In re Williams
| Decision Date | 29 September 2008 |
| Docket Number | Adversary No. 08-3079.,Bankruptcy No. 07-35191. |
| Citation | 395 B.R. 33 |
| Parties | In re Earl Eugene WILLIAMS, Belinda Joyce Williams, Debtors. Thomas R. Noland, Chapter 7 Trustee, Plaintiff v. Wells Fargo Bank N.A., et al., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
Richard E. West, Springboro, OH, for Debtors.
Robert F. Holmes, Cincinnati, OH, for Mortgage Electronic Registration Systems, Inc.
Hannah W. Hutman, Statman, Harris & Eyrich LLC, Dayton, OH, for Chapter 7 Trustee.
Scott A. King and Jennifer L. Maffett, Thompson Hine LLP, Dayton, OH, for Wells Fargo Bank, NA.
DECISION ON MOTION OF WELLS FARGO BANK N.A. TO DISMISS COMPLAINT
Thomas R. Noland, the Chapter 7 Trustee (the "Plaintiff" or "Trustee") in the estate case seeks through this adversary proceeding to avoid a mortgage lien filed for record in the name of Mortgage Electronic Registration Systems, Inc. ("MERS") based on the allegation that a valid assignment of the mortgage was not recorded on behalf of the holder of the note secured by such mortgage as required by Ohio law.
This matter is before the court on the Motion of Wells Fargo Bank, N.A. to Dismiss Complaint filed by Defendant Wells Fargo Bank, N.A. ("Wells Fargo"), on April 18, 2008 (the "Motion to Dismiss") (Adv.Doc.6); the Plaintiff's Response in Opposition to Motion of Wells Fargo Bank, N.A. to Dismiss Complaint filed on June 6, 2008 (the "Response") (Adv. Doc.15); and the Reply of Wells Fargo Bank, N.A. to Plaintiff's Response in Opposition to Motion to Dismiss Complaint filed on June 27, 2008 (Adv.Doc.20).
This court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157(a) and 1334 and General Order No. 05-02 of the United States District Court for the Southern District of Ohio referring all bankruptcy cases, matters, and proceedings to the bankruptcy court. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B), (K), and (O).
The facts as alleged in the Complaint to Determine the Validity and/or Avoidability of Liens claims by Defendants in Property of The Estate Commonly Know (sic) as 538 South Schoolhouse Road, Vandalia, Ohio, and For Other Relief (Doc. 23; Adv. Doc. 1) (the "Complaint") are as follows.
On May 2, 2005, Earl and Belinda Williams (the "Debtors"), executed and delivered to United Wholesale Mortgage, Inc. ("UWM") a promissory note in the original principal amount of $137,730.00 (the " Note"). Concurrently, to secure the Note, the Debtors executed and delivered to UWM a mortgage (the "Mortgage") on a parcel of real property located at 538 South Schoolhouse Road, Vandalia, Ohio (the "Property"). UWM recorded the Mortgage with the Montgomery County, Ohio Recorder on May 18, 2005, naming MERS as nominee for UWM, its successors and assigns.
Also on or about May 2, 2005, the Note was endorsed in blank without recourse by UWM. No assignment of mortgage was recorded evidencing the transfer of the Note by UWM.
On November 27, 2007 (the "Petition Date"), the Debtors filed a voluntary petition (the "Petition") for relief under Chapter 7 of Title 11 of the United States Bankruptcy Code (the "Bankruptcy Code" or the "Code"). The Plaintiff was appointed Chapter 7 Trustee on that same day.
On February 28, 2008, MERS, "as nominee for United Wholesale Mortgage c/o Wells Fargo Bank, N.A.", filed a motion for relief from the automatic stay as to the Property.
On March 21, 2008, the Trustee initiated this adversary proceeding by filing and serving on UWM and Wells Fargo the Complaint.
UWM has not filed an answer to the Complaint or otherwise defended this adversary proceeding. As noted above, Wells Fargo moved to dismiss the Complaint.
Through Count I of the Complaint, the Trustee seeks to avoid the Mortgage based on his avoidance power under Code § 544(a)(3) as a hypothetical bona fide purchaser of real property, alleging that the Mortgage was not properly assigned to the entity holding the Note as of the Petition Date, and particularly, that the assignment of the Mortgage was not recorded with the Montgomery County, Ohio Recorder as required by Ohio Revised Code ("O.R.C.") § 5301.25(A). In Count II, the Trustee seeks the disallowance of Wells Fargo's claim pursuant to 11 U.S.C. § 502(b), (d) and (j) and 11 U.S.C. § 105(a) on the basis of his avoidance of the Mortgage. In his memorandum, the Trustee also argues that Wells Fargo's claim should be disallowed for policy reasons relating to Wells Fargo's failure to properly record its interest as relates to this case and other cases and its failure to properly document its interest in this and other cases at the time it has sought relief from the bankruptcy stay provided by Bankruptcy Code § 362(a).
Wells Fargo has moved the court to dismiss the Complaint, arguing that the Trustee has failed to state a claim upon which relief can be granted for three reasons. First, Wells Fargo asserts that the Trustee cannot use his strong arm powers to avoid a duly recorded mortgage because a mortgage is not property of a mortgagor-debtor's bankruptcy estate. Second, Wells Fargo contends that, even if the Mortgage was property of the Debtors' bankruptcy estate, the Trustee is not a bona fide purchaser under Ohio law because he had constructive notice of the recorded mortgage. Finally, Wells Fargo maintains that the Ohio recording statute does not apply to mortgage assignments.
Wells Fargo requests dismissal of the Complaint under Fed.R.Civ.P. 12(b)(6), incorporated in bankruptcy adversary proceedings by Fed. R. Bankr.P. 7012. Rule 12(b)(6) provides that a party may assert the defense of "failure to state a claim for which relief may be granted" by motion.
In determining a motion to dismiss, the court must construe the complaint in the light most favorable to the plaintiff, accepting its allegations as true, and drawing all reasonable inferences in favor of the plaintiff. Jones v. City of Cincinnati, 521 F.3d 555, 559 (6th Cir. 2008); and Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir.2007). However, in determining such a motion, a court need not accept as true legal conclusions or unwarranted factual inferences. Id.
The Supreme Court recently clarified the law concerning what a plaintiff must plead in order to survive a Rule 12(b)(6) motion. Assoc. of Cleveland Fire Fighters v. City of Cleveland, Ohio, 502 F.3d 545, 548 (6th Cir.2007) (citing Bell Atl. Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). The Supreme Court stated that "a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 127 S.Ct. at 1964-65 (citations and quotation marks omitted). In addition, the Supreme Court stated that while a complaint need not contain detailed factual allegations, the "[f]actual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. (internal citation and quotation marks omitted). The Sixth Circuit in Cleveland Fire Fighters stated that in so holding, the Supreme Court "disavowed the oft-quoted Rule 12(b)(6) standard" of Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), that a complaint should not be dismissed for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Assoc. of Cleveland Fire Fighters v. City of Cleveland, Ohio, 502 F.3d at 548 (citing Twombly, 127 S.Ct. at 1969). Spiekerman v. Village of Waynesville, Ohio, 2008 WL 161364, at *1 (S.D.Ohio 2008).1
The gist of the Trustee's argument is that, under his strong arm powers pursuant to Bankruptcy Code § 544 as a bona fide purchaser for value, he may avoid the Mortgage held by Wells Fargo on account of the failure to record an assignment of the Mortgage. Accordingly, an analysis of the Trustee's powers under Code § 544 as applied to these facts is in order.
Bankruptcy Code § 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 —
* * *
(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 and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.
11 U.S.C. § 544(a)(3).
Thus, Bankruptcy Code § 544(a)(3) allows a trustee to avoid any transfer of property of a debtor or any obligation incurred by a debtor that would be voidable by a hypothetical bona fide purchaser of real property. Simon v. Chase Manhattan Bank (In re Zaptocky), 250 F.3d 1020,1023 (6th Cir.2001). Phrased a little differently, the Trustee is given the power of a bona fide purchaser for value if "a hypothetical buyer could have obtained a bona fide purchaser status." Owen-Ames-Kimball Co. v. Mich. Lithographing Co. (In re Mich. Lithographing Co.), 997 F.2d 1158, 1159 (6th Cir.1993). State law applies in determining whether the Trustee is entitled to bona fide purchaser status in this proceeding. Id at 1159.
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