Plymouth Park Tax Servs., LLC v. Bowers (In re Bowers)

• Decision Date: 29 August 2014
• Docket Number: No. 13–4404.,13–4404.
• Citation: 759 F.3d 621
• Parties: In re Michael Allen BOWERS; Margarita Ville Bowers, Debtors. Plymouth Park Tax Services, LLC, Appellants, v. Michael Allen Bowers; Margarita Ville Bowers, Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

759 F.3d 621

In re Michael Allen BOWERS; Margarita Ville Bowers, Debtors.Plymouth Park Tax Services, LLC, Appellants,

v.Michael Allen Bowers; Margarita Ville Bowers, Appellees.

No. 13–4404.

United States Court of Appeals,Sixth Circuit.

Argued: June 18, 2014.

Decided and Filed: July 21, 2014.

Rehearing En Banc Denied Aug. 29, 2014.

ARGUED:Scott W. Paris, Keith D. Weiner & Associates Co., LPA, Cleveland, Ohio, for Appellant. Robert M. Whittington, Jr., Akron, Ohio, for Appellee. ON BRIEF:Scott W. Paris, Keith D. Weiner & Associates Co., LPA, Cleveland, Ohio, for Appellant. Robert M. Whittington, Jr., Akron, Ohio, for Appellee.

Before: KEITH, CLAY, and McKEAGUE, Circuit Judges.

OPINION

McKEAGUE, Circuit Judge.

Plymouth Park appeals the Bankruptcy Court's Order which held that under Ohio law, the interest rate a Chapter 13 debtor must pay under his plan during the pendencyof a bankruptcy proceeding to a tax certificate holder is the “certificate rate of interest” shown on the face of the tax certificate. Plymouth Park alleges that the appropriate interest rate is 18%, as provided in Ohio Revised Code (“O.R.C.”) § 5721.38 (2010), instead of 0.25%, the rate provided in the tax certificate. This is an issue of first impression for this Circuit. For the reasons set forth below, we hold that the Bankruptcy Court was correct and AFFIRM.

I.

We begin with a brief overview of Ohio tax lien law. When real estate taxes are not paid by a property owner, a tax lien attaches to the subject property, annually, on the first of every January, which includes interest, penalties, and other fees accrued until paid. O.R.C. § 323.11. Summit County and several other Ohio counties sell outstanding tax obligations to investors in the form of tax lien certificates (“tax certificates”). O.R.C. § 5721.¹ By selling these tax certificates, the county creates much needed revenue from unpaid property taxes. The investor purchasing a tax certificate obtains a lien against the taxpayer's property and the right to pursue the taxpayer for unpaid taxes. O.R.C. § 5721.30–.43.

The tax certificate entitles the tax certificate holder to the first lien on the property. O.R.C. § 5721.32. Property owners are given notice of the opportunity to redeem the tax certificate and thereby remove the lien by paying the certificate holder the purchase price plus interest, penalties, and costs pursuant to O.R.C. § 5721.32. The tax certificate holder also has the right, after complying with all statutory requirements, to initiate foreclosure proceedings on the real property after one year passes from the tax certificate purchase date, but no later than the end of the certificate period, which is six years. Id. To initiate foreclosure, the certificate holder must file a notice of intent to foreclose with the county treasurer. O.R.C. § 5721.37. The tax certificate holder can file its notice of intent to foreclose as long as the property owner has not “redeemed” (i.e., paid off) the certificate. Id.

The facts of this case are not in dispute. Michael Allen Bowers and Margarita Ville Bowers (the “Debtors”) allowed the taxes to become delinquent on their property located in Akron, Ohio. After the Debtors became delinquent on their taxes, the Summit County Treasurer held a tax certificate sale and Plymouth Park Tax Services (“Plymouth Park”) purchased two delinquent tax certificates pursuant to statute. The first tax lien certificate (Certificate # 1) was filed on November 5, 2010 with the Summit Count Fiscal Officer indicating a purchase price of $4,083.73 with a negotiated interest rate of 0.25%. On October 3, 2011, the second tax lien certificate (Certificate # 2) was filed with the Summit County Fiscal Officer indicating a purchase price of $2,045.44 with a negotiated interest rate of 18.00%. Both of these certificatesare titled “Tax Certificate (Negotiated sale).” R. 32, Stipulation as to Undisputed Facts at 7–9.² The certificates are signed by the “Treasurer/Fiscal Officer or Designee,” Shelly Davis, who certified: “I do hereby certify that at a negotiated sale pursuant to O.R.C. § 5721.33 this tax certificate for the parcel listed below was offered and sold....” Id.

Both certificates also state that “[t]his certificate will be canceled six years after the date of delivery pursuant to Ohio Revised Code 5721.37, unless the date is extended because of bankruptcy pursuant to O.R.C. 5721.37(A)(3)(b).” Id. The tax certificates stated that “[t]he purchaser of this Tax Certificate or any transferee is entitled to file a notice of intent to foreclose on this parcel within six years after the purchase of the Tax Certificate, or by the date negotiated with the county treasurer.” Id.

On April 17, 2012, the Summit County Fiscal Officer filed a tax lien foreclosure complaint against the Debtors. The complaint was filed “pursuant to a request for foreclosure form sent to the Fiscal Officer by Plymouth [Park].” Id. at 2, ¶ 6. The foreclosure complaint stated that “as provided by Section 5721.38(b) of the Ohio Revised Code” the “redemption price” calculated by the Fiscal Officer was $10,585.82. Id. at ¶ 6; at 11, Ex. D.

On May 10, 2012, the Debtors filed their Chapter 13 plan and petition. R. 1, Chapter 13 Petition. The Debtors did not file any notice to “redeem” their property during the pendency of the bankruptcy action. Rather, the Chapter 13 petition and “payment plan” was the plan filed by the Debtors pursuant to the Bankruptcy Code. 11 U.S.C. § 1321. The Debtors' Chapter 13 plan proposed to pay interest on Plymouth Park's tax certificates at the interest rates listed on those certificates: 0.25% on Certificate # 1 and 18.00% on Certificate # 2. R. 3, Chapter 13 Plan Filed by Debtor Michael Bowers at 3. On May 23, 2012, Plymouth Park filed a proof of claim based on both certificates in the amount of $10,521.46, an amount that included $2,120.00 in fees and the principal balance of $7,781.19 plus 18% interest on both certificates from June 1, 2012. Accordingly, the Debtors' plan and Plymouth Park's claim put the parties at odds: while the Debtors sought an interest rate of 0.25% on Certificate # 1 and 18% on Certificate # 2, Plymouth Park demanded that the Debtors pay 18% on both certificates.

The Bankruptcy Court held an Evidentiary Hearing on August 16, 2012 where testimony was taken regarding the procedures and fees involved in Summit County's tax lien foreclosure process. On December 5, 2012, the Bankruptcy Court ordered the parties to file additional briefs “regarding the applicability and/or inapplicability of Ohio Revised Code § 5721.38 to the issues before the Court, specifically to what extent, if any, a debtor's chapter 13 plan treatment of the tax certificate holder's claim should be equated with the process of redemption contemplated by § 5721.38.” R. 44, Order Directing Parties to File Briefs at 1. The parties filed their respective briefs.

On March 22, 2013, the Bankruptcy Court entered its Order and Memorandum Opinion overruling and sustaining in part both Plymouth Park's Objection to Confirmation and Debtors' Objection to Proof of Claim. The Bankruptcy Court agreed with Plymouth Park that Plymouth Park's claim was a tax claim ³ under 11 U.S.C. § 511 and that state law governed the interest rate at issue. However, the Bankruptcy Court rejected the proposition that the 18% rate in O.R.C. § 5721.38(B) should apply to the Debtors' plan. The Bankruptcy Court stated:

According to Ohio Revised Code § 5721.38(B)(2), the owner of the property “may redeem the parcel by paying ... interest on the certificate purchase price for each tax certificate sold respecting the parcel at the rate of eighteen per cent per year.” The debtors allege that Ohio Revised Code § 5721.38(B) is limited to those instances where “a party redeems real estate from a certificate sale by paying cash to the county treasurer.” Debtors' Reply at 1. The debtors further allege that this redemption does not contemplate “redemption by way of periodic payments as in a chapter 13 plan.” December 14, 2012 Brief at 4. The Court agrees. Creditor has not established, and the Court finds no support for, the contention that the negotiated interest rate does not apply. Here, the debtors are not redeeming their property as contemplated by Ohio Revised Code § 5721.38(B); therefore, the statute does not apply.

R. 51, Bankruptcy Ct. Order and Memo. Op. at 4.

The Bankruptcy Court further explained: “Moreover, ‘Ohio law establishes that the Creditor is entitled to the interest rate established by the tax certificate auction on the Debtor's delinquent real estate taxes.’ ” Id. (quoting In re Cortner, 400 B.R. 608, 612 (Bankr.S.D.Ohio 2009)). The Court thus held that the appropriate interest rate for Certificate # 1 was 0.25%, the rate listed on the tax certificate.

Plymouth Park timely appealed to the Bankruptcy Appellate Panel (“BAP”) on April 2, 2013. After hearing oral arguments, the BAP issued an opinion affirming the Bankruptcy Court's order. In re Bowers, 506 B.R. 249 (6th Cir. BAP). The BAP concluded that the 0.25% interest rate on Certificate # 1 should apply. Applying the 2010 O.R.C. § 5721.37(a)(3)(b) and (c) to the case, the BAP concluded that the 0.25% interest rate listed on the tax certificate was the “certificate rate of interest” and continued to accrue during the pendency of the bankruptcy action. O.R.C. § 5721.37(A)(3)(c).

Plymouth Park timely appealed.

II.

The Court reviews the decision of the bankruptcy court directly, giving no deference to the decision of the BAP. Dickson v. Countrywide Home Loans (In re Dickson), 655 F.3d 585, 589–90 (6th Cir.2011). The Court reviews conclusions of law, such as a bankruptcy court's interpretation of state law, de novo. Id. De novo review requires the appellate court to determine the law at issue independently of the Bankruptcy Court's determination. Hamerly v. Fifth Third Mortg. Co. (In re J & M Salupo Dev. Co.), 388 B.R. 795, 800 (6th Cir. BAP 2008) ...