Norvell v. Equity Tr. Co. (In re Norvell)

• Decision Date: 15 December 2021
• Docket Number: 20-32236,Adv. 20-3037
• Parties: In re: ANTHONY W. NORVELL PAMELA M. NORVELL, Debtor. v. Equity Trust Company, Defendant. Anthony W. Norvell Pamela M. Norvell, Plaintiff,
• Court: U.S. Bankruptcy Court — Southern District of Ohio

In re: ANTHONY W. NORVELL PAMELA M. NORVELL, Debtor.

Anthony W. Norvell Pamela M. Norvell, Plaintiff,
v.
Equity Trust Company, Defendant.

No. 20-32236

Adv. No. 20-3037

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

December 15, 2021

Chapter 13

DECISION GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AS TO COUNT I AND GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION AS TO COUNTS II AND III (DOC. 14)

GUY R. HUMPHREY UNITED STATES BANKRUPTCY JUDGE

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I. Introduction

This case comes before the court on the motion of Plaintiffs Anthony and Pamela Norvell ("the Norvells") for summary judgment. The present adversary proceeding arises out of In re Norvell, a Chapter 13 bankruptcy case before this court. The Norvells and their creditor, Equity Trust Company ("Equity Trust"), agree that they engaged in a loan transaction but concur on little else - they dispute the amount disbursed, the applicable interest rate, the amount already repaid, and the value of the underlying real property. The Norvells ask the court to determine the amount of Equity Trust's claim and the value of two properties. They also seek to avoid Equity Trust's judicial liens against their primary residence and cramdown Equity Trust's mortgages on both properties.

II. Factual and Procedural Background

The court reviewed the evidentiary materials submitted by the parties and takes judicial notice of the docket in this adversary proceeding and the related estate case and the Montgomery County Court of Common Pleas docket for Case #2019-CV-01990.

On July 21, 2017 Anthony and Pamela Norvell, together with Robert and Amber Nicholas (collectively "the Borrowers"), signed a cognovit promissory note ("the note") for the principal sum of $250, 000 plus interest on any unpaid balance in favor of Equity Trust. Doc. 14, Ex. 1. The note required the Borrowers to repay the loan in two portions - $100, 000 on or before March 1, 2018 and the remaining $150, 000 on or before March 1, 2028. Id. While the note did not state an interest rate on the first portion, it specifies that interest at 15 % per annum would be charged on the $150, 000 beginning on April 1, 2018 and ending on March 1, 2028. Id. The parties dispute whether the Borrowers ever received the full amount of the loan. The Norvells assert that Equity Trust disbursed only the first portion, $100, 000, while Equity Trust asserts that it disbursed the full amount. Doc. 14, 4; Doc. 17, 3. Additionally, the parties disagree as to the amount already

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repaid by the Borrowers. The Norvells state that they have repaid $26, 400.16 while Equity Trust believes the calculation to be $26, 700.20. Doc. 14, 4; Doc. 17, 3. In making these calculations, the parties rely on a nearly illegible handwritten ledger. Doc. 14, Ex. 6.

The Borrowers granted mortgages on three properties as security for the loan, two of which are owned by the Norvells - 2211 Social Row Road, Dayton, Ohio 45458 (the "Social Row property") and 25 ½ Third Street, Franklin, Ohio 45005 (the "Third Street property"). Doc. 14, Ex. 1, 2. The Norvells reside at the Social Row property and use the Third Street property as a rental property. Doc. 14 ¶¶ 17, 19. Freedom Mortgage Corporation ("Freedom Mortgage") holds a recorded mortgage lien on the Social Row property in the amount of $245, 267.24. Doc. 14, Ex. 0. The Freedom Mortgage lien holds priority over the mortgages of the Borrowers.

Under the terms of the note, each of the signers authorized an attorney to appear and obtain a judgment against any or all of the signers for the amount due and any costs of suit. Doc. 14, Ex. 1. The signers waived their rights to service, process, and appeal. Id. Additionally, they released all errors and agreed to be held jointly and severally liable for the debt. Id. On May 8, 2019 Equity Trust obtained two judgments against Anthony Norvell and Pamela Norvell respectively in the Montgomery County Court of Common Pleas, case number 2019 CV 01990. Doc. 14, Ex. 8, 9. Equity Trust then obtained two certificates of judgment lien on property owned by Anthony Norvell and Pamela Norvell on September 23, 2020. Doc. 14, Ex. 8, 9.

On October 5, 2020 the Norvells filed a bankruptcy petition in this court under Chapter 13 of the Bankruptcy Code. Pursuant to Ohio Revised Code § 2329.66(A)(1), Debtor Anthony

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Norvell claimed a homestead exemption in the amount of $145, 425 in the Social Row property as his residence. Doc. 17, Scheds. A 1.2, C.^[1]

On November 9, 2020 the Norvells filed the complaint initiating this adversary proceeding. The complaint lists three counts: Count 1 requests the court to determine the amount of Equity Trust's claim; Count 2 seeks a determination that the Norvells may avoid Equity Trust's judicial liens; and Count 3 seeks a determination that the Norvells may "cramdown" Equity Trust's mortgages to the available equity in the properties. Equity Trust filed proof of a secured claim in the amount of $250, 000 on December 14, 2020 and an answer in this proceeding on January 4, 2021. On September 30, 2021 the Norvells filed a motion for summary judgment on all counts. Doc. 14. Equity Trust submitted a response on October 8, 2021. Doc. 17.

III. Legal Standard and Analysis

A. Jurisdiction

This court exercises jurisdiction pursuant to 28 U.S.C. § 1334 and the standing order of reference in the District Court for the Southern District of Ohio, Amended General Order 05-02. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(b)(2)(B) and (K).

B. Summary Judgment Standard

A court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a) (made applicable in this adversary proceeding by Federal Rule of Bankruptcy Procedure 7056). A factual disagreement is genuine if "a rational trier of fact could find in favor of either party on the issue." SPC Plastics Corp. v. Griffith (In re Structurlite Plastics Corp.), 224

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B.R. 27, 30 (B.A.P. 6th Cir. 1998) (citing Schaffer v. A.O. Smith Harverstone Prods., Inc., 74 F.3d 722, 727 (6th Cir. 1996)). A fact is material if it might affect the outcome of the suit under substantive law. Niecko v. Emro Mktg. Co., 973 F.2d 1296, 1304 (6th Cir. 1992) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). When reviewing a motion for summary judgment, a court views all evidence and draws all inferences in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

C. The Norvells' Arguments Seeking to Reduce the Amount of Equity Trust's Claim Are Precluded by Res Judicata Because the State Court Entered Final Judgment on the Issue

In Count 1, the Norvells ask this court to determine that Equity Trust's claim should be set at $73, 599.84. Doc. 14, 4-6. However, both parties concede that the Montgomery County Court of Common Pleas has already entered judgment liquidating the Cognovit Note and determining both the amount owed to Equity Trust and the applicable interest rates. Specifically, the judgment determined the amount owed to be "(A) $100, 000 plus interest at the statutory rate (4%) from March 1, 2018, (B) $150, 000 plus 15% interest from April 1, 2018, and (C) court costs." Equity Trust's Proof of Claim #13-1, Ex. 3.

Under the Full Faith and Credit Act, federal courts must "give the same preclusive effect to a state-court judgment as another court of that State would give." 11 U.S.C. § 1738; Parsons Steel, Inc. v. First Alabama Bank, 474 U.S. 518, 523 (1986); Corzin v. Fordu (In re Fordu), 201 F.3d 693, 703 (6th Cir. 1999) (same). Under Ohio law, "a valid, final judgment rendered upon the merits bars all subsequent actions based upon any claim arising out of the transaction or occurrence that was the subject matter of the previous action.'" Grava v. Parkman Twp., 653 N.E.2d 226, 229 (Ohio 1995). A final judgment also precludes any claims "which were or might have been litigated in a first lawsuit." Rogers v. Whitehall, 494 N.E.2d 1387, 1388 (Ohio 1986); Holzemer v. Urbanski, 712 N.E.2d 713, 716 (Ohio 1999) (same); see also In re Fordu, 201 F.3d at 703 (quoting Migra v.

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Warren City Sch. Dist. Bd. Of Educ., 465 U.S. 75, 77 n. 1 (1984)) ("Claim preclusion generally refers to the effect of a judgment in foreclosing litigation of a matter that never has been litigated, because of a determination that it should have been advanced in an earlier suit."). In Ohio, there are four elements of claim preclusion:

(1) a prior final, valid decision on the merits by a court of competent jurisdiction;

(2) a second action involving the same parties, or their privies, as the first; (3) a second action raising claims that were or could have been litigated in the first action; and (4) a second action arising out of the transaction or occurrence that was the subject matter of the previous action.

Yust v. Henkel (In re Henkel), 490 B.R. 759, 771 (Bankr. S.D. Ohio 2013) (quoting Hapgood v. City of Warren, 127 F.3d 490, 493 (6th Cir. 1997)).

Here, there is a final judgment of the Montgomery County Court of Common Pleas involving the same parties now before this court. "As to this element, it is well-settled law in Ohio that a default judgment carries the weight of a final decision on the merits that may serve to bar later claims." Yust, 490 B.R. at 771 (quoting Frazier v. Matrix Acquisitions, LLC, 873 F.Supp.2d 897, 901 (N.D. Ohio 2012)). The present claim clearly arises out of the same loan transaction and involves claims and defenses that could have been raised in state court. Claim preclusion encompasses a broad scope and includes litigation of counter claims and affirmative defenses that should have been raised, but were not, in the prior litigation. Yust, 490 B.R. at 772.

The Norvells ask this court to consider...