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RB&W MANUFACTURING LLC v. BUFORD

November 3, 2004.

RB&W MANUFACTURING LLC by merger Successor of RB&W Corporation, Plaintiff,
v.
WILLIAM M. BUFORD III, Defendant.



The opinion of the court was delivered by: SAMUEL DER-YEGHIAYAN, District Judge

MEMORANDUM OPINION

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.

BACKGROUND

  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 interest.

  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.

  LEGAL STANDARD

  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).

  DISCUSSION

  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.

  I. Cognovit Note

  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 ORC 2323.13.

  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 and ...


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