Huntington Natl. Bank v. Schneider
Citation233 N.E.3d 158, 2023 Ohio 4813
Date Filed2023-12-29
DocketC-230072
JudgeZayas
Cited1 times
StatusPublished
Syllabus
CONTRACT — DEFENSES — WAIVER — DUTY — SURETY: The trial court erred in granting summary judgment in favor of plaintiff-appellee bank where the record reveals that genuine issues of material fact remain as to the defenses known to defendant-appellant surety at the time of entering into the surety agreement and as to plaintiff-appellee bank's knowledge of adverse facts which materially increased the surety's risk beyond that which the bank had reason to believe the surety intended to assume at the time of entering into the surety agreement.
Full Opinion (html_with_citations)
[Cite as Huntington Natl. Bank v. Schneider,2023-Ohio-4813
.]
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
THE HUNTINGTON NATIONAL : APPEAL NO. C-230072
BANK, as administrative agent, TRIAL NO. A-2002093
Plaintiff-Appellee, :
O P I N I O N.
vs. :
RAYMOND SCHNEIDER, :
Defendant-Appellant, :
and :
HAROLD SOSNA, :
and :
FAYE SOSNA, :
Defendants. :
Civil Appeal From: Hamilton County Court of Common Pleas
Judgment Appealed From Is: Reversed and Cause Remanded
Date of Judgment Entry on Appeal: December 29, 2023
Buchanan Ingersoll & Rooney PC, Christopher P. Schueller and Timothy Palmer, for
Plaintiff-Appellee,
Strauss Troy Co., LPA, Richard S. Wayne, Amy L. Hunt, Ryan F. Hemmerle and
Jeffrey A. Levine, for Defendant-Appellant.
OHIO FIRST DISTRICT COURT OF APPEALS
ZAYAS, Judge.
{¶1} Defendant-appellant Raymond Schneider appeals the judgment of the
Hamilton County Court of Common Pleas granting summary judgment in favor of
plaintiff-appellee The Huntington National Bank, as administrative agent
(“Huntington”), on its claim against Schneider for breach of a “Guaranty” agreement.
For the reasons that follow, we reverse the judgment of the trial court and remand the
cause for further proceedings consistent with this opinion and the law.
I. Background
{¶2} This case concerns the liability of Schneider for an over $75 million
dollar debt created pursuant to a credit agreement (the “credit agreement”) by and
between numerous lenders and borrowers relating to the operation of seven senior
skilled-nursing facilities. Schneider entered into a “Guaranty” agreement (the
“guaranty agreement”) with Huntington in which he absolutely and unconditionally
guaranteed the prompt payment in full of the debt as and when the respective parts
thereof became due and payable. After certain defaults by the borrowers, Huntington
filed suit against Schneider for breach of the guaranty.
{¶3} Huntington ultimately moved for summary judgment on its claim,
asserting that Schneider was notified of the acceleration of payment upon default and
Huntington was therefore entitled to judgment against him. Schneider opposed
summary judgment, arguing that genuine issues of material fact remained as to his
defenses to enforcement. Namely, he argued that the evidence in the record showed
that Huntington concealed certain adverse facts not available to him at the time of
entering the guaranty which materially increased his risk beyond that which
Huntington had reason to believe he intended to assume when he signed the guaranty.
Huntington responded, asserting that Schneider waived any right to argue against
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OHIO FIRST DISTRICT COURT OF APPEALS
enforcement of the guaranty for any reason. Huntington additionally asserted that it
had no duty to disclose the information to Schneider and the record lacked evidence
that Huntington knew Schneider did not have accurate and complete information.
{¶4} The trial court ultimately granted summary judgment in favor of
Huntington. The trial court first found that Schneider waived any defenses available
to him in the agreement, whether known or unknown at the time of signing. The trial
court additionally found that, although the record showed that it was plausible that
Huntington knew of facts unknown to Schneider that materially increased his risk
beyond that which Huntington had reason to believe he intended to assume, the
defense was unavailable to Schneider as he was merely a guarantor, i.e., a secondary
obligor, under the guaranty, rather than a primary obligor. The trial court further
found that summary judgment was appropriate as Schneider could not meet the
elements of a fraudulent-inducement claim.1
{¶5} Schneider now appeals, arguing in a single assignment of error that the
trial court erred in granting summary judgment in favor of Huntington.
II. Law and Analysis
A. Standard of Review
{¶6} A party seeking to recover on a claim may move for summary judgment
in the party’s favor as to all or a part of the claim. Civ.R. 56(A). Summary judgment
should be rendered in the party’s favor if the timely filed Civ.R. 56(C) permissible
evidence shows that there is no genuine issue of material fact, and the moving party is
entitled to judgment as a matter of law. Civ.R. 56(C). The permissible evidence for
the trial court to consider includes the pleadings, depositions, answers to
1 While the record is unclear as to whether Schneider was arguing fraud in the inducement below,
it is clear here on appeal that he is not asserting an argument concerning fraud in the inducement.
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OHIO FIRST DISTRICT COURT OF APPEALS
interrogatories, written admissions, affidavits, transcripts of evidence, and written
stipulations of fact. Id.No other evidence or stipulations may be considered except as stated in Civ.R. 56.Id.
Summary judgment “shall not be rendered unless it appears from the evidence or stipulation, and only from the evidence or stipulation, that reasonable minds can come to but one conclusion and that conclusion is adverse to the party against whom the motion for summary judgment is made.”Id.
{¶7} In other words, to obtain summary judgment, the moving party must
show that (1) there is no genuine issue of material fact, (2) the moving party is entitled
to judgment as a matter of law, and (3) it appears from the evidence that reasonable
minds can come to but one conclusion when reviewing the evidence in favor of the
nonmoving party, and that conclusion is adverse to the nonmoving party. Grafton v.
Ohio Edison Co., 77 Ohio St.3d 102, 105,671 N.E.2d 241
(1996). The moving party has the initial burden of informing the trial court of the basis for the party’s motion and identifying those portions of the record that demonstrate the absence of a genuine issue of material fact on the essential elements of the nonmoving party’s claim. Dresher v. Burt,75 Ohio St.3d 280, 293
,662 N.E.2d 294
(1996). If the moving party meets this initial burden, the nonmoving party then bears the burden of setting forth “specific facts showing that there is a genuine issue for trial.” Civ.R. 56(E). If the nonmoving party does not do so, then summary judgment is appropriate and must be entered against the nonmoving party.Id.
This court reviews a trial court’s grant of summary judgment do novo. Mid-Century Ins. Co. v. Stites, 1st Dist. Hamilton No. C- 200421,2021-Ohio-3839, ¶ 10
.
B. Genuine Issues of Material Fact Remain as to Waiver
{¶8} Schneider argues that the trial court erred in finding that he waived the
ability to present any defense to enforcement of the guaranty. We agree.
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶9} The liability of a surety or guarantor is determined by the terms of the
contract. O’Brien v. Ravenwoods Apartments, Ltd., 169 Ohio App.3d 233, 2006- Ohio-5264,862 N.E.2d 549
, ¶ 21-23 (1st Dist.). The agreement is interpreted as any
other contract under Ohio law. Id. at ¶ 23. If the terms are clear and unambiguous, a
court may not construe it to have any other meaning. Id.
{¶10} “As a general rule of construction, a court may construe multiple
documents together if they concern the same transaction.” Center Ridge Ganley, Inc.
v. Stinn, 31 Ohio St.3d 310, 314,511 N.E.2d 106
(1987).
{¶11} Here, the original guaranty agreement provides that Schneider’s
liabilities and obligations under the agreement are absolute and unconditional
“irrespective of any lack of validity or enforceability of the Credit Agreement, any note,
any Loan Document or any other agreement, instrument or document evidencing the
Debt or related thereto, or any other defense available to [Schneider] in respect of this
agreement.”
{¶12} However, a subsequent agreement—in which the parties reaffirmed the
guaranty and other loan documents upon amendment of the underlying credit
agreement—provides:
The undersigned [Schneider] hereby represent[s] and
warrant[s] to the Agent and the Lenders, and agree[s] with Agent and
the Lenders, that the undersigned [has] no claim or offset against, or
defense or counterclaim to, any obligation or liability under the
Collateral Documents to which he * * * is a party, and the undersigned
hereby waive[s] and release[s] Agent and the lenders * * * from any and
all claims, offsets, defenses and counterclaims of which the undersigned
is aware, such waiver and release being with full knowledge and
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OHIO FIRST DISTRICT COURT OF APPEALS
understanding of the circumstances and effect thereof and after having
consulted legal counsel with respect thereto.
{¶13} “When the terms of the contract are contradictory, the terms added later
supersede the original terms to the extent of the contradiction.” (Citations omitted.)
Sites v. Moore, 79 Ohio App.3d 694, 699,607 N.E.2d 1114
(4th Dist.1992); see, e.g., Tillimon v. Jankowski, 6th Dist. Lucas No. L-91-262,1992 Ohio App. LEXIS 2752
, 5 (May 29, 1992); Lamkin v. First Community Bank, 10th Dist. Franklin No. 00AP-935,2001 Ohio App. LEXIS 1450
, 23 (Mar. 29, 2001); Ottery v. Bland,42 Ohio App.3d 85, 87
,536 N.E.2d 541
(10th Dist.1987).
{¶14} Additionally, “ ‘[i]t is well established that when a contract contains
both general and specific language the more specific language controls.’ ” Royal
Appliance Mfg. Co. v. Fernengel, 8th Dist. Cuyahoga No. 51268, 1987 Ohio App.
LEXIS 8491, 16 (Aug. 27, 1987), quoting Ins. Co. of N. Am. v. Wells,35 Ohio App.2d 173
,300 N.E.2d 460
(10th Dist.1973).
{¶15} Here, the original waiver provision is an all-encompassing waiver of any
defenses available to Schneider. However, the new waiver provision waives only
known defenses. The new waiver provision is either contradictory to or more specific
than the original provision. Therefore, we hold that the new language is controlling,
and, under the plain language of the contract, Schneider waived only known defenses
against enforcement of the guaranty. Consequently, the trial court erred in granting
summary judgment on this issue as Schneider waived only known defenses and
genuine issues of material fact remain as to Schneider’s knowledge of his asserted
defense.
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OHIO FIRST DISTRICT COURT OF APPEALS
C. Huntington Had a Duty to Disclose Material Adverse Facts to Schneider
{¶16} Schneider next argues that the trial court erred in finding that
Huntington did not owe him a duty of disclosure as he is a surety under the agreement,
i.e., a primary obligor, rather than a guarantor. We agree.
{¶17} “Suretyship is a contractual relation whereby one person, the surety,
agrees to answer for the debt, default, or miscarriage of another, the principal, with
the surety generally being primarily and jointly liable with the principal.” PNC Bank
v. Schram, 1st Dist. Hamilton No. C-980683, 1999 Ohio App. LEXIS 1911, 8 (Apr. 30, 1999), quoting Manor Care Nursing & Rehab. Ctr. v. Thomas,123 Ohio App.3d 481, 487-488
,704 N.E.2d 593
(1st Dist.1997); accord, e.g., Madison Natl. Bank v. Weber,117 Ohio St. 290, 293
,158 N.E. 543
(1927). “The primary distinction between a surety and a guarantor is that a surety is primarily liable with a principal, whereas the liability of a guarantor is secondary and collateral if the principal does not perform.”Id.,
quoting Thomas. A surety’s obligation is created concurrently with that of the
principal debtor. Weber at 293. In other words, the contract of surety “is made at the
same time and usually with that of the principal, while that of a guarantor is a contract
separate and distinct from that of the principal.” Id. A suretyship is created only
through an express agreement and will not be implied. Schram at 8. As such, we must
examine the precise wording of the contractual language as the language is crucial to
the determination of whether the creation of a suretyship was intended. Id.
{¶18} Here, the guaranty agreement was entered the same day as the credit
agreement creating the underlying obligation. The guaranty agreement provides:
Guarantor hereby absolutely and unconditionally guarantees the
prompt payment in full of all of the Debt as and when the respective
parts thereof become due and payable. If the Debt or any part thereof
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OHIO FIRST DISTRICT COURT OF APPEALS
shall not be paid in full when due and payable, Agents and the Lenders,
in each case, shall have the right to proceed directly against Guarantor
under this Agreement to collect the payment in full of the Debt,
regardless of whether or not Agent or Lenders shall have theretofore
proceeded or shall then be proceeding against any Borrower or any
other Person obligated on the Debt or Collateral, if any, or any of the
foregoing, it being understood that Agent and the Lenders, in their sole
discretion, may proceed against any Borrower or any other Person
obligated on the Debt and any Collateral, and may exercise each right,
power or privilege that Agent may then have, either simultaneously or
separately, and, in any event, at such time or times and as often and in
such order as Agent and the Lenders, in their sole discretion, may from
time to time deem expedient to collect the payment in full of the debt.
(Emphasis added.)
{¶19} Further, the credit agreement provides:
To induce the Lenders and the L/C Issuer to provide the credits
described herein and in consideration of benefits expected to accrue to
the Borrowers by reason of the Commitments and the Loans and for
other good and valuable consideration, receipt of which is hereby
acknowledged, each Borrower, each Guarantor and each Subsidiary
of the Borrowers party hereto * * * , hereby unconditionally and
irrevocably guarantees jointly and severally to the Administrative
Agent, the Lenders, the L/C Issuer and their Affiliates that are parties
to any document evidencing the Hedging Liability or Bank Product
Liability, the due and punctual payment of all present and future
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OHIO FIRST DISTRICT COURT OF APPEALS
Secured Obligations, Hedging Liability, and Bank Product Liability,
including, but not limited to, the due and punctual payment of
principal of and interest on the Loans, the Reimbursement
Obligations, and the due and punctual payment of all other Secured
Obligations now or hereafter owed by the Borrowers under the Loan
Documents and the due and punctual payment of all Hedging
Liability and Bank Product Liability, in each case as and when the
same shall become due and payable, whether at stated maturity, by
acceleration, or otherwise, according to the terms hereof and thereof.
In case of failure by any Borrower or other obligor punctually to pay
any Secured Obligations, Hedging Liability, or Bank Product Liability
guaranteed hereby, each Guarantor hereby unconditionally, jointly and
severally agrees to make such payment or to cause such payment to be
made punctually as and when the same shall become due and payable,
whether at stated maturity, by acceleration, or otherwise, and as if such
payment were made by such Borrower or such obligor.
(Emphasis added.)
{¶20} Construing these provisions together, it is clear that Schneider’s liability
was intended to be primary and joint with the borrowers to ensure payment of the debt
as and when it becomes due and payable. Nowhere in the agreements is there any
indication that Schneider’s liability was conditional upon or secondary to any primary
obligation held solely by the borrowers for payment, or that Schneider’s liability
became primary only upon some default by the borrowers. Therefore, because
Schneider is primarily liable under the agreements for the debt as and when the
payment became due and payable, we hold that Schneider is a surety under the
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OHIO FIRST DISTRICT COURT OF APPEALS
agreements. Accordingly, the trial court erred in finding that Schneider was merely a
guarantor.
{¶21} Schneider next argues that, because he is a surety under the agreement,
Huntington had a duty to disclose the adverse facts not available to him that materially
increased his risk beyond that which Huntington had reason to believe he intended to
assume. Huntington argues that, even under surety law, it had no duty to “conduct
underwriting” and present Schneider with a risk analysis before he signed any loan
documents.
{¶22} A creditor owes a duty of disclosure to a surety where (1) the creditor
knows facts which materially increase the risk beyond that which the creditor has
reason to believe the surety intends to assume, (2) the facts are unknown to the surety,
(3) the creditor has reason to believe the facts are unknown to the surety, and (4) the
creditor has a reasonable opportunity to communicate the facts to the surety.
Kawasaki Motors Corp., U.S.A. v. Navratil, 3d Dist. Hancock No. 5-84-26, 1985 Ohio
App. LEXIS 9104, 8 (Oct. 9, 1985) (citing and adopting the Restatement of the Law, Security, Section 124(1) (1941) after finding, upon careful consideration, that the Restatement is a correct reflection of the current state of the law); accord, e.g., State Sav. & Trust Co. v. Grady,20 Ohio App. 385, 389-390
,153 N.E. 238
(9th Dist.1923). The failure of a creditor to notify a surety of such facts is a defense to the surety.Id.
However, “there is no duty imposed on the creditor to conduct an investigation for the surety’s benefit.”Id.
“Therefore, if the creditor is no more than negligent in not discovering facts which affect the risk, the surety will not be discharged from his obligation.”Id.,
citing Restatement of the Law, Security, Section 124, Comment b
(1941).
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶23} The underlying credit agreement was entered on November 30, 2018,
by and between 14 borrowers (collectively, “the borrowers”), certain guarantors,
certain lenders (collectively “the lenders”), and Huntington, as administrative agent
and “L/C Issuer.” The agreement offers that the borrowers had requested, and the
lenders agreed, to extend certain “credit facilities” on the terms and conditions of the
agreement. Under the agreement, Huntington—as the administrative agent—was
required to evaluate and certify the solvency and financial condition of the borrowers
and guarantors, and the value of the collateral.
{¶24} The 14 borrowers under the loan consisted of various entities involved
in the ownership and/or operation of the seven senior skilled-nursing facilities
benefited by the agreement. Half of these entities, the Keller Group, were owned
jointly by Schneider and Harold Sosna, each owning 50 percent. The other half of the
entities, the JBZ Group, were solely owned by Sosna. Schneider and Sosna each—
separately—entered into a guaranty agreement with Huntington on the day of the
credit agreement, guarantying the payment of the underlying debt.
{¶25} In his affidavit offered in opposition to summary judgment, Schneider
claimed that, while he had 50 percent ownership in the Keller Group, Sosna was the
managing member of those companies and maintained exclusive control and oversight
over all day-to-day operations. He said that he was a silent partner and Sosna was in
control and maintained the financial statements of the Keller Group. He claimed he
was never provided with any financial information about the Keller Group, despite
multiple requests. He further claimed that he never had access to any financial
information related to the JBZ Group, or any information pertaining to Sosna’s
personal financial situation.
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶26} He denied any involvement in securing or negotiating the loan, or ever
discussing his guaranty with Huntington. He claimed that Huntington knew, and
failed to tell him, various adverse facts pertaining to the financial condition of Sosna
and the JBZ Group prior to requiring him to sign a guaranty for the entire loan
amount, despite only having 50 percent ownership in certain involved entities. He
further claimed that Sosna told him the guaranty agreement was required because the
Keller Group Properties did not have sufficient value to support his portion of the loan
and Huntington therefore would not approve the loan unless he signed the guaranty
for the entire borrowed amount, even though the Keller Group was only receiving
approximately 44 percent of the loan proceeds.
{¶27} The record can be read to support that, while Huntington’s initial
investigations into the involved entities and guarantors seemed positive, Huntington
became aware in March 2018 that quarterly performance for the JBZ Group had
“dropped off significantly.” As a result, the loan was put “on hold” in August 2018
since the original projections were not being achieved. Afterward, the loan was
restructured and, rather than being split into three obligated groups—one consisting
of the Keller Group entities, one consisting of the JBZ Group entities, and one
consisting of entities from both—who were each responsible for certain amounts
under the loan, as was originally intended, there was now to be only one obligated
group and Schneider was to guaranty the entire loan amount, rather than just the
portion pertaining to his obligated group. One of the bases relied upon by Huntington
to rationalize the restructuring of the loan was the “significant syndication and
derivative revenue” that the loan would generate for Huntington as the lead agent
bank.
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶28} Further, emails from Huntington reveal that Huntington was aware that
checks were being held by certain facilities due to cash-flow issues and that there were
outstanding checks in the amount of $747,000 as of July 2018. The emails indicate
that Huntington felt this was “a little concerning,” and was seeking an explanation for
these issues.
{¶29} Even further, the record can be read to support that Huntington had a
“close relationship” with Sosna and was in direct communication with Sosna
pertaining to his personal financial situation, in which Sosna revealed that he had $8
million invested into his personal home and a $4 million mortgage on the home but
could not get an appraisal for more than $2 million. Huntington responded that it
would assist Sosna in taking a “subjective view” of things and utilize the process in
place for “situations like that.”
{¶30} Based on the evidence in the record, a reasonable fact finder could find
that Huntington was aware—through its own investigation—of adverse facts relating
to the financial position of the other borrowers and/or guarantors which would
materially increase Schneider’s risk under the guaranty agreement beyond that which
Huntington had reason to believe he intended to assume before requiring him to
guarantee the entire loan amount.
{¶31} Additionally, Schneider denied having any information relating to the
financial position of Sosna or any of the borrowing entities, including the entities in
which he had partial ownership, at the time he entered into the guaranty agreement,
and no evidence was put forth to dispute this assertion. Further, the record can be
read to support that Schneider was “blindsided” by the actions of Sosna.
{¶32} Huntington argues that it “could only have liability under surety law if
Huntington knew Schneider was making decisions based on false or inaccurate
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OHIO FIRST DISTRICT COURT OF APPEALS
information, and there is no such evidence in the record.” However, the requirement
is only that Huntington had reason to believe that Schneider did not know about the
adverse facts related to the financial positions of Sosna and the JBZ Group. Schneider
only had partial ownership in the Keller Group properties, and he was a silent partner
in relation to those entities. He did not have any ownership in the JBZ Group
properties or Premier, which was the management company of the nursing facilities.
Huntington knew of the ownership and management responsibilities of each person
at the time of the refinancing. Additionally, the entirety of the communications
pertaining to the refinancing were solely between Huntington and Sosna, either
personally or through Sosna’s financial advisor. A reasonable fact finder could find
this information sufficient to show that Huntington had reason to believe that Sosna
would not tell Schneider about the adverse financial information relating only to
himself and his individually-owned entities.
{¶33} Lastly, the record can be read to support that Huntington was in direct
communication with Capital Point Advisors, which obtained Schneider’s personal
information to provide to Huntington. This reveals that Huntington had a line of
communication to Schneider, outside of Sosna, which was utilized. Therefore, a
reasonable fact finder could find that Huntington had a reasonable opportunity to
communicate the adverse facts to Schneider, had it wished to do so.
{¶34} Therefore, based on the evidence in the record, we hold that a
reasonable fact finder could find the elements met to prove a material nondisclosure
which could invalidate the guaranty agreement. Accordingly, summary judgment was
improperly granted as genuine issues of material fact remain regarding Schneider’s
defense to enforcement of the guaranty.
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OHIO FIRST DISTRICT COURT OF APPEALS
III. Conclusion
{¶35} Based on all the foregoing, we hold that summary judgment was
improperly granted in favor of Huntington as Schneider met his burden in opposition
to summary judgment to set forth specific facts showing there are genuine issues
remaining for trial. Accordingly, we sustain the assignment of error.
{¶36} Having sustained the sole assignment of error, we reverse the judgment
of the trial court and remand the cause for further proceedings consistent with this
opinion and the law.
Judgment reversed and cause remanded.
CROUSE, P.J., and BOCK, J., concur.
Please note:
The court has recorded its own entry this date.
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