Longnecker v. Deutsche Bank Nat'l Trust Co.

• Decision Date: 18 December 2013
• Docket Number: No. 3-806 / 12-2304,3-806 / 12-2304
• Parties: GARY DEAN LONGNECKER and SUE ANN LONGNECKER, Plaintiffs-Appellees, v. DEUTSCHE BANK NATIONAL TRUST COMPANY, As Trustee for ABFC ASSET BACKED SECURITIES SERIES 2005-WF1, Defendant-Appellant.
• Court: Iowa Court of Appeals

GARY DEAN LONGNECKER and SUE ANN LONGNECKER, Plaintiffs-Appellees,
v.
DEUTSCHE BANK NATIONAL TRUST COMPANY, As Trustee
for ABFC ASSET BACKED SECURITIES SERIES 2005-WF1, Defendant-Appellant.

No. 3-806 / 12-2304

COURT OF APPEALS OF IOWA

Filed December 18, 2013

Appeal from the Iowa District Court for Polk County, Robert B. Hanson, Judge.

Deutsche Bank appeals the district court's order dismissing its counterclaims for lack of subject matter jurisdiction and granting summary judgment to the Longneckers on their petition to quiet title. AFFIRMED.

Jesse Linebaugh of Faegre, Baker, & Daniels L.L.P., Des Moines, and Kathryn E. Olivier of Faegre, Baker, & Daniels L.L.P., Indianapolis, Indiana, for appellant.

Michael P. Holzworth, Des Moines, for appellees.

Heard by Doyle, P.J., and Tabor and Bower, JJ.

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TABOR, J.

After Deutsche Bank purchased property owned by Gary and Sue Ann Longnecker at a 2011 sheriff's sale, the Longneckers filed a petition to quiet title alleging the bank failed to execute on its March 2007 foreclosure judgment during the limitations period in Iowa Code section 615.1 (2007).¹ The bank responded by filing state law counterclaims based on the Longneckers' actions in federal bankruptcy court.

Ruling on an issue of first impression, the district court dismissed the bank's counterclaims, finding it lacked subject matter jurisdiction because the "Bankruptcy Code preempts state law claims based on actions within a bankruptcy proceeding." The district court quieted title in the Longneckers, holding: "While the Longneckers' actions of filing multiple bankruptcies and attempts to negotiate may have delayed the pending sheriff's sales, it was Deutsch Bank's" voluntary cancellation of the sheriff's sale set under the timely fourth "execution which ultimately foreclosed its ability to execute on its judgment."

We find no error in the district court's ruling that embraces the preemption analysis adopted by the clear majority of jurisdictions. Because Deutsch Bank

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failed to execute within the section 615.1 limitations period, we agree the 2011 sheriff's sale is void. Accordingly, we affirm.

I. Background Facts and Proceedings

In January 2005 the Longneckers obtained a $681,000 loan from Wells Fargo that was secured by a mortgage on their Johnston, Iowa home. After Wells Fargo sought to foreclose on the Longneckers' note and mortgage, the district court entered judgment for the bank on March 21, 2007. Wells Fargo's December 2007 execution² set a sheriff's sale for February 28, 2008. Gary filed a Chapter 7 bankruptcy petition on February 7 which automatically stayed the sale. Wells Fargo cancelled the sale and the sheriff filed the return of special execution unsatisfied. On May 14, 2008, the bankruptcy court granted Wells Fargo's request for relief from the automatic stay. This stay totaled eighty-eight days.

Two months later on July 23, Wells Fargo obtained a second special execution setting a December 30, 2008 sheriff's sale. Gary filed a Chapter 13 bankruptcy petition thirty minutes before the sale was scheduled to start, and the petition automatically stayed the sale. Wells Fargo assigned its foreclosure judgment to Deutsche Bank, Deutsche Bank cancelled the sheriff's sale, and the sheriff filed the return of special execution unsatisfied. On February 14, 2009, the bankruptcy court granted the bankruptcy trustee's motion to dismiss. The second bankruptcy stay totaled forty-six days.

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Approximately one month later on March 12, Deutsche Bank obtained a third special execution for a July 2, 2009 sheriff's sale. Gary filed a Chapter 13 bankruptcy petition less than one hour before the sale was scheduled to start, and the petition automatically stayed the sale. Deutsche Bank cancelled the sale and the sheriff filed the third return of special execution unsatisfied. On July 24 the bankruptcy court granted Gary's motion to dismiss. The third bankruptcy stay totaled twenty-two days.

Almost a month later Deutsche Bank's fourth special execution, dated August 17, 2009, set a sheriff's sale for January 7, 2010. We note the special statute of limitations in Iowa Code section 615.1 expired on August 23, 2009 (calculated by adding two years to the March 21, 2007 foreclosure judgment, "exclusive of" the 156 days "during which execution on the judgment was stayed pending a bankruptcy action").³ Therefore, Deutsche Bank's fourth execution was obtained a few days before the limitations period expired. Neither Gary nor Sue Ann Longnecker filed a bankruptcy petition staying the fourth sale.⁴ Deutsche Bank voluntarily cancelled⁵ this sale and the sheriff filed the return of special execution unsatisfied.

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Deutsche Bank cancelled its fifth and sixth sheriff's sales set in 2010, after the sales were stayed by Sue Ann's filing of bankruptcy petitions. The sheriff filed the fifth and sixth returns of special execution unsatisfied.

On January 13, 2011, Deutsche Bank obtained a seventh special execution setting a May 12 sheriff's sale. On May 20, 2011, Deutsche Bank purchased the Longneckers' property at a rescheduled sheriff's sale, and the sheriff filed the return of special execution satisfied.⁶

In November 2011 the Longneckers filed a petition to quiet title, alleging Deutsche Bank did not execute on its March 2007 foreclosure decree during the time allowed by the section 615.1 statute of limitations, and the Longneckers own the property in fee simple. Deutsche Bank answered and filed state law counterclaims for unjust enrichment, abuse of process, civil conspiracy, and tortious interference with prospective business relationships. The Longneckers filed a motion to dismiss, asserting the counterclaims were preempted by federal bankruptcy law, and the district court lacked subject matter jurisdiction. Both parties also filed motions for summary judgment on the quiet title petition.

At the July 2012 hearing, the parties and the district court agreed the "question of preemption by the Bankruptcy Code of state law claims based on the filing of bankruptcy petitions is a matter of first impression in Iowa." The district

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court found the cases cited by Deutsche Bank had "little persuasive weight given the breadth and depth of authority holding state law claims preempted." The court adopted the majority rule and granted the Longneckers' motion to dismiss the bank's counterclaims, holding that because the "Bankruptcy Code preempts state law claims based on actions within a bankruptcy proceeding," the court "lacks subject matter jurisdiction over each of Deutsche Bank's state law counterclaims."

Regarding the validity of the May 2011 sheriff's sale, Deutsche Bank argued its initial 2007 execution validated the May 2011 sheriff's sale. Alternatively, the bank argued it is equitably entitled to the sheriff's deed because a departure from the literal construction of section 615.1 is justified to prevent an absurd result that rewards the Longneckers' misconduct.

The district court found the first four executions were obtained within the section 615.1 limitations period, and the bank's voluntary decision to cancel the fourth sheriff's sale caused the final timely execution—the fourth execution—to be returned to the clerk unsatisfied. The court ruled the property "sold at sheriff's sale under the seventh execution, which [execution] was issued outside" the section 615.1 limitations period. Noting the "first through sixth executions were returned" to the clerk of court unsatisfied," only one execution can exist at a time, and an execution must be returned to the clerk of court within 120 days after issuance, the district court found each earlier execution "had no effect" once the sheriff returned it. The district court concluded the "prior timely executions

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cannot support" the May 2011 "sheriff's sale occurring under an untimely execution."

The district court also rejected Deutsche Bank's "equitable relief" argument, citing our decision in FFMLT 04-FF10, Bank of New York v. Smith, No. 09-1816, 2010 WL 2925494, at *4 (Iowa Ct. App. July 28, 2010) (rejecting the bank's request, based on the debtor's actions, for an equitable tolling of the section 615.1 limitations period, and ruling "the legislature will list exceptions if it intends exceptions to apply"), and the Iowa Supreme Court's earlier decision, Lacina v. Maxwell, 501 N.W.2d 531, 533 (Iowa 1993) (ruling section 615.1 "was passed with the legislative purpose of aiding judgment debtors" and the statute is "plain and unambiguous"). The district court concluded: "While the Longneckers' actions of filing multiple bankruptcies and attempts to negotiate may have delayed the pending sheriff's sales, it was Deutsch Bank's cancellation of the sheriff's sale scheduled after the fourth execution which ultimately foreclosed its ability to execute on its judgment." The court granted the Longneckers' motion for summary judgment, and Deutsche Bank now appeals.

II. Scope and Standards of Review

Subject matter jurisdiction is the power of the court to hear a general class of cases, not merely the specific case in question. Klinge v. Bentien, 725 N.W.2d 13, 15 (Iowa 2006). "Our scope of review of rulings on subject matter jurisdiction is for correction of errors at law." Id.

While courts...