Opinion
Case No. 11-34060 Adv. No. 14-3145
01-07-2016
In re: JOHN MEFFORD PATRICIA MEFFORD, Debtors JOHN MEFFORD PATRICIA MEFFORD, Plaintiffs v. HSBC MORTGAGE SERVICES, INC., Defendant
Chapter 13 DECISION GRANTING SUMMARY JUDGMENT TO DEFENDANT HSBC MORTGAGE SERVICES, INC. [Adv. Doc. 16]
The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a), 157(b)(2) and 1334 and the standing General Order of Reference in this District.
This matter is before the court on the Motion of Defendant HSBC Mortgage Services Inc. for Summary Judgment [Adv. Doc. 16]; Debtors/Plaintiffs' Response to Motion of Defendant HSBC Mortgage Services Inc. for Summary Judgment [Adv. Doc. 20]; and Defendant HSBC Mortgage Services Inc.'s Reply to Plaintiffs' Opposition to Defendant's Motion for Summary Judgment [Adv. Doc. 21].
This motion is a substitute for the original motion which failed to comply with ECF Procedure 5.
FACTUAL AND PROCEDURAL BACKGROUND
The following facts are not in dispute. Plaintiff-Debtors John and Patricia Mefford ("Meffords") filed their chapter 13 bankruptcy petition on July 25, 2011. On November 12, 2014, the Meffords filed an adversary complaint against Defendant HSBC Mortgage Services, Inc. ("HSBC"), [Adv. Doc. 1]. In the complaint, the Meffords seek to avoid HSBC's mortgage lien on property they own at 3660 Hertland Drive, Dayton, Ohio 45439 [Id., ¶¶ 3, 16, and 23]. They assert that HSBC's mortgage lien is avoidable pursuant to 11 U.S.C. §544 because the mortgage was not properly acknowledged in accordance with Ohio law [Id., ¶¶ 10-16] and/or is avoidable as a preferential transfer pursuant to 11 U.S.C. § 547 [Id., ¶¶ 17-23].
HSBC is not the original lender / mortgagee. Originally, the Meffords executed the mortgage to Mortgage Electronic Registration Systems Inc. as nominee for Capital One Home Loans, LLC and the document was recorded in Montgomery County, Ohio on October 5, 2005 [Adv. Doc. 1, Ex. A]. The mortgage was assigned to HSBC on September 27, 2011 [Id.].
On December 5, 2014, HSBC filed its answer which included the affirmative defense that the Meffords' claims are barred by the statute of limitations [Adv. Doc. 4, ¶ 30]. In October of 2015, HSBC filed a motion for summary judgment [Adv. Doc. 16] asserting that it is entitled to judgment as a matter of law because the Meffords lack standing to bring their claims and the claims are barred by the statute of limitations found in 11 U.S.C. § 546. A response and reply have been filed and the matter is now ripe for decision.
In their responsive memorandum, the Meffords incorrectly assert that HSBC did not raise the statute of limitations as an affirmative defense in its answer.
LEGAL ANALYSIS
A. Summary Judgment Standard
The appropriate standard to address HSBC's motion for summary judgment is contained in Fed. R. Civ. P. 56 and incorporated in bankruptcy adversary proceedings by reference in Fed. R. Bankr. P. 7056. Rule 56(a) provides that summary judgment is to be granted by the court "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).
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, 249-51 (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. Nonetheless, mere conclusory allegations or unsupported opinions of the nonmovant are insufficient to defeat a motion for summary judgment. Id. See also Blaney v. Cengage Learning, Inc., 2011 WL 1532032, at *7 (S.D. Ohio Apr. 22, 2011).
B. Standing
Initially, HSBC asserts that the Meffords lack standing because they brought the lien avoidance claims in their own name when, instead, the claims must be brought by the trustee on behalf of the estate, at least under the circumstances presented in this case. See 11 U.S.C. § 544(b) and § 547(b). While debtors have been granted derivative standing to bring a lien avoidance action on behalf of the estate, HSBC notes that the Meffords have not sought derivative standing. See U.S. Bank Nat'l Assoc. v. Barbee (In re Barbee), 461 B.R. 711, 715 (B.A.P. 6th Cir. 2011); Kellner v. First Ohio Banc & Lending, Inc. (In re Geraci), 507 B.R. 224, 230 n.6 (Bankr. S.D. Ohio 2014). In response, the Meffords recognize their standing problem and note their willingness to seek to be appointed by the chapter 13 trustee in this matter to continue litigating the claims on behalf of the estate.
In certain circumstances, debtors may avoid a lien for their own benefit to recapture exempt assets, but not if the lien is voluntary or consensual as it is in this case. See 11 U.S.C. § 522(g) and (h). See also Kellner v. First Ohio Banc & Lending, Inc. (In re Geraci), 507 B.R. 224, 230 n.6 (Bankr. S.D. Ohio 2014).
With respect to standing, the court agrees with HSBC that the Meffords lack standing to pursue their lien avoidance claims on their own behalf and further agrees that the complaint is deficient as it now stands. The court also recognizes the Meffords willingness to cure the deficiency which, in certain cases, has been permitted. However, granting the Meffords the opportunity to remedy the standing issue would be a pointless gesture. As will be made clear, both of the lien avoidance claims raised in the complaint are barred by the applicable statute of limitations.
C. Statute of Limitations
The statute of limitations relevant to the § 544 and § 547 lien avoidance claims is found in 11 U.S.C. § 546 and states, in pertinent 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--
(1) the later of--
(A) 2 years after the entry of the order for relief; or
(B) 1 year after the appointment or election of the first trustee under section 702, 1104, 1163, 1202, or
1302 of this title if such appointment or such election occurs before the expiration of the period specified in subparagraph (A); or
11 U.S.C. § 546(a). The Meffords commenced their voluntary joint case by filing their bankruptcy petition on July 25, 2011 and the commencement of the case constituted the order for relief. See 11 U.S.C. § 301. The chapter 13 trustee was and remains the standing chapter 13 trustee for Dayton. Consequently, the deadline for filing a § 544 or § 547 lien avoidance claim, whether brought by the trustee or the Meffords, was two years after the date the case was commenced or July 25, 2013. The Meffords did not file the complaint to avoid HSBC's lien until November 12, 2014, over a year after the deadline expired. Consequently, HSBC asserts, and the court agrees, that the Meffords' lien avoidance claims are barred by the § 546 statute of limitations.
(2) the time the case is closed or dismissed.
Nonetheless, the Meffords argue that they bring their causes of action defensively to protect property of the estate and that the defensive use of avoidance powers does not implicate the § 546 statute of limitation citing Grant, Konvalinka & Harrison, P.C. v. Still (In re McKenzie), 737 F.3d 1034 (6th Cir. 2013); Young v. Chase Home Finance, LLC (In re Young), 523 B.R. 114 (Bankr. S.D. Ohio 2015); and Bank of N.Y. v. Sheeley (In re Sheeley), 2013 Bankr. LEXIS 929 (Bankr. S.D. Ohio March 4, 2013). After careful review of the case law, the court concludes that the Meffords' argument is without merit and stems from a misunderstanding of the holding in these cases regarding the defensive use of a trustee's § 544(a) powers. An excellent illustration is the Sheeley case cited by the Meffords.
The Meffords also cite Bank of N.Y. v. Sheeley (In re Sheeley), 2012 WL 8969064 (Bankr. S.D. Ohio April 2, 2012) but the holding is not directly relevant to the statute of limitations issue in this case. --------
In Sheeley, the mortgage holder filed an adversary complaint seeking declaratory judgment that it held a valid lien and seeking to reform its mortgage to correct the legal description of the real property in the mortgage. 2013 Bankr. LEXIS 929, at *2. The trustee sought to prevent the reformation of the mortgage using his § 544(a)(3) status as a bona fide purchaser. Id. The mortgage holder raised the § 546 statute of limitations asserting that the trustee could no longer raise his bona fide purchaser status because the deadline to avoid the mortgage lien had expired. Id. at *2-3. The court observed that the trustee was not attempting to avoid the mortgage but was, instead, using his bona fide purchaser powers defensively to prevent the reformation of the mortgage post-petition. Id. at *25-26, 28-30. Analyzing the language of § 544(a) and § 546, the court concluded that § 544(a) grants a trustee the rights and powers of a bona fide purchaser of real estate and the power to avoid certain transfers of property, but that the § 546(a) statute of limitations restricts only the avoidance powers. Id. Section 546(a) places no time limit on the trustee's ability to use his status as a bona fide purchaser defensively. Id. at *29-30. Consequently, the court concluded that the trustee could use § 544(a)(3) as a valid defense to the mortgage holder's reformation claim. Id. at *30.
What Sheeley illustrates is the difference between the defensive use of a trustee's § 544(a) powers and the affirmative use of § 544(a) to avoid a lien. After the § 546(a) deadline expires, a trustee may no longer take affirmative action to avoid a lien, but may continue to use his status and powers defensively to, for example, offset a creditor claim pursuant to 11 U.S.C. § 502(d) or prevent reformation of a mortgage. See, e.g., McKenzie, 737 F.3d at 1042 (offseting a creditor claim pursuant to § 502(d)); Sheeley, 2013 Bankr. LEXIS 929, at *30. Nonetheless, the § 546 statute of limitations remains applicable to the filing of an adversary complaint to affirmatively avoid a mortgage. See McKenzie, 737 F.3d at 1041; Young, 523 B.R. at 118; Sheeley, 2013 Bankr. LEXIS 929, at *25.
In this case, the Meffords are not attempting to use § 544 and § 547 defensively but, instead, have filed an adversary complaint to avoid HSBC's mortgage lien, precisely the type of action that is subject to the § 546 statute of limitations. Because their adversary complaint was filed after the § 546 deadline expired, their § 544 and § 547 lien avoidance claims are barred and HSBC is entitled to judgment as a matter of law on all claims in the complaint.
CONCLUSION
For these reasons, the court grants the Motion of Defendant HSBC Mortgage Services Inc. for Summary Judgment [Adv. Doc. 16]. The court will enter an order consistent with this decision.
SO ORDERED.
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.
/s/ _________
Lawrence S. Walter
United States Bankruptcy Judge Dated: January 7, 2016 cc: Stephen J Malkiewicz
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