Scott v. Bierman , 429 F. App'x 225 ( 2011 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1483
DENNIS LLOYD SCOTT, JR.; MARION SCOTT,
Petitioners - Appellants,
v.
HOWARD BIERMAN; CARRIE M. WARD; GEORGE JACOB GEESING,
substitute trustees; CONNIE HALL; RAYMOND LEE HALL; BIERMAN,
GEESING & WARD, LLC,
Respondents – Appellees,
and
JOHN C. PROUTY; TIMOTHY BRANIGAN,
Respondents.
Appeal from the United States Bankruptcy Court for the District
of Maryland, at Baltimore. Thomas J. Catliota, Bankruptcy
Judge. (0:09-bk-33928; AP10-00059)
Argued: March 22, 2011 Decided: May 12, 2011
Before WILKINSON, KEENAN, and DIAZ, Circuit Judges.
Affirmed by unpublished opinion. Judge Keenan wrote the
opinion, in which Judge Wilkinson and Judge Diaz joined.
ARGUED: John Douglas Burns, BURNS LAW FIRM, LLC, Greenbelt,
Maryland, for Appellants. Brent M. Ahalt, MCNAMEE, HOSEA,
JERNIGAN, KIM, GREENAN & WALKER, PA, Greenbelt, Maryland, for
Appellees. ON BRIEF: Steven L. Goldberg, MCNAMEE, HOSEA,
JERNIGAN, KIM, GREENAN & WALKER, PA, Greenbelt, Maryland, for
Appellees.
Unpublished opinions are not binding precedent in this circuit.
2
KEENAN, Circuit Judge:
In December 2009, Dennis Lloyd Scott, Jr., (Dennis Scott)
filed a voluntary petition in the bankruptcy court seeking
relief under Chapter 13 of the United States Bankruptcy Code.
He later initiated an adversary proceeding in the bankruptcy
court along with his mother, Marion R. Scott (Mrs. Scott). The
Scotts claimed that they retained legal title to certain real
property in Maryland, which had been subjected to a foreclosure
sale later ratified by the Calvert County Circuit Court. The
Scotts asserted that the property at issue was part of Dennis
Scott’s bankruptcy estate.
The Scotts later sought a preliminary injunction,
prohibiting the eviction of Mrs. Scott from the property, which
the bankruptcy court denied. In this appeal, the Scotts filed
an interlocutory challenge to the bankruptcy court’s denial of
their request for preliminary injunctive relief. Upon our
review, we agree with the bankruptcy court’s determination that
the property was not part of the bankruptcy estate and,
accordingly, we affirm the bankruptcy court’s order denying
preliminary injunctive relief.
I.
Until early April 1997, Mrs. Scott was the sole owner of
certain real property, improved by a dwelling, located at 601
3
Ray Road in Sunderland, Maryland (the property). On April 15,
1997, Mrs. Scott conveyed by deed her interest in the property
to herself and to her son, Dennis Scott, as joint tenants.
In September 2005, the Scotts obtained a loan from Argent
Mortgage Company (the lender). The loan was secured by a deed
of trust on the property, which was recorded in the land records
of Calvert County. At some point after 2005, when the Scotts
defaulted on the loan, the lender notified the Scotts that it
was enforcing the power of sale provided in the deed of trust.
The lender appointed Howard Bierman, Jacob Geesing, and Carrie
Ward (collectively, Bierman) as substitute trustees to conduct a
foreclosure sale of the property.
As part of the foreclosure sale proceedings, Bierman
published an advertisement announcing the sale. The
advertisement listed the property’s street address, a short
description of the property, and referenced the property
description contained in the deed of trust.
On March 31, 2009, Connie L. Hall (Mrs. Hall) purchased the
property at the foreclosure sale. The Scotts, who were given
notice of the foreclosure sale, did not challenge the sale
before or immediately after it was conducted. The Calvert
County Circuit Court (the Maryland court) entered an order on
May 11, 2009, ratifying the sale of the property. On June 4,
2009, Bierman recorded in the land records a deed (the purchase
4
deed) conveying the property to Mrs. Hall and her husband,
Raymond L. Hall (collectively, the Halls).
On June 11, 2009, based on Mrs. Scott’s failure to vacate
the property, Mrs. Hall filed in the Maryland court a motion for
judgment seeking possession of the property. On August 14,
2009, the Scotts filed an opposition to that motion and also
filed a “Motion to Reconsider, Set Aside, Vacate, and Rescind”
the Maryland court’s order ratifying the foreclosure sale (the
motion to rescind).
In the motion to rescind, the Scotts argued for the first
time that the original deed of trust did not contain a complete
description of the property, because the deed of trust did not
reference one of the two indivisible parcels described in the
deed and lacked a “savings and excepting” clause. Thus, the
Scotts asserted that the entirety of the property was not sold
in the foreclosure sale. The Scotts also asserted that the
advertisement for the foreclosure sale was deficient because it
referenced the incomplete property description contained in the
deed of trust. 1 Finally, the Scotts alleged that the lender and
Bierman failed to correct the incomplete property description by
1
Also in their motion to rescind, the Scotts argued that
their signatures of on the original deed were not properly
notarized, and that the “report of sale” was defective because
it excluded Mrs. Hall’s husband and referred to Mrs. Hall as
“Connie Paul” rather than “Connie Lee Hall.”
5
recording an amended deed of trust after the foreclosure sale
and ratification. Relying on these arguments, the Scotts
contended that the foreclosure sale and the resulting
ratification by the Maryland court were void.
The Maryland court had not acted on the Scotts’ motion to
rescind, or on Mrs. Hall’s motion seeking possession of the
property, at the time Dennis Scott filed his bankruptcy
petition. Based on Dennis Scott’s bankruptcy petition, the
Scotts filed in the Maryland court a suggestion of stay under 11
U.S.C. § 362(a), requesting that the Maryland court take no
further action with regard to the property.
On December 10, 2009, the Maryland court held a hearing on
the parties’ pending motions. 2 After the hearing, the Maryland
court declined the Scotts’ request to stay the proceedings and
awarded possession of the property to Mrs. Hall. The Maryland
court also denied the Scotts’ motion to rescind. One month
later, the Halls filed in the Maryland court a motion for
enforcement of the judgment of possession seeking to evict Mrs.
Scott from the property. As of the date of this opinion, the
Maryland court had not acted on that motion.
2
The record shows that counsel representing the Scotts
thought that the hearing would not take place and, therefore,
did not attend that hearing. As explained later in this
opinion, counsel’s absence at this hearing does not affect our
ultimate conclusion in this appeal.
6
Meanwhile, on January 29, 2010, the Scotts initiated an
adversary proceeding in the bankruptcy court against Bierman,
the Halls, and other parties (collectively, the defendants). 3 In
the Scotts’ amended complaint, they asserted various claims
relating to their contention that the foreclosure sale and the
Maryland court’s ratification of the sale were invalid. The
Scotts sought declaratory relief, imposition of a constructive
trust, monetary damages, and attorney’s fees and costs. 4
In their primary claim, the Scotts asked the bankruptcy
court to declare that the property was part of Dennis Scott’s
bankruptcy estate under 11 U.S.C. § 541. The Scotts asserted
that when the bankruptcy petition was filed, the ratification of
the foreclosure sale was not final because the motion to rescind
was pending in the Maryland court. Although the Scotts
acknowledged that they may have been divested of equitable title
in the property as a result of the foreclosure sale, they
nonetheless contended that that they retained legal title to the
3
The complaint also named as defendants, Bierman, Geesing,
Ward & Wood, LLC, John C. Prouty, and Timothy Branigan. Prouty
prepared the purchase deed, while Branigan is the appointed
trustee of Scott’s bankruptcy case.
4
In the other seven counts in the amended complaint, the
Scotts asserted claims of equitable subordination, disparagement
of title, negligence, violation of the automatic stay, and
requested imposition of a constructive trust. Additionally, the
Scotts sought monetary damages and attorney’s fees and costs.
7
property on the ground that the foreclosure sale and the
Maryland court’s ratification of sale were void.
After filing their amended complaint, the Scotts also filed
a motion for a preliminary injunction in the bankruptcy court.
In that motion, the Scotts asked the bankruptcy court to enjoin
Mrs. Scott’s eviction from the property and to prohibit the
defendants from filing further motions in the Maryland court
relating to the property. The defendants filed an opposition to
the Scotts’ motion for preliminary injunction.
After conducting a hearing, the bankruptcy court denied the
Scotts’ request for a preliminary injunction. In accordance
with 28 U.S.C. § 158(d)(2)(A)(iii), the bankruptcy court entered
an order certifying an immediate appeal to this Court. 5 We
granted the Scotts’ motion for permission to appeal.
II.
A.
In reviewing the denial of a preliminary injunction, we
consider whether the court abused its discretion in refusing to
grant such relief. W. Va. Ass’n of Club Owners & Fraternal
5
The bankruptcy court also entered an order granting a stay
pending the Scotts’ appeal from the denial of the preliminary
injunction. In that order, the bankruptcy court required Mrs.
Scott to pay the Halls each month the cost of the mortgage
payments.
8
Servs. v. Musgrave, 553 F.3d 292, 298 (4th Cir. 2009). We
review factual determinations under a clearly erroneous
standard, and we review legal conclusions de novo. Id.
A preliminary injunction is an “extraordinary remedy,”
which may be awarded only upon a “clear showing” that a
plaintiff is entitled to such relief. The Real Truth About
Obama, Inc. v. FEC, 575 F.3d 342, 345 (4th Cir. 2009) (citing
Winter v. Nat. Res. Defense Council, 555 U.S. 7, ___, 129 S. Ct.
365, 374-75 (2008)) vacated in part on other grounds, 130 S. Ct.
2371 (2010). Preliminary relief affords a party, before a
trial, the type of permanent relief ordinarily available only
after trial. Id. To obtain a preliminary injunction, a
plaintiff must establish four elements: 1) that the plaintiff is
likely to succeed on the merits; 2) that the plaintiff will
likely suffer irreparable harm in the absence of preliminary
relief; 3) that the balance of equities weighs in the
plaintiff’s favor; and 4) that a preliminary injunction is in
the public’s interest. Id.; Musgrave, 553 F.3d at 298.
In the present case, the bankruptcy court determined that
the Scotts failed to carry their burden of proving the first
required element, a likelihood of success on the merits.
Therefore, in reviewing the bankruptcy court’s decision, we
focus our analysis on the merits of Scotts’ central claim in the
9
amended complaint, namely, that the property was part of the
bankruptcy estate.
B.
Under federal bankruptcy law, the commencement of a
bankruptcy action creates an estate, which is comprised of the
debtor’s legal and equitable property interests. 11 U.S.C.
§ 541. The federal courts apply state law to determine the
nature of the debtor’s interest in property. Butner v. United
States, 440 U.S. 48, 55 (1979); In re Price, 562 F.3d 618, 624
(4th Cir. 2009).
In Maryland, foreclosure proceedings are governed by the
Maryland Real Property Code and the Maryland Rules. Laney v.
Maryland, 842 A.2d 773, 780 (Md. 2004). Before a foreclosure
sale takes place, the holder of the security interest (the
lender) must fulfill certain notice requirements, including
notifying the property owner (the borrower) about the proposed
foreclosure sale. 6 Id. at 781-82; Md. Real Prop. Code § 7-105,
Md. R. 14-206(b).
Maryland law requires that a trustee conducting a
foreclosure sale advertise the sale, stating the time, place,
6
The parties agree that the Scotts received the required
notice at each stage of the foreclosure proceedings.
10
and terms of the sale, and a description of the property
sufficient to identify it. Md. R. 14-303(b). Immediately after
a foreclosure sale, the purchaser acquires an equitable interest
in the property. IA Constr. Corp. v. Carney, 672 A.2d 650, 654
(Md. 1996). However, before the purchaser can acquire legal
title to the property, several additional acts must occur.
After the foreclosure sale, the lender must submit to the
circuit court certain documents, including a report of sale.
Md. Rule 14-305(a). The circuit court then issues a notice of
sale and, if no exceptions to the sale are filed within 30 days,
the circuit court “shall ratify the sale.” Md. Rule 14-305(e).
A circuit court’s ratification of a foreclosure sale certifies
that the court viewed the sale as fair, and constitutes a final
resolution of the sale. See id.; Manigan v. Burson, 862 A.2d
1037, 1040-41 (Md. Ct. Spec. App. 2004). In light of this
finality, a borrower has no right of redemption after a
completed foreclosure sale and ratification. Laney, 842 A.2d at
783; Simard v. White, 859 A.2d 168, 205 (Md. 2004). Also after
ratification, the trustee may deliver the property by deed to
the purchaser, thereby providing the purchaser with legal title.
See Laney, 842 A.2d at 783-84; Simard, 859 A.2d at 205.
Maryland law unambiguously provides that the combined acts
of a completed foreclosure sale, a ratification of the sale by
the circuit court, and a conveyance of the property to the
11
purchaser “operate[] to pass all the title which the borrower
had in the property at the time of the recording of the mortgage
or deed of trust.” Md. Real Prop. Code § 7-105(c); see Laney,
842 A.2d at 783; see also Lippert v. Jung, 783 A.2d 206, 214
(Md. 2001) (if an owner of foreclosed property fails to redeem,
purchaser acquires absolute title). At this point, a borrower
also loses the right to possess the property. Laney, 842 A.2d
at 783.
Under Maryland law, objections to the validity of a
foreclosure generally will not be entertained after a circuit
court has ratified the foreclosure sale. Manigan, 862 A.2d at
1040. The law provides different ways for an interested party
to object to a foreclosure sale before ratification.
Under Maryland Rule 14-211, a borrower may file a motion to
“stay the sale of the property and dismiss the foreclosure
action” before the sale takes place. Md. Rule 14-211(a)(1).
This Rule provides the borrower an opportunity to seek
injunctive relief challenging “the validity of the lien or the
lien instrument or the right of the [lender] to foreclose in the
pending action.” Md. Rule 14-211(a)(3)(B); see Bates v. Cohn, 9
A.3d 846, 852 (Md. 2010).
After the foreclosure sale, an interested party may file
exceptions “to the sale” within 30 days after the circuit court
issues a notice of the sale. Md. Rule 14-305(d). Permissible
12
exceptions include challenges of procedural irregularities, such
as allegations that the advertisement was insufficient or
inaccurately described the property. Greenbriar Condo. v.
Brooks, 878 A.2d 528, 563-64 (Md. 2005).
The Scotts did not object to the foreclosure sale before it
occurred, or during the 30-day time period before the sale was
ratified by the circuit court. Rather, three months after the
circuit court’s ratification of the foreclosure sale, the Scotts
filed their motion to rescind under Maryland Rule 2-535(b).
That Rule permits a party at any time to file a motion
requesting a court to exercise its power to revise a judgment.
Md. R. 2-535. When such a motion is filed more than 30 days
after a judgment is entered, as occurred in this case, the
moving party must establish by clear and convincing evidence
extrinsic fraud, jurisdictional mistake, or irregularity of
process or procedure previously unknown to the moving party.
See Md. Cts. & Jud. Proc. Code § 6-408; Jones v. Rosenberg, 940
A.2d 1109, 1119-20 (Md. 2008); Manigan, 862 A.2d at 1041;
Bernstein v. Kapneck, 417 A.2d 456, 460 (Md. Ct. Spec. App.
1980). These restrictions on a court’s discretionary authority
to revise a judgment promote the finality of judgments and
ensure that litigation comes to an end. Haskell v. Carey, 451
A.2d 658, 663 (Md. 1982).
13
Applying these principles and rules of Maryland
jurisprudence, we conclude that the Scotts held no interest in
the property when Dennis Scott filed his bankruptcy petition and
that, therefore, the property was not part of Dennis Scott’s
bankruptcy estate. The timeline of events relating to the sale
of the property is not disputed. The foreclosure sale took
place in March 2009. Thirty days after issuing the notice of
sale, the Maryland court entered an order of ratification, which
provided a final resolution of all matters relating to the
foreclosure sale. The ratification order authorized Bierman to
convey the property to the Halls and to execute the purchase
deed. Upon execution of that deed, the Halls acquired complete
title to the property, divesting the Scotts of any interest
remaining in the property. See Md. Real Prop. Code § 7-105(c);
Laney, 842 A.2d at 783.
Although the Scotts had received proper notice of the
foreclosure sale, the Scotts took no action in the Maryland
courts, as permitted under Maryland Rule 14-211, to enjoin that
sale on the basis of an invalid deed of trust or on any other
basis. Also, despite having notice that the sale had occurred,
the Scotts did not file any exceptions under Maryland Rule 14-
305(d) objecting to the advertisement or to any other procedural
irregularity in the sale.
14
Instead, the Scotts raised their objections for the first
time in their motion to rescind under Rule 2-535, which was
filed three months after the Maryland court’s ratification of
the foreclosure sale. The filing of that motion did not revive
the Scotts’ legal or equitable interests in the property.
Rather, the motion to rescind presented the Maryland court with
the discretionary authority to reexamine its order ratifying the
sale and to revise that order only under very limited
circumstances. See Jones, 940 A.2d at 1119-20. As observed by
the bankruptcy court, the Maryland court ultimately refused to
revise its ratification order based on the Scotts’ objections.
Notably, the Scotts’ objections presented in the motion to
rescind failed to include any allegation of extrinsic fraud,
jurisdictional mistake, or irregularity of process or procedure
previously unknown to them. See Jones, 940 A.2d at 1119-20;
Manigan, 862 A.2d at 1041; Bernstein, 417 A.2d at 460.
In view of the Scotts’ failure to timely contest the
foreclosure sale, the Maryland court’s ratification order
finally resolving all matters relating to that sale, and the
conveyance of the purchase deed to the Halls, we hold that the
Scotts were divested completely of any interest in the property
before Dennis Scott filed his bankruptcy petition. Because the
property at issue is not part of the bankruptcy estate, the
Scotts lacked any basis for obtaining injunctive relief from the
15
bankruptcy court based on the foreclosure sale. As this Court
stated in Rutherford Hospital Inc. v. RNH Partnership, 168 F.3d
693, 699 (4th Cir. 1999), “a bankruptcy court’s jurisdiction
does not extend to property not part of a debtor’s estate.” See
also In re Heath, 115 F.3d 521, 524 (7th Cir. 1997) (because
property not part of bankruptcy estate, the bankruptcy court did
not have “core” jurisdiction); In re Guild and Gallery Plus,
Inc., 72 F.3d 1171, 1181 (3rd Cir. 1996) (when action does not
involve property of the estate, it is beyond the bankruptcy
court’s jurisdiction). Accordingly, we hold that the bankruptcy
court did not abuse its discretion in denying the Scotts’
request for a preliminary injunction, because the property at
issue was not part of Dennis Scott’s bankruptcy estate. 7
III.
For these reasons, we affirm the bankruptcy court’s denial
of the Scotts’ petition for preliminary injunctive relief.
AFFIRMED
7
Based on our holding, we do not reach the Scotts’
remaining arguments raised in this appeal.
16