FRT 2011-1 Trust v. Avolio (In re Avolio), Case No.: 13-11282-ABA

CourtU.S. Bankruptcy Court — District of New Jersey
Writing for the CourtHonorable Andrew B. Altenburg, Jr.
PartiesIn Re: Louis Frank Avolio, Debtor FRT 2011-1 Trust, Plaintiff v. Louis Avolio, Defendant FRT 2011-1 Trust, Plaintiff v. Gibraltar Financial Services, Defendant
Docket NumberAdv. Pro. No.: 13-1933-ABA,Case No.: 13-11282-ABA,Adv. Pro. No.: 13-1479-ABA
Decision Date14 April 2015

In Re: Louis Frank Avolio, Debtor

FRT 2011-1 Trust, Plaintiff
Louis Avolio, Defendant

FRT 2011-1 Trust, Plaintiff
Gibraltar Financial Services, Defendant

Case No.: 13-11282-ABA
Adv. Pro.
No.: 13-1479-ABA
Adv. Pro.
No.: 13-1933-ABA


April 14, 2015


Honorable Andrew B. Altenburg, Jr.



Before the court is the motion, Document No. 43 on the Court's Docket, of plaintiff FRT 2011-1 Trust ("FRT") to reconsider the court's January 14, 2015 order denying FRT's motion for summary judgment, Document No. 36 on the Court's Docket, in Adversary Pro. No 13-1933-ABA. The order also denied defendant Gibraltar Financial Services' cross motion for summary judgment. Gibraltar Financial Service ("Gibraltar") and Debtor Louis Avolio1 both objected to FRT's motion. The parties filed written submissions and the court conducted oral argument on the matter after which it took the matter under advisement. For the reasons set forth below, FRT's motion for reconsideration is denied as issues of material fact remain warranting a denial of the motion for reconsideration.

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The court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, as amended October 17, 2013, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(L). Venue is proper in this Court pursuant to 28 U.S.C. § 1408. The matter is before the court pursuant to Fed. R. Bankr. P. 7001(2) and (8). Pursuant to Fed. R. Bankr. P. 7052, the court issues the following findings of fact and conclusions of law.


In its letter opinion in support of its January 14th order, Document No. 35 on the Court's Docket (the "Letter"), the court held that genuine issues of material facts precluded summary judgment. It specified that there were issues of fact regarding the creation of the satisfaction, including its timing; the authorization of the creation of the satisfaction; how Quality Title obtained the satisfaction; the validity of the "no merger" documents; and whether consideration was given in the Eltek transaction. Letter, pp. 2-3.

FRT argues that the court erred in finding genuine issues of material fact. It states that the authenticity of the satisfaction and how Quality Title obtained the satisfaction are not material facts in dispute. FRT Brief, pp. 5-6. First, it posits that Gibraltar only contested the satisfaction to the extent that it was not authorized by Marilyn Van Soest. Id., p. 7. Then it states that lack of authority is a legal question, not a factual one. Id., p. 9. Second, it argues that there was no allegation that Quality Title created the satisfaction itself. Id. Finally, it states that if the court ruled that William Reed authorized the satisfaction, then it does not matter how Quality Title obtained it. Id., pp. 9-10.

In addition, FRT complains that the court failed to rule on its equitable subordination count. Id., p. 10. It notes that Gibraltar did not dispute that FRT made advances of taxes and insurance. Id.

Gibraltar objects to FRT's motion in a letter filed February 13, 2015, Document No. 46 on the Court's Docket ("Gibraltar Letter"). It argues that there is an issue of whether the satisfaction is legally binding because of the inconsistent dates and credibility of Asset Protection Group's ("APG") notary. Gibraltar Letter, p. 2. It argues that Castle Point failed to perform adequate due diligence, therefore it was negligent and accordingly should bear the consequence. Id., p. 3. It continues to argue that there is a fact issue regarding the satisfaction because Gibraltar alleges that Ms. Van Soest never authorized it, there is no evidence regarding how Quality Title obtained it, there are date discrepancies, it is not known whether it was

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intended to be recorded, and it is not clear why Castle Point and Quality Title relied on it. Id., p. 4. As for equitable subordination, it argues that there is no proof of inequitable conduct by Gibraltar to support this count. Id. Finally, it states that it did allege in its cross motion that Castle Point, Quality Title, or Mr. Avolio may have created the satisfaction. Id., p. 3.

Mr. Avolio objects to the motion by a letter filed February 9, 2015, Document No. 45 on the Court's Docket ("Avolio Letter"). He disputes Mr. Reed's authority to issue the satisfaction, that Mr. Reed even signed it, and that he, Mr. Avolio, ever paid off the note. Avolio Letter, p. 2. He argues that an owner of a mortgage can recall a wrongly-issued satisfaction. Id., p. 3. Moreover, he states that Castle Point should have asked for verification of the satisfaction from the former secured party. Id., p. 4. He points out that Quality Title could not have received the satisfaction in the time frame alleged, and posits that, instead, the satisfaction was created in 2008 "according to two of their own witnesses." Id., p. 5. He argues that even if the satisfaction was issued in error or forged, Gibraltar could still have a first priority lien. Id., p. 5. Finally, he states that regarding the taxes and insurance paid by FRT, nobody ever asked it to pay these, that it "volunteered" to do so from second lien position. Id., p. 5.

Mr. Avolio's last argument, made twice orally3 and in his objection to the motion to reconsider on the docket of FRT v. Avolio, Adv. Pro. No. 13-1479-ABA, (Document No. 69 on the Court's Docket in Adv. Pro. No. 13-1479-ABA) ("Avolio Objection"), is that FRT conceded in state court that Gibraltar had a prior mortgage. He argues that principles of collateral estoppel, judicial estoppel, res judicata, claim preclusion, and quasi estoppel prevent FRT from now arguing that Gibraltar does not have a valid first mortgage. In support, he quotes a transcript from January 14, 2011 where FRT's counsel4 stated that "there will be an announcement [at the sheriff's sale] that there was a prior lien, correct." Avolio Objection, p. 6. Mr. Avolio also attaches a December 6, 2010 letter from Judge William C. Todd, III of the Superior Court of New Jersey, Atlantic County to the attorneys in the foreclosure case advising them that he wanted them to address at an upcoming hearing the lien status—whether Gibraltar was in first position, second position, or the mortgage had been satisfied or was invalid. Id., Exhibit A. Mr. Avolio points out that Judge Todd stated that FRT's failure to join Gibraltar in the matter "might be deemed a concession that Gibraltar's mortgage is in fact prior to that of plaintiff." Id. Mr. Avolio also attaches a sheriff sale listing of the foreclosure action, with no prior liens disclosed. Id., Exhibit B.

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A. Was the Issue Decided in the State Court?

Mr. Avolio's last argument will be addressed first even though it does not address FRT's asserted grounds for reconsideration. Nevertheless, the court wishes to digress to address it, as Mr. Avolio has repeatedly raised this contention while the court has explained to him why it does not decide the case. With the following explanation, the court expects the argument will not be presented to the court again.5

First, the letter from which Mr. Avolio quotes is not a final order determining rights, but a letter asking the parties to address the issue of the validity and priority of the Gibraltar lien in their respective responses to Mr. Avolio's motion to vacate FRT's judgment of foreclosure. In the end, Judge Todd did not hold that FRT conceded to being in second position. Moreover, his statement was only that FRT's actions might be construed as so conceding. Finally, he sets out three alternatives regarding the relative lien status of the Gibraltar and FRT liens: that Gibraltar is first and FRT second; that FRT is first and Gibraltar is second; or that Gibraltar's mortgage is either satisfied or is invalid. Judge Todd's conjecture that FRT's failure to join Gibraltar in the foreclosure complaint meant it conceded to being in second position fails to consider the state court's third suggested scenario: that FRT did not join it because it believes that the mortgage was satisfied or invalid. Accordingly, this "evidence" presented by Mr. Avolio does not contradict FRT's position in this court.

Second, while the issue was raised at the state court hearing on the motion to vacate the foreclosure judgment, Judge Todd did not resolve the lien priority but ruled only on whether there was cause to vacate FRT's foreclosure judgment. This is evident many times from the transcript of that hearing. For example, Judge Todd states:

There is, as I understand it from the perspective of the plaintiff in this case, a question as to whether Gibraltar has a first mortgage or a second mortgage or no mortgage at all, and that's an issue which, as I understand it, is not going to be resolved as a part of the proceeding before me, at least not at this point.

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Document No. 45-96 on the Court's Docket in the main bankruptcy case, Bankr. No. 13-11282-ABA.

Judge Todd then states regarding the issue of whether FRT's procedure implicitly conceded a lien position "That's a completely - that's an issue that's completely independent of the question of whether the judgment that was entered should be vacated at the request of the defendant." Id.

Next, Judge Todd indicates that he understands FRT's position as being that its sheriff sale would be subject, not to Gibraltar's lien, but to Gibraltar's claim that it holds a first lien. "THE COURT: Oh, okay, so if I bought the property, I might buy my way into some litigation with Gibraltar, but I shouldn't be worried about - I shouldn't be worried in the end because even if I lost that litigation, that title insurance company would cover me." Id., pp. 40-41.


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