Wood Electric, Inc. et al v. FirstMerit Bank, N.A.

OCR transcription for search; preserved printed pages are authoritative

The court incorporates by reference in this paragraph and adopts as the findings and orders
of this court the document set forth below.

Russ Kendig
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO

EASTERN DIVISION
IN RE: ) CHAPTER 11
)
INVESTMENT REALTY ) CASE NOS. 10-62380, 10-62384,
PROPERTIES, LTD., et al., ) 10-62386 thru 10-62389
) (Jointly Administered)
Debtors. )
) ADV.NO. 10-6119
WOOD ELECTRIC, INC. ANDIVAN _ )
WEAVER CONSTRUCTION, ) HONORABLE RUSS KENDIG
)
Plaintiffs, )
) MEMORANDUM OF OPINION
v. ) (NOT INTENDED FOR
) PUBLICATION)
FIRSTMERIT BANK, N.A., )
Defendant. )
)

Defendant, FirstMerit Bank, N.A. (“Defendant” or “FirstMerit”), seeks judgment on
the pleadings under Federal Rule of Bankruptcy Procedure 7012, which adopts Federal Rule
of Civil Procedure 12 into bankruptcy practice. Defendant alleges the complaint was
untimely and seeks dismissal. Plaintiffs oppose the relief.

The court has jurisdiction of this proceeding pursuant to 28 U.S.C. § 1334 and the
general order of reference entered in this district on July 16, 1984. Venue in this district and
division is proper pursuant to 28 U.S.C. § 1409. This is a core proceeding under 28 U.S.C.

§ 157(b)(2)(K).

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This opinion is not intended for publication or citation. The availability of this
opinion, in electronic or printed form, is not the result of a direct submission by the Court.

FACTS

Plaintiffs filed an adversary complaint on November 17, 2010 seeking a
determination that their mechanics’ liens have priority over Defendant’s mortgage. The
deadline to file the complaint is governed by a provision in the cash collateral order in the

main case. The provision states:

14. If the IRP Debtors, the Committee or any other
creditor or party in interest do not bring an action chal-
lenging the validity and priority of the liens, mortgages
and security interests of FirstMerit granted to FirstMerit
prepetition (and postpetition hereunder) within 30 days
of the date of entry of this Order then the priority of such
liens, mortgages and security interests shall be presumed
to be first priority and such liens, mortgages and security
interests shall be presumed conclusively to be valid in all
respects and not subject to further challenge. The IRP
Debtors are not authorized to use the Cash Collateral of
FirstMerit to fund the research, filing and prosecution

of any action challenging the validity and priority of the liens,
mortgages and security interests of FirstMerit.

(Final Agreed Order Authorizing Use of Cash Collateral § L(14)) (‘paragraph fourteen”).
The court entered the order on October 1, 2010.

On October 18, 2010, the court entered the Agreed Amended Final [Cash Collateral]
Order (“amended order”). (Doc. 153). It contained an identical provision. The amended
order did not make substantive changes, but merely was filed to attach a copy of the cash
collateral budget which was not available when the original order was filed.

Neither the original order or the amended order provide a definition for the term
“Order” used in paragraph 14.

On November 9, 2010, the court entered a Stipulation and Order Amending Final
Order Authorizing Use of Cash Collateral (“Stipulation”). (Doc. 168.) The Stipulation
amended paragraph fourteen to state that no challenges to FirstMerit’s liens were filed, so
the liens were deemed to be first priority and not subject to further challenge as to all parties
except the debtors. The Stipulation contained specific deadlines and condition for the

debtors to challenge FirstMerit liens.

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LAW AND ANALYSIS

Defendant argues that the complaint is untimely, contending the deadline to file the
complaint was November 1, 2010. Its calculation is based on the filing date of the original
cash collateral order. According to Defendant, the filing date of the amended order was
immaterial in calculating the time period to challenge FirstMerit’s liens. The amended order
merely corrected the equivalent of a clerical error, making no substantive changes, so it
relates back to the original order. Therefore, Defendant surmises the filing date of the

original controls the start of the 30-day window to challenge the liens.

Plaintiffs, in turn, argue that the amended order re-started the thirty day period to file
challenges to Defendant’s liens. Under this view, the last day to file a complaint was
November 17, 2010 — the date Plaintiffs filed the complaint. Plaintiffs also contend that use
of the terminology “this Order” in paragraph fourteen of the amended order is specific to the
amended order and cannot be reasonably understood to refer to the original order. They also
contend that since FirstMerit participated in the drafting of the order, an ambiguity must be

construed against it as a matter of law.

Review of a motion for judgment on the pleadings is identical to a motion to dismiss
under Federal Rule of Civil Procedure 12(b)(6). Hamerly v. Fifth Third Mortg. Co. (In re
J & M Salupo Dev. Co.), 388 B.R. 795 (6" Cir. 2008). To succeed, Defendant must
demonstrate that Plaintiffs cannot prove a plausible set of facts upon which relief can be
predicated. ‘For purposes of a motion for judgment on the pleadings, all well-pleaded
material allegations of the pleadings of the opposing party must be taken as true, and the
motion may be granted only if the moving party is nevertheless clearly entitled to judgment.’

JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d577, 581 (6" Cir. 2007) (citation omitted).

The procedural facts are not disputed and the substantive facts of the complaint are
not at issue. The motion presents a question of law concerning the bar for filing the
complaint: did a new thirty period for challenging FirstMerit’s liens start when the amended
order was entered? Defendant has not proffered any law in support of its position that the
thirty days should be calculated from the date of the original order.

FirstMerit was involved in negotiating and drafting the cash collateral order. As a
drafter, any ambiguity in interpretation in the document is construed against FirstMerit.
Royal Ins. Co. of America v. Orient Overseas Container Line Ltd., 525 F.3d 409 (6" Cir.
2008). In this instance, equity demands this result because Plaintiffs had no opportunity to
weigh in on the language which binds them. Further, the ambiguity was avoidable. The
amended order could have easily used language stating the date from which the time
commenced or any of a number of other words to reach the same conclusion.

According to Defendant, the only reason for the amended order was to attach a budget
governing use of cash collateral. The implicit suggestion is that a ministerial amendment to

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the order has a different impact than a substantive one. Defendant provides no support for
this position.

Paragraph fourteen states that if no challenge to FirstMerit’s liens is raised within
thirty days of “this Order,” FirstMerit’s liens are deemed to have priority. The terminology
“this Order” is specific and refers to the order in hand. The amended order, with its entry
date of October 18, 2011, clearly starts the time running from the date of entry of the
amended order. No other definition is otherwise provided for the term “this Order,” so the
court relies on the natural meaning and understanding of the phrase.

Defendant urges the court to take the original order, amended order, and Stipulation
as a package, and interpret the documents consistently. Paragraph fourteen of the
Stipulation, entered on November 9, 2010, indicates the challenge period expired, without
any objection, and declares FirstMerit’s liens to be valid and superior in priority. The
accuracy of this statement is based on utilizing a time period which runs from entry of the
original order. Using the date of the amended order renders the Stipulation inaccurate. The
court is not persuaded by this argument. No one challenges what Defendant may have
intended. Defendant’s argument ignores the fact it could have merely been wrong. Plaintiffs

have shown that an alternative understanding is plausible.

The court concludes that the thirty day period to challenge Defendant’s lien started
over with entry of the amended order. Consequently, the complaint was timely filed.

This result is attained without consideration of the requirements of Federal Rule of
Bankruptcy Procedure 7001 and obvious related questions about the ability of cash collateral

orders to bind non-parties.

Defendant’s motion for judgment on the pleadings is not well-taken and will be
denied.

The court will immediately enter an order.

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Service List:

Curtis L. Tuggle
Thompson Hine LLP
3900 Key Center

127 Public Square
Cleveland, OH 44114

Gregory R. Farkas
James T. Dixon

John F. Kostelnik
Timothy J. Richards
Frantz Ward LLP
2500 Key Center

127 Public Square
Cleveland, OH 44114

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