In re Kebe

• Decision Date: 30 March 2011
• Docket Number: Adversary No. 10–2172.,Bankruptcy No. 10–52667.
• Parties: In re Mohamed KEBE, Debtor.Susan L. Rhiel, Plaintiff,v.Central Mortgage Company, et al., Defendants.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio

444 B.R. 871

In re Mohamed KEBE, Debtor.Susan L. Rhiel, Plaintiff,

v.Central Mortgage Company, et al., Defendants.

Bankruptcy No. 10–52667.

Adversary No. 10–2172.

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

March 30, 2011.

Treisa L. Fox, Columbus, OH, for Plaintiff.Maria C Mariano Guthrie, Sikora Law LLC, Joseph M. Romano, The Romano Law Firm, Columbus, OH, for Defendants.

MEMORANDUM OPINION ON MOTION TO DISMISS THIRD–PARTY COMPLAINT

JOHN E. HOFFMAN, JR., Bankruptcy Judge.

I. Introduction

Pending before the Court is the motion to dismiss (“Motion”) (Doc. 18) filed by third-party defendant, Pillar Title Agency, Inc. (“Pillar”). The Motion seeks dismissal of a third-party complaint (“Third–Party Complaint”) (Doc. 12) filed against it by Mamadou Seye (“Seye”), one of the defendants in this adversary proceeding. In the complaint (“Complaint”) (Doc. 1) commencing the adversary proceeding, plaintiff Susan L. Rhiel (“Trustee”), the trustee appointed in the Chapter 7 bankruptcy case of Mohamed Kebe (“Debtor”), seeks to avoid a mortgage that the Debtor granted on property located at 6797 Sowers Drive, Canal Winchester, OH 43110, which he owns jointly with Seye (“Property”), and to sell each of their one-half interests in the Property.

In the Third–Party Complaint, Seye alleges that Pillar—the company hired to conduct the closing—was negligent because its notary public failed to properly notarize the mortgage granted by the Debtor and Seye. According to Seye, it is Pillar's alleged negligence that permits the Trustee to avoid the mortgage. See Third–Party Compl. ¶¶ 9–10. Seye seeks to recover from Pillar “monetary damages in an amount to be determined at trial but no less than $25,000 along with all court costs and attorney fees.” Id. at8. Pillar argues that the Court lacks subject-matter jurisdiction over the Third–Party Complaint because the claim for negligence “is in no way related to the bankruptcy proceeding.” Motion at 5. For the reasons stated below, the Court concludes that Seye has failed to meet his burden of establishing that the outcome of the proceeding between Pillar and Seye, which was initiated by the Third–Party Complaint, could conceivably have any effect on the Debtor's estate being administered by the Trustee. Because the Court lacks subject-matter jurisdiction over Seye's negligence claim, the Third–Party Complaint must be dismissed.

II. Jurisdiction

The Court has jurisdiction to hear and determine the Motion pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. The parties do not dispute that the Third–Party Complaint is a non-core proceeding under 28 U.S.C. § 157(b)(2). The Court, however, still must determine whether the litigation between Seye and Pillar commenced by way of the Third–Party Complaint is a civil proceeding related to the underlying bankruptcy case and thus within the scope of the Court's subject-matter jurisdiction conferred by 28 U.S.C. § 1334(b). See, e.g., Chicot Cnty. Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 376–77, 60 S.Ct. 317, 84 L.Ed. 329 (1940); Mata v. Eclipse Aerospace, Inc. (In re AE Liquidation, Inc.), 435 B.R. 894, 900 (Bankr.D.Del.2010) (citing Chicot for the proposition that “[t]he Court has jurisdiction to determine whether it has subject matter jurisdiction over the ... [a]dversary [p]roceeding.”).

III. Background

On March 11, 2010, the Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. Before commencing his bankruptcy case, the Debtor and Seye granted a mortgage (“Mortgage”) in favor of Washtenaw Mortgage Company (“Washtenaw”) on the Property, which they jointly own. The Mortgage was assigned to Central Mortgage Company (“Central Mortgage”). The Mortgage and subsequent assignment were each recorded with the Franklin County, Ohio Recorder's Office. See Compl. ¶¶ 10–11. On his Schedule A—Real Property—the Debtor discloses a one-half ownership interest in the Property. And on Schedule D—Creditors Holding Secured Claims—the Debtor lists Central Mortgage as the holder of a first mortgage against the Property.

The Trustee commenced this adversary proceeding by filing the Complaint against Central Mortgage and Seye. She alleges, among other things, that the Debtor's interest in the Property is property of the bankruptcy estate. See id. ¶ 9. Exercising the strong-arm powers granted by § 544(a)(3) of the Bankruptcy Code,¹ she seeks to avoid the Mortgage as to the Debtor's one-half interest in the Property on the ground that the certificate of acknowledgment accompanying the Mortgage is defective because it does not certify the Debtor's signature. See Compl. ¶¶ 12, 18 & 20. According to the Trustee, the Mortgage was not entitled to be recorded under Ohio law and, pursuant to Ohio Revised Code § 5301.25(A), did not provide her with constructive notice as a hypothetical lien creditor under § 544(a)(3). See id. ¶ 19. She also seeks authority to sell Seye's one-half interest in the Property pursuant to 11 U.S.C. § 363(h).² See Compl. ¶¶ 33–38.

In the Third–Party Complaint, Seye alleges, among other things, that Pillar was retained by Washtenaw to act as closing agent for the Debtor and Seye's purchase of the Property. Third–Party Compl. ¶ 7. Seye also asserts that he was an “intended third party beneficiary” of the agreement under which Pillar provided the closing services to Washtenaw and that Pillar owed to Seye a duty to perform its obligations in a manner that would not cause him harm. See id. ¶ 8. According to Seye, Pillar's obligations included a duty to ensure that the Mortgage was properly notarized. See id. ¶ 9. Through Pillar's negligence, the Mortgage was not properly notarized, Seye argues, and consequently he will suffer harm as a result of the Trustee's action to avoid the Mortgage and her attempt to sell his interest in the Property. See id. ¶ 10. As noted above, Seye seeks the recovery of damages in an amount not less than $25,000. See id. at 8.

IV. Arguments of the Parties

Pillar seeks dismissal of the Third–Party Complaint against it for lack of subject-matter jurisdiction. The Court does not have jurisdiction to hear the Third–Party Complaint, Pillar contends, because the negligence action asserted against it by Seye “is totally and completely unrelated in any manner ... to ... the bankruptcy proceeding....” Motion at 6. To that end, Pillar argues that any purported right of Seye to recover damages from Pillar will not have any impact on the Debtor's estate or the Trustee's ability to administer the Property for the benefit of creditors. See id. at 5–6.

In rebuttal, Seye argues that the Court should deny the Motion because it was not timely filed. See Defendant Mamadou Seye's Brief in Opposition to Pillar Title Agency, Inc.'s Motion to Dismiss (“Opp'n Br.”) (Doc. 20) at 2. Alternatively, Seye contends that the Court does have jurisdiction over this matter because his “claim against Pillar has a direct effect on the bankruptcy estate.” Id. at 3. Specifically, Seye claims that the Trustee's ability to avoid the Mortgage depends on Seye's success in proving that Pillar was negligent by improperly notarizing the Mortgage. Seye states that if he “is successful in proving that Pillar was negligent in [its] duty to properly notarize the mortgage, then the Trustee will have some interest in the [Property]. Conversely, if Pillar Title is successful in proving that it was not negligent in the notarization of the mortgage, then the Trustee's claim must also fail.” Id.

V. Legal Analysis

A. Alleged Untimeliness of Jurisdictional Challenge

Seye urges the Court to deny the Motion on the grounds that it was untimely filed and that Pillar did not move for leave to file out of time. Specifically, Seye argues that Pillar filed the Motion 35 days after service of the Third–Party Summons—not within the 30–day time period prescribed by Federal Rule of Bankruptcy Procedure 7012(a).³ See id. at 2. His argument is without merit. Civil Rule 12(h)(3), made applicable in this adversary proceeding by Rule 7012 of the Federal Rules of Bankruptcy Procedure, states that “[i]f the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action.” Fed.R.Civ.P. 12(h)(3) (emphasis added). See also Smith v. Everson, No. CV–06–0791, 2008 WL 818512, at *3 n. 4 (E.D.N.Y. Mar. 21, 2008) (“[S]ince lack of subject matter jurisdiction may be raised at any time, plaintiff's motion to strike defendant's motion to dismiss as untimely ... [is] denied.”); Mackenzie v. Kindred Hosps. E., L.L.C., 276 F.Supp.2d 1211, 1217–18 (M.D.Fla.2003) (“[T]he defendant moved to dismiss the plaintiff's lawsuit for lack of subject matter jurisdiction.... The plaintiff responded that the motion appears untimely.... The plaintiff's suggestion that the motion is untimely is meritless since a party may make a motion to dismiss for lack of subject matter jurisdiction at any time.” (citations and internal quotation marks omitted)).

The untimeliness argument also is meritless because “federal courts have a duty to consider their subject matter jurisdiction in regard to every case and may raise the issue sua sponte.” Answers in Genesis of KY., Inc. v. Creation Ministries Int'l, Ltd., 556 F.3d 459, 465 (6th Cir.2009); Auto–Owners Ins. v. Rossi (In re Rossi), 444 B.R. 170, 171 (6th Cir. BAP 2011). A court's duty to review subject-matter jurisdiction is ongoing and “applies irrespective of the parties' failure to raise a jurisdictional challenge on their own....” Campanella v. Commerce Exch. Bank, 137 F.3d 885, 890 (6th Cir.1998). The Court is therefore required to review its subject-matter jurisdiction regardless of whether or when a motion challenging subject-matter jurisdiction is filed.

B. The Court Lacks Subject–Matter Jurisdiction Over the Third–Party Complaint.

A defendant challenging subject-matter jurisdiction under Civil Rule 12(b)(1) may raise this defense by...