Agnew v. City Nat. Bank & Trust Co. of Columbus

• Decision Date: 27 February 1979
• Docket Number: No. C-2-76-899.,C-2-76-899.
• Citation: 502 F. Supp. 760
• Parties: Mr. & Mrs. Joe AGNEW; Mr. & Mrs. Paul Bilderback; Mr. & Mrs. Samuel Cooper; Mr. & Mrs. Aldo Del Tedesco; Mr. and Mrs. Paul Fox; Mr. & Mrs. Glenn Fulton; Mr. & Mrs. Michael Martin; Mr. and Mrs. William Petry; Mr. & Mrs. James Scott; Mr. & Mrs. Thomas Tasseff; Mr. & Mrs. Robert Weathers; Mr. John Basbagill, Plaintiffs, v. The CITY NATIONAL BANK & TRUST COMPANY OF COLUMBUS, Defendant.
• Court: U.S. District Court — Southern District of Ohio

502 F. Supp. 760

Mr. & Mrs. Joe AGNEW; Mr. & Mrs. Paul Bilderback; Mr. & Mrs. Samuel Cooper; Mr. & Mrs. Aldo Del Tedesco; Mr. and Mrs. Paul Fox; Mr. & Mrs. Glenn Fulton; Mr. & Mrs. Michael Martin; Mr. and Mrs. William Petry; Mr. & Mrs. James Scott; Mr. & Mrs. Thomas Tasseff; Mr. & Mrs. Robert Weathers; Mr. John Basbagill, Plaintiffs, v. The CITY NATIONAL BANK & TRUST COMPANY OF COLUMBUS, Defendant.

No. C-2-76-899.

United States District Court, S. D. Ohio, E. D.

February 27, 1979.

Freeman T. Eagleson, Jr., Columbus, Ohio, for plaintiffs.

Alan L. Briggs, John M. Tobin, Columbus, Ohio, for defendant.

MEMORANDUM AND ORDER

DUNCAN, District Judge.

This cause is before the Court on defendant's motion for summary judgment, extensive memoranda of counsel, and writings accompanying the memoranda.

I

Plaintiffs purchased lots for real estate development in Morrow County, Ohio. The defendant bank holds notes executed by the plaintiffs, who claim a right of rescission and other relief under the provisions of the Consumer Protection Act, 15 U.S.C. § 1601 et seq.; and the Regulations issued by the Board of Governors of the Federal Reserve System, 12 C.F.R. 226.

II

In 1972 Whetstone Development, Inc. (Whetstone) purchased about 1500 acres in Morrow County, Ohio, and began the development of a rural home project called Candlewood Lake. The land was subdivided into approximately 3000 lots individually priced from $5,000 to $15,000.

Purchasers who desired to finance the purchase of a lot executed a promissory note and contract with Whetstone requiring that payment be made over an eight-year period. Whetstone, then, customarily sold such notes to one of six Ohio banks including the Cleveland Trust Company, Toledo Trust Company, Centran Bank of Akron, Society National Bank of Cleveland, Farmer's Savings and Trust Company of Mansfield, and City National Bank and Trust Company of Columbus. The lot purchaser would make required periodic payments to the particular bank which held his note.

By 1974, Whetstone had sold approximately half of the available lots and was finding itself unable to comply with all the terms of the contracts for sale. Specifically, Whetstone was not able to complete certain planned development projects including access roads and utility services. These difficulties were also of concern to the financing agents for Whetstone, Independence Mortgage Trust (Independence), a real estate investment trust. Hence, the difficulties of performance of the contract obligations were a matter of concern to the purchasers of the lots, and Independence as well as the banks holding the notes. Certain of those lot owners, acting as named plaintiffs, filed a class action suit in the Court of Common Pleas of Morrow County on October 21, 1976, on behalf of all property owners in the Candlewood Lake development seeking damages and equitable relief. Whetstone, Independence, the banks, and others were named as party-defendants. That litigation was resolved by way of settlement and dismissal on December 14, 1976.

Plaintiffs in the instant case are property owners in the Candlewood Lake development who brought an action for damages and equitable relief in this Court on December 17, 1976. Defendant in this case, also a defendant in the above mentioned state court suit, has moved for summary judgment. In support of defendant's motion it is asserted that because of the litigation and settlement in Morrow County Common Pleas Court, plaintiffs' claims are barred by the doctrine of res judicata and settlement and release. Plaintiffs contend that this action is not barred and that the state court judgment was obtained by fraud. In view of the positions of the litigants, it is necessary that this Court carefully review the Court of Common Pleas litigation which was commenced on October 21, 1976.

My review of that litigation convinces me that:

1. The action was maintained as a class action in accordance with Rule 23(b)(1) of the Ohio Rules of Civil Procedure and that the plaintiffs in the case at bar were members of the class as recognized by the Court.

2. Richard Theodore Boehm represented the named plaintiffs and the members of the class.

3. The parties to the state court lawsuit reached a tentative settlement agreement of which that court issued notice of proposed compromise settlement on November 12, 1976. The notice stated that a hearing would be held on December 14, 1976, at 1:30 p. m. to determine whether or not the proposed settlement should be approved by the Court. The notice contained a general description of the proposed compromise settlement. The proposed settlement included a provision whereby the six banks would pay almost $1,000,000 to certain lot owners, the lot owners were to purchase the mortgage of Independence and also purchase unsold lots. The specific terms of the agreement were to be filed in Court no later than 1:30 p. m., December 1, 1976.

4. On November 12, 1976, the Court of Common Pleas issued a notice to all class members stating that, on December 14, 1976, all members of the class would have the opportunity to be heard on whether the conditional order certifying the class action should be made final. The notice also stated that members of the class could appear and express their positions as to whether the named counsel for the class would be a proper representative of the class.

5. The November 12 notices were delivered to all the plaintiffs in the case at bar and to counsel for those plaintiffs.

6. A proposed settlement was filed in the Court of Common Pleas before December 1, 1976. This document provided that changes to it could be prepared by any party. This proposal included the following language:

18. Adjudication and dismissal of claims: Complete settlement and termination of the disputes between the parties is the principal object and consideration of this class action.

. . . . .

Except as specifically set forth in this Proposed Compromise Settlement, in consideration for the undertakings by each party of its duties under this Proposed Compromise Settlement, all plaintiffs and all members of plaintiffs' class release and forever discharge all defendants and all defendants release and forever discharge all plaintiffs and all members of plaintiffs' class, and defendants release and forever discharge all other defendants from any and all claims, lawsuits, or causes of action which they ever had or may have relating in any way to Candlewood Lake, including but not limited to all claims made in plaintiffs' complaint and/or defendants' answers and/or counterclaims, any claims arising out of any alleged common law violations or breaches, contractual violations or breaches, specific statutory violations including, but not limited to, all antitrust laws, Interstate Land Sales Registration Act violation, State or Federal Truth-In-Lending violations, State or Federal Securities Act violations and/or any violation or breach giving rise to any legal or equitable remedy. All parties hereto agree that the banks are holders in due course of the promissory notes and any and all claims or defenses against payment of the notes which have been or could have been asserted at any time against these banks or anyone, are now extinguished and forever barred. (Emphasis added.)

7. On December 3, 1976, the specific proposed settlement was mailed to plaintiffs' counsel. Plaintiffs herein do not claim that they were not aware of the nature of the proposed settlement.

8. On December 6, 1976, plaintiffs' counsel wrote to the defendant bank asserting a right to enforce a right of rescission pursuant to Section 226.1 et seq. of Title 12, Chapter II, part 226, 12 C.F.R. 226.

9. On December 8, 1976, in state court the defendant banks filed an answer and counterclaim. The counterclaim requested that the Court, inter alia, declare the notes they held valid, and in full compliance with Federal Regulation Z, and all state and federal truth in lending statutes and regulations.

10. At the December 14, 1976, hearing Common Pleas Court Judge Weller asked, "Now, is anyone present represented by counsel who wishes to introduce any evidence in contradiction or in opposition to the evidence that has been submitted on the three principal areas of consideration for the Court, first, whether or not the conditional order previously made should on this date, or as a result of this hearing at an earlier date subsequent hereto be made an unconditional order." Neither plaintiffs in this case nor their counsel objected to the final order of certification of the class which had been conditionally certified on November 10, 1976.

11. At the December 14, 1976, hearing the Court asked, "Does anyone wish to introduce evidence to the ancillary question before the Court as to whether or not Mr. Boehm should be authorized by this Court to represent all members of the plaintiff class, which includes, of course, all of the lot owners?" Neither plaintiffs in this case nor their counsel made any objection.

12. At the December 14, 1976, hearing the Common Pleas Court Judge asked, "Does anybody wish to introduce evidence contra to the approval of that proposed compromise?" Neither plaintiffs or their counsel made any objection.

13. At the December 14, 1976, hearing plaintiffs in this case (members of the class in the state court action) had, through their counsel, moved to be withdrawn as members of the certified class in the state court but that motion was denied by that court. In that motion plaintiffs requested "that the Court stay any further disposition of the lots allegedly purchased by the above listed applicants until such time as any rights they may have acquired under Section 226.9, 12 C.F.R. 226, 15 U.S.C. § 1640 et sequitua, may be adjudicated in Federal District Court."

14. By a journal entry dated December 14, 1976, the Court of Common Pleas overruled the above mentioned motion. The Court stated:

Upon due consideration of the law and facts, it

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