Kittery Point Partners, LLC v. Bayview Loan Servicing LLC (In re Kittery Point Partners, LLC)
| Decision Date | 09 March 2018 |
| Docket Number | Adv. Proc. No. 17-2065,Case No. 17-20316 |
| Parties | In re: Kittery Point Partners, LLC, Debtor Kittery Point Partners, LLC, Plaintiff v. Bayview Loan Servicing LLC & Todd Enright, Defendants |
| Court | U.S. Bankruptcy Court — District of Maine |
Since 2009, Kittery Point Partners has believed that it was harmed by certain actions of Todd Enright and Bayview Loan Servicing. In 2011, Kittery Point sued Bayview in state court. Unhappy with the results of that litigation, Kittery Point started a chapter 11 case in June 2017 and then commenced this adversary proceeding against Bayview and Enright. Both defendants have moved for dismissal under Fed. R. Civ. P. 12(b)(6). The defendants' motions will be granted.
A pleading is subject to dismissal under Rule 12(b)(6) if it fails to state a claim upon which relief may be granted. In other words, a motion under Rule 12(b)(6) tests the sufficiency of a pleading. See Manning v. Boston Med. Ctr. Corp., 725 F.3d 34, 43 (1st Cir. 2013). In evaluating a Rule 12(b)(6) motion, the Court's work begins with the general rules of pleading, which require "a short and plain statement of the claim showing that the pleader is entitled to relief[.]" See Fed. R. Civ. P. 8(a)(2). There is no shortage of controlling precedent addressing the requirements of Rule 8 in the context of a motion to dismiss under Rule 12(b)(6). See, e.g., Ashcroft v. Iqbal, 556 U.S. 662, 677-79 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); Cardigan Mountain Sch. v. N.H. Ins. Co., 787 F.3d 82, 84 (1st Cir. 2015). The case law clearly establishes the Court's charge. First, the Court must identify the factual allegations in the pleading and assume the truth of those allegations. A.G. ex. rel. Maddox v. Elsevier, Inc., 732 F.3d 77, 80 (1st Cir. 2013). The same credence is not accorded to mechanistic recitals of the elements of a cause of action or to conclusions of law. Iqbal, 556 U.S. at 678-79; Elsevier, Inc., 732 F.3d at 80. Second, the Court must determine whether the sum of those factual allegations—plus all reasonable inferences that may be drawn in the claimant's favor—gives rise to a plausible claim. See Iqbal, 556 U.S. at 678; Cardigan Mountain Sch., 787 F.3d at 87. The pleading's factual allegations may be augmented with "data points gleaned from documents incorporated by reference into the complaint, matters of public record, and facts susceptible to judicial notice." Haley v. City of Boston, 657 F.3d 39, 46 (1st Cir. 2011).
Probability of success is not the standard at this juncture, but the pleading must do more than raise a mere possibility of a successful claim. Iqbal, 556 U.S. at 678. "If the factual allegations in the complaint are too meager, vague, or conclusory to remove the possibility of relief from the realm of mere conjecture, the complaint is open to dismissal." SEC v. Tambone, 597 F.3d 436, 442 (1st Cir. 2010). In assessing plausibility, the Court must generally decide whether the factual allegations, in toto, raise a reasonable expectation that discovery will reveal evidence of the elements essential to the claims. See Twombly, 550 U.S. at 556; Cardigan Mountain Sch., 787 F.3d at 88.
There are several exceptions to the general rules of pleading and to the corollary charge of holistic pleading construction, one of which is in play here. See Twombly, 550 U.S. at 569 n.14 () (citing Fed. R. Civ. P. 9(b)-(c)). A party alleging fraud may generally aver intent and other conditions of a person's mind, but "must state with particularity the circumstances constituting fraud[.]" Fed. R. Civ. P. 9(b). To clear this heightened pleading standard, a complaint must specifically allege (a) that a particular false statement was made by a particular person, and (b) a basis for inferring the speaker's scienter. N. Am. Catholic Educ. Programming Found., Inc. v. Cardinale, 567 F.3d 8, 13 (1st Cir. 2009). Stated differently, the pleader is expected to allege "the who, what, where, and when of the allegedly false or fraudulent misrepresentation [,]" Alt. Sys. Concepts, Inc. v. Synopsys, Inc., 374 F.3d 23, 29 (1st Cir. 2004), and "specific facts that make it reasonable to believe that [the speaker] knew that a statement was materially false or misleading [,]" Cardinale, 567 F.3d at 13 (quotation marks omitted).
"A complaint is subject to dismissal for failure to state a claim if the allegations, taken as true, show the plaintiff is not entitled to relief." Jones v. Bock, 549 U.S. 199, 215 (2007). Thus, dismissal under Rule 12(b)(6) "is appropriate if the complaint fails to set forth factual allegations . . . respecting each material element necessary to sustain recovery under some actionable legal theory." Gagliardi v. Sullivan, 513 F.3d 301, 305 (1st Cir. 2008) (quotation marks omitted). Dismissal is also warranted if the allegations of the complaint show that relief is barred by an affirmative defense. See Jones, 549 U.S. at 215. For this showing to be made, the facts that establish the defense must be clearly ascertainable from the allegations of the complaint and any other documents that may be considered under Rule 12(b)(6), and those facts must "leave nodoubt" that the asserted defense bars the plaintiff's action. Blackstone Realty LLC v. FDIC, 244 F.3d 193, 197 (1st Cir. 2001) (quotation marks omitted).
Before applying these principles to Kittery Point's complaint, a step back is warranted. The forest should not be lost in the trees. When Rule 12(b)(6) is invoked, the point of the exercise is to identify disputes that should not be allowed to move to the discovery phase. Litigation has, over the years, become increasingly complex, time-consuming, and expensive. Rule 12(b)(6) motion practice should weed out claims that are futile, where discovery will not unearth facts that would help the plaintiff succeed on the merits. Determining whether a claim is futile, in this sense, is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679.
The following recitation is based primarily on the factual allegations in the complaint.1 It is also premised upon certain judicially noticed facts.2 To the extent that allegations made in the complaint are omitted from this recitation, those omitted allegations are conclusory, vague, irrelevant, or some combination of those characteristics. Those omitted allegations are not entitled to a presumption of truth because they are not well-pleaded factual allegations.
Kittery Point and Bayview are both limited liability companies. Enright is an individual. Enright created Kittery Point in 2005 for the ostensible purpose of facilitating a section 1031 like-kind exchange involving certain real property in Kittery Point, Maine (the "Property"). At that time, James Austin was the owner of the Property, and Enright was a trusted advisor to James Austin and his wife, Tudor. Enright advised the Austins that they could defer their tax exposure on the Property if they transferred it to an entity for some time. But, Enright's intent behind his 1031 proposal was to swindle the Austins.3
On March 1, 2005, Kittery Point did not exist as a legal entity. Nevertheless, on that day, Enright caused Kittery Point to execute a promissory note in the amount of $600,000 (the "Note") in favor of Middlebury Equity Partners ("MEP"), an entity that was owned and controlled by Enright. Enright also caused Kittery Point to grant a mortgage on the Property to MEP (the "Mortgage") as security for the Note. The Note and Mortgage were signed by Daniel Systo, a handyman for MEP and/or Enright, allegedly in Systo's capacity as a member of Kittery Point. The Mortgage contained a covenant and warranty that Kittery Point owned the Property in fee simple and had good right and title to convey that interest. However, as noted, the execution of the Note and Mortgage predated Kittery Point's creation as an entity and - as a necessary corollary - predated Kittery Point's acquisition of any assets, including any interest in the Property. Neither Kittery Point nor the Austins received any consideration in exchange for the Note and Mortgage. The Austins were not aware of and did not authorize the Note or the Mortgage at the time of execution.
On April 21, 2005, Enright created Kittery Point by filing its certificate of formation with the Delaware Secretary of State.4 Six days later, Systo executed an acknowledgement, indicating that the Mortgage was the free act and deed of Kittery Point. That same day, MEP executed an assignment of the Note and Mortgage (the "Assignment") to Bayview. Bayview paid MEP hundreds of thousands of dollars for the Note and Mortgage. Bayview's employee, Steve Gordon, orchestrated Bayview's purchase of the Note and Mortgage, and he received fees and commissions related to that purchase. Bayview realized a financial benefit when it sold the Note in the secondary market. Several years later, Gordon entered a guilty plea in a criminal case in Florida admitting to fraud related to thousands of mortgage transactions.
On May 26, 2005, at Enright's urging, James Austin transferred the Property to Kittery Point by a quitclaim deed (the "Austin Deed"). At that time, the Austins were unaware that Kittery Point had previously executed the Note and Mortgage in favor of MEP. Neither Enright nor MEP ever informed the Austins of the Note, the Mortgage, or the Assignment.
Although the Mortgage, the Assignment, and the Austin Deed all purported to affect title to the Property, none of those documents were promptly recorded. The Austin Deed was recorded on January 27, 2006, about eight months after it was executed. The Mortgage was recorded on August 15, 2007, and...
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