IN RE SUNSHINE THREE REAL ESTATE CORP.

• Decision Date: 18 February 2010
• Docket Number: Adversary No. 09-01330.,Bankruptcy No. 09-17821-JNF.
• Parties: In re SUNSHINE THREE REAL ESTATE CORPORATION, Debtor. Sunshine Three Real Estate Corporation, Plaintiff v. Charles J. Housman, Trustee of Pine Banks Nominee Trust, Wallace Capital Corporation, and Steven Ross, Esq., Defendants.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

426 B.R. 6

In re SUNSHINE THREE REAL ESTATE CORPORATION, Debtor Sunshine Three Real Estate Corporation, Plaintiff v. Charles J. Housman, Trustee of Pine Banks Nominee Trust, Wallace Capital Corporation, and Steven Ross, Esq., Defendants.

Bankruptcy No. 09-17821-JNF. Adversary No. 09-01330.

United States Bankruptcy Court, D. Massachusetts.

February 18, 2010.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Gershon M. Gulko, Worcester, MA, for Plaintiff.

Mackenzie Shea, K & L Gates LLP, Erik T. Potter, Gilmartin, Magence, Camiel, & Ross LLP, Boston, MA, for Defendant.

MEMORANDUM

JOAN N. FEENEY, Bankruptcy Judge.

I. INTRODUCTION

The matters before the Court are 1) the Motion of Plaintiff, Sunshine Three Real Estate Corporation (the "Debtor"), for Leave to File an Amended Adversarial Complaint through which the Plaintiff seeks permission to amend its Complaint to add its sole stockholder, Roberta A. Golden ("Golden"), as a Co-Plaintiff (collectively the "Plaintiffs") and to amend and add a count to its original Adversarial Complaint; and 2) the Joint Motion to (I) Dismiss Adversary Proceeding filed by Charles J. Housman, Trustee of Pine Banks Nominee Trust ("Pine Banks"), Wallace Capital Corporation ("Wallace"), and Steven Ross, Esq. (collectively the "Defendants") and (II) Recover Legal Fees and Other Costs. The Defendants oppose the Motion for Leave to File an Amended Complaint and again seek the recovery of legal fees and costs. The Debtor opposes the Motion to Dismiss.

The Court heard the Motion for Leave to Amend and the Joint Motion on January 21, 2010 and took the matters under advisement. Because the facts with respect to the existence of state court proceedings in Maine are uncontested, and because both parties freely referenced the record pertaining to the Motion filed by Pine Banks for Relief from the Automatic Stay, which the Court granted, the Court incorporates by reference its decision of October 26, 2009, see In re Sunshine Three Real Estate Corp., No. 09-17821-JNF, 2009 WL 3617798 (Bankr.D.Mass. Oct.26, 2009). Additionally, the Court takes judicial notice of the entire record in the bankruptcy case and this adversary proceeding.

The issues presented include whether this Court is deprived of jurisdiction to consider some or all of the counts set forth in the Debtor's Adversarial Complaint, whether res judicata bars relitigation of some or all of the counts in that Complaint, and whether with respect to Count V of the Adversarial Complaint and Count X of the Amended Adversarial Complaint the Plaintiffs have stated plausible claims for relief. See Fed.R. Civ. P. 12(b)(1) and (b)(6), made applicable to this proceeding by Fed. R. Bankr.P. 7012.

The Court now makes its findings of fact and rulings of law in accordance with Fed. R. Bankr.P. 7052.

II. BACKGROUND

The Debtor filed a voluntary Chapter 11 petition on August 17, 2009, the same day Golden, an attorney, transferred property located at 140 Stearns Road, Ogunquit, Maine (the "property") to it for nominal consideration. The Debtor listed the property, a residence, on Schedule A-Real Property with a value of $2,500,000. The Debtor also listed a "Counterclaim" with a value of $2,500,000 against unidentified parties on Schedule B-Personal Property. On Schedule D-Creditors Holding Secured Claims, the Debtor listed Pine Banks and Wallace as secured creditors with contingent, unliquidated and disputed claims of $1,200,000 and $600,000, respectively. The Debtor listed the Town of Ogunquit, Maine on Schedule E-Creditors Holding Unsecured Priority Claims with a claim in the amount of $8,500 for property taxes.¹ It listed no other creditors.

Approximately six weeks after the Debtor commenced its Chapter 11 case, Golden executed an "Assignment of Rights," dated September 24, 2009. The Assignment provides:

I, Roberta A. Golden, of Framingham, Middlesex County, Massachusetts, hereby fully transfer and assign all my right, title and interest in any and all actions and choses-in-action sic in law, equity or otherwise, now standing in my name, or as I may otherwise have, whether brought by me, involving Pine Banks Nominee Trust, Wallace Capital Corporation sic and or sic Steven Ross, arising from my former ownership of realty in Ogunquit, York County, in the State of Maine, located at 140 Stearns Road, to Sunshine Three Real Estate Corporation of said Framingham.

Golden and her husband, Peter A. Poulos, the president of the Debtor, have owned the property through various entities for approximately twenty years. Golden intended to build a large home on the lot, from which there is an unobstructed view of the Atlantic Ocean and the Marginal Way in Ogunquit, Maine, and eventually make it her retirement home. Golden personally borrowed money from Pine Banks to construct the home. On November 24, 2004, she executed a promissory note for a construction loan in the amount of $1,050,000, and granted Pine Banks a mortgage on the property. Under the terms of the note, which provided for interest at an annual rate of 14%, Golden received an initial advance of $550,000. Interest only was payable beginning on June 29, 2005, with the entire balance due before November 29, 2005. On November 24, 2004, Golden also executed a Construction Holdback Agreement. The note expressly provided, in bold type, that it was a contract for a short-term loan and that the obligation was commercial in nature and, thus, was exempt from the Federal Truth in Lending Act and Regulation Z (emphasis supplied). See generally 15 U.S.C. §§ 1601 et seq.

Golden encountered difficulties in constructing the home at 140 Stearns Road. The original contractor breached his obligations under the construction contract and, in addition, abutters challenged the issuance of the building permit by the Town of Ogunquit. Because of defaults under the Pine Banks note, on January 17, 2006, Golden, executed a note and second mortgage in favor of Wallace. That note was in the original principal amount of $600,000 and required the payment of 10 points. It also required the payment of monthly interest. The entire principal balance was due on September 17, 2006.

Golden defaulted on her obligations under both notes, and, on March 23, 2006, Pine Banks and Wallace filed a Complaint for Foreclosure in the York County Maine Superior Court. Golden answered the Complaint and asserted twenty affirmative defenses, as well as six counterclaims, including breach of contract (Count I); breach of the implied covenant of good faith and fair dealing (Count II); failure to comply with the loan documents and change in course of dealings (Count III); fraud, deceit and misrepresentation (Count IV); "violation of Me. Rev. St. Ann. tit. V., ch. 10² and violation of the Federal Trade Commission Act (15 U.S.C. 45(a)(1))" sic³ (Count V); and violation of Mass. Gen. Laws, ch. 93A, §§ 2 and 11 (Count VI). She specifically complained about the failure of Pine Banks and Wallace to account for payments of the mortgage and application of interest payments. Although the Superior Court denied the Motion for Summary Judgment filed by Pine Banks and Wallace on February 7, 2007, the parties eventually executed an Allonge on July 31, 2007.

The Allonge provided that Golden would pay $50,000 upon its execution for reinstatement of both loans with the funds to be applied to accrued interest under the Pine Banks note. Additionally, the parties agreed to the modification of Golden's obligations to Pine Banks and Wallace as follows:

1) The extension of the maturity date for both obligations to August 1, 2008 with no required monthly payments;

2) A reduction in the interest rate on the Wallace note to 12%, retroactive to the closing on January 17, 2006;

3) Disbursement by Wallace of the remaining balance of the construction loan in the amount of $405,152.30 in accordance with a disbursement schedule agreed to among the parties and the advance of funds for the payment of all delinquent real estate taxes;

4) Golden's agreement to pay increased costs above those set forth in the disbursement schedule from her own funds within a period of 30 days after any individual disbursements;

5) The waiver by Pine Banks and Wallace of any default interest and late fees accrued to date;

6) Substantial completion of construction by February 1, 2008; and

7) Golden's agreement to be responsible for attorneys' fees and costs in the aggregate amount of $18,000, which were to be collected upon the maturity of the obligations without interest and without prejudice to the collection of additional fees for any future defaults.

In the Allonge, Golden also acknowledged that, as of July 30, 2007, she owed Pine Banks $987,634.66 in principal and interest and Wallace $271,762.69 in principal and accrued interest. Additionally, she acknowledged and confirmed "the validity and enforcement of the underlying Notes and Mortgages with Pine Banks and Wallace." Finally, Golden agreed to the following:

Entry of a stipulation and Judgment and dismissal of he sic counterclaims in the Superior Court, which shall be held in escrow, and not be filed until August 1, 2008, or sooner if the loan is paid in full, which judgment shall acknowledge that Golden has defaulted on the obligations, but there shall be no judgment of Foreclosure entered. The Judgment shall also provide that a Judgment for Foreclosure shall be entered by the Court in the future, if there are any further defaults by Golden in the loan obligations, and in the performance of this Agreement. The Court would accept an affidavit as evidence of any default, and the Plaintiff would provide a copy to Golden's attorney upon filing. sic Golden would have 14 days from the date of the filing of the affidavit to object. After the filing of an objection, the Court would have the discretion to either enter the Judgment of Foreclosure, or conduct a hearing on the alleged default on the next available trial date. sic A default

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