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In re Oakes

United States Court of Appeals, Sixth Circuit

February 6, 2018

In re: Jerry Wayne Oakes; Jennifer Ann Oakes, Debtors.
v.
PNC Mortgage Company, Defendant-Appellant. Donald F. Harker, Trustee, Plaintiff-Appellee,

          Argued: November 14, 2017

         Appeal from the United States Bankruptcy Court for the Southern District of Ohio at Dayton. No. 13-33828-Lawrence S. Walter, Judge.

         ARGUED:

          Amelia A. Bower, PLUNKETT COONEY, Columbus, Ohio, for Appellant.

          Dianne F. Marx, RIESER & MARX LLC, Dayton, Ohio, for Appellee.

         ON BRIEF:

          Amelia A. Bower, PLUNKETT COONEY, Columbus, Ohio, for Appellant.

          Dianne F. Marx, John Paul Rieser, RIESER & MARX LLC, Dayton, Ohio, for Appellee.

          Before: HARRISON, OPPERMAN, and WISE, Bankruptcy Appellate Panel Judges.

          OPINION

          DANIEL S. OPPERMAN, Chief Bankruptcy Appellate Panel Judge.

         OVERVIEW

         PNC Mortgage Company ("PNC") requests that this Panel hold that the Chapter 7 Trustee, Donald F. Harker ("Trustee"), cannot avoid its mortgage under 11 U.S.C. § 541(a)(1) as a hypothetical lien creditor. PNC argues that the Ohio Supreme Court addressed similar issues regarding a trustee's avoidance powers as a bona fide purchaser, and the Ohio Legislature subsequently amended its statutes to limit a trustee's avoidance powers. The Panel granted leave to appeal to resolve a split in the Ohio bankruptcy courts. Because the Panel finds that the Ohio Supreme Court did not address the Trustee's avoidance powers as a hypothetical judicial lien creditor, and the Ohio Legislature did not make its amendments retroactive, we affirm the bankruptcy court's order denying PNC's motion for judgment on the pleadings.

         STATEMENT OF ISSUES

         The issue on appeal is whether the bankruptcy court erred in denying PNC's Motion to Dismiss and/or For Judgment on the Pleadings and failed to properly apply Ohio Revised Code § 1301.401 and the Ohio Supreme Court decision in In re Messer, 50 N.E.3d 495 (Ohio 2016), to a trustee's powers under 11 U.S.C. § 544(a)(1). Resolution of this appeal requires the Panel to answer two questions:

1. Are the Trustee's avoidance powers as a hypothetical judicial lien creditor pursuant to § 544(a)(1) limited due to the constructive notice provision of Ohio Revised Code § 1301.401 and the Ohio Supreme Court's interpretation of that statute in In re Messer?
2. Does Ohio Revised Code § 5301.07 (effective April 6, 2017) apply retroactively to limit the Trustee's avoidance powers as a hypothetical judicial lien creditor in the present case?

         JURISDICTION AND STANDARD OF REVIEW

         On March 30, 2017, the Panel granted leave to appeal finding that the appeal involved a question of law to which there was disagreement and which was controlling as to the outcome of the case. An order deciding that the Trustee has strong arm powers under § 544(a)(1) renders a legal determination reviewed de novo. Simon v. Chase Manhattan Bank (In re Zaptocky), 250 F.3d 1020, 1023 (6th Cir. 2001) (citing Corzin v. Fordu (In re Fordu), 201 F.3d 693, 696 n.1 (6th Cir. 1999) ("We review the bankruptcy court's legal holdings de novo and its factual determinations for clear error.")).

         FACTS

         Jerry and Jennifer Oakes ("Debtors") filed a Chapter 7 bankruptcy petition on September 17, 2013. They included their interest in real property located in Franklin, Ohio, on Schedule A. Schedule D indicated three mortgages against the property; PNC held the first two. The home was "underwater."

         On January 28, 2014, the Trustee filed a Complaint to initiate an adversary proceeding to avoid PNC's alleged first mortgage. The Trustee asserted that the mortgage was avoidable under 11 U.S.C. §§ 544(a)(1) and 544(a)(3) and Ohio law. Shortly after filing an Answer, PNC moved to dismiss the case. The bankruptcy court then entered an agreed order that stayed the adversary proceeding pending resolution of two questions of law that the United States Bankruptcy Court for the Southern District of Ohio had certified to the Ohio Supreme Court in another matter:

1. Does O.R.C. § 1301.401 apply to all recorded mortgages in Ohio?
2. Does O.R.C. ยง 1301.401 act to provide constructive notice to the world of a recorded mortgage that was deficiently ...

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