February 2, 2009
Ali Razzaghi

 

In an Ohio lender’s action against a nonresident borrower for alleged breach of terms of an equity reserve agreement, the Ohio Court of Appeals for the Eighth District (Cuyahoga County) recently held, in the case of National City Bank v. Yevu¹, that the borrower, whose only connection to Ohio was to remit monthly payments to the lender in Ohio, did not have minimum contacts with the state sufficient to support the exercise of personal jurisdiction over him.

In order for a court to hear and decide an action, it must have personal jurisdiction over all of the parties. In determining whether the court has personal jurisdiction over a nonresident defendant, the court must first determine whether the state’s “long-arm” statute and the applicable Civil Rule confer personal jurisdiction. If so, the court must then determine whether granting jurisdiction under the statute and rule would deprive the defendant of the right to due process of law pursuant to the Fourteenth Amendment to the U.S. Constitution².

In National City Bank, the lender filed a lawsuit against the borrower, alleging that the latter defaulted on the terms of an equity reserve agreement and that a balance of $67,954.74 was due. The borrower moved to dismiss the lawsuit for lack of personal jurisdiction. The trial court denied the borrower’s motion and subsequently granted summary judgment in favor of the lender in the amount of $67,954.74 plus interest and costs.

In denying the borrower’s motion to dismiss, the trial court relied on the complementary provisions of Ohio’s “long-arm” statute, R.C. § 2307.382(A)(1) and Civ. R. 4.3(A)(1), which are broadly worded to authorize the exercise of personal jurisdiction over any nonresident defendant who is “transacting any business” in Ohio. Ultimately, the trial court determined that the borrower was transacting business in Ohio because the lender was an Ohio corporation, the lender’s decision to extend the line of credit was made in Ohio, the borrower’s monthly payments were to be made in Ohio, the agreement was governed by Ohio law, and the default of the agreement occurred in Ohio.

On appeal, the court reversed and remanded the case back to the trial court with instructions to dismiss the case for lack of personal jurisdiction. In doing so, the court noted that although the factors relied upon by the trial court were relevant to a determination of personal jurisdiction, the court could not ignore the other, and perhaps more significant, factors that militate against exercising jurisdiction. According to the court, the borrower was a resident of Minnesota, sought a line of credit in conjunction with a mortgage relating to real property he owned in Minnesota, executed the agreement in Minnesota, and used real property located in Minnesota as security for the agreement. Indeed, the borrower’s only performance in Ohio was to remit monthly payments to the lender in Ohio. As such, the court found that the borrower was not transacting business in Ohio within the purview of R.C. § 2307.382 and Civ. R. 4.3(A)(1).

The court also found that the exercise of personal jurisdiction would deprive the borrower of his right to due process of law under the second prong of the personal jurisdiction test. To that end, due process permits the exercise of jurisdiction only if the defendant has sufficient minimum contacts with the state that summoning the party to Ohio would not offend the “traditional notions of fair play and substantial justice.”³ The primary issue is whether the nonresident defendant purposely established contacts in Ohio such that he should reasonably anticipate being haled into court in Ohio.⁴ Under the facts of this case, the court found that the borrower’s connections to Ohio were not so substantial that he could reasonably have anticipated being haled into an Ohio court. Nor did the court find that the borrower had sufficient contacts with Ohio such that the exercise of personal jurisdiction over him would comport with the traditional notions of fair play and substantial justice.

The National City Bank decision is intriguing because it seemingly blurs the circumstances under which a nonresident borrower’s contacts with Ohio is deemed sufficient so as to justify the exercise of personal jurisdiction over him. For instance, in the decision, the court distinguished a prior case in which the Supreme Court of Ohio determined that it had personal jurisdiction over an out-of-state lessee who entered into a lease agreement with an Ohio lessor for a storeroom located in Kentucky.⁵ According to the court, however, the parties’ dealings and the creation of continuing duties and obligations between the parties in that case were more intertwined than in the instant case. The court emphasized that in addition to the fact that payments were to be made in Ohio, the parties’ negotiations involved telephone contact to Ohio and the lease required all communications to be directed to the lessor in Ohio.

Ultimately, if National City Bank were at all instructive, the decision demonstrates that the borrower’s state of residence, location of the real property that is the subject of the mortgage, and the state in which the borrower obtained the line of credit and executed the agreement are more relevant to a determination of personal jurisdiction than the lender’s state, the state in which the decision to extend the line of credit was made, the state to which monthly payments were to be made, and the state in which the breach of the agreement occurred.

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¹ (2008), 178 Ohio App.3d 382, 2008-Ohio-4715.
² U.S. Sprint Communications Co., Ltd. Partnership v. Mr. K’s Foods, Inc. (1994), 68 Ohio St.3d 181, 183-84, 624 N.E.2d 1048.
³ International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
⁴ See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474 (1985).
⁵ See Kentucky Oaks Mall Co. v. Mitchell’s Formal Wear, Inc. (1990), 53 Ohio St.3d 73, 559 N.E.2d 477.