ELECTRONIC CITATION: 2003 FED App. 0005P (6th Cir.)
File Name: 03b0005p.06
BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT
In re: DAVID A. BEVER, SR. and )
SHERRY L. BEVER, )
)
Debtors. )
____________________________________ )
)
BANK ONE, NATIONAL ASSOCIATION, )
)
Appellant, )
)
v. ) No. 03-8004
)
DAVID A. BEVER, SR. and )
SHERRY L. BEVER, )
)
Appellees. )
____________________________________ )
Appeal from the United States Bankruptcy Court
for the Northern District of Ohio,
Eastern Division at Akron.
No. 01-50308.
Argued: August 6, 2003
Decided and Filed: October 23, 2003
Before: AUG, HOWARD, and LATTA, Bankruptcy Appellate Panel Judges.
____________________
COUNSEL
ARGUED: Cynthia M. Roselle, LERNER, SAMPSON & ROTHFUSS, Cincinnati, Ohio, for
Appellant. Marvin A. Sicherman, DETTELBACH, SICHERMAN & BAUMGART, Cleveland,
Ohio, for Appellee. ON BRIEF: Cynthia M. Roselle, Rick D. DeBlasis, Romi T. Fox,
LERNER, SAMPSON & ROTHFUSS, Cincinnati, Ohio, for Appellant. Marvin A.
Sicherman, DETTELBACH, SICHERMAN & BAUMGART, Cleveland, Ohio, for Appellee.
____________________
OPINION
____________________
WILLIAM S. HOWARD, Bankruptcy Appellate Panel Judge. Creditor Bank One,
National Association (“Bank One”) appeals the bankruptcy court’s order denying its motion
to vacate the trustee’s sale of the Debtors’ residence back to the Debtors due to insufficient
service of the trustee’s notice of the proposed sale, and the substantial difference between
the sale price and the Debtors’ estimated value of the property. For the reasons set out
below, we AFFIRM the bankruptcy court’s decision.
I. ISSUES ON APPEAL
The issues before the Panel are (1) whether the bankruptcy court abused its
discretion in denying Bank One relief under Rule 60(b) of the Federal Rules of Civil
Procedure, and (2) whether the bankruptcy court erred in concluding that the trustee had
complied with the requirements of pertinent bankruptcy rules, including Rules 2002, 6004,
7004, 9014 and 9021 (or that certain of those rules were not applicable), and that her sale
of the Debtors’ residence to them for a price of $15,000 free and clear of all liens was
proper.
II. JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel has jurisdiction over appeals from the final orders
of bankruptcy courts in the Northern District of Ohio because that district has authorized
appeals to this Panel. The final orders of a bankruptcy court are appealable orders. 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 courts to do but execute the judgment.” Midland Asphalt
Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (internal
quotations and citations omitted).
The bankruptcy court’s denial of relief under Rule 60(b) is reviewed for abuse of
discretion. Pruzinsky v. Gianetti (In re Walter), 282 F.3d 434, 440 (6th Cir. 2002), cert.
denied sub nom. Giannetti v. Pruzinsky, 537 U.S. 885, 123 S.Ct. 118 (2002)(citing Kocher
v. Dow Chem. Co., 132 F.3d 1225, 1229 (8th Cir. 1997)). “An abuse of discretion occurs
only when the [bankruptcy] court ‘relies upon clearly erroneous findings of fact or when it
improperly applies the law or uses an erroneous legal standard.’” Corzin v. Fordu (In re
Fordu), 209 B.R. 854, 857-58 (B.A.P. 6th Cir. 1997)(quoting Mapother v. Mapother,
P.S.C. v. Cooper (In re Downs), 103 F.3d 472, 480-81 (6th Cir. 1996)). A trial court also
abuses its discretion if the reviewing court has a definite and firm conviction that the trial
court committed a clear error of judgment in the conclusion it reached based on all of the
appropriate factors. Belfance v. Black River Petroleum, Inc. (In re Hess), 209 B.R. 79, 80
(B.A.P. 6th Cir. 1997)(citation omitted).
Conclusions of law are reviewed de novo. Nicholson v. Isaacman (In re Isaacman),
26 F.3d 629, 631 (6th Cir. 1994). “De novo review requires the Panel to review questions
of law independent of the bankruptcy court’s determination.” First Union Mortgage Corp.
v. Eubanks (In re Eubanks), 219 B.R. 468, 469 (B.A.P. 6th Cir. 1998). Interpretations of
federal rules of civil and bankruptcy procedure are conclusions of law which are reviewed
de novo. See Slutsky v. American Express Travel Related Servs. Co. (In re Cargile
Contractor, Inc.), 209 B.R. 435 (B.A.P. 6th Cir. 1997).
III. FACTS
Bank One appeals the bankruptcy court’s denial of its motion to vacate the sale of
the Debtors’ residence. The motion does not seek to have an order vacated as there was
no order entered. The record before the Panel shows that the Debtors filed their Chapter
7 case on February 7, 2001. On March 30, 2001, notice was sent, pursuant to the
trustee’s request, of the need to file proofs of claim in the case by July 2, 2001.
The Debtors’ schedules listed an $88,000 mortgage held by Old Kent Mortgage
Company (“Old Kent”) on their residence which they valued at $100,000. Although not a
party to this appeal, Beneficial Ohio, Inc. d/b/a Beneficial Mortgage Co. of Ohio
(“Beneficial”) was also listed on the debtor’s schedules as a creditor holding a mortgage
claim in the amount of $19,329.70.
According to Bank One, Old Kent was a subsidiary of Old Kent Financial. In April
2001, Old Kent Financial was acquired by Fifth Third Bancorp, as were all of its
subsidiaries. In July 2001 Bank One apparently acquired the Debtors’ mortgage, but no
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assignment was recorded. No proof of claim was filed in regard to the subject mortgage
until Bank One filed one in September 2002, as set out below.
On September 18, 2001, the trustee filed an adversary proceeding against the
Debtors, Old Kent and Beneficial challenging the validity of the mortgages on the basis that
only one witness was present when the mortgages were executed. The summons and
complaint were served on old Kent and Beneficial via certified mail, and the trustee
received return receipts evidencing delivery. When neither party answered or otherwise
responded to the adversary complaint, the bankruptcy court granted the trustee’s motion
for default judgment on January 10, 2002, thereby avoiding the mortgages on the Debtors’
residence. Notice of the motion for default judgment and also a copy of the court’s order
granting default judgment were sent to Old Kent in care of its president. Neither mortgagee
appealed the default judgment.
The trustee filed a notice of proposed sale and motion to sell free and clear of liens
on April 5, 2002 (a copy was sent to Old Kent, Beneficial, and others by regular mail), and
thereafter sold the property to the Debtors for $15,000, a sum that paid all allowed claims
and expenses in full. A state court foreclosure proceeding was apparently filed by a local
government entity in August 2002 against the Debtors, Old Kent and Beneficial. On
September 9, 2002, more than 14 months after the deadline for filing proofs of claim had
expired, Bank One filed what it characterized as a secured claim in the amount of
$98,296.74. There is nothing in the record to indicate that there was any objection to Bank
One’s claim. Bank One filed its motion to vacate the sale on October 7, 2002. The trustee
testified that at the time Bank One filed its motion, the case was ready for distribution and
her final report was being prepared for submission.
Bank One’s motion to vacate the sale is based on three contentions: 1) that it was
not equitable for the trustee to sell property valued at $100,000 to the debtors for $15,000;
2) that service of the notice and motion to sell did not comply with the Federal Rules of
Bankruptcy Procedure; and 3) that the motion to sell did not comply with Fifth Amendment
due process requirements. The bankruptcy court conducted a hearing on the matter on
December 4, 2002. The court construed Bank One’s motion as a motion for relief from a
court judgment, order or proceeding under Rule 60(b), made applicable in bankruptcy by
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Rule 9024 of the Federal Rules of Bankruptcy Procedure, even though no order approving
the trustee’s sale of the property had been entered. Rule 60(b), in pertinent part, applies
to relief from final judgments, orders, or proceedings due to inadvertence, surprise or
excusable neglect on the part of the movant, or any other reason justifying relief from the
operation of the judgment.
The court therefore had to decide whether Rule 60(b) provided any basis for
disturbing the trustee’s administration of the case. After a recitation of the facts
emphasizing Bank One’s delay in appearance in the case, the bankruptcy court decided
there was no support for a finding of excusable neglect pursuant to Rule 60(b)(1). The
court rejected Bank One’s contention that the assignment of the mortgage was an excuse
for the failure of the mortgagee to appear. The court pointed out that it was the
mortgagee’s responsibility to keep the court informed of its status.
As for Rule 60(b)(6), which provides relief based on “any other reason,” the
bankruptcy court reasoned that the failure of Bank One and/or Old Kent to get involved in
the bankruptcy case after being presented with that opportunity on several occasions
militated against disturbing the trustee’s administration of the case. The bankruptcy court
also found compelling the fact that Bank One failed to act on the trustee’s notice of
proposed sale until the sale transaction had been wholly concluded, which did not meet
Rule 60(b)’s requirement that Bank One’s motion should be filed within a “reasonable
time.”
Bank One raised the issue of compliance with Rule 6004 in regard to service of the
notice of proposed sale and motion to sell free and clear of liens, and the bankruptcy court
stated in the course of the hearing its opinion that service had been sufficient. The
bankruptcy court then concluded that there was no support for overturning the sale of the
property under either Rule 60(b)(1) or (b)(6). At the conclusion of the hearing the court
ruled from the bench that Bank One’s motion should be denied. This timely appeal
followed.
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IV. DISCUSSION
As set out above, Bank One, and its predecessor Old Kent, had numerous
opportunities to assert their interests in this case, but did not. Bank One did not even
identify itself as a creditor until many months after the deadline for filing proofs of claim had
passed as well as the entry of default judgment against Old Kent in the adversary
proceeding. When Bank One filed its motion to vacate the sale of the property, the subject
mortgage had been avoided by the entry of that default judgment almost a year before, and
it had no mortgage lien on the subject property. At best Bank One was an unsecured
creditor with no more rights than any other similarly situated creditor.
Bank One argues on appeal that the bankruptcy court erred in denying its motion
to vacate because the court failed to review the merits of the trustee’s notice and motion
to sell, and determined that the service of the trustee’s notice and motion sufficiently
complied with the federal and local rules, as well as with due process requirements. In
addition, Bank One alleges that the bankruptcy court erred in applying Rule 60(b) because
there was no court order approving the trustee’s sale, and that even if Rule 60(b) is
applicable, Bank One’s failure to file a timely objection to the trustee’s notice and motion
to sell was excusable neglect due to insufficient notice.
The trustee contends that, in light of the default judgment avoiding the mortgage,
judicial estoppel applies to prevent Bank One from alleging any interest in the property at
issue. Further, pursuant to 11 U.S.C. § 363(b)(1) it was unnecessary for the trustee to file
a motion and to obtain an order approving the sale because there were no remaining liens
on the property and service of such a motion was irrelevant. In addition, the trustee argues
that there was no Fifth Amendment due process violation because Bank One lacked any
property rights, and that all requirements of due process were met when the trustee
commenced the adversary proceeding to avoid the mortgages. Further, the trustee points
out that at the hearing before the bankruptcy court, Bank One agreed with the court that
Rule 60(b) was applicable. In now alleging that it was error for the bankruptcy court to
apply Rule 60(b), Bank One’s stance on appeal is inconsistent. Because Bank One
unequivocally agreed that Rule 60(b) was applicable to its motion, its argument on appeal
that Rule 60(b) is inapplicable is without merit and has been waived.
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Rule 60(b) states in pertinent part:
On motion and upon such terms as are just, the court may
relieve a party or a party’s legal representative from a final
judgment, order, or proceeding for the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect . . .
or (6) any other reason justifying relief from the operation of
the judgment. The motion shall be made within a reasonable
time, and for reason[ ] (1) . . . not more than one year after the
judgment, order, or proceeding was entered or taken. . . . This
rule does not limit the power of a court to entertain an
independent action to relieve a party from a judgment, order,
or proceeding . . . .
Fed. R. Civ. P. 60(b). Bank One argues that Rule 60(b) is inapplicable because the court
never entered a final order approving the sale. However, as the language of Rule 60(b)
indicates, it is also designed to relieve the movant from the effect of a “proceeding” such
as the trustee’s notice and motion to sell. The bankruptcy court’s application of Rule 60(b)
was correct.
Bank One also alleges that, if Rule 60(b)(1) is applicable, its failure to oppose the
trustee’s notice and motion was due to excusable neglect based on the insufficient notice
of the proceeding; specifically, Bank One alleges that the notice was sent via regular, first-
class mail rather than by certified mail. Rule 6004 governs service of a notice of proposed
sale and a motion to sell property free and clear of other liens and interests, and provides
in relevant part as follows:
(a) Notice of a proposed use, sale, or lease of property, other
than cash collateral, not in the ordinary course of business
shall be given pursuant to Rule 2002(a)(2)[and] (c)(1) . . . .
(c) A motion for authority to sell property free and clear of liens
or other interests shall be made in accordance with Rule 9014
and shall be served on the parties who have liens or other
interests in the property to be sold. The notice required by
subdivision (1) . . . shall include the date of the hearing on the
motion and the time within which objections may be filed and
served on the . . . trustee.
Fed. R. Bankr. P. 6004(a) and (c). Bank One specifically contends that service of the
motion to sell free and clear of liens should therefore have been pursuant to Rule 9014(b)
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which requires that “[t]he motion shall be served in the manner provided for service of a
summons and complaint by Rule 7004.” Bank One is correct in regard to how a motion
pursuant to Rule 9014 is to be served. See In re J.B. Winchells, Inc., 106 B.R. 384, 394
(Bankr. E.D. Pa. 1989). The service requirement in Rule 6004(c), however, applies only
to “parties who have liens or other interests in the property to be sold.” At the time the
trustee filed the motion to sell free and clear of liens, neither Old Kent nor any other party
had a lien on or other interest in the property. For all intents and purposes, the estate
owned the property “free and clear.” There was no contested matter which required
application of Rule 7004 (or Rule 9021 which incorporates Federal Rule of Civil Procedure
58 requiring the entry of a separate judgment).
In a related argument, Bank One contends that the service it maintains was
insufficient deprived it of its property without due process. Bank One argues that Old
Kent’s mortgage was still “of record” and had not been released at the time the trustee filed
the motion to sell free and clear of liens. This argument ignores the fact that the mortgage
had already been avoided, and neither Old Kent nor its assignee Bank One had any
property interest to be afforded due process protection. This argument also demonstrates
the inconsistency of Bank One’s contention set out below that the trustee should have
inquired as to whether Old Kent was still the mortgage holder of record before she sold the
property.
Bank One also alleges that service should have been via certified mail because Old
Kent was a federally insured depository institution. The trustee, however, contends that
at all pertinent times, Old Kent was a subsidiary of a holding company, and not itself a
federally insured institution. Bank One has offered no evidence to support its allegation
regarding the federally insured status of Old Kent and regardless, as indicated above, Old
Kent did not meet the “party with an interest in the property” status required for service of
the trustee’s notice and motion to sell. The same reasoning may be applied to Bank One’s
argument that the Ohio procedural rules require that out-of-state service be via certified
mail, and that a Fifth Amendment due process violation has occurred.
Finally, regarding service, Bank One does not allege that service of the trustee’s
notice and motion to sell was not received, and the trustee testified that none of the mail
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she sent to Old Kent was returned to her. The trustee had no means of discerning that the
Debtors’ mortgage had been sold or assigned in an unrecorded document, or that Old Kent
merged with another company, all subsequent to the bankruptcy filing. The trustee states
that, pursuant to the holding in Pinney v. Merchants’ Nat. Bank, 72 N.E. 884 (Ohio 1904)
she had no duty to look beyond the record or investigate Old Kent’s status, particularly
when certified mail was in fact delivered to it (service of the adversary complaint on Old
Kent was stipulated at the December 4, 2002 hearing). The Pinney court observed in
regard to a statutory provision for the recordation of the assignment of a mortgage:
We think that the statute justifies and that fair dealing requires
the rule that where the recording act authorizes the assignment
of mortgages to be recorded, and the assignment is duly
entered of record, such record shall be held to be notice to
mortgagees and subsequent purchasers, but, where such
assignment is not so entered, mortgagees and subsequent
purchasers, in the absence of notice otherwise, are justified in
relying upon the record as they find it, and in acting
accordingly.
Pinney v. Merchants’ Nat. Bank, 72 N.E. at 888. While it is not unusual for a trustee to
solicit claims from known creditors who have not filed a claim where there are funds in
excess of claims filed, in the circumstances of this case, where Old Kent or Bank One had
failed to come forward with a claim despite ample opportunity to do so, the trustee did not
err in not seeking out the creditor. In addition, there is nothing in the record to demonstrate
when Old Kent actually ceased to be the mortgagee, although according to the trustee, the
records of the Ohio Secretary of State show that Old Kent was not “merged out of
existence” until July 10, 2002, six months after the default judgment was entered.
Bank One also takes the position that the equities favor it, and not the trustee, in
regard to the sale of the property to the debtors for $15,000. It maintains that this sale
results in the Debtors’ receiving a windfall of $85,000 in equity - the difference between the
value of their home as stated in their schedules and the price paid to the trustee. The
trustee testified at the December 4, 2002 hearing that after default judgment was entered
in the adversary proceeding she reviewed the claims that had been filed in the Debtors’
case and determined that there were approximately $9,000 in allowed claims. She
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approached the Debtors’ attorney concerning whether they would be interested in
repurchasing the property for an amount sufficient to cover all claims in full plus
administrative expenses and the purchase of a preliminary judicial report. The trustee then
accepted the offer of $15,000 from the Debtors. She further testified that she had
considered putting the property up for sale, but when she determined that there were only
$9,000 in claims, it appeared to be in the best interests of the estate to cover all of the
claims and expenses. Any excess of funds from a sale beyond those necessary to pay the
costs of administration of the estate and satisfy all allowed claims of creditors would have
been returned to the Debtors in any event. The result here was the same with the
exception that the debtors received the house instead of cash in the amount of the net
remaining after payment of all claims and expenses of administration.
Without an interest in a valid mortgage to assert, Bank One has no support for its
contention that the trustee’s administration of the estate in regard to the sale resulted in
an inequity. There were no lien holders whose interests needed to be protected. All the
creditors who had filed claims by the bar date were apparently paid from the sale proceeds.
Any alleged “windfall” to the Debtors is not the result of the trustee’s failure to properly
perform her duties, but of Old Kent’s failure to participate in the bankruptcy process, file
a timely claim, respond to the filing of the adversary proceeding challenging its mortgage
or timely seek relief from the default judgment entered against it.1 Bank One’s argument
that the trustee had a duty to sell the property for the “highest and best price,” i.e., for more
than $15,000, and to pay all creditors rather than “return money to the Debtors,” ignores
its own failure to record the assignment of the mortgage from Old Kent and to timely assert
its interest in this case. The Panel is therefore compelled to agree with the trustee that
Bank One’s attempt to vacate the sale is simply an effort to escape the consequences of
the default judgment against Old Kent in the adversary proceeding.
1
Even if Old Kent or any successor party had filed an answer in the adversary, the trustee might
well have prevailed, assuming she demonstrated that only one witness was present at the closing of the
sub ject m ortga ge. See Simon v. Chase Manhattan Bank (In re Zaptocky), 250 F.3d 102 0 (6th Cir. 2001).
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V. CONCLUSION
Based on the foregoing the Panel concludes that the bankruptcy court did not abuse
its discretion in denying Bank One relief pursuant to Rule 60(b), nor did it err in its
interpretation of other applicable rules of bankruptcy procedure resulting in its decision that
the trustee’s administration of the estate was proper. The decision of the bankruptcy court
is therefore AFFIRMED.
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