The opinion of the court was delivered by: SAMUEL DER-YEGHIAYAN, District Judge
This matter is before the court on Plaintiff RB&W Manufacturing
L.L.C.'s ("RB&W") motion for summary judgment. For the reasons
below, we deny summary judgment.
RB&W is a company with its principle place of business in Ohio.
Defendant William McKinley Buford III ("Buford") is a resident of
Illinois and is the former Chairman and CEO of Reliant
Enterprises, Inc. ("Reliant"). Corporations named Reliant
Holdings, Inc., and Capital Fasteners, Inc. are both wholly owned subsidiaries of Reliant. Reliant purchased Capital Fasteners,
Inc. from RB&W in August of 1993. Part of the agreement included
Reliant placing $1,000,000 of the purchase price into escrow with
National City Bank of Cleveland, Ohio. This money was to be a
reserve for any environmental expenses that may arise for Capital
Fasteners, Inc. The rest of the purchase price was to be paid by
way of a promissory note. On August 15, 1993, Buford promised to
pay $800,000 to RB&W, through a promissory note that was to
mature on August 15, 1998.
On December 20, 1996, Buford and Reliant negotiated with RB&W
to extend the maturity date of the promissory note to April 15,
2000. The New Promissory note with the new maturity date is
signed by Buford and provided that, "the entire principal
balance, together with all unpaid accrued interest theron, shall
be due in full and payable on April 15, 2000." It is not disputed
that Buford failed to pay RB&W the New Promissory Note's
principal by April 15, 2000.
The New Promissory Note also contained the following warrant of
attorney and confession of judgment clause:
The undersigned authorizes any attorney at law at any
time or times after the maturity hereof (whether
maturity occurs by lapse of time or by acceleration)
to appear in any state or federal court of record in
the United States of America, to waive the issuance
and service of process, to admit the maturity of this
note and the nonpayment thereof when due, to confess
judgment against the undersigned in favor of the
holder of this Note for the amount then appearing
due, together with interest and costs of suit, and
thereupon to release all errors and to waive all
rights of appeal and stay of execution. The foregoing
warrant of attorney shall survive any judgment, and
if any judgment be vacated for any reason, the holder
hereof nevertheless may thereafter use the foregoing
warrant of attorney to obtain an additional judgment
or judgments against the undersigned.
In July 2000, meetings occurred between Buford, representatives
of Reliant representatives of RB&W, and a representative of
Park-Ohio Industries (who had acquired RB&W prior to 2000). The
New Promissory note was discussed and a new agreement was
reached. Under the New Agreement, Reliant replaced Buford as the
obligor under the promissory note. In addition, funds from the
$1,000,000 held in escrow were to be released in order to cover
the remaining purchase price. On August 4, 2000, RB&W received
payment in the amount of $189,870.95 released from the escrow
account. One month later, an additional $10,129.05 was paid from
the escrow account to RB&W. In March 2001, Reliant made a payment
of $40,000 to RB&W to cover interest for the period from July 11,
2000 through February 28, 2001. In July 2001, Reliant made a
payment to RB&W in the amount of $25,666.67. To this date,
payments received on the principal balance of $800,000 equal
$250,000, and $41,166.67 has been paid toward interest accrued.
There remains $550,000 due on the principal plus accrued
RB&W brought this suit for confession of judgment on December
6, 2002, invoking the warrant of attorney and confession of
judgment clause contained within the promissory note. RB&W moved
the court for a default judgment against the defendant, which was
granted. Buford then filed a motion to vacate default judgment
and for leave to file answer instanter, which was also granted.
In Buford's answer he asserted eight affirmative defenses. RB&W
did not file an answer to those eight affirmative defenses. RB&W seeks summary judgment due
to defendant's default on payments and to the warrant of attorney
and confession of judgment clause contained in the promissory
note. RB&W moves the court to enter a judgment in its favor,
awarding it the outstanding principal, all accrued interests, and
costs of suit.
Summary judgment is appropriate when the record reveals that
there is no genuine issue as to any material fact and the moving
party is entitled to judgment as a matter of law. Fed.R. Civ. P.
56(c). In seeking a grant of summary judgment the moving party
must identify "those portions of `the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any,' which it believes demonstrate the
absence of a genuine issue of material fact." Celotex Corp. v.
Cartrett, 477 U.S. 317, 323 (1986) (quoting Fed.R. Civ. P.
56(c)). This initial burden may be satisfied by presenting
specific evidence on a particular issue or by pointing out "an
absence of evidence to support the non-moving party's case."
Id. at 325. Once the movant has met this burden, the non-moving
party cannot simply rest on the allegations in the pleadings, but
"by affidavits or as otherwise provided for in [Rule 56], must
set forth specific facts showing that there is a genuine issue
for trial." Fed.R. Civ. P. 56(e). A "genuine issue" in the
context of a motion for summary judgment is not simply a
"metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,
475 U.S. 574, 586 (1986). Rather, a genuine issue of material fact
exists when "the evidence is such that a reasonable jury could
return a verdict for the nonmoving party." Anderson v. Liberty,
Inc., 477 U.S. 242, 248 (1986); Insolia v. Phillip Morris,
Inc., 216 F.3d 596, 599 (7th Cir. 2000). The court must
consider the record as a whole, in a light most favorable to the
non-moving party. Anderson, 477 U.S. at 255; Bay v. Cassens
Transport Co., 212 F.3d 969, 972 (7th Cir. 2002).
The main facts of this case are not in dispute. Both parties
have admitted that old and new promissory notes were entered into
with a principal balance of $800,000. The old promissory note was
to be due on August 15, 1998. The New Promissory note extended
that maturity date to April 15, 2000. It is also not disputed
that Buford failed to make any payments on the principal balance
before its maturity date of April 15, 2000.
The promissory note, both old and new, contained a warrant of
attorney and confession of judgment clause or what is known as a
cognovit note. Under Ohio law a congnivit note is "a 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." Medina Supply Co. v. Corrado, 689 N.E.2d 600, 603
(Ohio App. Ct. 1996) (quoting D.H. Overmyer Co. v. Frick Co.
405 U.S. 174 (1972)). A judgment on a cognovit note is generally
entered pursuant to a warrant of attorney which "consented to by
a debtor provides for waiver of prejudgment notice and hearing."
Fogg v. Friesner, 562 N.E.2d 937, 939 (Ohio App. Ct. 1988).
Under Ohio Law, a cognovit note must comply with the standards
set forth in Ohio Revised Code ("ORC") 2323.13 which suggests the
proper language that should be employed in a cognovit note and
further requires: 1) that a warning, in language the statute
dictates, appear within the promissory note, notifying the debtor
of its existence, 2) that notice be given to the debtor upon
entry of judgment, and 3) that all consumer loans and consumer
transactions are thus excluded from the purview of this statute.
The cognovit note contained with the promissory note in the
instant action complies with all the requirements set forth in
A defendant who seeks relief "from a judgment taken upon a
cognovit note need only establish (1) a meritorious defense and
(2) that the motion was timely made." Medina Supply Co.,
689 N.E.2d at 603. In the instant action, while a default judgment
was entered by Judge Holderman, the prior judge in this action,
against Buford on January 22, 2003, the default judgment was
vacated by Judge Holderman on March 31, 2003. Buford was also
granted leave to answer RB&W's complaint for confession of
judgment and Buford presented eight affirmative defenses in his answer. Thus, Buford entered a timely motion to vacate judgment