IN RE HOUSE

GUY HUMPHREY, Bankruptcy Judge

The issue in this contested matter (the "Contested Matter") is whether a cross-collateralization clause, securing an otherwise unsecured Loan with collateral that also serves as security for a separate automobile loan between the same creditor and debtor, is enforceable under Ohio law. This court has jurisdiction pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference in this District. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B).

On December 4, 2006, the Debtor, Lisa Ann House, filed a Chapter 13 petition (Doc. 1). The Debtor's Chapter 13 plan was confirmed on March 8, 2007 (Doc. 19). On July 13, 2007, the Chapter 13 Trustee, Jeffrey M. Kellner (the "Trustee") objected to a proof of claim of KMC Network Credit Union (the "Creditor") (Claim 8-1) which was filed as a secured claim in the amount of $1,780.17 (Doc. 27). The collateral is a 2005 Mazda (the "Collateral"). The Trustee noted that the Creditor "filed another secured claim on January 2, 2007 [Claim 9-1] in the amount of $14,996.46 . . . in which the creditor used the 2005 Mazda as collateral." The Trustee sought to treat Claim 8-1 as unsecured. In its August 3, 2007 response (Doc. 29), the Creditor noted that Claim 8-1 was based upon a signature loan, but was secured by "surplus value" in the Collateral pursuant to a cross-collateralization clause. After conferences between counsel and with the court, the Contested Matter was not resolved and the court established briefing dates to determine this issue as a matter of law (Doc. 47). The Trustee filed for summary judgment on February 1, 2008 (Doc. 50) and the Creditor filed a response on February 29, 2008 (Doc. 53). The parties have also filed stipulations (Doc. 49) of certain facts relating to the issues in this Contested Matter (the "Stipulations").

The parties stipulated that the Debtor's assets include a 2005 Mazda automobile with a value of $20,000 for which the Creditor has a lien (Doc. 49, ¶ 3). The Creditor loaned the Debtor $17,570.00 on November 22, 2005, pursuant to a note and security agreement secured by the Collateral (the "Automobile Loan") (Doc. 55, Joint Exhibit 1). The Automobile Loan had a balance of $14,996.46 on the petition date (Doc. 49, ¶ 4). Thus, although the Trustee and the Creditor stipulated that the Creditor is oversecured on the Automobile Loan in the amount of $5,005.04 (Doc. 49, ¶ 6), the actual figure is $5,003.54.

On December 1, 2005, the Creditor made a separate loan to the Debtor in the amount of $2,500.00 (the "General Loan"). The documentation of the General Loan is attached to the Stipulations as Joint Exhibit 4 (Docs. 49 and 55, Joint Exhibit 4). Setting aside the cross-collateralization provision contained in the loan documents for both loans, the Debtor did not provide any collateral for the General Loan. The petition date balance on the General Loan was $1,780.17. Both the Automobile Loan and the General Loan contain the same cross-collateralization clause on page 1 of the document and is repeated under the "SECURITY AGREEMENT" section on page 2 of each document, which states:

COLLATERAL: If this loan is secured by a mortgage on my personal residence, the following provision does not apply. Collateral securing any other loan(s) I have with you will also secure this loan. All security listed above secures this loan and all other obligations I have, or will have with you, except for a loan where my personal residence is the security.

(Docs. 49 and 55, Joint Exhibits 1 and 4).

The parties stipulated that the General Loan was entered into voluntarily and there was neither fraud nor duress and no other affirmative defenses exist as to the enforceability of the loan documents or the cross-collateralization provision pertaining to the General Loan, except for the Trustee's contention of a lack of "meeting of the minds." (Doc. 49, ¶ 8). The parties also stipulated that the Creditor never informed the Debtor about the cross-collateralization clause at the time the General Loan was entered into by the parties. Id. There is no allegation that the Debtor provided to the Creditor a mortgage on her personal residence.

The Trustee argues that the cross-collateralization clause contained in the loan documentation for the Automobile Loan and the General Loan should not be enforced to provide for the General Loan being secured by the Collateral because 1) there was no "meeting of the minds" between the parties to form a contract as to the cross-collateralization clause; 2) the contract terms were ambiguous and should be construed adversely to the Creditor; 3) the contract is an unconscionable adhesion contract; and 4) the cross-collateralization clause should not be enforced because the General Loan is otherwise unsecured.

The standard to address the parties' filings is contained in Federal Rule of Civil Procedure 56(c) and is applicable to this Contested Matter pursuant to Bankruptcy Rule 9014(c), and states, in part, that a court must grant summary judgment to the moving party if:

the pleadings, the discovery and disclosure statements on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law.

Federal Rule of Civil Procedure 56(c).

In order to prevail, the moving party, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331 (1986). If the burden is on the non-moving party at trial, the movant must: 1) submit affirmative evidence that negates an essential element of the nonmoving party's claim; or 2) demonstrate to the court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim. Id. at 331-32. Thereafter, the opposing party "must come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citations omitted); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita, 475 U.S. at 586-88.

The Chapter 13 Trustee argues that there is no "meeting of the minds" between the Debtor and the Creditor in regard to the cross-collateralization clause. In Ohio, the formation of a contract or a "meeting of the minds" does not require the subjective standard of an individual, but instead is based on the objective circumstances when the contract was formed. "To have a valid contract, there must be a `meeting of the minds' on the essential terms of the agreement; a meeting of the minds is usually demonstrated by an offer, acceptance, and consideration." Heiges v. JP Morgan Chase Bank, N.A., 521 F.Supp.2d 641, 647 (N.D. Ohio 2007), citing Reedy v. The Cincinnati Bengals, Inc., 143 Ohio App.3d 516, 521 (Ohio Ct.App. 2001). An offer is "the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it." Id, quoting Reedy, 143 Ohio App.3d at 521 (emphasis added). "Generally, courts presume that the intent of the parties resides in the language they chose to employ in the agreement." Shifrin v. Forest City Enters., Inc., 64 Ohio St.3d 635, 638 (1992). In the absence of a lack of clarity or ambiguity in the contract, the court has no cause to look at extrinsic evidence beyond the language of the agreement. Id.

As further discussed below, the court finds that the Debtor and the Creditor had an enforceable contract in regard to the cross-collateralization clause in the Automobile Loan and the General Loan. In signing the loan contracts, the Debtor manifested her assent to the agreements.

The court recognizes that the loan agreements in question are classic adhesion contracts — these documents are prepared by the Creditor on a "take it or leave it" basis. While such contracts are generally construed against the drafter, the court finds that the language in the cross-collateralization clause is unambiguous. The Trustee notes that, in the General Loan (Doc. 55, Joint Exhibit 4), directly above the cross-collateralization clause, in a section captioned "SECURITY", none of three boxes are checked for a security interest: 1) "The Goods or Property being purchased"; 2) "My Automobile" or 3) "Other (Described)." Although the court recognizes none of these boxes are checked on the documentation of the General Loan, this section is intended to address new security for the specific loan at issue. The language of the cross-collateralization clause is clear in addressing other loans in which the Debtor has pledged collateral to the Creditor and is not negated by the fact that none of those boxes is checked. It is also clear in its location on page 1 (immediately after the "SECURITY" section) and page 2 (under a separate "COLLATERAL" subheading of the "SECURITY AGREEMENT" section) of both loan documents. In an unreported decision, the court addressed identical language and placement in a loan agreement and found that "the cross-collateralization clause is clear and unambiguous both in its language and its placement in two separate sections of the . . . loan documents. It is not phrased in `legalese' or confusing in any way." In re Albert, Case No. 04-34387, at *5 (Bankr. S.D. Ohio July 12, 2006).

The absence of a reference to the cross-collateralization clause in either the brief loan application (Doc. 49, Joint Exhibit 5) or the Creditor's internal computer "screen inquiry" in regard to the loan (Doc. 49, ¶ 7 and Joint Exhibit 6) fails to raise any ambiguity in the Automobile Loan or the General Loan documentation. Nothing in the record even suggests Joint Exhibits 5 or 6 were contractual in nature and neither one of them bound either party. The court finds no legal basis to look beyond the four corners of the Automobile Loan or the General Loan documentation to interpret the meaning of the cross-collateralization clause. Shifrin, 64 Ohio St.3d at 638.

Additionally, to the extent the Trustee is raising unconscionability as a separate argument, the court does not find the cross-collateralization clause is unconscionable under Ohio contract law. The Supreme Court of Ohio has defined unconscionability as "an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party." Taylor Building Corp. of America v. Benfield, 117 Ohio St.3d 352, 358 (2008), quoting Lake Ridge Academy v. Carney, 66 Ohio App.3d 376, 383 (Ohio Ct.App. 1993) (internal quotation marks omitted). The determination of whether a written contract is unconscionable is a legal question. Id. The party which asserts unconscionability must prove both procedural unconscionability, i.e. the absence of meaningful choice, and substantive unconscionability, i.e. unreasonably favorable terms to the other party. Id.

As previously referenced, the court has little difficulty in concluding the Automobile Loan and the General Loan are adhesion contracts and, therefore, the Debtor lacked a "meaningful choice" in the specific language of the Automobile Loan or the General Loan. Nevertheless, the court does not find the cross-collateralization clauses are "unreasonably favorable" to the Creditor. As described in Albert, Ohio Revised Code § 1309.204 (U.C.C. 9-204) specifically allows for such clauses. Albert, Case No. 04-34387, at *7-8. In addition, future advance clauses are generally enforceable where the provisions are clear and the loans are not a mixture of consumer and business loans. Comprehensive Review Tech., Inc. v. Star Bank, Central Ohio (In re Comprehensive Review Tech., Inc.), 138 B.R. 195, 198-99 (Bankr. S.D. Ohio 1992). In this case, the Debtor had the choice to do business with the Creditor and to enter into the General Loan. Once the Debtor chose to enter into the General Loan, the documentation clearly set forth that any collateral that she already provided to the Creditor for another loan would secure that loan. Under such circumstances, the court does not find that the cross-collateralization clause is "unreasonably" unfavorable to the Debtor.

A Cross-Collateralization Clause is Not Per Se Unenforceable When the Loan is Otherwise Unsecured and is Enforceable Under the Stipulated Facts of this Contested Matter The Trustee argues that the cross-collateralization clause is unenforceable because the General Loan is otherwise an "unsecured signature loan." The Trustee cites to Wooding v. Cinfed Employees Credit Union, 171 Ohio App.3d 665 (Ohio Ct.App. 2007). In Wooding, the Plaintiff obtained a loan secured by a vehicle and the loan was fully paid. Id. at 666. When the Plaintiff subsequently sought the title for the vehicle for insurance purposes, the credit union refused to return it because the Plaintiff had defaulted on a separate credit card she had received from the credit union and this credit card had an unpaid balance. Id. In refusing to turn over the title, the credit union argued that the unpaid credit card debt was secured by a cross-collateralization clause in the credit card agreement. Id. at 666-67.

In determining the vehicle was not security for the credit card debt, the court appears to base its rulings on two fundamental issues: 1) the record did not show the Plaintiff ever had seen the credit card agreement; and 2) while the credit card application noted the creditor "could assert a security interest [in the Plaintiff's] other `accounts,' there was nothing in the application that identified the car or any other tangible property as collateral." Id. at 668. Additionally, although the automobile loan had a cross-collateralization clause, no such analogous clause was in the credit card application. Id.

Before analyzing the import of the Wooding decision, the court notes that, in the previously referenced unreported decision of this court, In re Albert, 04-34387 (Bankr. S.D. Ohio July 12, 2006), the same loan language at issue in this Contested Matter was found to be enforceable. The court found that the language was not hidden or written in a confusing manner. Id. at *5. The court finds the reasoning in this decision persuasive and adopts its holding. The only distinguishing factor in this case is that the General Loan, except for the contested cross-collateralization clause, is unsecured. As noted earlier, the Trustee argues that none of the three boxes ["The goods or Property being purchased", "My Automobile" and "Other (Described)] under the "SECURITY" section are checked. However, immediately below that section is the previously described cross-collateralization clause. The Trustee, as he similarly argued in Albert, notes that the Creditor never explained this provision to the Debtor. However, the court does not find the Creditor has a specific obligation under Ohio law to review every contractual provision of the loan documents with the Debtor. The cross-collateralization provision is written in plain, non-confusing language and was available to be read by the Debtor if she chose to take the time to do so.

In considering both Albert and Wooding, the court finds that the cross-collateralization clause is enforceable in this Contested Matter. A fact pattern such as Wooding — involving a lengthy credit card agreement which may or may not have been disclosed to the Debtor — is a different set of facts which might warrant a different result. However, under the particular facts of this case, the court adopts the reasoning of Albert and finds the distinguishing fact that the General Loan, other than the cross-collateralization clause, is unsecured does not warrant a different analysis.

The Chapter 13 Trustee's objection to claim 8-1 of KMC Network Credit Union (Doc. 27) is denied. The court will enter a separate order simultaneously with the filing of this decision.

IT IS SO ORDERED.