S. Bank & Trust Co. v. Alexander (In re Alexander)
| Decision Date | 16 July 2014 |
| Docket Number | Case No. 11-74515-SCS,APN 13-07146-SCS |
| Court | U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re: DARVIN ALEXANDER, BONITA RENEE ALEXANDER, Debtors. SOUTHERN BANK AND TRUST COMPANY, JAMES M. PICKRELL, JR., TRUSTEE ON THE DEED OF TRUST, JANICE P. ANDERSON, TRUSTEE ON THE DEED OF TRUST, Plaintiffs, v. DARVIN ALEXANDER, BONITA RENEE ALEXANDER, LEONTINE BROWN, ROGERS LEE BROWN, INTERNAL REVENUE SERVICE, CLARA P. SWANSON, CHAPTER 7 TRUSTEE, Defendants. |
On November 25, 2013, Southern Bank and Trust, James M. Pickrell, Jr., Trustee on the Deed of Trust, and Janice P. Anderson, Trustee on the Deed of Trust (collectively, the "Bank") filed a Complaint ("Complaint") against the defendants Darvin Alexander ("Darvin"), Bonita Renee Alexander ("Bonita" and, collectively with Darvin, the "Debtors"), Leontine Brown ("Leontine"), Rogers Lee Brown ("Rogers"), the Internal Revenue Service, and Clara P. Swanson, Chapter 7 Trustee for Darvin and Bonita ("Trustee"). The Trustee, pursuant to FederalRule of Bankruptcy Procedure 7012(b) and Federal Rule of Civil Procedure 12(b), filed a Motion to Dismiss the Complaint and a Memorandum in Support ("Memorandum" and, collectively with the Motion to Dismiss the Complaint, "Motion to Dismiss") on January 13, 2014. The Bank filed a response to the Motion to Dismiss on February 13, 2014 ("Response"), to which the Trustee filed a reply on February 24, 2014 ("Reply"). The Court conducted a hearing on the Motion to Dismiss on March 12, 2014, at which time the Court took the matter under advisement. This Memorandum Opinion constitutes the Court's conclusions of law pursuant to Federal Rule of Civil Procedure 52, as incorporated into the Federal Rules of Bankruptcy Procedure by Rule 7052.
This controversy arises because, as the Complaint succinctly states, "Defendants Leontine and Bonita were fee simple owners of the Property . . . prior to conveying the Property to Leontine and Rogers; however, the Deed . . . reflecting the conveyance was apparently not recorded." Complaint ¶ 1.
The essential factual allegations of the Complaint are also succinct. On January 29, 1999, by a deed recorded on February 8, 1999 ("1999 Deed") in the Clerk's Office for the Circuit Court of the City of Chesapeake ("Clerk's Office"), Leontine and Bonita became the record owners of real property located at 700 Pleasant Ridge Court, Chesapeake, Virginia, 23320 ("Property"). Id. ¶ 9. Leontine and Bonita financed the purchase of the Property by entering into a loan ("1999 Loan") with BNC Mortgage, Inc. ("BNC"), for which Ocwen Loan Servicing ("Ocwen") was the servicer. To secure a note payable to BNC in the principal amount of $200,000.00, Leontine and Bonita conveyed the Property in trust to Dewey B. Morris andKimberly M. McGee, as trustees, for the benefit of BNC ("1999 Deed of Trust"). The 1999 Deed of Trust was recorded in the Clerk's Office on February 8, 1999. Id. ¶ 10.
Leontine and Bonita executed a deed on April 19, 2006 ("2006 Deed"), intending to convey all of their interests in the Property to Rogers and Leontine. Id. ¶ 11. The 2006 Deed incorrectly describes Leontine as being "Leotine Brown." More importantly, however, the 2006 Deed was never recorded in the Clerk's Office. Id. ¶ 12.
Without any apparent knowledge of the scrivener's error in the 2006 Deed or that the 2006 Deed was not recorded, Rogers and Leontine entered into a $475,000.00 loan with the Bank of the Commonwealth1 on May 5, 2006 ("2006 Loan"), which was to be secured by a deed of trust of the same date ("2006 Deed of Trust"). The 2006 Deed of Trust, by and between Rogers and Leontine, as grantors, to Richard J. Tavss and E. J. Woodard, Jr., as trustees, was recorded in the Clerk's Office. Id. ¶ 13. From the 2006 Loan, proceeds of $194,174.27 were used to pay off and satisfy the 1999 Loan owed by Leontine and Bonita, as evidenced by the Virginia Certificate and Affidavit of Satisfaction, dated May 25, 2006, which was recorded in the Clerk's Office. Id. ¶ 14-15. Thereafter, Rogers and Leontine entered into a second loan with the Bank of the Commonwealth, in the form of a line of credit ("Line of Credit") to be secured by a credit line deed of trust ("Credit Line Deed of Trust") on the Property. Id. ¶ 16. After various change in terms agreements and a deed of trust modification, on September 27, 2010, Rogers and Leontine executed a new deed of trust ("2010 Deed of Trust") to secure the payment of the 2006 Loan, the Line of Credit, and any and all other advances and obligations owed to the Bank of the Commonwealth. Id. ¶ 17. The 2010 Deed of Trust was recorded in the Clerk's Office and named Richard J. Tavss and E. J. Woodard, Jr., as trustees, for the benefit of the Bank of theCommonwealth. Id. In 2013, the Bank acquired the loans and associated deeds of trust (collectively, the "Deeds of Trust").2 Id. ¶ 18.
On February 9, 2012, Rogers and Leontine filed a petition under Chapter 11 of the United States Bankruptcy Code (case number 12-70536-SCS) ("Brown Bankruptcy Case"). The Brown Bankruptcy Case was converted to a Chapter 7 case on January 10, 2013. Id. ¶ 21. Rogers and Leontine listed the Property in their schedules as being jointly owned by them. Id. ¶ 22. Rogers and Leontine also listed the obligations owed to the Bank under the 2006 Loan and the Line of Credit and indicated that these obligations are secured by the Property. Id. ¶ 23.3
On October 10, 2011, Darvin and Bonita filed a Chapter 13 bankruptcy petition ("Petition") (case number 11-74515-SCS) ("Bankruptcy Case"). The Debtors converted their Bankruptcy Case to one under Chapter 7 on November 6, 2013, and the Trustee was appointed as the Chapter 7 trustee. Id. ¶¶ 2-3. The Debtors did not list the Property in their original bankruptcy schedules. However, upon conversion, the Debtors amended their schedules to assert that Bonita and Leontine hold the Property as tenants-in-common. Id. ¶¶ 26-27.
The Bank claims that Rogers and Leontine intended that the repayment of the 2006 Loan and the Line of Credit would be secured by the Deeds of Trust. Id. ¶ 33. The Bank seeks an order (a) declaring Rogers and Leontine to be the owners of the Property; and (b) reforming the 2006 Deed and any other necessary documents to reflect the intention of Rogers and Leontine that the Bank would have a lien on the Property securing the repayment of the 2006 Loan and the Line of Credit. Id. ¶ 34.
The Bank asserts a number of theories of recovery to achieve this relief. First, the Bank asserts that a judicial determination and declaration is necessary to remedy the mistake, fraud, or improper conduct that resulted in the 2006 Deed not being recorded and to memorialize the intentions of Rogers and Leontine to give the Bank a security interest in the Property. Id. ¶ 43. Specifically, the Bank seeks a declaration that:
(i) Leontine and Rogers are the fee simple owners of the Property; (ii) the Debtors do not have any interest in the Property; (iii) the repayment of the 2006 Loan and Line of Credit is secured by Rogers' and Leontine's interest in the Property; and/or (iv) the 2006 Deed of Trust, Credit Line Deed of Trust, and 2010 Deed of Trust constitute a valid, enforceable, and binding lien against the entire Property nunc pro tunc to the dates of the respective recordings.
Id. ¶ 41. The Bank also asserts a variety of equitable theories of relief: reformation of the relevant Deeds of Trust (Count II); equitable subrogation to the lien position of the 1999 Deed of Trust (Count III); imposition of a constructive trust (Count IV); imposition of an equitable lien (Count V); imposition of an implied or resulting trust (Count VI); a finding of unjust enrichment (Count VII); and the direction of specific performance (Count VIII). Finally, the Bank asserts this Court may afford it relief pursuant to § 105 of the Bankruptcy Code (Count IX).
The Trustee disagrees, believing all of the Bank's equitable claims for relief fail as a matter of law as to the Trustee pursuant to § 544(a) of the Bankruptcy Code. Memorandum at 4. The Trustee believes that the remaining two counts asserted by the Bank fail without regard to the merits of her asserted § 544 defense. As to the Bank's request for declaratory judgment, the Trustee asserts that no controversy exists, since the Bank's rights have been determined by past events. Memorandum at 6; Reply at 3. The Trustee further argues that the Court cannot grant relief under § 105 because such relief is contrary to that specified elsewhere in the Code. Memorandum at 14-15; Reply at 9-10.
Judge Davis has set forth the standard by which a motion to dismiss is to be adjudicated:
Federal Rule of Civil Procedure 12(b)(6) permits a defendant to seek dismissal based on a plaintiff's "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). In considering a 12(b)(6) challenge to the sufficiency of a complaint, Rule 12(b)(6) must be applied in conjunction with the liberal pleading standard set forth in Rule 8(a). Rule 8(a) requires: a jurisdictional statement, a demand for relief, and "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a). "Undoubtedly great generality in the statement of the[] circumstances [supporting a plaintiff's claim] can be permitted so long as the defendant is given fair notice of what is being asserted against him." Chao v. Rivendell Woods, Inc., 415 F.3d 342, 346 (4th Cir. 2005) (). Pursuant to this "relaxed standard," unmeritorious claims are best eliminated through liberal discovery and motions for summary judgment rather than through motions to dismiss. Id. Accordingly, as recently clarified by the United States Supreme Court, a 12(b)(6) motion...
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