COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 69305 CONSUMERS UNITED INSURANCE CO. : : Plaintiff-appellee : : JOURNAL ENTRY vs. : and : OPINION JOHN H. BUSTAMANTE, et al : : Defendant-appellants : : : DATE OF ANNOUNCEMENT OF DECISION : MARCH 13, 1997 CHARACTER OF PROCEEDING : Civil appeal from : Court of Common Pleas : Case No. 276,709 JUDGMENT : AFFIRMED IN PART; : REVERSED IN PART : AND REMANDED. DATE OF JOURNALIZATION : _______________________ APPEARANCES: For plaintiff-appellee R. TIMOTHY COERDT Consumers United ORLANDO E. SMITH Insurance Co. : Attorneys at Law Baker & Hostetler 3200 National City Center 1900 East Ninth Street Cleveland, Ohio 44113-3485 For plaintiff-appellee DENNIS A. MATEJKA City of Cleveland : Assistant Law Director City Hall, Room 106 601 Lakeside Avenue Cleveland, Ohio 44114 (Cont.) APPEARANCES (Continued): For defendant-appellant MICHAEL TUAN BUSTAMANTE John H. Bustamante : SONALI B. WILSON Attorneys at Law 1949 East 105th Street, #150 Cleveland, Ohio 44106 JOHN A. GHAZOUL MARK P. HERRON Attorneys at Law 1265 W. Sixth Street, 4th Floor Cleveland, Ohio 44113 - 3 - TIMOTHY E. McMONAGLE, J.: In this appeal, defendant John H. Bustamante appeals from the trial court's judgment entered in favor of plaintiff Consumers United Insurance Co. in plaintiff's action for fraud and other causes of action. For the reasons set forth below, we affirm in part, reverse in part and remand for further proceedings. On September 12, 1994, Consumers United Insurance Co. (here- after referred to as "Consumers") filed this action against John H. Bustamante (hereafter referred to as "Bustamante") and J.W. Andre Bustamante (not a party to this action). In its first claim for relief, Consumers asserted a claim for recovery on a cognovit note. Consumers alleged that on or about November 27, 1987, Bottom Line, Inc. executed and delivered to it a promissory note with a warrant of attorney as consideration for a $725,000 loan. Defendant signed the note both in his capacity as President of Bottom Line and individually as a guarantor. He also signed the back of the note, which contained cognovit and endorser liability provisions with no corporate designation. Consumers further alleged that it had previously obtained a judgment against Bottom Line for the full amount of the note but had recovered only $77,943.96. Appended to the complaint as "Exhibit A" was a copy of the note, which contained a warrant of attorney. - 4 - In its second claim for relief, Consumers alleged that defendant fraudulently obtained a loan for $275,000 payable to himself and Bottom Line, an additional loan for $450,000 payable to himself and Bottom Line, and a loan for $2,600,000 payable to Tusk Land Development Corporation, a company formed by Bustamante's former law partner Carter Donohoe. Consumers further alleged that defendant received $296,000 from the Tusk loan. Thereafter, on February 22, 1995, Consumers moved for summary judgment on both claims. Defendant opposed the motion and like- wise moved for summary judgment. Evidence submitted by Consumers demonstrated that on Septem- ber 12, 1990, defendant was indicted by a federal grand jury on twelve counts of mail and wire fraud in connection with the loans and related transactions. The federal matter proceeded to trial in January, 1991. Defendant was acquitted of a total of seven charges and was convicted of five. The trial court ordered a new trial upon these charges, but defendant later entered into a negotiated plea agreement on April 2, 1993. In accordance with this agreement, defendant pleaded guilty to the first count of the indictment, and the remaining charges against him were dismissed. In relevant part, the count to which defendant pleaded guilty alleged that defendant, by "scheme and artifice to defraud," fraudulently induced Consumers to loan John H. Bustamante and Bottom Line a total of $725,000, and "Consumers was fraudulently induced to loan $2,600,000 to Tusk Land Development Corporation - 5 - ***, and John H. Bustamante and his law firm were enriched by approximately $269,000." It further alleged that "for the purpose of executing said scheme and artifice to defraud ***[,] defendant caused $275,000 to be transmitted by wire communication in inter- state commerce." Further, with respect to its allegations in connection with the cognovit note, Consumers moved to file an answer for defen- dant, nunc pro tunc, in which he waived issuance and service of process. In opposition, defendant demonstrated that officers of Consumers were interviewed by the Federal Bureau of Investigation in August and September, 1989, regarding the loans that Consumers made to Bottom Line and testified before a federal grand jury in November, 1989 and June, 1990. Thus, defendant maintained that Consumers' fraud claim was untimely since it was not filed within four years after the fraud was or should have been discovered. In addition, defendant asserted that Consumers could not recover on the cognovit note because the answer and warrant of attorney were not filed at the time the cognovit complaint was filed. On June 28, 1995, the trial court granted Consumers' motion. Defendant now appeals and assigns three errors for our review. - 6 - I. For his first assignment of error, John Bustamante states: THE TRIAL COURT ERRED IN DENYING JOHN H. BUSTAMANTE'S MOTION FOR SUMMARY JUDGMENT AS TO COUNT TWO OF CONSUMER'S COMPLAINT BECAUSE CONSUMER'S FRAUD CLAIMS WERE BARRED BY THE FOUR YEAR STATUTE OF LIMITATIONS. Within this assignment of error, appellant challenges the entry of summary judgment for Consumers on the fraud claim. Insofar as this assignment of error asserts that there are genuine issues of material fact that should have precluded the entry of summary judgment for Consumers on this claim as it relates to the Bottom Line loan, it is well taken. With regard to procedure, we note that motions for summary judgment are governed by Civ.R. 56, which provides in pertinent part: *** Summary judgment shall be rendered forth- with if the pleading, depositions, answers to interrogatories, written admissions, affida- vits, transcripts of evidence in the pending case, and written stipulations of fact, if any, timely filed in the action, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. *** A summary judgment shall not be rendered unless it appears from such evidence or stipulation and only therefrom, 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, ***. We further note that R.C. 2305.09 sets forth the statute of limitations for fraud claims and provides in relevant part as follows: - 7 - An action for any of the following causes shall be brought within four years after the cause thereof accrued: * * * (C) For relief on the ground of fraud; (D) *** [I]f it is for fraud, until the fraud is discovered. Pursuant to this statute, the cause of action must be brought within four years after the misrepresentation was or should have 1 been discovered. The Craggett court explained: No more than a reasonable opportunity to dis- cover the misrepresentation is required to start the period of limitations. Information sufficient to alert a reasonable person to the possibility of wrongdoing gives rise to a party's duty to inquire into the matter with due diligence. Id.; see Flowers v. Walker (1992), 62 Ohio St.3d 546, 589 N.E.2d 1284. Once sufficient indicia of misrepresentation are shown, a party cannot rely on its un- awareness or the efforts of the opposition to lull it into a false sense of security to toll the period of limitations. See Kimmelman v. Advest, Inc. (Mar. 19, 1993), Lucas App. No. 920177, unreported, 1993 WL 77192. Herein, Consumers filed its fraud claim against appellant on September 12, 1994, or exactly four years after appellant was indicted in the federal criminal proceedings. Thus, the crucial issue is whether Consumers discovered or should have discovered this cause of action prior to that date. The evidence presented by appellant indicates that FBI agents interviewed James Gibbons, Consumers' President, in 1989 and 1 Investors REIT One v. Jacobs (1989), 46 Ohio St.3d 176; Craggett v. Adell Ins. Agency (1993), 92 Ohio App.3d 443, 454. - 8 - questioned him regarding defendant's application for a loan for Bottom Line, the value of the land used as collateral for this loan, the second loan, and the security for this loan. The evi- dence further demonstrates that Consumers' general counsel was present at this interview. The evidence also indicates that in September, 1989, the FBI interviewed an employee of Consumers, again with counsel for Consumers present, regarding the loan request and supporting col- lateral. Three months later, Consumers sent documents relating to this loan to the Assistant U.S. Attorney, who later prosecuted the federal criminal charges against appellant. Finally, Gibbons testified before the Federal Grand Jury in November, 1989, and another employee testified in June, 1990. From the foregoing, we conclude that appellant demonstrated that reasonable minds could reach divergent conclusions as to whether Consumers discovered or should have discovered its cause of action for fraud in connection with the Bottom Line loans prior to appellant's formal indictment on September 12, 1990. We therefore conclude that the trial court erred in granting summary judgment to Consumers with regard to this claim. II. For his second assignment of error, appellant states: - 9 - THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT IN FAVOR OF CONSUMERS ON COUNT TWO OF ITS COMPLAINT BECAUSE GENUINE ISSUES OF MATERIAL FACT EXIST AS TO WHETHER THE FRAUDU- LENT CONDUCT ALLEGED WAS ESTABLISHED BASED ON THE EVIDENCE SUBMITTED. John H. Bustamante next asserts that, as a matter of law, there was no evidence that he acted fraudulently. This assignment of error is without merit. With reference to the offense or offenses to which a guilty plea is entered by a defendant in a criminal prosecution, the plea 2 is a complete admission of the defendant's guilt. That is, it is 3 an admission of every material fact charged. In this instance, appellant pleaded guilty to the first count of the charges filed in federal court. Consumers, therefore, properly used this information as his admission that he engaged in a scheme and artifice to defraud Consumers that resulted in Con- sumers being fraudulently induced to loan John H. Bustamante and Bottom Line $725,000 and also to loan Tusk Land Development Corpo- ration $2,600,000 pursuant to the allegations of this count of the indictment. Appellant, in an opposing affidavit, averred that, "Due to staggering legal fees and mounting government threats to continue its persecution by indicting my sons, I entered into plea negotiations through my attorney." When a motion for summary judgment is made and supported as provided in this rule, the 2 Crim.R. 11(B)(1); Julian v. United States (CA 6, 1956), 236 F.2d 155, 158. 3 Id. - 10 - opposing party must set forth specific facts showing that there is 4 a genuine issue for trial. Herein, the opposing affidavit set forth specific facts regarding the reason appellant entered into plea negotiations but did not set forth specific facts showing that he did not engage in a scheme and artifice to defraud. Appellant, therefore, did not meet his burden of establishing a genuine issue for trial. This assignment of error is, therefore, not well taken. III. Appellant's third assignment of error states: THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT IN FAVOR OF CONSUMERS ON COUNT ONE OF ITS COMPLAINT BECAUSE THE COGNOVIT JUDGMENT HAD NOT BEEN PROPERLY SOUGHT AGAINST NOR CONFESSED BY JOHN H. BUSTAMANTE. Appellant next maintains that irregularity in the proceedings is fatal to the entry of the cognovit judgment. The relevant statutory provision is R.C. 2323.13, which provides in relevant part: (A) An attorney who confesses judgment in a case, at the time of making such confession, must produce the warrant of attorney for mak- ing it to the court before which he makes the confession. Notwithstanding any agreement to the contrary, if the maker or any of several makers resides within the territorial juris- diction of a municipal court established under section 1901.01 of the Revised Code, or signed the warrant of attorney authorizing confession 4 State ex rel. Zimmerman v. Tompkins (1996), 75 Ohio St.3d 447, 449. - 11 - of judgment in such territory, judgment on such warrant of attorney shall be confessed in a municipal court having jurisdiction in such territory, provided the court has jurisdiction over the subject matter; otherwise, judgment may be confessed in any court in the county where the maker or any of several makers resides or signed the warrant of attorney. The original or a copy of the warrant shall be filed with the clerk. The requirements of this statute are therefore met when the confessing attorney signs the answer confessing judgment, the answer is filed, and the warrant is produced through the plain- 5 tiff's attorney. Thus, it is these requirements which must be met before a judgment is entered upon a cognovit note. Moreover, courts have refused to engraft additional requirements upon the 6 statute. In this instance, the warrant of attorney was annexed to the complaint filed with the court. Accord Civ.R. 10(D). Further, although the answer prepared by Consumers pursuant to the warrant of attorney was not filed until well after the complaint was filed, it did precede the trial court's entry of judgment. Moreover, the warrant of attorney provides for waiver of prejudgment notice and 5 Union Savings Association v. Home Owners Aid, Inc. (1969), 18 Ohio App.2d 63. See, also, Northern Ohio Tractor, Inc. v. Richardson (1982), 8 Ohio App.3d 171, 172 (where warrants of attorney are annexed to complaint and filed, and an answer con- fessing judgment is filed by an attorney who is licensed to practice law, statutory requirements have been satisfied). 6 See, Id.; The Union Savings Association v. Home Owners Aid, Inc., supra. - 12 - 7 hearing, yet there was, in fact, notice and hearing pursuant to the summary judgment motions. Finally, since this matter was ultimately disposed of following appellant's formal appearance in the action and the filing of competing motions for summary judgment, it ultimately preceded as an ordinary civil action and 8 not simply as a cognovit proceeding. We therefore hold that this assignment of error is without merit. For the foregoing reasons, the judgment of the trial court is affirmed in all respects except with regard to appellant's second claim for relief. On that issue, the judgment is reversed and the cause remanded for a determination of whether Consumers United discovered or should have discovered the alleged fraud before September 13, 1990. Affirmed in part, reversed in part and remanded. 7 Fogg v. Friesner (1988), 55 Ohio App.3d 139, 140; Matson v. Marks (1972), 32 Ohio App.2d 319. 8 Cf. Dryden v. Dryden (1993), 86 Ohio App.3d 707, 714. - 13 - It is ordered that appellee and appellant split the costs herein taxed. The Court finds there were reasonable grounds for this appeal. It is ordered that a special mandate issue out of this Court directing the Cuyahoga County Court of Common Pleas to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. DIANE KARPINSKI,J. CONCURS TERRENCE O'DONNELL CONCURS IN PART DISSENTS IN PART (See attached opinion) JUDGE TIMOTHY E. McMONAGLE N.B. This entry is an announcement of the court's decision. See App.R. 22(B), 22(D) and 26(A); Loc.App.R. 27. This decision will be journalized and will become the judgment and order of the court pursuant to App.R. 22(E), unless a motion for reconsideration with supporting brief, per App.R. 26(A), is filed within ten (10) days of the announcement of the court'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(E). See, also, S.Ct.Prac.R. II, Section 2(A)(1). COURT OF APPEALS OF OHIO EIGHTH DISTRICT COUNTY OF CUYAHOGA - 2 - NO. 69305 : CONSUMERS UNITED INSURANCE CO. : CONCURRING : AND : DISSENTING Plaintiff-Appellee : OPINION : vs. : : : JOHN H. BUSTAMANTE, ET AL. : : : Defendant-Appellants : : DATE: MARCH 13, 1997 O'DONNELL, J., CONCURRING AND DISSENTING: Respectfully, I disagree with the conclusions reached by the majority regarding the first assignment of error and believe it should be overruled. In this respect, therefore, I dissent from the majority opinion; in all other respects, I concur. The only issue presented on this appeal is whether the trial court correctly granted summary judgment in this case. It is axiomatic that the movant bears the burden of proof to demonstrate from evidence allowed by Civ. R. 56, that reasonable minds can come to but one conclusion, after viewing the evidence most strongly in favor of the adverse party. The nonmoving party then must produce evidence on any issue for which that party bears the burden of proof at trial. See Wing v. Anchor Media Ltd. of - 3 - Texas (1991), 59 Ohio St.3d 108. Further, from Dresher v. Burt (1996), 75 Ohio St.3d 280, we know that a nonmoving party may not rest upon the allegations or denials of pleadings, but rather must set forth facts by affidavit or otherwise showing a genuine issue exists for resolution at trial. See also Civ. R. 56(E) and Mitseff v. Wheeler (1988), 38 Ohio St.3d 112, 115. The issue here is not when Consumers United Insurance Company should have discovered fraud or why it chose to wait four years from indictment to file this civil suit. Rather, the issue is whether appellant John H. Bustamante has met his Civ. R. 56 burden of proof in this case. The majority references a 1989 FBI inter- view of James Gibbons, then President of Consumers and his subse- quent testimony before a Federal Grand Jury as well as another 1989 FBI interview with Phillip Johnson, a Consumers' employee, as evidence from which reasonable minds could conclude Consumers knew or should have known at that time that Tusk Land, Bottom Line and/or John Bustamante had perpetrated a multimillion dollar fraud against it. What the majority fails to divulge however is that the transcript of the Grand Jury testimony is not contained in this record and, hence, we do not know the substance of what either Gibbons or Johnson may have testified about. We do not know whether their testimony reveals any knowledge of fraud on the part of Consumers or whether Gibbons or Johnson invoked the Fifth Amendment or were granted immunity or actually testified about - 4 - fraud. Hence, any conclusion in this regard is speculative at best. Additionally, summaries of the FBI interviews of both Gibbons and Johnson are attached as Exhibits D and E to the appellant's motion for summary judgment filed in the trial court, but neither suggests any knowledge of fraud or relates any facts or circumstances which would have alerted a reasonable person to this possibility. In my view, the scant evidence contained in this record does not even permit an inference that Consumers knew of fraud nor permit it to rely on an FBI interview or a Grand Jury appearance as the basis of filing a multimillion dollar civil suit against one of its debtors for fraud. I believe therefore that Consumers's reliance upon Bustamante's indictment date is appropriate. Hence, I believe that because appellant failed to meet the .