ignificant number of American citizens are actively serving our country including a larger than normal number of members of the National Guard and Reserves. Some of these “citizen soldiers” have businesses in civilian life, and the same is occasionally true of regular active duty service members. Those serving our country are protected from default judgments in civil actions by the Servicemembers Civil Relief Act, 50 App. U.S.C. Section 501, et seq. (“SCRA”). It is understandable that individuals, who are serving our country and perhaps unavailable to defend litigation, should not be subject to a default judgments.
In Fifth Third Bank v. Schoessler’s Supply Room, LLC, 190 Ohio App.3d 1 (Warren County App. 2010) the Court of Appeals extended the protections of the SCRA to an LLC borrower that was 85% owned, operated and managed by a member of the Ohio National Guard who guaranteed the loan. The guard member guarantor allegedly had been called to active duty when the bank took cognovits judgments against the borrower LLC and the guarantor.
The Court of Appeals admitted that a strict reading of the SCRA did not lead to protection against cognovits judgments or to protection of an LLC that cannot be a “servicemember” as defined in the SCRA. Ignoring a strict reading of the SCRA, the court ruled that the LLC and the guarantor could be protected by the statute from a default judgment and the court determined that the same was true of the business owned and operated by that individual. According to the above-cited case, there are two other decisions in other states that extend the SCRA to businesses when the owner-operator was protected by the statute.
As noted above, the Fifth Third Bank case also extends the SCRA by applying its protections to cognovits judgments. Ohio permits cognovit judgments. A cognovit judgment is when the lending document includes a very specifically-worded and significantly noticed limited and specific power of attorney for any lawyer chosen by the lender to confess judgment against the borrower. That is what happened in the Fifth Third Bank case and so, in reality and technically, a default judgment was not taken. Nonetheless, the court applied the SCRA to protect the active-duty guard member.