In re Gibson, Bankruptcy No. 07-54937.

• Decision Date: 29 September 2008
• Docket Number: Bankruptcy No. 07-54937.,Adversary No. 07-02781.
• Citation: 395 B.R. 49
• Parties: In re David W. GIBSON, Michele R. Gibson, Debtors. Brent A. Stubbins, Plaintiff, v. Wells Fargo Bank, N.A., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

395 B.R. 49

In re David W. GIBSON, Michele R. Gibson, Debtors Brent A. Stubbins, Plaintiff, v. Wells Fargo Bank, N.A., Defendant.

Bankruptcy No. 07-54937.

Adversary No. 07-02781.

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

September 29, 2008.

COPYRIGHT MATERIAL OMITTED

Mark Stubbins, Zanesville, OH, for Plaintiff.

Amelia A. Bower, Columbus, OH, Phyllis A. Ulrich, Cleveland, OH, for Defendant.

MEMORANDUM OPINION ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

C. KATHRYN PRESTON, Bankruptcy Judge.

This cause came on for consideration of the Plaintiff's Motion for Summary Judgment (Doc. 15) filed by the Case Trustee, Brent Stubbins, ("Trustee"), the Response (Doc. 16) filed by Wells Fargo Bank, N.A. ("Wells Fargo"), and the Reply Brief (Doc. 19) filed by Trustee in the above captioned adversary proceeding. The Court having considered the record and the arguments of the parties, makes the following findings and conclusions.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334, and the standing General Order of Reference entered in this District. This matter is a core proceeding pursuant to 28 USC § 157(b)(2)(A) 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 summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). 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, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

If the movant satisfies this burden, the nonmoving party must then "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The mere allegation of a factual dispute is not sufficient to defeat a motion for summary judgment; to prevail, the nonmoving party must show that there exists some genuine issue of material fact. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). When deciding a motion for summary judgment, all justifiable inferences must be viewed in a light most favorable to the nonmoving party. Matsushita Elec Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Anderson, 477 U.S. at 255, 106 S.Ct. 2505.

The Sixth Circuit 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). In determining whether each party has met its burden, the court must keep in mind that "[o]ne of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses...." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). If otherwise appropriate, summary judgment may also be entered for a nonmoving party. K.E. Resources, Ltd. v. BMO Fin. Inc. (In re Century Offshore Mgmt. Corp.), 119 F.3d 409, 412 (6th Cir.1997); see also Celotex, 477 U.S. at 326, 106 S.Ct. 2548 ("[C]ourts 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

Upon the pleadings, depositions, answers to interrogatories, admissions on file, affidavits and stipulations, the Court makes the following findings of fact: David and Michele Gibson ("Debtors") filed for bankruptcy protection under chapter 7 of the Bankruptcy Code on June 27, 2007. The parties in this adversary filed Stipulations of Fact (Doc. 14) which state in pertinent part as follows:

1. Debtors David W. Gibson and Michele R. Gibson obtained title to real estate commonly known as 6950 Axline Avenue, East Fultonham, Ohio by virtue of a Warranty Deed ... dated June 7, 2002 and recorded on June 14, 2002 in Volume 1674 Page 284 of Muskingum County Records ("Deed").

...

2. On or about September 26, 2005 David W. Gibson and Michelle [sic] R. Gibson executed and delivered to Wells Fargo Bank NA a Mortgage in the principal amount of $80,750.00 ("Mortgage") with a legal description attached for property known as 6950 Axline Avenue, East Fultonham, Muskingum County, Ohio.

3. The original Mortgage has not been filed in the office of the Recorder for Muskingum County.

4. On January 26, 2006 John G. Neal executed an Affidavit on Facts Relating to Title which was filed on February 3, 2006 in Muskingum County Official Record Volume 2007 Page 499 ("Affidavit").

5. The Affidavit was filed pursuant to Ohio Rev.Code § 5301.252.

6. Attached to the Affidavit was a copy of the Mortgage.

...

Stipulations of Fact.

III. Arguments of the Parties

Pursuant to 11 U.S.C. § 544(a) the Trustee seeks to avoid Wells Fargo's interest in Debtors' real property located at 6950 Axline Avenue, East Fultonham, Ohio on the basis that Wells Fargo failed to record the mortgage document ("Mortgage") executed by Debtors, but instead filed just an affidavit of facts relating to title ("Affidavit") with a copy of the Mortgage attached as an exhibit. The Trustee maintains that Wells Fargo does not have a perfected mortgage lien and can avoid the same as a hypothetical lien creditor and bona fide purchaser of real property.

In response, Wells Fargo argues that 1) the filing of the Affidavit provided the Trustee with notice of its mortgage interest sufficient to defeat the Trustee's status as a bona fide purchaser of real property; 2) the Trustee cannot avoid Wells Fargo's interest as a judgment lien creditor because judgment lien creditors are not bona fide purchasers for value; and 3) Wells Fargo has an equitable lien that cannot be avoided by the Trustee, and thus, perfection of its mortgage interest is irrelevant.

IV. Discussion

Section 544(a) of the Bankruptcy Code, known as the "strong arm" clause, vests a bankruptcy trustee with the power to avoid transfers of property that would be avoidable by certain creditors or bona fide purchasers, regardless of whether such a creditor or purchaser exists. Section 544(a) provides, in pertinent part, as follows:

(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by—

(1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists;

(3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser at the time of the commencement of the case, whether or not such a purchaser exists.

11 U.S.C. § 544(a)(1) and (3).

The Trustee can avoid Wells Fargo's interest in the Debtors' real property because as a hypothetical lien creditor his interest takes priority over an unrecorded mortgage under Ohio law. 11 U.S.C. § 544(a)(1) "grant[s] a bankruptcy trustee the status of a hypothetical lien creditor who is deemed to have perfected his interest as of the date of the filing of the bankruptcy petition." Rogan v. Bank One, N.A. (In re Cook), 457 F.3d 561, 564 (6th Cir.2006). "Therefore, to defeat the trustee's status, a creditor must possess a perfected security interest on the date the debtor filed a bankruptcy petition." Rieser v. Randolph County Bank (In re Masters), 137 B.R. 254, 259 (Bankr.S.D.Ohio 1992) (citations omitted). State law governs the determination of whether a party has a perfected security interest.

Ohio Revised Code § 5301.23 provides as follows:

(A) All properly executed mortgages shall be recorded in the office of the county recorder of the county in which the mortgaged premises are situated and shall take effect at the time they are delivered to the recorder for record. If two or...