Miller v. LaSalle Bank Nat. Ass'n

• Decision Date: 19 February 2010
• Docket Number: No. 09-3013.,09-3013.
• Citation: 595 F.3d 782
• Parties: Debra L. MILLER, Trustee, Plaintiff-Appellant, v. LaSALLE BANK NATIONAL ASSOCIATION as Trustee in Trust for the Holders of Merrill Lynch Mortgage Investors Trust Series 2002-AFCI and Alliance Funding, a Division of Superior Bank FSB, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

595 F.3d 782

Debra L. MILLER, Trustee, Plaintiff-Appellant, v. LaSALLE BANK NATIONAL ASSOCIATION as Trustee in Trust for the Holders of Merrill Lynch Mortgage Investors Trust Series 2002-AFCI and Alliance Funding, a Division of Superior Bank FSB, Defendants-Appellants.

No. 09-3013.

United States Court of Appeals, Seventh Circuit.

Argued December 7, 2009.

Decided February 19, 2010.

Cathleen M. Shrader (argued), Barrett & McNagny, Fort Wayne, IN, for Plaintiff-Appellant.

Mark R. Galliher (argued), Doyle & Friedmeyer, Indianapolis, IN, for Defendants-Appellants.

Before CUDAHY, WOOD, and EVANS, Circuit Judges.

CUDAHY, Circuit Judge.

This is an appeal involving a puzzle of statutory interpretation. The issue comes to us from an adversary proceeding in bankruptcy court between Debra Miller (Trustee) and LaSalle Bank National Association (LaSalle). The bankruptcy court held that an improperly recorded mortgage was avoidable under Indiana law as amended in 2007 because it did not impart constructive knowledge to a bona fide purchaser, here the Trustee. The bankruptcy court held that the 2007 Amendment applied only to mortgages recorded after the Amendment's effective date of July 1, 2007. The district court reversed, and the Trustee appeals. Because we interpret the statute to apply to all mortgages regardless when recorded, we affirm the district court.

I. Background

None of the operative facts is in dispute. In 2001, the debtors executed and delivered to Alliance, LaSalle's predecessor, a mortgage on a property in Peru, Indiana, to secure a $49,300 loan. The mortgage was filed with the Miami County Recorder in May 2001, but the acknowledgment had a technical defect because it did not identify the individuals who appeared before the notary and executed the mortgage document. After the debtors filed a voluntary petition for relief under Chapter 13, in March 2008, the Trustee brought an adversary proceeding to avoid LaSalle's mortgage lien.¹

In Indiana, as elsewhere, a recorded, "properly acknowledged" mortgage imparts constructive notice of its existence to subsequent bona fide purchasers (BFPs). See Bank of New York v. Nally, 820 N.E.2d 644, 648 (Ind.2005). Prior to the 2007 Amendment, a mortgage that was not entitled to be recorded because of a technical defect in the acknowledgment did not provide such notice.² See IND.CODE § 32-21-2-3 (requiring that a notary public authenticate signature for grantors of mortgage); § 32-21-2-7 (now modified by § 32-21-4-1, at issue in the present case); Sandy Ridge Oil Co., Inc. v. Centerre Bank Nat'l Ass'n (In re Sandy Ridge Oil Co., Inc.), 510 N.E.2d 667, 669 (Ind.1987) (stating the general rule); In re Stubbs, 330 B.R. 717, 731 (Bankr.N.D.Ind.2005) (holding that an acknowledgment was defective because it did not include the name of the person who appeared before a notary public), aff'd 2006 WL 2361814 (N.D.Ind.2006); Baldin v. Calumet Nat'l Bank (In re Baldin), 135 B.R. 586, 601-02 (Bankr.N.D.Ind.1991).

In 2007, the Indiana General Assembly amended its recording statute, IND.CODE § 32-21-4-1, to allow recorded mortgages with certain technical defects to provide constructive notice as if the mortgages were properly recorded and acknowledged. The district courts that have interpreted the statute in this case, and both parties in the present appeal, note that the legislature passed the 2007 Amendment in an apparent attempt to overrule In re Stubbs. In 2008, the Assembly again amended the statute and made it clear that the statute applied to all mortgages, regardless when recorded (2008 Amendment). The parties dispute whether, before the 2008 Amendment came into force, the 2007 Amendment applied to purchasers of properties encumbered by certain technically deficient mortgages recorded prior to July 1, 2007.

In the present case, the bankruptcy court found the 2007 Amendment ambiguous but held that it was most naturally interpreted to apply to mortgages recorded after July 1, 2007. The bankruptcy court ultimately grounded its decision on several presumptions of statutory interpretation. It construed the purpose of the 2007 Amendment as "divest[ing] a BFP and a bankruptcy trustee of the right to avoid an improperly recorded mortgage." Based on the presumption that statutes are applied prospectively, the bankruptcy court construed the statute to apply only to mortgages recorded after the 2007 Amendment's effective date. On appeal, the district court disagreed with the bankruptcy court's interpretation of the language of the Amendment. See Miller v. LaSalle Bank Nat'l Ass'n (In re Gysin), 409 B.R. 485, 491 (N.D.Ind.2009). The district court began by examining indicia of legislative intent. It credited LaSalle's argument that the 2008 Amendment was passed in response to frequent arguments by bankruptcy trustees in the inter-amendment period that the 2007 Amendment should be interpreted to apply only to mortgages recorded after the 2007 Amendment became effective. See id. at 489. The district court thus found that the Indiana Legislature intended the 2007 Amendment to apply to all mortgages and apparently did not rely on the default rule that statutes are to be applied prospectively. See id. at 491.

II. Standard of Review

When reviewing a bankruptcy court's decision, an appeals court applies the same standard of review as does the district court. We review de novo the district court's grant of summary judgment and its interpretation of Indiana law. See Estate of Moreland v. Dieter, 576 F.3d 691, 695 (7th Cir.2009) (citing Salve Regina Coll. v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991)); Dick v. Conseco, Inc., 458 F.3d 573, 577 (7th Cir.2006).

III. Discussion

The purpose of a recording statute is to provide protection to subsequent purchasers, lessees and mortgagees. See, e.g., Szakaly v. Smith, 544 N.E.2d 490, 491 (Ind.1989). In 2003, after a 2002 recodification, Indiana's recording statute provided:

Sec. 1.

(a)

(1) conveyance or mortgage of land or of any interest in land; and

(2) a lease for more than three (3) years must be recorded in the recorder's office of the county where the land is situated.

(b) A conveyance, mortgage, or lease takes priority according to the time of its filing. The conveyance, mortgage, or lease is fraudulent and void as against any subsequent purchaser, lessee, or mortgagee in good faith and for a valuable consideration if the purchaser's, lessee's, or mortgagee's deed, mortgage, or lease is first recorded.

IND.CODE § 32-21-4-1 (2002).

An amendment in 2003 moved the last phrase of (a) to become the introductory phrase of the subsection ("The following must be recorded ...."), and the 2007 Amendment provided subsection (c):

(c) This subsection applies only to a mortgage. If:

(1) an instrument referred to in subsection (a) is recorded; and

(2) the instrument does not comply with the:

(A) requirements of:

(i) IC 32-21-2-3; or

(ii) IC 32-21-2-7; or

(B) technical requirements of IC 36-2-11-16(c); the instrument is validly recorded and provides constructive notice of the contents of the instrument as of the date of filing.

P.L. 135-2007 § 2, 2007 Ind. Acts 1919, 1920 (effective July 1, 2007) (emphasis added).

The 2008 Amendment amended subsection (c) to add "[t]his subsection applies regardless of when a mortgage was recorded" after the first sentence. P.L. 129-2008, 2008 Ind. Acts 1908, 1908 (effective July 1, 2008). Consequently, our interpretation of the 2007 Amendment affects only properties "purchased" (here under the strong arm powers of the Trustee) between July 1, 2007 and July 1, 2008.

Indiana law includes familiar rules of statutory interpretation. The statute is given its clear and plain meaning if unambiguous, but if ambiguous the court must try to ascertain the legislature's intent, and the court's primary goal is to interpret the statute to effectuate that intent. Basileh v. Alghusain, 912 N.E.2d 814, 821 (Ind.2009); City of Carmel v. Steele, 865 N.E.2d 612, 618 (Ind.2007). The Indiana Supreme Court describes the "intent" inquiry as follows: "[t]he court will look to each and every part of the statute; to the circumstances under which it was enacted; to the old law upon the subject, if any; to other statutes upon the same subjects, or relative subjects, whether in force or repealed, to contemporaneous legislative history, and to the evils and mischiefs to be remedied." See Ashlin Transp. Services, Inc. v. Indiana Unemployment Ins. Bd., 637 N.E.2d 162, 166-67 (Ind.Ct.App.1994) (summarizing Indiana Supreme Court cases). Because Indiana statutes have no explanatory committee reports, there is little legislative history to examine beyond amendments to the statute. See, e.g., C.C. v. State, 907 N.E.2d 556, 558-59 (Ind.Ct.App.2009).

In addition to the presumption against retroactivity, Indiana caselaw recognizes many other familiar presumptions of statutory interpretation: e.g., if language is used in one section but omitted in another, the court presumes that the legislature acted intentionally in doing so, see City of Crown Point v. Misty Woods Properties, LLC, 864 N.E.2d 1069, 1076 (Ind.Ct. App.2007) (internal citations omitted); statutes in derogation of the common law are to be strictly construed, see Stanley v. Walker, 906 N.E.2d 852, 862 (Ind.2009) (Dickson, J., dissenting) (citing Bartrom v. Adjustment Bureau, Inc., 618 N.E.2d 1, 10 (Ind.1993)); and an amendment to a statute creates the rebuttable presumption that the amendment was intended to change the law, see Turner v. State, 870 N.E.2d 1083, 1087 (Ind.Ct.App.2007). Lastly, when the legislature passes several statutes during the same session, those should be interpreted in harmony, to give effect to each. See, e.g., Ware v. State, 441 N.E.2d 20, 22-23 (Ind.Ct.App.1982) (internal citations omitted).

We thus begin with the language of the statute. The parties provide two interpretations of the phrase "is recorded" in subsection (c). Both parties'...