Kovacs v. First Union Home

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 In re Huffman, et al. Nos. 02-4468; 03-3174/3175
ELECTRONIC CITATION: 2004 FED App. 0153P (6th Cir.)
File Name: 04a0153p.06
No. 03-3174 -
-
UNITED STATES COURT OF APPEALS In re: DOUGLA S R. HUFFMAN; -
-
In re: ROBIN LYNN HUFFMAN, -
FOR THE SIXTH CIRCUIT
_________________ Debtors. -
-
PATRICIA A. KOVACS , -
No. 02-4468 X -
- Trustee,
Plaintiff-Appellee, -
In re: DOUGLA S R. HUFFMAN; - -
- Nos. 02-4468; -
In re: ROBIN LYNN HUFFMAN; > 03-3174/3175
- v. -
In re: EDWARD N.
TUCHOLSKI; In re: DEBBIE S. - -
- FIRST UNION HOME EQUITY -
TUCHOLSKI; In re: JOHN J. -
- BANK, et al.,
RICE; In re: JOSEPHINE E. - -
Defendants-Appellants.
RICE, - -
Debtors. - -
- No. 03-3175 -
- -
PATRICIA A. KOVACS , -
- In re: EDWARD N.
Trustee, - -
TUCHOLSKI; In re: DEBBIE S.
Plaintiff-Appellee, - -
TUCHOLSKI, -
-
- Debtors. -
v.
- -
- JOHN N. GRAHAM, Trustee; -
FIRST UNION HOME EQUITY -
- PATRICIA A. KOVACS ,
BANK, et al., - -
Trustee,
Defendants, - -
Plaintiffs-Appellees, -
-
FIRST UNION MORTGAGE - -
- V. -
CORPORATION ,
- -
Defendant-Appellant. - -
- -
- -
1
Nos. 02-4468; 03-3174/3175 In re Huffman, et al. 3 4 In re Huffman, et al. Nos. 02-4468; 03-3174/3175
_________________
NATIONAL LENDING CENTER , -
INC.; FIRST UNION NATIONAL - OPINION
BANK, as Indenture Trustee, - _________________
-
Defendants-Appellants. - WILLIAM W SCHWARZER, Senior District Judge.
These are three consolidated appeals from judgments of the
Appeal from the United States District Court district court allowing the bankruptcy trustee to avoid
for the Northern District of Ohio at Toledo. mortgages held by the defendants, First Union Home Equity
No. 01-07219/7220/7426—James G. Carr, District Judge. Bank and ContiMortgage Corporation, under 11 U.S.C.
§ 544. In In re Rice, No. 02-4468, the district court exercised
Argued and Submitted: March 19, 2004 its appellate jurisdiction under 28 U.S.C. § 158(a) and
reversed a judgment by the bankruptcy court, which had
Decided and Filed: May 26, 2004 rejected the trustee’s challenge to the validity of the
mortgage. In In re Huffman and In re Tucholski, Nos. 03-
Before: COLE and GILMAN, Circuit Judges; 3174 and 03-3175, the district court exercised its original
SCHWARZER, Senior District Judge.* jurisdiction under 28 U.S.C. § 1334(a) and granted summary
judgment upholding the trustee’s challenge to the validity of
_________________ the mortgages. We have jurisdiction pursuant to 28 U.S.C.
§ 158(d). Our review is de novo. Lanier v. Bryant, 332 F.3d
COUNSEL 999, 1003 (6th Cir. 2003); Investors Credit Corp. v. Batie (In
re Batie), 995 F.2d 85, 88-89 (6th Cir. 1993). For the reasons
ARGUED: Gregory W. Happ, Medina, Ohio, for Appellant. stated, we affirm the judgment of the district court.
Ericka S. Parker, HUNTER & SCHANK, Toledo, Ohio, for
Appellee. ON BRIEF: David A. Freeburg, MCFADDEN & I.
ASSOCIATES CO., Cleveland, Ohio, Gregory W. Happ,
Medina, Ohio, John C. Deal, KEGLER, BROWN, HILL & We must decide whether the trustee was entitled to avoid
RITTER, Columbus, Ohio, Robert B. Holman, the three mortgages under Ohio law. Under the bankruptcy
MCDONALD, FRANK, HITZMAN & HOLMAN, Oakwood code, a bankruptcy trustee “may avoid any transfer of
Village, Ohio, for Appellants. Ericka S. Parker, HUNTER & property of the debtor or any obligation incurred by the debtor
SCHANK, Toledo, Ohio, for Appellees. Michael Sikora III, that is voidable by . . . a bona fide purchaser.” 11 U.S.C.
HAVENS & WILLIS, Columbus, Ohio, for Amicus Curiae § 544(a)(3); Buzulencia v. TMS Mortgage, Inc. (In re Baker),
300 B.R. 298, 307 (Bankr. N.D. Ohio 2003) (stating that
“[s]ection 544(a) expressly provides that the trustee shall
have, as of the commencement of the case, the rights and
powers of a bona fide purchaser”). Only properly-executed
mortgages take priority over a bona fide purchaser under Ohio
*
law. OHIO REV . CODE (“ORC”) § 5301.25; Citizens Nat’l
The Honorable William W Schwarzer, Senior United States District Bank in Zanesville v. Denison, 133 N.E.2d 329, 332-33 (Ohio
Judge for the Northern District of California, sitting by designation.
Nos. 02-4468; 03-3174/3175 In re Huffman, et al. 5 6 In re Huffman, et al. Nos. 02-4468; 03-3174/3175
1956). Former ORC § 5301.01 (repealed Feb. 1, 2002) Ohio General Assembly passed ORC § 5301.234 as part of
required the presence of two witnesses at the signing of any House Bill No. 163 (1999) (“HB 163”). HB 163 had no title
mortgage. The three mortgages at issue were not properly identifying its subject. The bill contained thirty-one sections
witnessed and, thus, under the former law the trustee would and amended, reenacted or repealed fifty-three provisions of
be entitled to avoid them.1 The question is whether the Ohio Revised Code relating to a wide range of subjects.
subsequent changes in Ohio law validate the execution of the Other than the provision at issue here, none related to real
mortgages. property. Rather, they involved the following sections of
Ohio’s code: State Government, Counties, Municipal
A. At the time the mortgages were executed and recorded Corporations, Criminal Procedure, Liquor, Motor Vehicles,
during 2000, ORC § 5301.234 (which has since been Public Utilities, Roads and Highways and Taxation.
repealed) was in effect. The statute provided that a recorded Section 1 of the bill, which enacted § 5301.234, also enacted
mortgage was “irrebuttably presumed to be properly or amended provisions dealing with the appointment of peace
executed, regardless of any actual or alleged defect in the officers, Ohio’s public employee retirement and
witnessing” of the mortgage. See § 5301.234(A).2 The compensation fund, compensation of county auditors, seizure
recording of a mortgage was constructive notice to all of property by law enforcement officials, liquor control
persons, including a subsequent bona fide purchaser, enforcement, privacy of information obtained by the registrar
regardless of any defect in witnessing. § 5301.234(C). Thus, of motor vehicles, creation of an aviation office in the
under § 5301.234, the trustee would be unable to avoid the Division of Transportation Assistance, and food stamp
mortgages. trafficking, among others. Thus, § 5301.234 was enacted as
part of a bill that on its face violated the one-subject rule. See
The district court held that the statute violated the Ohio Wasserman v. Household Realty Corp. (In re Barkley), 263
Constitution’s one-subject rule, however, and we agree. B.R. 553, 558-60 (Bankr. N.D. Ohio 2001) (finding that
Article II, § 15(D) of the Ohio Constitution provides, in § 5301.234 violates the one-subject rule).
relevant part, that “No bill shall contain more than one
subject, which shall be clearly expressed in its title.” The Defendants advance two arguments in support of the
validity of § 5301.234. First, they assert that the one-subject
rule is merely directory and cannot be applied to invalidate a
1 legislative enactment. They cite Pim v. Nicholson, 6 Ohio St.
Although the record is not entirely clear on whether one of the
mortgages may have been attested by two witnesses, co unsel for First 176 (1856), where the court stated that “[i]t would be most
Union Home B ank conceded at oral argument that only one witness mischievous in practice, to make the validity of every law
attested to the signatures. depend upon the judgment of every judicial tribunal of the
2 State as to whether an act or bill contained more than one
Ohio Re vised Code § 530 1.23 4(A) provided : subject.” Id. at 180. The Ohio Supreme Court qualified the
Any recorded mortgage is irrebuttably presumed to be properly
executed, regardless of any actual or alleged defect in the holding of Pim in State ex rel. Dix v. Celeste, 464 N.E.2d 153
witnessing or acknowledgment on the mortgage, unless one of (Ohio 1984), stating that a “gross and fraudulent violation of
the following app lies: [procedural] rules might authorize the court to pronounce a
(1) the mortgagor, under oath, denies signing the law unconstitutional.” Id. at 157 (quoting Pim, 6 Ohio St. at
mortgage; 180). Recent decisions, however, appear to have cut the
(2) the mortgagor is not available, but there is other sworn
evidence of a fraud upon the mortgagor. ground from under Pim. In Simmons-Harris v. Goff, 711
Nos. 02-4468; 03-3174/3175 In re Huffman, et al. 7 8 In re Huffman, et al. Nos. 02-4468; 03-3174/3175
N.E.2d 203 (Ohio 1999), the Ohio Supreme Court applied the Id. at 1099-1100 (citations omitted). So here, the fifty-three
one-subject rule to invalidate a school voucher program provisions of HB 163 lack any semblance of common
attached to an appropriations bill upon finding that there was purpose or relationship. The reasoning of the Ohio Supreme
a “blatant disunity between topics and no rational reason for Court compels the conclusion that it would hold § 5301.234
their combination [so that] it may be inferred that the bill is to be unconstitutional.3
the result of logrolling.” Id. at 216 (quoting Hoover v.
Franklin County Bd. of Comm’rs, 482 N.E.2d 575, 580 (Ohio Defendants’ second argument is that the Ohio Supreme
1985)). While the Simmons-Harris court stated that it did not Court has impliedly held ORC § 5301.234 to be
overrule Dix, but only modified it, id., it is clear that the Ohio constitutional. They rely on In re Stewart, 771 N.E.2d 250
Supreme Court no longer treats the one-subject rule as merely (Ohio 2002), in which the court responded to the following
directory. In State ex rel. Ohio Acad. of Trial Lawyers v. question certified by the Bankruptcy Appellate Panel for the
Sheward, 715 N.E.2d 1062 (Ohio 1999), the Court’s most Sixth Circuit: “Can Ohio Revised Code § 5301.234 be
recent case on this subject, the Court struck down Ohio’s applied to presume the validity of a mortgage in a bankruptcy
comprehensive tort reform legislation in toto, reasoning: case filed after the effective date of the statute, when the
mortgage at issue in the bankruptcy case was recorded before
[T]his court has been emphatic about its reluctance to the statute’s effective date?” Id. at 250-51. The court
interfere or become entangled with the legislative process responded to the certified question in the affirmative. Id. at
. . . . On the other hand, we have been equally emphatic 251.
about not extending this reluctance to impede the
legislative process so far as to negate the one-subject Defendants argue that this response implies that the statute
provision of Section 15(D), Article II. . . . With these is constitutional on the theory that, to determine that the
principles in mind, we have adopted the position that the statute operated retroactively, the court necessarily had to find
“one-subject provision is not directed at plurality but at that it was valid. This contention is unavailing. The
disunity in subject matter.” . . . Undoubtedly, Bankruptcy Appellate Panel’s order certifying the question to
Am.Sub.S.B. No. 350 embraces a multitude of topics. the Supreme Court stated that “the parties in the captioned
The bill affects some eighteen different titles, thirty-eight cases did not raise the constitutionality issue. The question
different chapters, and over one hundred different being certified by the Panel assumes, without deciding, that
sections of the Revised Code, as well as procedural and the statute is constitutional and raises the issue of how the
evidentiary rules and hitherto uncodified common law. statute is to be applied under Ohio law.” The order also noted
The pivotal question is whether these various topics that the constitutional issue had been separately certified in
share a common purpose or relationship, i.e., whether
they unite to form a single subject for purposes of
Section 15(D), Article II of the Ohio Constitution. . . .
With all due respect and deference to the General
Assembly, it is simply impossible to uphold the
constitutionality of Am.Sub.H.B. No. 350 under the one-
subject provision of Section 15(D), Article II of the Ohio 3
Constitution. This court must decide the question of § 5301.234’s validity by
predicting how the Ohio Supreme Court would decide it. James v. Meow
Media, Inc., 300 F.3d 683 , 689 (6th C ir. 200 2).
Nos. 02-4468; 03-3174/3175 In re Huffman, et al. 9 10 In re Huffman, et al. Nos. 02-4468; 03-3174/3175
another proceeding.4 Thus, we cannot say that the Ohio Therefore, the law in effect at the time these cases were
Supreme Court passed on the constitutionality question. commenced was former § 5301.01, which required the
presence of two witnesses at the signing of the mortgages.
Section 5301.234 being unconstitutional, it had no force at
the commencement of the cases and could not bar the trustee B. A question remains, however, whether the amended
from avoiding the mortgages. Rossborough Mfg. Co. v. version of ORC § 5301.01 saves the mortgages. In 2001,
Trimble, 301 F.3d 482, 491 (6th Cir. 2002) (“The rule in Ohio after the filing of the complaints in the case at bar, the Ohio
has long been that when a statute is held to have been legislature amended § 5301.01 by adding a savings provision.
unconstitutional as of its enactment, that statute is void Under that provision, a mortgage executed prior to the
ab initio.”); see also City of Middletown v. Ferguson, 495 amendment’s effective date is presumed valid even if not
N.E.2d 380, 388 (Ohio 1986) (“‘An unconstitutional act is not attested by two witnesses, unless the mortgagor’s signature
a law; it confers no rights; it imposes no duties; it affords no thereon was obtained by fraud. § 5301.01(B)(1)(a).
protection; it creates no office; it is, in legal contemplation, as Moreover, “[t]he recording of the [mortgage] in the office of
inoperative as though it had never been passed.’”) (quoting the county recorder . . . is constructive notice of the
Norton v. Shelby County, 118 U.S. 425, 442 (1886)).5 instrument to all persons.” § 5301.01(B)(1)(b).
The provision, on its face, appears to save the mortgages.
But the amended statute, though retroactive by its terms,
4
The Supreme Court did not answer the question certified in that cannot be applied retroactively to impair the trustee’s vested
proceeding. Hu nter v. First Union Home Equity Bank, 759 N.E.2d 784 rights. The statute specifically protects vested rights;
(Ohio 200 1). § 5301.01(B)(2) states that “[d]ivision (B)(1) of this section
5 does not affect any accrued substantive rights or vested rights
Ohio courts recognize an exception to this rule “in those case s in that came into existence prior to the effective date of this
which contractual rights have arisen or a party has acquired vested rights
under prior law.” Roberts v. Treasurer, 770 N.E.2d 1085, 1091 (Ohio Ct.
amendment.” Because § 5301.234 was unconstitutional, the
App. 2001). That exception is not applicable here b ecause § 5 301 .234 did original version of § 5301.01 was the only valid law in effect
not create a vested right in Defendants. “[A] fundamental distinction at the time the debtors’ petitions were filed, and its provisions
exists between a law changing accrued substantive rights and a law which (requiring two witnesses) controlled. As the trustee was
changes the remedy for the enforcement of those rights.” Weil v. entitled to avoid the mortgages under former § 5301.01, her
Taxicabs of Cincinnati, Inc., 39 N.E.2d 148, 151 (Ohio 1942). A law
changes substantive rights when it “creates or imposes an obligation
rights vested, and by the terms of § 5301.01(B)(2) they are
where none existed before,” whereas remedial provisio ns “have to do with not affected by the subsequent amendment. See McClatchey
the methods and procedure by which rights are recognized, protected and v. Altegra Credit Co. (In re Carte), 303 B.R. 338, 342 (Bankr.
enforced, not with the rights themselves.” Id.; see also Bielat v. Bielat, S.D. Ohio 2003); Baker, 300 B.R. at 307-308 (“Section
721 N.E .2d 2 8, 33 -34 (O hio 2000 ). Sectio n 5301.2 34 w as rem edial: it did 544(a) vests a trustee’s rights as a bona fide purchaser of real
not grant Defend ants any rights, but rather changed the quantum of proof
required to recognize, protect and enforce the rights created by the
property as of the commencement of the case.”). Amended
mortgage contra cts. Cf. In re Stew art, 771 N.E.2d at 250-51 (advising § 5301.01, therefore, does not divest the trustee of the rights
that § 53 01.2 234 can “b e app lied to p resum e the validity of a mortgage she had as a bona fide purchaser under the law governing at
in a bankrup tcy case filed after the effective date of the statute, when the the commencement of these cases, and she was entitled to
mortgage at issue in the bankruptcy case was recorded before the statute’s avoid the mortgages.
effective date”).
Nos. 02-4468; 03-3174/3175 In re Huffman, et al. 11
II.
Defendants also argue that we should reverse the district
court’s ruling because it violated the Eleventh Amendment of
the United States Constitution. This contention is patently
meritless. The Eleventh Amendment protects a state from
actions seeking relief from the state. See Doe v. Wigginton,
21 F.3d 733, 736 (6th Cir. 1994); see also Edelman v. Jordan,
415 U.S. 651, 662-63 (1974). Although the complaints
named the Ohio Attorney General as a defendant, they sought
no relief from or against the state, but only against the
mortgage holders.
CONCLUSION
For the reasons stated, the judgments of the district court
are AFFIRMED.