Carto v. Doe (In re Oakley)

Decision Date30 December 2013
Docket NumberBankruptcy No. 12–18456bf.,Adversary No. 13–0053.
Citation503 B.R. 407
PartiesIn re Annette OAKLEY, Debtor. Nunzio Carto, Jr., Plaintiff v. Annette Oakley, John Doe 1–100, and ABC Company 1–100, Defendants.
CourtU.S. Bankruptcy Court — Eastern District of Pennsylvania


Mitchell Lee Chambers, Jr., Law Offices of Mitchell Lee Chambers, Blackwood, NJ, for Plaintiff.

Erik B. Jensen, Erik B. Jensen, Esquire, Philadelphia, PA, David A. Snyder, Law Office of David A. Snyder, Haddon Heights, NJ, for Defendant.


BRUCE FOX, Bankruptcy Judge.

Before me is the complaint of Nunzio Carto, Jr. seeking to deny a chapter 7 discharge to the debtor/defendant, Annette Oakley, pursuant to 11 U.S.C. § 727(a)(4),2 and/or to hold the debtor/defendant's debt to him nondischargeable under 11 U.S.C. § 523(a)(2) for fraud.3 The debtor opposes all relief. Upon consideration of the evidence adduced at a one-day trial, at which Ms. Oakley, Mr. Carto, and Mr. Carto's son-in-law testified, along with various documents that were admitted, plus consideration of the parties' post-trial memoranda,4 these two issues are ripe for determination.


The following are my findings of fact based upon the evidence presented, including trial exhibits and those documents of which the parties requested that I take judicial notice.5

1. In or about March 2011, Ms. Oakley sought to borrow $65,000 from Mr. Carto. N.T. at 52.

2. At the time this loan was sought, Mr. Carto was a funeral home director. N.T. at 141. Ms. Oakley was a practicing attorney, specializing in plaintiffs civil rights litigation, but also engaging in general civil and real estate matters. N.T. at 54. She was admitted in the state and federal courts of New Jersey and Pennsylvania, but at the time of trial her Pennsylvania license had lapsed owing to unpaid fees. N.T. at 93–94. Ms. Oakley now subsists off partial disability payments. N.T. at 93.

3. In March 2011, Ms. Oakley owned a one-third interest in real estate located at 6984 Weatham Street, Philadelphia, Pennsylvania, held as a tenant in common with her mother and aunt. Ex. P–1, at p. 1; N.T. at 109.

4. Ms. Oakley approached Mr. Carto seeking to sell to him her partial interest in real estate for $65,000. N.T. at 106, 112–113. When Mr. Carto informed her that he had no interest in buying her interest, see N.T. at 114, she requested a loan of $65,000 so that she could purchase a 2007 M6 BMW automobile. N.T. at 140, 155.

5. The two knew each other as Ms. Oakley was a friend of Mr. Carto's then-wife.6 N.T. at 51, 145, 153–54. Ms. Oakley also had filed some collection lawsuits on behalf of Mr. Carto's funeral home business. N.T. at 95.

6. Given Ms. Oakley's friendship with his wife, and as his wife did not oppose such a request, Mr. Carto agreed to loan Ms. Oakley $65,000. N.T. at 146, 155, 157.

7. On March 2, 2011, Mr. Carto gave Ms. Oakley a check for $30,000, and on March 4, 2011, he gave her a check for $35,000. N.T. at 119, 165–66, 169, 174.

8. Between the receipt of the two checks, Ms. Oakley drafted a promissory note, ex. P–1, that she presented to Mr. Carto on March 3, 2011. N.T. at 8, 76.

9. This promissory note, dated March 2, 2011 but signed by Ms. Oakley and notarized on March 3, 2011, stated that the principal amount of the loan was $80,000. Ex. P–1, at 1. Repayment of this amount “shall be made from the borrower's portion of ANY and ALL sale proceeds” of the Weatham Street realty, ex. P–1 (emphasis in the original), based upon Ms. Oakley's belief in the value of the realty. Ex. P–1; N.T. at 76, 78, 147–48.

10. Ms. Oakley promised to “pursue, in good faith, on the Lender's behalf ... the immediate sale of” the Weatham Street property “so that such sale should take place within twelve (12) Months of the date of this instrument.” Ex. P–1, p. 1. Any amount Ms. Oakley netted from the sale of her one-third interest above $80,000 would also be paid to Mr. Carto, while any deficiency would be paid by Ms. Oakley within six months of the property sale. Id.

11. In addition, Ms. Oakley promised:

Borrower agrees that until the principal owed under this promissory note are paid in full from the sale of property known as 6984 Weatham Street, Philadelphia, Pennsylvania 19119, this note will be secured by the Borrower's 2007 M6 BMW.

Borrower agrees not to encumber property known as 6984 Weatham Street, Philadelphia, Pennsylvania 19119 or encumber or sell the Borrower's 2007 M6 BMW until payment to Lender is satisfied in full.

Id.; see also N.T. at 37 (acknowledging that her promissory note stated that she would not to sell the BMW until Mr. Carto was paid in full).

12. Ms. Oakley also promised that if she should die in an accident involving the BMW, “in which the vehicle is totaled or damaged” then all insurance proceeds would be paid to the lender, Mr. Carto. Id.

13. Finally, the promissory note included the following provision:

If Borrower's 2007 M6 BMW shall become destroyed in any manner which cause[s] the accelerated decrease in the value of such vehicle, Borrower shall immediately execute a Quit Claim Deed transferring all of her interest in property known as 6984 Weatham Street, Philadelphia, Pennsylvania 19119 to Lender. Borrower agrees to remain obligated to pursue the sale of said property in good faith and by any relevant and legal means available so as to cause the sale of such property within twelve (12) months from the date of this instrument.

Ex. P–1, p. 2.

14. Mr. Carto explained that he previously had loaned or given money to family and friends. N.T. at 156, 168. In so doing, he would occasionally request that the borrower acknowledge the debt. N.T. at 156. His $65,000 loan to Ms. Oakley was the largest loan he had ever made. N.T. at 156.

15. Mr. Carto requested that Ms. Oakley prepare a promissory note in connection with her loan request. N.T. at 143. The only term that he asked her to include in the note was that the $65,000 loan mature in one year. Id. Thus, terms of the promissory note stating that the principal amount was $80,000, the BMW vehicle served as collateral, and repayment would be made from the proceeds of the sale of the Weatham Street property were included voluntarily by Ms. Oakley.

16. Although Mr. Carto testified that a promissory note signed by Ms. Oakley was a condition for the loan, N.T. at 143, he nonetheless provided Ms. Oakley with a $30,000 check before receiving the note. Moreover, I find credible the testimony of Ms. Oakley that upon his receipt of the note Mr. Carto did not immediately read it. N.T. at 117–118.

17. On March 4, 2011, Mr. Carto tendered a check to Ms. Oakley for $35,000. Ms. Oakley believes that this second check may have been made payable to the dealership selling the automobile, N.T. at 120, while Mr. Carto's son-in-law and longtime employee, James Guercio, more credibly testified that both checks were made payable to Ms. Oakley. N.T. at 165–66, 174.

18. Mr. Guercio learned about the loan to Ms. Oakley a week after these checks were issued, N.T. at 171, and questioned Mr. Carto about them, who told him that the purpose of the loan was to enable Ms. Oakley to buy an automobile. N.T. at 170.

19. Mr. Guercio then obtained a copy of the promissory note, read it, N.T. at 170, and put it away for safekeeping. N.T. at 175.

20. In December 2011, Mr. Carto, then approximately 83 years old, turned over his funeral business to Mr. Guercio to operate and granted him a power of attorney to oversee Mr. Carto's signing of checks. N.T. at 164, 169.

21. At trial, Mr. Guercio stated that Mr. Carto's “memory is not what it used to be.” N.T. at 169; see also N.T. at 159 (Mr. Carto: “my mind is not entirely here.”).

22. After she received the loan from Mr. Carto, Ms. Oakley purchased a 2007 BMW M6 for $52,000. N.T. at 122. This was the fourth BMW vehicle she had owned. N.T. at 121. Ms. Oakley did not explain how she spent the remaining $13,000 of loan proceeds.

23. In July 2011, just a few months after its purchase, Ms. Oakley sold the BMW M6 for $38,000 to See ex. P–3 (Amended Statement of Financial Affairs, at # 10).

24. Ms. Oakley testified that she sold the M6 vehicle because the automobile had been vandalized with key scratches and repeatedly had “grill markers off the side of the car” stolen. N.T. at 16, 68, 138. Ms. Oakley replaced the grill markers prior to selling the car. N.T. at 138.

25. Ms. Oakley then used the sale proceeds to purchase a 2009 BMW for $32,000 from another dealership. N.T. at 69.

26. She paid expenses with the $6,000 difference. N.T. at 69.

27. In December 2011, Ms. Oakley sold the 2009 BMW to for $16,000. See ex. P–3 (Amended Statement of Financial Affairs, at # 10). She did not explain why this second vehicle was sold, nor how she used the sale proceeds.

28. The parties dispute whether Ms. Oakley informed Mr. Carto that she had sold the 2007 M6 BMW. Compare N.T. at 126 with N.T. at 140. There is no dispute, however, that Ms. Oakley did not seek Mr. Carto's prior approval for the sale; nor did she pay over any proceeds of the vehicle, or quit claim her interest in the Weatham property to him, after the vehicle was sold. N.T. at 17, 138, 140.

29. The Weatham property that Ms. Oakley stated would be the source of her loan repayment was inherited by her, her mother and her aunt (her mother's sister), from her grandmother, and these three then owned the real property as tenants in common. N.T. at 52–53.

30. In March 2011, at the time Ms. Oakley sought her loan from Mr. Carto, she and her mother wanted to sell the Weatham property, but her aunt refused to do so. N.T. at 53, 124–25. In addition, the aunt was not speaking with either her sister or Ms. Oakley. N.T. at 53–54, 75. 31. Ms. Oakley hoped to sell the Weatham property through the efforts of a real estate agent. Although she found an agent willing to sell the realty, no such agent was ever engaged as her aunt refused to sign any listing agreement. N.T. at 53–54, 124–25.


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