State Bank of Florence v. Miller (In re Miller)

Decision Date05 October 2011
Docket NumberBAP No. 11–8011.
PartiesIn re Richard K. MILLER, Debtor.State Bank of Florence, Appellant, v. Richard K. Miller, Appellee.
CourtBankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit

OPINION TEXT STARTS HERE

ARGUED: Gregory P. Seibold, Seibold Law Firm, Iron Mountain, MI, for Appellant. Robert D. Heikkinen, Marquette, MI, for Appellee. ON BRIEF: Gregory P. Seibold, Seibold Law Firm, Iron Mountain, MI, Frederick C. Wieting, Hinkfuss, Sickel, Petitjean & Wieting, Green Bay, WI, for Appellant. Robert D. Heikkinen, Marquette, MI, for Appellee.Before: HARRIS, RHODES, and SHEA–STONUM, Bankruptcy Appellate Panel Judges.

OPINION

ARTHUR I. HARRIS, Bankruptcy Judge.

In this appeal, the State Bank of Florence (Bank) appeals an order of the bankruptcy court denying its motion for relief from stay to continue a foreclosure action against Richard K. Miller (Debtor), and denying its objection to confirmation of the Debtor's chapter 13 plan. For the reasons that follow, the order of the bankruptcy court is AFFIRMED.

I. ISSUES ON APPEAL

The issues presented by this appeal are (1) whether the bankruptcy court erred when it undertook a determination of whether the Bank holds a claim against the Debtor despite the Debtor's lack of written objection to the Bank's proof of claim; (2) whether the bankruptcy court erred in determining that Michigan, not Wisconsin, law applies to the dispute between the Debtor and Bank; (3) whether the bankruptcy court erred when it determined that the Bank's bid in a Michigan foreclosure extinguished the debt owed by the Debtor to the Bank and prevents the Bank from continuing a judicial foreclosure action in Wisconsin; (4) whether the bankruptcy court abused its discretion when it denied the Bank relief from stay; (5) whether the bankruptcy court erred when it determined that the Bank lacks standing to object to confirmation of the Debtor's plan; and (6) whether the bankruptcy court deprived the Bank of its due process rights under the Fifth Amendment to the United States Constitution.

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Western District of Michigan has authorized appeals to the Panel, and neither party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations omitted). The bankruptcy court's order denying relief from stay is a final, appealable order. Tidewater Fin. Co. v. Curry (In re Curry), 347 B.R. 596, 598 (6th Cir. BAP 2006).

Because it neither confirmed the plan nor dismissed the case, the bankruptcy court's order denying the Bank's objection to confirmation of the Debtor's plan is not final. Davis v. Green Tree Servicing, LLC (In re Davis), 386 B.R. 182, 184 (6th Cir. BAP 2008) (order which neither confirms a plan nor dismisses the underlying case is not final). However, where appropriate we may, in our discretion, consider the notice of appeal as a motion for leave to appeal and decide the appeal. 28 U.S.C. §§ 158(a)(3), (b); Fed. R. Bankr.P. 8003(c); DaimlerChrysler Servs. N. Am. LLC v. Taranto (In re Taranto), 365 B.R. 85, 87 (6th Cir. BAP 2007) (citing Wicheff v. Baumgart (In re Wicheff), 215 B.R. 839, 843 (6th Cir. BAP 1998)). The Bank's motion for relief from stay and its objection to confirmation were decided together following a lengthy evidentiary hearing with the evidence focused on the same underlying issue—the amount of the debt, if any, owed by the Debtor to the Bank as of the date of the bankruptcy filing. To decide the appeal of one portion of the bankruptcy court's order which is clearly final, denial of the motion for relief from stay, and not the other, denial of the objection to confirmation, would be a waste of the parties' and judicial system's resources, nor would it materially advance this litigation. Therefore, we will treat the Bank's notice of appeal as a motion for interlocutory appeal and grant the motion.1

The bankruptcy court's findings of fact are reviewed under the clearly erroneous standard. Riverview Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir.2007). “A finding of fact is clearly erroneous ‘when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.’ Id. (quoting Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985)).

The bankruptcy court's legal conclusions are reviewed de novo. Solis v. Laurelbrook Sanitarium & Sch., Inc., 642 F.3d 518 (6th Cir.2011). “De novo means that the appellate court determines the law independently of the trial court's determination.” Treinish v. Norwest Bank Minn., N.A. (In re Periandri), 266 B.R. 651, 653 (6th Cir. BAP 2001) (citations omitted).

However, the bankruptcy court's ultimate decision denying relief from stay under 11 U.S.C. § 362 is reviewed for an abuse of discretion. Spierer v. Federated Dept. Stores, Inc. (In re Federated Dept. Stores, Inc.), 328 F.3d 829, 835 (6th Cir.2003). ‘An abuse of discretion occurs only when the [trial] court relies upon clearly erroneous findings of fact or when it improperly applies the law or uses an erroneous legal standard.’ Kaye v. Agripool, SRL (In re Murray, Inc.), 392 B.R. 288, 296 (6th Cir. BAP 2008) (quoting Volvo Commercial Fin. LLC the Americas v. Gasel Transp. Lines, Inc. (In re Gasel Transp. Lines, Inc.), 326 B.R. 683, 685 (6th Cir. BAP 2005)).

III. FACTS
A. The Loans and Mortgages

The Debtor is a lifelong resident of the area on the Michigan/Wisconsin border near Iron Mountain, Michigan. By 2006, he owned several parcels of real property in the area including one in Wisconsin (“Wisconsin Property”) and three in Michigan—the “Moon Lake Property,” the “Cabin Property,” and three contiguous parcels known as the “3–40 Acre Parcels.”

In 2006, the Debtor began suffering from a serious medical condition, became unemployed and eventually permanently disabled. As a result, he sought and obtained loans from the Bank. In order to secure the loans, the Debtor gave the Bank mortgages covering all of his real property except the Cabin Property.

The Debtor signed his first promissory note with the Bank on October 16, 2006, in the original principal amount of $221,444.29 (2006 Note”). The 2006 Note was secured by a mortgage dated October 16, 2006, on the Wisconsin Property. The mortgage contains a provision, referred to by the Bank as a cross-collateralization provision, which provides that it serves as collateral for “all obligations, debts and liabilities, plus interest thereon, of [the Debtor to the Bank] ... whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note[.] (Bankr. Ct. Doc. # 120, Ex. S.) Also in October, 2006, the Debtor applied for a $100,000 line of credit with the Bank. This line of credit was secured by a mortgage dated October 20, 2006, on the 3–40 Acre Parcels.2 This mortgage did not contain cross-collateralization language.

On January 20, 2007, the Debtor signed another promissory note with the Bank in the principal amount of $400,000 (2007 Note”). The 2007 Note states that it is secured by a January 20, 2007, mortgage, the October 20, 2006, mortgage, and a January 20, 2006, mortgage.3 The 2007 Note does not contain a cross-collateralization provision. The properties listed on the January 20, 2007, mortgage are the 3–40 Acre Parcels and the Moon Lake property.

The Debtor remained unemployed, and by 2008 he had defaulted on the loans. Through its Vice President and senior credit officer in charge of foreclosure of mortgages, Clyde Nelson (“Nelson”), the Bank began foreclosure proceedings in both Wisconsin and Michigan.

B. The Wisconsin Foreclosure Proceedings

In April 2008, the Bank, through Wisconsin counsel, commenced a judicial foreclosure action on the Wisconsin Property.4 On May 14, 2008, the Debtor filed a petition for relief under chapter 13 in the Bankruptcy Court for the Eastern District of Wisconsin. On June 18, 2008, the Debtor voluntarily dismissed his chapter 13 case in order to sell his Moon Lake Property. Shortly thereafter, the Moon Lake Property was sold, and the Debtor paid all net proceeds to the Bank.5 Following that sale, the Bank believed the Debtor owed unpaid balances on the 2006 and 2007 Notes in the total amount of $413,560.27.

Following the dismissal of the Debtor's first chapter 13 case, the Bank continued its Wisconsin judicial foreclosure action. On July 15, 2008, the Bank obtained a foreclosure judgment from the Wisconsin state court for $407,914.04, plus attorney's fees and costs. The judgment apparently provided that the Wisconsin property would be sold unless the Debtor satisfied the judgment within 12 months. The Debtor did not appear at or defend the judicial foreclosure. He did not satisfy the Wisconsin judgment. The Debtor filed his current chapter 13 case staying any further action in the Wisconsin foreclosure litigation two days before the foreclosure sale scheduled for August 5, 2009.6 Curiously, the Bank did not introduce a copy of the Wisconsin foreclosure judgment at the hearing on this matter. In fact, the Wisconsin foreclosure judgment is nowhere in the record of this case.

C. The Michigan Foreclosure Proceedings

The Bank retained Michigan counsel to commence a Michigan non-judicial foreclosure by advertisement on the 3–40 Acre Parcels pursuant to the January 20, 2006, and January 20, 2007...

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