McGlinchey’s Commercial Law Bulletin is a biweekly update of recent, unique, and impactful cases in state and federal courts in the area of commercial litigation.
Ohio
Statute of Limitations Under FDCPA
Bouye v. Bruce, 6th Cir. Nos. 21-6195/22-5016 (Mar. 1, 2023).
In this appeal, the Sixth Circuit reversed in part the district court’s decision, finding that a claim brought under the Fair Debt Collection Practices Act (FDCPA) fell within the applicable statute of limitations and was not time-barred.
The Bullet Point: This case involved a lawsuit against an attorney for allegedly violating the FDCPA. According to the consumer, the attorney commenced a collection action in Kentucky state court on behalf of the purported holder of a retail installment contract when the contract had not been properly assigned to the holder. The consumer also alleged that the request to pay attorney’s fees in the collection action was unfair and deceptive. The consumer brought suit one year and 15 days after the collection action had commenced against her. The district court ultimately dismissed the complaint as being time-barred by the FDCPA’s one-year statute of limitation.
On appeal, the Sixth Circuit disagreed and found that the FDCPA claim had been timely commenced. As the Sixth Circuit noted, every alleged, discrete FDCPA violation has its own statute of limitations. This is so because the relevant statute indicates that a plaintiff may sue under the FDCPA in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction, within one year from the date on which the violation occurs.” As the Sixth Circuit further noted, the clock starts ticking “on the date the alleged FDCPA violation actually happened,” not “on the date an alleged FDCPA violation is discovered.” Thus, whether the statute of limitations has passed is straightforward: “Find the FDCPA violation in the Complaint. Count out a year. That determines the statute of limitations.”
What Constitutes a Final, Appealable Order in a Foreclosure?
U.S. Bank Nat’l Ass’n v. Tye, 1st Dist. Hamilton No. C-220071, 2023-Ohio-637.
Here, the First Appellate District dismissed this appeal due to the lack of a final, appealable order in mortgage foreclosure.
The Bullet Point: It is well-settled that, in the foreclosure arena, “[l]iability is fully and finally established when the court issues the foreclosure decree and all that remains is mathematics, with the court plugging in final amounts due after the property has been sold at a sheriff’s sale.”
But what happens when a magistrate is involved? According to the First District, in this scenario, a trial court that adopts, rejects, or modifies a magistrate’s decision must still enter a judgment. Thus, an entry that merely “stat[es] that it is adopting a magistrate’s decision is not a final appealable order.” Rather, “[t]o constitute a final appealable order, the trial court’s journal entry must be a separate and distinct instrument from that of the magistrate’s order and must grant relief on the issues originally submitted to the court.” Not only that, but a trial court has a mandatory duty to rule on any timely-filed objections to a magistrate’s decision. The failure to independently review and rule on such timely objections can result in an order that is not final and appealable.
Prejudice as a Factor in Waiving a Right to Arbitrate
Brown v. JC Austintown, Inc., 7th Dist. Mahoning No. 22 MA 0064, 2023-Ohio-553.
In this appeal, the Seventh Appellate District affirmed the trial court’s decision compelling the lawsuit to arbitration and finding that the defendant did not waive its right to arbitrate, noting that pre-suit negotiations did not waive a right to arbitrate and, importantly, that prejudice is still a consideration under Ohio law with respect to waiver of a right to arbitrate.
The Bullet Point: Recently, in Morgan v. Sundance, Inc., 142 S.Ct. 1708, 1713, 212 L.Ed.2d 753 (2022), the United States Supreme Court held that waiver of a right to arbitrate under the Federal Arbitration Act (FAA) does not require a showing a prejudice when such a showing is not required under general state contract principles. Here, the Seventh District found that Ohio contract law on waiver considers prejudice a factor: “[p]rejudice is a factor to be considered in determining the totality of the circumstances surrounding inconsistent acts, but it is not a mandated element for waiver.” This is so because the waiver is an equitable contract defense, which generally involves an evaluation of the totality of the circumstances in considering the existence of acts inconsistent with the contract right alleged to be waived. As a result, the Seventh District held that “considering prejudice as part of the totality of the circumstances in evaluating conduct inconsistent with a known right is not at odds with general contract principles in Ohio.”
Real Estate Exception to Arbitration Under Ohio law
Cook v. Richard T. Kiko Agency, Inc., 7th Dist. Mahoning No. 22 MA 0024, 2023-Ohio-552.
In this appeal, the Seventh Appellate District found that the trial court did not err in compelling arbitration of the plaintiff’s claims. The statutory exception for “controversies involving title to or possession of real estate” to arbitration under Ohio’s Arbitration Act did not apply.
The Bullet Point: This case involved various claims surrounding the purchase of a real property. In response to the complaint, the defendant moved to stay the case and compel arbitration. The plaintiff opposed arguing, among other things, that the statutory real estate exception to arbitration applied. The trial court disagreed and granted the arbitration motion, and on appeal, the Seventh District affirmed.
Ohio’s Arbitration Act, R.C. 2711.01 et. seq., includes an exception commonly referred to as the “real estate exception” to arbitration. It states that Ohio’s Arbitration Act does not apply to “controversies involving the title to or the possession of real estate.” R.C. 2711.01(B)(1). While this case touched on real estate, the Seventh District found it did not fall within the real estate exception to arbitration, noting that the claims here differ from a quiet title claim which requires a court to determine whether to eliminate or maintain a title encumbrance. In this case, there was no encumbrance on the title to the property as the executed deed had not yet been delivered. The court further noted: “Appellant’s request does not involve title to or possession of real estate, as he does not request the recognition of his rights in the realty or seek to encumber the seller’s rights in the realty. In such situations, a party who backs out of a purchase agreement after paying only the down payment cannot turn their fraud and rescission claims into “controversies involving title to or possession of real estate” by merely noting a completed contract would have transferred title and/or possession. In short, the title remained with the sellers, and Appellant was not seeking to change that situation.”
Florida
Dismissal of a Derivative Lawsuit
Ezer v. Holdack, No. 4D21-3528 (Fla. 4th DCA March 1, 2023)
The Fourth District concluded that a trial court is not required to question a committee’s recommendation to dismiss a derivative lawsuit against a corporation as long as the court found the committee was independent and conducted its investigation reasonably and in good faith.
The Bullet Point: Pursuant to section 617.07401(3)(b), Florida Statutes, a trial court may dismiss a derivative lawsuit brought against a corporation if an independent investigation determines that pursuit of the derivative claim is not in the corporation’s best interests. The trial court must find that the investigative committee was independent and made a good-faith determination after conducting a reasonable investigation upon which its conclusions are based. However, the court trial is not required to independently assess the validity or merits of the committee’s conclusions.
In this appeal, the appellant challenged the trial court’s dismissal with prejudice of a derivative action against a condominium association, contending that the investigative committee was not independent and its report was neither reasonable nor made in good faith. The Fourth District ruled that the trial court did not err in concluding that the committee was appropriately appointed, independent, and conducted a good faith investigation. Further, the Fourth District held that the court was not required to apply its own business judgment to assess the merits of the committee’s conclusions. The dismissal of the derivative lawsuit was therefore affirmed.
Release of a Personal Guaranty
HERC Rentals, Inc. v. Superior Site Servs., Inc., et al., No. 5D22-1241 (Fla. 5th DCA March 3, 2023)
The Fifth District outlined the factors to consider when determining whether a guarantor should be released from a personal guaranty.
The Bullet Point: Under Florida law, a continuing personal guaranty remains in effect until revoked. There are four factors to consider as to whether a guarantor should be released from a personal guaranty: (1) the obligee’s lack of knowledge of a change in the obligor’s business; (2) the nature of the change of the obligor’s business; (3) whether the guarantor participated in the change in the obligor’s business; and (4) whether the guarantor sought to revoke the guaranty. Here, the obligor successfully argued in the underlying action that he was released from the personal guaranty at issue because his corporation was administratively dissolved by the State of Florida long before the transactions occurred. The appellant argues on appeal that the trial court erred in finding that the obligor’s personal guaranty expired. Applying the four factors to the undisputed evidence at trial, the Fifth District agreed. Therefore, the part of the final judgment holding that the appellant takes nothing on its action against the obligor was reversed.
Presumptive Validity of Forum Selection Clauses
Total Quality Logistics, LLC v. Trade Link Capital, Inc., et al., No. 3D22-579 (Fla. 3d DCA March 8, 2023)
The Third District concluded that the plaintiffs failed to meet their burden in establishing that the presumptively valid and enforceable mandatory forum selection clause was unjust, unreasonable, or otherwise unenforceable.
The Bullet Point: Florida law presumes that forum selection clauses are valid and enforceable. The party seeking to avoid enforcement of such a clause must establish that enforcement would be unjust or unreasonable. To establish the “unjust or unreasonable” nature of a forum selection clause, the party seeking avoidance must show that enforcement of the clause would result in “no forum at all,” thereby depriving the party of its day in court. Here, the defendant in the underlying action moved for dismissal based on improper venue, contending that a mandatory forum selection clause in the written agreements between the parties required that Clermont County, Ohio, serve as the exclusive venue for the dispute. On appeal of the trial court’s denial of the motion, the Third District concluded the plaintiffs failed to meet their burden to overcome the presumptively valid and enforceable mandatory forum selection clause. The trial court, therefore, erred in denying the motion to dismiss for improper venue.
