In re Potts, Bankruptcy No. 01-19924.

• Decision Date: 16 October 2006
• Docket Number: Bankruptcy No. 01-19924.,Adversary No. 02-1050.
• Parties: In re Larry Llewellyn POTTS, Debtor. Richard A. Baumgart, Trustee, Plaintiff, v. Larry Llewellyn Potts, et al., Defendants.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio

Page 874

353 B.R. 874

In re Larry Llewellyn POTTS, Debtor.

Richard A. Baumgart, Trustee, Plaintiff, v. Larry Llewellyn Potts, et al., Defendants.

Bankruptcy No. 01-19924.

Adversary No. 02-1050.

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

October 16, 2006.

COPYRIGHT MATERIAL OMITTED

Diana M. Thimmig, Cleveland, OH, for Debtor.

MEMORANDUM OF OPINION AND ORDER

RANDOLPH BAXTER, Chief Judge.

The matters before the Court are cross motions for summary judgment ("Motions") filed by the Plaintiff Richard A. Baumgart, Chapter 7 Trustee (Trustee), and co-defendant creditor, Household Financial Services (Household). The Trustee's adversary complaint seeks a court determination of the validity, priority, and extent of certain liens on the residential property of Larry Llewellyn Potts (Debtor) and to avoid an allegedly defective mortgage granted in favor of Household pursuant to § 5301.01 and 5301.25 of the Ohio Revised Code. [Ohio Rev.Code Ann. §§ 5301.02, 5301.25]. 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. The following findings of fact and conclusions of law are herein made:

I.

Based upon stipulated facts filed by the parties to this proceeding, the following facts are undisputed:

The Debtor filed his voluntary bankruptcy petition under Chapter 7 on October 9, 2001. At the time of the commencement of the Debtor's bankruptcy case, Debtor was the owner of certain real property located at 1350/52 West 91st Street, Cleveland, Ohio. On or about March 22, 2000, the Debtor signed a promissory note obligating the Debtor to pay to Atlantic International Mortgage Company (Atlantic) the sum of $100,300.00, plus interest. On or about March 22, 2000, the Debtor signed an open-end mortgage on the real estate to Atlantic, securing the obligation referenced by the promissory note.

Two witnesses were not present when the Debtor signed the Mortgage. The Mortgage was signed before one witness. The Mortgage was filed with the Cuyahoga County Recorder on March 27, 2000. Thereafter, the interests of Atlantic, which were referenced in the Note and Mortgage were subsequently transferred and/or assigned to Defendant, Household Financial (Household). Household, is the current holder of the subject mortgage. (See Stipulations of Fact, Docket # 67-1, filed October 29, 2002).

Herein, the Trustee moves for summary judgment on the basis that the mortgage held by Household was not properly executed in accordance with Ohio law, to wit: Ohio Revised Code § 5301.01. Trustee, therefore, contends that the mortgage is invalid and avoidable under § 544 of the Bankruptcy Code. [11 U.S.C. § 544], and should be preserved for the benefit of the Debtor's estate pursuant to §§ 547, 550, 551 of the Code. [11 U.S.C. §§ 547, 550, 551].

Household files its cross motion for summary judgment alleging that pursuant to the Ohio Supreme Court's ruling in In re Stewart, 96 Ohio St.3d 67, 771 N.E.2d 250 (2002), the Trustee cannot prove by clear and convincing evidence that the subject mortgage was not properly executed pursuant to O.R.C. § 5301.01, since the mortgage is now irrebutably presumed to be properly executed. Also, Household alleges that O.R.C. § 5301.234 applies to bar the Trustee's complaint. Lastly, Household argues that this Court is without jurisdiction to determine whether O.R.C. § 5301.234 is constitutional, since the Trustee has not properly served notice upon the Ohio Attorney General pursuant to the requirements of O.R.C. § 2721.12. [Ohio Rev.Code. Ann. § 2721.12].

II.

The dispositive issues before this Court are: (1) whether service of process was perfected upon all entitled parties in order to accord proper jurisdiction for relief, and (2) whether there exists genuine issues of material fact in dispute to warrant consideration of summary judgment to either movant.

III.

JURISDICTION

Section 2712.12 of the Ohio Revised Code provides in relevant part:

...if any statute or the ordinance or franchise is alleged to be unconstitutional, the attorney general also shall be served with a copy of the complaint in the action or proceeding and shall be heard. In any action or proceeding that involves the validity of a township resolution, the township shall be made a party and shall be heard.

Ohio Rev.Code Ann. § 2712.12(A). O.R.C. § 2721.12(B) requires that the Attorney General be served with a copy of the complaint in any action that claims a statute or an ordinance to be unconstitutional. The Supreme Court of Ohio held in Cicco v. Stockmaster, 89 Ohio St.3d 95, 728 N.E.2d 1066 (2000) that a party challenging the constitutionality of a statute or an ordinance must serve a copy of the pleading upon the Attorney General in accordance with methods set forth in Ohio Civ. R. 4.1 in order to vest the trial court with jurisdiction under O.R.C. § 2721.12. Herein, the Trustee avers that "On October 16, 2002, the Ohio Attorney General was served with notice of the Trustee's constitutional challenge to Ohio Revised Code § 5301.234. The Ohio Attorney General accepted the Trustee's notice." (See Trustee's Motion for Summary Judgment, at 4.)(emphasis added). The Trustee attached an Affidavit in support of the notice procedure. (See Trustee's Motion for Summary Judgment, Exhibit B.). By the Trustee's own admission, he has challenged the constitutionality of a state statute. A party who is challenging the constitutionality of a statute must assert the claim in the complaint (or other initial pleading) or an amendment thereto, and must serve the pleading upon the Attorney General in accordance with methods set forth in Ohio Civ. R. 4.1 in order to vest a trial court with jurisdiction under O.R.C. § 2721.12. Exhibit B and the response of the Ohio Attorney General evinces that the Trustee complied with the mandate of O.R.C. § 2721.12. However, in federal courts, 28 U.S.C. § 2403 requires the court to certify such a challenge to the Ohio Attorney General.

Section 2403 of Title 28

Section 2403, Title 28, United States Code provides in pertinent part:

(b) In any action, suit, or proceeding in a court of the United States to which a State or any agency, officer, or employee thereof is not a party, wherein the constitutionality of any statute of that State affecting the public interest is drawn in question, the court shall certify such fact to the attorney general of the State, and shall permit the State to intervene for presentation of evidence, if evidence is otherwise admissible in the case, and for argument on the question of constitutionality. The State shall, subject to the applicable provisions of law, have all the rights of a party and be subject to all liabilities of a party as to court costs to the extent necessary for a proper presentation of the facts and law relating to the question of constitutionality.

As the Trustee admits that he is challenging the constitutionality of O.R.C. § 5301.234, certification is thus a duty of the court that should not be ignored. 3B J. Moore & J. Kennedy, Moore's Federal Practice, P 24.06[2] at 24-29; Wallach v. Lieberman, 366 F.2d 254, 257 n. 8 (2d Cir.1966). Indeed, the statute does not identify the effect, if any, of a court's failure to follow these required procedures. The cases are clear that the omission does not deprive the court of jurisdiction. The Sixth Circuit has not specifically addressed this statute, but other circuits which have, allow certification to occur even after judgment at the appellate level. See e.g. Kealey Pharmacy & Home Care Services v. Walgreen Co., 761 F.2d 345 (7th Cir.1985); Puffer's Hardware v. Donovan, 742 F.2d 12 (1st Cir.1984); Bridges v. Phillips Petroleum Co., 733 F.2d 1153, 1156 n. 7 (5th Cir.1984), cert. denied, 469 U.S. 1163, 105 S.Ct. 921, 83 L.Ed.2d 933 (1985); Jones v. City of Lubbock, 727 F.2d 364, 372 (5th Cir.1984); Sutton v. City of Milwaukee, 672 F.2d 644, 648-49 (7th Cir.1982); Davis v. Fendler, 650 F.2d 1154, 1163-64 (9th Cir.1981). Absent indication of harm, or prejudice to the government's opportunity to fully present its views, belated certification, while not ideal, is sufficient to honor the purpose of 28 U.S.C. § 2403. Merrill v. Town of Addison, 763 F.2d 80 (2d Cir. 1985).

Notwithstanding, this Court has concluded that Attorney General certification is unnecessary if the merits of the case can be resolved on grounds that do not involve the constitutionality of Ohio law. See Suhar v. Land, et al. (In re Land), 289 B.R. 71 (Bankr.N.D.Ohio (Youngstown) entered February 18, 2002). Nevertheless, the Trustee has properly served the Attorney General and the Attorney General has accepted service. Thusly, Household's objection as to service is rendered moot, and the Court is properly vested with jurisdiction.

IV.

Section 5301.01 of the Ohio Revised Code currently provides, in pertinent part:

(B)(1) If a deed, mortgage, land contract as referred to in division (B)(2) of section 317.08 of the Revised Code, lease of any interest in real property, or a memorandum of trust as described in division (A) of section 5301.255 [5301.25.5] of the Revised Code was executed prior to the effective date of this amendment and was not acknowledged in the presence of, or was not attested by, two witnesses as required by this section prior to that effective date, both of the following apply:

(a) The instrument is deemed properly executed and is presumed to be valid unless the signature of the grantor, mortgagor, vendor, or lessor in the case of a deed, mortgage, land contract, or lease or of the settlor and trustee in the case of a memorandum of trust was obtained by fraud.

(b) The recording of the instrument in the office of the county recorder of the county in which the subject property is situated is constructive notice of the instrument to all persons, including without limitation, a subsequent purchaser in good faith or any other...