Notinger v. Migliaccio (In re Fin. Res. Mortg., Inc.)

• Decision Date: 29 February 2012
• Docket Number: Bankruptcy Nos. 09–14565–JMD,09–14566–JMD.Adversary No. 10–1075–JMD.
• Citation: 2012 BNH 001,468 B.R. 487
• Parties: In re FINANCIAL RESOURCES MORTGAGE, INC. and C L and M, Inc., and other jointly administered cases, Debtors.Steven M. Notinger, Chapter 7 Trustee for Financial Resources Mortgage, Inc. and C L and M, Inc., Plaintiff v. Philip Migliaccio and Melanie Migliaccio, Defendants.
• Court: U.S. Bankruptcy Court — District of New Hampshire

2012 BNH 001

468 B.R. 487

In re FINANCIAL RESOURCES MORTGAGE, INC. and C L and M, Inc., and other jointly administered cases, Debtors.Steven M. Notinger, Chapter 7 Trustee for Financial Resources Mortgage, Inc. and C L and M, Inc., Plaintiff

v.Philip Migliaccio and Melanie Migliaccio, Defendants.

Bankruptcy Nos. 09–14565–JMD

09–14566–JMD.Adversary No. 10–1075–JMD.

United States Bankruptcy Court, D. New Hampshire.

Feb. 29, 2012.

James W. Donchess, Esq., Donchess & Notinger, PC, Nashua, NH, for Plaintiff.

Bertrand A. Zalinsky, Esq., Cronin & Bisson, P.C., Manchester, NH, for Defendants.

MEMORANDUM OPINION

J. MICHAEL DEASY, Bankruptcy Judge.I. INTRODUCTION

Philip and Melanie Migliaccio (the “Migliaccios” or the “Defendants”) have filed a motion (Doc. No. 100) (the “Motion”) seeking summary judgment in their favor on Counts II, III, and IV of the second amended complaint (Doc. No. 48) (the “Complaint”) filed by Steven M. Notinger, the chapter 7 trustee (the “Trustee”) for the bankruptcy estates of Financial Resources Mortgage, Inc. (“FRM”) and C L and M, Inc. (“CLM”) (collectively, the “Debtors”).¹ In the remaining counts of the Complaint the Trustee seeks to avoid various transfers as fraudulent within the meaning of 11 U.S.C. §§ 544(b) and 548 and NH RSA 545–A:4(I)(A) and/or preferential under 11 U.S.C. § 547. For the reasons set forth in this opinion, the Motion shall be granted in part and denied in part.

This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the “Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire,” dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).

II. DISCUSSIONA. Summary Judgment Standard

Under Rule 56(a) of the Federal Rules of Civil Procedure, made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7056, a summary judgment motion should be granted only “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” An issue is “genuine” if a reasonable jury could resolve the point in favor of the nonmoving party. Tropigas de Puerto Rico, Inc. v. Certain Underwriters at Lloyd's of London, 637 F.3d 53, 56 (1st Cir.2011). A fact is “material” if its existence or nonexistence has the potential to change the outcome of the suit. Id.

[T]he role of summary judgment is to “pierce the pleadings” and to determine whether there is a need for trial. Garside v. Osco Drug, Inc., 895 F.2d 46, 50 (1st Cir.1990). The moving party must “put the ball in play” by averring the absence of any genuine issue of fact. Id. at 48. Once the ball is in play, however, the nonmoving party must come forward with competent evidence to rebut the assertion of the moving party. Id.; see also Celotex Corp. v. Catrett, 477 U.S. 317, 323–24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Not every factual discrepancy is sufficient to defeat a motion for summary judgment. “[E]vidence that ‘is merely colorable or is not significantly probative’ ” cannot defeat the motion. Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir.1991) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249–50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).

Evans Cabinet Corp. v. Kitchen Int'l, Inc., 593 F.3d 135, 140 (1st Cir.2010). If the movant makes a preliminary showing that no genuine issue of material fact exists, the nonmovant must produce suitable evidence to establish a trialworthy issue. Clifford v. Barnhart, 449 F.3d 276, 280 (1st Cir.2006). Otherwise, the nonmovant's failure to produce evidence on essential factual elements on which it would bear the burden of proof at trial requires summary judgment for the movant. Id. As part of the summary judgment record, a court may take judicial notice of its own docket. See Fed. R. Bankr.P. 9017 (incorporating Fed.R.Evid. 201); LeBlanc v. Salem (In re Mailman Steam Carpet Cleaning Corp.), 196 F.3d 1, 8 (1st Cir.1999).

“In evaluating whether there is a genuine issue of material fact, the court examines the record—pleadings, affidavits, depositions, admissions, and answers to interrogatories—viewing the evidence in the light most favorable to the party opposing summary judgment.” Rivera–Colon v. Mills, 635 F.3d 9, 12 (1st Cir.2011); see Maldonado–Denis v. Castillo–Rodriguez, 23 F.3d 576, 581 (1st Cir.1994). While courts draw all reasonable inferences in favor of the nonmovant, Mendez–Aponte v. Bonilla, 645 F.3d 60, 64 (1st Cir.2011), courts afford no evidentiary weight to “conclusory allegations, empty rhetoric, unsupported speculation, or evidence which, in the aggregate, is less than significantly probative.” Rogan v. City of Boston, 267 F.3d 24, 27 (1st Cir.2001), cited in Tropigas de Puerto Rico, 637 F.3d at 56. Against this legal backdrop, the Court shall examine the summary judgment record and recite the facts in the light most agreeable to the Trustee as the party opposing summary judgment.² Tropigas de Puerto Rico, 637 F.3d at 54.

B. Summary Judgment Record

1. Background

Scott Farah (“Farah”) formed FRM in 1989 and served as its principal. FRM was in the mortgage brokerage business and arranged mortgages between borrowers and lenders for a commission. FRM earned money by brokering residential, commercial, or private money transactions. FRM typically charged a commission on every loan that it brokered, which ranged from 1–4% for conventional residential loans, 2–6% for conventional commercial loans, and 4–10% for private money loans.

Donald Dodge (“Dodge”) formed CLM in 2005. Dodge served as CLM's only officer and shareholder. Farah was never an officer or shareholder of CLM and had no signatory authority on any of CLM's bank accounts. CLM serviced many of the loans brokered by FRM. CLM received its income from servicing the loans. FRM paid a portion of its commissions to CLM for CLM's operating expenses. On a regular basis, CLM sent an invoice to FRM stating which loans had closed and which loans CLM was now servicing. FRM would send CLM a check that CLM would deposit into its operating account, Account 3304034880, which it maintained at Citizens Bank and called “CL and M Operating Account” (the “Operating Account”).

Farah solicited both borrowers and lenders through referrals, advertisements, and direct mail. FRM would process various loan requests and, two or three times a month, would send out summaries of all the loans that were available for funding to potential lenders, including the Defendants. If a lender expressed interest in a particular loan, FRM would send a full underwriting package, including tax returns, appraisals, and credit reports. Lenders could then choose whether or not to fund a particular loan. The Defendants became lenders through such processes. Once the Defendants decided to fund a particular loan, Farah instructed them to send their money to CLM. Dodge would then deposit the money into one of two bank accounts: Account 3304037383, which it maintained at Citizens Bank and called “CL and M, Inc. Servicing Account” (the “Servicing Account”) or Account 3304037448, which it also maintained at Citizens Bank and called “CL and M Servicing Account I” (the “Servicing Account I”). CLM also had the Operating Account, which it maintained separately from the two servicing accounts. The Operating Account was used to pay CLM's operating expenses, including wages for its employees, payments for credit cards and insurance, state and federal tax expenses, and bank charges. The source of the funds for the Operating Account were servicing fees that were paid to CLM by FRM from loan origination fees.

When a lender sent funds to CLM, the lender would usually receive a letter from CLM outlining the terms of the deal. Typically lenders would receive interest from the date CLM received the lenders' deposit through the date the loan closed. Many loans called for an interest reserve whereby some of the loan proceeds due to the borrowers would be held by CLM after the closing to be disbursed each month post-closing to the lender. Loans brokered by FRM were short-term loans, i.e., with loan terms of one or two years. The loan disbursements and interest payments at issue in this proceeding were paid from either Servicing Account or Servicing Account I. During the relevant times in this proceeding, CLM used the two servicing accounts essentially as one account. Deposits would be placed in one of the two servicing accounts. CLM would write checks out of one account for three months and then for the next three months, while the checks were clearing from the first account, CLM would write checks from the other account. Every three months the active servicing account and the stagnant servicing account would “flip-flop.” According to Farah, CLM placed no significance as to whether checks were deposited into or withdrawn from Servicing Account versus Servicing Account I. CLM made numerous transfers back and forth between the two accounts “purely for bookkeeping reasons.”

2. The Defendants' Loans

In 2008, Mr. Migliaccio contacted FRM to obtain information about making loans. During that year the Migliaccios received numerous loan summaries from FRM. In each case, the summary contained the term, interest rate, amount, and collateral description as well as the reason for the proposed loan. When the Migliaccios chose a particular loan to fund, Farah directed that a check made payable to CLM Servicing be sent to CLM. In accordance with those instructions, the Migliaccios then sent checks made payable to “CLM Servicing” or “CL & M Servicing” for each loan. The checks included a notation on the memo line of each check indicating which loan the money was intended to fund.

a. Hopkins Loan

In March 2008, the Migliaccios received a loan summary for a loan to Eric Hopkins (the “Hopkins Loan”). The loan was for finishing construction on...