[Cite as 1st Natl. Fin. Servs. v. Ashley, 2018-Ohio-3134.]


                               IN THE COURT OF APPEALS OF OHIO

                                    TENTH APPELLATE DISTRICT

1st National Financial Services,                       :

                 Plaintiff-Appellee,                   :
                                                                     No. 17AP-638
v.                                                     :        (M.C. No. 2015CVF-13668)

Stacia Ashley,                                         :       (REGULAR CALENDAR)

                 Defendant-Appellant.                  :




                                             D E C I S I O N

                                       Rendered on August 7, 2018


                 On brief: Jeffrey A. Catri Co., L.L.C., and Jeffrey A. Catri,
                 for appellee. Argued: Jeffrey A. Catri.

                 On brief: The Legal Aid Society of Columbus, Scott E.
                 Torguson, and Catherine L. Beck, for appellant. Argued:
                 Scott E. Torguson.

                        APPEAL from the Franklin County Municipal Court
DORRIAN, J.
        {¶ 1} Defendant-appellant, Stacia Ashley, appeals from a judgment of the Franklin
County Municipal Court denying her motion to vacate the court's prior judgment in favor
of plaintiff-appellee, 1st National Financial Services ("1st National"). For the reasons that
follow, we reverse and remand.
I. Facts and Procedural History
        {¶ 2} On September 13, 2013, Ashley obtained a loan from 1st National for
$1,998.31 and executed a loan repayment agreement. On September 24, 2014, 1st National
filed a complaint in Franklin County Municipal Court case No. M2014CVI-31681, alleging
Ashley violated the loan repayment agreement by failing to make payments on the loan. In
November 2014, Ashley entered into a payment arrangement with 1st National providing
No. 17AP-638                                                                              2


for monthly payments and a lump sum payoff. 1st National asserts Ashley made three
monthly payments pursuant to that arrangement but failed to make the lump sum
payment. 1st National further asserts Ashley subsequently contacted its counsel and agreed
to compromise and settle the case by signing a Cognovit Promissory Note ("cognovit note").
On February 28, 2015, Ashley signed a cognovit note in favor of 1st National for $1,423.70.
On March 2, 2015, 1st National dismissed case No. M2014CVI-31681 without prejudice.
       {¶ 3} On April 27, 2015, 1st National filed a complaint on the cognovit note in
Franklin County Municipal Court case No. M2015CVI-13668, alleging an outstanding
balance of $1,073.70. An answer was filed the same day on behalf of Ashley invoking the
warrant of attorney in the cognovit note and confessing judgment against Ashley and in
favor of 1st National. On April 30, 2015, the court entered a judgment entry against Ashley
for $1,073.70 plus interest and costs. The court subsequently ordered garnishment of
Ashley's wages to satisfy the judgment.
       {¶ 4} Assisted by new counsel, Ashley filed a motion to vacate the judgment on
September 9, 2015, arguing the court lacked subject-matter jurisdiction over the case
pursuant to R.C. 2323.13(E)(1) because the underlying loan was a consumer loan. 1st
National filed a memorandum in opposition asserting the terms of the cognovit note and
the circumstances surrounding the signing of it established it did not arise out of a
consumer loan. Because 1st National filed a satisfaction of judgment on November 23, 2015,
the trial court denied all pending motions as moot. On appeal, this court held that because
the parties disputed whether the loan was a consumer loan for purposes of R.C.
2323.13(E)(1), the proper procedure was to hold an evidentiary hearing and make a
determination on that issue. 1st Natl. Fin. Servs. v. Ashley, 10th Dist. No. 16AP-18, 2016-
Ohio-5497, ¶ 27. This court reversed the trial court's dismissal of Ashley's motion as moot,
remanded with instructions to hold an evidentiary hearing on the issue of whether the
cognovit note arose out of a consumer loan as defined under R.C. 2323.13(E)(1), and
whether the trial court had jurisdiction to enter judgment on it. Id. at ¶ 29.
       {¶ 5} On remand, the trial court conducted an evidentiary hearing. Ashley testified
on her own behalf, and 1st National presented testimony from its attorney, Kevin O'Brien,
and the office manager of O'Brien's office. Following the hearing, the trial court issued a
decision denying Ashley's motion to vacate. The court concluded it had subject-matter
No. 17AP-638                                                                              3


jurisdiction over the case, holding that Ashley failed to meet her burden of proving by a
preponderance of the evidence that the underlying loan was a consumer loan as defined by
R.C. 2323.13(E)(1).
II. Assignment of Error
       {¶ 6} Ashley appeals and assigns the following sole assignment of error for our
review:
              The Trial Court Erred By Assigning The Burden Of Proving
              That The Transaction Was Not Commercial In Nature On Ms.
              Ashley, As It Should Have Required 1st National To
              Affirmatively Prove Each Element Of Its Case.

III. Discussion
       {¶ 7} Generally, we review a trial court's decision on a motion to vacate for abuse
of discretion. Young v. Locke, 10th Dist. No. 13AP-608, 2014-Ohio-2500, ¶ 20. In the
present case, however, Ashley's motion to vacate implicated the trial court's subject-matter
jurisdiction. We review questions of subject-matter jurisdiction de novo. Klosterman v.
Turnkey-Ohio, LLC, 182 Ohio App.3d 515, 2009-Ohio-2508, ¶ 19 (10th Dist.).
       {¶ 8} "The cognovit is the ancient legal device by which the debtor consents in
advance to the holder's obtaining a judgment without notice or hearing, and possibly even
with the appearance, on the debtor's behalf, of an attorney designated by the holder." D.H.
Overmyer Co., Inc. v. Frick Co., 405 U.S. 174, 176 (1972). "The cognovit has long been
recognized [in Ohio] by both statute and court decision." Id. at 178. Strict compliance with
statutory requirements is required to obtain judgment on a cognovit note. "A cognovit
judgment is valid if the warrant of attorney to confess judgment and all note terms are
strictly construed against the person obtaining the judgment, and court proceedings, based
upon such warrant, must conform to every essential detail with the statutory law governing
the subject." Fifth Third Bank v. Pezzo Constr., Inc., 10th Dist. No. 11AP-251, 2011-Ohio-
5064, ¶ 11, citing Lathrem v. Foreman, 168 Ohio St. 186 (1958).
       {¶ 9} Notwithstanding the long legal recognition of cognovit notes in Ohio, the
General Assembly has curtailed the use of cognovit notes in consumer transactions. R.C.
2323.13(E) provides that "[a] warrant of attorney to confess judgment contained in any
instrument executed on or after January 1, 1974, arising out of a consumer loan or
consumer transaction, is invalid and the court shall have no jurisdiction to render a
No. 17AP-638                                                                                4


judgment based upon such a warrant." The statute defines a consumer loan as "a loan to a
natural person and the debt incurred is primarily for a personal, family, educational, or
household purpose." R.C. 2323.13(E)(1). If a cognovit note arises out of a consumer loan
or a consumer transaction, then a judgment entered based on that cognovit note is void and
must be vacated for lack of subject-matter jurisdiction. Shore W. Constr. Co. v. Sroka, 61
Ohio St.3d 45, 48 (1991).
       {¶ 10} "By its very terms, a cognovit note allows for judgment to be taken against the
debtor-party without notice or hearing." Dollar Bank v. Bernstein Group, Inc., 71 Ohio
App.3d 530, 533 (10th Dist.1991). Thus, the issue of subject-matter jurisdiction or any
other defenses available to a defendant may not be fully and fairly litigated by a trial court
prior to entering judgment on a cognovit note. Id. In recognition of the unique
circumstances presented by cognovit judgments, Ohio courts have held that when a party
files a motion to vacate a cognovit judgment pursuant to Civ.R. 60(B), a modified test is
appropriate. "Where the relief from judgment sought is on a cognovit note, '[t]he prevailing
view is that relief from a judgment taken upon a cognovit note, without prior notice, is
warranted by authority of Civ.R. 60(B)(5) when the movant (1) establishes a meritorious
defense, (2) in a timely application.' " Fifth Third Bank at ¶ 8, quoting Meyers v. McGuire,
80 Ohio App.3d 644, 646 (9th Dist.1992). Further, "[u]nder Civ.R. 60(B), a movant's
burden is only to allege a meritorious defense, not to prove that he will prevail on that
defense." (Emphasis added.) Rose Chevrolet, Inc. v. Adams, 36 Ohio St.3d 17, 20 (1988).
       {¶ 11} In the present case, Ashley filed a common law motion to vacate judgment
rather than a motion for relief from judgment pursuant to Civ.R. 60(B); however, similar
considerations arise because of the nature of a cognovit judgment. Ashley's motion
challenged the trial court's subject-matter jurisdiction, which is an issue that can be raised
at any time and renders a court's judgment void ab initio. Bank of Am., N.A. v. Kuchta, 141
Ohio St.3d 75, 2014-Ohio-4275, ¶ 17. Ashley asserted in her motion to vacate that the
underlying loan was a consumer loan and, therefore, pursuant to R.C. 2323.13(E), the
warrant to confess judgment contained in the cognovit note was invalid and the court
lacked subject-matter jurisdiction to enter judgment on it. Ashley's motion to vacate was
supported by an affidavit in which she averred she obtained the original loan to help pay
personal bills and all funds she obtained from that loan were used for family and household
No. 17AP-638                                                                                  5


purposes. Ashley further averred she did not own a business and had never owned a
business, and she did not understand the significance of the cognovit note when she signed
it. Similarly, at the hearing Ashley testified regarding the nature of the underlying loan:
              Q. Okay. How did you first become involved with 1st National
              Financial Services?

              A. I went in to get a loan.

              Q. And when was that?

              A. 2013.

              Q. Why did you take the loan out?

              A. Just bills, personal stuff.

              Q. What did you use the money for?

              A. Bills and personal stuff.

              Q. Do you have an example? I know it was a while ago but ...

              A. I probably put something on maybe electric bill, probably
              bought some household supplies, cleaning, just things that you
              need around the house.

(Tr. at 9.)
       {¶ 12} Ashley likewise testified about her lack of understanding of the details of the
cognovit note:
              A. I talked to Mr. O'Brien, and I also talked to his secretary.
              They really didn't -- It was almost time for us to go back to
              court. And I called in to ask about the lump sum payment, and
              he basically said there will be no lump sum payment; I have to
              pay all of it. And, so, he was trying to force me to pay all of it at
              that time and said what he could do is this letter, a note.

              Q. And so you went into his office at some point, right?

              A. Right.

              Q. Did you know what a cognovit note was?

              A. No
No. 17AP-638                                                                 6


           Q. Did anyone in Mr. O'Brien's office explain to you what a
           cognovit note was?

           A. No.

           Q. Did you speak to Mr. O'Brien at all when you were in his
           office?

           A. Yes, he came out of his office, shook my hand, came to speak
           to me very quickly, just a hello introducing his self; and he
           basically let his secretary do the rest.

           Q. So you talked to his secretary about the document you
           signed?

           A. Uh-huh.

           Q. Did she explain what a cognovit note was to you?

           A. No. She actually said there was no need for me to read it.

           Q. Have you ever owned a business?

           A. No.

           Q. Did you ever tell anyone at 1st National you owned your own
           business?

           A. No.

           Q. Did you ever tell Mr. O'Brien that you owned your own
           business?

           A. No.

           Q. Did you ever tell anyone in Mr. O'Brien's office that you
           owned your own business?

           A. No.

           ***

           Q. Read the first sentence in the second paragraph [of the
           Cognovit Promissory Note] there.

           A. "The parties further stipulate and agree that this note
           represents the settlement of a commercial matter and that the
No. 17AP-638                                                                               7


              instant note is not given for a consumer loan transaction or
              debt."

              Q. Do you know what that means?

              A. I'm assuming -- I really don't.

              Q. Okay. Did you know what it meant at the time?

              A. No.

              Q. And nobody explained it to you?

              A. No.

              Q. And at all times during your dealings with 1st National and
              Mr. O'Brien, were you a consumer or were you acting as a
              business owner?

              A. Consumer.

(Tr. at 11-13.) Ashley's affidavit and testimony suggest that 1st National attempted to
subvert R.C. 2323.13(E) and employ a cognovit note to collect on a debt arising from a
consumer loan.
       {¶ 13} 1st National supported its memorandum in opposition to Ashley's motion to
vacate with an affidavit from O'Brien, who represented 1st National in both municipal court
cases. In the affidavit, O'Brien averred he did not know why Ashley took out the underlying
loan or what she used the loan proceeds for, but that he told Ashley she could only sign the
cognovit note if the underlying loan proceeds were used for a business purpose. O'Brien
further averred that Ashley did not indicate to him that the proceeds of the underlying loan
had been used for family or household purposes. O'Brien testified at the hearing that he
explained the terms of the cognovit note to Ashley when she came to his office to sign it and
that Ashley indicated she did not have any questions. At the hearing, O'Brien testified about
his conversation with Ashley when she came to his office to sign the cognovit note:
              Q. Okay. Well, I'm going to jump ahead here, 6, 7 and 8, Ms.
              Ashley's affidavit is basically saying this was for personal bills.
              She didn't own a business and never owned a business. Do you
              recall having any conversation with her about this?
No. 17AP-638                                                                               8


              A. I did because I asked her. I said, you know -- and I think the
              way I put it is, I would feel more comfortable doing this, you
              know, knowing, you know, if you use this money for a business,
              great. You know, I had never done a cog before. But given the
              circumstances here, I thought, you know, it would be
              acceptable to do it and she certainly represented to me that
              she'd use the funds for business. I didn't ask her what her
              business was. She did not say to me that it was for -- to pay, you
              know, personal bills. She didn't tell me what she was using the
              money or what she used the money for at all.

              The Court: She didn't tell you at all? Is that what you said?

              [A.] She didn't tell me at all when she took the loan out in
              September of '13.

(Tr. at 64-65.)
       {¶ 14} The trial court concluded that, as the moving party, Ashley bore the burden
of proving by a preponderance of the evidence that the underlying loan was a consumer
loan, and she failed to meet this burden. We conclude the court's analysis failed to account
for the particular circumstances presented by a cognovit judgment. As explained above, a
trial court has no jurisdiction to enter judgment on a cognovit note arising out of a
consumer loan. Because of the summary nature of a cognovit judgment, the issue of
subject-matter jurisdiction may not be fully litigated prior to entering judgment, as it was
not in the present case. Ashley's motion to vacate raised the issue of subject-matter
jurisdiction and she testified the underlying loan was a consumer loan, which would have
prevented the court from having subject-matter jurisdiction pursuant to R.C. 2323.13(E).
If Ashley had filed a motion for relief under Civ.R. 60(B), it would have been sufficient for
her to allege a meritorious defense in a timely motion. See Fifth Third Bank at ¶ 8. Applying
similar principles to her common law motion to vacate judgment, because Ashley alleged
facts that would have precluded the court from exercising subject-matter jurisdiction, the
court should have placed the burden on 1st National to prove that subject-matter
jurisdiction existed, as the party seeking to invoke the court's jurisdiction.
       {¶ 15} Accordingly, because the court improperly placed the burden in denying
Ashley's motion to vacate, we reverse and remand for application of the proper analysis.
No. 17AP-638                                                                               9


IV. Conclusion
       {¶ 16} For the foregoing reasons, Ashley's assignment of error is sustained, we
reverse the judgment of the Franklin County Municipal Court and remand the matter to
that court for further proceedings in accordance with law and consistent with this decision.
                                                 Judgment reversed and cause remanded.
                                    TYACK, J., concurs.
                                   SADLER, J., dissents.
SADLER, J., dissenting.
       {¶ 17} I do not believe the trial court committed reversible error when it denied
Ashley's motion to vacate the judgment for lack of subject-matter jurisdiction. Accordingly,
I would overrule Ashley's assignment of error and affirm the judgment of the trial court.
Because the majority does not, I respectfully dissent.
       {¶ 18} Under R.C. 2323.13(E) "[a] warrant of attorney to confess judgment
contained in any instrument executed on or after January 1, 1974, arising out of a consumer
loan or consumer transaction, is invalid and the court shall have no jurisdiction to render a
judgment based upon such a warrant." In 1st Natl. Fin. Servs. v. Ashley, 10th Dist. No.
16AP-18, 2016-Ohio-5497, ¶ 29, this court reversed the judgment of the trial court and
remanded the case for the trial court to "determine whether the cognovit note arose out of
a 'consumer loan,' as defined under R.C. 2323.13(E)(1) and, in turn, whether it had
jurisdiction under R.C. 2323.13(E) to enter judgment on the cognovit note."
       {¶ 19} The decision and entry of the trial court, on remand from this court, provides
in relevant part as follows:
              Having weighed the evidence adduced at the hearing, and
              considered the credibility of the witnesses, the Court finds that
              Defendant has failed to meet its burden, as the movant, to
              prove by a preponderance of the evidence that the loan
              underlying this case was a "consumer loan" as defined by R.C.
              2323.13(E)(1). In light of the lack of detail regarding what she
              used the loan money for, the Court finds Defendant's various
              general assertions that the loan was for personal and
              household purposes to lack credibility.

(Emphasis added.) (Aug. 15, 2017 Decision at 3.)
       {¶ 20} The majority concludes the trial court erred when it determined Ashley, as
the moving party, had the burden to prove that the loan underlying the cognovit note was
No. 17AP-638                                                                                  10


a "consumer loan" as defined in R.C. 2323.13(E)(1). I agree with the majority's conclusion
on this point. Under Ohio law, "[o]nce the existence of subject-matter jurisdiction has been
challenged, the burden of establishing jurisdiction rests on the party asserting it." McDaniel
v. Phelps, 1st Dist. No. C-010744, 2003-Ohio-41, ¶ 6, citing Collins v. Hamilton Cty. Dept.
of Human Servs., 10th Dist. No. 01AP-1194 (Mar. 21, 2002), jurisdictional motion
overruled, 96 Ohio St.3d 1440, 2002-Ohio-3344. This court, in Collins, noted that "[i]t has
been consistently held that once the existence of subject matter jurisdiction has been
challenged, the burden of establishing it always rests on the party asserting jurisdiction."
Id, quoting Linkous v. Mayfield, 4th Dist. No. CA1894 (June 4, 1991).
        {¶ 21} Though I agree with the majority that the trial court misapplied the burden
of proof when it placed the burden on Ashley to establish the lack of trial court jurisdiction,
I do not agree the trial court's error warrants reversal in this case given the trial court's
express determination that Ashely's testimony was not credible. As set out above, the trial
court made a determination that "[Ashley's] various general assertions that the loan was
for personal or household purposes * * * lacks credibility." (Aug. 15, 2017 Decision at 3.)
        {¶ 22} It is axiomatic that a reviewing court must be guided by the presumption that
factual findings made by the trier of fact are correct. Seasons Coal Co. v. Cleveland, 10 Ohio
St.3d 77 (1984). The trier of fact is best able to view the witnesses and make observations as
to their demeanor, gestures, and voice inflection and use these observations to judge the
credibility of the testimony. Id. See also Complete Gen. Constr. Co. v. Ohio Dept. of Transp.,
94 Ohio St.3d 54, 62 (2002) (In a case tried to the court, without a jury, the reviewing court
erred when it "rejected the trial court's characterization of [a] witness's testimony on this
issue and inserted its own."); J&H Reinforcing & Structural Erectors, Inc. v. Ohio School
Facilities Comm., 10th Dist. No. 12AP-588, 2013-Ohio-3827, ¶ 95 ("Whether [appellant's]
equipment remained on the job site because of [appellee's] delay was a question of fact, and
such matters are best left to the trier of fact.").
        {¶ 23} Given the trial court's credibility determination, the only credible evidence
submitted to the trial court was that of appellee's counsel who testified that appellee
informed him that the loan was for commercial purposes. Thus, the only credible evidence
in the record supports the trial court's finding that the instrument executed on or after
January 1, 1974 did not arise out of a consumer loan or consumer transaction. This being
No. 17AP-638                                                                               11


the case, the only conclusion supported by the evidence presented at the hearing is that the
trial court did have jurisdiction to render a judgment based upon the warrant of attorney
to confess judgment contained in any instrument executed on or after January 1, 1974.
       {¶ 24} Errors that do not affect substantial rights must be disregarded by a
reviewing court. Stanley v. Ohio State Univ. Med. Ctr., 10th Dist. No. 12AP-999, 2013-
Ohio-5140, ¶ 91; Civ.R. 61; R.C. 2309.59. Because the only credible evidence in the record
supports the trial court's denial of Ashely's common law motion to vacate the judgment,
any trial court error with regard to the burden of proof could not have affected a substantial
right of Ashley. On this record, it is not possible for Ashley to obtain a different result by
remanding the matter for the trial court to correctly allocate the burden of proof as there
was no credible evidence to support a finding that the underlying loan was a consumer loan
or transaction.
       {¶ 25} For the foregoing reasons, I would hold the trial court did not commit
reversible error when it denied Ashley's motion to vacate judgment. Accordingly, I would
overrule Ashley's assignment of error and affirm the judgment of the trial court. Because
the majority does not, I respectfully dissent.
