Avoiding the “Dismissal Debacle’ was the subject of our prior Client Advisory detailing numerous situations where misunderstandings could result in dismissals. A new case just decided by the Ohio Supreme Court is a perfect example of a dismissal and permanent loss of a mortgage debt that could have been avoided.
On December 10, 2008, the Ohio Supreme Court announced its decision in U.S. Bank Natl Assn., Trustee, v. Gullotta, slip opinion 2008-Ohio-6268, dealing with the so-called “two-dismissal” rule. The rule in Ohio and most other states, is that a voluntary dismissal operates as an “adjudication upon the merits” of any claim that the plaintiff has once dismissed in any court, resulting in the plaintiff being barred from filing a third case.
The plaintiff in the case had filed its first foreclosure complaint and voluntarily dismissed it. It filed a second complaint alleging the same principal balance, and subsequently dismissed the second case. Finally, the plaintiff filed a third complaint on the same note and mortgage. In an amended complaint in the third case, it alleged the same principal balance and “in the alternative,” interest from a much later date.
The borrower filed a motion to dismiss the third case, arguing that the third complaint is barred, because the same claim had previously been dismissed twice. The trial court and the court of appeals each accepted the plaintiff’s argument and held that each missed payment on the loan constituted a new cause of action, and therefore, the third complaint was not barred despite the two prior dismissals. However, the borrower appealed the decision to the Ohio Supreme Court, and in a five-to-two decision, the Supreme Court did not agree with the lower courts.
The Supreme Court’s analysis was based on the fact that the borrower had not made a single payment after the debt was first declared due, and the underlying note and mortgage had not been amended in any way. The Court was not impressed that the amended complaint in the third case sought interest from a much later date, because all of the claims in all of the complaints arose from the same note, the same mortgage, and the same default. Once the debt was accelerated, the entire amount, not just the past due amount, was due. Therefore, each future installment was merged into the one obligation to pay the entire balance on the note. The different interest due date alleged in the third complaint was an unacceptable attempt to circumvent the two-dismissal rule, as it was merely a change to the complaint, not a change in the common nucleus of operative facts supporting the claim.
The lower court had ruled in favor of the plaintiff because it was concerned that a strict application of the two-dismissal rule might cause lenders not to negotiate with borrowers. The Supreme Court agreed that negotiations should be encouraged, but stated that where there are no fruitful negotiations, no change in the terms of the note or mortgage, and no payments made, there is no reason not to apply the two-dismissal rule. As a result, the debt and the mortgage must be deemed released.
Our prior Client Advisory offered practical advice on how to avoid dismissals that might later be regretted, in numerous situations. To view the prior Client Advisory, go here.
If you have any questions on this information, please contact Mr. Larry R. Rothenberg, Esq. Larry Rothenberg is the partner-in-charge of the Cleveland real estate and foreclosure department of Weltman, Weinberg & Reis Co., L.P.A. He is the author of the Ohio Jurisdictional Section contained within the treatise, “Dunaway, The Law of Distressed Real Estate”. The firm handles foreclosures and related litigation throughout Ohio, Kentucky, Indiana, Illinois, Pennsylvania and Michigan. Larry can be reached at (216) 685-1135 or via e-mail at lrothenberg@weltman.com.
Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A., an organization providing comprehensive creditor representation. The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship. Contact any of our offices or visit our website at realestatedefaultgroup.com for more real estate related information, company facts and attorney profiles. (c)2008