actual damages.  125 Ohio St.3d 1436, 
2010-Ohio-2212, 927 N.E.2d 9.  We also accepted Flagstar’s discretionary appeal 
and consolidated it with the certified conflict.  125 Ohio St.3d 1437, 2010-Ohio-
2212, 927 N.E.2d 10. 
                                                 
2 The complaint also alleged similar claims against seven other individuals who, along with AUM, 
were later voluntarily dismissed and are not parties to this appeal. 
SUPREME COURT OF OHIO 
4 
 
Basic Principles for Statutes of Limitations 
{¶ 7} Before addressing the specific statute of limitations in this case, we 
turn to basic principles that guide our analysis.  Statutes of limitations serve a 
gate-keeping function for courts by “ ‘(1) ensuring fairness to the defendant, (2) 
encouraging prompt prosecution of causes of action, (3) suppressing stale and 
fraudulent claims, and (4) avoiding the inconveniences engendered by delay—
specifically, the difficulties of proof present in older cases.’ ” Pratte v. Stewart, 
125 Ohio St.3d 473, 2010-Ohio-1860, 929 N.E.2d 415, ¶ 42, quoting Doe v. 
Archdiocese of Cincinnati, 109 Ohio St.3d 491, 2006-Ohio-2625, 849 N.E.2d 
268, ¶ 10.  That being said, statutes of limitations are remedial in nature and are to 
be given a liberal construction to permit cases to be decided upon their merits, 
after a court indulges every reasonable presumption and resolves all doubts in 
favor of giving, rather than denying, the plaintiff an opportunity to litigate.  
Draher v. Walters (1935), 130 Ohio St. 92, 94, 196 N.E. 884, overruled on other 
grounds, Peters v. Moore (1950), 154 Ohio St. 177, 42 O.O. 254, 93 N.E. 683. 
R.C. 2305.09(D)—Professional Negligence 
{¶ 8} The parties agree that the applicable statute of limitations for the 
claim of professional negligence is R.C. 2305.09(D), which provides: 
{¶ 9} “Except as provided for in division (C) of this section, an action 
for any of the following causes shall be brought within four years after the cause 
thereof accrued: 
{¶ 10} “* * * 
{¶ 11} “(D) For an injury to the rights of the plaintiff not arising on 
contract nor enumerated in sections 1304.35, 2305.10 to 2305.12, and 2305.14 of 
the Revised Code.” 
{¶ 12} The parties disagree about when the statute of limitations in R.C. 
2305.09(D) begins to run.  The statute itself states only that an action must be 
brought within four years “after the cause thereof accrued.”  Because the 
January Term, 2011 
5 
 
legislature did not define “accrue,” we must determine when a cause of action 
accrues.  See O'Stricker v. Jim Walter Corp. (1983), 4 Ohio St.3d 84, 87, 4 OBR 
335, 447 N.E.2d 727, citing Harig v. Johns-Manville Prods. Corp. (1978), 284 
Md. 70, 75, 394 A.2d 299, 1 A.L.R.4th 105. 
{¶ 13} The general rule is that a cause of action exists from the time the 
wrongful act is committed.  Id.; see also Kerns v. Schoonmaker (1831), 4 Ohio 
331, syllabus (“Statute of limitations commences to run so soon as the injurious 
act complained of is perpetrated, although the actual injury is subsequent, and 
could not immediately operate”).  However, in certain circumstances this court 
has determined that applying the general rule “ ‘would lead to the unconscionable 
result that the injured party’s right to recovery can be barred by the statute of 
limitations before he is even aware of its existence.’ ”  O’Stricker, 4 Ohio St.3d at 
87, 4 OBR 335, 447 N.E.2d 727, quoting Wyler v. Tripi (1971), 25 Ohio St.2d 
164, 168, 54 O.O.2d 283, 267 N.E.2d 419.  As a result of these concerns, this 
court created an exception to the general rule, commonly known as the discovery 
rule. 
Discovery Rule 
{¶ 14} The discovery rule provides that a cause of action does not arise 
until the plaintiff knows, or by the exercise of reasonable diligence should know, 
that he or she has been injured by the conduct of the defendant.  Collins v. Sotka 
(1998), 81 Ohio St.3d 506, 507, 692 N.E.2d 581.  The rule entails a two-pronged 
test—i.e., actual knowledge not just that one has been injured but also that the 
injury was caused by the conduct of the defendant.  O'Stricker, 4 Ohio St.3d at 90, 
4 OBR 335, 447 N.E.2d 727.  A statute of limitations does not begin to run until 
both prongs have been satisfied. 
{¶ 15} The discovery rule was first applied in Ohio in a case involving 
medical malpractice.  Melnyk v. Cleveland Clinic (1972), 32 Ohio St.2d 198, 61 
O.O. 430, 290 N.E.2d 916.  Since then, it has been employed in a number of areas 
SUPREME COURT OF OHIO 
6 
 
of the law.  E.g., Skidmore & Hall v. Rottman (1983), 5 Ohio St.3d 210, 5 OBR 
453, 450 N.E.2d 684 (legal malpractice); Oliver v. Kaiser Community Health 
Found. (1983), 5 Ohio St.3d 111, 5 OBR 247, 449 N.E.2d 438 (medical 
malpractice); O’Stricker (bodily injury caused by exposure to asbestos); Burgess 
v. Eli Lilly & Co. (1993), 66 Ohio St.3d 59, 609 N.E.2d 140 (DES-related 
injuries); Browning v. Burt (1993), 66 Ohio St.3d 544, 613 N.E.2d 993 
(negligence of a hospital in credentialing a physician).  The application of the 
discovery rule, however, is not uniform.  We have cautioned: “By its very nature, 
the discovery rule (concept) must be specially tailored to the particular context in 
which it is to be applied.”  Id. at 559. 
{¶ 16} This court specifically addressed the application of the discovery 
rule to a claim for professional negligence involving accountants in Investors 
REIT One v. Jacobs (1989), 46 Ohio St.3d 176, 546 N.E.2d 206.  We determined 
that claims for accountant negligence were governed by R.C. 2305.09(D), the 
statute generally granting four years to file an action for tort claims not 
specifically covered in other sections of the Ohio Revised Code.  Id. at 180.  We 
also noted that R.C. 2305.09 expressly includes its own limited discovery rule: “If 
the action is for trespassing under ground or injury to mines, or for the wrongful 
taking of personal property, the causes thereof shall not accrue until the 
wrongdoer is discovered; nor, if it is for fraud, until the fraud is discovered.”  Id. 
at 181.  Because the General Assembly had not included general negligence 
claims within this limited discovery exception, we held that “[t]he discovery rule 
is not available to claims of professional negligence brought against accountants.”  
Id. at paragraph 2a of the syllabus.  We later reaffirmed this holding in Grant 
Thornton v. Windsor House (1991), 57 Ohio St.3d 158, 566 N.E.2d 1220. 
{¶ 17} The Hamilton County Court of Appeals noted that it had 
previously held that Investors REIT One can be extended to claims of professional 
negligence against brokers, dealers, and appraisers.  Hater v. Gradison Div. of 
January Term, 2011 
7 
 
McDonald & Co. Securities, Inc. (1995), 101 Ohio App.3d 99, 109, 655 N.E.2d 
189.  Because Flagstar’s complaint alleged negligence of an appraiser, a type of 
professional negligence similar to these cases, the court of appeals relied on 
Investors REIT One and Hater and held that the complaint was untimely, not 
having been filed within four years of any of the appraisals performed by 
Reinhold. 
{¶ 18} Flagstar, however, contends that Hater and Investors REIT One are 
distinguishable as discovery cases, while its own case is governed by the 
“delayed-damages” rule. 
Delayed-Damages Rule 
{¶ 19} The delayed-damages rule concerns another timing issue: when all 
elements of a cause of action have come into existence.  “To establish actionable 
negligence, one must show in addition to the existence of a duty, a breach of that 
duty and injury resulting proximately therefrom.”  Mussivand v. David (1989), 45 
Ohio St.3d 314, 318, 544 N.E.2d 265.  Under the delayed-damages rule, “where 
the wrongful conduct complained of is not presently harmful, the cause of action 
does not accrue until actual damage occurs.”  Velotta v. Leo Petronzio 
Landscaping, Inc. (1982), 69 Ohio St.2d 376, 379, 23 O.O.3d 346, 433 N.E.2d 
147.  In other words, a cause of action for negligence is not complete, and the 
statute of limitations does not begin to run, until there has been an injury. 
{¶ 20} The rule has been applied in a case involving home construction.  
“When negligence does not immediately result in damages, a cause of action for 
damages arising from negligent construction does not accrue until actual injury or 
damage ensues.”  Id. at paragraph two of the syllabus.  We have also applied the 
rule to a case involving the purchase of insurance coverage, stating: “ ‘The statute 
of limitations as to torts does not usually begin to run until the tort is complete.  A 
tort is ordinarily not complete until there has been an invasion of a legally 
protected interest of the plaintiff.’ ”  Kunz v. Buckeye Union Ins. Co. (1982), 1 
SUPREME COURT OF OHIO 
8 
 
Ohio St.3d 79, 81, 1 OBR 117, 437 N.E.2d 1194, quoting Austin v. Fulton Ins. 
Co. (Alaska 1968), 444 P.2d 536, 539. 
{¶ 21} Flagstar relies on these cases and argues that it did not suffer an 
infringement or impairment of its interest immediately.  The bank argues that it 
was not damaged until it suffered a loss and thus that the statute did not begin to 
run until the appraised properties were sold at foreclosure and there were 
deficiency balances on the loans or until the receipt of the insurance proceeds left 
a deficiency balance.  Flagstar contends that because the properties served as 
security for the loans, there might never have been any injury from Reinhold’s 
alleged negligence if the owners had not defaulted on their loans.  In other words, 
although Reinhold’s alleged negligent act occurred when the properties were 
appraised in 2001 and 2002, the tort was not complete until Flagstar was required 
to resort to insufficient collateral or to indemnify other creditors because of 
insufficient collateral. 
Conflict Cases 
{¶ 22} Both the Fifth and Sixth District Courts of Appeals have applied 
the delayed-damages rule to claims for professional negligence.  The Sixth 
District Court of Appeals accepted the delayed-damages rule in a case involving a 
certified public account who failed to file certain forms with the Internal Revenue 
Service, causing the plaintiff to incur a tax penalty.  Gray v. Estate of Barry 
(1995), 101 Ohio App.3d 764, 656 N.E.2d 729.  In that case, the court of appeals 
held that there was no injury until the I.R.S. determined to levy a penalty.  The 
Sixth District distinguished Investors REIT One on the basis of the case’s being 
“not one of discovery” but rather “when a cause of action accrues.”  Id. at 768.  
The Fifth District Court of Appeals relied on Gray and held that a cause of action 
for negligence in tax preparation did not accrue until the plaintiffs were assessed 
tax deficiencies.  Fritz v. Bruner Cox, L.L.P. (2001), 142 Ohio App.3d 664, 756 
N.E.2d 740; see also JP Morgan Chase Bank NA v. Lanning, 5th Dist. No. 
January Term, 2011 
9 
 
2007CA00223, 2008-Ohio-893, 2008 WL 588804 (a cause of action against a title 
agency for altering and recording a mortgage did not accrue until the bank filed a 
foreclosure action against the property owners, because the owners had not 
suffered an actual injury until then). 
{¶ 23} In contrast, the First District Court of Appeals has declined to 
apply the delayed-damages rule to claims for professional negligence.  Hater, 101 
Ohio App.3d 99, 655 N.E.2d 189.  It held: “The controlling law on this issue is, 
we believe, set forth in REIT One.  By holding that the statute of limitations began 
to run ‘when the allegedly negligent act was committed,’ the court in REIT One, 
in our view, meant exactly that: the date upon which the tortfeasor committed the 
tort, in other words, when the act or omission constituting the alleged professional 
malpractice occurred.  Regardless of its validity or support in the common law of 
torts, the delayed-damage theory cannot, we believe, be used to circumvent the 
clear holding of REIT One by resurrecting the discovery rule in a different 
analytical guise.”  Id. at 110-111. 
{¶ 24} This position has been adopted by other courts of appeals.  E.g., 
Reidel v. Houser (1992), 79 Ohio App.3d 546, 549, 607 N.E.2d 894 (an attempted 
distinction between the discovery rule and the delayed-damages rule was rejected 
as a distinction without a difference); Schnippel Constr. v. Profitt, 3d Dist. No. 
17-09-12, 2009-Ohio-5905, 2009 WL 3720585 (the delayed-damages rule was 
inapplicable to a claim for negligent misrepresentation involving adoption and 
execution of an employee benefit plan); Fronczak v. Arthur Andersen, L.L.P. 
(1997), 124 Ohio App.3d 240, 244, 705 N.E.2d 1283 (the delayed-damages 
theory was found to be implicitly rejected by the “broad language in Investors 
REIT One”); Bell v. Holden Survey, Inc. (Sept. 29, 2000), 7th Dist. No. 729, 2000 
WL 1506494 (the delayed-damages rule was not applied to a claim for 
professional negligence against a surveyor); James v. Partin, 12th Dist. No. 
SUPREME COURT OF OHIO 
10 
 
CA2001-11-086, 2002-Ohio-2602, 2002 WL 1058152 (the discovery rule and 
delayed-damages rule were inapplicable to claims of professional negligence). 
The Rule of Investors REIT One 
{¶ 25} Both the discovery rule and the delayed-damages rule relate to 
when a cause of action for negligence accrues.  Nevertheless, with regard to 
claims for professional negligence governed by R.C. 2305.09, this court has 
clearly stated that the cause of action accrues when the allegedly negligent act is 
committed.  Investors REIT One, 46 Ohio St.3d at 182, 546 N.E.2d 206; Grant 
Thornton, 57 Ohio St.3d 158, 566 N.E.2d 1220.  In Investors REIT One, we 
explicitly rejected the application of the discovery rule for these causes of actions.  
Id. at paragraph two of the syllabus.  We implicitly rejected the delayed-damages 
rule in Grant Thornton. 
{¶ 26} In Grant Thornton, after repayment to the state of Ohio of $2.5 
million was ordered against a nursing home, the nursing home counterclaimed 
against auditors for professional negligence. 57 Ohio St.3d at 159.  An audit had 
been completed in 1980, and the state had notified the nursing home of the state’s 
overpayment of reimbursements in 1982.  The court of appeals relied on Kunz to 
reverse the trial court’s summary judgment in favor of the auditors and hold that 
cause of action had not accrued until the state demanded repayment of the amount 
overpaid, because there had been no harm to the nursing home until then.  
Alexander Grant & Co. v. Windsor House, Inc. (Oct. 16, 1989), 7th Dist. No. 87 
C.A. 187, 1989 WL 122538.  We, however, determined that Investors REIT One 
governs claims for professional negligence and malpractice, and thus the four-
year statute of limitations barred the claim.  Grant Thornton, 57 Ohio St.3d at 
160-161. 
{¶ 27} We continue to adhere to the rule of law established in Investors 
REIT One.  A cause of action for professional negligence accrues when the act is 
committed.  Just as accountants do, appraisers perform services that for four years 
January Term, 2011 
11 
 
may subject them to negligence suits for the consequences of their professional 
acts.  In this case, accepting any suggestion that the statute of limitations be reset 
for each purchase of a mortgage loan because the purchaser’s damages may be 
delayed until some point in the future could lead to an unending statute of 
limitations.  Given the volatile nature of the housing market in recent years, we 
believe that that position is inconsistent with the purposes of statutes of 
limitations: “(1) ensuring fairness to the defendant, (2) encouraging prompt 
prosecution of causes of action, (3) suppressing stale and fraudulent claims, and 
(4) avoiding the inconveniences engendered by delay—specifically, the 
difficulties of proof present in older cases.”  Doe v. Archdiocese of Cincinnati, 
109 Ohio St.3d 491, 2006-Ohio-2625, 849 N.E.2d 268, ¶ 10. 
{¶ 28} As a final matter, Flagstar argues that affirming the First District’s 
decision would render R.C. 2305.09 unconstitutional because it would preclude 
recovery by injured parties before they suffer damages, thus violating Section 16, 
Article I of the Ohio Constitution, which provides, “All courts shall be open, and 
every person, for an injury done him in his land, goods, person, or reputation, 
shall have remedy by due course of law, and shall have justice administered 
without denial or delay.” 
{¶ 29} It is axiomatic that acts of the General Assembly are presumed 
valid under Ohio law and in cases of doubt should be held constitutional.  State v. 
Williams, 126 Ohio St.3d 65, 2010-Ohio-2453, 930 N.E.2d 770, ¶ 20; State ex rel. 
Dickman v. Defenbacher (1955), 164 Ohio St. 142, 57 O.O. 134, 128 N.E.2d 59, 
paragraph one of the syllabus.  The General Assembly exercised its authority to 
establish a reasonable time in which to bring a professional-negligence claim by 
providing four years to do so. R.C. 2305.09(D).  The right-to-remedy clause 
protects against laws that completely foreclose a cause of action for injured 
plaintiffs or otherwise eliminate their ability to receive a meaningful remedy.  
Arbino v. Johnson & Johnson, 116 Ohio St.3d 468, 2007-Ohio-6948, 880 N.E.2d 
SUPREME COURT OF OHIO 
12 
 
420, ¶ 44.  This court also rejected similar concerns over the right-to-remedy 
clause that were raised by the dissent in Investors REIT One, 46 Ohio St.3d at 
183–184, 546 N.E.2d 206. 
{¶ 30} Any alleged negligence by Reinhold in his property appraisals 
would have caused the loans to be less secure immediately.  As acknowledged 
during oral argument, but for the appraisal, the loan would not have been made on 
the same terms that it was.  Any cause of action for negligence accrued on the 
date of the appraisal, and the four-year statute of limitations began to run then.  
Because Flagstar’s complaint was not filed within four years of the completed 
appraisals, its claims were barred by the statute of limitations in R.C. 2305.09. 
Conclusion 
{¶ 31} Based on the foregoing, we answer the certified question by 
holding that a cause of action for professional negligence against a property 
appraiser accrues on the date that the negligent act is committed and the four-year 
statute of limitations commences on that date.  The judgment of the Hamilton 
County Court of Appeals is affirmed. 
Judgment affirmed. 
 
O’CONNOR, C.J., and LUNDBERG STRATTON, CUPP, and MCGEE BROWN, 
JJ., concur. 
 
PFEIFER and O’DONNELL, JJ., concur in judgment only. 
__________________ 
 
Thompson Hine, L.L.P., Scott A. King, and Terry W. Posey Jr., for 
appellant. 
 
Crabbe, Brown & James, L.L.P., Brian E. Hurley, and Robert J. Gehring, 
for appellee. 
 
Amer Cunningham Co., L.P.A., and Thomas R. Houlihan, urging reversal 
for amicus curiae Ohio Association for Justice. 
January Term, 2011 
13 
 
 
Baker & Hostetler, L.L.P., John H. Burtch, and Gregory R. Flax, urging 
affirmance for amicus curiae Ohio Association of Realtors. 
 
Montgomery, Rennie & Jonson, Ralph E. Burnham, and Matthew E. 
Stubbs, urging affirmance for amicus curiae Pamela J. Lawrentz. 
______________________