Southern Bank and Trust Company et al v. Alexander et al
Filing
11
OPINION that the court AFFIRMS the Memorandum Opinion of July 16, 2014, in which opinion the Bankruptcy Court granted the Trustee's Motion to Dismiss all nine counts of the Complaint. Further, the court DENIES the Trustee's Motion to Exclude Exhibits. Signed by Chief District Judge Rebecca Beach Smith on 12/16/2014 and filed on 12/17/2014. (rsim, )
UNITED
STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA
Norfolk Division
In
re:
Darvin Alexander and
Case #:
Bonita Renee Alexander,
APN:
11-74515
13-07146
Chapter 7
Debtors.
Southern Bank & Trust Company,
James M. Pickrell, Jr., Trustee,
Janice P. Anderson, Trustee,
Appellants,
CIVIL NO.
v.
2:14cv465
Darvin Alexander,
Bonita Renee Alexander,
Leontine Brown,
Rogers Lee Brown,
United States of America,
and
Clara P. Swanson, Chapter 7 Trustee,
Appellees.
OPINION
This matter is before the court on appeal,
pursuant to 28
U.S.C. § 158(a), from the United States Bankruptcy Court for the
Eastern
District
Appellants,
of
Southern
Virginia
Bank
and
(the
Trust
''Bankruptcy
Company,
Court") .
Trustee
James
The
M.
Pickrell, Jr., and Trustee Janice P. Anderson (collectively, the
"Bank"),
appeal
the
Bankruptcy
Court's
dismissal
Complaint by Memorandum Opinion of July 16, 2014.
of
their
This matter is
also before the court on the "Objection to Exhibits to Brief and
Motion
to
Strike
Exhibits"),
Clara
For
P.
the
Strike
Same,
Swanson,
reasons
Exhibits
is
with
filed
Points
on
and Authorities"
October 9,
Chapter 7 Trustee
stated
DENIED,
herein,
and
the
the
2014,
by
("Motion to
the
(the "Trustee").
Trustee's
Bankruptcy
Motion
Court's
Appellee,
ECF No. 7.
to
Strike
decision
is
AFFIRMED in all respects.
Upon
examination
of
the
briefs
and
the
record on
appeal,
the court concludes that oral argument is unnecessary to decide
the
issues
presented
on
this
appeal,
as
arguments are adequately presented in
"the
facts
and
legal
the briefs and record and
the decisional process would not be significantly aided by oral
argument."
Fed.
R.
Bankr.
P.
8012;
see,
e.g. ,
No. 305cv482, 2006 WL 848120, at *1 (E.D. Va. Mar.
I.
On
Appeal,
July 28, 2014,
appealing
Complaint
against
Alexander"),
collectively
"Alexanders"),
("Mr.
the
the
Bank
filed
Mr.
Leontine
Brown
("Mrs.
Revenue
Notice of Appeal,
Service
ECF No.
2.
and
of
the
("Mr.
Alexander,"
"Debtors"
Brown"),
("IRS"),
of
Alexander
("Mrs.
the
Notice
dismissal
or
and
the
Rogers Lee Brown
Brown," and collectively with Mrs. Brown,
Internal
Smoot,
30, 2006).
timely
Darvin
Alexander
Alexander,
the
Court's
Defendants
Renee
re
BACKGROUND
Bankruptcy
the
Bonita
with
the
In
the
the "Browns"),
Trustee.
See
A. Factual History1
By
Deed"),
valid
Mrs.
and
and
the
property
in
Pleasant
Ridge
Mrs.
BNC
Court,
Mortgage,
January 29, 1999
mother
and
Mrs.
at
6,
Brown
4.
("BNC") .
Id.
loan
On
entered into
("2006 Deed"),
to
Mrs.
Loan"),
same
date,
a properly recorded
Mrs. Alexander and Mrs.
("1999
Deed of
Id. at 6-7.
Brown executed a
which conveyed all of their interests in the
Brown
May 5, 2006,
which
(the
("1999 Loan")
and
Mr.
Brown.
Id.
at
7.
However,
2006 Deed was never recorded in the Clerk's Office.
On
700
February 8, 1999,
in the principal amount of $200,000.00.
2006,
all
as
23320
On that
Brown entered into a
Inc.
known
Virginia,
ECF No.
("1999
acquired
improvements
to secure the note payable to BNC
On April 19,
Property
of
Chesapeake,
and Mrs. Brown
deed of trust
deed
her
Br.
and Mrs.
Mrs. Alexander
Trust"),
real
Appellant
Alexander
with
deed
Alexander
interests
"Property").
recorded
the
consists
Browns
of
a
entered
$475,000.00
into
Note
the
Id.2
a
loan
("2006
("2006
Note")
payable to the Bank of the Commonwealth and a properly recorded
deed of trust
the
2006
("2006 Deed of Trust")
Note.
IcL
$194,174.27
of
to secure the payment
the
proceeds
from the
of
2006
1 On appeal, the district court reviews findings of fact made by
the Bankruptcy Court for clear error.
2 In addition,
See infra Part II.B.l.
the unrecorded deed spelled Mrs. Brown's first
name incorrectly as "Leotine" rather than "Leontine." See Compl.
1 12,
ECF No.
2.
Loan
fully
paid
off
and
satisfied
the
1999
Loan
previously owed by Mrs. Alexander and Mrs. Brown.
On
credit
to
September 19, 2006,
("Line of Credit")
the
Bank
Browns
of
the
the
in
Browns
the
Commonwealth.
signed a deed of
trust
Id.
of
On
in
the
Clerk's
Subsequently,
Office
there
December 30, 2008,
on
were
and
that
changes
On
trust
September 27,
2006
2010,
the
Note,
Property
the
Line
in
of
2010.
the
Id.
line
of
payable
date,
Deed of
the
Trust")
which was recorded
2006.
terms
Id.
at
7-8.
agreements
September 23, 2010,
("2010 Deed of Trust")
conveying
in
a
same
("Line of Credit
September 26,
modification on September 23,
into
$80,000.00,
to secure the payment of the Line of Credit,
was
Id.
entered
amount
that
as
dated
well
as
a
deed
of
at 8.
Browns
entered
into
a
with the Bank of the Commonwealth,
trust
Credit,
to
secure
and
any
the
payment
Browns owed to the Bank of the Commonwealth.
the
obligations
other
of
the
Id.
Southern Bank and Trust Company acquired the assets of the
Bank
of
the
Corporation
Commonwealth
assigned to the Bank.
On
protection
the
of
the
three
deeds
of
trust
were
Id.
February 9, 2012,
bankruptcy
under
Bank
Insurance
and
benefits
the
Deposit
the obligations under the 2006 Loan and the Line of Credit,
and
for
Federal
and
rights
Receiver
the
Commonwealth,
the
as
from
the
("Brown
Browns
filed
Bankruptcy") ,
for
which
Chapter
case
11
was
converted
to
a
Chapter
7
bankruptcy
proceeding
on
January 10, 2013, and the Honorable Stephen C. St. John presided
over the Brown Bankruptcy.
in their schedules,
Loan
and
Line
of
as
Id. The Browns included the
well as
Credit.
Id.
Property
their obligations under the 2006
at
8-9.
On
Bankruptcy Court entered a Relief Order,
January 8, 2013,
the
which granted the Bank
the ability to enforce its rights under the Loan documents.
at
10.
The
May 21, 2013,
Browns
and
received
the
Brown
their
Chapter
Bankruptcy
7
case
Id.
discharge
was
on
closed
on
May 29, 2013. Id_;_ at 9.
On
October 10,
their Chapter
13
to
on
Chapter 7
presided
over
2011,
the
bankruptcy
Debtors,
petition,
November 6, 2013,
the
case.
Id.
at
the
which
and
5,
Alexanders,
case
Chief
10.
The
to
Chapter
7,
they
filed
an
John
did
not
but upon their
schedule,
in
a tenancy-in-common
interest in the Property with her mother Mrs.
However,
St.
Debtors
amended
which they asserted that Mrs. Alexander has
converted
Judge
initially schedule any interest in the Property,
conversion
was
filed
Brown.
Id.
at 10.
the Debtors did not schedule themselves as being liable
under either the 2006 Loan or the Line of Credit.
Id.
at
11.
B. Procedural History
1. Bankruptcy Court Appeal
The Bank filed the Complaint on November 25,
it
asserted nine
causes
of
action:
(I)
2013,
declaratory
in which
judgment
as
to
the
deeds
validity
of
trust;
trust;
of
the
Bank's
lien;
(III) equitable
(V) equitable
lien;
(VII) unjust
enrichment;
(IX) equitable
relief
(II)
reformation
subrogation;
(VI) implied
to
11
the
(IV) constructive
or
resulting
(VIII) specific
pursuant
of
trust;
performance;
U.S.C.
§ 105.
The
and
Trustee
filed a Motion to Dismiss the Complaint on January 13, 2014,
which
she
§ 544
and status
various
argued
forms
Supp. Mot.
Motion
full
2014,
to
a bona
equitable
briefing
the
Dismiss
Opinion of
Bankr.
as
her
strong-arm
powers
fide purchaser
under
("BFP")
relief sought by the
11
U.S.C.
defeated the
Bank.
See Mem.
Dismiss at 4, ECF No. 2.
After
March 12,
of
that
in
by
the
Bankruptcy
all
counts
July 16, 2014
parties
Court
of
the
and
a
granted
the
Complaint
hearing
by
on
Trustee's
Memorandum
("Bankruptcy Memorandum Opinion").
See
Mem. Op. at 28, ECF No. 2. The Bankruptcy Court dismissed
the declaratory judgment sought in Count I,
on the grounds that
a ruling in the Bank's favor on the other equitable claims would
resolve
all
its
claims.
Id.
at
9-10.
The
Bankruptcy
Court
dismissed the claims in Counts II through VIII in recognition of
the Trustee's strong-arm powers pursuant to 11 U.S.C.
Id.
at
because
11.
the
Further,
the
substantive
Bankruptcy
relief
Court
sought
dismissed
under
Title
§ 544(a).
Count
11
IX,
U.S.C.
§ 105 would go beyond the provisions of the Bankruptcy Code and
beyond the authority of the Bankruptcy Court.
See id. at 25-28.
On September 25, 2014,
Brief"),
appealing
Complaint,
is
a
No.
4-1.
the
the Bank filed its Brief
Bankruptcy
Court's
and attached four exhibits.
copy
of
the
Exhibit
Automatic
Stay
schedules
B
is
a
copy
("Relief
December 5, 2012,
from
of
the
Brown
Motion
which
and
No. 4-2.
Relief
the
Deed
Exhibit C
Motion,
Brown
owned
2010
is
which
Property
a
that
filed
and
in
the
100% interest in the Property.
the
for
Exhibit A
ECF
Relief
Bank
from
filed
on
and in which the
the
Browns'
on
which
Bank
its
Line of Credit Deed of
encumber
of
Browns
case,
and
Trust
copy
the
Bankruptcy
the
of
of
Bankruptcy.
the
in the Brown Bankruptcy case,
Bank alleged that the 2006 Deed of Trust,
Trust,
dismissal
See ECF No. 4.
the
Motion"),
("Appellant
Response
ECF
to
the
December 14, 2012,
they
has
Property.
a
state
lien
that
on
an
in
they
entire
ECF No. 4-3. Exhibit D is a copy
of the Relief Order entered by the Bankruptcy Court in the Brown
Bankruptcy
on
January 8, 2013,
in
granted the Bank's Relief Motion.
On October 9,
which
ECF No.
the
Bankruptcy
Court
4-4.
2014, the Trustee filed her Brief
("Appellee
Brief"), in which she asserts that the Bankruptcy Court correctly
dismissed
the
Complaint
power as a bona
fide
and
correctly
held
purchaser pursuant
to
that
the
Trustee's
11 U.S.C.
§ 544(a)
defeats the Bank's prayer for various forms of equitable relief.
Appellee
Br.
at 2,
ECF No. 6.
("Appellant Reply Brief")
The Bank filed its Reply Brief
on October 23, 2014.
7
ECF No.
9.
2.
The
Motion to Strike Exhibits
Trustee
October 9, 2014,
four
exhibits
filed
in
that
this
Court's
Strike
ruling
excluded
Appeal.
"[t]he
are
the
court
Exs.
four
"must
based
to
on
The
to
Trustee
the
Strike
argues
Appellant
the
the
from
the
that
filed
exhibits
by
that
the
Judge
Bank's
expressly
of
court."
the
Trustee
John
Bankruptcy
Bankruptcy
Appellants
St.
the
that
the
the
were
of
Designation
Specifically,
the
on
Bankruptcy Court and
before
notes
Exhibits
that
Brief
propriety
record
Trustee
at 2.
exhibits
exact
the
decide
exhibits
id.
Motion
record on appeal by the
at 3.
the
See
which
attached
excluded from the
the
Mot.
Court
Record
states
with
their
expressly
on
that
brief
excluded
from the record on appeal." Id. at 3 (emphasis added).
On
October 20, 2014,
Opposition
("Response
which
the
additional
to
in
the
Appellee's
Opposition
Bank
filed
Objection
to
asserts
evidence."
Bank
Motion
that
Resp.
the
Opp'n
its
and
to
Mot.
Motion
Strike
four
Response
to
Strike
Strike
Exhibits"),
exhibits
Exs.
"are
at
in
2,
in
not
ECF
No. 8.3 The Bank argues that "[t]he Bankruptcy Court should have
taken,
and
notice
of
3 Moreover,
the
the
District
Brown
Court
is
Bankruptcy
compelled
to
Schedules,
take,
judicial
Relief
Motion,
the Bank asserts that the Chapter 7 Trustee "is
desperate to keep the Bankruptcy Court Pleadings from this Court
because such documents are fatal to the Chapter 7 Trustee's case
on appeal." Resp.
Opp'n Mot.
Strike Exs.
8
at 2.
Response,
and Relief
Order pursuant to
Rules of Evidence." Id.
The Trustee
of Motion
to
In her Reply,
judicial
her
Exhibits")
of
the
Motion
on
P. 8006.
Federal
Support
on October 24,
Bank's
See Reply Supp. Mot.
2014.
ECF No.
10.
an
exhibits
because
they
are
Strike Exs. at 3-4.
ANALYSIS
to Strike Exhibits
Federal Rule of
record
the
("Reply in
Reply Memorandum
II.
A.
of
the Trustee argues that the court should not take
notice
irrelevant.
201
at 7 (emphasis added).
filed
Strike
Rule
Bankruptcy Procedure 8006 provides for the
appeal
from
In relevant part,
a
bankruptcy
court.
Fed.
R.
Bankr.
Rule 8006 provides that "[t]he record
on appeal shall include the items so designated by the parties,
the notice
from,
of
has
of appeal,
and any opinion,
the
court."
Id.
The
the
judgment,
findings of
Court
of
order,
fact,
Appeals
or decree
appealed
and conclusions of law
for the
Fifth Circuit
added that:
[Bankruptcy]
appeal from
Rule 8006 provides that the record
a bankruptcy court decision consists
designated
materials
that
became
bankruptcy court's record in the
rule does not permit items to be
part
of
on
of
the
first instance. The
added to the record
on appeal to the district court if they were not part
of the record before the bankruptcy court.
In re CPDC,
Inc.,
337
F.3d
436,
443
(5th Cir.
2003)
(emphasis
added). Thus, the Motion to Exclude Exhibits requires the court
to make two determinations:
(1)
whether the exhibits were part
of the record before the bankruptcy court;4 and (2) whether the
information meets
the narrow purpose of
re SI Restructuring,
Inc.,
judicial notice.
480 F. App'x 327,
329
(5th Cir.
See In
2012).
Federal Rule of Evidence 201 provides for the judicial notice of
adjudicative facts.
In relevant part, the Rule provides:
(a) Scope. This rule governs judicial notice of an
adjudicative fact only, not a legislative fact.
(b) Kinds of Facts That May Be Judicially Noticed. The
court may judicially notice a fact that is not subject
to reasonable dispute because it:
(1) is generally known within the trial court's
territorial jurisdiction; or
(2) can be accurately and readily determined from
sources
whose
accuracy
cannot
reasonably
be
questioned.
(c) Taking Notice. The court:
(1) may take judicial notice on its own; or
(2) must take judicial notice if a party requests
it
and the
court
is
supplied with
the
necessary
information.
(d) Timing. The court may take judicial notice at any
stage of the proceeding.
(e) Opportunity to Be Heard. On timely request, a
party is entitled to be heard on the propriety of
taking judicial notice and the nature of the fact to
be noticed. If the court takes judicial notice before
notifying a party, the party, on request, is still
entitled to be heard.
Fed. R. Evid.
201
Generally,
a
document
litigation,
(emphasis added).
even though a court may take judicial notice of
filed in another court to establish the
courts
cannot
take
judicial
notice
of
fact of such
the
factual
4 The exhibits attached to the Appellant Brief were not part of
the record before the Bankruptcy Court, and thus, the Bankruptcy
Court disallowed the documents from being included in the record
on the designation of appeal. See Bankruptcy Court Docket, ECF
No. 2; Mot. Strike Exs. at 2; Resp. Opp'n Mot. Strike Exs. at 2.
10
findings
of
F.3d 827,
Appeal
another
830
for
(5th Cir.
the
merely
because
action,
the
and
Med.
Corp.,
it
has
been
found
of
United States
162
Eleventh
Circuits).
"If
to
be
true
collateral
v.
Jones,
29
in
F.3d
a fact
some
estoppel
other
would
1549,
it
1553
be
(11th
1994).5 Although these cases deal with evidence submitted
this
case,
situations
F.2d
July 15,
the
in
discretion to
937
Charter
for a court to take judicial notice of
with a motion for summary judgment,
in
v.
(noting agreement by the Courts of
Eighth,
doctrine
superfluous."
Taylor
1998)
Second,
were permissible
Cir.
court.
a
law
of
similar
unlike the Motion to Dismiss
judicial
manner.
notice
Moreover,
the
supplement the record on appeal.
602,
Nos.
90-3133,
applies
90-3170,
to
court
has
See In re
at
*1
both
(4th
the
David,
Cir.
1991) .
In essence,
the Bank is asking the court
to
take
judicial
notice of the factual findings of another court.6 The Bankruptcy
Court did not have occasion to consider the rights and interests
of
the
Trustee
when
issuing
the
Relief
Order
in
the
Bank's
Exhibit D, as the Trustee was not a party before the Bankruptcy
5 The Bank admits that "[t]his is not an issue of res judicata or
collateral estoppel." Appellant Br. at 13.
6 It is of no importance to the court that Chief Judge St. John
presided
over
Bankruptcy.
both
the
Moreover,
Brown
the
Bankruptcy
Bankruptcy
and
Court
the
Alexander
specifically
disallowed the four exhibits from the designation of the record
on appeal, as they were not considered by the Bankruptcy Court
in rendering its decision.
11
Court in the Brown Bankruptcy.
This arguable question as
to the
factual finding made in the Relief Order is certainly enough to
cast doubt on the accuracy of the factual findings therein.
The
court agrees with the Trustee's assessment that the Bank "cannot
prove
anything
through
bankruptcy case,
to
pleadings
and
orders
which this Trustee was
Supp. Mot. Strike Exs. at 4.7 In addition,
determination
not
an
Whether
regarding the
"adjudicative
a party has
Bank's
fact"
the
another
a party." Reply
the Brown Bankruptcy
interest
within
any interest
not
in
in
the
meaning
in a parcel of
Property is
of
Rule
201.
property is a
7 In support of its Response
in Opposition to the Motion to
Strike
cites
Exhibits,
the
Bank
several
cases
for
proposition that the court should take judicial notice
Relief Order and other Brown Bankruptcy filings.
In
Federal Support Co., for example, the court took judicial
of "evidence presented at earlier hearings in the [same]
over
the
appellants'
considered
and
used
argument
its
that
knowledge
the
of
court
the
"should
facts
the
of the
In re
notice
case,"
not
have
presented
at
earlier hearings in the case." No. 87-325-N, 1987 U.S. Dist.
LEXIS 7646, at *6 (E.D. Va. Aug. 10, 1987). Moreover, in that
case, the appellants had already waived any right to raise the
issue on appeal. Id. at *5-6. The Bank further cites to In re
Food Fair, a case in which the bankruptcy court ruled that a
document, though it was not before the court at the time of the
Orders being appealed, should be available to the appellate
court when it considers the appeal. 15 B.R. 569, 572 (Bankr.
S.D.N.Y.
1981).
In
that
case,
the
document
related
adversary proceedings before the bankruptcy court
"very closely related to the Orders which have been
Id.
Indeed,
the
procedural
posture
of
In
re
distinguishes it from the instant litigation. In
case, the Bankruptcy Judge has already considered
designate the exhibits as part of the appeal to this
the Bankruptcy Judge rejected the Bank's position.
12
to
several
which were
appealed."
Food
Fair
the Bank's
whether to
court, and
mixed
question
of
fact
court's de novo review.
The
court
interests of
exercise
has
and
law
and
See Taylor,
read
and
is
thus
subject
discretion
and
the
In
the
162 F.3d at 830-31.
considered
the
exhibits.
justice and a full and fair appeal,
its
to
consider
the
the court will
exhibits
attached by
the Bank.8 The court will take judicial notice of the fact of the
exhibits,
the
such as the dates and parties in the filings. However,
court
declines
to
take
judicial
contents of the Bank's exhibits,
notice
of
the
"factual"
including the legal conclusions
of the Bankruptcy Court in the Brown Bankruptcy case.
will
not
case,
accept as
"adjudicative fact" the
especially one
findings
in which the Alexanders were
The court
in another
not a party.
Since the facts in the filings in the Brown Bankruptcy case are
not
binding
take
on
this
judicial
Specifically,
Brown
in
in
of
any
notice
the
Bankruptcy
interest
court
court
Court's
the
will
this
case,
"fact"
not
factual
Property:
the
in
take
that
declines
Bank's
judicial
finding
that
the
court
determination
exhibits.
notice
the
Bank
is
to
of
has
not
the
an
an
The Bank argues that "the Bankruptcy Court prematurely
prevented the Lender from ^trying its case' by granting a motion
to dismiss before the Lender could get to the merits of its
case." Resp. Opp'n Mot. Strike Exs. at 11. However, there were
no issues of material fact in dispute at the time that the
Bankruptcy Court granted the Motion to Dismiss, and it remains
true during this appeal, that there are no issues of material
fact that are in dispute. The Motion to Dismiss, as well as this
appeal,
can
be
decided
on
the
basis
within the Bank's Complaint.
13
of
the
factual
statement
adjudicative
fact
reliability
at
831.
Relief
can
within
be
and
meaning
of
reasonably questioned.
Accordingly,
Order
the
the
court
attendant
takes
filings
Rule
See
the
and
Taylor,
judicial
for
201
162
notice
its
F.3d
of
the
limited purpose
of
establishing the judicial acts themselves.
Accordingly,
DENIED,
with the
the
Trustee's
Motion
to
Strike
Exhibits
is
limitations as to judicial notice as described
above.
B. Bankruptcy Appeal
1.
Standards of Review
On appeal,
by
the
Bankruptcy
P. 8013;
2014).
743
the district court reviews findings of fact made
see,
Court
e.g.,
In
Conclusions of
F.3d at
for
re
clear
Taneja,
law are
error.
743
See
F.3d
Fed.
423,
reviewed de novo.
429
R.
Bankr.
(4th
Cir.
In re Taneja,
429.
On a motion to dismiss,
the court considers Federal Rule of
Civil Procedure 8(a)(2), which provides, in pertinent part, "[a]
pleading
that
states
a
claim
for
relief
must
contain ...
a
short and plain statement of the claim showing that the pleader
is entitled to relief." Fed. R. Civ. P 8(a)(2).9 The complaint
need not have detailed factual allegations, but Rule 8 "requires
more than labels
and conclusions,
and a
formulaic recitation of
9 Federal Rule of Bankruptcy Procedure 7012 incorporates Federal
Rule
of Civil
Procedure
12.
14
the elements
v.
of a
Twombly,
dismiss,
a
550
U.S.
its
face.'"
(quoting
that
to
a
the
It
facts
do."
"To
Bell Atl.
survive
sufficient
Iqbal,
U.S.
at
Corp.
a motion
factual
a
Facial
that
Id.
enough
the
for
662,
to
matter,
allows
defendant
Twombly,
a
Id.
(2009)
or
(citing
the
is
550
plaintiff
possibility"
conduct.
678
plausibility means
that
(citing
"sheer
unlawful
U.S.
content
inference
not
556
570).
factual
alleged."
demonstrating
with
(2007).
contain
v.
therefore,
consist[ency]"
U.S.
550
reasonable
is,
not
xstate a claim to relief that is plausible
Ashcroft
misconduct
555
must
"plaintiff pleads
the
556) .
to
Twombly,
draw
for
of action will
544,
complaint
accepted as true,
on
cause
court
liable
U.S.
to
at
allege
"mere[]
Twombly,
550
at 556-57) .
The
Supreme
Court,
in Twombly
and
Iqbal,
offered guidance
to courts evaluating a motion to dismiss:
In keeping with these principles a court considering a
motion to dismiss can choose to begin by identifying
pleadings
that,
because
they
are
no
more
than
conclusions, are not entitled to the assumption of
truth.
While
legal
conclusions
can
provide
the
framework of a complaint, they must be supported by
factual
allegations.
When
there
are
well-pleaded
factual
allegations,
a
court
should
assume
their
veracity and then determine whether they plausibly
give rise to an entitlement to relief.
Iqbal,
556 U.S.
at 679.
in the complaint
That is, the court accepts facts alleged
as true
and views
those
facts
most favorable to the plaintiff." Venkatraman v.
15
"in the
light
REI Sys.,
Inc.,
417
F.3d
whether
418,
a
420
(4th
complaint
will ...
be
reviewing
court
sense." Iqbal,
2.
Cir.
2005).
states
a
plausible
a
context-specific
to
draw
556 U.S.
on
its
Overall,
claim
task
judicial
"[determining
that
for
relief
requires
experience
and
the
common
at 679.
Declaratory
Judgment
as
to
the
Validity
of
the
Bank's Lien
In
Count
judicial
I
of
reformation
declare that the
that
the
Mrs.
Complaint,
of
the
Browns are
Alexander
has
2006
fee
no
the
Bank
Deed,
essentially
asking
the
seeks
court
to
simple owners of the Property,
interest
in
the
Property,
that
repayment of the 2006 Loan and Line of Credit is secured by the
Browns'
interest in the Property,
enforceable,
Compl.
and
binding
lien
and that the Bank has a valid,
against
the
entire
Property.
51 41. The Bankruptcy Court dismissed Count I. Bankr.
Mem.
Op. at 10.10
The Bankruptcy Court dismissed Count I on the grounds that
because
the
duplicative
declaratory
of
its
other
judgment
claims,
sought
there
assertion of
declaratory
jurisdiction.
agrees.
e.g.,
Indus.,
See,
Metra
Inc.
is
Id.
v.
by
at
the
Bank
is
no
basis
for
the
9-10.
Rivanna
This
Water
&
court
Sewer
10 In neither the Bank's Appellant Brief nor its Reply Brief,
does the Bank specifically allege error as to the Bankruptcy
Court's dismissal of its claim for a declaratory judgment.
Nevertheless, the court will considered whether the Bankruptcy
Court properly dismissed Count I.
16
Auth. ,
No.
3:12cv49,
Feb.
19, 2014)
the
resolution
2014
("Because
of
WL
the
legal
652253,
at
declaratory
issues
that
*2
(W.D.
judgment
will,
of
claim
Va.
seeks
necessity,
be
resolved in the course of the litigation of the other causes of
action,
the
court
agrees . . . that
relief is duplicative,
the
claim
for
declaratory
and that permitting the claim to proceed
will not serve a useful purpose in settling the legal relations
in
issue.")
Moreover,
the
Declaratory
rather
Seven
(internal
Judgment
than
an
Falls
Bankruptcy
affirmed
United
States
Act
Court's
the
515
right
U.S.
dismissal
of
a
has
the
Count
in
omitted).
noted
discretion
287
stated
quotations
Court
upon
277,
reasons
and
Supreme
"confers
absolute
Co.,
for
citation
on
the
litigant."
(1995).
I
of
the
that
courts
Wilton
Therefore,
the
v.
the
Complaint
Bankruptcy
the
is
Court's
Memorandum Opinion.11 See Bankr. Mem. Op. at 7-10.
3.
The
Bank's
Equitable
Claims
to
Relief
and
the
Trustee's Strong-Arm Powers
In Counts II through VIII
various
to
equitable
exercise
its
forms
power
of
of the Complaint,
relief,
under
11
and Count
U.S.C.
§ 105
the Bank seeks
IX
asks
to
the
order
court
that
the
Bank has a valid first-priority lien on the Property.12 In this
appeal,
the Bank alleges six assignments of error related to the
11
infra
See
Part
II.B. 3,
in which the
court addresses
substance of the Bank's arguments regarding the Property.
12 See supra I.B.i.
17
the
Bankruptcy Court's dismissal of its claims for equitable relief.
First,
the
Bank
argues
that
the
Bankruptcy
Court
erred
in
holding that the Bank does not hold a lien of record against the
entire Property interest.
Appellant
Br.
at
12.
Second,
the Bank
claims the Bankruptcy Court erred in concluding that delivery of
the
2006
Deed
was
not
effective.
Id.
at
14.
Third,
the
Bank
argues error in holding that the Trustee did not need to file an
adversary proceeding
Id.
at
18.
Fourth,
in
order to
the
Bank
assert
claims
her
that
strong-arm powers.
the
erred in disregarding the doctrine of laches.
the
Bank argues
that
the
case
Perrow,
Appellant
In
re
Br.
at
the
Bankruptcy Court
498
23-24.
B.R.
560
Lastly,
Bankruptcy
Id.
at 21.
Fifth,
erred in relying on
(Bankr.
the
Court
W.D.
Va.
Bank
argues
2013).
that
the
Bankruptcy Court erred in granting the Motion to Dismiss because
the
at
Chapter 7 Trustee
failed to meet
her
burden of proof.
the
Trustee's
Id.
24.
The
powers
Bankruptcy
pursuant
to
Court
11
held
U.S.C.
equitable claims to relief.
that
§ 544(a)
Bankr.
Mem.
defeat
all
of
Op. at 11-26.
strong-arm
the
Bank's
The court
has reviewed
the factual
findings of the Bankruptcy Court
for
clear error,
and the legal conclusions of the Bankruptcy Court
de novo.13 The court finds that the Bankruptcy Court committed no
error and properly granted the Motion to Dismiss.
13 See supra Part II.B.l.
Accordingly,
the
Bankruptcy
respects,
Court's
for
the
Memorandum
reasons
Opinion
stated
below
is
affirmed
as
well
in
all
in
the
Against
the
as
Bankruptcy Court's Memorandum Opinion.14
a. The Bank Does
Entire Property
Not
Hold
a
Lien
The Bank assigns error to the Bankruptcy Court's conclusion
that
the
Bank
does
not
hold
a
lien
interest in the
Property.
Appellant
that
Order
the
the
Relief
Bankruptcy Court's
claims
that
estoppel,
this
id.
decision
is
at
in
not
13,
an
and
Br.
Brown
in
this
issue
of
did
grounds
for
this
at 12.
case.
res
not
position.
Mrs. Alexander's
The Bank argues
Bankruptcy
collateral estoppel in its Complaint,
other
against
Id.
contradicts
Though
the
the
Bank
judicata or collateral
plead
res
judicata
or
the Bank fails to explain
The
court
will
not
use
the
Bank's Exhibit D to collaterally estop the Trustee in this case.
Moreover,
findings
the
in
Accordingly,
court
the
Brown
will
not
allow
Bankruptcy
case
the
to
Bankruptcy
bind
Court's
the Trustee.15
the Bankruptcy Court committed no error as to this
finding.
14
Although the Bank does not specifically assign error to the
Bankruptcy Court's dismissal of Count IX of the Complaint, the
court notes that the Bankruptcy Court committed no error in
dismissing Count IX of the Complaint on the grounds that Title
11 U.S.C. § 105 should not be applied to negate the legal effect
of § 544. See Bankr. Mem. Op. at 26-28.
15 See supra Part II.A,
in which the court denied the Trustee's
Motion to Exclude Exhibits.
19
b. Delivery of the 2006 Deed
The Bankruptcy Court noted that
2006
Deed makes
Trustee
acquired
purchase
Bank
no
pursuant
argues
delivered,
difference
her
rights
to
that
in
the
outcome
the
Property
§ 544(a) (3)."
" [b] ecause
here,
as
the
because
a
bona
fide
Bankr.
Mem.
Op.
2006
Deed
was
admittedly
held that
"[p]roperty
the
at
the
26.
The
title passed." Appellant Br. at 15.
The United States
interests
are
created
Accordingly,
Supreme Court
and
bankruptcy proceedings.
(1979).
to
"effective delivery of
defined
has
by
state
law,"
Butner v. United States,
Virginia law controls the
including
440 U.S.
48,
in
55
question whether
delivery of the 2006 Deed was effective to transfer ownership of
the Property,
to
the
2006
(Bankr. D.S.C.
2009)
an
record
and whether effective delivery trumps the
adverse
party's
Deed.
In
re
Houston,
409
B.R.
failure
799,
811
("A trustee in bankruptcy may only defeat
equitable
interest
in
property
if,
under
state law, a bona fide purchaser of debtor's interest in subject
property
filing.")
would prevail
over
the
adverse
party
at
the
of
(emphasis added).
The key issue is whether,
of Virginia,
under the law of the Commonwealth
effective delivery without recordation erases any
interest of the grantor
in the property.
In Virginia,
question of the delivery of a deed is one of intention,
delivery
date
is
complete
when
there
20
is
an
intention
"[t]he
and the
manifested
on
the part of the grantor to make the instrument his deed." Crump
v.
Gilliam,
190 Va.
935,
945,
59
S.E.2d 72,
76
(1950).
However,
whether delivery of an unrecorded deed occurred reaches only the
question
of
Virginia
law
the
transfer
rights
requires
of
Commonwealth
Perrow,
Blair,
may
law,
v.
98 Va.
both
Selden,
at 571
490,
knowledge
take
title
36
of
advantage
513,
another's
the
515
failure
grantees;
to
affect
fide purchasers.
(1816);
Bldg.
(1900))
other's
to
see
also
See
In
re
& Loan Ass'n v.
("Only a purchaser
record
failure.").
an
instrument
Under
Virginia
a conveyance of real estate is void as to a subsequent bona
real
v.
Va.
473,
249
(1871).
Grandstaff,
Allan,
62 Va.
avoid
state law,
holder.
Had
96
241,
unrecorded
See 11 U.S.C.
the
$555,000.00
or
31
S.E.
it
is
647,
Further,
undisclosed
recorded.
648
See
(1898);
under § 544,
interests
the
conducted
in
to
the
the
Snyder
Carter
v.
the trustee
whenever,
under
interest
§ 544(a)(3).
Bank of
into the 2006 Loan,
Credit,
estate until
a bona fide purchaser would prevail over an
in-interest,
of
bona
164
and
recordation
(citing Nat'l Mut.
fide purchaser of
may
160,
grantors
and
such as
19 Va.
S.E.
of
between
delivery
third parties,
498 B.R.
without
of
Commonwealth,
a basic
title
in the amount of
amount
of
Browns,
the
search prior
$475,000.00,
$80,000.00,
the
Bank
Bank's predecessor-
for
could
a
to entering
and the Line
total
have
amount
avoided
of
this
entire litigation. Virginia law does not excuse such negligence,
21
and
this
court
will
not
allow
the
Bank
to
avoid
the
collateral
consequences of its predecessor-in-interest's failure to conduct
such
a
basic
title
the Alexanders'
search.
At
the
time
Chapter 7 proceeding,
of
the
commencement
of
the 2006 Deed had not been
duly recorded.
Applying
as
a
bona
which
Mrs.
§ 544 (a)
fide
the
purchaser,
Alexander
bankruptcy
to
held
petition,
facts
took
an
free
of
this
case,
title
to
all
interest
as
of
and
clear
of
the
the
the
Trustee,
property
date
all
of
in
the
unrecorded
conveyances and all equitable liens of which the Trustee had no
constructive or
fide
in
purchaser
the
actual notice.
took
Property,
Accordingly,
title
since
to
the
Accordingly,
an
the Trustee as bona
unencumbered one-half
2006
Deed
was
never
interest
recorded.
the Bankruptcy Court committed no error in finding
that "effective delivery of the 2006 Deed makes no difference to
the outcome here,
Property as
Bankr. Mem.
because the Trustee acquired her rights in the
a bona fide purchaser pursuant to § 544(a) (3)." See
Op.
at 26.
c. The Defensive Use of Strong-Arm Powers
The Bank asserts that the Bankruptcy Court committed error
when it concluded that the Trustee "need not file an adversary
proceeding
at 18.
entitled
The
to
to
assert
Bankruptcy
raise
her
her
^strong
Court
arm-powers.'"
found
xstrong-arm
22
that
powers'
Appellant
"[t]he
under
Br.
Trustee
§ 544(a)
as
is
a
defense to a superior claim to
an
asset of
the estate,
without
regard to whether she has raised such powers in a lien avoidance
adversary proceeding." Bankr. Mem.
Op.
at 19.
Title 11 U.S.C. § 544 provides,
in pertinent part:
(a)
of the
The trustee
shall
have,
as
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.
trustees
manner.
335-36
§ 544(a)(3).
are
See,
entitled
Other
to
courts
exercise
have
such
held
powers
e.g. , In re Ducane Gas Grills,
(Bankr.
D.S.C.
2004)
that
in
Inc.,
Chapter
a
7
defensive
320 B.R.
324,
("Although no adversary proceeding
has been filed with respect to Debtor's § 544 avoidance powers,
it
has
been
recognized
that
11
U.S.C.
the
need
§ 544
proceeding.");
In re Loewen Grp. Int'l, Inc., 292 B.R. 522,
§ 544(a)(3)
Del.
2003)
(holding
defensively).
that
Moreover,
the
courts
exercise defensive powers under § 544 even
adversary
proceeding
would
be
time-barred
23
an
asserted
without
D.
file
be
defensively,
(Bankr.
to
can
trustee
allow
adversary
could
trustees
528
use
to
if the filing of an
by
the
statute
of
limitations.
No.
See,
3:13cvl36,
(affirming
e.g.,
2014
the
WL
1233094,
bankruptcy
limitations
period
defensively
asserting
§ 544(a));
("I
also
In
re
rule
Bank
in
at
rights
York
(S.D.
*8
does
as
259
11
New
Ohio Mar.
court's
§ 546(a)
Block,
that
of
a
B.R.
U.S.C.
affirmative use by the Trustee,
v.
Sheeley,
not
bar
bona
498,
the
fide
500
the
trustee
purchaser
(Bankr.
§ 544(a)(3)
2014)
that
conclusion
25,
is
under
D.R.I.
not
from
2001)
limited
to
and that its use as a defensive
tool is not restricted by any limitations period.").
There
prevent
is
nothing
the
defensively.
in
Trustee
Indeed,
status of a bona
the
from
text
of
exercising
§ 544(a)
expressly
fide purchaser of all
the
statute
her
that
strong-arm
grants
the
would
powers
trustee
of a debtor's
the
interests
in said property as of the date of the filing of the petition.
The authorities that the Bank cites are not to the contrary.
example,
(4th
the Bank cites Cen-Pen Corp.
Cir.
1995),
for
the
v. Hanson,
proposition
that
For
58 F.3d 89, 93
"Bankruptcy
Rule
7001(2) expressly requires initiation of an adversary proceeding
*to
determine
the
validity,
other interest in property,'
here."
Appellant
93) . Actually,
Br.
at
19
Cen-Pen Corp.
priority,
or
extent
of
a
lien
or
with one exception not applicable
(citing
Cen-Pen
Corp.,
58
F.3d
at
is distinguishable from the instant
case: Cen-Pen Corp. does not mention 11 U.S.C.
§ 544,
the statute
at issue here, strong-arm powers, or bona fide purchasers.
24
The court agrees with the Bankruptcy Court,
a
trustee
may
defensively.
the
exercise
Accordingly,
judgment
of
the
her
the
§ 544 (a)
court
Bankruptcy
strong-arm
finds
Court
in
and finds that
no
error
this
powers
and
regard,
affirms
for
the
reasons stated herein and the reasoning of the Bankruptcy Court
in the Memorandum Opinion. See Bankr. Mem. Op. at 19-22.
d.
The
Bank
Doctrine of Laches
did
not
plead
the
doctrine
of
laches
in
its
Complaint,
nor did the Bankruptcy Court mention the doctrine of
laches
its
in
Memorandum
proper assignment
by
the
Bankruptcy
consider in the
the
error,
Court
first
e.
In
of
Opinion.
In
as
on
Accordingly,
there
can be
something
it
no
had
this
is
error
no
not
a
committed
occasion
to
instance.
re
Perrow
Bankruptcy
Court's
Memorandum
Opinion,
the
court
cites to In re Perrow, 498 B.R. 560, in support of the powers of
a
Chapter
Bankr.
Mem.
7
trustee
Op.
at
pursuant
12-15.
to
11
U.S.C.
In particular,
the
§ 544(a)(3).
See
Bankruptcy Court
relied on In re Perrow for "the effect of a bankruptcy trustee's
status as a bona fide purchaser under Virginia law vis-a-vis an
unrecorded deed of trust." Id.
The Bank asserts that
In
re
Perrow
litigation.
make
that
Appellant Br.
at
the facts
case
at
15.
inapplicable
23-24.
25
and procedural posture of
First,
to
the
instant
the Bank asserts that
"the plaintiffs in Perrow asserted their § 544(a)
strong-arm
powers
by
proceeding pursuant
filing
to Rule
a
lien
avoidance
7001(2)," whereas
Trustee did not file an adversary proceeding.
a distinction without
that
the
Trustee
defensively.16
a
may
Second,
difference.
exercise
the
Bank
The
her
the document
delivered.
court's
delivery
Id.
issue
Again,
reliance
of
at
the
on
is
this
§ 544
has
Perrow.
deed
does
the
powers
document
court
does
has
alleviate
not
already
the
at
whereas in this
an unrecorded deed that has
The
not
already held
strong-arm
that
distinction
the
Id. at 24. This is
issue in Perrow was an unrecorded deed of trust,
case,
adversary
in this case,
court
asserts
lien avoidance
Bank's
been
alter
found
the
that
failure
to
conduct a basic title search.17 Third, the Bank argues that the
Perrow debtors "never admitted or acknowledged that the deed of
trust was recorded," whereas the Alexanders "initially scheduled
and treated the 2006 Loan and Line of Credit as being secured by
[Mr.
Brown's]
and
[Mrs.
Brown's]
interest
in
the
Property
as
reflected by their Schedules which were filed under oath stating
that they had no interest in the Property." Id.
does
not
persuade
the
court
that
Perrow
determining the outcome of this case.
16 See supra Part II.B.3.C.
17 See supra Part II.B.3.b.
26
is
This distinction
not
instructive
in
Although the Bank asserts that the court should not rely on
Perrow because of factual and procedural
distinctions,
the Bank
has failed to cite a single case that i^s directly applicable to
the
instant
litigation,
circumstances of this
analogous
making
cases
and
process.
likely
case.
due
to
The court,
situations
Accordingly,
in
the
the
unique
therefore,
order to
court
must
guide
finds
facts
and
consider
the decision
no
error
in
the
satisfied
her
Bankruptcy Court's reliance on In re Perrow.
f.
The
Bank
Burden of Proof
argues
burden of proof on
The
Bank
dismiss,
the
Trustee
the Motion to
correctly
a
that
asserts
has
Dismiss.
that
in
all
not
Appellant
ruling
factual
on
a
Br.
at
motion
allegations
in
24.
to
court
"must
accept
the
complaint as true
[and]
construe the complaint in a light most
favorable to the plaintiffs." Id.18 The Bankruptcy Court accepted
as
Mem.
true
all
Op.
factual
at 6.
allegations
Moreover,
this
made
court
by
has
the
Bank.
accepted
See
all
Bankr.
factual
allegations made by the Bank. However, the court will not accept
the
legal
conclusions
delivery on the
legal
of
the
status
Bank,
of
the
such
as
parties.
the
Accordingly,
Bank's sixth assignment of error is without merit.
18 See supra Part II.B.l, for the standard of review
27
effect
of
the
III.
CONCLUSION
Because the Trustee takes her interest in the Property as a
bona fide purchaser pursuant to § 544 (a) (3) , and for the reasons
stated
above,
July 16, 2014,
Trustee's
the
The
to
Dismiss
all
court
the
Exhibits.
AFFIRMS
the
Memorandum
Opinion
of
in which opinion the Bankruptcy Court granted the
Motion
Further,
court
DENIES
the
Clerk
is
DIRECTED
nine
counts
Trustee's
to
of
the
Motion
forward
a
Complaint.
to
copy
Exclude
of
this
Opinion to the parties and to the Bankruptcy Court.
IT
IS
SO ORDERED.
JsL
Kebecca Beach Smith
,„ .
Chief
'
~
^
United States District Judge -jPjB^REBECCA
BEACH
SMITH
CHIEF UNITED STATES
December
)k
2014
28
DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?