Old Republic Nat'l Title Ins. Co. v. Welch (In re Welch)

• Decision Date: 02 July 2013
• Docket Number: CASE NO. 12–05082–8–JRL,ADVERSARY PROCEEDING NO. 12–00253–8–JRL
• Citation: Old Republic Nat'l Title Ins. Co. v. Welch (In re Welch), 494 B.R. 654 (Bankr. E.D. N.C. 2013)
• Court: U.S. Bankruptcy Court — Eastern District of North Carolina
• Parties: In re: Barrett Oakes Welch, Debtor. Old Republic National Title Insurance Company, Plaintiff, v. Barrett Oakes Welch, Defendant.

494 B.R. 654

In re: Barrett Oakes Welch, Debtor.Old Republic National Title Insurance Company, Plaintiff,

v.Barrett Oakes Welch, Defendant.

CASE NO. 12–05082–8–JRL

ADVERSARY PROCEEDING NO. 12–00253–8–JRL

United States Bankruptcy Court, E.D. North Carolina GREENVILLE DIVISION

Filed July 2, 2013

Stephen L. Beaman, Stephen L. Beaman, PLLC, Wilson, NC, Jennifer K. Bennington, Stephen L. Beaman, PLLC, Wilson, NC, John G. Trimpi, Trimpi & Nash, LLP, Elizabeth City, NC, for Plaintiff.

Rodney A. Currin, Stubbs & Purdue, PA, New Bern, NC, Edward A. O'Neal, Twiford, O‘Neal & Vincent, Elizabeth City, NC, for Defendant.

CHAPTER 11

ORDER

J. Rich Leonard, United States Bankruptcy Judge

This matter came before the court on Barrett Oakes Welch's (“defendant”) motion to dismiss the complaint filed by Old Republic National Title Insurance Company (“plaintiff”) in the above–captioned adversary proceeding on the grounds that it fails to state a claim upon which relief may be granted pursuant to Fed.R.Civ.P. 12(b)(6) and Fed. R. Bankr.P. 7012(b)(6). A hearing was held in Raleigh, North Carolina on May 23, 2013. At the conclusion of the hearing, the court took the matter under advisement.

BACKGROUND¹

The defendant, a veterinarian in Dare County, North Carolina, and Renee J. Welch (“Renee”) were married from February 25, 1984 until their separation on February 15, 2005. During the course of the marriage, they acquired several parcels of real property, including a rental house in Manteo, North Carolina, which is more particularly described as Lot 12 in the Evansville Subdivision, as reflected on Map Book 1 at Page 145 of the Dare County Register of Deeds (“real property”). Because it was acquired during their marriage, title to the real property was held by the defendant and Renee as tenants by the entirety.

In 2006 and following their separation, the defendant made a series of investments, totaling approximately $1.9 million, in a fraudulent real estate investment scheme along the North Carolina coast known as Blue Water Land Development Co., LLC (“Blue Water”).² Loren Hamlin (“Hamlin”) and William Ashley Gurganus (“Gurganus”), officers with the Kitty Hawk branch of Bank of America, N.A. (“Bank of America”), executed an agreement with the principal of Blue Water whereby the defendant and other Blue Water investors would deposit their investment with Bank of America in exchange for certificates of deposit. These funds, which were on deposit with Bank of America, were then funneled to coastal real estate developments in northeastern North Carolina.

To finance his investment in Blue Water and with the assistance of Hamlin and Gurganus, the defendant procured capital from various sources, including family members and loans from various lenders, which were secured by deeds of trust on parcels of real property owned by the defendant and Renee. On April 25, 2006, the defendant executed an equity line of credit in favor of Equity Services, Inc. (“Equity Services”) in the original principal amount of $150,000.00, which was secured by a deed of trust on the real property and recorded in Book 1683 at Page 62 of the Dare County Register of Deeds (“deed of trust”).³ Although a signature purportedly belonging to Renee appeared on the deed of trust, she never executed the deed of trust encumbering the real property.

The loan closing took place at the office of local attorney Dan Merrell of Dan L. Merrell & Associates, P.C. (“Merrell”), who represented both the defendant and Equity Services. After he executed the deed of trust and at Hamlin's request, the defendant removed the deed of trust and other items from the loan closing file and took them to the Kitty Hawk branch of Bank of America for Hamlin's review. Without her knowledge, consent, approval or permission, the defendant and Hamlin forged Renee's signature on the deed of trust. Thereafter, Hamlin directed an employee of Bank of America to acknowledge the defendant's signature and Renee's forged signature. The defendant, who was familiar with the financing and acquisition of real property, knew that the procurement of title insurance was required in connection with the transaction. At his own expense, the defendant purchased and the plaintiff issued a title insurance policy naming Equity Services as the insured.

Following their separation, the loan closing and recordation of the deed of trust at issue, the defendant commenced an equitable distribution action against Renee in the Dare County District Court, File No. 07–CVD–862. During the course of the proceeding,Renee discovered several deeds of trust on record with the Dare County Register of Deeds bearing her forged signature and commenced third–party actions against the various lenders and trustees under the deeds of trust seeking a determination of their validity. On November 2, 2010, in a third–party action regarding the validity of the deed of trust at issue, the Dare County District Court declared that Renee's signature had been forged.

Thereafter, a claim was made on the title insurance policy by Equity Services. Consistent with its obligations thereunder, the plaintiff retained Trimpi & Nash, LLP to defend against the claim arising from the forged deed of trust and incurred approximately $38,000.00 in legal fees and costs. On July 3, 2012, and in exchange for the payment of $30,000.00, Renee executed a quitclaim deed of trust on the real property, which was recorded in Book 1902 at Page 141 of the Dare County Register of Deeds. Thus, the plaintiff expended $30,000.00 in ratifying the forged deed of trust and incurred approximately $38,000.00 in attorney's fees and costs in defending the claim filed against the policy.

On July 12, 2012, the defendant filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The plaintiff timely filed the multi–count complaint initiating this adversary proceeding on October 4, 2012, asserting eight claims for relief against the defendant for (1) forgery; (2) fraud; (3) facilitation of fraud; (4) conspiracy to commit fraud; (5) violations of the North Carolina Unfair and Deceptive Trade Practices Act, N.C. Gen.Stat. § 75–1.1 et seq. (hereinafter “UDTPA”); (6) punitive damages; (7) nondischargeability pursuant to § 523(a)(2); and (8) nondischargeability pursuant to § 523(a)(6). The first claim for relief alleges that the defendant forged Renee's signature on the deed of trust, which he utilized to obtain financing from Equity Services and the title insurance policy issued by the plaintiff. The plaintiff's second claim for relief asserts that its justifiable reliance on and the defendant's misrepresentations and forgery of Renee's signature on the deed of trust amount to fraud, which caused the plaintiff to issue the title insurance policy and suffer damages of approximately $68,000.00. The third and fourth claims for relief, alleging facilitation of fraud and conspiracy to commit forgery, seek damages arising from the scheme alleged perpetrated by Hamlin and the defendant to acknowledge the forged signature on the deed of trust. The fifth claim for relief states that the recordation of the forged deed to procure the title insurance policy issued by the plaintiff constitutes an unfair and deceptive trade practice in violation of the UDTPA. The plaintiff's sixth claim for relief seeks recovery of punitive damages to remedy the defendant's fraudulent and willful or wanton conduct. The seventh and eighth claims for relief seek a determination that the debt owed to the plaintiff be declared nondischargeable pursuant to § 523(a)(2) and § 523(a)(6) of the Bankruptcy Code.⁴

On December 5, 2012, the defendant filed his answer to the complaint, which included the motion to dismiss currently before the court. The defendant's motion to dismiss and supporting memorandum assert that the complaint must be dismissed in its entirety pursuant to Fed.R.Civ.P. 12(b)(6) and Fed. R. Bankr.P. 7012 because each of the claims for relief therein are personal tort actions that do not afford the plaintiff, as a third party, any right to recovery.

DISCUSSION

The defendant, relying on Investors Title Insurance Co. v. Herzig, 330 N.C. 681, 413 S.E.2d 268 (1992), contends that the claims presented by the plaintiff in its complaint are “personal in nature” and are specifically enumerated claims to which the plaintiff cannot recover because it was not a party to the loan transaction between the defendant and Equity Services. Alternatively, the defendant argues that the plaintiff has failed provide allegations that plausibly demonstrate a claim for relief under the UDTPA because his alleged actions and conduct were not “in or affecting commerce.” Based on the lack of standing under Investors Title and absent any statutory authority, the plaintiff's claims for attorney's fees under the UDTPA and punitive damages must also be dismissed. To the extent that Investors Title and supporting case law preclude the plaintiff from asserting any right to recovery under the first five claims for relief, there is no debt owed by the defendant from which § 523(a)(2) and § 523(a)(6) may except from discharge.

I. Standard of Review

Pursuant to Fed.R.Civ.P. 8(a), made applicable to bankruptcy proceedings by Fed. R. Bankr.P. 7008, every pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief....” Fed.R.Civ.P. 8(a)(2); Fed. R. Bankr.P. 7008. To demonstrate entitlement to relief and survive a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the complaint must include “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Plausibility requires a plaintiff to “plead[ ] factual content that allow[s] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 667–78, 129 S.Ct. 1937, 173 L.Ed.2d...