Stanziale v. Efthemios Velahos, Esq., James B. Wilson, Pamela A. Abrams, Holly Lewis, Woodbury Title Agency, LLC (In re Torres)

• Decision Date: 15 June 2017
• Docket Number: Adv. No. 11-2336(RG),Case No.: 09-34115 (RG)
• Parties: In Re: CARLOS E. TORRES and MARGUERITE TORRES, Debtors. BENJAMIN A. STANZIALE, JR. as Chapter 7 Trustee, Plaintiff, v. EFTHEMIOS VELAHOS, ESQ., JAMES B. WILSON, PAMELA A. ABRAMS, HOLLY LEWIS, WOODBURY TITLE AGENCY, LLC, SJB HOLDINGS, LLC, FIRST AMERICAN TITLE INSURANCE COMPANY, LANDAMERICA LAWYERS TITLE INSURANCE CORPORTATION, JOHN DOES 1 THROUGH 10, AND XYZ CORPORATIONS 1 THROUGH 10, Defendants.
• Court: U.S. Bankruptcy Court — District of New Jersey

In Re: CARLOS E. TORRES and MARGUERITE TORRES, Debtors.BENJAMIN A. STANZIALE, JR. as Chapter 7 Trustee, Plaintiff, v. EFTHEMIOS VELAHOS, ESQ., JAMES B. WILSON, PAMELA A. ABRAMS,HOLLY LEWIS, WOODBURY TITLE AGENCY, LLC, SJB HOLDINGS, LLC,FIRST AMERICAN TITLE INSURANCE COMPANY,LANDAMERICA LAWYERS TITLE INSURANCE CORPORTATION,JOHN DOES 1 THROUGH 10, AND XYZ CORPORATIONS 1 THROUGH 10, Defendants.

Case No.: 09-34115 (RG)

Adv. No. 11-2336(RG)

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW JERSEY

June 15, 2017

OPINION

APPEARANCES:

Mellinger, Sanders & Kartzman, LLC

BY: Adam G. Brief, Esq.

Steven P. Kartzman, Esq.

Joseph R. Zapata, Jr., Esq.

101 Gibraltar Drive, Suite 2F

Morris Plains, New Jersey 07950

Special Litigation Counsel for Plaintiff Benjamin A. Stanziale, Jr.,Chapter 7 Trustee

Stanziale and Stanziale, P.C.

BY: Benjamin A. Stanziale, Jr., Esq.

29 Northfield Avenue, Suite 201

West Orange, New Jersey 07052

Chapter 7 Trustee

Rubin, Ehrlich & Buckley, P.C.

BY: Robert L. Grundlock, Jr., Esq.

Gloria R. Buckley, Esq.

Crossroads Corporate Center

3150 Brunswick Pike, Suite 310

Lawrenceville, New Jersey 08648

Attorney(s) for the Defendant, First American Title Insurance Company

ROSEMARY GAMBARDELLA, BANKRUPTCY JUDGE

MATTER BEFORE THE COURT

Before this Court is an Adversary Proceeding filed by Benjamin A. Stanziale, in his capacity as Chapter 7 Trustee for the Chapter 7 Estate of Carlos Torres and Marguerite Torres, for various relief under 11 U.S.C. §§ 544(b)(1) and 550, and other relief. On August 12, 2015, and August 24, 2015, the trial was conducted. At the conclusion of Plaintiff's presentation, First American moved for judgment under Fed. R. Civ. P. 52(c). Subsequently, First American presented its defense, and the Court reserved decision. The following constitutes this Court's findings of fact and conclusions of law.

STATEMENT OF FACTS

The parties by Joint Stipulation dated August 7, 2015, stipulated to the following facts:

A. The Parties1. On September 14, 2009, Marguerite Torres ("Ms. Torres") and Carlos Torres ("Mr. Torres," and together with Ms. Torres, the "Debtors") filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code.

2. Thereafter, Plaintiff Benjamin A. Stanziale, Trustee, was appointed to serve as the Chapter 7 Trustee, with the duties described in 11 U.S.C. § 704.

3. Efthemios Velahos was also the sole owner of Woodbury Title Agency, LLC ("Woodbury Title"), which maintained its offices at 49 Newton Avenue, Woodbury, New Jersey. Woodbury Title served as the title agency and settlement agent for the June 2007 sale of the Property from the Debtors to James B. Wilson.

4. James B. Wilson ("Wilson" or the "Purchaser"), is an individual residing within the State of New Jersey, who purchased the Property from the Debtors in June 2007.

5. SJB Holdings, LLC ("SJB") is a New Jersey limited liability company with an address at 14 Parke Place Boulevard, Suite B, Sewell, New Jersey.

B. Background Facts

6. In or about September 1990, the Debtors purchased the Property [at 19 Miller Drive, Boonton, N.J.], subject to a mortgage of approximately $229,000 in favor of Lancaster Financial Ltd., Inc. The mortgage was assigned on three occasions and in the fall of 2006 was held by Citimortgage, Inc.

7. By October 2006, the Debtors had fallen several months behind on their mortgage. Consequently, Citimortgage, Inc., commenced a foreclosure action in the Superior Court of New Jersey. At that time, the Property was subject to a mortgage lien in the approximate amount of $220,000.

8. As part of the sale of the subject property, the Torres entered into a Residential Lease - Purchase Agreement by which they agreed to be tenants on the subject property and pay rent to SJB Holdings, LLC. (P-6)

9. The sale closed on June 11, 2007, at the offices of Woodbury Title. Woodbury Title served as Settlement Agent.

10. Based upon Woodbury Title's banking records, Credit Suisse funded Wilson's purchase money loan via a wire transfer to Woodbury Title on June 11, 2007.

11. Later that same day, Wilson tendered a personal check to Woodbury Title in the amount of $112,208.37. Wilson's check did not clear until June 13, 2011.

12. The Debtors received $150,000 of the net sale proceeds and the satisfaction of their debt ($219,185.04) secured by the mortgage on the subject property held by CitiMortgage, Inc.

13. The Debtors endorsed a check encompassing the remainder of seller's proceeds to SJB Holdings, LLC.¹ (P-15)

14. Nancy Newman Brown, Esq. is First American's designated witness for purposes of Rule 30(b)(6) of the Federal Rules of Civil Procedure.

15. At all times relevant hereto, Woodbury Title and First American were parties to an Agency Agreement dated April 15, 2004.

The parties stipulated to the admissibility of pages 20-25 of Ms. Holly Lewis' deposition transcript and various Exhibits P-1, P-2, P-5, P-6, P-7, P-8, P-9, P-10, P-11 through P-23, P-44, D-1 through D-6. The parties also agreed to the authenticity and admissibility of Woodbury Title's Date-Stamped Documents WT-1 through WT-459.

C. Procedural Background

On September 14, 2009, Carlos E. Torres and Marguerite M. Torres filed a voluntary joint petition under Chapter 7 of the Bankruptcy Code. Chapter 7 Voluntary Petition, In re Torres, Case No. 09-34115, ECF No. 1. On September 15, 2009, Benjamin A. Stanziale was appointed as the Chapter 7 Trustee (the "Trustee"). ECF No. 4. On March 28, 2012, the Court entered an Order granting the debtors a Discharge. ECF No. 68.

On September 12, 2011, the Trustee filed the instant adversary proceeding against (1) Efthemios Velahos, Esq. ("Velahos"), (2) Wilson, (3) Pamela A. Abrams ("Abrams"), (4) Holly Lewis ("Lewis"), (5) Woodbury Title, (6) SJB, (7) First American Title Insurance Company ("First American"), (8) LandAmerica Lawyers Title Insurance Corporation, (9) John Does 1 through 10, and (10) XYZ Corporations 1 through 10. Adversary Complaint, Stanziale v. Velahos, Adv. Pro. No. 11-02336, ECF No. 1. Counts One and Two of the Complaint allege fraudulent transfer against Wilson and SJB, respectively under 11 U.S.C. §§ 544(b)(1), 550 and N.J.S.A. 25:2-25(b). Counts One and Two of the Complaint seek to avoid the transfer and disbursement under Section 544(b)(1) of the Bankruptcy Code and N.J.S.A. 25:2-27(a), and recover the value of the transfer and disbursement under Section 550. Counts Three and Four of the Complaint allege claims for fraudulent transfer against Wilson and SJB, respectively, claiming that Debtors did not receive equivalent value in exchange for the transfer and disbursement, and that Debtors were insolvent or became insolvent as a result of the transfer anddisbursement. Counts Three and Four seek to avoid the transfer and disbursement to Wilson and SJB pursuant to Section 544(b), and to recover the value of the transfer pursuant to Section 550. Counts Five and Six seek to recover the value of the transfer and disbursement, respectively, from Wilson and SJB, pursuant to Section 550 of the Bankruptcy Code. Count Seven of the Complaint allege claims against Wilson, SJB, Velahos, Woodbury Title, Abrams, and Lewis under the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq., seeking treble compensatory damages, as well as consequential and punitive damages. Counts Eight and Nine of the Complaint allege legal and equitable fraud, respectively, against Wilson, SJB, Velahos, Woodbury Title, Abrams, and Lewis. Count Ten of the Complaint alleges negligent misrepresentation against Wilson and SJB. Counts Eleven and Twelve of the Complaint allege civil conspiracy, and aiding and abetting civil conspiracy, fraud (legal and equitable) misrepresentation, respectively, against all defendants. Count Thirteen of the Complaint alleges conversion against Wilson and SJB. Count Fourteen of the Complaint alleges vicarious liability against First American and Lawyers Title. Count Fifteen seeks to pierce the corporate veil against SJB, and Count Sixteen seeks to declare that Wilson used SJB as his alter ego such that Wilson and SJB may be held jointly and severally liable. Count Seventeen alleges legal malpractice against Velahos, and Count Eighteen alleges negligence of settlement agent against Velahos, Abrams, Lewis, and Woodbury Title. Finally, Count Nineteen seeks to recover legal fees against all defendants.

Defendant First American

On October 21, 2011, First American filed a Motion for Summary Judgment. Motion for Summary Judgment, Stanziale v. Velahos, Adv. Pro. No. 11-02336, ECF No. 4. First American asserted that "the claim against First American boils down to a vicarious liability claim for thealleged conduct of Woodbury Title. First American cannot be held vicariously liable for the conduct alleged against Woodbury Title which involves intentionally unlawful, not to say illegal, conduct." Id. at 1. First American argued that its association with Woodbury Title is contractual and limited, and any liability First American may have is limited exclusively to its insureds, which Plaintiffs are not. Id. at 7. First American noted that "[n]o case anywhere imposes liability upon a title insurance underwriter to third parties or sellers for the conduct of an agent. No such liability has ever been found to exist." Id. First American requested, therefore, that the Court grant summary judgment in its favor and dismiss the Complaint against it. Id. at 8.

On November 28, 2011, the Trustee filed a Cross-Motion for partial summary judgment and opposition to Defendant's motion for summary judgment. Cross-Motion for Partial Summary Judgment, Stanziale v. Velahos, Adv. Pro. No. 11-02336, ECF No. 6. The Trustee claimed there were "at the very least triable issues precluding summary judgment including whether Woodbury Title was an 'agent independent contractor' of [First American], and whether [First American] can be vicariously liable for Woodbury Title's actions." Id. at 2. The Trustee argued that the characterization of the relationship...