Burnett, M. v. Janocha, F. ( 2016 )


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  • J-A29033-16
    NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
    MARIAN R. BURNETT,                        :      IN THE SUPERIOR COURT OF
    :            PENNSYLVANIA
    Appellee               :
    :
    v.                            :
    :
    FRANK J. JANOCHA, a/k/a FRANK J.          :
    JANOCHA, JR., AND WENDY G.                :
    JANOCHA,                                  :
    :
    Appellants                  :
    _______________________________           :
    WENDY G. JANOCHA,                         :
    :
    Appellee                :
    v.                            :
    :
    FRANK J. JANOCHA,                         :
    :
    Appellant              :           No. 390 WDA 2016
    Appeal from the Order February 11, 2016
    in the Court of Common Pleas of Allegheny County,
    Family Court Division, No(s): FD 12-008436-006
    BEFORE: DUBOW, MOULTON and MUSMANNO, JJ.
    MEMORANDUM BY MUSMANNO, J.:                    FILED DECEMBER 22, 2016
    Frank J. Janocha, a/k/a Frank J. Janocha, Jr. (“Frank”), appeals from
    the Order granting an equitable lien in favor of Marian R. Burnett (“Burnett”)
    against the real property located at 107 Park Road, Carnegie, Pennsylvania
    (“the Park Road Property”).1 We affirm.
    1
    Burnett named both Frank and Wendy G. Janocha (“Wendy”) as defendants
    in her “Complaint in Equity, in rem, for an equitable lien upon real estate”
    (“Complaint in Equity”). However, at trial, Wendy agreed with Burnett’s
    position, see N.T., 1/26/16, at 38, and she did not file an appeal.
    J-A29033-16
    Frank and Wendy (collectively, “the Janochas”) were married on
    November 28, 1986.        In July 1995, Burnett, Wendy’s mother, loaned the
    Janochas $162,500 to purchase the Park Road Property. On December 27,
    1995, the Janochas signed a Mortgage Note (the “Note”), promising to pay
    Burnett $162,500, plus 6.5% interest per annum.2 The Note “is secured by
    a Mortgage upon real estate described herein.”         The Note provides for
    monthly payments to Burnett “until the entire principal debt, together with
    interest thereon, is paid in full.” The Note also provides that “[i]f not sooner
    paid, all accrued interest together with the outstanding principal shall be due
    and payable on the 1st day of December, 2025.”        Additionally, there is an
    amortization schedule attached to the Note, which details the total amount
    of the loan, the length of the repayment plan, the interest rate, and a
    schedule of payments (including the distribution of each monthly payment
    between principal and interest).
    The Janochas made approximately 20 payments to Burnett in
    accordance with the terms of the Note in 1996 and 1997.          The Janochas
    stopped making payments in August 1997.
    In 2006, the Janochas filed a voluntary Petition for relief under
    Chapter 13 of the Bankruptcy Code.         In Schedule D of their bankruptcy
    Petition, and in the original bankruptcy Plan, Burnett was listed as a secured
    creditor holding a Mortgage on the Park Road Property.              During the
    2
    Burnett did not sign the Note.
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    J-A29033-16
    bankruptcy proceedings, it was discovered that the mortgage was never
    recorded. The Janochas did not file a Motion to avoid the lien.
    Subsequently, the Janochas filed two amended bankruptcy Plans, each
    of which identified the mortgage as an unsecured claim. Burnett did not file
    an objection. Burnett agreed to allow the Janochas to defer payments under
    the Note until the bankruptcy proceedings had concluded.          The Second
    Amended Plan was confirmed on a final basis in 2006. After the Janochas
    complied with the terms of the Second Amended Plan, the bankruptcy court
    approved the Trustee’s Final Report and Account, which identified Burnett as
    a secured creditor with a claim amount of $0.00. The June 17, 2011 Order
    confirming the Trustee’s Final Report and Account provided that “[the]
    revestment of property is free and clear of any and all claims or interests
    except as otherwise treated in the [P]lan or in the Order confirming the
    Plan.”     On June 27, 2011, the Janochas were granted a Discharge in
    bankruptcy (“Discharge Order”).
    The Janochas separated in March 2011, and Wendy filed a Complaint
    in Divorce in November 2012.         During the divorce proceedings, Frank
    claimed for the first time that the Park Road Property was owned free of any
    encumbrance. In May 2014, Burnett filed a Motion to Reopen and a Motion
    for relief from stay with the bankruptcy court, asserting that she holds an
    equitable lien on the Park Road Property. Burnett subsequently filed several
    amended Motions to Reopen. On March 28, 2015, Burnett filed a Complaint
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    in Equity in the Allegheny County Court of Common Pleas. The bankruptcy
    court denied Burnett’s Third Amended Motion to Reopen, and noted that “all
    of the parties will have their day in state court.” Burnett v. Janocha (In
    re Janocha), 
    2015 Bankr. LEXIS 39
    , *15 (Bankr. W.D. Pa. 2015).
    By Order dated April 27, 2015, Burnett’s Complaint in Equity was
    transferred from the Civil Division to the Family Division to be consolidated
    with the divorce action. A one-day trial was held on January 26, 2016. On
    February 11, 2016, the trial court entered an Order granting an equitable
    lien in favor of Burnett in the amount of $159,891.47, plus 6% interest since
    August 1997, and providing that the lien must be paid in full before either
    Frank or Wendy would be entitled to distribution of the proceeds from the
    sale of the Park Road Property.
    Frank filed a timely Notice of Appeal, and a court-ordered Pennsylvania
    Rule of Appellate Procedure 1925(b) Concise Statement.
    On appeal, Frank raises the following questions for our review:
    I. Did the [trial] court commit reversible error in finding an
    intent among all the parties to create an equitable lien in favor of
    Burnett?
    II. Did the [trial] court commit an error of law in holding that
    Burnett’s disputed lien on the marital residence survived both
    the [] Discharge Order and the Bankruptcy Court Order[,]
    revesting property to the [Janochas] free and clear of all liens
    and encumbrances?
    III. Did the [trial] court commit an error of law in failing to
    conclude that [Frank’s] equitable defense of laches relating to
    Burnett’s delay in proceeding with the [Complaint in Equity]
    estopped Burnett from pursuing her claim?
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    Brief for Appellant at 2-3 (issues renumbered).
    Our appellate role in cases arising from non-jury trial
    verdicts is to determine whether the findings of the trial court
    are supported by competent evidence and whether the trial court
    committed error in any application of the law. The findings of
    fact of the trial judge must be given the same weight and effect
    on appeal as the verdict of a jury. We consider the evidence in a
    light most favorable to the verdict winner. We will reverse the
    trial court only if its findings of fact are not supported by
    competent evidence in the record or if its findings are premised
    on an error of law. However, where the issue concerns a
    question of law, our scope of review is plenary.
    Wyatt, Inc. v. Citizens Bank of Pennsylvania, 
    976 A.2d 557
    , 564 (Pa.
    Super. 2009) (citation, brackets and ellipses omitted).
    In his first claim, Frank asserts that the trial court erred in finding that
    all parties shared the requisite intent to create an equitable lien in favor of
    Burnett. Brief for Appellant at 17. Frank argues that there is no evidence
    that the parties intended to create a security interest in favor of Burnett, and
    that   the   loan   of   $162,500   should   instead   be   characterized   as   an
    advancement for purchase of realty. Id. at 18. Additionally, Frank claims
    that the Note was not executed until five months after the deed was
    recorded, and that Burnett never acknowledged the Note. Id. Frank also
    argues that the trial court erred in concluding that the Janochas’ promise to
    repay the loan following the bankruptcy proceedings evidenced an intent to
    create a lien, where the bankruptcy proceedings concluded 16 years after
    they purchased the Park Road Property. Id. at 19.
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    “An equitable lien arises either from a written contract[,] which shows
    an intention to charge some particular property with a debt or obligation, or
    is implied and declared by a court of equity out of general considerations of
    right and justice….” Baranofsky v. Weiss, 
    182 A. 47
    , 48-49 (Pa. Super.
    1935) (citation omitted).
    In order for an equitable lien to arise, there must be an
    obligation owing by one person to another, a Res to which that
    obligation attaches, and an intent by all parties that the property
    serve as security for the payment of the obligation.           The
    potential lienor must satisfy the Chancellor that in equity and
    good conscience is he entitled to a lien.
    Mermon v. Mermon, 
    390 A.2d 796
    , 799-800 (Pa. Super. 1978) (citation
    omitted).   Additionally, “[t]o establish a right to an equitable lien, the
    evidence must be clear, precise and indubitable as to the intention of the
    parties.” 
    Id. at 799
     (citation and ellipses omitted).
    Here, the Note, which was signed by both Frank and Wendy, provides
    that it “is secured by a Mortgage upon real estate described therein.” Note,
    12/27/95, at 1 (unnumbered); see also N.T., 1/26/16, at 8 (wherein the
    Note was admitted into evidence as Exhibit 1). The Note requires monthly
    payments, and includes an amortization schedule detailing the manner in
    which each payment shall be distributed among the principal and interest
    throughout the term of the mortgage.        See Note, 12/27/95, at 1, 4-13
    (unnumbered).    Additionally, the Note provides that “the entire [p]rincipal
    shall be payable on demand by [Burnett] or upon the sale of the real estate
    securing this Note.” Id. at 1 (unnumbered) (emphasis added). Thus, the
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    Note, on its face, evidences an intent by the Janochas to assume the
    obligations of a mortgage on the Park Road Property, as well as an intent
    that the property would serve as security for payment.
    At trial, Francis Corbett, Esquire (“Attorney Corbett”), the Janochas’
    bankruptcy attorney, testified that the original bankruptcy Plan identified
    Burnett’s claim as secured by a mortgage.      See N.T., 1/26/16, at 14-15.
    Attorney Corbett testified that he subsequently sent a letter to the Janochas,
    indicating that Burnett’s claim was, in fact, unsecured, because the
    mortgage was never recorded, and that Burnett had agreed to allow Frank
    and Wendy to defer payments until they completed their bankruptcy Plan.
    See id. at 16-17. Attorney Corbett also acknowledged that distributions to
    Burnett were removed from subsequent bankruptcy Plans. See id. at 19.3
    Wendy testified that, after discovering that the mortgage was not
    recorded, Burnett agreed to allow the Janochas to pay her back after they
    had completed their bankruptcy Plan.        See N.T., 1/26/16, at 23-24.
    Additionally, Wendy testified that she and Frank discussed Burnett’s offer to
    settle the Mortgage for $125,000, and that Frank told Wendy that he had
    3
    We note that the Trustee’s Final Report and Account, which was confirmed
    by the bankruptcy court’s June 17, 2011 Order, identified Burnett as a
    secured creditor. Although the Trustee’s Final Report and Account lists
    Burnett’s secured claim in the amount of $0.00, this likely reflects the
    parties’ agreement to defer payments under the Note until the Janochas
    satisfied the terms of their bankruptcy Plan. At trial, Attorney Corbett
    testified that such an agreement is not unusual when the creditor is a family
    member. See N.T., 1/26/16, at 18. Attorney Corbett also testified that, in
    his understanding, the Janochas intended to repay Burnett after the
    bankruptcy proceedings had concluded. See id.
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    every intention of repaying Burnett. See id. at 24. Wendy agreed that she
    owes Burnett money for the Park Road Property. See id. at 38.
    Burnett testified that she loaned the Janochas money for the house to
    “help them out to get started,” and the agreement included a 6.5% annual
    interest rate. Id. at 48-49. Additionally, Burnett stated that she agreed to
    defer the payments during the bankruptcy proceedings.          See id. at 50.
    Burnett testified that she was aware of the bankruptcy proceedings, but that
    she never attended any of the hearings or filed proof of her claim. See id.
    at 64-65.
    Frank testified that he did not recall signing the Note, but that
    generally, “[Wendy] would hand [him] a paper and say, hey, you got to sign
    here, sign here.” Id. at 70. Frank also stated that he did not know how
    many payments were made to Burnett, or whether any payments had been
    made after the closing of the bankruptcy proceedings.      See id. at 70-71.
    Frank testified that he remembered meeting with Wendy and telling her that
    it was always his intention to repay Burnett. See id. at 81.
    The trial court found that Frank had acted as though a mortgage
    existed on the Park Road Property for 10 years; Frank agreed to make
    payments on the mortgage even after discovering that the Note had not
    been recorded; Frank never questioned Burnett’s right to be paid until
    Wendy filed for divorce; and, in light of the documentary evidence of record,
    Frank was not credible. Trial Court Opinion, 5/16/16, at 4 (unnumbered).
    -8-
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    Upon review, we agree with the trial court’s determinations, and
    conclude that the competent evidence of record supports the imposition of
    an equitable lien on the Park Road Property in favor of Burnett.4 Therefore,
    Frank is not entitled to relief on this claim.
    In his second claim, Frank argues that the bankruptcy court’s
    Discharge Order extinguished any lien claimed by Burnett, as she failed to
    seek the imposition of an equitable lien prior to the commencement of the
    Janochas’ bankruptcy proceedings. Brief for Appellant at 9-10. Frank also
    contends that the bankruptcy court’s Order confirming the Chapter 13 Plan,
    and the June 17, 2011 Order, bar Burnett’s claim under the doctrine of res
    judicata.   Id. at 11.    Frank claims that the Chapter 13 Plans classified
    4
    Moreover, the failure to record the mortgage does not necessarily
    invalidate the terms of the Note. Although Pennsylvania’s recording statute
    provides that “[n]o … mortgage … shall be good … unless such deed be …
    recorded within six months,” 21 P.S. § 621, the statute has been held to
    protect only bona fide third parties from secret liens.        See Britton’s
    Appeal, 
    45 Pa. 172
    , 175 (Pa. 1863) (tracing the history of section 621 and
    stating that “notwithstanding its letter, it was from the first construed, as
    the British statutes have been, to apply only to such unrecorded mortgages
    as are unknown to a subsequent purchaser. In other words, it was held to
    be for the benefit of those only who, without it, would be defrauded by a
    mortgage of which they had no notice.”); see also Lefever v. Armstrong,
    
    15 Pa. Super. 565
    , 572 (Pa. Super. 1901) (stating that “[t]he object of
    recording a mortgage is to give notice to third persons; between the parties
    thereto a mortgage is just as effectual for all purposes without recording as
    with it”); In re Fisher, 
    320 B.R. 52
    , 63 (E.D. Pa. 2005) (stating that, under
    Pennsylvania law, “a deed is valid, as between the actual parties, without
    the acknowledgement or recordation.”). Further, sections 351 and 444
    provide that an unrecorded mortgage is invalid only as to subsequent bona
    fide purchasers or mortgagees. See 21 P.S. §§ 351, 444; see also
    Roberts v. Estate of Pursley, 
    718 A.2d 837
    , 841 (Pa. Super. 1998). Thus,
    as a party to the mortgage, Frank cannot now claim that the unrecorded
    mortgage is invalid as against him.
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    J-A29033-16
    Burnett’s claim as unsecured, and that Burnett received notice of this fact
    but never contested the bankruptcy court’s Orders.             Id. at 12-13.
    Additionally, Frank argues that the June 17, 2011 Order “makes clear that all
    property ‘revested’ to [the Janochas] ‘free and clear of any and all claims.’”
    Id. at 13.
    “Ordinarily, liens and other secured interests survive bankruptcy.”
    Farrey v. Sanderfoot, 
    500 U.S. 291
    , 297 (1991). Additionally, a discharge
    in bankruptcy does not release the debtor’s real estate from the lien of a
    mortgage created before the bankruptcy. See Long v. Bullard, 
    117 U.S. 617
    , 620-21 (1886); see also Beneficial Consumer Discount Co. v.
    Hamlin, 
    398 A.2d 193
    , 199 (Pa. Super. 1979) (en banc) (stating that “all
    pre-bankruptcy liens are unaffected by the discharge unless specifically
    invalidated by the Bankruptcy Act.”). “Section 524(a)(2) [of the Bankruptcy
    Act5] … does not prohibit the holder of an unavoided lien from enforcing it
    against a debtor in an in rem proceeding.              It prohibits only the
    commencement or continuation of an action to collect debtor’s personal
    5
    Section 524(a)(2) of the Bankruptcy Act provides the following concerning
    the effect of a discharge in bankruptcy:
    (a) A discharge in a case under this title—
    (2) operates as an injunction against the commencement or
    continuation of an action, the employment of process, or an act,
    to collect, recover or offset any such debt as a personal liability
    of the debtor, whether or not discharge of such debt is waived.
    
    11 U.S.C. § 524
    (a)(2).
    - 10 -
    J-A29033-16
    liability that arose in connection with the lien.” Reed v. S & T Bank, 
    274 B.R. 155
    , 158 (Bankr. W.D. Pa. 2002) (emphasis in original, footnote
    added); see also Johnson v. Home State Bank, 
    501 U.S. 78
    , 84 (1991)
    (stating that “a bankruptcy discharge extinguishes only one mode of
    enforcing a claim—namely, an action against the debtor in personam—while
    leaving intact another—namely, an action against the debtor in rem.”).
    The bankruptcy court considered the relevant case law, and concluded
    that, “to the extent [] Burnett possesses a valid equitable lien and to the
    extent it was not divested by the events of [the Janochas’] bankruptcy,
    nothing in the [] [D]ischarge [O]rder would prevent [] Burnett from
    enforcing the equitable lien against the [Park Road P]roperty.” Burnett v.
    Janocha (In re Janocha), 
    2015 Bankr. LEXIS 39
    , *9-10 (Bankr. W.D. Pa.
    2015). Additionally, the bankruptcy court noted that the Chapter 13 Trustee
    did not file a motion to avoid the lien, and that such an action, if filed,
    “would have rendered any lien claimed by [] Burnett a nullity….” 
    Id.
     at *11-
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    J-A29033-16
    12 n.3.6    The bankruptcy court also stated that “since the discharge
    injunction only enjoins in personam claims against the [Janochas], there
    presently is no impediment to the state court deciding the controversy.” Id.
    at *14.
    Upon review, we conclude that, because Burnett’s Complaint in Equity
    seeking the imposition of an equitable lien is an action in rem, rather than in
    personam, the equitable lien was not extinguished by the Discharge Order.
    See Johnson, 
    supra;
     see also Reed, 
    supra.
               The Janochas signed the
    Note in 1995, more than a decade prior to the commencement of the
    6
    A bankruptcy Trustee’s avoidance powers are described in Section 544 of
    the Bankruptcy Act, which provides, in relevant part, the following:
    § 544. Trustee as lien creditor and as successor to certain
    creditors and purchasers
    (a) The trustee shall have, as of the commencement of the case, and
    without regard to any knowledge of the trustee or of any creditor, the
    rights and powers of, or may avoid any transfer of property of the
    debtor or any obligation incurred by the debtor that is voidable by—
    ***
    (3) a bona fide purchaser of real property, other than fixtures,
    from the debtor, against whom applicable law permits such
    transfer to be perfected, that obtains the status of a bona fide
    purchaser and has perfected such transfer at the time of the
    commencement of the case, whether or not such a purchaser
    exists.
    
    11 U.S.C. § 544
    (a)(3); see also In re Bridge, 
    18 F.3d 195
    , 199 (3d Cir.
    1994) (stating that “as of the date of the [bankruptcy] petition’s filing …
    [Section] 544(a)(3) confers upon the trustee the rights of a bona fide
    purchaser when … real property is at issue.”).
    - 12 -
    J-A29033-16
    bankruptcy proceedings, and therefore, the resulting in rem lien remains
    unaffected by the Discharge Order or the Bankruptcy Act. See Beneficial
    Consumer, supra. Additionally, although the Note was never recorded, the
    Chapter 13 Trustee did not file a motion to avoid Burnett’s lien, pursuant to
    Section 544 of the Bankruptcy Act, at any time during the proceedings. See
    PNC Bank, Nat’l Ass’n v. Balsamo, 
    634 A.2d 645
    , 653 (Pa. Super. 1993)
    (concluding that the appellant’s lien survived bankruptcy proceedings where
    neither party took action to avoid appellant’s judgment lien); see also
    Reed, 
    supra;
     Bankruptcy Court Order, 8/23/06, at 2 (confirming the
    Janochas’ Second Amended Plan, and providing that “[a]ll actions to
    determine the … avoidability … shall be filed within ninety (90) days after the
    claims bar date.”). Accordingly, Frank is not entitled to relief on this claim.
    In his third claim, Frank contends that the equitable defense of laches
    estopped Burnett from pursuing her claim for an equitable lien. 7       Brief for
    Appellant at 13.    Frank states that he and Wendy executed the Note in
    December 1995, and asserts that while “the loan has no doubt been in
    default for quite some time, Burnett never exercised her apparent rights
    under the Note….”     Id. at 14.    Frank also observes that Burnett did not
    attempt to assert her rights during the bankruptcy proceedings or the five-
    year repayment period.      Id. at 15.      Frank argues that Burnett filed her
    7
    We note that although the trial court did not review Frank’s third claim in
    its Opinion, Frank properly raised this claim in his Pa.R.A.P. 1925(b) Concise
    Statement.
    - 13 -
    J-A29033-16
    Complaint in Equity “only after it became apparent to her that [Frank] and
    [Wendy] were divorcing….” Id.
    “Unlike the application of the statute of limitations, exercise of the
    doctrine of laches does not depend on a mechanical passage of time.” Kern
    v. Kern, 
    892 A.2d 1
    , 9 (Pa. Super. 2005). Rather,
    [l]aches bars relief when the complaining party is guilty of want
    of due diligence in failing to promptly institute the action to the
    prejudice of another. Thus, in order to prevail on an assertion of
    laches, respondents must establish: a) a delay arising from
    petitioner’s failure to exercise due diligence; and, b) prejudice to
    the respondents resulting from the delay.            Moreover, the
    question of laches is factual[,] and is determined by examining
    the circumstances of each case.
    Fulton v. Fulton, 
    106 A.3d 127
    , 131 (Pa. Super. 2014) (citation omitted);
    see also A-1 Discount Co. v. Nardi, 
    735 A.2d 121
    , 124 (Pa. Super. 1999)
    (stating that “delay alone will not establish laches; instead, prejudice is an
    essential element of laches and the doctrine will not be applied in its
    absence.”). Additionally,
    [t]he party asserting laches as a defense must present evidence
    demonstrating prejudice from the lapse of time. Such evidence
    may include establishing that a witness has died or become
    unavailable, that substantiating records were lost or destroyed,
    or that the defendant has changed his position in anticipation
    that the opposing party has waived his claims.
    Commonwealth ex rel. Baldwin v. Richard, 
    751 A.2d 647
    , 651 (Pa.
    2000) (internal citations omitted).
    Here, the Janochas began to default on the mortgage payments in
    1997.      Further, contrary to Frank’s argument that Burnett filed the
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    J-A29033-16
    Complaint in Equity after learning of the divorce, Burnett filed the Complaint
    in Equity after Frank argued for the first time in the divorce proceedings that
    the Note did not constitute a valid mortgage.      Frank broadly claims that
    Burnett filed the Complaint in Equity “at a point that acts to the severe
    prejudice of [Frank],” and that “it is an action that severely prejudices
    [Frank] and his potential claim for distribution.” Brief for Appellant at 14,
    16.
    Frank, having acted as though Burnett held a valid lien on the Park
    Road Property since he signed the Note in 1995, cannot now claim that he
    was prejudiced by Burnett’s delay in filing the instant Complaint in Equity
    against her daughter and son-in-law. The delay appears to be the result of
    a familial agreement, and has not resulted in the type of prejudice that the
    doctrine of laches is intended to prevent. Frank failed to establish that he
    suffered a changed position in anticipation that Burnett would not enforce
    the Note.   See Miller v. Bistransky, 
    679 A.2d 1300
    , 1302 (Pa. Super.
    1996)    (stating that “[p]rejudice exists where there is some changed
    condition of the parties which occurs during the period of, and in reliance on,
    the delay … and where the party asserting laches has changed his or her
    position in anticipation that a party will not pursue a particular claim.”).
    Accordingly, because Frank failed to establish that he suffered prejudice as a
    result of the delay, he is not entitled to relief on his final claim.   See 
    id.
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    J-A29033-16
    (dismissing appellant’s laches claim where appellant failed to show adverse
    effects from a nearly 50-year delay); see also A-1 Discount Co., supra.
    Order affirmed.
    Judgment Entered.
    Joseph D. Seletyn, Esq.
    Prothonotary
    Date: 12/22/2016
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