In re Barkley, Bankruptcy No. 00-14344. Adversary No. 00-1395.

CourtUnited States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio
Citation263 BR 553
Docket NumberBankruptcy No. 00-14344. Adversary No. 00-1395.
PartiesIn re Ronald E. BARKLEY, and Kathleen Barkley, Debtors. Myron E. Wasserman, Trustee, Plaintiff, v. Household Realty Corp., et al., Defendants.
Decision Date21 June 2001

263 B.R. 553 (2001)

In re Ronald E. BARKLEY, and Kathleen Barkley, Debtors.
Myron E. Wasserman, Trustee, Plaintiff,
Household Realty Corp., et al., Defendants.

Bankruptcy No. 00-14344. Adversary No. 00-1395.

United States Bankruptcy Court, N.D. Ohio, Eastern Division.

June 21, 2001.

263 BR 554
263 BR 555
Kenneth J. Freeman, Cleveland, OH, for Plaintiff

Myron E. Wasserman, Cleveland, OH, trustee.

Trish D. Lazich, Asst. Attorney General, Cleveland, OH, for Ohio.

Eric Wasserman, Cleveland, OH, for Citifinacial.

Stephen D. Miles, Dayton, OH, Bradley D. Burland, Beachwood, OH, for Household Realty Corp.

Joh F. Huettner, Cleveland, OH, for Ronald & Kathleen Barkley.


RANDOLPH BAXTER, Bankruptcy Judge.

The matter before the Court is the Motion for Summary Judgment ("Motion"), filed by the Plaintiff, Myron E. Wasserman, Chapter 13 Trustee ("Trustee"). In response to the Motion, Defendant Betty D. Montgomery, Attorney General of the State of Ohio (the "Attorney General") and Defendant Household Realty Corporation ("Household") filed briefs in opposition.

The Court acquires core matter jurisdiction over these proceedings pursuant to 28 U.S.C. § 157(a) and (b), 28 U.S.C. § 1334, and General Order Number 84 of this District.

263 BR 556
Following a duly noticed hearing on the Motion, the Court makes the following findings and conclusions

On June 4, 1994, the Debtors, Ronald and Kathleen Barkley ("Debtors"), executed a note in favor of First Union Home Equity Corporation ("First Union") in the amount of $72,200. A first mortgage on the Debtor's real property located in Warrensville Heights, Ohio, secured that note. First Union later assigned the note and mortgage to TransAmerica Financial Services Company ("TransAmerica"), which filed the mortgage in the Cuyahoga County Recorder's office.

On October 2, 1999, the Debtors executed a mortgage to Household in the amount of $90,072.01. The parties agree that the execution of that mortgage occurred at Household's office with only one witness present. A second person, who did not witness the execution, later attested the mortgage's execution.

From the proceeds of the Household loan, Household disbursed monies to National Real Estate, Ronald Barkley, and Beneficial. The check issued to Beneficial was cashed, and deposited into an account in the name of Household Finance Corporation. Additionally, out of the loan proceeds, Household received a loan origination fee and a sum for life insurance. The parties agree that the first mortgage, held by TransAmerica, was never released.

The Debtors filed their petition for relief under Chapter 13 of the Bankruptcy Code on June 13, 2000. On October 23, 2000, the Trustee filed the above-styled Complaint, wherein he seeks to avoid the mortgage deed of Household pursuant to § 544(a) of the Bankruptcy Code and § 5301.01 of the Ohio Revised Code ("O.R.C."). In its Answer, Household asserted defenses relying upon § 5301.234 of the O.R.C. and § 550(e) of the Bankruptcy Code.

The Trustee now moves for summary judgment on a number of bases: (i) that O.R.C. § 5301.234 was enacted in violation of Article II, Section 15(D) of the Ohio Constitution; (ii) that O.R.C. § 5301.234 violates Article IV, Section 5(B) of the Ohio Constitution; (iii) that O.R.C. § 5301.234 violates the Due Process clauses of the Fifth and Fourteenth Amendments of the United States Constitution; (iv) that Household's defenses asserted under § 550(e) of the Bankruptcy Code are inapplicable to the present case; and (v) that, as a result of some or all of the foregoing, the mortgage held by Household is voidable pursuant to § 544(a) of the Bankruptcy Code.


Section 5301.234 of the O.R.C. provides:

(A) Any recorded mortgage is irrebuttably presumed to be properly executed, regardless of any actual or alleged defect in the witnessing or acknowledgment on the mortgage, unless one of the following applies:
(1) the mortgagor, under oath, denies signing the mortgage;
(2) the mortgagor is not available, but there is other sworn evidence of a fraud upon the mortgagor.
(B) Evidence of an actual or alleged defect in the witnessing or acknowledgment on the mortgage is not evidence of fraud upon the mortgagor and does not rebut the presumption that a recorded mortgage is properly executed.
(C) The recording of a mortgage is constructive notice of the mortgage to all persons, including without limitation, a subsequent bona fide purchaser or any other subsequent holder of an interest in the property. An actual or alleged defect
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in the witnessing or acknowledgment on the recorded mortgage does not render the mortgage ineffective for purposes of constructive notice. Ohio Rev. Code Ann. § 5301.234

Section 5301.234 is to be read in conjunction with O.R.C. § 5301.01. The latter provision reads, in pertinent part: "A . . . mortgage . . . shall be signed by the . . . mortgagor and the signing shall be acknowledged by the . . . mortgagor . . . in the presence of two witnesses, who shall attest the signing and subscribe their names to the attestation." Ohio Rev.Code Ann. § 5301.01.

The Ohio Supreme Court has opined: "In review of statutes challenged on constitutional grounds, this Court applies a rational basis test as the standard of review. Applying this standard, the statute should be upheld absent proof of arbitrariness, irrationality, or unreasonableness of the legislature." Morris v. Savoy, 61 Ohio St.3d 684, 696, 576 N.E.2d 765, 775 (1991).

The Ohio Supreme Court has also emphasized that the party challenging a statute has the burden of proof. State ex rel. Ohio Hair Prods. v. Rendigs, 98 Ohio St. 251, 120 N.E. 836 (1918); State ex rel. Euclid-Doan Bldg. Co. v. Cunningham, 97 Ohio St. 130, 119 N.E. 361 (1918). A statute is presumed to comply with both the Ohio and United States Constitutions; that presumption is overcome only by clear defects in the statute. State ex rel. Jackman v. Court of Common Pleas, 9 Ohio St.2d 159, 224 N.E.2d 906 (1967). As a corollary to that presumption, any doubts are to be resolved in favor of constitutionality. State ex rel. Dickman v. Defenbacher, 164 Ohio St. 142, 128 N.E.2d 59 (1955). Finally, the Ohio Supreme Court has often noted the general principle that because the state and federal Constitutions are superior to any legislative enactment, a law that violates the constitution is necessarily void. See, e.g., Hoffrichter v. State, 102 Ohio St. 65, 130 N.E. 157 (1921).

A. Constitutionality under Article II, Section 15(D) of the Ohio Constitution

The Trustee first argues that § 5301.234 of the Ohio Revised Code was enacted in violation of Article II, Section 15(D) of the Ohio Constitution. That constitutional provision provides:

No bill shall contain more than one subject, which shall be clearly expressed in its title. No law shall be revived or amended unless the new act contains the entire act revived, or the section or sections amended, and the section or sections amended shall be repealed.

Ohio Const. Art. II, § 15(D). Bills enacted in violation of that Article are void and of no effect. Simmons-Harris v. Goff, 86 Ohio St.3d 1, 711 N.E.2d 203 (1999).

The Ohio Supreme Court has pronounced Section 15(D) of Article II to be "directory in nature." State ex rel. Ohio AFL — CIO v. Voinovich, 69 Ohio St.3d 225, 229, 631 N.E.2d 582, 586 (1994); State ex rel. Dix v. Celeste, 11 Ohio St.3d 141, 145, 464 N.E.2d 153, 157 (1984). Notwithstanding, that court has invalidated statutes that violate the one-subject mandate. See, e.g., Goff, supra; State ex rel. Ohio Acad. of Trial Lawyers v. Sheward, 86 Ohio St.3d 451, 715 N.E.2d 1062 (1999); Voinovich, supra; Hoover v. Bd. of County Comm'rs, 19 Ohio St.3d 1, 482 N.E.2d 575 (1985). The Ohio Supreme Court explains:

When there is an absence of common purpose or relationship between specific topics in an act and when there are no discernible, practical, rational or legitimate reasons for combining the provisions in one act, there is a strong suggestion that the provisions were
263 BR 558
combined for tactical reasons, i.e. log-rolling. Inasmuch as this was the very evil the one-subject rule was designed to prevent, an act which contains such unrelated provisions must necessarily to be held to be invalid in order to effectuate the purposes of the rule.

Celeste, supra, at 145, 464 N.E.2d at 157.

The Court has further noted: "The one-subject rule was added to the Ohio Constitution in 1851. It was one of the proposals resulting from the Second Constitutional Convention of 1850-1851 . . . The one-subject rule is one product of the drafters' desire to place checks on the legislative branch's ability to exploit its position as the overwhelmingly pre-eminent branch of state government prior to 1850." Sheward, supra, at 495, 715 N.E.2d at 1098 (citing Kulewicz, The History of the One-Subject Rule of the Ohio Constitution, 45 Cleve.St.L.Rev. 591 (1997)).

To find a violation of Article II, Section 15(D), "a court must determine that various topics contained therein lack a common purpose or relationship, so that there is no discernible practical, rational or legitimate reason for combining the provisions in one Act." Beagle v. Walden, 78 Ohio St.3d 59, 62, 676 N.E.2d 506, 507 (1997). "The one-subject provision is not directed at plurality but at disunity in subject matter." Dix, supra, at 146, 464 N.E.2d at 158.

Sheward represents one example of a case in which the Ohio Supreme Court found a statute in violation of the one-subject rule. There, the court noted that although the bill affected a great number of different titles and chapters, an examination of two of the bill's sections, "carefully selected and compared in isolation, could support a finding" of a common purpose. Sheward, at 497, 715 N.E.2d at 1100. The court, however, rejected such an approach in favor of a review of all sections...

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