Court Opinion

ID: 2738412
Source: CourtListenerOpinion
Date Created: 2014-09-30 19:06:00.417842+00
Date Added: 2024-06-11T12:31:26.624750
License: Public Domain

[Cite as Natl. Collegiate Student Loan Trust 2003-1 v. Beverly, 2014-Ohio-4346.]

                             IN THE COURT OF APPEALS OF OHIO
                                 SIXTH APPELLATE DISTRICT
                                      HURON COUNTY

National Collegiate Student Loan                            Court of Appeals No.       H-13-010
Trust 2003-1, et al.                                                                   H-13-011

        Appellees                                           Trial Court No.        CVH 20120334
                                                                                   CVH 20120918
v.

Adam Beverly, et al.                                        DECISION AND JUDGMENT

        Appellants                                          Decided: September 30, 2014

                                                  *****

        Eric Wasserman, for appellees.

        Gregory S. Reichenbach, for appellants.

                                                  *****

        PIETRYKOWSKI, J.

        {¶ 1} We consider two appeals brought by Adam and Linda Beverly that are

consolidated for proceedings in this court, appellate case Nos. H-13-010 and H-13-011.

Appellants appeal April 22, 2013 judgments of the Huron County Court of Common
Pleas that denied, in both cases, their Civ.R. 60(B) motions to vacate default judgments

against them. The National Collegiate Student Loan Trust 2003-1 (“2003 Trust”) is

appellee in appeal No. H-13-010 (common pleas case No. CvH 2012 0334). The

National Collegiate Student Loan Trust 2006-1 (“2006 Trust”) is appellee in appeal No.

H-13-011 (common pleas case No. CvH 2012 0918). Both cases concern student loans.

                                    Appeal H-13-010

       {¶ 2} Appeal H-13-010 concerns a student loan made by Bank One, N.A. to Adam

Beverly in September 2003. Adam’s mother, Linda Beverly, acted as cosigner on the

loan. On April 16, 2012, the 2003 Trust filed a complaint in the trial court alleging that

appellants failed to pay the promissory note on the loan according to the terms and

conditions of the loan. The complaint does not allege that the 2003 Trust has any interest

in the loan, whether by assignment or any other means. The 2003 loan promissory note is

attached as an exhibit to the complaint. The note makes no reference to the 2003 Trust

and identifies Bank One N.A. as the lender.

                                    Appeal H-13-011

       {¶ 3} Appeal H-13-011 concerns a student loan made by JPMorgan Chase Bank,

N.A. to Adam Beverly in December 2005. Linda Beverly also cosigned this loan. On

October 18, 2012, the 2006 Trust filed a complaint alleging that appellants failed to pay

the promissory note on the loan according to the terms and conditions of the loan. The

complaint did not allege that the 2006 Trust held any interest in the loan whether by

2.
assignment or any other means. The 2005 loan promissory note is attached as an exhibit

to the complaint. The note makes no reference to the 2006 Trust and identifies JPMorgan

Chase Bank, N.A. as the lender.

                                    Default Judgments

       {¶ 4} Appellants did not file answers to either complaint. The Trusts filed motions

for default judgment in both cases. The trial court granted the 2003 Trust default

judgment against appellants in the H-13-010 case on June 25, 2012. In the judgment the

court awarded the trust damages of $43,713.22, accrued interest of $5,017.42 through

April 4, 2012, and interest at a variable interest rate from April 5, 2012.

       {¶ 5} The trial court granted the 2006 Trust default judgment against appellants in

the H-13-011case on January 11, 2013. In the judgment, the court awarded damages of

$16,165.21, plus accrued interest of $1,964.41, and interest at the rate of 3 percent on

$16,165.21 from the date of judgment.

       {¶ 6} Appellants filed Civ.R. 60(B) motions for relief from judgment in both cases

on March 28, 2013, and submitted affidavits of both appellants in support of the motions.

Appellees opposed both motions and submitted additional documents with their

opposition briefs. Appellees claim that the documents establish that the promissory notes

on the loans were assigned to the respective trusts prior to the filing of the complaints in

both cases.

3.
       {¶ 7} On April 22, 2013, the trial court, without opinion, denied both motions for

relief from judgment. Appellants timely appealed the trial court judgments to this court.

We ordered the two case consolidated for proceedings before this court on June 4, 2013.

       {¶ 8} Appellants assert one assignment of error, applicable to both appeals:

                                   Assignment of Error

              1. The trial court erred by denying Defendant-Appellants’ motions

       for relief from judgment.

       {¶ 9} Under assignment of error No. 1, appellants argue that the trial court erred in

denying the motions for relief from judgment on two grounds. First, appellants argue that

appellees lacked standing to assert the claims for breach of the student loans and that the

trial court lacked subject matter jurisdiction over the claims. Second, appellants argue

that they are entitled to relief from the judgments pursuant to Civ.R. 60(B) and that the

trial court abused its discretion in overruling the motions.

       {¶ 10} We consider the issues of subject matter jurisdiction and standing first.

Review on appeal of a challenge to the subject matter jurisdiction of a trial court is

conducted de novo. Biro v. Biro, 6th Dist. Ottawa No. OT-10-017, 2010-Ohio-5169, ¶ 7.

“Whether established facts confer standing to assert a claim is a matter of law. We

review questions of law de novo.” Portage Cty. Bd. of Commrs. v. Akron, 109 Ohio

St.3d 106, 2006-Ohio-954, 846 N.E.2d 478, ¶ 90; see Bank of Am., N.A. v. Pasqualone,

10th Dist. Franklin No. 13AP-87, 2013-Ohio-5795, ¶ 15

4.
                                        Schwartzwald

       {¶ 11} Appellants base their arguments of lack of subject matter jurisdiction and

lack of standing to bring suit for non-payment of the student loans on the Ohio Supreme

Court’s decision in Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13,

2012-Ohio-5017, 979 N.E.2d 1214. In Schwarzwald, the plaintiff filed a foreclosure

action while lacking an interest in the note or mortgage at the time it filed suit. Id. at ¶ 2.

       {¶ 12} In Schwartzwald, the Ohio Supreme Court held that where a plaintiff who

has filed a foreclosure action “fails to establish ‘an interest in the note or mortgage at the

time it filed suit, it [has] no standing to invoke the jurisdiction of the common pleas

court.’” Sovereign Bank v. Flood, 6th Dist. Erie No. E-11-072, 2013-Ohio-725, ¶ 12,

quoting Schwartzwald at ¶ 28. The court held that lack of standing at the commencement

of a foreclosure action cannot be cured by subsequently obtaining an interest in the note

or mortgage. Schwartzwald at ¶ 39. Under the decision, “lack of standing at the

commencement of a foreclosure action requires dismissal of the complaint * * * without

prejudice.” Id. at ¶ 40.

       {¶ 13} The decision in Schwartzwald is based upon the proposition that “‘[i]t is an

elementary concept of law that a party lacks standing to invoke the jurisdiction of the

court unless he has, in an individual or representative capacity, some real interest in the

subject matter of the action.’” Id. at ¶ 22, quoting State ex rel. Dallman v. Franklin Cty.

Court of Common Pleas, 35 Ohio St.2d 176, 179, 298 N.E.2d 515 (1973).

5.
                                           Standing

       {¶ 14} Appellants contend, under Schwarzwald, appellees lack standing to assert

claims arising from the student loans. Both Trusts opposed the motions for relief from

judgment and claimed that the notes had in fact been assigned to them before the

complaints were filed. Appellees submitted with their opposition briefs additional

documents they claim show the assignments.

       {¶ 15} We agree with appellants’ contention that the complaints were deficient

and under Schwarzwald failed to state a claim upon which relief could be granted.

However, the failure to allege an interest in a loan in a complaint does not in itself

establish lack of standing in an action:

              A plain reading of Schwartzwald reveals that the focus of the

       decision centered on what needed to be proven, not when. The question

       presented was “whether a lack of standing at the commencement of a

       foreclosure action filed in a common pleas court may be cured by obtaining

       an assignment of a note and mortgage sufficient to establish standing prior

       to the entry of judgment.” Schwartzwald, 134 Ohio St.3d 13, 2012–Ohio–

       5017, 979 N.E.2d 1214 at ¶ 19. In resolving this question, Schwartzwald

       held that a plaintiff in a foreclosure action must in fact possess standing at

       the time the complaint is filed, and cannot later gain standing through a

       subsequent assignment of the note and mortgage. Id. at ¶ 41–42, 979

       N.E.2d 1214.

6.
                Notably, while a foreclosure plaintiff must allege sufficient facts in

       its complaint to demonstrate that it has standing, Schwartzwald does not

       stand for the proposition that a foreclosure plaintiff must definitively prove

       in its complaint that it has standing. (Emphasis in the origninal.) Bank of

       Am., N.A. v. Hafford, 6th Dist. Sandusky No. S-13-021, 2014-Ohio-739, ¶

       13-14.

       {¶ 16} Stated differently, “[a]lthough a party must prove that it had standing when

the foreclosure complaint was filed, such proof may be provided after the filing of the

complaint.” Wells Fargo Bank, N.A. v. Odita, 10th Dist. Franklin No. 13AP-663, 2014-

Ohio-2540, ¶ 9, citing Bank of New York Mellon v. Watkins, 10th Dist. Franklin No.

11AP-539, 2012-Ohio-4410, ¶ 18.

       {¶ 17} These cases demonstrate that appellees’ failure to allege standing in the

complaints alone does not establish lack of standing on the merits.

                                    Claimed Assignments

       {¶ 18} Appellants argue that the documents were unauthenticated and

inadmissible as evidence on the issue. They argue further that the documents do not

establish assignment of the loans to the Trusts.

       {¶ 19} Appellants did not raise any objection to the admissibility of the claimed

assignment documents in the trial court. Generally a failure to object in the trial court to

the admission of evidence in a civil case waives the right to raise the issue on appeal.

7.
Jacobsen v. Jacobsen, 7th Dist. Mahoning No. 03 MA 3, 2004-Ohio-3045, ¶ 11; see

Goldfuss v. Davidson, 79 Ohio St.3d 116, 679 N.E.2d 1099 (1997), syllabus.

       {¶ 20} The documents submitted by appellees, however, do not establish

assignment of the loans to appellees. The documents in both cases refer to the

assignment of “each student loan set forth on the attached Schedule 2.” The Schedule 2

document, however, was not included in the documents filed by appellees with the trial

court in either case. Without the schedule, we cannot determine whether the assignments

applied to these specific loans.

       {¶ 21} The purported assignment of the September 2005 loan to the 2006 Trust is

in fact an assignment to another entity—The National Collegiate Funding LLC.

According to the document, the other entity agreed that it “in turn will sell the

Transferred Bank One Loans to” the 2006 Trust. (Emphasis added.) Appellees

submitted no affidavit or other evidence showing that the contemplated assignment of the

loan note to the 2006 Trust occurred.

       {¶ 22} Accordingly, although the pleadings fail to allege facts demonstrating

standing and a right to relief against appellants on either loan, the record is insufficient to

determine standing on the merits. Resolution of the standing issue, however, is

unnecessary to establish subject matter jurisdiction in these cases.

                                Subject Matter Jurisdiction

       {¶ 23} Appellants argue that the default judgments in both cases are void for lack

of subject matter jurisdiction and that the trial court erred in failing to grant relief from

8.
the judgments on that basis. Appellants assert that the trial court held inherent authority

to vacate void judgments and that the requirements of Civ.R. 60(B) do not apply for relief

from judgment on subject matter jurisdiction grounds.

       {¶ 24} The Tenth and Eleventh District Courts of Appeals have both addressed the

issue of whether lack of standing under Schwartzwald analysis establishes a lack of

subject matter jurisdiction for a trial court to proceed in a case. Both courts held that

although the Ohio Supreme Court discussed lack of standing in Schwartzwald in

jurisdictional terms, lack of standing under Schwartzwald does not deprive a trial court of

subject matter jurisdiction. Bank of New York Mellon v. Williams, 10th Dist. Franklin

No. 13AP-499, 2014-Ohio-3737, ¶ 9; HSBC Bank USA, Natl. Assn. v. Bailey, 11th Dist.

Trumbull No. 2012-T-0086, 2014-Ohio-246, ¶ 25. Both courts ruled that lack of standing

under Schwartzwald for a plaintiff to seek relief in a case renders a judgment awarding

relief voidable, not void. Williams at ¶ 9; HSBC Bank USA at ¶ 25.

       {¶ 25} The decisions rely on the analysis of subject matter jurisdiction provided by

the Ohio Supreme Court in Pratts v. Hurley, 102 Ohio St.3d 81, 2004-Ohio-1980, 806

N.E.2d 992. In the case, the Ohio Supreme Court recognized “[t]here is a distinction

between a court that lacks subject-matter jurisdiction over a case and a court that

improperly exercises that subject-matter jurisdiction once conferred upon it.” Id. at ¶ 10.

       {¶ 26} The Pratts court explained the distinction:

              “Jurisdiction” means “the courts’ statutory or constitutional power to

       adjudicate the case.” (Emphasis omitted.) Steel Co. v. Citizens for a Better

9.
      Environment (1998), 523 U.S. 83, 89, 118 S.Ct. 1003, 140 L.Ed.2d 210;

      Morrison v. Steiner (1972), 32 Ohio St.2d 86, 87, 61 O.O.2d 335, 290

      N.E.2d 841, paragraph one of the syllabus. The term encompasses

      jurisdiction over the subject matter and over the person. State v. Parker, 95

      Ohio St.3d 524, 2002–Ohio–2833, 769 N.E.2d 846, ¶ 22 (Cook, J.,

      dissenting). Because subject-matter jurisdiction goes to the power of the

      court to adjudicate the merits of a case, it can never be waived and may be

      challenged at any time. United States v. Cotton (2002), 535 U.S. 625, 630,

      122 S.Ct. 1781, 152 L.Ed.2d 860; State ex rel. Tubbs Jones v. Suster

      (1998), 84 Ohio St.3d 70, 75, 701 N.E.2d 1002. It is a “condition precedent

      to the court’s ability to hear the case. If a court acts without jurisdiction,

      then any proclamation by that court is void.” Id.; Patton v. Diemer (1988),

      35 Ohio St.3d 68, 518 N.E.2d 941, paragraph three of the syllabus.

             The term “jurisdiction” is also used when referring to a court’s

      exercise of its jurisdiction over a particular case. See State v. Parker, 95

      Ohio St.3d 524, 2002–Ohio–2833, 769 N.E.2d 846, ¶ 20 (Cook, J.,

      dissenting); State v. Swiger (1998), 125 Ohio App.3d 456, 462, 708 N.E.2d

      1033. “‘The third category of jurisdiction [i.e., jurisdiction over the

      particular case] encompasses the trial court’s authority to determine a

      specific case within that class of cases that is within its subject matter

      jurisdiction. It is only when the trial court lacks subject matter jurisdiction

10.
       that its judgment is void; lack of jurisdiction over the particular case merely

       renders the judgment voidable.’” Parker at ¶ 22 (Cook, J., dissenting),

       quoting Swiger, 125 Ohio App.3d at 462, 708 N.E.2d 1033. “Once a

       tribunal has jurisdiction over both the subject matter of an action and the

       parties to it, ‘* * * the right to hear and determine is perfect; and the

       decision of every question thereafter arising is but the exercise of the

       jurisdiction thus conferred * * *.’” State ex rel. Pizza v. Rayford (1992), 62

       Ohio St.3d 382, 384, 582 N.E.2d 992, quoting Sheldon’s Lessee v. Newton

       (1854), 3 Ohio St. 494, 499. Id. at ¶ 11-12.

       {¶ 27} We find the analysis of the issue by the Tenth and Eleventh Districts

persuasive and adopt it. We conclude that the trial court held subject matter jurisdiction

in both actions regardless of whether appellees lacked standing under Schwartzwald to

assert claims for breach of the student loans.

       {¶ 28} We also agree with the Tenth and Eleventh Districts that lack of standing

under Schwartzwald for a plaintiff to seek relief in a case renders a judgment awarding

relief voidable, not void. We conclude that appellants’ claims that the trial court

judgments are void for lack of subject matter jurisdiction on Schwartzwald grounds are

without merit.

                        Denial of Motions for Civ.R. 60(B) Relief

       {¶ 29} We review trial court judgments granting or denying relief from judgments

under Civ.R. 60(B) on an abuse of discretion standard. Griffey v. Rajan, 33 Ohio St.3d

11.
75, 77, 514 N.E.2d 1122 (1987). An abuse of discretion connotes that the trial court’s

attitude was unreasonable, arbitrary, or unconscionable. Blakemore v. Blakemore, 5 Ohio

St.3d 217, 219, 450 N.E.2d 1140 (1983).

      {¶ 30} Civ.R. 60(B) provides for relief from a judgment or order:

             (B) Mistakes; inadvertence; excusable neglect; newly discovered

      evidence; fraud; etc.

             On motion and upon such terms as are just, the court may relieve a

      party or his legal representative from a final judgment, order or proceeding

      for the following reasons: (1) mistake, inadvertence, surprise or excusable

      neglect; (2) newly discovered evidence which by due diligence could not

      have been discovered in time to move for a new trial under Rule 59(B); (3)

      fraud (whether heretofore denominated intrinsic or extrinsic),

      misrepresentation or other misconduct of an adverse party; (4) the judgment

      has been satisfied, released or discharged, or a prior judgment upon which

      it is based has been reversed or otherwise vacated, or it is no longer

      equitable that the judgment should have prospective application; or (5) any

      other reason justifying relief from the judgment. The motion shall be made

      within a reasonable time, and for reasons (1), (2) and (3) not more than one

      year after the judgment, order or proceeding was entered or taken. A

      motion under this subdivision (B) does not affect the finality of a judgment

      or suspend its operation.

12.
       {¶ 31} The Ohio Supreme Court has identified what is required to prevail on a

Civ.R. 60(B) motion for relief from judgment. The movant must demonstrate:

              (1) the party has a meritorious defense or claim to present if relief is

       granted; (2) the party is entitled to relief under one of the grounds stated in

       Civ.R. 60(B)(1) through (5); and (3) the motion is made within a reasonable

       time, and, where the grounds of relief are Civ.R. 60(B)(1), (2) or (3), not

       more than one year after the judgment, order or proceeding was entered or

       taken. GTE Automatic Elec., Inc. v. ARC Industries, Inc., 47 Ohio St.2d

       146, 351 N.E.2d 113 (1976), paragraph two of the syllabus.

       {¶ 32} Civ.R. 60(B) relief will be denied where the movant fails to satisfy any of

the requirements under the GTE standard. Argo Plastic Products. Co. v. Cleveland, 15

Ohio St.3d 389, 391, 474 N.E.2d 328 (1984).

                                   Meritorious Defense

       {¶ 33} Civ.R. 8(D) provides that “[a]verments in a pleading to which a responsive

pleading is required, other than those as to the amount of damage, are admitted when not

denied in the responsive pleading.” The complaints in both cases, however, did not

allege that respective Trust had a right to relief against appellants based upon breach of

the student loan contracts.

       {¶ 34} Appellants contend that the default judgments were contrary to law because

the complaints failed to state a claim upon which relief could be granted. We agree.

Here the failure to respond to the complaint created no admission upon which a judgment

13.
granting affirmative relief could be based. Furthermore, under Schwartzwald, the

complaints failed to set forth facts upon which appellees had standing to assert claims

under either loan.

       {¶ 35} The grant of default judgment against a defendant where the complaint fails

to state a claim upon which relief can be granted is contrary to law and presents a

meritorious defense to the judgment for purposes of Civ.R. 60(B) relief. See Mercy

Franciscan Hosp. v. Willis, 1st. Dist. Hamilton No. C-030914, 2004-Ohio-5058, ¶ 6;

Michael D. Tully Co., L.P.A. v. Dollney, 42 Ohio App.3d 138, 140-141, 537 N.E.2d 242

(9th Dist.1987).

                        Entitlement to Relief Under Civ.R. 60(B)

       {¶ 36} The next element under GTE for relief from judgment under Civ.R. 60(B)

is demonstration of a right to relief under one of the grounds stated in Civ.R. 60(B)(1)

through (5). We consider first appellants’ contention that their affidavits demonstrate an

entitlement to relief under Civ.R. 60(B)(1) due to excusable neglect.

       {¶ 37} According to the affidavits, appellants hired a debt negotiation company,

Student Loan Relief Organization (“SLRO”) to negotiate payment arrangements for both

student loans, prior to being served in either case. Linda Beverly states by affidavit that

she called SLRO contact person at SLRO immediately upon receipt of the summons and

complaint in the first case (case No. H-13-010) on April 20, 2012. The contact person

told her to fax him a copy of the complaint and the he would “take care of it.” In their

affidavits, both appellants state that they initially thought SLRO would handle to lawsuit.

14.
       {¶ 38} Linda Beverly also stated in her affidavit that after reporting the lawsuit she

had not heard from SLRO for several weeks. She contacted them again. Her contact

person informed her that he had attempted to reach the plaintiff’s attorney but was

unsuccessful. In the conversation, the contact stated that it appeared that SLRO would be

unable to accomplish anything on the 2003 loan.

       {¶ 39} Less than a week later, Ms. Beverly made the first of a series of calls

herself to the law firm representing appellees. Her requests to speak to speak to the

attorney representing appellees were refused. Adam Beverly also attempted to speak to

the appellees’ attorney with the same result.

       {¶ 40} Both were instructed to speak to a person at the firm named Cathy, who

handled garnishments at the firm. Initially, Cathy refused to speak to either Adam or

Linda Beverly, stating that she could not speak with them because of a power of attorney

they had signed for SLRO to act on their behalf. According to the affidavits, appellees

stopped working with SLRO to get Cathy to speak with them. Even then, their

discussions with Cathy reached no agreement.

       {¶ 41} The lawsuit on the 2005 loan was filed on October 18, 2012. Ms. Beverly

admitted in her affidavit that when she was served with the second lawsuit “I thought

there was nothing I could do, based on everything that happened in the first case.” Her

son continued to make phone calls to appellees’ attorney’s office on both their behalves

concerning both loan accounts.

15.
       {¶ 42} Ms. Beverly stated in her affidavit that after she was served with the

complaint in the second case, she also attempted to speak directly to individuals at the

National Collegiate Student Loan Trust. According to her affidavit, Ms. Beverly spoke to

several people who could not find any record of the loans. Those persons provided other

phone numbers to call. Ms. Beverly states in her affidavit that she was unable to find

someone from National Collegiate Student Loan Trust who could help.

       {¶ 43} Appellees did not file any affidavits or other evidentiary material in the

trial court disputing facts asserted by appellants.

       {¶ 44} In Hai v. Flower Hosp., 6th Dist. Lucas No. L-07-1423, 2008-Ohio-5295, ¶

21, we considered a definition for the term excusable neglect:

              The general definition of excusable neglect is some action “‘not in

       consequence of the party’s own carelessness, inattention, or willful

       disregard of the process of the court, but in consequence of some

       unexpected or unavoidable hindrance or accident.’” Vanest v. Pillsbury Co.

       (1997), 124 Ohio App.3d 525, 536 fn. 8, 706 N.E.2d 825, quoting Black’s

       Law Dictionary (6 Ed.1990) 566. Courts generally find excusable neglect

       in those instances where there are “unusual or special circumstances” that

       justify the neglect of a party or her attorney. Id. at 536, 706 N.E.2d 825

       (citations omitted).

       {¶ 45} In Colley v. Bazell, 64 Ohio St.2d 243, 416 N.E.2d 605 (1980), the Ohio

Supreme Court, reviewing case law from other jurisdictions, recognized that “[g]enerally,

16.
a default judgment is vacated upon motion where a defaulting party has notified his

insurer of the commencement of the suit and has relied, to his detriment, on its

undertaking to defend.” Id. at 247. The court outlined its inquiry in determining

excusable neglect where the defendant notified his insurer of suit and relied on the carrier

to defend:

              Assuming, arguendo, that the defendant’s failure to check, by the

       date the default judgment was granted, on the question of whether his

       carrier had filed an answer or a similar responsive pleading constituted

       neglect, the next inquiry is whether that neglect was excusable or

       inexcusable. That inquiry must of necessity take into consideration all the

       surrounding facts and circumstances. Among such circumstances is

       whether the defendant promptly notified his carrier of the litigation. A

       second circumstance is the lapse of time between the last day for the filing

       of a timely answer and the granting of the default judgment. A third

       circumstance is the amount of the judgment granted. A fourth, but not

       decisive, circumstance is the experience and understanding of the defendant

       with respect to litigation matters. (Footnotes omitted.) Id. at 248.

       {¶ 46} Such an analysis has been applied in other contexts not involving

insurance. The Tenth District Court of Appeals upheld a finding of excusable neglect in

circumstances not involving reliance on an insurer to provide a legal defense. In the case

Estate of Orth v. Inman, 10th Dist. Franklin No. 99AP-504, 2002-Ohio-3728, ¶ 5, two

17.
defendants mistakenly believed an attorney, who had been attempting to negotiate a

settlement on behalf of all the defendants, was representing their interests in the case.

The court of appeals affirmed a trial court’s grant of Civ.R. 60(B)(1) relief finding that

the failure to respond to the complaint was not willful and did not demonstrate a total

disregard for the judicial system. Id. at ¶ 28-30.

       {¶ 47} The record shows that service of the complaint in the 2003 student loan

case occurred by certified mail on both appellants on April 20, 2012. Under Civ.R.

12(A), appellants were required to serve their answers to the complaint by May 18, 2012.

The trial court granted default judgment against appellants on June 25, 2012. The default

judgment awarded the 2003 Trust damages of $43,713.22, accrued interest of $5,017.42

through April 4, 2012, and interest at a variable interest rate from April 5, 2012. The

defendants are inexperienced and unknowledgeable as to litigation matters.

       {¶ 48} “[T]he inaction of a defendant is not ‘excusable neglect’ if it can be labeled

as a “complete disregard for the judicial system.’” Kay v. Marc Glassman, Inc., 76 Ohio

St.3d 18, 20, 665 N.E.2d 1102 (1996), quoting, GTE Automatic, 47 Ohio St.2d at 153,

351 N.E.2d 113.

       {¶ 49} Although SLRO is not an insurer, the reliance by appellants on SLRO was

not willful or undertaken in a complete disregard for the judicial system or appellee’s

rights. See Estate of Orth v. Inman, 10th Dist. Franklin No. 99AP-504, 2002-Ohio-3728,

¶ 28. In Colley, the Ohio Supreme Court recognized that Civ.R. 60(B)(1) is a “remedial

rule to be liberally construed.” Colley, 64 Ohio St.2d at 248, 416 N.E.2d 605.

18.
       {¶ 50} With respect to the 2003 student loan litigation, we conclude that under all

the circumstances excusable neglect was shown by appellants by their faxing a copy of

the complaint to SLRO on the day of service of the complaint upon them and their

reliance on an assurance by SLRO that the company would “take care of it.”

       {¶ 51} With respect to the 2005 student loan case, H-13-011, the record does not

demonstrate excusable neglect for the failure to file answers to the complaint. Appellants

did not forward a copy of the complaint to SLRO and appellants’ inaction cannot be

attributed to any belief that SLRO would defend the action. By the time the second

litigation was filed, appellants knew that the company would not defend the case.

       {¶ 52} We conclude that appellants have not established grounds for relief due to

excusable neglect with respect to the 2005 student loan case. However, we also conclude

that grounds for relief under Civ.R. 60(B)(5) does exist.

       {¶ 53} Both the Eleventh and Ninth District Courts of Appeals have held that

grant of a default judgment on a complaint that fails to state a claim upon which relief

can be granted presents a basis for relief under Civ.R. 60(B)(5). Student Loan Marketing

Assn. v. Karnavas, 11th Dist. Trumbull No. 92-T-4718, 1993 WL 164709, *2 (May 14,

1993); Michael D. Tully Co., L.P.A, 42 Ohio App.3d at 141, 537 N.E.2d 242.

       {¶ 54} In Student Loan Marketing Assn. v. Karnavas, the Eleventh District Court

of Appeals considered very similar facts to those presented in these cases:

              There are substantial grounds for invoking Civ.R. 60(B)(5) in this

       case. As previously discussed, appellee filed the complaint in this action,

19.
       in its own name, on notes payable to another party. No assignment of the

       notes was alleged or proven. Thus, appellee’s complaint failed to state a

       cause of action against appellant. Zwick, 103 Ohio App. at 84. It is well

       established that “a default judgment on a complaint which fails to state a

       claim should not be upheld.” Michael D. Tully Co., L.P.A. v. Dollney

       (1987), 42 Ohio App.3d 138, 141, citing Buckeye Supply Co. v. Northeast

       Drilling Co. (1985), 24 Ohio App.3d 134, American Bankers Ins. Co. v.

       Leist (1962), 117 Ohio App. 20. Thus relief pursuant to Civ.R. 60(B)(5) is

       appropriate. Karnavas at *2.

       {¶ 55} In Tully, the plaintiff was an attorney who had represented the defendants

in a personal injury action on a contingent fee basis. After rejecting a settlement offer,

the defendants hired a different attorney to handle the case. The dismissed attorney filed

suit against his former clients for expenses incurred in prosecuting the personal injury

claim and for compensation in an amount of one-third of the rejected settlement offer.

The court granted the attorney default judgment in the amount of $5,791.84 after the

defendants failed to file an answer to the complaint.

       {¶ 56} In Tully, the Ninth District Court of Appeals ruled that there were

substantial grounds in the case to invoke Civ.R. 60(B)(5) relief. The court held:

              We are mindful that relief from a default judgment pursuant to

       Civ.R. 60(B)(5) should be granted judiciously. However, we find that in

       the instant case, there are substantial grounds for invoking Civ.R. 60(B)(5).

20.
         We have determined that Tully’s complaint does not state a claim upon

         which relief can be granted. A default judgment on a complaint which fails

         to state a claim should not be upheld. Buckeye Supply Co. v. Northeast

         Drilling Co. (1985), 24 Ohio App.3d 134, 24 OBR 206, 493 N.E.2d 964;

         American Bankers Ins. Co. v. Leist (1962), 117 Ohio App. 20, 22 O.O.2d

         455, 189 N.E.2d 456. Moreover, it is against public policy to permit a

         lawyer to recover $5,333.34 on a contingent fee basis when the client may

         never recover any compensation at all. Tully, 42 Ohio App.3d at 141, 537

         N.E.2d 242.

         {¶ 57} The Tenth District Court of Appeals, however, has held that failure of the

complaint to state a claim upon which relief can be granted alone generally does not in

itself present a basis for Civ.R. 60(B)(5) grounds for relief from judgment. Lopez v.

Quezada, 10th District Franklin Nos. 13AP-389 and 13AP-664, 2014-Ohio-367, ¶ 36,

quoting Taris v. Jordan, 10th Dist. Franklin No. 95APE08-1075, 1996 WL 69717, *4

(Feb. 20, 1996). The court distinguished the Tully case on the ground that the default

judgment in Tully was found to be against public policy as it awarded a lawyer judgment

on a contingent fee contract when the client may never recover any compensation. Taris

at *4.

         {¶ 58} Unlike the decisions in Lopez and Taris, these appeals involve default

judgments on complaints that not only failed to state a claim upon which relief could be

granted, but also failed to allege facts sufficient under Schwartzwald to demonstrate

21.
standing of the plaintiff to invoke the jurisdiction of the court to maintain suit. We

concur with the Eleventh District Court of Appeals in Student Loan Marketing Assn. v.

Karnavas that such default judgments present a substantial basis for relief under Civ.R.

60(B)(5).

       {¶ 59} We conclude that appellants established an entitlement to Civ.R. 60(B)(5)

relief from the default judgments with respect to both the 2003 and 2005 student loans.

While excusable neglect is an element for relief under Civ.R. 60(B)(1), it is not an

element for Civ.R. 60(B)(5) relief.

                                        Timeliness

       {¶ 60} The final element under GTE for Civ.R. 60(B)(1) relief is the requirement

that the motion for relief from judgment be brought within a reasonable time and not

more than one year after the trial court entered judgment. Both motions for Civ.R. 60(B)

relief from judgment were filed within a year of the judgments for which relief is sought.

Whether a Civ.R. 60(B) motion for relief from judgment was filed within a reasonable

time is determined on a case by case basis, considering all the circumstances. Williams v.

Wilson-Walker, 8th Dist. Cuyahoga No. 95392, 2011-Ohio-1805, ¶ 15.

       {¶ 61} In the 2003 student loan case, appellants acted promptly upon filing the

complaint to secure the assistance of SLRO to represent their interests. Upon SLRO’s

instructions, they faxed a copy of the complaint to it, under an assurance that the

company would “take care of it.” Appellants learned only several weeks later that SLRO

would be of no assistance in defense of the case.

22.
      {¶ 62} Upon learning that SLRO would be of no assistance, appellants pursued

direct contact with attorney for appellants. Contact with appellees’ counsel was also

delayed. Appellants were unable to speak with appellees’ counsel. Because of a letter of

attorney previously provided SLRO to act on appellants’ behalf on the loans, discussions

with the person at the law firm to whom they were directed were delayed.

      {¶ 63} The motion for relief from judgment was filed in the case approximately

nine months after default judgment was granted. Given these circumstances, we

conclude that appellants’ Civ.R. 60(B) motion for relief from judgment was filed within a

reasonable time.

      {¶ 64} Default judgment in the 2005 loan case was granted on January 11, 2013,

and the motion for relief from the judgment was filed on March 28, 2013, within two and

one half months after default judgment was entered. We conclude that the motion for

default judgment in the 2005 loan case was also filed within a reasonable time.

      {¶ 65} Appellants have established the elements under GTE for Civ.R. 60(B) relief

from the default judgments. We conclude that the trial court abused its discretion in

denying appellants’ Civ.R. 60 (B) motions for relief from judgment in both case No. H-

13-010 and case No. H-13-011.

      {¶ 66} We find appellants’ assignment of error well-taken.

      {¶ 67} We reverse the April 22, 2013 judgment of the Huron County Court of

Common Pleas in both case No. H-13-010 and case No. H-13-011 that denied appellants’

Civ.R. 60(B) motions for relief from judgment.

23.
       {¶ 68} In case No. H-13-010, we grant the Civ.R. 60(B) motion for relief from the

June 25, 2012 default judgment and vacate the default judgment. In case No. H-13-011,

we grant appellants’ Civ.R. 60(B) motion for relief from the January 11, 2013 default

judgment and vacate the default judgment. We remand both cases to the Huron County

Court of Common Pleas for further proceedings. We order appellees to pay the costs of

their respective appeals pursuant to App.R. 24.

                                                                      Judgments reversed.

       A certified copy of this entry shall constitute the mandate pursuant to App.R. 27.
See also 6th Dist.Loc.App.R. 4.

Mark L. Pietrykowski, J.                       _______________________________
                                                           JUDGE
Stephen A. Yarbrough, P.J.
                                               _______________________________
James D. Jensen, J.                                        JUDGE
CONCUR.
                                               _______________________________
                                                           JUDGE

           This decision is subject to further editing by the Supreme Court of
      Ohio’s Reporter of Decisions. Parties interested in viewing the final reported
           version are advised to visit the Ohio Supreme Court’s web site at:
                 http://www.sconet.state.oh.us/rod/newpdf/?source=6.

24.