The Bullet Point: An Ohio Commercial Law Bulletin

Loss Mitigation Review Under RESPA

Hurst v. Caliber Home Loans, Inc., N.D.Ohio No. 5:19-cv-00315, 2021 U.S. Dist. LEXIS 51849 (Mar. 19, 2021)

In this matter, the Northern District of Ohio held that a loan servicer did not violate RESPA as it did not repeatedly request documents already in its possession, but rather requested documents that the borrowers repeatedly failed to properly submit.

The Bullet Point: Under Regulation X, when a loan servicer receives a loss mitigation application, it is required to promptly “review the loss mitigation application to determine” whether it is complete. 12 C.F.R. § 1024.41(b)(2)(i)(A). A complete loss mitigation application is one “with which a servicer has received all the information that the servicer requires from a borrower in evaluating applications for the loss mitigation options available to the borrower.” 12 C.F.R. § 1024.41(b)(1). If the loss mitigation application is incomplete, the “servicer shall exercise reasonable diligence in obtaining documents and information to complete” it. Id. Once the borrower submits all of the missing documentation and information, the loss mitigation application is considered facially complete. 12 C.F.R. § 1024.41(c)(2)(iv). Further, even if a loan servicer later requests additional information or corrections to previously submitted documentation, the servicer must treat the application as facially complete until the borrower is given a reasonable opportunity to complete the application. Id. Here, the borrowers alleged the servicer failed to exercise reasonable diligence when it repeatedly requested 4506-T forms to complete their loss mitigation application. As explained by the court, “a servicer may fail to exercise reasonable diligence if it repeatedly requests documents it already possesses or documents that it knows or should know are not required to complete the borrower’s application.” However, in this case, the servicer did not repeatedly request documents it already had in its possession. On the contrary, the servicer repeatedly requested the borrowers to provide properly executed and legible 4506-T forms because each time the borrowers submitted said forms, there was an issue with completion or legibility. The court noted that each time the borrowers submitted the 4506-T forms, the forms either “reflected a modification from the previous submission, or the forms had to be resubmitted due to illegibility of previous submissions.” As the borrowers repeatedly failed to provide properly completed and legible 4506-T forms, the servicer did not fail to exercise reasonable diligence in repeatedly requesting said forms in an attempt to complete the borrowers’ loss mitigation application.

CSPA violation for misleading statements

Kent v. Leo’s Ent., L.L.C., 8th Dist. Cuyahoga No. 109730, 2021-Ohio-946

In this appeal, the Eighth Appellate District affirmed the trial court’s decision, agreeing that the defendant did not violate the Ohio Consumer Sales Practices Act as he did not make misleading statements about the scope of work to be performed.

The Bullet Point: The Ohio Consumer Sales Practices Act (the “CSPA”) prohibits suppliers from committing “unfair or deceptive acts” and “unconscionable acts or practices” in consumer transactions whether they occur before, during, or after the transaction. R.C. 1435.02(A); 1345.03(A). Under the CSPA, unfair or deceptive consumer sales practices are those that mislead consumers about the nature of the product they are receiving. On the other hand, unconscionable acts or practices are those that manipulate a consumer’s understanding of the nature of the transaction at issue. In this case, the plaintiff alleged the defendant violated the CSPA by making misleading statements about the scope of work to be completed as part of tree removal services. The parties entered into an oral contract and neither of the parties specified the number of trees to be cut down. The court noted that after paying for the initial work performed, the plaintiff inquired into the removal of additional trees. However, the parties never entered into an enforceable contract for the additional work. Instead, the defendant responded that there had been a misunderstanding regarding the additional work and that he never agreed to remove the additional trees. Further, the defendant made a good faith effort to resolve the dispute. The court further noted that there was nothing in the record to support the plaintiff’s claim the defendant made misleading statements about the scope of work to be performed. Moreover, the defendant’s statement that there was a misunderstanding about the additional tree work was not false or deceptive and was not an unconscionable act. As such, the defendant did not violate the CSPA.

Scope of Arbitration

Little Aquanauts, L.L.C. v. Makovich & Pusti Architects, Inc., 8th Dist. Cuyahoga No. 109594, 2021-Ohio-942

In this appeal, the Eighth Appellate District affirmed the trial court’s decision, agreeing that the plaintiff’s claims fell outside the scope of the arbitration provision as they could be asserted without reference to the underlying contract between the parties.

The Bullet Point: While Ohio recognizes a strong public policy in favor of arbitration, this presumption arises only when a disputed claim falls within the scope of the arbitration provision. When ruling on a motion to compel arbitration, the court must focus on the language and scope of the arbitration provision to determine whether the parties agreed to arbitrate the matter at issue. The Supreme Court of Ohio has held that the test for determining the arbitrability of a given dispute involves four rules: (1) that “‘arbitration is a matter of contract and a party cannot be required to so submit to arbitration any dispute which he has not agreed to so submit'”; (2) that the question whether a particular claim is arbitrable is one of law for the court to decide; (3) that when deciding whether the parties have agreed to submit a particular claim to arbitration, a court may not rule on the potential merits of the underlying claim; and (4) that when a “‘contract contains an arbitration provision, there is a presumption of arbitrability in the sense that “[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.”‘” Stated simply, ‘”[A] proper method of analysis * * * is to ask if an action could be maintained without reference to the contract or relationship at issue. If it could, it is likely outside the scope of the arbitration agreement.”‘ Here, the defendant filed a motion to compel arbitration, alleging that the arbitration provision contained in the Terms and Conditions agreed to between the parties was mandatory. The plaintiff argued that its claims were not subject to arbitration because, by the very language of the agreement, the arbitration clause only applied to the specific matters contained in the Terms and Conditions. Analyzing the language and scope of the agreement, the court agreed with the plaintiff that the arbitration provision was narrow in scope and solely covered disputes arising under the Terms and Conditions. The Terms and Conditions were brief and addressed only six matters, none of which contained any information related to the plaintiff’s allegations. Further, the plaintiff’s claims could be asserted without any reference to the Terms and Conditions. As such, the plaintiff’s claims did not fall within the scope of the arbitration clause and the motion to compel arbitration was denied.

Unjust Enrichment

Deffren v. Johnson, 1st Dist. Hamilton Nos. C-200176, C-200183, 2021-Ohio-817

In this appeal, the First Appellate District reversed and remanded the trial court’s decision, holding that the buyer’s unjust enrichment claim against the seller’s wife was fatally flawed as the wife was a stranger to the contract and the buyer conferred no benefit upon her.

The Bullet Point: Under Ohio law, the doctrine of unjust enrichment provides that in the absence of an express contract, a party who confers a benefit upon another may recover the reasonable value of the benefit rendered if denying recovery would unjustly enrich the opposing party. To succeed on a claim for unjust enrichment, a plaintiff must demonstrate that there was “(1) a benefit conferred by a plaintiff upon a defendant, (2) knowledge by the defendant of the benefit, and (3) retention of a benefit by the defendant under circumstances where it would be unjust to do so without payment of its value.” As the court noted, a claim of unjust enrichment is typically available only in the absence of an enforceable contract. Further, when services are performed or benefits are conferred under an express contract, any legal action is limited to the parties of said contract. As such, the general rule is that “third-persons, even if benefitted by the work, cannot be sued * * * on unjust enrichment to pay for the benefit, because an implied contract does not arise against the one benefitted by virtue of a special contract with other persons.” In this case, the buyer brought an unjust enrichment claim against the seller’s wife regarding accounts receivables that were allegedly owed to the buyer under an asset purchase agreement with the seller. The court determined that as a threshold matter, the unjust enrichment claim failed against the seller’s wife as she was a stranger to the express contractual relationship between the buyer and seller. The wife was not a party to the asset purchase agreement, and it imposed no duties or obligations upon her. Moreover, the court noted that the buyer failed to satisfy the first element of unjust enrichment, as the buyer conferred no benefit on the wife. Consequently, the buyer’s unjust enrichment claim was not cognizable and the wife was entitled to judgment.