Washington Mut. Bank v. Chiappetta

• Decision Date: 19 September 2008
• Docket Number: No. 1:07 CV 683.,1:07 CV 683.
• Citation: 584 F.Supp.2d 961
• Parties: WASHINGTON MUTUAL BANK, Plaintiff, v. Patricia CHIAPPETTA, et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

584 F.Supp.2d 961

WASHINGTON MUTUAL BANK, Plaintiff, v. Patricia CHIAPPETTA, et al., Defendants.

No. 1:07 CV 683.

United States District Court, N.D. Ohio, Eastern Division.

September 19, 2008.

COPYRIGHT MATERIAL OMITTED

Kevin L. Williams, Manley Deas Kochalski, Columbus, OH, Michelle L. Polly-Murphy, Law Office of Steven E. Elder, Steven E. Elder, Wilmington, OH, for Plaintiffs.

Patricia A. Chiappetta, Richmond Heights, OH, pro se.

Daniel M. Haymond, Robert S. Lewis, William J. Hubbard, Thompson Hine, Jack S. Curtis, Kenneth Boukis, William T. Hohmann, Hohmann, Boukis & Curtis, William J. Kopp, Office of the U.S. Attorney, Cleveland, OH, for Defendants.

MEMORANDUM OPINION

JAMES S. GALLAS, United States Magistrate Judge.

This matter is before the court under diversity jurisdiction. On March 8, 2007, plaintiff, Washington Mutual Bank ("WaMu"), filed its complaint in foreclosure¹ alleging that a promissory note and mortgage executed by John and Patricia Chiappetta in connection with the note were in default, and that it was entitled to judgment in the amount of $431,568.53 plus interest at the rate of 7.65% from October 1, 2006 plus costs incurred for the protection of the premises under Ohio Rev. Code § 5301.233.² WaMu now, moves for partial summary judgment on the issue of its priority against the liens of Infinity Construction Co., Inc. ("Infinity") and the State of Ohio, Department of Transportation ("ODOT"). Defendant Infinity cross-motions for summary judgment on the issue of its priority under its cross-claim.

Summary Judgment Standard:

Under Rule 56 of the Federal Rules of Civil Procedure granting a motion for summary judgment is only proper when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. In determining whether there is a genuine issue of material fact all inferences drawn from the underlying facts contained in affidavits, pleadings, responses to discovery requests, and depositions must be viewed in the light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); United States v. Diebold, Inc., 369 U.S. 654, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962). A court must inquire "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The court may not make credibility determinations or weigh the evidence when ruling on a motion for summary judgment. Anderson, 477 U.S. at 255, 106 S.Ct. 2505. The burden is upon the movant to demonstrate the absence of a genuine issue of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Smith v. Hudson, 600 F.2d 60, 63 (6th Cir.1979), cert. dismissed 444 U.S. 986, 100 S.Ct. 495, 62 L.Ed.2d 415 (1979). However, the nonmoving party is obliged to produce some evidence other than mere pleadings themselves to demonstrate that there is a genuine issue for trial. Celotex Corporation v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The nonmoving party must produce significant probative evidence in support of the complaint to defeat the motion for summary judgment through affidavits or admissions on file. Moore v. Philip Morris Cos., Inc., 8 F.3d 335, 339-40 (6th Cir. 1993). In the final analysis, "the threshold inquiry . . . [is] whether there is a need for trial—whether in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson, 477 U.S. at 250, 106 S.Ct. 2505; Moore, 8 F.3d at 340. Once the nonmoving party has responded, the court must view the facts in the light most favorable to the nonmoving party. Darrah v. City of Oak Park, 255 F.3d 301, 304 n. 1 (6th Cir.2001).

Uncontested Facts:

1. John Chiappetta and Patricia Chiappetta are owners of the real property located at 25608 Chardon Road, Richmond Heights, Ohio 44143, as more fully described in the complaint.

2. A prior first mortgage was executed by the Chiappettas in favor of FirstMerit Mortgage Corp. ("FirstMerit"), recorded on January 12, 1998 in Cuyahoga County Official Records Book 98-260, Page 30.

3. A prior second mortgage was executed by the Chiappetta in favor of FirstMerit Bank N.A. and recorded on April 4, 2000 in Cuyahoga County Official Records Instrument No. 20004040079.

4. A Certificate of Judgment in favor of Infinity Construction Co. Inc. against John Chiappetta in the amount of $146,000.00 was filed on September 9, 2002 at Certificate of Judgment JL-02-175834, Clerk of Courts, Cuyahoga County, Ohio.

5. A Certificate of Judgment in favor of Director of Transportation of The State of Ohio (ODOT) against John Chiappetta in the amount of $541,417.19 was filed on March 16, 2004 at Certificate of Judgment JL-04-216081, Clerk of Courts, Cuyahoga County, Ohio.

6. Washington Mutual Bank, as successor-in-interest to Long Beach Mortgage Company by operation of law, is the holder of a mortgage recorded on June 9, 2005 as Instrument No. 200506090788 of the Cuyahoga County Recorder's records.

7. Long Beach Mortgage loan proceeds in the amount of $133,680.46 were used to pay off a prior first mortgage held by FirstMerit Mortgage Corp. ("FirstMerit"), recorded on January 12, 1998 in Cuyahoga County Official Records Book 98-260, Page 30.

8. Long Beach Mortgage loan proceeds in the amount of $153,227.59 paid off a prior second mortgage held by FirstMerit Bank N.A. recorded on April 4, 2000 in Cuyahoga County Official Records Instrument No. 20004040079.

State Law Governance:

This foreclosure action is in federal court as a matter of diversity jurisdiction and there is no dispute that the laws of the State of Ohio govern its disposition. Under the Erie-doctrine, [Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)], in diversity cases the federal courts apply state law "in accordance with the controlling decisions of the state supreme court." Allstate Ins. Co. v. Thrifty Rent-A-Car Sys., Inc., 249 F.3d 450, 454 (6th Cir.2001); JPMorgan Chase Bank, N.A. v. Winget 510 F.3d 577, 582 (6th Cir.2007).

Under state law, the general state rule is that mortgage and lien priority is governed by the date of filing with the county recorder. See Ohio Rev.Code § 5301.23; Alegis Group L.P. v. Lerner, 2004 WL 2647607 at *2, 2004-Ohio-6205 (Ohio App. 5 Dist.). WaMu contends, however, that under equitable subrogation it holds a first lien position on the premises to the extent it paid First Merit on the original first and junior mortgages for the total amount of $287,088.05 ($133,860.46 paid to satisfy the prior first mortgage recorded in 1998 and $ 153,227.59 paid to satisfy the second mortgage recorded in 2000) (See Uncontested facts # 7-8).

Conventional subrogation:

State courts have a long history of governance over such claims under principles of conventional subrogation, where there was an express or implied contractual covenant that the refinanced mortgage would constitute the first lien. E.g. Straman v. Rechtine, 58 Ohio St. 443, 51 N.E. 44 (1898)(express contractual agreement with property owner); Federal Union Life Ins. Co., v. Deitsch, 127 Ohio St. 505, 189 N.E. 440 (1934)(same); Miller v. Scott, 23 Ohio App. 50, 154 N.E. 358 (1924)(although there was no express agreement within the mortgage for substitution it was implied from the parties' negotiations).³ The age-worn rationale from Straman to subrogate and thus preserve lien priority has not lost any of its logic and remains apropos:

As the lien of the creditors of Anton Rechtine attached to the lands immediately upon his death, and as the lien of Mr. Brunning's mortgage attached long after the death of Anton Rechtine, the proceeds of the sale of the lands would have to be applied to the payment of general creditors, and Mr. Brunning would get only such surplus as might be coming to Ferdinand after the settlement of the estate of his father. This would be compelling Mr. Brunning to contribute $1,600 of his own money, without consideration, for the benefit of the general creditors of Anton Rechtine. This would be wrong, and should be avoided if it can be done without injuring the legal rights of others. As matters stood after the death of Anton Rechtine, and up to the payment of the insurance company's mortgage with the money of Mr. Brunning, the creditors were legally entitled to receive only the surplus after payment of the insurance mortgage. They contributed nothing towards paying that mortgage, and they are not entitled to be benefitted by the payment made with the money supplied by Mr. Brunning for that purpose. To subrogate him to the lien of the [original] insurance mortgage before its release, and to set aside that release, and restore its full force for his benefit, will protect him from loss, and will not put the general creditors into a worse condition than they were before Mr. Brunning loaned his money. Such subrogation will add no new burdens to the creditors. When their liens on the lands accrued, the lands were bound for the payment of the mortgage lien of $1,600, and it can make no difference to the creditors whether payment is made to the [original mortgage holder] insurance company or to Mr. Brunning.

Straman, 58 Ohio St. at 454-455, 51 N.E. at 45-46.

In Straman, the lien arose by operation of law, so it was not of record, and Mr. Brunning had negotiated with the known encumbrance holder to accept a junior position prior to refinancing the mortgage. See Straman v. Rechtine, 58 Ohio St. 443, 458, 51 N.E. 44, 47 (1898). Thus equity favored carrying out the intention that the refinanced mortgage was to be the first and best lien. Here in contrast there is no argument of...