Court Opinion

ID: 4399781
Source: CourtListenerOpinion
Date Created: 2019-05-23 14:41:46.521615+00
Date Added: 2024-06-11T14:52:21.938986
License: Public Domain

[Cite as Cleveland v. Capital Source Bank, 2019-Ohio-1990.]

                              COURT OF APPEALS OF OHIO

                             EIGHTH APPELLATE DISTRICT
                                COUNTY OF CUYAHOGA

CITY OF CLEVELAND,                                    :

                Plaintiff-Appellee,                   :
                                                              No. 107422
                v.                                    :

CAPITAL SOURCE BANK, FBO AEON :
FINANCIAL L.L.C., ET AL.
                              :

                Defendant-Appellant.                  :

                               JOURNAL ENTRY AND OPINION

                JUDGMENT: AFFIRMED
                RELEASED AND JOURNALIZED: May 23, 2019

                Civil Appeal from the Cleveland Municipal Housing Court
                               Case No. 2016-CVH 008988

                                           Appearances:

                Douglass and Associates Co., L.P.A., David M. Douglass,
                Sean F. Berney, Sandra A. Prebil, Michael E. Reardon, and
                Daniel J. Wodarczyk, for appellee.

                Weston Hurd, L.L.P., Steven L. Wasserman, and
                Shawn W. Maestle, for appellant.
MARY EILEEN KILBANE, A.J.:

              Defendant-appellant, Pacific Western Bank, successor by merger to

CapitalSource Bank (“PacWest”), appeals from the municipal court’s decision

granting summary judgment in favor of plaintiff-appellee, the city of Cleveland

(“City”). For the reasons set forth below, we affirm.

              In June 2016, the City, on behalf of the Department of Building and

Housing, filed a complaint in Cleveland Municipal Court, Housing Division, against

several defendants seeking to collect, under R.C. 715.261 and Cleveland Codified

Ordinance 3103.09(k) (“C.C.O. 3103.09”), costs it incurred for nuisance abatement

services performed at 28 properties located in the City. Relevant to this appeal, the

City sought to collect costs for the boarding up or demolition of four properties

(Properties 1, 3, 5, and 8) that the City alleges were owned by CapitalSource Bank

FBO Aeon Financial LLC. CapitalSource Bank (“CapitalSource”) is now known as

PacWest. In response, PacWest filed an answer, denying ownership of the four

properties.

              At the conclusion of discovery, both PacWest and the City filed

respective motions for summary judgment. PacWest argued that it never held title

or real property interest in any of the properties designated in the City’s complaint

because the use of the formulation “CapitalSource Bank FBO Aeon Financial, LLC”

made it a secured creditor, not the actual owner of properties. PacWest argued that

Aeon Financial, LLC (“Aeon”) was the actual titled owner of the four properties. The

City, on the other hand, argued that CapitalSource and later PacWest, as successor
by merger, was the titled owner of record and liable for the nuisance abatement

services.

              The municipal court granted summary judgment in favor the City,

finding that “the deeds made CapitalSource Bank the titled owner of the four

properties, not a secured creditor.” In a thorough opinion, the court stated:

      Pacific Western does not dispute that the City is entitled to recover its
      abatement costs relative to the subject properties from the titled
      owners of the properties. In the case of the costs to secure the
      properties from casual entry by boarding up the windows and doors,
      the City is entitled to recover those costs from the party who was the
      titled owner at the time the costs were incurred. R.C. 715.261. In the
      case of the cost to demolish condemned structures, the City is entitled
      to recover the costs from all owners in the chain of title from the date
      of the service of the notice of violations under C.C.O. 3103.09 until the
      demolition of the structure. C.C.O. 3103.09(k). What Pacific Western
      argues is that, as a matter of law, given the use of the formulation
      “CapitalSource Bank FBO Aeon Financial, LLC” to name the owner of
      the properties in the recorded deeds, it was never a titled owner of
      those properties, the formulation making it a secured creditor only and
      making Aeon Financial, LLC the titled owner.

      ***

      A “naming convention” would be a usage of language about which there
      is general agreement, a usage that is widespread and customary. If it
      was customary in the legal context, there would be legal authority to
      support it.

      If the naming convention is considered as a question of fact, Pacific
      Western has failed to identify any evidence tending to show that there
      is any such general agreement about the meaning of the formulation
      when used in Sheriff’s deeds in Ohio. Pacific Western has only
      identified evidence that a representative of CapitalSource understood
      and wished the company to be a secured creditor only and not a titled
      owner of properties taken through foreclosure based on tax certificates
      purchased by Aeon and held by CapitalSource. The understanding or
      intent of a bank executive does not change the legal meaning of a
      Sheriff’s deed.
Pacific Western cites to R.C. 5721.33 for the proposition that the
formulation “CapitalSource FBA Aeon Financial, LLC” is the
convention used to name a tax certificate holder when the holder is the
secured creditor of the tax certificate purchaser. It then argues that the
meaning of that formulation on the Sheriff’s deeds must have the same
meaning that it has in the context of tax certificates.

This argument fails for two reasons. First, a naming convention by
definition applies only where there is a general agreement about the
meaning of the convention. The convention of using “FBO” in the name
of a tax certificate holder has meaning only to the extent that county
treasury officials, lenders and tax certificate purchasers agree on what
it means. In another context — that of recorded deeds under Ohio law
— the formulation does not have an agreed-upon meaning and so does
not function in the same way.

Second, Pacific Western misstates the meaning of the convention in the
context of tax certificates. The naming convention means that a
secured creditor — in this case CapitalSource Bank — has become the
holder of a tax certificate because the purchaser of the tax certificate
directed the county to make the secured creditor the holder of the
certificate.

***

Under R.C. 5721.37, it is the certificate holder who can bring a
foreclosure action which shall be prosecuted until a sale of the property
or the “vesting of title and possession in the certificate holder.” R.C.
5721.37. Where the certificate holder is the secured creditor of the
purchaser, the secured creditor is thus the plaintiff in the foreclosure
and, in the absence of a sale at auction, is vested with title to the
property. The designation “CapitalSource FBO Aeon Financial, LLC”
thus meant that Aeon’s secured creditor, CapitalSource, became the
certificate holder, the foreclosure plaintiff, and then the titled owner of
the real property.

There seems to be no dispute that CapitalSource and Aeon agreed that
Aeon would eventually take title to the properties. But that result was
accomplished by quitclaim deeds from CapitalSource to Aeon, not by a
naming convention used by the Sheriff when preparing the deeds.
CapitalSource was therefore titled owner of the properties until it
deeded them to Aeon.
      A Maryland court reached the same conclusion concerning the
      meaning of the formulation “CapitalSource Bank FBO Aeon Financial,
      LLC.” In that case, CapitalSource, as the secured creditor of Aeon, had
      become the holder of a tax certificate purchased by Aeon, and then the
      plaintiff in a foreclosure with its name styled “CapitalSource Bank FBO
      Aeon Financial, LLC.” CapitalSource argued that it was not a party to
      the foreclosure, Aeon Financial being the real party in interest. The
      court disagreed. “There is nothing in the designation ‘FBO’ that makes
      Aeon the real party in interest and CapitalSource or CapitalSource FBO
      a non-party.” [CapitalSource Bank FBO Aeon Fin., LLC v. Sollers,
      Ct.Spec.App. No. 1210, 2016 Md.App LEXIS 626, *21-22 (June 18,
      2016)].

      ***

      The fact that CapitalSource executed deeds from itself to Aeon
      reinforces the conclusion that CapitalSource had title to the properties.
      If CapitalSource sought only to release secured interests, it could have
      recorded releases of those secured interests. Instead it executed
      quitclaim deeds that make no mention of any secured interest.

      Though the deeds do not include any warranty of title, they refer to real
      property to be conveyed. They also refer to consideration which is not
      necessary to the release of a secured interest. The deeds from the
      Sheriff to CapitalSource and from CapitalSource to Aeon are thus part
      of the chain of title for each property.

      Pacific Western does not dispute that the condemnation notices for the
      four properties were issued after the Sheriff’s deeds were recorded but
      before the quitclaim deeds to Aeon and that the costs to secure the
      properties from casual entry were incurred during that same time
      period. Thus, under C.C.O. 3103.09(k), CapitalSource is liable for the
      cost to secure the properties and jointly and severally liable for the
      City’s cost to demolish the condemned structures.

      Pacific Western does not dispute the amount of the City’s costs which
      include collection costs and attorney fees. The Court therefore grants
      judgment to the City in the amount of $20,089 with interest from the
      date of judgment.

              It is from this order that PacWest appeals, raising the following sole

assignment of error for review:
                                Assignment of Error

      The trial court erred in failing to determine that a material issue of fact
      existed as to whether CapitalSource Bank of Aeon Financial, LLC was
      the properties[’] actual owner.

               PacWest argues the court erred when it granted summary judgment

in favor of the City because the deeds did not transfer title to CapitalSource. Rather,

PacWest contends that the deeds transferred title to Aeon Financial, LLC subject to

a security interest in favor of CapitalSource, which was established by the use of the

words “CapitalSource Bank FBO Aeon Financial, LLC.”

               We review an appeal from summary judgment under a de novo

standard of review. Grafton v. Ohio Edison Co., 77 Ohio St. 3d 102, 105, 1996-Ohio-

336, 671 N.E.2d 241; Zemcik v. LaPine Truck Sales & Equip. Co., 124 Ohio App. 3d
581, 585, 706 N.E.2d 860 (8th Dist.1998). In Zivich v. Mentor Soccer Club, 82 Ohio

St.3d 367, 369-370, 1998-Ohio-389, 696 N.E.2d 201, the Ohio Supreme Court set

forth the appropriate test as follows:

               Pursuant to Civ.R. 56, summary judgment is appropriate when (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 nonmoving party, said party being

entitled to have the evidence construed most strongly in his favor. Horton v.

Harwick Chem. Corp., 73 Ohio St. 3d 679, 1995-Ohio-286, 653 N.E.2d 1196,

paragraph three of the syllabus. The party moving for summary judgment bears the

burden of showing that there is no genuine issue of material fact and that it is
entitled to judgment as a matter of law. Dresher v. Burt, 75 Ohio St. 3d 280, 292-

293, 1996-Ohio-107, 662 N.E.2d 264.

               Once the moving party satisfies its burden, the nonmoving party “may

not rest upon the mere allegations or denials of the party’s pleadings, but the party’s

response, by affidavit or as otherwise provided in this rule, must set forth specific

facts showing that there is a genuine issue for trial.” Civ.R. 56(E); Mootispaw v.

Eckstein, 76 Ohio St. 3d 383, 385, 1996-Ohio-389, 667 N.E.2d 1197. Doubts must be

resolved in favor of the nonmoving party. Murphy v. Reynoldsburg, 65 Ohio St. 3d
356, 358-359, 1992-Ohio-95, 604 N.E.2d 138.

                     Relationship between PacWest and Aeon

               In September 2009, CapitalSource and Aeon entered into a “Loan

and Security Agreement” (“Loan Agreement”) as agent lender and borrower,

respectively. The Loan Agreement stipulated that CapitalSource, along with other

lenders, would provide a revolving credit facility to Aeon in the maximum principal

amount of $30 million and, in exchange, Aeon would grant a security interest in

collateral to CapitalSource and the other lenders.

               In April 2014, PacWest and CapitalSource entered into an

“Agreement and Plan of Merger of CapitalSource Bank and Pacific Western Bank”

(“Merger Agreement”), effectively merging CapitalSource into PacWest. In Article

V of the Merger Agreement, PacWest assumed all liabilities of CapitalSource.

               During his deposition, J.T. Cook, III (“Cook”), Vice President of

CapitalSource testified that “CapitalSource Bank, FBO AEON Financial, LLC” was a
naming convention CapitalSource Bank required and “FBO” means “for benefit of.”

The “FBO” naming convention was to perfect CapitalSource’s security interest and

to give notice to third parties of its security interest.     Based on this naming

convention, PacWest argues CapitalSource was merely Aeon’s lender.

               However, the Loan Agreement between Aeon and CapitalSource

provides that CapitalSource was not only a lender, but in fact a collateral agent for

itself and for all other Lenders. Moreover, the grant of security interest and

collateral section of the Loan Agreement provides:

      (a) To secure the payment and performance of the Obligations,
      Borrower [Aeon] hereby grants to Agent [CapitalSource Bank] for
      benefit of itself and the other Lenders, a valid, perfected and continuing
      first priority * * * security interest in and Lien upon, and pledges to
      Agent, for benefit of itself and the other Lenders, all of its right, title
      and interest in and upon all of the following assets of Borrower, now
      owned or hereafter acquired:

      ***

      (iii) all right, title and interest of Borrower in and to the Underlying
      Real Property[.]

      (Emphasis added.)

               In addition, section 13.1(h) of the Loan Agreement provides that the

“Agent shall have the sole and exclusive right and authority to * * * manage,

supervise, and otherwise deal with the collateral.” “Collateral” is defined in the Loan

Agreement as the “Real Property owned from time to time by Borrower[.]”
                              Properties 1, 3, 5, and 8

              A review of the record reveals that for Property 1 (4266 E. 160th

Street, Cleveland, Ohio 44128), CapitalSource Bank, FBO AEON Financial, LLC

negotiated a “Tax Certificate Sale Agreement” with the Cuyahoga County Treasurer’s

Office, identifying CapitalSource Bank, FBO Aeon Financial, LLC as the “purchaser.”

This allowed CapitalSource Bank, FBO Aeon Financial, LLC to purchase tax

certificates for certain parcels in 2009 with the option to purchase subsequent tax

liens for those parcels in the future. Under this agreement, CapitalSource Bank,

FBO Aeon Financial, LLC purchased a tax certificate in October 2009, which was

recorded with the Cuyahoga County Recorder as AFN 200910270958.

              In August 2010, CapitalSource Bank, FBO AEON Financial, LLC

purchased another tax certificate on the property, which was recorded with the

Cuyahoga County Recorder’s Office as AFN 201009020356. CapitalSource Bank,

FBO AEON Financial, LLC foreclosed on its tax certificates for Property 1 in the

Cuyahoga County Court of Common Pleas, and obtained its judgment of foreclosure

in June 2011. Property 1 was eventually forfeited to the certificate holder under R.C.

5721.40. The common pleas court confirmed the decree of forfeiture in November

2011. The Cuyahoga County Sheriff conveyed all rights, title, and interest to

CapitalSource Bank, FBO AEON Financial, LLC by sheriff’s deed executed on

November 8, 2011 and recorded on December 16, 2011. Cook executed a quitclaim

deed to Aeon Financial, LLC, which was recorded with the Cuyahoga County
Recorder’s Office on May 3, 2012. The City boarded up and eventually demolished

the property in October 2012 and incurred costs totaling $8,136.96.

              With regard to Property 3 (10707 Crestwood Ave., Cleveland, Ohio

44104), the record demonstrates that CapitalSource Bank, FBO Aeon Financial, LLC

purchased a “Tax Certificate Sale Agreement” with the Cuyahoga County Treasurer’s

Office, identifying CapitalSource Bank, FBO Aeon Financial, LLC as the “purchaser.”

This tax certificate was recorded with the Cuyahoga County Recorder as AFN

200910200148. CapitalSource Bank, FBO Aeon Financial, LLC foreclosed on its tax

certificate for Property 3 in the Cuyahoga County Court of Common Pleas, and

obtained its judgment of foreclosure in September 2011. Property 3 was eventually

forfeited to the certificate holder. The common pleas court confirmed the decree of

forfeiture in November 2011. The Cuyahoga County Sheriff conveyed all rights, title,

and interest to CapitalSource Bank, FBO Aeon Financial, LLC by sheriff’s deed

executed on November 21, 2011 and recorded on December 16, 2011. Cook executed

a quitclaim deed to Aeon Financial, LLC, which was recorded with the Cuyahoga

County Recorder’s Office on May 3, 2012. The City boarded up the property in May

2012 and incurred costs totaling $183.68.

              With regard to Property 5 (573 E. 114th Street, Cleveland, Ohio

44108), the record reveals that TCF National Bank FBO Aeon Financial, LLC

(“TCF”) purchased a tax certificate. TCF transferred all of its rights, title, and

interest in the tax certificate to CapitalSource Bank FBO Aeon Financial, LLC.

CapitalSource Bank, FBO Aeon Financial, LLC foreclosed on its tax certificate for
Property 5 in the Cuyahoga County Court of Common Pleas, and obtained its

judgment of foreclosure in July 2011. Property 5 was eventually forfeited to the

certificate holder. The common pleas court confirmed the decree of forfeiture in

November 2011. The Cuyahoga County Sheriff conveyed all rights, title and interest

to CapitalSource Bank, FBO Aeon Financial, LLC by sheriff’s deed executed on

November 21, 2011 and recorded on December 16, 2011. Cook executed a quitclaim

deed to Aeon Financial, LLC, which was recorded with the Cuyahoga County

Recorder’s Office on May 3, 2012. The City boarded up and eventually demolished

the property in November 2013 and incurred costs totaling $11,613.44.

               With regard to Property 8 (6404 Fullerton Ave., Cleveland, Ohio

44105), the record demonstrates that TCF purchased a tax certificate.                TCF

transferred all of its rights, title, and interest in the tax certificate to CapitalSource

Bank FBO Aeon Financial, LLC. CapitalSource Bank, FBO Aeon Financial, LLC

foreclosed on its tax certificate for Property 8 in the Cuyahoga County Court of

Common Pleas, and obtained its judgment of foreclosure in July 2011. Property 8

was eventually forfeited to the certificate holder.         The common pleas court

confirmed the decree of forfeiture in June 2012. The Cuyahoga County Sheriff

conveyed all rights, title, and interest to CapitalSource Bank, FBO Aeon Financial,

LLC by sheriff’s deed executed on August 31, 2012 and recorded on September 11,

2012. Cook executed a quitclaim deed to Aeon Financial, LLC, which was recorded

with the Cuyahoga County Recorder’s Office on January 11, 2013. The City boarded

up the property in October 2012 and incurred costs totaling $232.96.
             PacWest’s Liability for Costs is Created by C.C.O. 3103.09

                We note that C.C.O. 3103.09 provides guidance as to who is

responsible for the costs of the demolition and nuisance abatement services. Under

C.C.O. 3103.09(e)(1), whenever the City’s director of building and housing finds a

structure as a public nuisance, the Director shall forward a written notice of the

violation “by certified mail to the owner, agent or person in control of the

building[.]” In the event the “owner, agent or person in control fails, neglects or

refuses to comply with the notice * * *, the Director may take appropriate action to

demolish and remove an unsafe structure or to remove or abate any condition[.]”

C.C.O. 3103.09(h)(1).

                Under C.C.O. 3103.09(k)(1), “[a]ny and all expenses or costs * * *

relating to the demolition, repair, alteration, securing or boarding of a building or

structure or for abating any other nuisance shall be paid by the owner of such

building or structure[.]” Additionally, C.C.O. 3103.09(k)(2) provides in relevant

part:

        Any and all owners of a building or structure, who appear in the chain
        of title from the time of receipt of a notice of condemnation until
        demolition of the building or structure, shall be jointly and severally
        responsible for all costs and expenses incurred relating to the
        demolition and all costs and expenses of prosecution or collection
        related thereto.

(Emphasis added.)

                The term “owner” is defined in C.C.O. 3101.05(j) as:

        the owner or owners of the premises, a vendee in possession, a
        mortgagee or receiver in possession, a lessee or joint lessees of the
      whole thereof, or an agent or any other person, firm, or corporation
      directly in control of the premises or having a legal or equitable
      interest in the property.

      (Emphasis added.)

               Thus, the City may recoup its costs related to the abatement of the

nuisance or the demolition of the condemned structure from any and all owners of

the premises who appear in the chain of title.

               In the instant case, regardless of PacWest’s or CapitalSource’s intent,

they are both considered “owners” under C.C.O. 3103.09(k)(2) because they have a

legal or equitable interest in the properties. “A ‘legal interest’ in property is held by

the person who holds title to the property.” Lone Star Equities, Inc. v. Dimitrouleas,

2015-Ohio-2294, 34 N.E.3d 936, ¶ 41 (2d Dist. 2015), citing Victoria Plaza, L.L.C.

v. Cuyahoga Cty. Bd. of Revision, 86 Ohio St 3d 181, 1999-Ohio-148, 712 N.E.2d
751. An “equitable interest” or “beneficial interest” in property includes ‘“the

interest of one who is in possession of all characteristics of ownership other than

legal title of the taxable property.”’ Victoria Plaza at 183, quoting Refreshment Serv.

Co. v. Lindley, 67 Ohio St. 2d 400, 423 N.E.2d 1119 (1981); Lone Star Equities at ¶

41. Here, there is no dispute CapitalSource appeared in the chain of title during the

relevant time periods. As a result, the housing court properly granted summary

judgment in favor of the City — there is no dispute that PacWest was the “owner” of

the properties.

               Having found that PacWest is an owner under C.C.O. 3103.09(k)(2),

we do not need to reach PacWest’s argument that the “FBO” designation results in
it only having a security interest in the property and the court’s reliance on

CapitalSource Bank FBO Aeon Fin., LLC v. Sollers, 2016 Md. App. LEXIS 626, *4

(Md. Ct. Spec. App. 2015).

              Accordingly, the sole assignment of error is overruled.

              Judgment is affirmed.

      It is ordered that appellee recover from appellant costs herein taxed.

      The court finds there were reasonable grounds for this appeal.

      It is ordered that a special mandate be sent to said court to carry this judgment

into execution.

      A certified copy of this entry shall constitute the mandate pursuant to Rule 27

of the Rules of Appellate Procedure.

__________________________________________
MARY EILEEN KILBANE, ADMINISTRATIVE JUDGE

SEAN C. GALLAGHER, J., and
PATRICIA ANN BLACKMON, J., CONCUR