IN THE SUPREME COURT OF OHIO
FirstMerit Ban.k, N.A.,
On Appeal from the Cuyahoga
County Court of Appeals
Eighth Appellate District
Appellant,
V.
Ely Enterprises, Inc.
Court of Appeals
Case No. 08-667641
Appellee.
MEMORANDUM IN SUPPORT OF JURISDICTION
OF APPELLANT FIRS'I'MF,RIT BANK, N.A.
Steven M. Weiss (0028984)
Law Offices of Steven M. Weiss
55 Public Square
Suite 1009
Cleveland, OH 44113
Mark Schlachet (0009881)
3637 South Green Road 2d Floor
Beachwood, OH 44122
Telephone: (216) 896-0714
Facsimile: (216) 514-6406
Williani A. Isaaosori (pro hac vice)
Scott E. Gant (pro hac vice)
Boises, Sehiller& Flexner LLP
5301 Wisconsin Avenue, NW
Washingtoti, D.C. 20015
Anthony J. O'Malley (0017506)
Marcel C. Duhamel (0062171)
(Counsel of Record)
Elizabeth A. Ratliff (0075673)
Gayle I. Horwitz (0079387)
Vorys, Sater, Seyinour and Pease LLP
2100 One Cleveland Center
1375 East Ninth Street
Cleveland, Ohio 44114-1724
Telephone: 216-479-6100
Facsimile: 216-479-6060
Email: ajomalley@vorys.com
mcduhamel@vorys.com
earatliff@vorys.com
gihorwitz@vorys.com
COUNSEL FOR APPELLANT
FIRSTMERITBANK, N.A.
COUNSEL FOR APPELLEE
ELYF,N7'ERPR7SES, INC
TABLE OF CONTENTS
1. EXPLANATION OF WHY 'I'HIS IS A CASE OF PUBLIC OR GREAT GENERAL
INTEREST.......................................................................................................................... 1
II. STATEMF.,NT OF THE CASE AND FACTS ................................................................... 3
TTI. PROPOSITIONS OF LAW AND ARGUMENTS IN SUPPORT ..................................... 5
A. Proposition of Law No. I ........................................................................................ 5
Where Defendant Complies with the Plain Language of a Contract, Plaintiff's
Claim for Breach of Contract Fails as a Matter of Law .......................................... 5
B. Proposition of Law No. 2 ........................................................................................ 6
Courts Must Apply Contract Terms in the Manner The Parties Intended and
Anticipated . ............................................................................................................. 6
C. Proposition of Law No. 3 ..... ................................................................................... 8
Courts Must Give Effect to All Contract Terms ..................................................... 8
D. Proposition of Law No. 4 ........................................................................................ 9
Use of the 365/360 Method of Interest Calcnlation is Lawful in Ohio .................. 9
IV. CONCLUSlON ................................................................................................................. 10
i
TABLE OF AUTHORITIES
Cases
Alexander v. Buckeye Pipe Line Co. (1978), 53 Ohio St.2d 245-246, 374 N.E.2d 146 ......... 2, 6, 7
Bay Coast Properties, Inc. v. Natt. City Bank, Huroil App. No. 11-05-015, 2006-Ohio-2348 ...... 6
Chern v. Bank ofAnierica (1976), 15 Cal. 3d 866 .......................................................................... 6
Cincinnati Ins. Co. v. CPSfloldings, Inc., 115 Ohio St.3d 306, 2007-Ohio-4917, 875 N.E.2d 319
DK&D Properties v. National City Corporatio:i, Cuyahoga County Common Pleas Case No.
CV-08-680078 ............................................................................................................................ 3
First American Nat. Bank of Nashville v. Hunter (Tetm. App. 1978), 581 S.W.2d 655 ................ 7
Fletcher v. Security Pacific National Bank (1979) 23 Ca1.3d 442 ................................................. 7
Graham v. Drydock Coal Co. (1996), 76 Ohio St.3d 311, 667 N.E.2d 949 ................................... 6
Hamilton v. 012io Sav. Bank (1994), 70 Ohio St.3d 137, 637 N.E.2d 887 ................................... 10
JNTProperties LLC v. Key Bank N.A., Cuyahoga County Cotnnion Pleas Case No. CV-09681873 ......................................................................................................................................... 3
Kellie Auto Sales, Inc, v. Rahbars & Ritters Ents., L.L. C. (2007), 172 Oliio App.3d 675, 876
N.E.2d 1014 ................................................................................................................................ 6
Kincaid v. Erie Ins. Co., 183 Ohio App.3d 748, 2009-Ohio-4372, 918 N.E.2d 1036 .................... 5
Kitson v. Bank ofEdwardsville (I2`h Cir. 111. Jan. 24, 2008), Case No. 02-L-0897 ...................4, 9
South Bay Chevrolet v. General Motors Acceptance Corp. (Cal. App. 1999), 72 Ca1.App.4th 861
..................................................................................................................................................... 7
State v. Bethel, 110 Ohio St.3d 416, 2006-Ohio-4853, 854 N.E.2d 150 ................................ 2, 8, 9
Value City, Inc. v. Integrity Ins. Co. (1986), 30 Oliio App.3d 274, 508 N.E.2d 184 ..................... 6
bVohl v. Swinney, 118 Ohio St.3d 277, 2008-Ohio-2334, 888 N.E.2d 1062 ............................... 2, 8
Statutes
R.C. § 1109.20 ................................................................................................................................ 9
ii
Other Authorities
17A Am. Jur. 2d Contracts § 363 ................................................................................................... 7
Rules
Civil Rulc
12(B)(6)
.....................................
2
.......
.............................................................................
ill
I. EXPLANATION OF WHY THIS IS A CASE OF PUBLIC OR GREAT GENERAL
INTEREST
This case presents an issue of great public and general interest for two reasons. First, the
Eighth District decision -wliich drew a strong, well-reasoned dissent - violates longstanding
principals of Ohio contract law that bar judges from rewriting parties' agreeinents. Second, as a
practical matter, the outcome of this case will affect tens of thousands - or more commercial
loan transactions in Ohio, open the floodgates for copycat lawsuits against banks, and drive up
the cost of doing business for lenders and businesses alike.
Far more than sin2ple error correction is at stake. This Cour-C should exercise jurisdiction
because the Eighth District's decision abrogates central tenets oEOhio contract law intended to
pi-event conrts from substituting their will for that of the parties, and does so in a context that will
have significant commercial ramifications to the banking industry in Ohio. The result in this
case was particularly illogical: according to the majority deeision, a lender that includes a
specific payment amount on a specific schedule, and who is not alleged to have charged one cent
more than that ainount, can nonetheless be liable for "overcharging" Linder the contract. That
illogic, and the confusion it will generate, substantially conipounds the state-wide rainifications
of the decision below.
The Court of Appeals decision effectively abrogates decades of authority governing the
judicial construction of' conhacts. The Eighth District ignored a terrn in the contract between the
parties that set out the precise amount the borrower was to pay, and instead found that this
explicit provision was "ainbiguous" despite its clarity, by accepting the Plaintifl's invitation to
elsewhere
manufacture a conflict between that provision and the use of the phrase "per annum"
in the contract. This departure from basic principles of eontraet construction including that
each provision of a contract is to be given effect and that specific temis govern over general ones
- threatens every Ohioan's freedom of contract. The Eighth District's decision invites courts to
revise contracts instead of enforce them. It also introduces costly uncertainty into commercial
transactions: Under the Eighth District's view, parties will have no greater assurance that courts
will enforce their bargains, than that they will cast them aside in favor of a judge's policy
preference.
Contract terms are to be given the specific meanings set forth by the parties under the
plain language of their agreement. Alexander v. Buckeye Pipe Line Co. (1978), 53 Ohio St.2d
245-246, syl. ¶ 1, 374 N.E.2d 146. Where the tenns in an existing contract are clear and
unambiguous, a court "cannot in effect create a new contract by finding an intent not expressed
in the clear language employed by the parties." Til. at 246. Long standing precedents of this
Court require that courts give effect to all contract tenns and disregard interpretations that would
render- certain terms rneaningless. State v. Bethel, 110 Ohio St.3d 416, 2006-Ohio-4853, 854
N.E.2d 150, at 1150; Wohl v. Swinn.ey, I18 Ohio St.3d 277, 2008-Ohio-2334, 888 N.E.2d 1062, at
¶ 22. As pointed out by Eiglrth District Judge Colleen Conway Cooney, in dissent from the
Eighth District's decision, the majority failed in this obligation by ignoring the fact that the
Promissory Note "clearly sets forth the metliod forcalculating the annual interest rate[.J" It did
so again in failing to give effect to the term explicitly providing for specific payments in specific
intervals. The Court should accept jurisdiction in this matter to clarify that courts are obligated
to enforce contracts as a matter of law, even when reviewing decisions granting a motion to
dismiss pursuant to Civil Rule 12(B)(6). They are not at liberty unilaterally to delete or to ignore
terms expressly agreed to by the parties.
2
The practical implications of this case are potentially enormous. The method of interest
calculation that Ely challenges is comrnon throughont the financial industry. In fact, FirstMerit
is aware of at least two other cases pending in Oluo making identical allegations against other
Cuyahoga County Common Pleas
banks. See DK&D Properties v. National City Corpos•ation,
Case No. CV-08-680078; .JNT Properties LLC v. Key Bank N.A., Cuyahoga County Common
Pleas Case No. CV-09-681873.
Given that the class that Ely seeks to certify spans 15 years and will likely number in the
tens of thousands of borrowers, it follows that at least three times that number of loan
tra.nsactions will ultimately be affected if the Eighth District decision stands. That number could
climb far higher should additional litigants look to capitalize on the Eighth District's invitation to
sue banks, in order to have their loan agreements judicially rewritten. Banlcs throughout the state
will face exposm-e on as many as all of the commercialloans they have made in the last fi8een
years. A tsunami of liability awaits banks doing business in Ohio. Accordingly, this is a case of
public and great general interest and the Court should accept jurisdiction.
II. STATEMENT OF THE CASE AND FACTS
Ely, a corporation, obtained a commercial loan from FirstMerit on or about August 15,
2001, in the principal aniount of $373,593.10. A Promissory Note signed by Ely set forth the
terms of the agreement.t Three of the Promissory Note tenns arc at issue in this appeal.
First, Ely agreed to repay the principal, together with interest at the rate of "11.000% per
annum." (hereinafter, the "Interest Rate Term"). Second, the Proinissory Note stated that:
'Ihe annual interest rate for this Note is computed on a 365/360 basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days, multiplied by
Pursuant to Ohio R. Civ. P. 10(C), a "copy of any written instiument attaclled to a pleading is a
part of the plcading for all purposes."
the outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding.
(hereinafter, the "365/360 Term"). Finally, the Promissory Note stated that "[Ely] will pay this
loan in 84 payments of $6,428.30 each payment" (hereinaf'ter, the "Monthly Payment Term").
Ely's claims arise solely from the fact that FirstMerit applied the 365/360 Tenn to
calculate the interest due under the Pmmissory Note. Ely does not dispute the fact that the
365/360 Term is contained within the Promissory Note. It does not contend that FirstMerit failed
to disclose the 365/360 Tenn. lt does not explain how FirstMerit could give effect to the
Monthly Paynient Temz by doing anything other than applying the 365/360 method. Ely also
does not contend that the use of the 365/360 method is illegal under Ohio law. (Appellant's
Brief at 2-3).
On October 14, 2008, FirstMerit filed its Motion to Dismiss the Complaint, in which it
argued that Ely failed to state a elaim for breach of contract undcr the plain lanb iage of the
Promissory Note. After complete briefing by the parties, the Cuyahoga County Court of
Common Pleas granted FirstMerit's Motion on May 15, 2009. In a Journal Entry, Judge Daniel
Gaul held that it was "beyond doubt, that Ely can prove no set of faets in support of its claim
which would entitle it to relief." The Journal Entry is attached here at Exhibit A.
Over a strong dissent, the Eiglith District reversed and remanded the trial court's
decision, in an opinion released January 14, 2010 and journalized on January 25, 2010. The
journalized Journal and Entry and Opinion is attached here at Exhibit B. The Court reasoned
that it could not dispose of Ely's claim as a matter of law, because the meaning of the term "per
annunr" was ambiguous and not clearly govenied by the 365/360 Term. In doing so, it reliul on
Cir. Ill. Jan. 24,
an unpublished Illinois trial court decision, Kitson v. Barah ofEdwardsville (12"'
2008), Case No. 02-L-0897, in which the Court - applying a statute not in existence of Ohio 4
imposed a particular definition of "per annum." The Eighth District further found that the
Promissory Note was ambiguous because the Monthly Payment Term cotild not be squared with
Ely's interpretation of the interest Rate Tei-m. FirstMcrit now appeals.
III. PROPOSITIONS OF LAW AND ARGUMENTS IN SUPPORT
A. Proposition of Law No. I
Where Defendant Complies with the Plain Language of a Contract,
Plaintiff s Claim for Breach of Contract Fails as a Matter of Law.
It is black letter law that to state a claim for breach oP conhact in Ohio, a plaintiff must
183 Ohio App.3d
establish, inter alia, breach by the defendant. See Kinecaid v. Erie Ins. Co.,
748, 2009-Ohio-4372, 918 N.E.2d 1036, ¶ 14. Here, regardless of the Interest Rate Tertn and the
365/360 Term, the Monthly Paynient Tenn expresses in irrefutable terms the total amount that
Ely contracted to pay FirstMerit over the life ol'the loan: "84 payments of $6,428.30 each
paynlent."
Ely does not dispute that it agreed to the Monthly Payment Term. Ely docs not allege
that FirstMerit charged it any more than $6,428.30 each month. Ely does not allege that
FirstMerit charged it any more than 84 payments. In short, Ely's allegations fail to state a claim
for breach of contract simply because, even taking Ely's allegations in the light most favorable to
Ely, Ely fails to allege that FirstMerit charged Ely a penny more than what the Monthly Payment
Tenn allowed. Ely does not dispute this, and the majority decision below simply disregarded it
except to state that it somehow created "ambiguity" on the question of the amount Ely was
contractually obligated to pay.
5
B. Proposition of Law No. 2
Courts Must Apply Contract Terms in the Manner The Parties Intended and
Anticipated.
In Ohio, the consti-uction of written contraets is a matter of law. Alexander v. Buckeye
Pipe Line Co. (1978), 53 Ohio St.2d 241, syl. ¶ 1, 374 N.E.2d 146. The pwpose of contract
constniction "is to discover and give effect to the parties' intent, which is prestmied to reside in
ehe contractual language they chose to use" Kellie Auto Sales, Inc. v. Rahbars & Ritters Ents.,
Graham v. Drydock Coal Co.
L.L.C. (2007), 172 Ohio App.3d 675, 682, 876 N.E.2d 1014 (citing
(1996), 76 Ohio St.3d 311, 313, 667 N.B.2d 949).
Common words in a written instruinent "are to be given their plain and ordinary meaning
unless mauifest absurdity results or unless some other meaning is clearlv intended from the
53 Ohio St. 2d at 245-246. (emphasis
face or overall contents of the instrument." Alexander,
added). Where the tenns in an existing contract are clear and unambiguous, a court "cannot in
effect create a new contract by finding an intent not expressed in the clear language employed by
the parties." Id, at 246.
With specific reference to promissory notes in conimercial loan agreements, Ohio courts
agree that even where a manner of interest or payment calculation is "complex," as long as it is
"clearly set out in the note document," it is "in no way anibiguous." Bay Coast Properties, Inc.
Vahie City, Inc.
v. Natl. City Bank, Huron App. No. H-05-015 , 2006-Ohio-2348, at¶ 26 (citing
v. Integrity Ins. Co. (1986), 30 Ohio App.3d 274, 279, 508 N.E.2d 184) ("A contract is not
anibiguolk5 merely becanse it is complex or difficult to read as a whole.°')
Moreover, other state courts hold that where a borrower is aware that the 365/360 method
will be used, the borrower cannot establish a breach of contract claim for the use of that method.
Chern v. Bank ofAmerica (1976), 15 Cal. 3d 866, 873 (granting summary judgment to bank on
6
putative class action for breach of contract); see Fletcher v. Security Pacific National Bank
(1979) 23 Cal.3d 442, 448 (denying class treatment on breach of contract elaim over use of
365/360 method because "a borTower's prior knowledge of the banl(ing practice would deteat a
claiin for dainages for breach of contract."); see also South Bay Chevrolet v. General Motors
Acceptarcce Corp. (Cal. App. 1999), 72 Cal.App.4th 861, 884 (dismissing unfair business
practices claim under state law, where "at the time of entering into the disputed loan agreements
[borrower] knew, understood, agreed and expected that [lender] would use the 365/360
(Teim. App. 1978), 581 S.W.2d 655,
method."); First American Nat. Bank of Nashville v. Hunter
659 ("[T]hcre is no reason why a borrower could not induce the bank to make his loan by
agreeing that interest be computed upon a 360-day year.").
As the foregoing authorities make clear, two contracting parties ean jointly agree that a
word or phrase's "ordinary meaning" will be particularly defined for purposes of that contract
only. Alexander, 53 Ohio St. 2d at 245-246. In that circumstance, a court is bound to interpret
the relevant word or phrase according to the meaning established by the parties in the contract.
Id. That is exactly what happened here: Although Ely and FirstMerit agreed that Ely would pay
interest of"11.000% per annum," the parties agreed that the "annual" or per annurn interest
would be calculated pursuant to the 365/360 method. Alexander, 53 Ohio St. 2d at 245-246
(meaning of term that is apparent from review of "overall contents" of the instrument should
prevail, even if it is other than "ordinary" meaning). Fven assLuning arguendo that the ordinary
zneaning of per annum is - as Ely contended below - an ordinary year of 365 days, or a leap year
of 366 days, that is ir-relevant in light of the parties' agreement to sabstitute an alteinate rneaning.
Where "there are general and special provisions in a contract relating to the same thing,
the special provisions control." 17A Ain. Jur. 2d Contracts § 363. Here, the Promissory Note
7
provides a specific funetional definition of the general term "per annum," expressly setting out
how the "annual interest rate" will be computed and determined - on a 365/360 basis. Thus,
under this commonsense nile of construction, the parties set forth the 365/360 provision with the
intent of designating a specific functional meaning of "per annum" to be used in this coinmercial
loan. The fact that the 365/360 provision does not repeat the phrase "per annum" is immaterial.
C. Proposition of Law No. 3
Courts Must Give Effect to All Contract Terms.
In this state, "courts should give effect, if possible, to every provision therein contained,
and if one consti-uction of a doubtful condition written in a contract would malce that condition
meaningless, and it is possible to give it another construction that would give it meaning and
purpose, then the latter construction rnust obtain." State v.l3etlael, 110 Ohio St.3d 416, 2006Ohio-4853, 854 N.E.2d 150, at ¶ 50 (emphasis in original). Courts "presume that words are used
for a specific purpose and will avoid interpretations that render portions meaningless or
unnecessary." Wohl v. Swinney, 118 Ohio St.3d 277, 2008-Ohio-2334, 888 N.E.2d 1062, at 1( 22.
Ely's argument that the parties' intent was to compute interest by using some method other than
the 365/360 niethod renders both the 365/360 Term and the Monthly Payment Temi
"meaninglcss and unnecessary."
Ely is unable to reconcile the 365/360 Term and the Interest Rate Terni. As described
above, the 365/360 Tenn contains the phrase "annual interest rate" twice:
The annual interest rate for this Note is computed on a 365/360 basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days, multiplicd by
the outstanding principal balance, rrniltiplied by the actual number of days the
principal balance is outstanding.
(emphasis added). Ely argues that the Court should read the first "annual interest rate" phrase to
moan "11.000%," while the second "annual interest rate" phrase should mean "10.84%." There
8
is no basis for this interpretation. The plain language of the Promissory Note states that Ely
"promises to pay. ..interest at the rate of 11.000% per annum" A rate of 10.84% interest is
stated nowhere in the contract. Ohio law prohibits this type of wholesale revision of a valid
contract. See, e.g., Cincinnati Ins. Co. v. CPSlioldings, Inc., 115 Ohio St.3d 306, 2007-Ohio4917, 875 N.E.2d 31, at ¶ 7 (a "contract is to be read as a whole and the intent of each part
gathered from a consideration of the whole," sucli that the court may "give effect to each
provision of the contract"). On the other hand, by applying the 365/360 method in the manner
explained by FirstMerit, the Court adopts a construction that is perfectly cogent and incoiporates
all contract tenns. Under State v. Bethel, FirstMcrit's approach prevails.
D. ProPositiou of Law No. 4
Use of the 365/360 Method of Interest Calculation is Lawful in Ohio.
There is no Ohio authority that prohibits banks from using the 365/360 method. To the
contrary, it has been widely used for years. The unreported Illinois trial court case of Kitson, on
which the Eighth District relied, rests entirely on an Illinois law that effectively bars the use of
the 365/360 method in contracts using the tenn "per annum" to describe an interest rate and, in
effect, compels Illinois courts to impose a particular meaning of the tenn "per annum." It states:
In all computations of time, and of interest and discounts, a month shall be
considered to mean a calendar month, and a year shall consist of twelve calendar
months; and in computations of interest or discount for any number of days less
than a month, a day sliall be considered a thirtieth part of a month, and 'nrterest or
discount shall be computed for such fractional parts of a month upon the ratio
which such tiumber of days shall bear to thirty.
815 ILCS 205/10. No such statute exists in Ohio. Indeed, contracting parties in this state are
free to use any manner of calculation that they clioose, as long as the rate does not exceed 25%
annually. R.C. § 1109.20 (a bank "may contract for and receive interest or fmance charges at
any rate or rates agreed upon or consented to by the parties to the loan contract"). Under Ohio
9
law, the "computation of the loan balance on which nlterest and finance charges are assessed and
the method of compounding interest on the balance shall be as agreed upon by the bank and the
borrower." Id.
Similarly, Hamilton v. Ohio Sav. Bank (1994), 70 Ohio St.3.d 137, 637 N.E.2d 887, on
which the Eighth District relied, likewise said nothing about the propriety of the 365/360
method. As noted by Judge Cooney in her dissent from the Eighth District's opinion, Hamilton
is "easily distinguishable" because it involved "contradictory documents, raising a genuine issue
of fact as to what was disclosed to the consumers involved in the mortgage loans at issue." In
this case, by contrast, as 7udge Cooney fiuther noted, the only document at issue "clearly stated"
that the 365/360 method would be used. Accordingly, Hamilton is inapplicable and should be
disregarded.
IV. CONCLUSION
For the foregoing reasons, FirstMerit respectfully requests that the Court assume
jurisdiction of this appeal.
1O
Respectfully submitted,
Per^P.
%lnthonyJ.O'Malley(0017506) Ow 444 M
Marcel C. Dulramcl (0062171)
(Counsel of Record)
Elizabeth A. Ratliff (0075673)
Gayle 1. Horwitz (0079387)
Vorys, Sater, Seymour and Pease LLP
2100 One Cleveland Center
1375 East Nintli Street
Cleveland, Ohio 44114-1724
Telephone: 216-479-6100
Facsimile: 216-479-6060
Email: ajomalley@vorys.com
mcduhamel@vorys.com
earatfiff@vorys.com
gihorwitz@vorys.com
Counsel for Appellant
FirstMerit Bank, N.A.
11
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a true copy of the foregoing was served upon the
following by regular U.S. mail, postage prepaid, this d"h day of February, 2010:
Steven M. Weiss
Law Offices of Steven M. Weiss
55 Public Square
Suite 1009
Cleveland, OH 44113
Mark Schlachet
3637 South Green Road - 2d Floor
Beachwood, Ol-I 44122
Telephone: (216) 896-0714
Facsimilc: (216) 514-6406
Wi1liam A. Isaacson
Scott E. Gant
Boises, Schiller & Flexner LLP
5301 Wisconsin Avenue, NW
Washington, D.C. 20015
Attorneys for Appellee
Ely Enterprises, Inc.
' s^c e^Roo"
One of the Attorneys for Appellant
FirstMerit Bank, N.A.
12
au*Uvt
1111^IIllllli^llllllllplllllllillllll^lllliln
IIIII
57561105
IN THE COURT OF COMMON PLEAS
CUYAHOGA COIJNTY, OHIO
ELY FiNTERPRISES, INC. I Case No: CV-08•66764I
Plaintiff
7udge: DANIEL GAUL
PIRS'fMERIT SANK, N.A.
17efendanL
JbI7BhTAI, ENTRY
89DIS. W/PR137-1RNAL
AF'CGR A REVIEW OF DIIFENDANI'S MOTION TO DISMISS, PLAINTQ'P'S RESPONSE AND DEFENDANTS REPLY, TAI3
EYOND DOUdT. TIIAT PLAIN'fIFF CAN PROV6 NO SaT OFPACTS IN SUPPORT OF ITS CLAIM
COURT P7NDS, ➢
WHTCH W OULD I:N'FITL6IT'f0 REIdHF. 'III}iRHI'ORE, PLAiNTIbF3 CLAIMS AI2E DISMISSGD PURSOANT TO R.C.
12(B)(6). PINAL.
COURT COST ASSESSED TO TIIL PLAINTIFF(S).
Jndge Signatuze
05/19/2009
- 89
05118/2009 Rscervanroxr'n.lno
05/I9n00909:4i:S5
IIy: CLTMY
G2RALOt.1'UCRST.CLPRK
Page t of t
9
^Durt of ZfppeaY,5 of (obcD
EIGHTH APPELLATE DISTRICT
COUN'T'Y OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 93345
ELY ENTERPRISES, INC.
PLAINTIFF-APPELLANT
vs.
FIRSTMERIT BANK, N.A.
DEFENDANT-APPELLEE
JUDGMENT:
REVERSED AND REMANDED
Civil Appoal from the
Cuyahoga County Court of Common Pleas
Case No. CV-667641
BEFORE: Gallagher, A.J., Cooney, PA., and Kilbane, J.
RELEASED: January 14, 2010
JOURNALIZL+'D:
r) J >
l3 2
ATTORNEYS FOR APPELLANT
Steven M. Weiss
55 Public Square, Suite 1009
Cleveland, Ohio 44113
Scott E. Gant
William A. Isaacson
Boies, Schiller & Flexner, LLP
5301 Wisconsin Avenue, NW
Suite 800
Washington, DC 20015
FIL@D AND JOURNALiZED
PER APP,R. 22(0)
Mark Schlachet
3637 South Green Road
Second Floor
Beachwood., Ohio 44122
ATTORNEYS FOR APPELLEE
Anthony J. O'Malley
Marcel C. Duhaznel
Elizabeth A. Ratliff
Vorys, Sater, Seymour & Pease
2100 One Cleveland Center
1375 E. 9l'' Street
Cleveland, Ohio 44114
't 0 " D jiC13'0 id
:;( } AND 20(r^,)
f;EC.:I VrD
0 i:;>
CA09093345 61240395
1111111111111111111111111111111111111111111111 I I
cLn;;:t o^! TI k R U114 ^,) a^"
n;,
N.B. This entry is an announcement of the court's decision. See App.R. 22(B) and
26(A); Loc.App.R. 22. 'Chis decision will be journalized and will become the judgment
and order of the court pursuant to App.R. 22(C) unless a motion for reconsideration
with supporting brief, per App.R. 26(A), is filed within ten (10) days of the
announcement of the conrt's decision. The time period for review by the Supreme
Court of Ohio shall begin to run upon the journalization of this court's announcement
of decision by the clerk per App.R. 22(C). See, also, S.Ct. Prac.R. 2.2(A)(1).
vni.:u ks ^^ 1 ^ ^l / (83
SEAN C. GALLAGI:IER, A.J.:
Appellant, Ely Enterprises, Inc. ("Ely"), appeals the judgment of the
Cuyahoga County Court of Common Pleas that granted the motion to dismiss of
appellee, FirstMerit Bank, N.A. ("FirstMerit"). For the reasons stated herein,
we reverse the judgment of the trial court and we remand the matter for further
proceedings.
Ely, an Ohio corporation, filed its complaint against FirstMerit on
August 12, 2008. Ely alleges that it obtained a loan from FirstMerit in the
principal amount of $373,593.10 on August 15, 2001, and that pursuant to the
promissory note, Ely agreed to repay the principal together with interest thereon
at the rate of 11.000% per annum. Ely ftiirther alleges that FirstMerit breached
the promissory note between the parties when it assessed interest based on a
calculation known as the "365/360" method, which created an effective interest
rate of 11.153% per annum. Ely's complaint raises claims for breach of contract,
seeks class treatment, requests an injunctionrequirin.g FirstMerit to cease using
the 365/360 xnethod of computing annual interest, and prays for damages, costs,
attorney's fees, and other relief.
A copy of the promissory note is attaclred to the complaint. The
promissory note sets fortli a heading with the principal amount of $373,593.10
and an interest rate of 11.000%. Under the section "Promise to Pay," the note
vi:L`^a t7 J / Y^.ij l_) ( 84
-2sets forth the same principal amount to be paid with "interest at the rate of
11.000% per annum[.]" Under the section "Payinent," the note states that "[t]he
annual. interest rate for this Note is computed on a 365/360 basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days, multiplied
by the outstanding principal balance, multiplied by the actual number of days
the principal balance is outstanding." This section also indicates that the loan
was to be paid in 84 monthly payments of $6,428.30 each, commencing
September 15, 2001, with a final payment for all principal and all accrued
interest not yet paid due on August 15, 2008.
FirstNlerit filed a motion to dismiss the complaint pursuant to
Civ.R. 12(B)(6), asserting that application of the 365/360 method for calculating
interest is permitted by law and unambiguously required by the terms of the
promissory note. Ely opposed the dismissal and filed a cross-motion for
summary judgment, arguing that the note does not permit FirstMerit to charge
interest in excess of the stated per annuin rate of 1.1.000%. The parties
proceeded to file supplemental briefs regarding the dismissal.
The tria]. court denied Ely's motion for partial summary judgment and
granted FirstMerit's motion to dismiss. Ely timely appealed the ruling on the
motion to dismiss and raises one assignment of error that challenges the trial
court's judgment of dismissal.
vf,iu,.1 1," 9 7 ?G 0 I 8 5
-3We review an order dismissing a complaint for failure to state a claim for
relief de novo. Perrysburg Twp. v. Rossford, 103 Ohio St.3d 79, 2004-Ohio-4362,
814 N.E.2d 44. When reviewing a Civ.IZ. 12(B)(6) motion to dismiss, we must
accept the material allegations of the complaint as true and make all reasonable
1.06 Ohio St.3d
inferences in favor of the plaintiff. Johnson v. Microsoft Corp.,
278, 280, 2005-Ohio-4985, 834 N.E.2d 791. For a defendant to prevail on the
motion, it must appear from the face of the complaint that the plaintiff can prove
no set of facts that would justify a court in granting relief. Id.
In construing a contract, a court is to ascertain the intent of the parties.
St. Marys u. Aacglaize Cty. Bd. of C,omrnrs., 115 Oliio St.3d 387, 390,
2007-Ohio-5026, 875 N.E.2d 561. Where the contract is clear and unambiguous,
v. Flerning, 68
then its interpretation is a matter of law. State ex rel. Parsons
Ohio St.3d 509, 511, 1994-Ohio-172, 628 N.E.2d 1377. A contract is
unambiguous as a matter of law if it can be given a definite legal meaning.
Cincinnati Ins. Co. v,
CPS Holdings, Inc., 115 Ohio St.3d 306, 308,
2007-Ohio-4917, 875 N.E.2d 31.
Ilowever, when a term cannot be determined from the four corners of a
contract, factual determination of intent or reasonableness may be necessary.
Inland Refuse Transfer Co. v. Browning-I%erris Industries of Ohio, Inc. (1984), 15
Ohio St.3d 321, 322, 474 N.E.2d 271. Moreover, it is generally the role of the
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-4100
finder of fact to resolve ambiguity in a contract. Westfield Ins. Co. v. Galatis,
Ohio St.3d 216, 220, 2003-Ohio-5849, 797 N.E.2d 1256.
Ely's claims arise from a loan agreement negotiated with FirstMerit,
which provides for repayment of the principal plus interest at a rate of 11.000%
pcr annum. 'Phe promissory note states that the annual interest rate on the loan
was "computed on a 365/360 basis." Ely alleges that this method of calculation
was applied to impose a per annum interest that is greater than 11.000%, which
Ely claims was a breach of contract.
FirstMerit claims that the parties agreed to alter the meaning of the term
method. However, the
"per annum" by agreeing to the 365/360 calculation
promissory note contains no special definition of the term "per annum." The
note contains a stated interest rate of 7 7..000% per annum. The term "per
annum" is ordinarily defined as "by the year." Black's Law Dictionary (8th Ed.
2004). A year consists of 365 days, or 366 in a leap year. The note then sets
forth the niethod for calculating the annual interest rate on a 365/360 basis.
"The fact that the parties fail to specifically define a term witliin the
contract; does not make the term ambiguous. Instead, common, undefined words
appearing in a written instrument will be given their ordinary meaning unless
manifest absurdity results, or some other meaning is clearly evidenced from the
face or overall contents of the instrument." (Citations and quotations omitted.)
y%,(}`I c) i' 9G (_1 18 7
-5104 Ohio St.3d 559, 564,
State ex rel. Petro v. R.J. Reynolds Tobacco Co.,
2004-Ohio-7102, 820 N.I;.2d 910. In this case, we do not read the 365/360
provision as clearly evidencing an inten.t of the parties to alter the ordinary
meaning of the terin "per an num," or as creating an "annual interest rate" other
than the stated rate of 11.000% per annum.
In. Kitson v. Bank of Tdwardsville (12"' Ci.r. Ill. Jan. 24, 2008), Case No.
02-L-0897, the Illinois trial court considered a similar 365/360 computation of
annual interest provision on a note with a stated interest rate of 9.250% per
annum. The court recognized that the term "per annuin" means "by the year."
Id. It then held that "the annual interest rate sentence does not compute an
annual interest rate [and] * * * does not change the stated interest rate of
9.250% per anntiun. As a matter of law the plain language of the promissory note
* * * does not perinit defendant to charge a twelve (12) month interest rate in
excess of 9.250%." Id.
A similar situation is presented herein. The computation of interest
provision does not iridicate an actual calculated interest rate. The calculation
contains the "annual interest rate" as part of the equation, and does not change
the stated interest rate on the note. Nevertheless, the calculation allegedly was
applied to impose a greater interest rate than the stated rate of 1.1.000% per
annum. Accepting the material allegations of the complaint as true and making
^a ^ ^ ^ t ^^^17 €3 8
-6all reasonable inferences in favor of the plaintiff, we find that Ely has set forth
a sufficient claim for breach of contract.
FirstMerit also argues that the parties agreed to a monthly payment term
of 84 payments of $6,428.00 each, and that Ely has not alleged a failure to
comply witli this provision. FirstMerit states that this provision only can be
given effect by applying the calculation method set forth in the note.
Ely argues that to the extent such a reading of the note gives rise to an
internal inconsistency with the stated annual interest term, such an
inconsistency should be resolved by the trier of fact. Ely relies upon the case of
Ilamilton u. Ohio Savings Bank, 70 Ohio St.3d 137, 1994-Ohio-526, 637 N.E.2d
887.
ln Hamilton, the mortgagors challenged the mortgagee bank's use of a
365/360 method for calculating interest. '1'he mortgagors sought to terminate the
bank's alleged practice of overcharging interest and/or misamortizing its loans.
The court reviewed certain internal inconsistencies among the documents, but
ultinrately determined that the record was contradictory as to what was
disclosed between the parties. 'I'herefore, the court found there were genuine
issues of material fact precluding summary judgment. Id. at 140. In a later
appeal, the Ohio Supreme Court held that the action was to proceed as a class
action and that the entire class be certified with respect to all claims. Hamilton
^i:(1 1' 8 9
_7_
v. Ohio Sav. Bank, 82 Ohio St.3d 67, 1998-Ohio-365, 694 N.E.2d 442. Although
Harnillora dealt with certain disclosure issues not presented herein, the case did
contain allegations of overcharging interest through the use of a 365/360 method
of calculating interest, and the action was allowed to proceed as a class action.
See id.
In this matter, we find that to the extent the calculation and the monthly
payment amount are inconsistent with the more specific terms of principal and
stated interest rate, the promissory note is ambiguous. Ambiguities in a
contract are for the trier of fact to resolve. Westfield Ins. Co., 100 Ohio St.3d at
220. Upon our review, we cannot conclude that it appears from the face of the
complaint that the plaintiff can prove no set of facts that would justify a court
in granting relief. Therefore, FirstMerit is not entitled to a Civ.R. 12(B)(6)
dismissal and the decision of the trial court is reversed. Ely's first assignment
of error is sustained.
Judgment reversed; case remanded.
It is ordered that appellant recover from appellee costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a spedial mandate be sent to said court to carry this
judgment irito execution.
U. ^^/ IN^)790
-8A certified copy of this entry shall constitute the mandate pursuant to
Rule 27 of the Rules of Appellate Procedure.
SEA . GALLAGI-I 4 , ADMI STRATIVE JUDGE
MARY EILEEN KILBANE, J., CONCURS;
COLLEEN CONWAY COONEY, PA., DISSENTS
(WITII SEPARATE OPINION)
COLLEEN CONWAY COONEY, P.J., DISSENTING:
I respectfully dissent. I would affirm the trial court judgment because the
note clearly sets forth the method for calculating the annual interest rate on a
365/360 basis. Ely agreed to using this method and concedes that it is not itself
illegal under Ohio law. I find Flamilton v. Ohio Savings Bank, 70 Ohio St,3d
1.37, 1994-Oliio-526, 637 N.E.2d 887, easily distinguishable, Hamilton involved
contradictory documents, raising a genuine issue of fact as to what was
disclosed to the consumers involved in the mortgage loans at issue.
The instant case involves a corporation obtaining a loan for more than
$350,000. The only document in issue clearly stated the method for calculating
the annual interest. Therefore, I would affirm the trial court's dismissal of the
complaint.
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