Huntington National Bank had no duty to disclose facts unknown to a business owner that materially increased the risk of the business owner personally guaranteeing a $77 million loan after that owner’s business partner placed the jointly owned companies in a perilous financial situation, the Supreme Court of Ohio ruled today.

In a 6-1  decision, the Supreme Court reversed the First District Court of Appeals decision and ruled that parties do not owe one another a duty to disclose unknown facts unless there is some relationship of special trust or confidence established between the contracting parties.

Writing for the majority, Chief Justice Sharon L. Kennedy stated that Ohio does not recognize a “doctrine of increased risk” for sureties to an agreement, but instead follows well-established law that “contracts that are fairly made and freely entered into are valid and enforceable.”

“[U]nder Ohio’s contract law, parties engaging in an arm’s-length transaction, without affirmatively establishing a relationship of special trust or confidence between the parties, do not owe one another a duty to disclose unknown facts that materially increase the risk to the other party,” she wrote.

Today’s decision reinstated a Hamilton County Court of Common Pleas holding that Raymond Schneider, as a guarantor of the credit agreement, can be held personally liable for a default of the credit agreement’s $77 million loan made to Schneider’s businesses. The businesses had been managed by Schneider’s business partner, Harold Sosna, whose actions led to the default.

Justices R. Patrick DeWine, Joseph T. Deters, and Daniel R. Hawkins joined the chief justice’s opinion. Twelfth District Court of Appeals Judge Robert A. Hendrickson, sitting for Justice Patrick F. Fischer, and Fourth District Court of Appeals Judge Jason P. Smith, sitting for Justice Megan E. Shanahan, also joined the opinion.

Justice Jennifer Brunner concurred in part and dissented in part. She wrote the majority’s ruling that creditors do not have a duty to disclose risks is too expansive. She wrote that there is a duty when a transaction involves an unsophisticated investor.

Companies Default on Bank Loan
Schneider and Sosna equally owned a collection of real estate and skilled-nursing-facility companies referred to as the “Keller Group.” In addition to the Keller Group, Sosna also owned a collection of companies referred to as the “JBZ Group.” Both the Keller Group and JBZ Group were managed by Premier Health Care Management, a company wholly owned by Sosna.

In early 2018, Premier engaged Huntington to borrow approximately $77 million as part of an effort to refinance Premier’s real estate portfolio.  Sosna was seeking out a new lender because Premier had defaulted on its loan from another bank, Fifth Third Bank.

In November 2018, Huntington entered into a credit agreement with Premier and the Keller Group and JBZ Group companies. In support of the credit agreement, Huntington required Schneider, Sosna, and Sosna’s wife to fully and unconditionally guarantee the agreement. As a result, Schneider entered into a “Guaranty of Payment of Debt” agreement with the bank, thereby accepting personal liability for the full $77 million in loans.

Less than six months later, in May 2019, Huntington required Schneider to sign a document reaffirming his guarantee of the credit agreement loans. By October 2019, Premier’s financial health had continued to decline and Huntington declared the loan in default.

During this time, Sosna began to commit bank fraud by kiting checks to cover the operating expenses of the companies managed by Premier. The check-kiting scheme surfaced in early 2020, and Sosna eventually pleaded guilty to bank fraud.

Around the same time, Huntington accelerated the loans and demanded full payment of the outstanding loans from the borrowers to the credit agreement and the three guarantors, which included Schneider. In June 2020, Huntington filed a three-count complaint in common pleas court seeking repayment from Schneider, Sosna, and Sosna’s wife.

Business Owner Challenges Repayment Obligation
In response to Huntington’s lawsuit, Schneider alleged that Huntington fraudulently induced him into signing the guaranty agreement. He claimed the bank had access to financial information about Sosna and Premier that Schneider did not have access to and could not have known. Schneider claimed he would never have signed the guarantee agreement had he been aware of Sosna’s and Premier’s eroding financial condition.

The trial court granted Huntington’s motion for summary judgment, finding that Schneider had waived any defenses available to him, pursuant to the guaranty agreement he signed, and that Huntington had no obligation to disclose facts to Schneider about Premier and Sosna that materially increased Schneider’s risk.

Schneider appealed to the First District, which reversed the trial court’s judgment. The First District’s ruling adopted a “doctrine of increased risk,” as defined in Section 124(1) of the Restatement (First) of Security (1941), which states that a creditor has a duty to disclose unknown material facts that increase the risk to a surety before the surety undertakes his obligation to the creditor. Under this doctrine, the First District ruled that Huntington violated its duty to disclose facts that materially increased the risk of Schneider, who, according to the First District, was a surety and not a mere guarantor per the terms of the guaranty agreement.

The bank appealed the decision to the Supreme Court, arguing that there is a legal distinction between a guarantor and a surety, and that since Schneider was a guarantor, the increased risk doctrine did not apply to him. The bank also argued that Ohio does not follow the increased risk doctrine.

Supreme Court Analyzed the First District’s Adoption of the “Doctrine of Increased Risk”  
Chief Justice Kennedy explained that the matter could be resolved by determining whether Ohio adopts the “doctrine of increased risk”—Section 124(1) of the Restatement (First) of Security—and whether, as a result of this determination, Huntington was required to disclose material information unknown to Schneider that increased his risk beyond that which he intended to assume.

The Court declined to adopt the “doctrine of increased risk.” The opinion stated the Court will continue to apply well-established Ohio law, finding that contracts that are fairly made and freely entered into are valid and enforceable.

The Court noted that in ordinary business transactions, each party is presumed to have the opportunity to ascertain all relevant facts available to any other party involved, so no party has a duty to disclose material information to the other absent an affirmatively established relationship of special trust or confidence between the parties.

The opinion stated that nothing in the record indicated that Huntington and Schneider had entered into a relationship of special trust or confidence. Schneider may have been “blindsided” by Sosna, as he claimed, but Schneider could or should have reasonably known about Sosna’s financial state from their business relationship, the Court stated.

“Schneider had the opportunity to ascertain facts from Harold Sosna or from other sources,” the opinion stated, and the burden of responsibility did not shift to Huntington to disclose information that Schneider could have discovered before signing the guaranty agreements,” the opinion stated.

Trial Court Should Reexamine Case, Concurrence Maintained
Justice Brunner wrote the majority concludes that a creditor “never” has a duty to disclose facts that may increase a borrower’s risk. She wrote courts have found that a sophisticated investor is not disadvantaged because that investor has full access to the information to make an informed decision. That is not the same for an unsophisticated investor.

Justice Brunner noted the determination of whether an investor is sophisticated or unsophisticated is a factual finding that needs to be made by a trial court. She noted the trial court indicated that Schneider was a sophisticated investor, and she agreed with the majority’s decision to reverse the First District. She stated she disagreed “with the majority’s sweeping reasoning.”

She would remand the case to the trial court for further proceedings.

2024-0208. Huntington Natl. Bank v. Schneider, Slip Opinion No. 2025-Ohio-2920.

View oral argument video of this case.

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