In re J & M Salupo Development Co.

• Decision Date: 18 April 2008
• Docket Number: No. 07-8026.,07-8026.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit
• Parties: In re J & M SALUPO DEVELOPMENT CO., Debtor. Paul T. and Nancy Hamerly, Plaintiffs-Appellants, v. Fifth Third Mortgage Company, Defendant-Appellee.

388 B.R. 795

In re J & M SALUPO DEVELOPMENT CO., Debtor.

Paul T. and Nancy Hamerly, Plaintiffs-Appellants, v. Fifth Third Mortgage Company, Defendant-Appellee.

No. 07-8026.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued February 5, 2008.

Decided April 18, 2008.

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ARGUED: Jeffrey M. Levinson, Margulies & Levinson, Pepper Pike, OH, for

Appellants. William B. Fecher, Cincinnati, OH, for Appellee. ON BRIEF: Jeffrey M. Levinson, Scott H. Scharf, Margulies & Levinson, Pepper Pike, OH, for Appellants. William B. Fecher, Cincinnati, OH, Patricia L. Hill, Hannah W. Hutman, Statman, Harris & Eyrich, Dayton, OH, for Appellee.

Before: FULTON, RHODES, and SCOTT, Bankruptcy Appellate Panel Judges.

OPINION

FULTON, Bankruptcy Judge.

Paul T. and Nancy Hamerly ("Appellants") appeal the bankruptcy court's grant of a judgment on the pleadings pursuant to Federal Rule of Bankruptcy Procedure 7012(c) in favor of Fifth Third Mortgage Company ("Appellee") and denial of Appellants' motion for reconsideration of that judgment, which held that Appellants could not prove any facts entitling them to obtain clear title to certain real property or warranting equitable subordination of Appellee's mortgage against such property. Appellee had extended a construction loan to J & M Salupo Development Co. ("Debtor") and recorded a mortgage against the property. Appellants subsequently had executed a purchase agreement with Debtor for the construction of a new home on the property, paid Debtor $140,000.00 in installment payments on the contract, and took possession of the home prior to closing.

I. ISSUES ON APPEAL

A. Did the bankruptcy court err in finding that Appellants could prove "no set of facts" that would support a judgment in their favor?

Did the bankruptcy court err in denying Appellants' motion for reconsideration?

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit ("BAP") has jurisdiction to decide this appeal. The United States District Court for the Northern District of Ohio has authorized appeals to the BAP. A final order of a bankruptcy court may be appealed by right under 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it "`ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'" Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879, (1989) (citations omitted). An order denying a motion for reconsideration is a final order. In re Wellman, 337 B.R. 729, 2006 WL 189985 (6th Cir. BAP 2006) (unpublished table decision). An order granting judgment on the pleadings is a final order.

The standard of review for dismissal of a case pursuant to Fed. R. Civ. Pro. 12(c) is the same as for a civil action pursuant to Federal Rule of Civil Procedure 12(b)(6). It is a legal conclusion requiring de novo review. Hughes v. Sanders, 469 F.3d 475 (6th Cir.2006). "De novo review requires the Panel to review questions of law independent of the bankruptcy court's determination." First Union Mortgage Corp. v. Eubanks (In re Eubanks), 219 B.R. 468, 469 (6th Cir. BAP 1998) (citation omitted).

The denial of a Rule 59(e) motion for reconsideration is reviewed for abuse of discretion. "`Under this standard [of review], the district court's decision and decision-making process need only be reasonable.'" The granting of a Rule 59(e) motion "is an extraordinary remedy and should be used sparingly." This is because a motion pursuant to Rule 59(e) "serve[s] the narrow purpose of allowing a party `to correct manifest errors of law or fact or to present newly discovered evidence.'"

Pequeno v. Schmidt (In re Pequeno), 240 Fed.Appx. 634, 636 (5th Cir.2007) (internal citations and footnotes omitted). See also Hansen v. Moore (In re Hansen), 368 B.R. 868 (9th Cir. BAP 2007). Likewise, motions for relief from judgment pursuant to Rule 60(b) and denial of a motion for new trial are reviewed for abuse of discretion. Geberegeorgis v. Gammarino (In re Geberegeorgis), 310 B.R. 61 (6th Cir. BAP 2004).

III. FACTS

Debtor obtained title to the real estate in question on or about June 28, 2000. Debtor obtained a construction loan for $703,700.00 from Appellee and granted Appellee a mortgage on the property to secure the loan. The mortgage was duly recorded on September 27, 2001.

On January 10, 2002, Debtor executed a new construction purchase agreement for the sale of the real property and a residence to Appellants for the purchase price of $575,000.00. The purchase price was to be paid in installments at certain stages in the construction of the residence. Prior to Debtor's bankruptcy petition, Appellants made installment payments to Debtor totaling $140,000.00. Appellants also assert that they made additional payments directly to subcontractors which were to count against the purchase price. In June 2003, Appellants and Debtor agreed to reduce the purchase price to $570,565.98. The closing of the purchase agreement was scheduled to occur on June 13 or June 15, 2003. Pursuant to the purchase agreement, Appellants took possession of the property on June 13, 2003, prior to closing. Appellants have continued to occupy the dwelling since that time, although to date, no closing has occurred. It is undisputed that title to the property remains in Debtor's name, with Appellee holding a mortgage against the property.

On April 19, 2006, Debtor filed a voluntary chapter 7 bankruptcy petition. On June 23, 2006, Appellee filed a motion for relief from the automatic stay so that it could foreclose its lien against the real property. On July 11, 2006, Appellants filed a response to the motion for relief from stay and initiated the present adversary proceeding to determine their rights in the property. Appellee filed a motion for judgment on the pleadings on August 10, 2006. On December 22, 2006, the bankruptcy court granted Appellee's motion, finding that Appellants were not entitled to delivery of title to the property free and clear of liens and encumbrances and that they also were not entitled to equitable subordination of Appellee's lien. On January 2, 2007, Appellants filed a motion for reconsideration. On May 1, 2007, the bankruptcy court denied the motion for reconsideration. Appellants then filed this timely appeal.

IV. DISCUSSION

A. Motion for Judgment on the Pleadings

Federal Rule of Civil Procedure 12(c), as incorporated in Rule 7012 of the Federal Rules of Bankruptcy Procedure, provides:

After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings. If, on a motion for judgment on the pleadings, matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56 Fed.R.Civ.P. 12(c) & (d); Fed. R. Bankr.P. 7012. As noted in Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 313 (5th Cir.2002) (citations omitted):

"A motion brought pursuant to Fed. R.Civ.P. 12(c) is designed to dispose of cases where the material facts are not in dispute and a judgment on the merits can be rendered by looking to the substance of the pleadings and any judicially noticed facts." ... "[T]he central issue is whether, in the light most favorable to the plaintiff, the complaint states a valid claim for relief." ...

"Pleadings should be construed liberally, and judgment on the pleadings is appropriate only if there are no disputed issues of fact and only questions of law remain." ... "In analyzing the complaint, we will accept all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff." ... We will not, however, "accept as true conclusory allegations or unwarranted deductions of fact."

... "The issue is not whether the plaintiff will ultimately prevail, but whether he is entitled to offer evidence to support his claim. Thus, the court should not dismiss the claim unless the plaintiff would not be entitled to relief under any set of facts or any possible theory that he could prove consistent with the allegations in the complaint."

In granting Appellee's motion for judgment on the pleadings, the bankruptcy court found that Appellants had failed to plead and/or could not possibly prove any set of facts that would entitle them to the relief requested—either transfer of title to the property in question free and clear of encumbrances under 11 U.S.C. § 365(i)(2)(B) or subordination of Appellee's mortgage on the property under 11 U.S.C. § 510(c).

1. Relief Under 11 U.S.C. § 365(i)(2)(B)

11 U.S.C. § 365(i) provides:

(1) If the trustee rejects an executory contract of the debtor for the sale of real property or for the sale of a timeshare interest under a timeshare plan, under which the purchaser is in possession, such purchaser may treat such contract as terminated, or, in the alternative, may remain in possession of such real property or timeshare interest. If such purchaser remains in possession—

(A) such purchaser shall continue to make all payments due under such contract, but may, offset against such payments any damages occurring after the date of the rejection of such contract caused by the nonperformance of any obligation of the debtor after such date, but such purchaser does not have any rights against the estate on account of any damages arising after such date from such rejection, other than such offset; and

(B) the trustee shall deliver title to such purchaser in accordance with the provisions of such contract, but is relieved of all other obligations to perform under such contract.

Appellants argue that 11 U.S.C. § 365(i)(2)(B) requires the trustee to deliver title to them according to...