Opinion
Case No. 08-56624 Adv. Pro. No. 12-2005
03-11-2013
In re: Charles J. Halm Kimberly A. Halm, Debtors. Charles J. Halm, et al., Plaintiffs, v. Ohio Valley Bank, Defendant.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
_______________
C. Kathryn Preston
United States Bankruptcy Judge
Chapter 13
Judge Preston
MEMORANDUM OPINION AND ORDER ON
MOTION FOR SUMMARY JUDGMENT ON PLAINTIFF'S COMPLAINT
This matter is before the Court upon the Motion for Summary Judgment (Doc. 18) ("Motion") filed by Ohio Valley Bank (hereinafter "Defendant"), the response (Doc. 20) to Defendant's Motion filed by Charles Halm and Kimberly Halm (hereinafter collectively, "Plaintiffs"), and the reply (Doc. 22) filed by Defendant. Plaintiff and Defendant are hereinafter collectively referred to as the "Parties". Plaintiffs filed the Complaint against Defendant seeking a declaratory judgment that Defendant's mortgage lien does not extend to certain property of Plaintiffs. Defendant has filed a Counterclaim against Plaintiffs: Count I requests reformation of Defendant's mortgage, Count II requests a declaration that Defendant holds an equitable lien on certain property of the Plaintiffs, and Count III requests a determination pursuant to the Court's § 105 powers, that the mortgage encumbers the same property.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334, and General Order No. 05-02, entered by the District Court for the Southern District of Ohio, referring all bankruptcy matters to this Court. This matter is a core proceeding. See 28 U.S.C. § 157(b)(2)(B) and (K). Venue is properly before this Court pursuant to 28 U.S.C. §§1408 and 1409.
I. Standard of Review for Motions for Summary Judgment
Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Bankruptcy Rule 7056, provides that a court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The party seeking summary judgment bears the initial burden of "informing the . . . court of the basis for its motion, and identifying those portions of the [record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
If the movant satisfies this burden, the nonmoving party must then assert that a fact is genuinely disputed and must support the assertion by citing to particular parts of the record. Fed. R. Civ. P. 56(c)(1). The mere allegation of a factual dispute is not sufficient to defeat a motion for summary judgment; to prevail, the non-moving party must show that there exists some genuine issue of material fact. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). When deciding a motion for summary judgment, all justifiable inferences must be viewed in a light most favorable to the non-moving party. Matsushita Elec Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Anderson, 477 U.S. at 255.
The Sixth Circuit Court of Appeals has articulated the following standard to apply when evaluating a motion for summary judgment:
[T]he moving [party] may discharge its burden by "pointing out to the . . . court . . . that there is an absence of evidence to support the nonmoving party's case." The nonmoving party cannot rest on its pleadings, but must identify specific facts supported by affidavits, or by depositions, answers to interrogatories, and admissions on file that show there is a genuine issue for trial. Although we must draw all inferences in favor of the nonmoving party, it must present significant and probative evidence in support of its complaint. "The mere existence of a scintilla of evidence in support of the [nonmoving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [nonmoving party]."Hall v. Tollett, 128 F.3d 418, 422 (6th Cir. 1997) (internal citations omitted). A material fact is one whose resolution will affect the determination of the underlying action. Tenn. Dep't of Mental Health & Mental Retardation v. Paul B., 88 F.3d 1466, 1472 (6th Cir. 1996). An issue is genuine if a rational trier of fact could find in favor of either party on the issue. Schaffer v. A.O. Smith Harvestore Prods., Inc., 74 F.3d 722, 727 (6th Cir. 1996) (citation omitted). "The substantive law determines which facts are 'material' for summary judgment purposes." Hanover Ins. Co. v. American Eng'g Co., 33 F.3d 727, 730 (6th Cir. 1994) (citations omitted). However, determination of credibility, weight of the evidence, and legitimate inferences from the facts remain the province of the jury. Anderson, 477 U.S. at 255.
If otherwise appropriate, summary judgment may also be entered for a nonmoving party. Fed. R. Civ. P. 56(f). K.E. Resources, LTD v. BMO Fin. Inc. (In re Century Offshore Mgmt. Corp.), 119 F.3d 409, 412 (E.D. KY. 1997); see also Celotex, 477 U.S. at 326 ("[D]istrict courts are widely acknowledged to possess the power to enter summary judgments sua sponte, so long as the losing party was on notice that she had to come forward with all of her evidence.").
II. Findings of Fact
The Parties have not filed a stipulation of facts. However, a review of the documents filed in Plaintiffs' bankruptcy case, as well as the pleadings and exhibits in the record in this adversary proceeding, reveals that the Parties do not dispute the relevant facts. Those facts may be summarized as follows:
The only dispute of fact between the Parties relates to whether mutual mistake caused an incorrect legal description to be attached to the mortgage loan documents at issue. This is a not a material fact for purposes of this opinion.
Sometime prior to 2001, John R. Huff and Tamara J. Carmean agreed to convey to Adam C. Halm certain real property located in Chillicothe, Ohio, known in the county records as Parcel ID No. 30-5137016.000 (hereinafter "Lot 1") and Parcel ID No. 30-5137015.000 (hereinafter "Lot 2"). However, the legal description attached to the deed executed by Mr. Huff and Ms. Carmean described only Lot 2. On November 16, 2001, Plaintiff Charles Halm (sometimes hereinafter "Charles"), who intended to purchase both Lot 1 and Lot 2, acquired Lot 2 by warranty deed from Adam Halm. Charles financed the acquisition with a loan from Defendant and granted to Defendant a mortgage. The legal description for the property on which the mortgage was granted described only Lot 2. Defendant perfected its interest in Lot 2 by filing its mortgage of record in the office of the Ross County, Ohio Recorder on November 26, 2001. Sometime thereafter, Charles discovered that the real estate that he had acquired did not include Lot 1.
On January 5, 2006, Adam Halm obtained a Warranty Deed - Deed Of Correction (hereinafter the "Corrective Deed") from Mr. Huff and Ms. Carmean. The Corrective Deed conveyed Lot 1 and Lot 2 (again) to Adam Halm. The corrective deed was filed of record with the Recorder of Ross County, Ohio on January 12, 2006. On January 11, 2006, Adam Halm executed a Survivorship Deed to Plaintiffs conveying to them Lot 1 and Lot 2 (again). The Survivorship Deed was filed of record with the Recorder of Ross County, Ohio on January 12, 2006, just after the Corrective Deed to Adam Halm was recorded. Defendant's mortgage does not refer to Lot 1 in any way and, therefore, by its stated legal description, does not encumber Lot 1.
Plaintiffs filed a Petition for Relief under Chapter 7 of the Bankruptcy Code on July 11, 2008. The case was later converted to a case under Chapter 13 of the Bankruptcy Code. In due course, Plaintiffs filed a Chapter 13 Plan. This Plan ambiguously provided that the Defendant's claim would be paid as an unsecured claim, then also provided that Defendant would be paid some amount - it is unclear what - in full. The Plan further stated that an adversary proceeding would be filed by August 2012 to seek court determination whether the property encumbered by Defendant's mortgage vests free and clear of the mortgage or whether the mortgage may be avoided pursuant to applicable provisions of the Bankruptcy Code. Defendant objected to confirmation of the Plan on the basis that it provided for no distributions to Defendant prior to resolution of any adversary proceeding, and that the protracted deadline for such an adversary proceeding worked to deprive Defendant of adequate protection for its interest in Plaintiffs' property.
The Plan was subsequently amended (hereinafter, the "Amended Plan"). The Amended Plan (Chapter 13 case no. 08-56624, Doc. 48) provided that Plaintiffs would file, within 24 months after the date of confirmation, an adversary proceeding to determine the nature and extent of Defendant's mortgage lien. In the interim and until resolution of the adversary proceeding, Defendant would receive payment of a portion of its claim, together with interest on that amount in regular monthly payments through the plan. The Amended Plan further provided that, notwithstanding § 1327, property of the bankruptcy estate did not vest in Debtors upon confirmation. Defendant withdrew its objection to confirmation, and the Amended Plan was confirmed by the Court on January 7, 2010. Plaintiffs thereafter filed the instant adversary proceeding on January 6, 2012, seeking just that - a determination of the "nature, extent and priority" of Defendant's lien. See Complaint at 1-2 (Doc. 1). Defendant answered and counterclaimed, seeking, among other relief, reformation of its mortgage.
Section 1327(c) provides: "Except as otherwise provided in the plan the confirmation of a plan vests all of the property of the estate in the debtor." 11 U.S.C. § 1327(c).
III. Arguments of the Parties.
Defendant seeks summary judgment on the Plaintiffs' Complaint, arguing that (A) Plaintiffs do not have standing to bring this adversary proceeding because the Plaintiffs' rights to avoid a mortgage are limited by§ 522 of the Bankruptcy Code; and (B) Plaintiffs' adversary proceeding is barred by the applicable statute of limitations set forth in § 546. Defendant points out that there are no disputed material facts, and, the facts, even when viewed in a light most favorable to Plaintiffs, form a basis to grant Defendant summary judgment. Plaintiffs counter that they do not seek to avoid the mortgage but merely have a judicial determination of its nature and extent. Plaintiffs further counter that they have standing to bring their adversary complaint and that the statute of limitations argument is moot pursuant to the confirmed Amended Plan.
Unless otherwise indicated, all statutory citations refer to the Bankruptcy Code, codified in Title 11 of the United States Code.
Defendant also seeks summary judgment on Count I of its Counterclaim, asserting that Defendant is entitled to reformation of its mortgage. However, that prong of the Motion for Summary Judgment is the subject of a separate order; this opinion addresses only issues raised in the Motion for Summary Judgment as to the Complaint.
IV. Legal Analysis
A. Plaintiffs Have Standing To Bring This Adversary Proceeding.
Defendant seeks summary judgment in its favor, arguing that Plaintiffs lack standing to bring this adversary proceeding. The essence of Defendant's argument is that a Chapter 13 debtor's right to bring avoidance actions is limited to the remedies granted to debtors in § 522(h) and (g)(1) to avoid nonconsensual liens. Defendant relies exclusively upon Kildow v. EMC Mortgage Corp. (In re Kildow), 232 B.R. 686 (Bankr. S.D. Ohio 1999), for the proposition that a Chapter 13 debtor lacks standing to avoid consensual mortgage liens. Plaintiffs counter that standing is not an issue because this is not an avoidance action through which Plaintiffs are seeking to avoid a defectively executed or recorded mortgage using the strong arm powers of the trustee. Plaintiffs contend that this is an action for a declaratory judgment, initiated to protect the rights and interests of the bankruptcy estate.
In Kildow, the court analyzed a Chapter 13 debtor's authority to avoid consensual mortgage liens. The court found that, subject to the limitations set forth in § 522(h) and (g)(1), a Chapter 13 debtor may exercise avoidance powers as set forth in Chapter 5 of the Bankruptcy Code as long as the lien is an involuntary lien. The Kildow court reasoned that § 103(a) makes Chapter 5 of the Bankruptcy Code applicable in Chapter 13 cases and that a Chapter 13 debtor may pursue avoidance actions when they are able to show that a Chapter 13 trustee has not acted to avoid a transfer, but only to the extent the debtor could have claimed an exemption in the subject asset pursuant to § 522(g). Kildow, 232 B.R. at 691. Among the many factors the Kildow court considered in determining whether a Chapter 13 debtor may avoid a transfer, the most pertinent to this case is whether the transfer was a voluntary transfer of property by the debtor. Id. at 692. If the transfer was voluntary, then pursuant to the holding in Kildow, Plaintiffs do not have standing to avoid the lien. Using the reasoning of the Kildow court, Defendant argues that because the subject mortgage was a voluntary transfer of property by Plaintiffs, Plaintiffs do not have standing under § 522 to avoid the transfer.
Defendant's reliance upon Kildow is misplaced. Decided in 1999, Kildow is among the early cases to examine a Chapter 13 debtor's standing to pursue avoidance actions. The law on this issue has evolved over the years. More recently, the Bankruptcy Appellate Panel for the Sixth Circuit has determined that Chapter 13 debtors have derivative standing to bring avoidance actions when the trustee does not so act. In Countrywide Home Loans v. Dickson (In re Dickson), 427 B.R. 399 (B.A.P. 6th Cir. 2010), aff'd on other grounds, 655 F.3d 585 (6th Cir. 2011), a Chapter 13 debtor filed an adversary proceeding to avoid the lien held by her mortgage lender pursuant to §§ 544, 547, 550 and 551, on the basis that her mortgage lender had not properly perfected its interest on her manufactured home. The debtor in that case had granted her mortgage company a mortgage lien upon her real property, but her manufactured home had not become affixed to the real property and the mortgage company had not noted its lien on the title to her manufactured home, as is required to perfect a security interest upon titled personal property under the governing state law. The mortgage company filed a motion for summary judgment asserting, among other things, that the debtor lacked standing to bring the adversary proceeding because the mortgage lien was consensual.
The Dickson court found that the debtor had derivative standing to bring the avoidance action and that the ability to grant derivative standing is within the court's equitable powers. The court explained:
Typically, the system designed by Congress ensures that the value of the estate is maximized and that creditors' rights are protected because the trustee will pursue valuable avoidance claims. However, when the trustee unjustifiably refuses to bring an avoidance action under § 544(b), the system "breaks down." "It is in precisely this situation that bankruptcy courts' equitable powers are most valuable, for the courts are able to craft flexible remedies that, while not expressly authorized by the Code, effect the result the Code was designed to obtain."Dickson, 427 B.R. at 404 (quoting Hyundai Translead, Inc. v. Jackson Truck & Trailer Repair, Inc. (In re Trailer Source, Inc.), 555 F.3d 231 (6th Cir. 2009)). The court further reasoned that in a typical Chapter 13 case, a trustee lacks the resources to pursue meritorious avoidance claims, which increases the possibility that avoidance actions will not be pursued and the estate will lose the benefit thereof. Dickson, 427 B.R. at 405. The Dickson court also analyzed various Chapter 13 code provisions in determining that a Chapter 13 debtor must be able to pursue avoidance claims:
First, under 11 U.S.C. § 1325(a)(4), a Chapter 13 debtor's plan of reorganization cannot be confirmed unless "the value as of the effective date of the plan, of property to be distributed under the plan on account of each unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date . . ." ... To meet the liquidation benchmark that assumes lien and transfer avoidance, a Chapter 13 debtor naturally must propose a plan of reorganization that contemplates the actual avoidance of such liens and transfers....Dickson, 427 B.R. at 405-406. The Dickson court ultimately concluded that the debtor had derivative standing to pursue the avoidance action under § 544. Id. See also U.S. Bank N.A. v. Barbee (In re Barbee), 461 B.R. 711 (B.A.P. 6th Cir. 2011) (following the decision in Dickson and holding that the debtor had derivative standing under § 544 to pursue an avoidance action.).
Second, under 11 U.S.C. § 1325(a)(3), a Chapter 13 debtor must propose his or her plan in good faith. A debtor risks being accused of acting in bad faith if an obviously avoidable lien or transfer exists and the debtor does not propose a plan that contemplates avoidance of the same ... Similarly, 11 U.S.C. § 1325(a)(6) requires that the debtor have initiated his or her Chapter 13 case in good faith. Failure of the Chapter 13 debtor to pursue avoidance, either through the Chapter 13 trustee or personally, raises the possibility that the debtor will be accused of having filed his or her petition in bad faith.
Finally, not permitting Chapter 13 debtors to have derivative standing to pursue avoidance claims would be inconsistent with the Bankruptcy Code's claims verification scheme. 11 U.S.C. § 502 permits a "party in interest," including a Chapter 13 debtor, to object to a creditor's proof of claim. ... 11 U.S.C. § 506 requires bifurcation of claims into secured and unsecured portions. Taken together 11 U.S.C. §§ 502 and 506 permit a debtor not only to object to the existence or amount of a claim, but whether and to what extent a claim is secured. This system for testing claims by creditors would break down if the Chapter 13 Debtor, the driver of the claims verification process in the Chapter 13 context, were not permitted to challenge a secured claim on grounds that it was improperly perfected or represented a preferential transfer.
The instant adversary proceeding is not an avoidance action, but rather an action to determine the extent of Defendant's mortgage. Nonetheless, the Court can apply the reasoning of the Dickson and Barbee courts in the instant matter, and similarly find that Plaintiffs have derivative standing to pursue their cause of action to determine the extent, validity, and/or priority of Defendant's mortgage lien. If a Chapter 13 debtor has authority to prosecute avoidance actions on behalf of the bankruptcy estate, it logically follows that a debtor is clothed with authority to seek, on behalf of the estate, a determination of the extent of a mortgage purportedly encumbering property of the bankruptcy estate. Other circuit courts have concluded or opined that a Chapter 13 debtor may pursue claims on behalf of the estate, finding that the debtor can step into the shoes of the trustee for purposes of the litigation. See e.g., Crosby v. Monroe County, 394 F.3d 1328, 1331 n. 2 (11th Cir. 2004) (recognizing that a Chapter 13 debtor may sue and be sued) (citations omitted); see also Smith v. Rockett, 522 F.3d 1080, 1082 (10th Cir. 2008); Cable v. Ivy Tech State College, 200 F.3d 467, 472-73 (7th Cir. 1999); Olick v. Parker & Parsley Petroleum Co., 145 F.3d 513, 515 (2d Cir. 1998); Maritime Electric Co. v. United Jersey Bank, 959 F.2d 1194, 1210 n.2 of Opinion Sur Panel Rehearing (3d Cir. 1991).
There is another reason why Defendant's argument is unavailing. Plaintiffs' Amended Plan contemplates a judicial determination that Defendant's mortgage lien does not extend to Lot 1. See Amended Plan, § H, Special Provision 1 (Case No. 08-56624, Doc. 48). Presumably, the Amended Plan was proposed with the Special Provision to meet the liquidation benchmark and the requirement of good faith under § 1325(a)(3) and (4). Also, in order to determine the secured and unsecured status of Defendant's claim, Plaintiffs must be able to submit to the Court the question of whether Defendant's mortgage lien is properly perfected as to Lot 1. In anticipation of determining the secured and unsecured value of Defendant's claim, the Amended Plan provided for the filing of the instant adversary proceeding by Plaintiffs.
Special Provision 1 of Plaintiffs' Amended Plan states in pertinent part: "Debtors shall, on or before the 24* month after the date of confirmation herein, file a separate adversary proceeding to determine the nature and extent of Ohio Valley Bank's mortgage lien. ... Until such time as the nature and extent of Ohio Valley Bank's lien is determined in the adversary proceeding, the extent to which Ohio Valley Bank's claim in excess of $24,900.00 shall be treated as a Class 5 General Unsecured Claim." Amended Plan, § H, Special Provision 1 (Case No. 08-56624, Doc. 48).
Section § 1327(a) if the Bankruptcy Code provides that "[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan." 11 U.S.C. § 1327(a). The Supreme Court has held that a confirmation order is a final judgment. Thus, it is enforceable and binding if affected parties had proper notice of the provisions of a plan and did not object or file a timely appeal. United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010). The Amended Plan specifically provided for the Plaintiffs to bring this adversary proceeding to determine the nature and extent of Defendant's mortgage lien. Defendant had proper notice of the proposed plan provisions, as illustrated by the objection to the initial Chapter 13 Plan that it filed and the conscious decision it made to withdraw that objection to confirmation once the Amended Plan was filed. So Defendant, having failed to object to the Amended Plan or appeal the order confirming same, is bound by the provisions of the Amended Plan allowing Plaintiffs to press their cause of action in this adversary proceeding.
Local Bankruptcy Rule 3015-3 provides that, notwithstanding the filing of an amended plan, an objection to confirmation remains pending unless and until withdrawn.
For the foregoing reasons, the Court finds that Plaintiffs have standing to pursue this adversary proceeding. Accordingly, the Court denies this prong of Defendant's Motion.
Defendant argues that Plaintiffs lack standing under § 522, but Plaintiffs do not assert that their cause of action arises under § 522. As this Court has found that Plaintiffs have derivative standing to pursue this adversary proceeding outside the context of § 522, this Court need not engage in an analysis of whether Plaintiffs have standing pursuant to § 522.
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B. Plaintiffs' Cause Of Action Is Not Barred By The Statute Of Limitations.
Defendant next argues that Plaintiffs are precluded from bringing their cause of action based upon the applicable statute of limitations. Defendant's argument relies upon the language of § 546, which states in relevant part:
(a) An action or proceeding under section 544, 545, 547, 548, or 553 of this title may not be commenced after the earlier of-11 U.S.C. § 546. Defendant points out that Plaintiffs' Petition for Relief was filed on July 11, 2008, and that the trustee was appointed on July 12, 2008; therefore, Defendant asserts, the Complaint was due no later than July 12, 2010, and when not timely filed, Plaintiffs' cause of action is time barred. Plaintiffs reply that the confirmed Amended Plan provides for the filing of this action within 24 months of confirmation and that since this adversary proceeding was commenced within that time, Defendant's statute of limitations argument must fail.
(1) the later of-
(A) 2 years after the entry of the order for relief; or(2) the time the case is closed or dismissed.
(B) 1 year after the appointment or election of the first trustee...; or
As discussed above, § 1327(a) provides that "[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan." 11 U.S.C. § 1327(a). The Supreme Court's Espinosa decision regarding the enforceability and binding effect of an order of confirmation applies with equal force to Defendant's argument couched in the statute of limitations as it does to Defendant's standing argument. Espinosa, 130 S. Ct. at 1380. Plaintiffs' Amended Plan was confirmed on January 7, 2010. The Amended Plan provided for the filing of the instant adversary proceeding within 24 months of confirmation. In fact, Defendant had filed an objection to confirmation of Plaintiffs' initial proposed Plan on the grounds that its proposed deadline for an adversary proceeding (of August 2012) resulted in lack of adequate protection to Defendant. In response to Defendant's objection, Plaintiffs amended their Plan to set an earlier deadline for the instant proceeding to be filed. Defendant thereafter withdrew its objection to confirmation. Defendant had proper notice of the Plan and acquiesced to the proposed provision for the filing of this adversary proceeding, waiving the statute of limitations contained in § 546. The instant adversary proceeding, having been filed on January 6, 2012, was filed within the time contemplated by the confirmed Amended Plan. Therefore, the Court will deny this prong of Defendant's Motion for Summary Judgment.
V. Conclusion
For the foregoing reasons, the Court finds that Defendant's Motion for Summary Judgment (Doc. 18) on Plaintiffs' Complaint is not well-taken. Accordingly, it is
ORDERED that Defendant's Motion for Summary Judgment (Doc. 18) on Plaintiffs' Complaint is DENIED. A trial or status conference upon the remaining issues in this matter will be set by separate notice.
IT IS SO ORDERED. Copies To: Matthew J. Thompson
Attorney for Plaintiffs
and Counter-Defendants
(via CM/ECF service)
Andrew Paul George
Gregory D. Wooldridge
Attorneys for Defendant
and Counter-Claimant
(via CM/ECF service)