Southern Bank and Trust Company et al v. Alexander et al, No. 2:2014cv00465 - Document 11 (E.D. Va. 2014)
Court Description: OPINION that the court AFFIRMS the Memorandum Opinion of July 16, 2014, in which opinion the Bankruptcy Court granted the Trustee's Motion to Dismiss all nine counts of the Complaint. Further, the court DENIES the Trustee's Motion to Exclude Exhibits. Signed by Chief District Judge Rebecca Beach Smith on 12/16/2014 and filed on 12/17/2014. (rsim, )
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Southern Bank and Trust Company et al v. Alexander et al UNITED Doc. 11 STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA Norfolk Division In re: Darvin Alexander and Case #: Bonita Renee Alexander, APN: 11-74515 13-07146 Chapter 7 Debtors. Southern Bank & Trust Company, James M. Pickrell, Jr., Trustee, Janice P. Anderson, Trustee, Appellants, CIVIL NO. v. 2:14cv465 Darvin Alexander, Bonita Renee Alexander, Leontine Brown, Rogers Lee Brown, United States of America, and Clara P. Swanson, Chapter 7 Trustee, Appellees. OPINION This matter is before the court on appeal, pursuant to 28 U.S.C. § 158(a), from the United States Bankruptcy Court for the Eastern District Appellants, of Southern Virginia Bank and (the Trust ''Bankruptcy Company, Court") . Trustee James The M. Pickrell, Jr., and Trustee Janice P. Anderson (collectively, the "Bank"), appeal the Bankruptcy Court's dismissal Complaint by Memorandum Opinion of July 16, 2014. of their This matter is Dockets.Justia.com also before the court on the "Objection to Exhibits to Brief and Motion to Strike Exhibits"), Clara For P. the Strike Same, Swanson, reasons Exhibits is with filed Points on and Authorities" October 9, Chapter 7 Trustee stated DENIED, herein, and the the 2014, by ("Motion to the (the "Trustee"). Trustee's Bankruptcy Motion Court's Appellee, ECF No. 7. to Strike decision is AFFIRMED in all respects. Upon examination of the briefs and the record on appeal, the court concludes that oral argument is unnecessary to decide the issues presented on this appeal, as arguments are adequately presented in "the facts and legal the briefs and record and the decisional process would not be significantly aided by oral argument." Fed. R. Bankr. P. 8012; see, e.g. , No. 305cv482, 2006 WL 848120, at *1 (E.D. Va. Mar. I. On Appeal, July 28, 2014, appealing Complaint against Alexander"), with the "Alexanders"), ("Mr. the Bank filed Mr. Leontine Brown ("Mrs. Revenue Notice of Appeal, Service ECF No. 2. and of the ("Mr. Alexander," "Debtors" Brown"), ("IRS"), of Alexander ("Mrs. the Notice dismissal or and the Rogers Lee Brown Brown," and collectively with Mrs. Brown, Internal Smoot, 30, 2006). timely Darvin Alexander Alexander, the Court's Defendants Renee re BACKGROUND Bankruptcy the Bonita collectively the In the the "Browns"), Trustee. See A. Factual History1 By Deed"), valid Mrs. and and the property in Pleasant Ridge Mrs. BNC Court, Mortgage, January 29, 1999 mother and Mrs. at 6, Brown 4. ("BNC") . Id. loan On entered into ("2006 Deed"), to Mrs. Loan"), same date, a properly recorded Mrs. Alexander and Mrs. ("1999 Deed of Id. at 6-7. Brown executed a which conveyed all of their interests in the Brown May 5, 2006, which (the ("1999 Loan") and Mr. Brown. Id. at 7. However, 2006 Deed was never recorded in the Clerk's Office. On 700 February 8, 1999, in the principal amount of $200,000.00. 2006, all as 23320 On that Brown entered into a Inc. known Virginia, ECF No. ("1999 acquired improvements to secure the note payable to BNC On April 19, Property of Chesapeake, and Mrs. Brown deed of trust deed her Br. and Mrs. Mrs. Alexander Trust"), real Appellant Alexander with deed Alexander interests "Property"). recorded the consists Browns of a entered $475,000.00 into Note the Id.2 a loan ("2006 ("2006 Note") payable to the Bank of the Commonwealth and a properly recorded deed of trust the 2006 ("2006 Deed of Trust") Note. IcL $194,174.27 of to secure the payment the proceeds from the of 2006 1 On appeal, the district court reviews findings of fact made by the Bankruptcy Court for clear error. 2 In addition, See infra Part II.B.l. the unrecorded deed spelled Mrs. Brown's first name incorrectly as "Leotine" rather than "Leontine." See Compl. 1 12, ECF No. 2. Loan fully paid off and satisfied the 1999 Loan previously owed by Mrs. Alexander and Mrs. Brown. On credit to September 19, 2006, ("Line of Credit") the Bank Browns of the the in Browns the Commonwealth. signed a deed of trust Id. of On in the Clerk's Subsequently, Office there December 30, 2008, on were and that changes On trust September 27, 2006 2010, the Note, Property the Line in of 2010. the Id. line of payable date, Deed of the Trust") which was recorded 2006. terms Id. at 7-8. agreements September 23, 2010, ("2010 Deed of Trust") conveying in a same ("Line of Credit September 26, modification on September 23, into $80,000.00, to secure the payment of the Line of Credit, was Id. entered amount that as dated well as a deed of at 8. Browns entered into a with the Bank of the Commonwealth, trust Credit, to secure and any the payment Browns owed to the Bank of the Commonwealth. the obligations other of the Id. Southern Bank and Trust Company acquired the assets of the Bank of the Corporation Commonwealth assigned to the Bank. On protection the of the three deeds of trust were Id. February 9, 2012, bankruptcy under Bank Insurance and benefits the Deposit the obligations under the 2006 Loan and the Line of Credit, and for Federal and rights Receiver the Commonwealth, the as from the ("Brown Browns filed Bankruptcy") , for which Chapter case 11 was converted to a Chapter 7 bankruptcy proceeding on January 10, 2013, and the Honorable Stephen C. St. John presided over the Brown Bankruptcy. in their schedules, Loan and Line of as Id. The Browns included the well as Credit. Id. Property their obligations under the 2006 at 8-9. On Bankruptcy Court entered a Relief Order, January 8, 2013, the which granted the Bank the ability to enforce its rights under the Loan documents. at 10. The May 21, 2013, Browns and received the Brown their Chapter Bankruptcy 7 case Id. discharge was on closed on May 29, 2013. Id_;_ at 9. On October 10, 2011, the Debtors, their Chapter 13 bankruptcy to on November 6, 2013, Chapter 7 presided over the case. petition, Id. at the which and 5, Alexanders, case to Chapter 7, they 10. filed Judge The Debtors an St. John did not but upon their amended which they asserted that Mrs. Alexander has schedule, in a tenancy-in-common interest in the Property with her mother Mrs. However, converted Chief initially schedule any interest in the Property, conversion was filed Brown. Id. at 10. the Debtors did not schedule themselves as being liable under either the 2006 Loan or the Line of Credit. Id. at 11. B. Procedural History 1. Bankruptcy Court Appeal The Bank filed the Complaint on November 25, it asserted nine causes of action: (I) 2013, declaratory in which judgment as to the deeds validity of trust; trust; of the Bank's lien; (III) equitable (V) equitable lien; (VII) unjust enrichment; (IX) equitable relief (II) reformation subrogation; (VI) implied to 11 the (IV) constructive or resulting (VIII) specific pursuant of trust; performance; U.S.C. § 105. The and Trustee filed a Motion to Dismiss the Complaint on January 13, 2014, which she § 544 and status various argued forms Supp. Mot. Motion full 2014, to a bona equitable briefing the Dismiss Opinion of Bankr. as her strong-arm powers fide purchaser under ("BFP") relief sought by the 11 U.S.C. defeated the Bank. See Mem. Dismiss at 4, ECF No. 2. After March 12, of that in by the Bankruptcy all counts July 16, 2014 parties and a hearing on Court of granted the Trustee's the Complaint by Memorandum ("Bankruptcy Memorandum Opinion"). See Mem. Op. at 28, ECF No. 2. The Bankruptcy Court dismissed the declaratory judgment sought in Count I, on the grounds that a ruling in the Bank's favor on the other equitable claims would resolve all its claims. Id. at 9-10. The Bankruptcy Court dismissed the claims in Counts II through VIII in recognition of the Trustee's strong-arm powers pursuant to 11 U.S.C. Id. at because 11. the Further, the substantive Bankruptcy relief Court sought dismissed under Title § 544(a). Count 11 IX, U.S.C. § 105 would go beyond the provisions of the Bankruptcy Code and beyond the authority of the Bankruptcy Court. See id. at 25-28. On September 25, 2014, Brief"), appealing Complaint, is a No. 4-1. the the Bank filed its Brief Bankruptcy Court's and attached four exhibits. copy of the Exhibit Automatic Stay schedules B is a copy ("Relief December 5, 2012, from of the Brown Motion which and No. 4-2. Relief the Deed Exhibit C Motion, Brown owned 2010 is which Property a that filed and in the 100% interest in the Property. the for Exhibit A ECF Relief Bank from filed on and in which the the Browns' on which Bank its Line of Credit Deed of encumber of Browns case, and Trust copy the Bankruptcy the of of Bankruptcy. the in the Brown Bankruptcy case, Bank alleged that the 2006 Deed of Trust, Trust, dismissal See ECF No. 4. the Motion"), ("Appellant Response ECF to the December 14, 2012, they has Property. a state lien that on an in they entire ECF No. 4-3. Exhibit D is a copy of the Relief Order entered by the Bankruptcy Court in the Brown Bankruptcy on January 8, 2013, in granted the Bank's Relief Motion. On October 9, which ECF No. the Bankruptcy Court 4-4. 2014, the Trustee filed her Brief ("Appellee Brief"), in which she asserts that the Bankruptcy Court correctly dismissed the Complaint power as a bona fide and correctly held purchaser pursuant to that the Trustee's 11 U.S.C. § 544(a) defeats the Bank's prayer for various forms of equitable relief. Appellee Br. at 2, ECF No. 6. ("Appellant Reply Brief") The Bank filed its Reply Brief on October 23, 2014. 7 ECF No. 9. 2. The Motion to Strike Exhibits Trustee October 9, 2014, four exhibits filed in that this Court's Strike ruling excluded Appeal. "[t]he are the court Exs. four "must based to on The to Trustee the Strike argues Appellant the the from the that filed exhibits by that the Judge Bank's expressly of court." the Trustee John Bankruptcy Bankruptcy Appellants St. the that the the were of Designation Specifically, the on Bankruptcy Court and before notes Exhibits that Brief propriety record Trustee at 2. exhibits exact the decide exhibits id. Motion record on appeal by the at 3. the See which attached excluded from the the Mot. Court Record on states that their brief with expressly excluded from the record on appeal." Id. at 3 (emphasis added). On October 20, 2014, Opposition ("Response which the additional to in the Appellee's Opposition Bank filed its and Motion Objection to asserts evidence." Bank Motion that Resp. the Opp'n to Strike four Mot. Response to Strike Strike Exhibits"), exhibits Exs. "are at in 2, in not ECF No. 8.3 The Bank argues that "[t]he Bankruptcy Court should have taken, and the District notice of the Brown 3 Moreover, Court is Bankruptcy compelled to Schedules, take, judicial Relief Motion, the Bank asserts that the Chapter 7 Trustee "is desperate to keep the Bankruptcy Court Pleadings from this Court because such documents are fatal to the Chapter 7 Trustee's case on appeal." Resp. Opp'n Mot. Strike Exs. 8 at 2. Response, and Relief Order pursuant to Rules of Evidence." Id. The Trustee of Motion to In her Reply, judicial her Exhibits") of the Motion on P. 8006. Federal Support on October 24, Bank's See Reply Supp. Mot. 2014. ECF No. 10. an exhibits because they are Strike Exs. at 3-4. ANALYSIS to Strike Exhibits Federal Rule of record the ("Reply in Reply Memorandum II. A. of the Trustee argues that the court should not take notice irrelevant. 201 at 7 (emphasis added). filed Strike Rule Bankruptcy Procedure 8006 provides for the appeal from In relevant part, a bankruptcy court. Fed. R. Bankr. Rule 8006 provides that "[t]he record on appeal shall include the items so designated by the parties, the notice from, of has of appeal, and any opinion, the court." Id. The the judgment, findings of Court of order, fact, Appeals or decree appealed and conclusions of law for the Fifth Circuit added that: [Bankruptcy] appeal from Rule 8006 provides that the record a bankruptcy court decision consists designated materials that became bankruptcy court's record in the rule does not permit items to be part of on of the first instance. The added to the record on appeal to the district court if they were not part of the record before the bankruptcy court. In re CPDC, Inc., 337 F.3d 436, 443 (5th Cir. 2003) (emphasis added). Thus, the Motion to Exclude Exhibits requires the court to make two determinations: (1) whether the exhibits were part of the record before the bankruptcy court;4 and (2) whether the information meets the narrow purpose of re SI Restructuring, Inc., judicial notice. 480 F. App'x 327, 329 (5th Cir. See In 2012). Federal Rule of Evidence 201 provides for the judicial notice of adjudicative facts. In relevant part, the Rule provides: (a) Scope. This rule governs judicial notice of an adjudicative fact only, not a legislative fact. (b) Kinds of Facts That May Be Judicially Noticed. The court may judicially notice a fact that is not subject to reasonable dispute because it: (1) is generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned. (c) Taking Notice. The court: (1) may take judicial notice on its own; or (2) must take judicial notice if a party requests it and the court is supplied with the necessary information. (d) Timing. The court may take judicial notice at any stage of the proceeding. (e) Opportunity to Be Heard. On timely request, a party is entitled to be heard on the propriety of taking judicial notice and the nature of the fact to be noticed. If the court takes judicial notice before notifying a party, the party, on request, is still entitled to be heard. Fed. R. Evid. 201 Generally, a document litigation, (emphasis added). even though a court may take judicial notice of filed in another court to establish the courts cannot take judicial notice of fact of such the factual 4 The exhibits attached to the Appellant Brief were not part of the record before the Bankruptcy Court, and thus, the Bankruptcy Court disallowed the documents from being included in the record on the designation of appeal. See Bankruptcy Court Docket, ECF No. 2; Mot. Strike Exs. at 2; Resp. Opp'n Mot. Strike Exs. at 2. 10 findings of F.3d 827, Appeal another 830 for (5th Cir. the merely because action, the and Med. Corp., it has been found of United States 162 Eleventh Circuits). "If to be true collateral v. Jones, 29 in F.3d a fact some estoppel other would 1549, it 1553 be (11th 1994).5 Although these cases deal with evidence submitted this case, situations F.2d July 15, the in discretion to 937 Charter for a court to take judicial notice of with a motion for summary judgment, in v. (noting agreement by the Courts of Eighth, doctrine superfluous." Taylor 1998) Second, were permissible Cir. court. a law of similar unlike the Motion to Dismiss judicial manner. notice Moreover, the supplement the record on appeal. 602, Nos. 90-3133, applies 90-3170, to court has See In re at *1 both (4th the David, Cir. 1991) . In essence, the Bank is asking the court to take judicial notice of the factual findings of another court.6 The Bankruptcy Court did not have occasion to consider the rights and interests of the Trustee when issuing the Relief Order in the Bank's Exhibit D, as the Trustee was not a party before the Bankruptcy 5 The Bank admits that "[t]his is not an issue of res judicata or collateral estoppel." Appellant Br. at 13. 6 It is of no importance to the court that Chief Judge St. John presided over Bankruptcy. both the Moreover, Brown the Bankruptcy Bankruptcy and Court the Alexander specifically disallowed the four exhibits from the designation of the record on appeal, as they were not considered by the Bankruptcy Court in rendering its decision. 11 Court in the Brown Bankruptcy. This arguable question as to the factual finding made in the Relief Order is certainly enough to cast doubt on the accuracy of the factual findings therein. The court agrees with the Trustee's assessment that the Bank "cannot prove anything through bankruptcy case, to pleadings and orders which this Trustee was Supp. Mot. Strike Exs. at 4.7 In addition, determination not an Whether regarding the "adjudicative a party has Bank's fact" the another a party." Reply the Brown Bankruptcy interest within any interest not in in the meaning in a parcel of Property is of Rule 201. property is a 7 In support of its Response in Opposition to the Motion to Strike cites Exhibits, the Bank several cases for proposition that the court should take judicial notice Relief Order and other Brown Bankruptcy filings. In Federal Support Co., for example, the court took judicial of "evidence presented at earlier hearings in the [same] over the appellants' considered and used argument its that knowledge the of court the "should facts the of the In re notice case," not have presented at earlier hearings in the case." No. 87-325-N, 1987 U.S. Dist. LEXIS 7646, at *6 (E.D. Va. Aug. 10, 1987). Moreover, in that case, the appellants had already waived any right to raise the issue on appeal. Id. at *5-6. The Bank further cites to In re Food Fair, a case in which the bankruptcy court ruled that a document, though it was not before the court at the time of the Orders being appealed, should be available to the appellate court when it considers the appeal. 15 B.R. 569, 572 (Bankr. S.D.N.Y. 1981). In that case, the document related adversary proceedings before the bankruptcy court "very closely related to the Orders which have been Id. Indeed, the procedural posture of In re distinguishes it from the instant litigation. In case, the Bankruptcy Judge has already considered designate the exhibits as part of the appeal to this the Bankruptcy Judge rejected the Bank's position. 12 to several which were appealed." Food Fair the Bank's whether to court, and mixed question of fact court's de novo review. The court interests of exercise has and law and See Taylor, read and is thus subject discretion and the In the 162 F.3d at 830-31. considered the exhibits. justice and a full and fair appeal, its to consider the the court will exhibits attached by the Bank.8 The court will take judicial notice of the fact of the exhibits, the such as the dates and parties in the filings. However, court declines to take judicial contents of the Bank's exhibits, notice of the "factual" including the legal conclusions of the Bankruptcy Court in the Brown Bankruptcy case. will not case, accept as "adjudicative fact" the especially one findings in which the Alexanders were The court in another not a party. Since the facts in the filings in the Brown Bankruptcy case are not binding take on this Specifically, Brown in notice judicial court of any the Bankruptcy interest in court Court's the will this case, "fact" not factual Property: the in the court Bank's take judicial finding that that declines determination exhibits. notice the Bank is to of has not the an an The Bank argues that "the Bankruptcy Court prematurely prevented the Lender from ^trying its case' by granting a motion to dismiss before the Lender could get to the merits of its case." Resp. Opp'n Mot. Strike Exs. at 11. However, there were no issues of material fact in dispute at the time that the Bankruptcy Court granted the Motion to Dismiss, and it remains true during this appeal, that there are no issues of material fact that are in dispute. The Motion to Dismiss, as well as this appeal, can be decided on the basis within the Bank's Complaint. 13 of the factual statement adjudicative fact reliability at 831. Relief can within be and meaning of reasonably questioned. Accordingly, Order the the court attendant takes filings Rule See and its 162 Taylor, judicial for 201 F.3d notice of the the limited purpose of to Strike is establishing the judicial acts themselves. Accordingly, DENIED, with the the Trustee's Motion Exhibits limitations as to judicial notice as described above. B. Bankruptcy Appeal 1. Standards of Review On appeal, by the Bankruptcy P. 8013; 2014). 743 the district court reviews findings of fact made see, Court e.g., In Conclusions of F.3d at for re clear Taneja, law are error. 743 See F.3d Fed. 423, reviewed de novo. 429 R. Bankr. (4th Cir. In re Taneja, 429. On a motion to dismiss, the court considers Federal Rule of Civil Procedure 8(a)(2), which provides, in pertinent part, "[a] pleading that states a claim for relief 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).9 The complaint need not have detailed factual allegations, but Rule 8 "requires more than labels and conclusions, and a formulaic recitation of 9 Federal Rule of Bankruptcy Procedure 7012 incorporates Federal Rule of Civil Procedure 12. 14 the elements v. of a Twombly, dismiss, a 550 U.S. its face.'" (quoting that to a the It facts do." "To Bell Atl. survive sufficient Iqbal, U.S. at Corp. a motion factual a Facial that Id. enough the for 662, to matter, allows defendant Twombly, a Id. (2009) or (citing the is 550 plaintiff possibility" conduct. 678 plausibility means that (citing "sheer unlawful U.S. content inference not 556 570). factual alleged." demonstrating with (2007). contain v. therefore, consist[ency]" U.S. 550 reasonable is, not xstate a claim to relief that is plausible Ashcroft misconduct 555 must "plaintiff pleads the 556) . to Twombly, draw for of action will 544, complaint accepted as true, on cause court liable U.S. to at allege "mere[] Twombly, 550 at 556-57) . The Supreme Court, in Twombly and Iqbal, offered guidance to courts evaluating a motion to dismiss: In keeping with these principles a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Iqbal, 556 U.S. at 679. in the complaint That is, the court accepts facts alleged as true and views those facts most favorable to the plaintiff." Venkatraman v. 15 "in the light REI Sys., Inc., 417 F.3d whether 418, a 420 (4th complaint Cir. 2005). states a plausible will ... be a context-specific reviewing court to draw sense." Iqbal, 2. 556 U.S. on its Overall, claim task judicial "[determining that for relief requires experience and the common at 679. Declaratory Judgment as to the Validity of the Bank's Lien In Count judicial I of reformation declare that the that the Mrs. Complaint, of the Browns are Alexander has 2006 fee no the Bank Deed, essentially asking the seeks court to simple owners of the Property, interest in the Property, that repayment of the 2006 Loan and Line of Credit is secured by the Browns' interest in the Property, enforceable, Compl. and binding lien and that the Bank has a valid, against the entire Property. 51 41. The Bankruptcy Court dismissed Count I. Bankr. Mem. Op. at 10.10 The Bankruptcy Court dismissed Count I on the grounds that because the duplicative declaratory of its other judgment claims, sought there assertion of declaratory jurisdiction. agrees. e.g., Indus., See, Metra Inc. is Id. v. by at the Bank is no basis for the 9-10. Rivanna This Water & court Sewer 10 In neither the Bank's Appellant Brief nor its Reply Brief, does the Bank specifically allege error as to the Bankruptcy Court's dismissal of its claim for a declaratory judgment. Nevertheless, the court will considered whether the Bankruptcy Court properly dismissed Count I. 16 Auth. , No. 3:12cv49, Feb. 19, 2014) the resolution 2014 ("Because of WL the legal 652253, at declaratory issues that *2 (W.D. judgment will, of claim Va. seeks necessity, be resolved in the course of the litigation of the other causes of action, the court agrees . . . that relief is duplicative, the claim for declaratory and that permitting the claim to proceed will not serve a useful purpose in settling the legal relations in issue.") Moreover, (internal the Declaratory Judgment rather than Seven Falls Bankruptcy affirmed United an States Act Court's the 515 right U.S. dismissal of a has the Count in omitted). noted discretion 287 stated quotations Court upon 277, reasons and Supreme "confers absolute Co., for citation on the litigant." (1995). I of the that courts Wilton Therefore, the v. the Complaint Bankruptcy the is Court's Memorandum Opinion.11 See Bankr. Mem. Op. at 7-10. 3. The Bank's Equitable Claims to Relief and the Trustee's Strong-Arm Powers In Counts II through VIII various to equitable exercise its forms power of of the Complaint, relief, under 11 and Count U.S.C. § 105 the Bank seeks IX asks to the order court that the Bank has a valid first-priority lien on the Property.12 In this appeal, the Bank alleges six assignments of error related to the 11 infra See Part II.B. 3, in which the court addresses substance of the Bank's arguments regarding the Property. 12 See supra I.B.i. 17 the Bankruptcy Court's dismissal of its claims for equitable relief. First, the Bank argues that the Bankruptcy Court erred in holding that the Bank does not hold a lien of record against the entire Property interest. Appellant Br. at 12. Second, the Bank claims the Bankruptcy Court erred in concluding that delivery of the 2006 Deed was not effective. Id. at 14. Third, the Bank argues error in holding that the Trustee did not need to file an adversary proceeding Id. at 18. Fourth, in order to the Bank assert claims her that strong-arm powers. the erred in disregarding the doctrine of laches. the Bank argues that the case Perrow, Appellant In re Br. at the Bankruptcy Court 498 23-24. B.R. 560 Lastly, Bankruptcy Id. at 21. Fifth, erred in relying on (Bankr. the Court W.D. Va. Bank argues 2013). that the Bankruptcy Court erred in granting the Motion to Dismiss because the at Chapter 7 Trustee failed to meet her burden of proof. the Trustee's Id. 24. The powers Bankruptcy pursuant to Court 11 held U.S.C. equitable claims to relief. that § 544(a) Bankr. Mem. defeat all of Op. at 11-26. strong-arm the Bank's The court has reviewed the factual findings of the Bankruptcy Court for clear error, and the legal conclusions of the Bankruptcy Court de novo.13 The court finds that the Bankruptcy Court committed no error and properly granted the Motion to Dismiss. 13 See supra Part II.B.l. Accordingly, the Bankruptcy respects, Court's for the Memorandum reasons Opinion stated below is affirmed all well as in in the Against the as Bankruptcy Court's Memorandum Opinion.14 a. The Bank Does Entire Property Not Hold a Lien The Bank assigns error to the Bankruptcy Court's conclusion that the Bank does not hold a lien interest in the Property. Appellant that Order the the Relief Bankruptcy Court's claims that estoppel, this id. decision is at in not 13, an and Br. Brown in this issue of did grounds for this at 12. The Bank argues contradicts case. Though res not position. Mrs. Alexander's Bankruptcy collateral estoppel in its Complaint, other against Id. the the Bank judicata or collateral plead res judicata or the Bank fails to explain The court will not use the Bank's Exhibit D to collaterally estop the Trustee in this case. Moreover, findings the in Accordingly, court the Brown will not allow Bankruptcy case the to Bankruptcy bind Court's the Trustee.15 the Bankruptcy Court committed no error as to this finding. 14 Although the Bank does not specifically assign error to the Bankruptcy Court's dismissal of Count IX of the Complaint, the court notes that the Bankruptcy Court committed no error in dismissing Count IX of the Complaint on the grounds that Title 11 U.S.C. § 105 should not be applied to negate the legal effect of § 544. See Bankr. Mem. Op. at 26-28. 15 See supra Part II.A, in which the court denied the Trustee's Motion to Exclude Exhibits. 19 b. Delivery of the 2006 Deed The Bankruptcy Court noted that 2006 Deed makes Trustee acquired purchase Bank no pursuant argues delivered, difference her rights to that in the outcome the Property § 544(a) (3)." " [b] ecause here, as the because a bona fide Bankr. Mem. Op. 2006 Deed was admittedly held that "[p]roperty the at the 26. The title passed." Appellant Br. at 15. The United States interests are created Accordingly, Supreme Court and bankruptcy proceedings. (1979). to "effective delivery of defined has by state law," Butner v. United States, Virginia law controls the including 440 U.S. 48, in 55 question whether delivery of the 2006 Deed was effective to transfer ownership of the Property, to 2006 Deed. (Bankr. D.S.C. 2009) ("A trustee in bankruptcy may only defeat adverse party's In equitable re Houston, interest in 409 B.R. failure the an record and whether effective delivery trumps the property 799, if, 811 under state law, a bona fide purchaser of debtor's interest in subject property filing.") would prevail over the adverse party at the of (emphasis added). The key issue is whether, of Virginia, under the law of the Commonwealth effective delivery without recordation erases any interest of the grantor in the property. In Virginia, question of the delivery of a deed is one of intention, delivery date is complete when there 20 is an intention "[t]he and the manifested on the part of the grantor to make the instrument his deed." Crump v. Gilliam, 190 Va. 935, 945, 59 S.E.2d 72, 76 (1950). However, whether delivery of an unrecorded deed occurred reaches only the question of Virginia law the transfer rights requires of Commonwealth Perrow, Blair, title both v. Selden, 98 Va. at 571 490, knowledge 36 of advantage 160, grantors and such as 19 Va. bona 164 513, another's the 515 other's grantees; to affect fide purchasers. (1816); Bldg. (1900)) failure and recordation (citing Nat'l Mut. S.E. of between delivery third parties, 498 B.R. without of to see also See In re & Loan Ass'n v. ("Only a purchaser record instrument may take law, a conveyance of real estate is void as to a subsequent bona fide purchaser of real v. Va. 473, 249 (1871). Grandstaff, Allan, may 62 Va. avoid state law, holder. Had 96 241, unrecorded See 11 U.S.C. the $555,000.00 or 31 S.E. it is 647, Further, undisclosed recorded. 648 See (1898); under § 544, interests the conducted in to the the Virginia Snyder Carter v. the trustee whenever, under interest § 544(a)(3). Bank of into the 2006 Loan, Credit, estate until Under a bona fide purchaser would prevail over an in-interest, of failure."). an Commonwealth, a basic title in the amount of amount of Browns, the search prior $475,000.00, $80,000.00, the Bank Bank's predecessor- for could a to entering and the Line total have amount avoided of this entire litigation. Virginia law does not excuse such negligence, 21 and this court will not allow the Bank to avoid the collateral consequences of its predecessor-in-interest's failure to conduct such a basic title the Alexanders' search. At the time Chapter 7 proceeding, of the commencement of the 2006 Deed had not been duly recorded. Applying as a bona which Mrs. § 544 (a) fide the purchaser, Alexander bankruptcy to held petition, facts took an free of this case, title to all interest as of and clear of the the the Trustee, property date all of in the unrecorded conveyances and all equitable liens of which the Trustee had no constructive or fide in purchaser the actual notice. took Property, Accordingly, title since to the Accordingly, an the Trustee as bona unencumbered one-half 2006 Deed was never interest recorded. the Bankruptcy Court committed no error in finding that "effective delivery of the 2006 Deed makes no difference to the outcome here, because the Trustee acquired her rights in the Property as a bona fide purchaser pursuant to § 544(a) (3)." See Bankr. Mem. Op. at 26. c. The Defensive Use of Strong-Arm Powers The Bank asserts that the Bankruptcy Court committed error when it concluded that the Trustee "need not file an adversary proceeding at 18. entitled The to to assert Bankruptcy raise her her ^strong Court arm-powers.'" found xstrong-arm 22 that powers' Appellant "[t]he under Br. Trustee § 544(a) as is a defense to a superior claim to an asset of the estate, without regard to whether she has raised such powers in a lien avoidance adversary proceeding." Bankr. Mem. Op. at 19. Title 11 U.S.C. § 544 provides, in pertinent part: (a) of the The trustee shall have, as commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by . . . (3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists. 11 U.S.C. trustees § 544(a)(3). are entitled manner. See, 335-36 (Bankr. Other to courts exercise have such held powers e.g. , In re Ducane Gas Grills, D.S.C. 2004) that in Inc., Chapter a 7 defensive 320 B.R. 324, ("Although no adversary proceeding has been filed with respect to Debtor's § 544 avoidance powers, it has been recognized that 11 U.S.C. the need § 544 proceeding."); In re Loewen Grp. Int'l, Inc., 292 B.R. 522, § 544(a)(3) Del. 2003) (holding defensively). that Moreover, the courts exercise defensive powers under § 544 even adversary proceeding would be time-barred 23 an asserted without D. file be defensively, (Bankr. to can trustee allow adversary could trustees 528 use to if the filing of an by the statute of limitations. No. See, 3:13cvl36, e.g., 2014 WL (affirming the limitations period defensively 1233094, asserting § 544(a)); ("I also In bankruptcy re rule Bank in at rights (S.D. *8 York Ohio Mar. not a bona B.R. U.S.C. affirmative use by the Trustee, v. Sheeley, 25, 2014) that the trustee from conclusion does as 259 11 New court's § 546(a) Block, that of 498, bar the fide 500 purchaser (Bankr. § 544(a)(3) is under D.R.I. not 2001) limited to and that its use as a defensive tool is not restricted by any limitations period."). There prevent is nothing the defensively. in Trustee Indeed, status of a bona the from text of exercising § 544(a) expressly fide purchaser of all the statute her that strong-arm grants the would powers trustee of a debtor's the interests in said property as of the date of the filing of the petition. The authorities that the Bank cites are not to the contrary. example, (4th the Bank cites Cen-Pen Corp. Cir. 1995), for the v. Hanson, proposition that For 58 F.3d 89, 93 "Bankruptcy Rule 7001(2) expressly requires initiation of an adversary proceeding *to determine the validity, other interest in property,' here." Appellant 93) . Actually, Br. at 19 Cen-Pen Corp. priority, or extent of a lien or with one exception not applicable (citing Cen-Pen Corp., 58 F.3d at is distinguishable from the instant case: Cen-Pen Corp. does not mention 11 U.S.C. § 544, the statute at issue here, strong-arm powers, or bona fide purchasers. 24 The court agrees with the Bankruptcy Court, a trustee may defensively. the exercise Accordingly, judgment of the her the § 544 (a) court Bankruptcy strong-arm finds Court in and finds that no error this powers and regard, affirms for the reasons stated herein and the reasoning of the Bankruptcy Court in the Memorandum Opinion. See Bankr. Mem. Op. at 19-22. d. The Bank Doctrine of Laches did not plead the doctrine of laches in its Complaint, nor did the Bankruptcy Court mention the doctrine of laches its in Memorandum proper assignment by the Bankruptcy consider in the the error, Court first e. In of Opinion. In as Accordingly, can be something on there it no had this is error no not a committed occasion to instance. re Perrow Bankruptcy Court's Memorandum Opinion, the court cites to In re Perrow, 498 B.R. 560, in support of the powers of a Chapter Bankr. Mem. 7 trustee Op. at pursuant 12-15. to 11 U.S.C. In particular, the § 544(a)(3). See Bankruptcy Court relied on In re Perrow for "the effect of a bankruptcy trustee's status as a bona fide purchaser under Virginia law vis-a-vis an unrecorded deed of trust." Id. The Bank asserts that In re Perrow litigation. make that Appellant Br. at the facts case at 15. inapplicable 23-24. 25 and procedural posture of First, to the instant the Bank asserts that "the plaintiffs in Perrow asserted their § 544(a) strong-arm powers by proceeding pursuant filing to Rule a lien avoidance 7001(2)," whereas Trustee did not file an adversary proceeding. a distinction without that the Trustee defensively.16 a may Second, difference. exercise the Bank The her the document delivered. court's delivery Id. issue Again, reliance of at the is this § 544 has on Perrow. deed does the powers document court does been the not alter the already has alleviate at whereas in this an unrecorded deed that has The not already held strong-arm that distinction the Id. at 24. This is issue in Perrow was an unrecorded deed of trust, case, adversary in this case, court asserts lien avoidance found that Bank's failure to conduct a basic title search.17 Third, the Bank argues that the Perrow debtors "never admitted or acknowledged that the deed of trust was recorded," whereas the Alexanders "initially scheduled and treated the 2006 Loan and Line of Credit as being secured by [Mr. Brown's] and [Mrs. Brown's] interest in the Property as reflected by their Schedules which were filed under oath stating that they had no interest in the Property." Id. does not persuade the court that Perrow determining the outcome of this case. 16 See supra Part II.B.3.C. 17 See supra Part II.B.3.b. 26 is This distinction not instructive in Although the Bank asserts that the court should not rely on Perrow because of factual and procedural distinctions, the Bank has failed to cite a single case that i^s directly applicable to the instant litigation, circumstances of this analogous making cases and process. likely case. due to The court, situations Accordingly, in the the unique therefore, order to court must guide finds facts and consider the decision no error in the not satisfied her Appellant Br. Bankruptcy Court's reliance on In re Perrow. f. The Bank Burden of Proof argues burden of proof on The Bank dismiss, the Trustee the Motion to correctly a that asserts has Dismiss. that in all ruling factual on a at 24. motion to court "must accept allegations in the complaint as true [and] construe the complaint in a light most favorable to the plaintiffs." Id.18 The Bankruptcy Court accepted as Mem. true all Op. factual at 6. allegations Moreover, this made court by has the Bank. accepted See all Bankr. factual allegations made by the Bank. However, the court will not accept the legal conclusions delivery on the legal of the status Bank, of such as the parties. the Accordingly, Bank's sixth assignment of error is without merit. 18 See supra Part II.B.l, for the standard of review 27 effect of the III. CONCLUSION Because the Trustee takes her interest in the Property as a bona fide purchaser pursuant to § 544 (a) (3) , and for the reasons stated above, July 16, 2014, Trustee's the The to Dismiss all court the Exhibits. AFFIRMS the Memorandum Opinion of in which opinion the Bankruptcy Court granted the Motion Further, court DENIES the Clerk is DIRECTED nine counts Trustee's to of the Motion forward a Complaint. to copy Exclude of this ~ ^ Opinion to the parties and to the Bankruptcy Court. IT IS SO ORDERED. JsL Kebecca Beach Smith ,„ . Chief ' United States District Judge -jPjB^REBECCA BEACH SMITH CHIEF UNITED STATES December )k 2014 28 DISTRICT JUDGE
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