Bank of N.Y. Mellon v. Wolfe

• Decision Date: 08 March 2016
• Docket Number: Case No. 2:15-CV-02662
• Parties: BANK OF NEW YORK MELLON, Appellant, v. RICHARD L. WOLFE, et al., Appellees.
• Court: U.S. District Court — Southern District of Ohio

BANK OF NEW YORK MELLON, Appellant, v. RICHARD L. WOLFE, et al., Appellees.

Case No. 2:15-CV-02662

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO EASTERN DIVISION

March 8, 2016

JUDGE ALGENON L. MARBLEY

OPINION & ORDER

This matter is before the Court on Appellant Bank of New York Mellon's ("the Bank") appeal from an order of the Bankruptcy Court. (Doc. 1.) Appellees Richard L. Wolfe and Helen E. Wolfe ("the Debtors" or "the Wolfes") have moved to dismiss the appeal for lack of jurisdiction on the ground that the Bankruptcy Court did not issue a final appealable order. (Doc. 9.) Both parties have also filed motions to file additional briefing on the issue of jurisdiction. (Docs. 2, 8.) The Court GRANTS the Bank's Motion for Leave to File Instanter a Reply (Doc. 2) and the Debtors' Motion for Leave to File Instanter a Supplemental Memorandum in Opposition. (Doc. 8.) The Court agrees with the Debtors that the Bankruptcy Court's order was not a final appealable order. Further, the Court declines to exercise its jurisdiction to hear an interlocutory appeal under 28 U.S.C. § 158(a)(3). Therefore, the Debtors' Motion to Dismiss is GRANTED.

I. BACKGROUND

This case arises from a dispute over a piece of real property in Lancaster, Ohio ("the Property"). On October 26, 2006, William Joseph Casey executed a promissory note in the amount of $186,400.00 in favor of Countrywide Home Loans, Inc. ("Countrywide") and also executed a mortgage granting MERS, as mortgagee and nominee to Countrywide, a security interest in the property. (Bankruptcy Court Record on Appeal, Doc. 4-19 at 267-285.) The mortgage was assigned to the Bank of New York Mellon in July 2010. (Id. at 286-87.) The mortgage was apparently never recorded. (Id. at 73-74.)

In November 2007, the Wolfes found the Property abandoned and have resided there ever since. (Doc. 4-27 at 2.) According to the Wolfes, they have paid real estate taxes, maintained homeowner insurance, and made improvements to the Property since they began living there in 2007. (Id.) On July 20, 2010, the Bank filed a declaratory judgment action in the Fairfield County Court of Common Pleas against the Wolfes, Casey, and the Starkey Family Revocable Living Trust, seeking a judicial determination of the rights and obligations of the parties to the Property. (Doc. 4-19 at 5-35.) On December 21, 2010, the Court of Common Pleas held that title to the Property was vested with Casey and that the Bank was the assignee of the unrecorded mortgage and thus had an equitable lien on the Property. (Id. at 74-75.) The trial court also specifically declared that the Wolfes "have no legal or equitable interest" in the Property. (Id.) The Wolfes did not appeal the trial court's December 21, 2010 final judgment entry. Instead, on March 7, 2011, Casey executed a quitclaim deed to the Wolfes. (See Doc. 4-21 at 10.)

Thereafter, on March 30, 2011, the Wolfes filed a motion for relief from judgment with the Court of Common Pleas. In the motion, the Wolfes sought relief under Rule 60(B)(4) and (5), arguing that they held title to the Property and had made improvements to the Property; therefore, they held a "legal" interest in the Property and equitable relief from judgment was appropriate. (Doc. 4-21 at 4-8.) On May 23, 2011, the trial court denied the Wolfes' motion for relief. (Id.) The Wolfes appealed the denial of their motion to the Ohio Court of Appeals for the Fifth District, and the appeals court affirmed the trial court's decision. (Id. at 9-13.)

On July 5, 2012, the Bank filed a foreclosure action in the Fairfield County Court of Common Pleas against Casey, the Wolfes, and others. (Doc. 4-19 at 80-83.) The court granted the Bank a judgment entry and decree of foreclosure. (Id. at 265.) The Wolfes appealed and the Ohio Fifth District Court of Appeals affirmed, finding that the Debtors were not bona fide purchasers and that their arguments opposing foreclosure were barred by res judicata because the validity of the mortgage was fully litigated between the parties in the 2010 declaratory judgment action. (Doc. 4-21 at 14-23.)

Next, the Wolfes filed an action against the Bank in this Court, challenging the Bank's interest in the Property. (See Wolfe v. The Bank of New York Mellon, No. 14-cv-366.) This Court denied the Debtors' motion for a temporary restraining order and ultimately dismissed their claim against the Bank on the ground that it was barred by res judicata. (No. 14-cv-366, Docs. 20, 30.) Shortly thereafter, the Debtors filed a petition under Chapter 13 in the Bankruptcy Court. (Chapter 13 Voluntary Petition, Doc. 4-1.) They subsequently filed a Chapter 13 Plan (Doc. 4-3) and the Bank objected to confirmation of the Plan. (Doc. 4-5.) In its objection, the Bank stated that it was a "secured creditor" because "[a]t the time of filing, Debtors were indebted to Countrywide Home Loans, Inc. by virtue of an Interest Only Adjustable Rate Note and Mortgage . . . on certain real property," and Countrywide subsequently assigned its rights in the mortgage to the Bank. (Id. at 1, 2.) On September 24, 2014, the Bank withdrew its objection, stating no reason for the withdrawal but again identifying itself as a "secured creditor." (Doc. 4-8.) The Bank now explains that it had realized that the objection was improper because its right to payment was from Casey, the mortgage holder, not from the Debtors and, therefore, it was not a secured creditor of the Debtors. (See Doc. 4-29 at 7.)

On the same day it withdrew its objection, the Bank filed a motion for relief from the automatic stay under 11 U.S.C. § 362(d)(1) on the ground that the state court had determined that the Debtors had no interest in the Property and that the Bank, as the assignee of a mortgage encumbering the property, was entitled to foreclose. (Doc. 4-9 at 1-2.) The Bankruptcy Court denied the motion, without prejudice, due to deficiencies in the Bank's filing. (Doc. 4-10.) On September 30, 2014, the Bankruptcy Court confirmed the Debtors' Chapter 13 Plan. (Doc. 4-12.) Shortly thereafter, the Bank filed a second motion for relief from stay (Doc. 4-13.) and a motion for sanctions against the Debtors (Doc. 4-14) and the Bankruptcy Court held a hearing. The Bankruptcy Court ordered supplemental briefing on the questions of: (1) whether the Bank was bound by the confirmed Chapter 13 plan; (2) whether the Debtors have a legal or equitable interest in the property because they are in possession of a recorded deed and/or based on improvements made and taxes paid during their occupancy; and (3) whether an adversary proceeding should be commenced under Federal Rule of Bankruptcy Procedure 7001(2), (7), and (9). (Doc. 4-22.)

The Bankruptcy Court issued its Order Regarding Motion for Relief from Stay on June 19, 2015. (Doc. 4-27.) First, the Bankruptcy Court determined that the Bank was a creditor because it held a claim against the Debtors that "arose at the time of or before the order for relief (bankruptcy filing)." (Id. at 3 (quoting 11 U.S.C. § 101(10)(A)).) The Bankruptcy Court further found that the parties were bound by the prior state court rulings, which held that the Bank had a $186,400.00 equitable lien on the Property, under the terms and conditions of the unrecorded mortgage of October 26, 2006, and that before the bankruptcy filing, the Debtors had no legal or equitable interest in the Property that could impede foreclosure. (Id. at 4-5.) The Bankruptcy Court rejected the Debtors' argument that the Property should vest in them free of the Bank'sequitable lien but nevertheless found that the Debtors held interests in the Property subject to the Bank's equitable lien because no foreclosure sale had occurred and Debtors had paid taxes, maintained insurance, and made improvements to the Property. (Id. at 6.) Finally, the Bankruptcy Court turned to the issue of whether there were sufficient bases to lift the stay, stating:

All this leads to the present quandary of what to do with the muddle, in which both parties come to the table equally victimized by their own action or inaction. For the Debtors' part, they just happened upon an "abandoned" home, obtained not one but two recorded quitclaim deeds, and then live there for eight years without paying a dime to the [Bank]. Even after multiple rulings addressed their interests, Debtors still file a bankruptcy plan designed to vest the property in them, without any provision for paying or otherwise addressing [the Bank's] equitable lien.

On the flipside, [the Bank] somehow fails to record the original deeds and mortgage dating back to 2006, and inexplicably loses the documents. To top it off, [the Bank] then waits three years after the Debtors move into the home to file suit in state court. Next, when the Debtors reach the bankruptcy court, [the Bank] strangely files and then withdraws its confirmation objection.

To both parties, addressing before this Court your relative interests up front and prior to confirmation, was the correct path all failed to pursue. As a direct consequence, the Court stitched together the following measures to bring a measure of clarity and most importantly closure.

(Id. at 7.)

The Bankruptcy Court then ordered the Debtors to file an itemized statement "of real estate taxes and insurance premiums paid and improvements made to the home since occupancy." (Id.) The Bankruptcy Court stated that after consideration of objections it would issue a separate judgment order in favor of the Debtors under the Ohio Occupying Claimant statute, Ohio Revised Code § 5303.08, and that the Bank would then be "granted leave to upload an order lifting the stay to complete fully the foreclosure process." (Id. at 7-8.) As an alternative to receiving the reimbursement for their costs, the Bankruptcy Court granted Debtors leave to file one amended plan, accompanied by a signed loan commitment to finance the home at thebankruptcy appraisal value of $191,000.00. (Id. at 8.) The Bankruptcy Court...