In October, I reported that the Cuyahoga Court of Appeals had enforced an employer's hiring bonus agreement and required the former employee to repay it when he had resigned before completing training and within 18 months of being hired. In November, the Cuyahoga County Court of Appeals affirmed enforcement of a $10K cognovit note signed by an employee agreeing to repay training costs incurred by the employer if she resigned within two years of being hired. Overdrive Espresso, L.L.C. v. Finein, 2025-Ohio-5226. The Court concluded that it could not "say that this transaction, arising out of employment contract, was a consumer transaction as defined under R.C. 2323.13(E)." Because her remaining defenses went to enforceability of the note and not to its creation or calculation of the underlying debt, they were invalid.
According to the Court's opinion, the employee was hired in April 2022 and the employer incurred $10K to obtain specialized training for her. Accordingly, she was required to sign a cognovit note promising to repay within 30 days that $10K training expense plus 10% interest and collection costs if she was terminated before April 2024 or a judgment would be confessed against her in court. She resigned in December 2023 and had not repaid the training expense before February. A complained was filed and an answer filed on her behalf pursuant to the cognovit agreement admitting to the allegations and confessing judgment. Judgment was entered in favor of the employer the same day (as is typical). She failed to file a timely employee and, instead, employee sought relief from judgment, which was denied. The Court of Appeals affirmed.
Motions for relief from judgment under Civil Rule 60 are evaluated only for abuse of discretion.
“‘A cognovit promissory note is a special type of commercial paper by which a debtor authorizes a creditor, in the event of the debtor’s default on his payment obligation, to obtain an immediate judgment against him without prior notice or an opportunity to be heard.’” . . . “‘The purpose of a cognovit note is to allow the holder of the note to quickly obtain judgment, without the possibility of a trial.’” . . . As such, “when a debtor signs a cognovit note, the debtor relinquishes the possibility of notice, hearing, or appearance at an action to collect in the event of nonpayment on the note.”
As a result, Ohio courts have determined that in such cases where the party had never had the opportunity to be heard in a cognovit note proceeding, their burden is lessened when moving for relief for judgment under Civ.R. 60(B). . . . “Therefore, ‘a movant who files for relief from a judgment taken upon a cognovit note need only establish (1) a meritorious defense and (2) that the motion was timely made.’”
Under Civ.R. 60(B), the “‘moving party need only to allege a meritorious defense; it need not prove that it will prevail on that defense.’” . . . Although proof of success is not required, “the moving party still needs to allege operative facts with enough specificity to allow the trial court to decide whether a meritorious defense exists.” . . . And the “movant must provide evidentiary material supporting his or her Civ.R. 60(B) motion.” . . . These evidentiary materials “‘must present operative facts and not mere general allegations to justify relief.’”
This court has recognized that “[t]he defenses available to the maker of a cognovit note are extremely limited. The ‘defense of non-default’ is certainly one.” . . . . But “the defense of non-default is not the only meritorious defense recognized by courts as being available to a cognovit judgment debtor seeking Civ.R. 60(B) relief[;] in general, a judgment on a cognovit note will ‘not be vacated for reasons which do not encompass such matters of integrity and validity.’” . . . For instance, other meritorious defenses may include “‘improper conduct in obtaining the debtor’s signature on the note; deviation from proper procedures in confessing judgment on the note; and miscalculation of the amount remaining due on the note at the time of confession of judgment.’” . . . In short, “a meritorious defense is one that goes to the integrity and validity of the creation of the debt or note, the state of the underlying debt at the time of confession of judgment, or the procedure utilized in the confession of judgment on the note.”
The Court rejected the employee's argument that this transaction was a consumer rather than a commercial transaction.
R.C. 2323.13(E) provides that “[a] warrant of attorney to confess judgment . . . arising out of a consumer loan or consumer transaction, is invalid and the court shall have no jurisdiction to render a judgment based upon such a warrant.” As such, in cases where a note arises out of a consumer loan or consumer transaction a common pleas court lacks jurisdiction to enter a cognovit judgment against the defendant. ...
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R.C. 2323.13(E)(2) defines a “consumer transaction” as “a sale, lease, assignment, award by chance, or other transfer of an item of goods, a service, franchise, or an intangible, to an individual for purposes that are primarily personal, family, educational, or household.” . . ..
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Here, the cognovit note arose out of an employment contract between [plaintiff] and [employer], wherein [she] agreed to reimburse [it] for the total expense of training costs in the amount of $10,000 if she voluntarily quit or breached the contract within two years of signing the employment agreement. The agreement, which was signed by both parties, provided, in relevant part, that ““[s]imultaneous with the execution of this Employment Agreement, the Employee [Finein] shall execute and deliver to the Company [Overdrive] a written Cognovit Promissory Note for the Training Cost . . . .” The note was executed for the agreed upon training cost of $10,000.
[She[ does not direct us to any authority holding that a cognovit note arising out of an employment contract is considered a consumer transaction. Rather, it is clear from the contract that the primary purpose of the training received by [her] was not personal, but as a condition of her employment with [the employer]. This is further evidenced by the fact that [the employer] sought to protect its investment by requiring [her] to remain employed for a period of two years. Thus, we cannot say that this transaction, arising out of employment contract, was a consumer transaction as defined under R.C. 2323.13(E).
The Court concluded that the remaining defenses did not go to the validity of the note, but rather, to its enforcement which could not be challenged at this point:
[Her] remaining claims challenge the enforceability of the cognovit note under New York law and federal law. [She] also challenges whether the amount owed on the note adequately represents the training costs incurred by [the employer]. None of these defenses allege improper conduct in obtaining the debtor’s signature on the note; a deviation from proper procedures in confessing judgment on the note; or a miscalculation of the amount remaining due on the note at the time of confession of judgment. . . . As discussed above, “a meritorious defense is one that goes to the integrity and validity of the creation of the debt or note, the state of the underlying debt at the time of confession of judgment, or the procedure utilized in the confession of judgment on the note.” . . . Since none of [her] remaining claims amount to a meritorious defense to a cognovit note, the trial court did not abuse its discretion in rejecting these claims.
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.
