In re Miller

428 B.R. 437

In re Lonnie/Susan MILLER, Debtor(s).Lonnie Miller, et al., Plaintiff(s)

v.Federal Deposit Ins. Co., Defendant(s).

Nos. 08-3345, 08-30460.

United States Bankruptcy Court, N.D. Ohio.

March 8, 2010.

Steven L. Diller, Van Wert, OH, for Debtors.

Suzanne Cotner Mandros, Toledo, OH, Trustee.

DECISION AND ORDER

RICHARD L. SPEER, Bankruptcy Judge.

This cause comes before the Court on the Parties' respective Motions for Summary Judgment. Previously, this Court had stayed the Defendant's Motion to Dismiss brought under Rule 12(b)(6) so as to allow the Parties to conduct further discovery. In support of their respective Motions for Summary Judgment, the Parties submitted supporting arguments and documentation. The Court has now had the opportunity to review these materials. Based upon this review, the Court, for the reasons set forth below, finds that the Plaintiff's Motion for Summary Judgment should be Denied. The Defendant's Motion for Summary Judgment will be Granted in Part and Denied in Part.

FACTS

On February 7, 2008, the Debtors, Lonnie and Susan Miller (hereinafter the "Debtors"), filed a petition in this Court for relief under Chapter 12 of the United States Bankruptcy Code. At the time they filed for bankruptcy relief, the Debtors represented that they were solvent, having assets worth $792,334.71 and liabilities of $663,393.73. Of the Debtors' liabilities, $604,215.70 represented secured claims; the remaining $59,178.03 represented unsecured, nonpriority claims.

Prior to filing for bankruptcy relief, the Debtors had executed a number of notes in favor of the Oakwood Deposit Bank Company. Relevant in this proceeding are three transactions:

On May 24, 1996, the Debtor, Lonnie Miller, executed a note in the amount of $22,305.72 to purchase an item of farm machinery, providing the lender with a security interest in the farm implement. Thereafter, a UCC financing statement was filed, perfecting the lender's interest. This financing statement later lapsed pursuant to O.R.C. § 1309.515(C).

On December 29, 1999, the Debtors executed a note and mortgage for the sum of $139,094.15. On the same date, the Debtors executed a note in the amount of $22,305.72, providing the lender with a security interest in all their farm equipment. Thereafter, a UCC financing statement was filed, perfecting the lender's interest in the farm equipment. As with the earlier security interest, this financing statement later lapsed pursuant to O.R.C. § 1309.515(C).

Subsequent to the execution of these notes, the Defendant, the Federal Deposit Insurance Corporation (hereinafter the "FDIC"), was appointed receiver of the lender, the Oakwood Deposit Bank Company. The appointment of the FDIC as a receiver for THE Oakwood Deposit Bank was precipitated, at least in part, by the conduct of its CEO, Mark Steven Miller, who later plead guilty to charges for money laundering and embezzlement. As receiver, the FDIC re-filed financing statements for those two transactions regarding the Debtors' farm equipment Both the financing statements were filed on November 28, 2007, a period within 90 days of the commencement of the Debtors' bankruptcy case.

The FDIC has multiple claims in this case, two of which are relevant in the proceeding: Claim Numbers 12 and 16. Claim number 12, concerning the mortgage and note, sets forth an original balance of $139,094.15, and $87,496.18 in accumulated interest, for a total of $226,563.33. Claim number 16, concerning the $22,305.72 equipment note executed contemporaneously with the mortgage note, sets forth an outstanding balance of $17,322.71.

On November 7, 2008, the Debtors commenced this adversary proceeding against the FDIC seeking three overall forms of relief: (1) A reduction of the Defendant's claim against the Plaintiffs' bankruptcy estate; (2) the avoidance of certain transfers made to the Defendant on account of the transfers being preferential for purposes of 11 U.S.C. § 547; and (3) the voiding of liens asserted by the FDIC against estate property. Each of these matters will be addressed in order.

DISCUSSION

For purposes of jurisdiction, the matters before the Court concern the liquidation of a claim against the estate, a determination of whether certain prepetition transfers are preferential for purposes of 11 U.S.C. § 547(b) and the determination of the validity of liens asserted against the estate. 28 U.S.C. § 157(b)(2)(B), (F), (K). As such, the matters before the Court are core proceedings over which this Court has jurisdiction to enter final orders and judgments. 28 U.S.C. § 157(b)(1).

Claim of the FDIC

The Debtors' first request for relief involves the mortgage note executed on December 29, 1999. It is the Debtors' position that the original balance of this note should be set at $85,782.83 representing a reduction of $53,311.32. According to the Debtors, this adjustment to the claim of the FDIC is necessary because the actual consideration received by the Debtors was just $85,782.83, not $139,094.15 as represented by the face value of the mortgage note.

The mortgage note at issue in this matter was executed in Ohio; thus Ohio law applies when determining the amount and validity of the note. Butner v. United States, 440 U.S. 48, 57, 54, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) (state law generally governs the substance of claims). Under Ohio law, it is a "long-held principle that parties to contracts are presumed to have read and understood them and that a signatory is bound by a contract that he or she willingly signed." Preferred Capital, Inc. v. Power Engineering Group, Inc., 112 Ohio St.3d 429, 432, 860 N.E.2d 741 (2007). Also, a contract that is valid on its face will be presumed to be valid in all other respects. Consequently, it is recognized that "ordinarily a party asserting the invalidity of a contract bears the burden of proving a defense to it." Fletcher v. Fletcher, 68 Ohio St.3d 464, 467, 628 N.E.2d 1343 (1994).

For their burden, the Debtors do not deny that they signed the mortgage note; nor do the Debtors take issue with the fact that facially the original balance of the mortgage note was $139,094.15. Instead, for their position that the consideration extended on the mortgage note was in actuality only $85,782.83, the Debtors called attention to the following:

First, the Debtors pointed to the stated purpose of their mortgage note with the Oakwood Bank, as well as the purpose expressed in the contemporaneously executed equipment note. In both these notes, it was set forth that their stated purpose was to "Pay-Off" existing business debts. The facts in this regard are not disputed.

On July 19, 1999, approximately five months prior to the Debtors' execution of the mortgage and equipment notes, the Oakwood Deposit Bank satisfied a third-party mortgage debt owed by the Debtors in the amount $85,782.83, and a third-party equipment loan for which the Debtors were liable in the amount of $22,305.72. According to the Debtors, no additional consideration was received.

As evidentiary support for their position, the Debtors pointed to the testimony taken of the Debtor, Mr. Miller, during discovery. In this testimony, Mr. Miller explained that he was initially unaware of the loan balance on the mortgage note, recalling that in July of 2009, he signed a number of documents in blank with the understanding that Mark Steven Miller, the former CEO of the Oakwood Deposit Bank, would handle the details of repaying, with the proceeds from the mortgage note, a preexisting obligation secured against their real property. (Doc. No. 30, at pg. 13).

The response of the FDIC is straightforward: The Debtors should be held to the unambiguous terms of the mortgage note, which set forth an original principal balance of $139,094.15. As support for this position, the FDIC raised two affirmative defenses: laches and the statute of frauds as provided in 12 U.S.C. § 1823(e).¹ On the matter of the original principal balance due on the mortgage note, each of the Parties seeks summary judgment.

The standard when addressing a motion for summary judgment is set forth in Federal Rule of Civil Procedure 56(c), which is made applicable to this proceeding by Bankruptcy Rule 7056. It provides for in part: A party will prevail on a motion for summary judgment when "[t]he pleadings,depositions, answers to interrogatories, and admission on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). In making this determination, the Court is directed to view all the facts in a light most favorable to the party opposing the motion; similarly, all doubts should be resolved in favor of the party against whom judgment is sought. Matsushita v. Zenith Radio Corp., 475 U.S. 574, 586-588, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). In addition, in situations such as this where the Parties have each filed Motions for Summary Judgment, the Court must consider each motion separately, since each party, as a movant for summary judgment, bears the burden of establishing both the nonexistence of genuine issues of material fact, and that party's entitlement to judgment as a matter of law. French v. Bank One, Lima N.A. (In re Rehab Project, Inc.), 238 B.R. 363, 369 (Bankr.N.D.Ohio 1999).

Under this standard, summary judgment is not considered appropriate where, to adjudicate an issue in controversy, the trier-of-fact will be required to assess a witness's credibility. F.D.I.C. v. Jeff Miller Stables, 573 F.3d 289, 295 (6th Cir.2009). However, where live testimony will add nothing to a party's case, the entry of summary judgment is proper. As against the Debtors, the Court finds this to be the case so that live testimony will add nothing to successfully controvert that the amount originally owed by the Debtors on their mortgage note is...