Opinion
CASE NO. 5:12cv1532
02-26-2013
ARTHUR AXNER, Plaintiff/Appellant, v. COLLEEN C. GAYDASH, Defendant/Appellee.
JUDGE SARA LIOI
MEMORANDUM OPINION AND
ORDER
Before the Court is an appeal filed by plaintiff/appellant, Arthur Axner ("appellant" or "Axner"), from the Bankruptcy Court's September 10, 2012 order in Case. No. 12-5112 (Bankr. N.D. Ohio), overruling Axner's objections to the confirmation of the debtor's Chapter 13 Plan and granting the debtor's motion to avoid lien. (Doc. No. 1.) Axner filed his appellant's brief (Doc. No. 12), and defendant/appellee Colleen C. Gaydash ("Gaydash" or "debtor" or "appellee") filed her appellee brief (Doc. No. 14). For the reasons set forth below, the decision of the bankruptcy court is AFFIRMED and this appeal is DISMISSED.
I. BACKGROUND
Appellant Axner is an attorney at law licensed to practice in the state of Ohio. On March 9, 2009, following his representation of Gaydash in her domestic relations case, Axner filed suit against Gaydash in the Summit County Court of Common Pleas for the collection of unpaid legal fees. On October 28, 2009, Axner and Gaydash entered into a settlement agreement, reflected through a final judgment entry, which read, in pertinent part:
(2) The Defendant agrees to pay to the Plaintiff the sum of $15,000.00 plus interest at the statutory rate from date of judgment. Such amount shall be considered a consent judgment given by the Defendant to the Plaintiff. The Plaintiff may secure this judgment by filing a certificate of judgment lien, but agrees not to foreclose, levy or execute on this judgment provided, however, that the Defendant makes payments . . . and pays the full amount, including interest, on or before three (3) years from the date of this judgment entry.(Doc. No. 14-1 at 159.) On October 30, 2009, Axner filed a praecipe for certificate of judgment lien pursuant to Ohio Rev. Code § 2329.02. (Id. at 157.) On November 2, 2009, the state court issued a certificate of judgment. (Doc. No. 14-2 at 161.)
On April 5, 2012, following the filing of a foreclosure action due to mortgage arrearages, Gaydash filed a voluntary Chapter 13 bankruptcy petition in an effort to save her home located at 230 Samoa Drive, Akron Ohio (the "subject property"). Gaydash originally disclosed the market value of the subject property as $100,000.00 based upon a realtor evaluation she obtained. The subject property is encumbered by a first mortgage in the amount of $115,163.74. Gaydash was also entitled to a homestead exemption pursuant to Ohio Rev. Code § 2329.66(A)(1) in the amount of $21,625.00.
On Schedule F of the bankruptcy petition, Gaydash disclosed a debt owed to Axner in the amount of $14,578.80. Gaydash's first amended Chapter 13 plan filed on May 11, 2012, provides that the judgment lien held by Axner is a fully under-secured claim that would be paid inside the plan as a general unsecured claim. That same day, Gaydash filed a motion to avoid the judgment lien of Axner pursuant to 11 U.S.C. § 522(f).
On May 23, 2011, appellant Axner, proceeding pro se, separately filed objections to confirmation of Gaydash's first amended Chapter 13 plan and to Gaydash's motion to avoid his judgment lien, arguing his lien was a "consensual lien" and, therefore, not avoidable under § 522(f).
On September 7, 2012, the bankruptcy court conducted an evidentiary hearing regarding Axner's objections. Following the conclusion of testimony and argument, the bankruptcy court rendered an oral decision, overruling Axner's objections and finding that Axner held a judicial lien, not a "consensual lien" or consensual mortgage, and the lien was thus avoidable. (Hearing Tr., Doc. No. 13 at 117.) The bankruptcy court concluded that the value of the subject property was $135,000.00, and after subtracting the mortgage balance, that the lien impaired the debtor's homestead exemption in her real property and, therefore, § 522(f) authorized the avoidance of Axner's judgment lien. (Id. at 127-30). The bankruptcy court's oral decision was followed by a formal written order on September 10, 2012, overruling Axner's objections to confirmation of the first amended plan and granting Gaydash's motion to avoid judgment lien. (Doc. No. 1-3.) On September 24, 2012, Axner filed a timely notice of appeal.
$135,000.00 Market value
-$115,163.74 Less mortgage balance
$19,836.26 Subtotal
-$21,625.00 Less exemptions
(-1,788.74) Equity
Although appellant Axner is an attorney who proceeded pro se in the bankruptcy court proceedings below and in filing this appeal, he thereafter retained attorney Gary R. Axner to represent him in this appeal. (See Doc. No. 5, Notie of Appearance and Request for Notices.) The parties completed briefing on this appeal on December 13, 2012. (Doc. No. 14.) On February 26, 2013, following the completion of briefing, the Court received notice that the Supreme Court of Ohio had indefinitely suspended appellant's counsel, Gary R. Axner, from the practice of law on February 14, 2013.
II. DISCUSSION
A. Standard of Review
The bankruptcy court's findings of fact are reviewed for clear error and its conclusions of law are reviewed de novo. Brady-Morris v. Schilling (In re Knight Trust), 303 F.3d 671, 676 (6th Cir. 2002). Mixed questions of law and fact are to be "separated into their component parts and reviewed under the appropriate standard." Mayor of Baltimore v. W. Va. (In re Eagle-Picher Indus., Inc.),285 F.3d 522, 527 (6th Cir.), cert. denied, 537 U.S. 880 (2002). A factual finding is clearly erroneous when, although there is evidence to support it, the reviewing court is left with a definite and firm conviction that a mistake has been committed. Rogan v. Bank One N.A. (In re Cook), 457 F.3d 561, 565 (6th Cir. 2006). Under a de novo standard of review, the reviewing court decides an issue independently of, and without deference to, the trial court's determination. Treinish v. Norwest Bank Minn., N.A. (In re Periandri),266 B.R. 651, 653 (B.A.P. 6th Cir. 2001). To the extent the bankruptcy court's opinion is based on stipulated facts, those facts are binding on this Court. See Varga v. Rockwell Int'l Corp., 242 F.3d 693, 699 (6th Cir. 2001).
B. Analysis
On appeal, Axner argues that his lien encumbering the subject property is a "consensual lien" that cannot be avoided under 11 U.S.C. § 522(f) and, therefore, the Bankruptcy Court erred in overruling his objections to Gaydash's first amended Chapter 13 plan and in granting Gaydash's motion to avoid Axner's lien. The issue presented on appeal is whether the settlement agreement and consent judgment, which consented to the filing of judgment lien, gave rise to a "judicial lien" within the meaning § 522(f) that is avoidable or a "security interest" or "consensual lien" not subject to avoidance.
"Section 522(f)(1)(A) allows a debtor to avoid a 'judicial lien' to the extent the same impairs the debtor's exemption." In re Webb, No. 01-00641, 2002 WL 33939737, at *2 (Bankr. D. Idaho Dec. 30, 2002). "This section contains three requirements a moving party must establish before a lien on exempt property can be avoided: (1) the lien must be a judicial lien; (2) [t]he lien must be against an interest of the debtor in property; (3) [t]he debtor must be entitled to the exemption that the lien would impair." In re Applebaum, 162 B.R. 548, 550 (Bankr. E.D. Cal. 1993) (citations omitted). Only the first requirement is at issue in this appeal.
"The Bankruptcy Code divides the concept of lien into three types: judicial liens, security interests, and statutory liens." In re Inman, 131 B.R. 789, 792 (Bankr. N.D. Tex. 1991) (citing 11 U.S.C. §§ 101(32), (47), (49)). "These categories are mutually exclusive." Id. (citations omitted). The designation of a lien depends on the manner in which it arises. A "judicial lien" is defined in the bankruptcy code as a "judgment, levy, sequestration, or other legal or equitable process or proceeding." 11 U.S.C. § 101(36). A "security interest" is defined as a "lien created by an agreement." 11 U.S.C. § 101(51).
Axner argues that his lien was initially obtained by a consensual settlement agreement by which he contends Gaydash voluntarily agreed to grant him a lien on her residential property, and that security interest cannot be transformed into a judicial lien simply because their agreement was judicially approved and incorporated into a judgment. Therefore, Axner contends, the Bankruptcy Court erred in concluding the lien is a judicial lien and is avoidable.
In support, Axner relies upon several cases involving security interests arising from divorce property settlements. (See Doc. No. 12 at 55.) In chief, he cites In re Dunn, 10 B.R. 385, 387 (1981). In that case, the court held that an agreed to cash payment in a divorce proceeding secured by a lien on the debtor's home was "not an involuntary 'judicial lien' . . . but consensual and voluntary although judicially sanctioned" and, therefore, not avoidable under § 522(f).
Axner's reliance on Dunn, however, is misplaced. First, as appellee correctly notes, the security interest in Dunn was created by a divorce property settlement. The equities and policies supporting the Dunn court's decision are necessarily different from cases like this one, in which the focus is on providing the debtor with a fresh start and preventing the skewing of settlement negotiations in favor of or against the creation of security interests versus judicial liens that could later be avoided. Applebaum, 162 B.R. at 551, 552 n. 2.
Moreover, unlike in Dunn—and the other cases cited by Axner—Gaydash never expressly and voluntarily agreed to a lien on her residence. Cf. Dunn, 10 B.R. at 386 (divorce decree at issue expressly awarded the creditor a cash payment "secured by lien on the real estate. . . ."); Inman, 131 B.R. at 792 (parties' settlement agreement expressly granting "'an interest in and a right to proceeds from the sale' of debtor's homestead[,]" was product of consensual agreement "more accurately . . . characterized as being in the nature of a security interest than a judicial lien.") (footnote omitted). Rather, Gaydash agreed only that Axner "may secure his judgment by filing a certificate of judgment lien." (Doc. No. 14-1 at 159.) Axner's lien interest did not arise until he elected to file a certificate of judgment on November 2, 2009. See Ohio Rev. Code § 2329.02. (emphasis added). Absent the recordation and operation of § 2329.02, Axner would hold an unsecured judgment debt only, and have no lien. See Webb, 2002 WL 33939737, at *2.
Section 2329.02 provides, in relevant part,
Any judgment or decree rendered by any court of general jurisdiction, . . .within this state shall be a lien upon lands and tenements of each judgment debtor within any county of this state from the time there is filed in the office of the clerk of the court of common pleas of such county a certificate of such judgment, . . . .Ohio Rev. Code Ann. § 2329.02.
No such judgment or decree shall be a lien upon any lands, . . . until a certificate under the hand and official seal of the clerk of the court in which the same is entered or of record, . . . .
The decision in Applebaum, supra, supports this conclusion. The court held there that a lien arising from a settlement and stipulated judgment that consented to the filing of an abstract of judgment created a judicial lien. 162 B.R. 548 at 551-52. There, as in this case, the stipulated judgment "did not indicate that the [debtors] agreed to any specific consensual lien on their house." Id. at 552. Rather, the court observed:
The possible lien mentioned in the stipulation was the same lien that would have arisen had the case been brought to trial. Thus, it would appear from the stipulation that the [creditor] was merely preserving [its] right to an abstract of judgment. Moreover, the [creditor's] lien is judicial because it derives its power from a subsequently executed judgment. At the time of the stipulation, it was not even clear that a lien would necessarily be filed as the stippulated [sic] judgment only provided that the [creditor] "may" file an abstract of judgment. The [creditor's] lien arose then not when the [debtors] signed the agreement, but later when the [creditor] executed on its judgment.Id. at 551-552 (emphasis in original). As noted in Applebaum, a majority of bankruptcy courts agree that such a consent judgment is a judicial lien. Id. at 550-51 (collecting cases).
The same holds true in this case, in which the agreement's terms state, "The Plaintiff may secure this judgment by filing a certificate of judgment lien . . . ." (Doc. No. 14-1 at 159) (emphasis added). Thus, at the time of the parties' settlement agreement, it was not even clear that Axner would file a lien as the agreement indicated only that he "may" have done so. Id. at 551-52. Axner elected to exercise that option by filing a certificate of judgment lien; it was that filing that gave rise to his lien, not the parties' agreement. Consequently, the Bankruptcy Court correctly determined that Axner holds a "judicial lien" as defined by § 101(36), which is avoidable pursuant to § 522(f).
III. CONCLUSION
For all the foregoing reasons, the decision of the Bankruptcy Court overruling Axner's objections to confirmation of the debtor's Chapter 13 Plan and granting the debtor's motion to avoid judgment lien is AFFIRMED and this appeal is DISMISSED.
The Clerk is hereby instructed to serve this Memorandum Opinion and Order through the Court's electronic court filing system and to appellant Axner at the address identified in his notice of appeal (Doc. No. 1 at 2), and to note service to appellant on the docket.
IT IS SO ORDERED.
_________________________
HONORABLE SARA LIOI
UNITED STATES DISTRICT JUDGE