Manufacturers and Traders Trust Company et al v. Levitsky et al

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
In re: 	*
LEON R. LEVITSKY, 	* 	Case No.: 04-16203-JS
Debtor 	* 	Chapter 7
* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	*
LORI S. SIMPSON, 	*
CHAPTER 7 TRUSTEE,
*
Plaintiff
v. 	* 	Adv. Proc. No. 04-2024
LEON R. LEVITSKY and 	*
JANE LAMBERT
*
Defendants
*
* 	* 	* 	* 	* 	* 	* 	*
MANUFACTURERS AND TRADERS 	*
TRUST COMPANY,
*
Plaintiff
*
Date signed September 30, 2008
Entered: September 30, 2008 Case 05-01254 Doc 377 Filed 09/30/08 Page 1 of 68

1On May 19, 2005, these adversary proceedings were consolidated by consent order
[P. 22]. Thereafter, all pleadings were filed in Adversary Proceeding No. 05-1254.
2
v. 	* 	Adv. Proc. No. 05-1254
LEON R. LEVITSKY, Et al. 	* 	(Consolidated into 05-1254)
Defendants 	*
* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	* 	*
MEMORANDUM OPINION GRANTING CHAPTER 7 TRUSTEE’S
COMPLAINT FOR TURNOVER OF PROPERTY OF THE ESTATE,
UPHOLDING LIEN OF CIT GROUP CONSUMER FINANCE, INC., AND
AVOIDING LIEN OF MANUFACTURERS AND TRADERS TRUST
COMPANY AS TO THE SAID PROPERTY
Before the Court are two adversary proceedings that relate to the debtor’s
residence (“the Property”). The first, Adversary Proceeding No. 04-2024, brought by
Lori S. Simpson, the Chapter 7 Trustee, asks the Court to declare that the Property is
includable as property of the debtor’s estate, even though it is titled in the name of a
corporation, and to grant other relief. 	The second, Adversary Proceeding No. 05-
1254, brought by Manufacturers and Traders Trust Company (“M&T”), seeks a
declaratory judgment against CIT Group Consumer Finance, Inc. (“CIT”) as to the
priority of recorded liens on the Property. In that proceeding, the parties have filed
cross-claims and counterclaims.1 The Court having issued an order setting the order
of proof, trial was held on the Trustee’s complaint, at the conclusion of which this
Court held that the debtor’s residence was property of the estate. The Trustee then
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3
presented her case in the second adversary proceeding to establish the invalidity of the
liens of both CIT and M&T. At the close of the Trustee’s case, CIT and M&T filed
the instant motions for judgment. Counsel for CIT informed the Court that were its
motion to be denied, it would put forward its own case, while counsel for M&T stated
that it had no further case to put forward. For the reasons set forth, the motion for
judgment filed by CIT will be granted, that of M&T will be denied, and the lien of
M&T will be avoided.
THE PARTIES
1. Leon R. Levitsky (“Levitsky,” or “the debtor”) is a resident of the State of
Maryland.
2. Jane A. Lambert (“Jane”) is the debtor’s wife.
3. Lori S. Simpson (“Trustee”) is the debtor’s Chapter 7 Trustee.
4. Contemporary Magic Kingdom, Inc., t/a CMK Company (“Contemporary”),
is a corporation organized under the laws of the State of Maryland by Levitsky, and
holds record title to the Property.
5. Associated Enterprises Ltd. is a defunct corporation organized by Levitsky
under the laws of Great Britain on the Isle of Man. 	When a subpoena was sent to
Associated in this action, it was returned two months later with a sticker that stated
simply, “Gone Away.”
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4
6. 	JP Morgan Chase Bank, N.A. (“JP Morgan”) is a corporation organized
under the laws of the United States and was a holder of a deed of trust on the Property.
7. Manufacturers and Traders Trust Company (“M&T”), is a commercial bank
chartered under the laws of the State of New York, registered and qualified to do
business in the State of Maryland, and claims to hold a first lien on the Property.
8. CIT Group Consumer Finance, Inc. (“CIT”) was assigned the deed of trust
from JP Morgan and claims to hold a lien on the Property.
9. The Internal Revenue Service (“IRS”) asserts a secured claim against the
debtor in the amount of $462,190.85, a priority claim in the amount of $10,252.78,
and an unsecured claim in the amount of $347,890.76, for a total claim in the amount
of $820,334.39. Claim No. 50.
FINDINGS OF FACT
1. 	The debtor has been in continuous possession of the Property from
September 1983 to the present. 	It is his personal residence, a waterfront property
identified as Lots E and F in the subdivision known as “Arundel on the Bay,” located
at 1315 Magnolia Avenue, Annapolis, Maryland 21403. 	In a 2001 financial
statement, the debtor valued the Property and its contents at $1 million. 	Trustee’s
Exhibit 4. The Trustee’s investigation disclosed that the Property is titled in the name
of CMK Company, Inc., a purported trade name of Contemporary. 	The debtor’s
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2Carol and Levitsky were not divorced until May 31, 2000. Divorce decree of the
Circuit Court for Anne Arundel County, Maryland, dated May 31, 2000, Trustee’s
Exhibit No. 152. Levitsky and Jane were married on June 2, 2000. Deposition of
Jane Lambert, July 19, 2006, at 7.
3Levitsky testified that the corporate name was based on his romantic ideal that the
Property would serve as the perfect residence for him to enjoy his “magical
relationship” with Jane. Tr. at 62:11, where Levitsky agrees with Trustee's opening
statement at 10:16.
4Carol filed a secured claim [Claim No. 11] in the amount of $641,795.90,
representing the net judgment against Levitsky entered by the Circuit Court for Anne
Arundel County in her divorce proceeding, and a priority claim [Claim No. 12] for
unpaid support obligations in the amount of $10,363.65. 	In a separate adversary
5
ownership of Contemporary was not disclosed in either his Schedule A or B (listing,
respectively, real and personal property). 	However, CMK, Inc. was listed as an
unsecured non-priority creditor in Schedule F, and as a party to an executory contract
with the debtor in Schedule G. Bankruptcy Schedules, Trustee’s Exhibit No. 20.
2. 	On March 2, 1982, Levitsky separated from his first wife, Carol Leigh
Levitsky (“Carol”), left their marital home and moved into an apartment with Jane.2
3. In April 1982, one month after he separated from Carol, Levitsky purchased
the Property and titled it in the trade name of Contemporary, the corporation he
created in order to put the house that he purchased for himself and Jane beyond the
reach of creditors, particularly Carol. 3
4. Evidence of Levitsky’s motivation to shield the home from Carol manifested
itself in the following actions taken by the debtor. 4
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proceeding, Adv. Proc. 04-02395, this Court found part of her claim to be non-
dischargeable, when Levitsky sold their interest in real property owned by their Prince
George’s Doctor’s Hospital Joint Venture without reimbursing her.
5The following is the complete text of the memorandum:
RE: Dr. Levitsky Condemnation Replacement
Since our last discussion regarding your [illegible] of the use of
the Magnolia Avenue property, as the replacement property, due to the
fact the property was put into a corporation which did not exist at the
time of the condemnation, certain additional facts have emerged as a
result of my recent discussion with Dr. Levitsky. They are as follows:
1. The Magnolia property was acquired from Mr. Benbasset in
1983 and owned by him as an individual until he subsequently
transferred it to the corporation.
2. The sale was financed by a down payment of $37,500.00 plus
6
A. The timing of the purchase of the Property in 1983 occurred shortly after
the separation from Carol.
B. His relationship with Jane created the potential for a financially unfavorable
divorce.
C. A handwritten notation in a letter written by James K. Stitcher, the debtor’s
accountant (now deceased), with additional notations made by the debtor in his own
handwriting, indicated that Levitsky set up Contemporary “[i]n order to 	get [the
home] out of his wives (sic) grasp.” Memo from James Stitcher, Trustee’s Exhibit
No. 61.5
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made by Dr. Levitsky and a personal loan made by Dr. Levitsky from
Maryland National Bank.
3. Shortly after purchasing the property, a contractor was hired to
perform renovations to the property.
4. 	The deed was not recorded at that time due to the fact that
permanent financing had not been obtained and there was no sense of to
record since the parties maintained an on-going business and personal
relationship existent to this day.
5. We are providing you with signed letters from Mr. Benbasset
and Mr. Cailuette attesting to aforementioned.
6. Dr. Levitsky was engaged in a divorce action during 1983 and
wished protect his property rights relative to this property. In order to do
so, when he obtained permanent financing on the property he decided to
put the property into a corporation in order to get it out of his wives [sic]
grasp.
7. The corporation in this issue, had no cash, therefore the down
payment had to have been made by Dr. Levitsky. The sales price was
$167,500. But the permanent financing was for $130.00. Furthermore,
the corporation would not have been sufficiently credit-worthy to obtain
this loan on its own.
8. Additionally the improvements were contracted for and paid
for by Dr. Levitsky and almost completed by the time the deed was.
As a result of the foregoing, our position is that Dr. Levitsky in
fact owned the property prior to its transfer to a corporation. He wholly
owned and paid for this property. This property qualifies as replacement
property in the matter under consideration.
Should you continue to disagree with this position, write this case
up as disagreed and we shall proceed to amend our 1981 tax court
7
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proceedings to include this issue. This matter has been discussed with
legal council [sic] and they believe our position has merit.
Id.
6The Trustee sued Contemporary in a separate adversary proceeding, Adv. Proc.
06-01285, in order to recover fraudulent conveyances.
8
D. Levitsky had no explanation for his decision to place the ownership of his
residence in a corporate name.
E. The Property was the sole asset of Contemporary.
5. Levitsky has resided in the Property for nearly 25 years but paid no rent to
the corporation, except for the one payment of approximately $36,000, that he paid
shortly before the petition date, which he denominated as “arrears.”6 Despite being
so far in arrears, Contemporary never sought to evict Levitsky. 	Trial Transcript
(“Tr.”) at 193.
6. 	A $3,610 figure recorded as “rent” on the books of the corporation was
actually money lent to Contemporary by Maryland National Bank (“MNB”).
7. The only written leases on the Property between Levitsky and Contemporary
that were entered into evidence, purportedly executed in 1983, were crude forgeries
that contained a telltale 2006 facsimile date with the debtor’s signature written in ink.
Facsimile copy of lease, Trustee’s Exhibit No. 147.
8. For many years, the corporation had only $5 in its bank account.
Case 05-01254 Doc 377 Filed 09/30/08 Page 8 of 68

7Levitsky routinely commingled funds between himself and Contemporary. 	Post-
petition, Levitsky opened a checking account in the name of Contemporary but used
it to pay personal expenses. One check, No. 1032, was written by Contemporary to
Levitsky but payable to the order of “Me.” Tr. at 402.
9
9. Levitsky paid all expenses accruing from the ownership of the Property from
his personal checking account or from the operating accounts of his personal
secretaries. These payments included real estate taxes and homeowner’s insurance,
as well as corporate expenses, such as SDAT filing fees and accounting expenses.
Travelers invoices and checks, Trustee’s Exhibit No. 27; 2003 tax bill for Property,
and checks paying taxes, Trustee’s Exhibit No. 28; and checks paying water bills for
Property, Trustee’s Exhibit No. 29. 7
10. 	Levitsky 	obtained 	homeowner’s 	insurance, 	listing 	himself 	as 	the
beneficiary and personally received payment of claims for damage to the Property.
Hartford Homeowner’s Policy, Trustee’s Exhibit No. 17; Travelers Homeowners
Insurance Policy, Trustee’s Exhibit No. 18; Correspondence/documentation regarding
flood damage to Property, Trustee’s Exhibit No. 19; and Chubb Homeowner’s
Insurance Policy, Trustee’s Exhibit No. 21.
11. 	On Schedule B (Personal Property) filed with his bankruptcy petition,
Levitsky scheduled a $140,000 insurance claim for storm damage to the Property
resulting from Hurricane Isabel.
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10
12. On his personal income tax returns, Levitsky deducted interest payments
paid on the mortgage on the Property.
13. Levitsky stopped filing tax returns for Contemporary after his divorce from
Carol became final.
14. Despite the fact that the Property was titled in the name of the corporation,
Levitsky claimed the Property as tax exempt when he filed for a state homestead
property tax exemption that was available only to individual homeowners. Trustee’s
Exhibit No. 12.
15. During an audit by the IRS, Levitsky defended his non-payment of capital
gains taxes resulting from the sale of different piece of real property, on the ground
that he had used monies from that sale to purchase the Property, even though the
defense was available only to an individual purchaser. Trustee’s Exhibit No. 64.
16. 	In his Last Will and Testament, Levitsky devised to Jane “any interest
which I may possess at the time of my death in [the Property],” thereby treating it as
his own. Article V. B., Last Will and Testament dated October, 1994, Trustee’s
Exhibit No. 3.
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8At various times during his trial, Levitsky testified that there were other shareholders
of Contemporary, including his son, Jeffrey Levitsky and someone named Britt Day.
This was inconsistent with his prior deposition testimony. Levitsky offered no proof,
other than his own testimony, of the existence of these other shareholders.
Contemporary kept no stock register. 	The evidence offered by the Trustee
established that Levitsky was the sole shareholder of Contemporary. Tr. at 152-59.
9At one time, Helen DeWire was listed as secretary. 	Before her death, she was
Levitsky’s secretary at his medical offices.
10 Levitsky testified that Contemporary was engaged in the fishing and shrimping
industry, but was unable to produce any evidence other than his own self-serving
testimony that he had imported fish and shrimp from a warehouse in Mexico for
several years until the warehouse was destroyed by fire. Tr. at 211:20 et. seq., see also
Levitsky’s opening statement at Tr. at 54:3 et seq. 	Despite many opportunities to
provide such information at depositions, Levitsky never mentioned any involvement
of Contemporary in the fishing and shrimping industries until his debut on the witness
stand at trial. However, he listed a shrimp packing plant worth $500,000 among his
personal assets in a 1992 loan application. 	Uniform Residential Loan Application
dated October 9, 1992, Statement of Assets, Liabilities and Net Worth as of January
10, 1992, Trustee’s Exhibit No. 6.
11
17. Levitsky was the sole shareholder 8 and sole director of Contemporary.
Although he originally disputed at depositions that he was also president of the
corporation, Levitsky suddenly remembered at trial that he was. Tr. at 130:5.
18. There are no other current officers or directors of Contemporary, although
the corporate bylaws required that there be four officers, namely a president, vice
president, secretary and treasurer, and that the president and secretary could not be the
same person. M&T Exhibit No. 14. 9
19. Contemporary never had any employees or conducted any business. 10
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11Not to be confused with a Maryland attorney of the same name currently practicing
law in Baltimore.
12
20. On May 25, 1982, Levitsky registered the trade name “CMK Company”
in the Circuit Court for Prince George’s County, Maryland, identifying himself as
president of Contemporary. 	SDAT Certified copy of Tradename Designation for
registration of trade name CMK Company by Contemporary Magic Kingdom, Inc.
dated May 25, 1982 and received by the Maryland State Department of Assessments
and Taxation (“SDAT”) on July 19, 1982 or 1983, M&T Exhibit No. 19.
21. Levitsky engaged an attorney (now deceased) named Paul M. Nussbaum
(“Nussbaum”),11 who incorporated an entity entitled Title Nominee, Inc. (“Title
Nominee”), of which Nussbaum was president, for the sole purpose of purchasing the
Property, in order to assign the contract of sale to a different entity chosen by
Levitsky. The contract between the sellers and Title Nominee was dated August 25,
1983. Nussbaum file, Trustee’s Exhibit No. 93, pp. K094-96.
22. Title Nominee assigned the sale contract to “CMK Company, a Maryland
Corporation.”
23. 	On September 7, 1983, CMK took title to the Property by deed from
Roseanne Druian and the Magnolia Way Joint Venture for consideration of $167,500.
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Deed dated September 7, 1983, recorded among the Land Records of Anne Arundel
County at Liber No. 3642, folio 666, Trustee’s Exhibit No. 1-A.
24. In order to purchase the property, Levitsky arranged for the payment of a
$50,000 deposit from L Enterprises, another of his corporations. He also arranged to
obtain a loan from MNB to Contemporary in the amount of $130,000. 	On the
promissory note from Contemporary to MNB, Levitsky wrote, “I’m a one man
corporation.” Corporate certificate of authority to borrow, dated September 17, 1983,
Trustee’s Exhibit No. 93, K045. He simultaneously executed a deed of trust from
CMK Company, which he signed as president. Purchase Money Deed of Trust dated
September 30, 1983, recorded among the Land Records of Anne Arundel County at
Liber No. 3642, folio 668, Trustee’s Exhibit No. 1B. Levitsky personally guaranteed
the loan. 	The sum of $3,610 remained after closing costs and was entered on the
books of Contemporary as rent from Levitsky, despite the fact that the figure
represented the residue of the loan from MNB to Contemporary.
25. Levitsky and Jane resided together in the Property until their separation in
2002.
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12Levitsky testified that he preferred to use various permutations of the name “CMK”
when 	conducting 	transactions 	because 	it 	sounded 	more 	professional 	than
Contemporary Magic Kingdom. The Trustee has contended that Levitsky actually
used the various permutations (including “CMK, Inc.,” “CMK Company, Inc.,”
“CMK,” and “CMK1") in order to confuse creditors. In order to avoid confusion, in
referring to the corporate entity created by Levitsky, this opinion will employ the term
“Contemporary” in place of the full corporate moniker of “Contemporary Magic
Kingdom, Inc.”.
14
26. On September 29, 1983, Levitsky filed “CMK Company” as a trade name
in the Circuit Court for Anne Arundel County, Maryland. 12 M&T Exhibit No. 20.
27. Between October 3, 1991 and February 19, 2004, the corporate charter of
Contemporary was in forfeiture status with the SDAT. Trustee’s Exhibit No. 108.
28. 	On October 28, 1997, Tega Cay Properties, LLC (“Tega Cay”) sued
Levitsky in the Court of Common Pleas for York County, South Carolina, styled Tega
Cay Properties, LLC, et al. v. Levitsky, et al., Case No. 97-CP-46-1974. 	The
complaint alleged that Levitsky was a minority investor and an active manager of
Tega Cay; that he improperly filed a Chapter 7 bankruptcy petition in the District of
Maryland in 1995, purportedly on behalf of Tega Cay; and that this Court (Mannes,
C.J.) dismissed the petition as having been filed in bad faith and sanctioned Levitsky
because he had filed the petition for the improper purpose of delaying a corporate
shareholders meeting.
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13Approximately $157,000 of the $450,000 “borrowed” from Associated was used by
Levitsky to pay off the loan from MNB. He cannot account for the $300,000 amount
remaining from the transaction. James Stitcher, the debtor’s accountant, reported to
the IRS that the figure was loaned to Levitsky. There is no evidence that Levitsky
ever repaid it.
15
29. 	On March 18, 1998, Contemporary obtained a loan in the amount of
$450,000 from Associated, an entity incorporated by Levitsky on the Isle of Man, and
not licensed to do business in the State of Maryland.
30. 	The evidence indicated that Levitsky controlled Associated. 	He had
previously 	formed 	an 	offshore 	trust 	called 	the 	Meridian 	Management 	Trust
(“Meridian”), and then had Meridian form a corporation known as the Mendoza
Corporation 	(“Mendoza”) on the island of Nevis. 	Levitsky then transferred
approximately $680,000 worth of Crestar stock to Mendoza, which Mendoza sold
without tax consequences and invested the proceeds to fund a tax-free annuity payable
to himself. Mendoza also lent some of the proceeds to Levitsky through Associated,
an affiliate of Meridian. Funds held by Mendoza in the amount of $450,000 were in
fact 	disbursed 	through 	Associated 	pursuant 	to 	a 	loan 	agreement 	whereby
Contemporary was the supposed borrower. 13
LIENS ON THE PROPERTY
31. On September 16, 1998, First National Bank of Maryland (“FNB”) made
a $100,000 loan to CMK Company, Inc., in exchange for a promissory note for the
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16
same amount. 	The note was signed, “LEON R. LEVITSKY, SIGNING AS
PRESIDENT CMK COMPANY, INC.”. FNB recorded its mortgage among the Land
Records of Anne Arundel County, Maryland in Liber 8713, folio 551. 	Trustee’s
Exhibit 1L. FNB later sold the note to M&T.
32. In 2001, Jane decided to build a dance studio, and Levitsky agreed to pay
for it with a loan based on the equity in the Property, which had greatly increased in
value. However, he was unable to obtain credit using his own name because of the
pending lawsuit brought by Tega Cay. Accordingly, he arranged a more complicated
financing transaction. On May 21, 2001, Bank One, N.A. (“Bank One”), made a loan
in the amount of $680,000 to Jane, who delivered a promissory note for the same to
Bank One and also signed a deed of trust. Simultaneously, Contemporary executed
and delivered to Jane a deed to the Property for no consideration. 	The deed was
signed by “Leon Levitsky, President CMK Company.” 	Trustee’s Exhibit 1Q.
33. Bank One was later acquired by JP Morgan Chase Bank, N.A., one of the
parties to this action, which assigned the deed of trust to CIT.
34. Bank One engaged Mark Reges (“Reges”) and Central Processing Services,
LLC (“CPC”) to conduct the settlement.
35. Reges and CPC erred in the recording of Bank One’s deed of trust. They
mistakenly treated the Bank One deed of trust with Jane as one for the refinance of the
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17
Property, rather than as a purchase money deed of trust. 	While transfer taxes are
required to be paid on a purchase money deed of trust, they need not be paid on an
interspousal refinancing deed of trust. Accordingly, Reges and CPC did not verify
that appropriate transfer taxes were paid. 	However, because Jane was married to
Levitsky rather than to Contemporary, there was no interspousal exemption.
Accordingly, the Clerk of the Circuit Court for Anne Arundel County declined to
accept the deed for recording.
36. A second error committed by Reges and CPC involved the coordination of
the payout of prior lenders, the loans to which were secured by the Property. 	The
settlement sheet from the May 21, 2001 settlement indicated that $146,299.49 was
disbursed to First Liberty National Bank, $458,470.90 was disbursed to Associated,
and $50,334.79 was disbursed to Jane for the purpose of starting a dance studio. The
disposition of funds supposedly disbursed to Associated is unknown. It is undisputed
that FNB received no disbursement. Reges relied on an abstractor’s summary that
identified Levitsky by mistake as the secured party, rather than FNB.
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14The certificate of satisfaction, recorded in Liber 0434, folio 368 of the Land Records
of Anne Arundel County, stated as follows:
That 	Leon 	R. 	Levitsky 	does 	hereby 	acknowledge 	that 	the
indebtedness secured by a certain Deed of Trust/Mortgage made by
CMK Company and recorded among the Land Records of Anne Arundel
County, Maryland in Liber 8713, Folio 551, which encumbers the real
property described in Exhibit A hereto, has been fully paid and
discharged, that Leon R. Levitsky was, at the time of satisfaction, the
holder of the Deed of Trust Note/Mortgage, and that the lien of the Deed
of Trust/Mortgage is hereby released....
Id. 	It was signed by Levitsky. Trustee's Exhibit 1N. Beneath his signature was a
notarization executed by Jonathan S. Bach, a CPC employee. Under the notary seal
appeared the following statement, signed by Reges: “THIS IS TO CERTIFY that the
within instrument was prepared by or under the supervision of the undersigned, an
Attorney duly admitted to practice before the Court of Appeals of Maryland.”
15 “Holder” is defined in the Maryland Commercial Code as “(a) The person in
possession of a negotiable instrument that is payable either to bearer or to an identified
person that is the person in possession; (b) The person in possession of a negotiable
tangible document of title if the goods are deliverable either to bearer or to the order
of the person in possession; or (c) The person in control of a negotiable electronic
document of title.” Md. Comm. Law Code Ann. § 1-201(20). The deed of trust is a
negotiable instrument; however, because it was not payable to bearer or to Levitsky,
he did not qualify as a holder under the law.
18
37. 	Accordingly, as part of the settlement transactions, Levitsky signed a
certificate of satisfaction of the FNB loan and either Reges or Levitsky recorded in the
land records the certificate that stated that the loan from FNB had been satisfied. 14
38. It is undisputed that the certificate was incorrect in describing Levitsky as
the holder 15 of the deed of trust.
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19
39. By 2002, Levitsky and Jane had separated. At the time of this opinion, they
have not obtained a final decree of divorce.
40. 	On August 2, 2002, as part of a marital property settlement between
Levitsky and Jane, Jane conveyed her interest in the Property back to Contemporary
by quitclaim deed. 	Trustee’s Exhibit No. 139, Quitclaim Deed Exhibit 2 to Jane
Lambert Deposition.
41. By the time Reges and CPC discovered that the Bank One deed of trust had
not been properly recorded, they had lost the original deed of trust. Consequently,
CPC obtained a replacement deed from Contemporary to Jane, and a replacement deed
of trust from Jane to Bank One.
42. Levitsky refused to pay the transfer taxes, and pressured by Bank One to
have the deed recorded, Reges paid the transfer taxes out of his own pocket. 	The
replacement deed and replacement deed of trust were recorded among the Land
Records of Anne Arundel County, Maryland on December 17, 2002 at Liber No.
12273, folios 773 and 776, respectively. 	However, by that date, Jane had already
deeded the Property back to Contemporary, although that deed was not then recorded.
43. 	On June 13, 2003, the Court of Common Pleas in South Carolina
(Nicholson, J.) ruled against Levitsky in the Tega Cay litigation and awarded the
plaintiff $6.7 million in compensatory damages and $3.3 million in punitive
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16In a 35-page final order, Judge Nicholson stated:
. . . I find and conclude as follows: (1) Dr. Levitsky’s deliberate and
unrepentant fraud, fraudulent concealment and breach of his fiduciary
duties, which the plaintiffs demonstrated time and time again through the
course of trial, leave no doubt that Dr. Levitsky’s actions were
intentional and malicious, for which he is fully culpable. (2) Dr.
Levitsky’s conduct was not an isolated incident, but a continuous pattern
of fraud and deceit over a period of at least seven years. (3) There can be
no doubt from the almost incredible efforts expended by Dr. Levitsky in
concealing his fraud that he was fully aware of his acts and they were
fully intentional. (4) The continuing pattern of fraudulent behavior and
breach of fiduciary duty with Dr. Levitsky bespeaks, at last to the
plaintiff, that Dr. Levitsky[’s] past conduct was similarly egregious. Dr.
Levitsky’s attempt to engage the mayor in fraudulent kickback scheme
serves as a prime example. (5) Dr. Levitsky’s continuous disrespect for
the courts of this state and other states, coupled with his abuse of the
discovery process in this proceeding has demonstrated that a firm and
significant award of punitive damages is necessary to deter future similar
conduct. (6) The malfeasance of Dr. Levitsky caused actual damages in
excess 	of 	$6 	million 	to 	the 	plaintiff, 	even 	when 	conservatively
calculated. Dr. Levitsky’s fraud and breach of his fiduciary duties are
clearly related to the actual harm which was caused by Dr. Levitsky’s
malfeasance. (7) Dr. Levitsky has deliberately concealed and obfuscated
his net worth from this Court. Therefore, the Court cannot precisely
determine his net worth and ability to pay. Since Dr. Levitsky has been
the cause of this information not being available, it is appropriate not to
consider this factor. Wilhoit v. WCSC, Inc., 298 S.C. 34; 358 S.E.2d 397
(Ct. App. 1987). However, the Court notes that the financial information
which has been submitted shows that Dr. Levitsky has substantial
income from investments and holds substantial property, so that the
Court can fairly conclude that his net worth is at least $5 to $7 million
dollars. (9) Finally the Court cannot overemphasize that Dr. Levitsky has
continuously thumbed his nose at the judicial process, not only in this
Court, but in several other state and federal courts. There needs to be an
20
damages.16 (On April 28, 2005, by order [P. 38] entered in Tega Cay Properties, LLC
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end to this abuse of the judicial process and punitive damages are
available to end this misconduct.” Final Order at 33-34. 	Judge
Nicholson also found that, quite similar to leases which Dr. Levitsky
produced in this case, “many of the documents presented by Dr. Levitsky
in support of his position were fraudulently created and backdated.”
Id.
21
v. Leon R. Levitsky, Adversary Proceeding No. 04-2082-JS, this Court declared $5.1
million of the judgment to be nondischargeable.)
44. On June 20, 2003, Levitsky recorded the quitclaim deed from Jane to
Contemporary among the Land Records of Anne Arundel County at Liber No. 13234,
Page 177. Trustee’s Exhibit No. 139.
45. At the time of all of the foregoing transactions, Contemporary’s corporate
charter had been forfeited. 	On February 19, 2004, less than one month before the
petition date, Levitsky filed articles of revival on behalf of Contemporary, in response
to the pending enforcement by Tega Cay of the $10 million South Carolina judgment.
He revived the company charter in the name of 	“Contemporary Magic Kingdom,
Inc.,” but did not mention “CMK Company.” Articles of Revival for Contemporary
Magic Kingdom, Inc., filed February 20, 2004, Trustee’s Exhibit 110, CIT Exhibit No.
65, M&T Exhibit No. 23.
46. 	Simultaneously, Levitsky attempted to register the trade name “CMK.”
However, because of a mark made by accident on the application, the trade name was
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17According to the procedures and practices of SDAT, when the number ‘1’ appears
by itself in a corporate name or trade name, it is recorded by the Roman Numeral ‘I.’
Thus, on the SDAT records, the trade name appeared as “CMK I.”
22
registered as “CMK 1.” Trade Name Application for CMK 1 filed February 19, 2004
[T00202213]. Trustee’s Exhibit 109; see also Tr. at 266:5. 17
47. In 2004 and again in 2005, CIT prepared to bring foreclosure proceedings
against the Property. CIT engaged Nation’s Title Agency of Maryland to perform a
title search. Commitment for Title Insurance, effective date Oct. 4, 2005 (McGinnis
Dep. Exhibit 2B), and Commitment for Title Insurance, effective date Oct. 4, 2005
(McGinnis Dep. Exhibit 2C), Trustee’s Exhibits 129 and 130. In both instances, the
title reports listing outstanding liens on the property failed to disclose that any lien
existed in favor of either FNB or M&T.
48. On March 16, 2006, after the bankruptcy petition was filed, Levitsky filed
with SDAT a “Trade Name Amendment or Cancellation Application,” which sought
to retroactively change the trade name of CMK 1 to CMK. Trade Name Amendment
Application filed March 16, 2006, amending T00202213 to CMK, Trustee’s Exhibit
No. 115. 	SDAT accepted Levitsky’s statement that the “1" was a mistake, and
changed the file to read “CMK.” However, Levitsky has not requested permission to
use the trade name “CMK Company” from SDAT since the revival of the corporation.
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23
49. On February 23, 2005, the Trustee’s counsel, Kristin Case Lawrence, sent
an email to SDAT seeking to verify to registration of the trade name “CMK
Company.” On February 28, 2005, SDAT replied: “There is no record of this name
on file.” On March 14, 2006, the Trustee received from SDAT a certification that
“there is no record of a trade name by the name CMK Company.” Trustee’s Exhibit
No. 114.
50. However, SDAT sells its records to Lexis Nexus, a search of which would
have alerted the Trustee to the registration of the trade name. M&T’s Exhibit No. 22.
51. 	At this time, Contemporary is not in good standing as a Maryland
corporation. SDAT Certification regarding current standing of Contemporary Magic
Kingdom, Inc., Trustee’s Exhibit No. 120. The corporation has not filed a personal
property tax return with SDAT for 2006, nor has it paid its 2005 personal property
return filing fee. Trustee’s Exhibit No. 120.
52. Since the inception of this case, Levitsky has been non-cooperative with
the Court, the Trustee, or his creditors. In his testimony at this trial, his answers were
evasive and his behavior was obstructive. 	On several occasions, he accused the
Trustee of stealing his personal property and documents. He did not appear at the
hearing on Tega Cay’s motion to convert his case to Chapter 7 [P. 11], later filed a
motion to reconsider the conversion 	[P. 167], and then appealed the denial of
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24
reconsideration [P. 221]. He has not complied with reasonable requests for discovery.
Tega Cay has had to file motions to compel the corporations he owns to provide a
representative for Federal Rule 30(b)(6) depositions [P.157], as well as motions to
compel the production of tax returns [P. 298]. At depositions held by the Trustee, he
refused to answer the Trustee’s questions unless they were ended with the phrase,
“End of Question.” 	When the Trustee’s counsel complied, his answers remained
evasive. See Exhibit C to P. 199, pp. 10-12, 14. He did not bring required documents
to his deposition. 	Id., at 15. The Trustee had to file a request for assistance by the
U.S. Marshal to obtain needed documents from the debtor’s house, where they were
kept in approximately 60 separate boxes and trash bags. Tr. at 314:3+. The Trustee
also found approximately 90 boxes of similar documents, but only because the storage
facility at which they were kept called her in an effort to receive payment on an unpaid
bill. Tr. at 315:14.
PROCEDURAL HISTORY
1. 	On March 12, 2004 (“the petition date”), Levitsky filed the instant
bankruptcy case in this Court as a Chapter 13 proceeding.
2. On June 1, 2004, the case was converted to Chapter 11 by consent order [P.
52]. 	The 	order 	also 	provided 	for 	the 	appointment 	of 	a 	Chapter 	11 	trustee.
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18On April 28, 2005, M&T attempted to voluntarily dismiss Associated Enterprises
from the suit and also filed an answer to the counterclaim. However, the dismissal
notice was defective and Associated remains as a party to these proceedings.
25
Accordingly, by order dated July 29, 2004 [P. 91], this Court approved the
appointment by the U.S. Trustee of Lori Simpson, Esquire, as Chapter 11 Trustee.
3. By order [P. 158] entered on October 6, 2004, this Court granted the motion
of a creditor, Tega Cay Properties LLC (“Tega Cay”), to convert the instant case to
a Chapter 7 proceeding. By order [P. 178] entered on October 20, 2004, Lori Simpson
was appointed Chapter 7 Trustee.
4. On September 2, 2004, the Trustee filed Adversary Proceeding No. 04-2024-
JS, against Levitsky and Jane, from whom he was separated. 	Complaint for
Declaratory Judgment, Turnover of Property to the Estate, To Avoid and Recover
Fraudulent Transfer, and to Sell Property Pursuant to 11 U.S.C. § 363.
5. On November 29, 2004, this Court granted the Trustee a default judgment
against Jane by order [P. 14].
6. On January 31, 2005, the Trustee filed a motion for summary judgment [P.
16] against Levitsky, to which Levitsky filed an opposition [P. 17] on February 18,
2005. This Court denied the motion by order [P. 24] entered on May 18, 2005.
7. 	On March 11, 2005, M&T filed Adversary Proceeding No. 05-1254-JS
against Levitsky, Contemporary, the Trustee, Associated, 18 JP Morgan, and Jane
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26
seeking a declaratory judgment that the lien of M&T on the Property was valid and
that the certificate of satisfaction was void.
8. On April 4, 2005, the Trustee filed an answer and a counterclaim against
M&T, and a crossclaim against Associated and JP Morgan Chase Bank, N.A. [P. 11].
Answer to Complaint, Counterclaim by Lori Simpson against Manufacturers and
Traders Trust Company to Determine Validity, Priority, and Extent of Liens, to Avoid
and Recover Transfers, and for Declaratory Relief, Crossclaim to Determine Validity,
Priority, and Extent of Liens, to Avoid and Recover Transfers, and for Declaratory
Relief.
9. 	On June 29, 2005, as successor to J. P 	Morgan, CIT filed an answer to
M&T’s complaint, a counterclaim against M&T and a cross-claim against Associated
[P. 36]. 	Answer to Complaint of Manufacturers and Traders Trust Company,
Counterclaim by CIT Group Consumer Finance Inc. against Manufacturers and
Traders Trust Company, Crossclaim by CIT Group Consumer Finance Inc. against
Associated Enterprises Limited.
10. On the same date, CIT also filed an answer to the Trustee’s cross-claim, as
well as a counterclaim for declaratory judgment [P. 37]. Answer to Counterclaim,
Answer to Crossclaim, Counterclaim by CIT Group Consumer Finance Inc. against
Lori Simpson, Trustee.
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27
11. On January 20, 2006, CIT filed a motion for summary judgment [P. 76]
as to the Trustee’s claim or in the alternative, on its counterclaim.
12. On January 24, 2006, M&T filed a motion for summary judgment [P. 80].
13. On January 24, 2006, the Trustee filed a motion for summary judgment [P.
82].
14. On March 29, 2006, a hearing was held on the parties’ cross motions for
summary judgment. All of the motions were denied by orders [P. 111, 112 and 113]
entered on April 5, 2006. The grounds for the denial of summary judgment were that
issues of material fact were in dispute, including whether the Property allegedly
subject to the liens was property of the bankruptcy estate (a determination of which
would either endow this Court with the subject matter jurisdiction to determine the
validity and priority of liens or preclude it from so doing); the effective dates of
various transfers; whether Contemporary was a valid corporation having the legal
capacity to take title to the Property and to encumber and/or transfer it; whether it
operated under a valid trade name; and whether any of the transfers in question were
fraudulent. Transcript of March 29, 2006 Hearing, 61-2 [P. 123].
15. On October 16, 2006, the IRS filed a motion to intervene [P. 250], which
was opposed by CIT and M&T. On October 20, 2006, the motion was granted by
order [P. 260].
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19The order provided, in pertinent part:
ORDERED that the Court will first hear evidence and argument
on the issue of whether the Annapolis House is property of the estate,
with the order of proof as follows: (1) Trustee to present her case; (2)
any party disputing that the Annapolis House is property of the estate to
present its case; (3) any rebuttal; and it is further
ORDERED that, if there is a determination that the Annapolis House is
property of the estate, the Court will then hear evidence and argument on the
validity and priority of liens with the order of proof as follows: (1) M&T to
present its case; (2) CIT to present its case; (3) the Trustee to present [her]
case; (4) any other party disputing either lien would then put on their cases; (5)
any rebuttal.
Order [P. 259] dated October 20, 2006.
28
16. On November 21, 2006, the Trustee filed a cross-claim [P. 272] against the
IRS, to which the IRS filed an answer [P. 273] on December 4, 2006. The IRS then
filed a motion to continue the trial [P. 318], which was denied. On February 21, 2008,
the IRS filed a motion [P. 353] to be dismissed as a party from the litigation, which
this Court granted by order [P. 359] on February 27, 2008.
17. On October 20, 2006, this Court granted the Trustee’s motion to set the
order of proof at trial by allowing her to proceed first on her turnover complaint, and
by allowing her to present her evidence that the liens of M&T and CIT were
avoidable. Order [P. 259].19
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29
18. 	On February 19, 2008, Levitsky filed a motion to continue the trial for
approximately six months [P. 348]. The motion was denied by order [P. 350] entered
on February 21, 2008. The Court notes, however, that Levitsky essentially achieved
his goal of a six-month postponement because of the time it has taken the Court to
analyze the four days of trial testimony, nearly 200 exhibits, multiple deposition
transcripts, and a large, divergent body of case law.
19. Trial on both adversary proceedings was held on February 25, 26, and 28,
2008, and March 3, 2008. On February 28, 2008, this Court ruled from the bench in
Adv. Proc. No. 04-2024, that the Property was property of the debtor’s bankruptcy
estate.
20. After the ruling, M&T presented its case and the Trustee presented hers,
after which M&T and CIT moved for judgment. At that point, the Court suspended
the proceedings in order to consider the motions.
CONCLUSIONS OF LAW
Subject matter jurisdiction
1. This Court has subject matter jurisdiction to determine whether the Property
is included in the debtor’s bankruptcy estate. 	This is a core matter pursuant to 28
U.S.C. § 157(b)(2)(K). Venue is appropriate under 28 U.S.C. § 1409.
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30
Property of the estate
2. Property of the estate includes “all legal or equitable interests of the debtor
in property,” “wherever located and by whomever held,” “as of the commencement
of the case.” 11 U.S.C. § 541(a). “This definition of estate property is broad and will
reach to bring within the estate every conceivable interest that the debtor may have in
property.” 	In re Osterwalder, ___ B.R. ___, 2008 WL 704412 (Bankr. N.D. Ohio
March 14, 2008).
3. Assets owned by a corporation in which a debtor is a stockholder are not
property of the debtor, but that of the corporation. 	Kreisler v. Goldberg, 478 F.3d
209, 214 (4th Cir. 2007) (“The fact that a parent corporation has an ownership interest
in a subsidiary, however, does not give the parent any direct interest in the assets of
the subsidiary.”). Thus, the assets of a non-debtor corporation do not become assets
of the bankruptcy estate of a stockholder of the corporation, even when the individual
owns all of the stock. It is only the interest in stock held by an individual debtor in
a corporation that is property of the debtor’s bankruptcy estate, because it represents
the debtor’s equitable ownership interest in the corporation. 	McCormick v. Frisch,
199 Md. 181, 85 A.2d 793, 794 (1952) (“A share of stock of a corporation represents
an aliquot portion of the net capital assets. .. . It is merely the evidence of the holder’s
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31
ownership of the stock and of his rights as a stockholder to the extent therein
specified.”).
4. In the instant case, in seeking to bring into the bankruptcy estate the debtor’s
residence which is titled in the name of the non-filing corporation (and which is the
sole asset of the debtor’s solely-owned corporation), the Trustee bears the burden of
proving that the corporation is a fraud, created by the debtor to hinder, delay and
defraud creditors, and that the debtor disregarded corporate formalities in using the
corporation for his own personal benefit. 	The Trustee is not seeking to pierce the
corporate veil in the usual sense of holding a stockholder individually liable for the
debts of the corporation. Rather, she contends that because the debtor has fraudulently
treated the corporate property as his own, reverse veil piercing permits her to
administer the Property for the benefit of the debtor’s creditors.
5. For purposes of determining whether any given property is an asset of the
bankruptcy estate, a debtor’s interest in property is determined by state law. Butner
v. United States, 440 U.S. 48, 55, 99 S. Ct. 914, 918, 59 L. Ed. 2d 136 (1979).
Therefore, this Court must look to the law of Maryland to determine the extent of the
debtor’s interest in the Property held by the corporation and whether the Trustee has
carried her burden of proof so that the debtor’s residence may be administered as
property of the estate, even though it is titled in a corporate name.
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32
6. In Maryland, “courts will pierce the corporate veil only when necessary to
prevent fraud or enforce a paramount equity.” 	Bart Arconti & Sons, Inc. v. Ames-
Ennis, Inc., 275 Md. 295, 310-11, 340 A.2d 225, 234 (1975), citing Damazo v.
Wahby, 259 Md. 627, 633, 270 A.2d 814, 817 (1970); and Gordon v. SS Vedalin, 346
F. Supp. 1178, 1181 (D. Md. 1972). 	However, in none of the cases cited was the
corporate veil allowed to be pierced in order to enforce corporate debts against an
individual, in the absence of proof of actual fraud. In reversing the judgment entered
against corporate insiders in Bart Arconti, the Maryland Court of Appeals held that
the mere shifting of corporate assets from one insolvent entity to another in order to
evade legal obligations did not justify holding the corporate insiders liable by veil
piercing. Likewise, in Damazo, the Court of Appeals reversed the trial court that held
a corporate insider individually liable for commissions due a broker engaged to sell
property titled in the names of two corporations. The appeals court stated that “[t]he
fact that Damazo controlled and operated the corporations would not of itself justify
piercing the corporate veil or make him liable for that which the corporations owed.”
270 A.2d at 817. The court commented on the lack of evidence that Damazo “used
or intended to use the corporations as instruments to perpetrate a fraud,” or that he
failed to observe “the separate identities of Damazo and the corporations.” 	Id.
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20At 270 A.2d 816-17, the Court of Appeals stated:
. . . Damazo always used a corporation to hold title to and operate a
property he bought. Both [corporations] were fully formed and legally
existing 	corporate 	entities 	in 	good 	standing. 	Although 	their
capitalizations were small, each corporation owned substantial assets in
its own right and each maintained its own financial records. The stock
of each was fully issued and separate minutes books were kept. Damazo
recognized, respected and used the corporate entities as such. Those who
dealt with Damazo knew this and knew that corporations owned the
properties. The exclusive listing agreement Wahby [the broker] obtained
was executed for [the corporations] expressly by Damazo as president
and Wahby’s subsequent agency was based on an extension of that
agreement.
Id.
33
Indeed, all of the corporate formalities of a business that was a going concern were
followed.20
In Gordon v. SS Vedalin, the U.S. District Court for the District of Maryland
(Northrop, D.J.) applying Maryland law, held that one bidding at an auction on behalf
of a corporate purchaser was not individually liable for costs of resale when the
corporate purchaser defaulted. 	The court so held regardless of the fact that the
individual had established the corporation so that he could conduct a business despite
the existence of personal judgments pending against him and despite the fact that he
never properly capitalized the corporation. This was held “not enough to pierce the
corporate veil,” where the corporation was created in order to purchase a ship and was
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34
not therefore a manufacturing business that required start-up capital to operate. In
addition, even though the court found that “there was significant doubt from the
evidence that the legal niceties of corporate existence, such as the formal issuance of
stock and corporate meetings, were regularly, if ever, observed,” and that “proof of
the existence of the corporation as a separate entity and not as the mere alter ego of
Harold Johnson is tenuous at best,” the court refused to pierce the corporate veil,
stating that, “under Maryland law, the corporate entity cannot be disregarded in this
case.” Gordon, at 1181. It duly noted that articles of incorporation had been drafted
by a lawyer and were filed with the SDAT. The missing elements required to pierce
the veil were fraud on the part of the targeted individual or the need to protect a
paramount equity. 	But see Nat’l City Bank of Minneapolis v. Lapides (In re
Transcolor Corp.), 296 B.R. 343, 369-70 (Bankr. D. Md. 2003), where this Court
found fraud on the part of the individual corporate insider and imposed liability.
7. 	This remedy of veil piercing has been applied in Maryland when a
corporation was used by its sole owner for his personal gain to defraud the creditors
of the corporation. 	See, e.g., Colandrea v. Colandrea, 42 Md. App. 421, 437, 401
A.2d 480 (Md. App. 1979) (piercing corporate veil when former spouse received
ownership of corporation in divorce settlement with agreement to pay other spouse
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35
over time, and then transferred all assets of that corporation to a new corporation and
defaulted on the payment plan).
8. The Trustee has cited no case in Maryland where reverse veil piercing was
applied to impute individual ownership to property ostensibly held by a corporation
in order to satisfy the debts of the individual, and none has been found. However,
bankruptcy courts in other jurisdictions have held that when a debtor in bankruptcy
treats a corporation as his alter ego, the corporate assets become part of the bankruptcy
estate. Kendall v. Turner (In re Turner), 335 B.R. 140, 147 (Bankr. N.D. Cal. 2005)
(in allowing judgment creditors to recover fraudulent conveyances, the court found
that a corporation and limited liability company were alter egos of the debtor who
created them with no business purpose and fraudulently transferred to them his
residence as a means of shielding it from creditors); Mass v. Bell Atlantic Tricon
Leasing Corp. (In re Mass), 178 B.R. 626 (M.D. Pa. 1995); see also Smith v. Richels
(In re Richels), 163 B.R. 760 (Bankr. E.D. Va. 1994); Halverson v. Schuster (In re
Schuster), 132 B.R. 604, 612 (Bankr. D. Minn. 1991); Hovis v. United Screen
Printers, Inc., (In re Elkay Inds., Inc.), 167 B.R. 404, 410 (D. S. C. 1994); and The
Cadle Co. v. Brunswick Homes, LLC (In re Moore), 379 B.R. 284, 295 (Bankr. N.D.
Tex. 2007).
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36
9. The facts found in the Turner case are similar to those in the instant case,
albeit in a different procedural context. In Turner, the debtor set up a Bahamian trust
and a Nevada corporation in order to take title to his house. He directed the trust and
the corporation to transfer the property to his wife within one year of his filing
bankruptcy. The Chapter 7 trustee sought to avoid the transfer as fraudulent, with the
implication that because the debtor operated the corporation as his alter ego, the house
was property of the bankruptcy estate. The court found that while asset protection is
not per se illegal, “entities may not be created with no business purpose and personal
assets transferred to them with no relationship to any business purpose, simply as a
means of shielding them from creditors.” Turner at 147. In viewing the corporation
and trust as the debtor’s alter egos, the court disregarded it “to prevent injustice.” Id.
10. The Mass case is also instructive because the procedural context is similar
to that of the present case. 	In Mass, the married debtors were sole owners of a
corporation supposedly engaged in the business of dry cleaning. 	Mass, at 627-28.
However, the corporation observed few corporate formalities and took only one action
during its existence, that of entering into an equipment lease that the debtors
personally guaranteed. 	The court granted the trustee’s complaint for turnover of
money in the corporate bank account over the objection of the equipment lessor which
by that time had obtained a judgment lien and garnishment against the corporate bank
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37
account. Id. at 630. The court applied a reverse veil-piercing theory to declare that
the account “rightfully belong[ed] in the debtors’ estate,” and concluded that the
equipment lessor “should not enjoy a preferential treatment as the only business
creditor to have contracted with a sham corporation.” Id. at 630-31.
11. Other courts have held, and this Court agrees, that “that there is no logical
basis upon which to distinguish between a traditional veil piercing action and an
outsider reverse piercing action. In both instances, a claimant requests that a court
disregard the normal protections accorded a corporate structure to prevent abuses of
that structure.” C.F. Trust, Inc. v. First Flight L.P., 266 Va. 3, 10-11, 580 S.E.2d 806,
810 (2003), adopted by the Fourth Circuit after certification of question, 338 F.3d 316
(4th Cir. 2003), aff’g 140 F. Supp.2d 628 (E.D. Va. 2001); see also Cent. Nat’l Bank
& Trust Co. of Des Moines v. Wagener, 183 N.W.2d 678, 682 (Iowa 1971) (“it cannot
be accepted in this jurisdiction... that assets may be traced from a corporation to an
individual but not vice versa”); Minich v. Gem State Developers, Inc., 99 Idaho 911,
917, 591 P.2d 1078, 1084 (1979) (“court can find no reason in law or logic to limit
the application of the alter ego doctrine...” to traditional veil piercing but not reverse
veil piercing). Indeed, federal courts have implied state law recognition of reverse-
veil piercing from recognition of the ability to pierce a corporate veil. See Moore, 379
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38
B.R. at 289 (discussing, somewhat disapprovingly, Zahra Spiritual Trust v. U.S., 910
F.2d 240, 243 (5th Cir. 1990), which made that implication).
12. The facts of the instant case are replete with fraud on the part of the debtor
and require this Court to apply the doctrine of reverse veil piercing.
A. 	There is no question that Levitsky created Contemporary as a sham
corporation for the sole purpose of hindering, delaying and defrauding his creditors,
in particular, his former wife, Carol, by shielding the Property within a corporate shell.
Finding of Fact No. 4. For a discussion of factors constituting a sham corporation, see
Comptroller v. SYL, Inc., 375 Md. 78, 825 A.2d 399 (2003) (describing an out-of state
holding company as a sham corporation for state taxation purposes as having “no real
economic substance as [a] separate entit[y]” no full-time employees and ostensible
part-time employees were actually officers and directors, and where corporate offices
“were little more than mail drops.” 825 A.2d at 415. 	B. 	Levitsky named the
corporation “Contemporary Magic Kingdom,” a name that had no reference to the
Property or to any corporate purpose, the effect of which, the Court has determined,
was to purposely mislead and confuse creditors and the general public. He then had
the corporation take title to the Property using its trade name, CMK Company, which
likewise was confusing and bore no connecting reference to the Property. Finding of
Fact No. 3.
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21Under Maryland law, it does not matter that Carol had not obtained a final judgment
at the time of the incorporation, because Levitsky’s extramarital conduct rendered her
a future creditor, and Levitsky had actual intent to defraud her. 	Under such
circumstances, Levitsky’s transactions were fraudulent. See Md. Comm. Law Code
§ 15-207 (“Every conveyance made and every obligation incurred with actual intent,
as distinguished from intent presumed in law, to hinder, delay, or defraud present or
future creditors, is fraudulent as to both present and future creditors.”).
39
C. Throughout its duration, the corporation was the debtor’s alter ego and had
no business purpose, kept virtually no records, had no corporate existence and
received no income, other than the one and only time Levitsky allegedly paid it
overdue rent for the privilege of residing in the Property. Findings of Fact Nos. 5-9,
17-19.
D. 	The corporation was dormant and defunct for long periods of time until
shortly before Levitsky filed the bankruptcy petition. Finding of Fact No. 45. The
revival of the defunct corporate charter on the eve of bankruptcy served no purpose
other than to hinder, delay and defraud the debtor’s personal creditors, including
Carol, the IRS, and the Trustee, by shielding the Property from the efforts of his
creditors to satisfy their obligations against the Property, which is his personal
residence. 21 Finding of Fact No. 5.
E. 	In his sole ownership of the stock of Contemporary, Levitsky ignored
corporate formalities and dealt with the Property as his own, living there virtually
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40
rent-free for much of its 25-year ostensible ownership of the Property. Findings of
Fact Nos. 1 and 5. The Court notes that, assuming the debtor resided on the Property
subject to a valid lease, which is questionable under the circumstances, such a lease
was rejected as a matter of law by the debtor’s failure to assume it, pursuant to Section
365 of the Bankruptcy Code.
F. Other than the Property, Contemporary possessed no other assets. Finding
of Fact No. 4.
G. 	Levitsky used the Property titled in the name of corporation to obtain
personal loans and used the borrowed money for non-corporate purposes, based upon
the equity of the corporation in the Property. In addition, he laundered the money for
his personal benefit and to avoid the payment of taxes through offshore shell
corporations that he created and controlled and even sheltered from his creditors the
ostensible rental payment of more than $30,000 that Levitsky transferred to the
corporation shortly before bankruptcy, thus defrauding his personal creditors.
Findings of Fact Nos. 28-36.
H. 	The debtor’s fraudulent intent may be inferred from his causing the
corporation to transfer the Property to Jane for no consideration by an unrecorded
deed at a time when he owed money to his former wife, Carol and to Tega Cay.
Findings of Fact Nos. 4 and 32.
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22 In light of the parties’ apparent agreement that the Property is worth well over one
million dollars, CIT’s interest will also be protected assuming that the Trustee accedes
to M&T’s alleged first lien position.
41
I. In short, the Property is in actuality property of the debtor’s estate because
he has treated the Property as his own throughout the time that it was titled in the
corporate trade name and because he has used the sham corporation to hinder, delay
and defraud his creditors.
13. 	In the instant case, the application of reverse veil-piercing will not
prejudice creditors of the corporation. 	See Moore, 379 B.R. at 295, Stoebner v.
Lingenfelter, 115 F.3d 576, 579-80 (8th Cir. 1997) (reverse piercing only appropriate
when none of corporation’s creditors will be prejudiced). CIT and M&T are the only
creditors of Contemporary, other than possibly Levitsky himself. Both have purported
liens on the Property, which are equally valid or invalid inside or outside of
bankruptcy. 	Thus, the disregard of Contemporary as a corporate entity and the
treatment of the Property as property of the bankruptcy estate will have no adverse
impact on or cause prejudice to either CIT or M&T. 22
14. Having determined that the Property is property of the estate, this Court has
subject matter jurisdiction under 26 U.S.C. § 1334 to require its turnover by the debtor
to the Trustee, and also to determine the priority of the liens of M&T and CIT as to
the Property.
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42
15. CIT and M&T are precluded by the doctrine of collateral estoppel from
rearguing that the Property is not property of the estate, having argued and lost on the
issue. See Colandrea v. Wilde Lake Cmty. Ass’n, Inc., 361 Md. 371, 761 A.2d 899,
908 (“If a proceeding between parties does not involve the same cause of action as a
previous proceeding between the same parties, the principle of collateral estoppel
applies, and only those facts or issues actually litigated in the previous action are
conclusive in the subsequent proceeding... When the principle of collateral estoppel
applies, facts or issues decided in the previous action are conclusive only if identical
to facts or issues presented in the subsequent proceeding.”).
16. Although not argued by the Trustee as grounds for relief, the Court notes
the following alternative grounds that might have been claimed to authorize the
Chapter 7 Trustee to take possession of the Property.
A. The first of these is found in the case of In re Bonham, 226 B.R. 56 (Bankr.
D. Ala. 1998), where the bankruptcy court granted a trustee’s motion to substantively
consolidate the Chapter 7 debtor’s estate with her closely-held, non-filing corporations
that had been used to defraud creditors in a Ponzi-type scheme. Quoting J. Stephen
Gilbert, Substantive Consolidation in Bankruptcy: A Primer, 43 VAND. L. REV. 207,
218, the court differentiated substantive consolidation from the similar result obtained
under state law alter ego doctrines by stating:
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43
... Substantive consolidation more closely resembles the bankruptcy rule
of subordination because competition for the consolidated assets is
between creditors alone. 	Thus, substantive consolidation ignores
artificial legal structures but looks only to the combined assets of the
consolidated entities for satisfaction of all claims against the collective
group.
Bonham, 226 B.R. at 77. 	Contra, Maiz v. Virani, 311 F.3d 334, 343-45 (5th Cir.
2002) (turnover proceeding may not be used to adjudicate whether a corporation is an
individual judgment debtor’s alter ego); and Morse Operations, Inc. v. Robins LeCoq,
Inc. (In re Lease-A-Fleet), 141 B.R. 869 (Bankr. E.D. Pa. 1992) (involuntary
consolidation of debtor’s case with that of non-debtor corporation was not appropriate
in the absence of extraordinary circumstances).
B. A second case in which a Chapter 7 trustee obtained possession of a debtor’s
corporate property without piercing the corporate veil is Fowler v. Shadel, 400 F.3d
1016 (7th Cir. 2005). In that case, the Seventh Circuit held that where, as here, the
debtor who was the sole shareholder of a corporation failed to exempt his interest in
the corporate stock, the trustee acceded to the debtor’s interest in the stock and
therefore had the right to liquidate the assets of the corporation, even though the
corporate assets themselves (in that case, trucks) were not property of the debtor’s
bankruptcy estate. 400 F.3d at 1018-19.
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44
The Priority and/or Avoidance of the Liens of M&T and CIT
17. The liens of M&T and CIT are not invalid on the ground that the 1983 deed
from the Magnolia Way Joint Venture did not effectively convey good title of the
Property to Contemporary. The Trustee’s assertion to the contrary is based upon the
deed’s recitation that the Property was being conveyed to “CMK Company, a
Maryland Corporation,” at a time when there was no such corporation or trade name
recorded among the land records. However, it must be remembered that the trade
name of “CMK Company” was recorded in the land records on September 29, 1983,
22 days after the deed was executed and 21 years before the petition date. While the
failure to record a deed might have resulted in its invalidation during the period
between execution and recordation, Maryland courts have not invalidated deeds when
such a mistake in corporate formalities is later corrected. See, e.g., Zulver Realty Co.
v. Snyder, 191 Md. 374, 379, 62 A.2d 276, 279 (holding that deed was valid when the
deed was conveyed to grantee corporation which formally incorporated after the
conveyance). In light of the brief period between the execution of the deed and the
proper recordation of the trade name, and the long duration between the recordation
of the trade name and the filing of the bankruptcy petition, the liens may not be
invalidated based on the late-filing of the trade name.
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45
18. The liens of M&T and CIT are not invalid on the ground that the corporate
charter of Contemporary Magic Kingdom, Inc., had been forfeited for almost seven
years when FNB made the loan to “CMK Company.” While it is true that Bank One
made its loan at a time when the charter had been forfeited for nearly a decade, courts
have employed concepts of estoppel to prevent a bankruptcy trustee from using her
strong-arm powers to void a lien obtained in the name of a corporation whose charter
was forfeited. 	See Exchange Nat’l Bank v. A. J. Rackers, Inc. (In re A. J. Rackers,
Inc.), 167 B.R. 168, 175-76 (Bankr. W.D. Mo. 1994); Matter of Pubs, Inc. of
Champaign, 618 F.2d 432 (7th Cir. 1980) (interpreting the Bankruptcy Act). In A. J.
Rackers, a bank made a secured loan to a corporation approximately one month after
its charter had been forfeited without knowledge of the forfeiture by either party.
Rackers, at 170. Subsequently, without having its charter reinstated, the corporation
operated its heating and air conditioning repair and installation business for the next
seven months before it closed its doors and wound down its affairs. 	Although the
court found that the activities of a business which has forfeited its corporate charter
are limited to winding down the operation, it held the loan to be valid because the
corporation was a “corporation by estoppel.” 	Despite the proposition that, “as a
general rule, the trustee is not bound by estoppel,” the court was persuaded that under
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46
the Uniform Commercial Code, there was proper attachment by estoppel that the
trustee could not overcome. Id. at 175.
19. 	Like Missouri, Maryland recognizes the concept of “corporation by
estoppel.” See Cranson v. Int’l Bus. Mach. Corp., 234 Md. 477, 487, 200 A.2d 33,
38 (1964) (to prevent creditor from pursuing claim against president of corporation
personally when creditor had dealt with the corporation as though it were a
corporation even though it had failed to incorporate). Accordingly, had Levitsky not
personally guaranteed the loans in question, and assuming that M&T and CIT for
some reason could not pierce the corporate veil, both would be estopped from denying
the existence of Contemporary and from pursuing their claims against Levitsky
personally.
20. Finding persuasive the reasoning in Rackers and Pubs, this Court holds that
while a trustee is not estopped from challenging the perfection of a lien by estoppel,
a trustee is estopped from challenging the attachment of a security interest, when that
attachment occurred through estoppel. Rackers, at 175.
21. The Court also notes that in this case, unlike Rackers, the corporate charter
was revived by the time the bankruptcy petition was filed. While the circumstances
surrounding that corporate revival are suspicious, (having been revived one month
prior to the filing of the petition after more than a decade of dormancy), there is no
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23Section 544(a) provides, as follows:
(a) The trustee shall have, as of the 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–
(1) a creditor that extends credit to the debtor at the time of the
commencement of the case, and that obtains, at such time and with
respect to such credit, a judicial lien on all property on which a creditor
on a simple contract could have obtained such a judicial lien, whether or
not such a creditor exists;
(2) a creditor that extends credit to the debtor at the time of the
commencement of the case, and obtains, at such time and with respect to
such credit, an execution against the debtor that is returned unsatisfied
at such time, whether or not such a creditor exists; or
(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. § 544(a).
47
evidence that the revival was ineffective, at least with regard to the corporate name.
22. Pursuant to Section 544(a)(3),23 a Chapter 7 trustee possesses all of the lien
avoidance powers that would be bestowed by state law upon a hypothetical purchaser
of property who purchased the property on the date the bankruptcy petition was filed.
See 11 U.S.C. § 544(a)(3); Rinn v. First Union Nat. Bank of Md., 176 B.R. 401, 25
UCC Rep. Serv.2d 1057 (D. Md. 1995). 	This Court (Derby, J.) has previously
Case 05-01254 Doc 377 Filed 09/30/08 Page 47 of 68

24In Greenbelt Coop., the debtor corporation operated a furniture store known to
consumers as SCAN or SCAN Furniture, but was incorporated under the name
“Greenbelt Cooperative, Inc.” Id. at 467. An equipment lessor entered into what was
effectively a purchase-money loan for forklifts with the corporation, but filed a
financing statement under the name Scan Furniture. 	Judge Derby granted the
complaint brought by the debtor-in-possession to avoid the lessor’s lien on the
forklifts and held that because the trade name “SCAN Furniture” was not remotely
similar to the corporate name “Greenbelt Cooperative, Inc.,” the debtor-in-possession
could use the trustee’s strong-arm powers under 11 U.S.C. § 544(a)(1) to avoid the
lien. Id. at 471.
48
invalidated a lien on the personal property of a corporation when the allegedly secured
party filed a financing statement that referred to the debtor by its trade name.
Greenbelt Coop., Inc. v. Werres Corp. (In re Greenbelt Coop.), 124 B.R. 465, 470
(Bankr. D. Md. 1991) (citing In re Bumper Sales, Inc., 907 F.2d 1430 (4th Cir. 1990));
see also Lawrence Bach, 	Trade Name Filing: Should It be Sufficient to Perfect A
Security Interest Under U.C.C. Section 9-402?, 35 CASE W. RES. L. REV 51 (1985).
As noted, that case dealt with personal and not real property, and was decided based
upon provisions of the Uniform Commercial Code. 24
23. In order to properly distinguish Greenbelt Coop., it is necessary to briefly
describe the history of the methods by which Maryland allows corporations to record
trade names. Before 1991, the law required that trade names be filed in every county
in which the trade name was used. Upon filing, the clerks of court forwarded the trade
names to SDAT, which maintained a trade name master list. 	The filing of a trade
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49
name gave the corporation the right to use the trade name forever, but not the
exclusive right. In 1991, the General Assembly enacted important revisions to the law
that became effective on July 1, 1991. First, trade names were required to be filed
with SDAT, and were given statewide effect. Second, once registered properly, trade
names were to be exclusive, that is, no one but the filer was allowed to use them.
Third, trade names were to last for only 10 years, instead of in perpetuity.
24. The current statute governing the recordation of trade names is found in
Sections 1-401 through 1-415 of the Business Regulation Article of the Maryland
Code. The following quoted sections are relevant to the instant case:
1-401. Definitions.
(c) Mark. “Mark” means a name, symbol, word, or combination of 2 or
more of these that a person:
(1) places on goods that the person sells or distributes, a
container of the goods, a display associated with the goods, or a label or
tag affixed to the goods to identify those goods that the person makes or
sells and to distinguish them from goods that another person makes or
sells; or
(2) displays or otherwise uses to advertise or sell services
that the person performs to identify those services that the person
performs and to distinguish them from services that another person
performs.
* 	* 	* 	* 	*
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50
1-401(f) Trade name. – “Trade name” means a name, symbol,
word, or combination of 2 or more of these that a person uses to identify
the business or occupation of the person and to distinguish it from the
business or occupation of another person.
1-402. Effect of Subtitle.
This subtitle does not affect adversely a right or the enforcement
of a right in a mark acquired in good faith at any time at common law.
1-403. Records.
The Secretary of State shall keep a public record of the marks
registered under this subtitle.
1-404. Registration authorized.
(a) In general. – If a person uses a mark in the State, the person
may register the mark in accordance with this subtitle.
(b) Exceptions. – A person may not register a mark that:
* 	* 	* 	* 	*
(5) is likely, when applied to the goods or services of the
person, to confuse or deceive because the mark resembles:
(i) another mark registered in the State; or
(ii) a mark or trade name that another person has used
in the State and has not abandoned.
(d) Registration of trade name prohibited. – A person may not
register a trade name that is not a mark.
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25The status of prior recorded trade names is ambiguous under the new law, and SDAT
was uncertain how to treat them. For a period, it maintained the trade names filed
after the 1991 change in the same file as those filed before it. However, because the
primary purpose for searching trade name records is to determine whether a name has
already been registered, and because the pre-1991 trade names were non-exclusive
(and arguably lasted forever), SDAT decided that it would no longer be worthwhile
to keep the pre-1991 records open to the public. 	Accordingly, it removed the
pre-1991 trade name files from the records open to the public, although SDAT
51
1-410. Term and renewal of registration.
(a) Term of registration. – Unless registration of a mark is
renewed for a 10-year term as provided in this section, the registration
expires on the tenth anniversary of its effective date.
1-412. Cancellation of registration.
(a) The Secretary of State shall cancel a registration of a mark if:
(1) the registrant asks that it be canceled;
(2) the registrant fails to renew it;
(3) a court of competent jurisdiction orders that it be
canceled on any ground; or
(4) a court of competent jurisdiction finds that:
(i) the mark is abandoned;
(ii) the registrant does not own the mark;
(iii) the registration was granted improperly; or
(iv) the registration was obtained fraudulently.
Id.25
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employees continued to have access to them. The records are now available only on
microfilm. They are not viewable either in an online search of the SDAT database nor
if a party went to the SDAT counter in person. Online search capabilities of SDAT
allow a party to access any trade name by search using its initial letters followed by
a percentage sign. For example, one could search for all trade names beginning with
the letters CMK, by searching for CMK%. 	However, an online search for CMK%
would not yield CMK Company because that trade name was filed before 1991. A
party may also search online for all of the trade names of a Maryland-registered
corporation by its “Department ID number.” 	However, once again, such a search
would not disclose any trade name registered before 1991. 	The website does not
inform one that it will not permit access to trade names filed before 1991. In order to
compel SDAT to produce the old trade names, a party must appear in person at the
office of SDAT and request a clerk to search the microfilm records for a specific trade
name. Due to a lack of institutional memory, there is a good chance that most SDAT
clerks are unaware of the existence of the old trade name files. 	Thus, there is no
method by which the Trustee could obtain the trade name, CMK Company from
SDAT without specifically asking a knowledgeable clerk to search the microfilm
records. However, a search of the Lexis-Nexus database, which is available to private
parties for a fee, would have revealed the existence of the old trade names.
52
25. 	The holding in Greenbelt Coop. is not applicable here, not only because
the instant case deals with real property, but because the facts of the instant case differ
from Greenbelt Coop. in two ways. First, Greenbelt Coop. was decided before the
1991 change in the Maryland trade name recordation law, and there was no finding
that the trade name “SCAN Furniture” had been filed with the clerks of the circuit
courts in the counties in which the forklifts were located. In the instant case, “CMK
Company” was ultimately recorded properly as a trade name. Second, in the instant
case, a hypothetical purchaser would have knowledge of the trade name “CMK
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53
Company,” because that was the name used on all the deeds in the chain of title as far
back as 1983.
26. Maryland courts have been unforgiving of a purchaser’s mistake of law.
See Cooke’s Lessee v. Kell, 13 Md. 469, 493, 1859 WL 3857 at *16 (Md. 1859) (“If
registration laws do not give notice to the community which will bind it, then they are
of no use whatever...”); see also Janusz v. Gilliam, 404 Md. 524, 536, 947 A.2d 560,
567 (May 9, 2008), quoting Hoffman v. Chapman, 34 A.2d 438, 441, 182 Md. 208,
213 (1943) ( “[t]he general rule is accepted in Maryland that a mistake of law in the
making of an agreement is not a ground for reformation...”). The system of recording
trade names employed by SDAT comports with the law of Maryland. Accordingly,
a purchaser of a home in Maryland is charged with knowledge of the recording system
of the jurisdiction in which she is purchasing a home, including the system of
recording trade names, if for some reason the home is titled in a trade name.
27. When conducting a title search, a purchaser is obligated to look back as far
as is reasonable under the circumstances. Coe v. Hays, 105 Md. App. 778, 786, 661
A.2d 220, 224 (1995) (finding that, based on expert testimony, a title search going
back 99 years was sufficient and that 60 years would have also been sufficient to
convey marketable title).
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54
28. 	From the deeds in the chain of title to the Property, a hypothetical
purchaser would realize that there was a deed to “CMK Company” which existed as
far back as 1983. Accordingly, a hypothetical purchaser would be on notice that it
would be necessary to search the pre-1991 trade name records to find that trade name.
29. The Trustee cites the recent opinion the Maryland Court of Appeals for the
proposition that the burden of risk of a clerk’s mistake is on the party recording, not
on the purchaser. See Greenpoint Mortgage Funding, Inc. v. Schlossberg, 390 Md.
211, 234-35, 888 A.2d 297, 311 (2005) (“Indexing mistakes should be at the risk of
the person who had the ability to insure that the document was indexed correctly – the
filer.”). Here, unlike Greenpoint Mortgage, the trade name CMK Company was
properly recorded in the Anne Arundel County Circuit Court under the laws in
existence at the time of recordation. SDAT may have provided an incorrect answer
to the Trustee’s question when it advised her that no such trade as “CMK Company”
existed; but the Trustee asked the wrong question. As a hypothetical purchaser, the
Trustee is charged not only with knowledge of the recording laws, but also with the
knowledge of the recording practices of SDAT. Those practices apparently include
not informing inquirers about trade names registered before July 1, 1991, unless the
inquirer specifically asks for them.
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26Section 3-203 of the Real Property Article of the Maryland Code provides as
follows:
Every recorded deed or other instrument takes effect from its
effective date as against the grantee of any deed executed and delivered
subsequent to the effective date, unless the grantee of the subsequent
deed has: (1) Accepted delivery of the deed or other instrument: (i) In
good faith; (ii) Without constructive notice under § 3-202; and (iii) For
a good and valuable consideration; and (2) Recorded the deed first.
Md. Real Prop. Code Ann. § 3-203.
55
30. For these reasons, the Trustee cannot use her § 544(a)(3) powers to avoid
the lien of CIT on the theory that a hypothetical purchaser would not have notice of
the trade name “CMK Company.”
31. Maryland is a race-notice jurisdiction. See Md. Real Prop. Code Ann. § 3-
203.26 Accordingly, when a grantor conveys a deed or deed of trust to one purchaser
or lender, and then subsequently conveys a deed or deed of trust on the same property
to another purchaser or lender who takes without notice of the first deed or deed of
trust, the first purchaser or lender who properly records its interest in the land records
will defeat the other purchaser or lender's interest.
32. 	While it is true that Jane conveyed her interest in the Property back to
Contemporary before Bank One recorded its deed of trust, Contemporary also delayed
recording the transfer to Jane. 	Because it delayed recording the reconveyance,
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56
Contemporary would not have been able to defeat Bank One’s unrecorded deed of
trust, even had it taken back the Property without knowledge of the deed of trust. Of
course it did not, because Bank One recorded its deed of trust before Contemporary
recorded the deed. Therefore, a hypothetical purchaser analyzing the chain of title to
the Property would have had notice of this entire series of events.
33. 	The Trustee argued that the Replacement Deed of Trust between Jane and
Bank One was actually a new deed of trust that Jane did not have authority to execute
because she had already transferred the Property back to Contemporary. This Court
disagrees, and so do the Maryland cases that have held replacement deeds to be valid.
See, e.g., Bugg v. Md. Transp. Auth., 31 Md. App. 622, 358 A.2d 562, 586 (1976).
Generally, courts will only invalidate a replacement deed when there is some indicia
of fraud. See, e.g., RKB Investments v. Maxfield ( In re B.L. Jennings, Inc.), 373 B.R.
742 (Bankr. M.D. Fla. 2007). While there are plenty of indicia of fraud present in this
case, the Replacement Deed of Trust itself has none of these; rather, it was executed
and recorded to replace the original deed of trust rejected by SDAT because it
mistakenly purported to be a refinancing deed of trust. 	The addition of the words
“Purchase Money” on the top of the Replacement Deed of Trust corrected that error
and served to effectuate the intent of all parties to the original deed of trust.
Accordingly, because the Replacement Deed of Trust properly replaced the original
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57
deed of trust, it therefore relates back in time to the date of the deed of trust it
replaced. There might be a different result if the deed from Jane to Contemporary was
recorded prior to the recordation of the replacement deed of trust.
34. Nevertheless, even were the Replacement Deed of Trust in fact a new deed
of trust, it is still effective even if Jane had no authority to convey it, because it was
recorded by Bank One before Contemporary recorded the deed from Jane. As a race-
notice jurisdiction, Maryland law holds that when the owner of real property conveys
a deed to one party and later a deed of trust to a different party, the first party takes the
property subject to the deed of trust if the holder of the deed of trust records first.
Thus, assuming the Replacement Deed of Trust was in fact a new deed of trust, it is
still effective because Bank One obtained it without knowledge of the deed back to
Contemporary, and Bank One recorded first. 	Md. Code Ann., Real Prop § 3-203.
Therefore, the trustee's argument that the Replacement Deed destroyed the lien of CIT
fails.
35. The Trustee also seeks to use her Section 544(a)(3) hypothetical purchaser
powers to prevent M&T from asserting a lien on the Property, on the theory that a
hypothetical purchaser would have had no inquiry notice that the certificate of
satisfaction of M&T’s lien had been either fraudulently or mistakenly recorded. It is
black letter law that a certificate of satisfaction recorded by mistake does not release
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58
a mortgagee from a lien or from the obligations that the lien secures. Numerous state
court opinions have held in cases where a certificate of satisfaction was fraudulently
entered onto the land records, the lien survived, even against an innocent purchaser.
See, e.g., Leedom v. Spano, 436 Pa. Super. 18, 34, 647 A.2d 221, 229 (1994) (innocent
purchasers took property subject to lien even though fraudulent lien release was filed
by unidentified individual in land records); Sunrise Sav. & Loan Ass’n of Fla. v.
Giannetti, 524 So. 2d 697, 700 (Fla. Dist. Ct. App. 1988) (“where a mortgage has
been cancelled because of the fraudulent conduct of an intervening third party, without
authority or consent of the mortgagee, the result is [that the mortgagee’s lien
survives]”) (citing Zimmer v. Fryer, 190 La. 814, 183 So. 166 (1938)); Luther v. Clay,
100 Ga. 236, 248, 28 S.E. 46, 49-50 (1897) (bona fide purchaser took real property
subject to lien on which certificate of satisfaction had been fraudulently filed by
mortgagor); Keeler v. Hannah, 52 Mich. 535, 536, 18 N.W. 346, 346 (1884) (original
mortgagee’s lien was effective against subsequent mortgagee even though mortgagor
had filed fraudulent release of first mortgage and subsequent mortgagee had no
knowledge of fraud); Crecelius v. Home Heights Co., 217 S.W. 508, 512 (Mo. 1919)
(deed of trust fraudulently released by third party was still effective against bona fide
purchaser); Scardone v. Sozzi, 108 N.J. Eq. 415, 155 A. 376 (N.J. Ch. 1931)
(“Between a mortgagee whose mortgage has been discharged of record solely through
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27An exhaustive list of similar decisions is contained at 35 A.L.R.2d 948 (1951 &
Supp. 2002).
59
the unauthorized act of another party, and a purchaser who buys the title in the belief,
induced by such cancellation, that the mortgage is satisfied and discharged, the
equities are balanced, and the rights in the order of time must prevail”) (citations
omitted).27 The only exception is where the certificate of satisfaction was mistakenly
recorded because of the lienholder’s own negligence. One bankruptcy opinion went
so far as to hold that anytime a certificate of satisfaction is mistakenly recorded due
to anyone’s fault other than that of the affected lienholder, the lien is still effective
even against a bona fide purchaser. 	See Home Sav. & Loan. Co. v. O’Reilly (In re
O’Reilly), 30 B.R. 562, 564 (Bankr. N.D. Ohio 1983). Indeed, when the mistaken
release of a lien was entirely due to the fault of the holder of the released lien, one
bankruptcy court allowed § 544(a)(3) to avoid the lien. See Collins v. Bank of New
England-West, N.A. (In re Daylight Dairy Prods., Inc.), 125 B.R. 1, 4-5 (Bankr. D.
Mass. 1991) (allowing trustee to use §544(a)(3) where bank had mistakenly recorded
a certificate of satisfaction of its own lien).
36. 	However, under Maryland law, a properly-recorded certificate of
satisfaction acts to release property from any lien contained thereon. Md. Real Prop.
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28Section 7-103(a) of the Real Property Article of the Maryland Code provides as
follows:
The title to any promissory note, other instrument, or debt secured
by a mortgage, both before and after the maturity of the note, other
instrument, or debt, conclusively is presumed to be vested in the person
holding the record title to the mortgage. If the mortgage is duly released
of record, the promissory note, other instrument, or debt secured by the
mortgage, both before and after the maturity of the promissory note,
other instrument, or debt, conclusively is presumed to be paid as far as
any lien on the property granted by the mortgage is concerned.
Md. Real Prop. Code Ann., § 7-103(a).
29In Van Schaik, owners of real property sold it to their son and daughter-in-law,
subject to a purchase-money mortgage which they sold to a third-party bank. 	The
bank later attempted to reassign the mortgage back to the original owners, but instead
mistakenly released the mortgage. The son and daughter-in-law sold part of the real
property to a third party who had no notice that the release had been mistakenly
recorded. When one of the original owners (the other had since died) discovered the
release, she filed a bill of complaint seeking to vacate the release. In affirming the
trial court’s grant of the vacatur of the release as to the son and daughter-in-law, the
Court of Special Appeals of Maryland also held that the released mortgage did not
apply to the land that was sold to the bona fide purchaser. 35 Md. App. at 26-27, 369
A.2d at 137-39. Thus, the decision held, in disagreement with every other state that
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Code Ann. § 7-103(a).28 Two Maryland decisions, seemingly unique in the nation,
hold that when one purchases property without notice that a certificate of satisfaction
was mistakenly recorded, the purchaser takes the property free and clear of any lien
that was mistakenly released. 	Van Schaik v. Van Schaik, 35 Md. App. 19, 26, 369
A.2d 133, 137 (1977) (“[I]f a release of mortgage is mistakenly recorded, that release
is effective as to subsequent bona fide purchasers...”);29 and Bond v. Dorsey, 65 Md.
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has decided the issue, that even though the original lienholder’s lien was mistakenly
released by a third party, the lien was ineffective as to a bona fide purchaser.
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310, 316, 4 A. 279, 281 (1886) (“Of course, the mortgage cannot be restored as
against one who has in good faith purchased the property after the cancellation, or has
advanced money upon it upon the faith of a clear record title”). These opinions permit
a bona fide purchaser to take title to real property free and clear of a lien mistakenly
released as a result of a third party’s negligence. Accordingly, even though the lien
of M&T was allegedly released as a result of the negligence of a third-party, under the
authority of the cases cited, the Trustee is empowered to avoid the lien of M&T for
the reason that a bona fide purchaser could do so in Maryland.
37. M&T argued that a hypothetical purchaser would be put on inquiry notice
that the certificate of satisfaction was mistakenly recorded, in support of which M&T
noted that the certificate was signed by Levitsky, and not by an employee or agent of
M&T. This Court disagrees. In order to be precluded from the status of a bona fide
purchaser, there must be “circumstances which ought to have put a person of ordinary
prudence on inquiry,” in which case a purchaser “will be presumed to have made such
inquiry and will be charged with notice of all facts which such an investigation would
in all probability have disclosed if it had been properly pursued.” 	Fertitta v. Bay
Shore Dev. Corp., 266 Md. 59, 72, 291 A.2d 662, 669 (1972). M&T asserted that
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30Section 3-105(b) provides, as follows:
(b) A release may be endorsed on the original mortgage or deed
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while the certificate of satisfaction did not disclose the status of Levitsky as president
and/or sole shareholder of Contemporary/CMK Company, his status was readily
ascertainable based on four different documents recorded in the Land Records of
Anne Arundel County, including the deed of trust between Levitsky and FNB as
referenced by the certificate, which the certificate purportedly released. On the other
hand, the Trustee argued that a hypothetical purchaser would not be on notice that the
certificate was fraudulently or mistakenly recorded. In so arguing, the Trustee relies
on the two title searches conducted by title agencies employed by CIT that certified
that there were no mortgages recorded on the Property, other than that of CIT. The
Trustee also argued that a hypothetical purchaser would have had no reason to believe
that FNB had not assigned the deed of trust to Levitsky after he had fully paid the
mortgage. The Trustee noted that the certificate was certified as properly executed by
a Maryland attorney, Mark Reges, whose signature is notarized.
38. 	Subsection (b) of Section 3-105 of the Maryland Real Property Code,
which governs the release of deeds of trust, mortgages or liens, authorizes the assignee
of a lien to record a certificate of satisfaction without the necessity of recording the
actual assignment of the lien.30 Therefore, a reasonable title searcher could believe
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of trust by the mortgagee or his assignee, the trustee or his successor
under a deed of trust, or by the holder of the debt or obligation secured
by the deed of trust. The mortgage or the deed of trust, with the endorsed
release, then shall be filed in the office in which the mortgage or deed of
trust is recorded. The clerk shall record the release photographically,
with an attachment or rider affixed to it containing the names of the
parties as they appear on the original mortgage or deed of trust, together
with a reference to the book and page number where the mortgage or
deed of trust is recorded. When the mortgage or deed of trust, with the
attached release, is filed for the purpose of recording the release, the
clerk shall retain the mortgage or deed of trust in his office and not
permit it to be withdrawn for 25 years, after which time he may destroy
it. If, however, the clerk preserves a photographic copy of the release, he
may permit the original mortgage or deed of trust with the release to be
withdrawn.
Id.
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that M&T assigned its deed of trust to Levitsky, who released it as the assignee, as the
two CIT title searchers apparently believed. 	A title searcher would note that the
certificate of satisfaction was signed and certified by a member of the Maryland bar
experienced in real estate transactional law. Additionally, the existence of later loans
accompanied by the certificate of satisfaction of the M&T lien would indicate to a
prudent title searcher that the loan had been paid off by the CIT loan. Accordingly,
the Court disagrees with M&T’s contention that a hypothetical purchaser would have
inquiry notice that M&T’s loan had not been paid off.
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39. In response to the argument of M&T that, despite the release, it retains an
equitable lien, courts have repeatedly refused to enforce equitable liens against the
powers of a hypothetical purchaser accorded to a bankruptcy trustee by Section
544(a)(3). 	See, e.g., Barclays American/Mortgage Corp. v. Wilkinson (In re
Wilkinson), 186 B.R. 186 (Bankr. D. Md. 1995) (Keir, J.) (Defect in execution of
mortgage barred lender from asserting an equitable lien against a Chapter 13 debtor
in possession); Wolf v. Mahrdt ( In re Chenich), 100 B.R. 512, 515 (9th Cir. BAP
1987) (hypothetical bona fide purchaser “takes title to the real property free from all
equitable liens”) (quotations omitted). Indeed, the only equitable liens enforced in the
context of Section 544(a)(3) are those of a first-in-time lender against a second-in-
time lender. 	See, e.g., In re Price, 97 B.R. 264, 266 (Bankr. E.D. N.C. 1989)
(substituting trustee in place of first lender and allowing trustee to occupy first lien
position); First Am. Nat’l Bank v. Miller (In re Miller), 286 B.R. 334, 343-44 (Bankr.
E.D. Tenn. 1999) (same). Similarly, if it is found that an agent of CIT negligently
released the lien of M&T, M&T may have an equitable lien on the proceeds of CIT’s
lien, under a theory of unjust enrichment. However, such a claim was not a part of
M&T’s motion for judgment and therefore it is not appropriate to rule on it now.
40. By avoiding the lien of M&T, which was recorded prior to that of CIT, the
Trustee succeeds to the former lien position of M&T, ahead of that of CIT.
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Standard of review
41. The Court will grant CIT’s motion for judgment and deny that of M&T.
Judgment as a matter of law is appropriate when, “without weighing the credibility of
witnesses, there can be but one reasonable conclusion as to the correct judgment ...
If, however, evidence viewed in a light most favorable to the nonmovant indicates that
more than one conclusion is plausible, judgment as a matter of law is improper.” 	In
re Byrd Foods, Inc., 253 B.R. 196, 199 (E.D. Va. 2000), citing Siegfried Construction,
Inc. v. Gulf Ins. Co., 203 F.3d 822 (4th Cir. 2000)(table) (unpublished). See Federal
Rule of Civil Procedure 52(c), made applicable herein by Federal Bankruptcy Rule
7052. The Court will grant CIT’s motion, because weighing all of the evidence in
favor of the Trustee, the Court finds that a conclusion in the Trustee’s favor is
implausible. Because a decision in favor of M&T is implausible, and because M&T
has stated that it does have any further evidence to present, the Court will enter
judgment against M&T, thereby allowing the Trustee to avoid its lien against the
Property.
WHEREFORE, in Adversary Proceeding No. 04-2024, this Court will enter
a decree in favor of the Trustee declaring that the Property is includable as property
of the debtor’s estate, and will require that the debtor turn over the said Property to the
Trustee forthwith. In Adversary Proceeding No. 05-1254, this Court will declare that
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the lien of M&T is avoidable by the Trustee, who will take priority over the recorded
lien of CIT; and that the Trustee will be authorized to sell the Property for the benefit
of the general unsecured creditors of the bankruptcy estate of Leon R. Levitsky,
including M&T, subject to the prior lien of CIT.
ORDER ACCORDINGLY.
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cc: 	Leon R. Levitsky
1315 Magnolia Avenue
Annapolis, Maryland 21403
Debtor
Cynthia L. Leppert, Esquire
Jennifer J. Karangelen, Esquire
Neuberger, Quinn, Gielen, Rubin & Gibber
One South Street, 27th Floor
Baltimore, Maryland 21202-3282
Counsel to the Chapter 7 Trustee
Lori S. Simpson, Esquire
Bishop, Daneman & Simpson, LLC
2 North Charles Street, Suite 500
Baltimore, Maryland 21201
Chapter 7 Trustee
Harvey A. Levin, Esquire
Thompson Coburn LLP
1909 K Street, N.W., Suite 600
Washington, D.C. 20006
Counsel to CIT Group Consumer Finance Inc.
Michael Scott Cohen, Esquire
213 Washington Street
Cumberland, Maryland 21502
Counsel to Manufacturers and Traders Trust Company
Ms. Jane Lambert
2611 Aspen Springs Drive
Park City, Utah 84060
Dashiell C. Shapiro, Esquire
555 Fourth Street NW
Department of Justice, Tax Division
Washington, DC 20001
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United States of America (IRS)
c/o Jennifer L. Vozne
U.S. Department of Justice
PO Box 227
Washington, D.C. 20044
Office of the United States Trustee
2625 U.S. Courthouse
101 West Lombard Street
Baltimore, Maryland 	21201
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