Sunshine Three Real Estate Corporation v. Housman et al

UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
In re
SUNSHINE THREE REAL ESTATE 	Chapter 11
CORPORATION, 	Case No. 09-17821-JNF
Debtor
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUNSHINE THREE REAL ESTATE
CORPORATION,
Plaintiff
v. 	Adv. P. No. 09-01330
CHARLES J. HOUSMAN, Trustee of Pine Banks
Nominee Trust, WALLACE CAPITAL
CORPORATION, and STEVEN ROSS, ESQ.,
Defendants
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
MEMORANDUM
I. INTRODUCTION
The matters before the Court are 1) the Motion of Plaintiff, Sunshine Three Real
Estate Corporation (the “Debtor”), for Leave to File an Amended Adversarial Complaint
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through which the Plaintiff seeks permission to amend its Complaint to add its sole
stockholder, Roberta A. Golden (“Golden”), as a Co-Plaintiff (collectively the “Plaintiffs”)
and to amend and add a count to its original Adversarial Complaint; and 2) the 	Joint
Motion to (I) Dismiss Adversary Proceeding filed by Charles J. Housman, Trustee of Pine
Banks Nominee Trust (“Pine Banks”), Wallace Capital Corporation (“Wallace”), and Steven
Ross, Esq. (collectively the “Defendants”) and (II) Recover Legal Fees and Other Costs. The
Defendants oppose the Motion for Leave to File an Amended Complaint and again seek
the recovery of legal fees and costs. The Debtor opposes the Motion to Dismiss.
The Court heard the Motion for Leave to Amend and the Joint Motion on January
21, 2010 and took the matters under advisement. 	Because the facts with respect to the
existence of state court proceedings in Maine are uncontested, and because both parties
freely referenced the record pertaining to the Motion filed by Pine Banks for Relief from
the Automatic Stay, which the Court granted, the Court incorporates by reference its
decision of October 26, 2009, see In re Sunshine Three Real Estate Corp., No. 09-17821-JNF,
2009 WL 3617798 (Bankr. D. Mass. Oct. 26, 2009). Additionally, the Court takes judicial
notice of the entire record in the bankruptcy case and this adversary proceeding.
The issues presented include whether this Court is deprived of jurisdiction to
consider some or all of the counts set forth in the Debtor’s Adversarial Complaint, whether
res judicata bars relitigation of some or all of the counts in that Complaint, and whether
with respect to Count V of the Adversarial Complaint and Count X of the Amended
Adversarial Complaint the Plaintiffs have stated plausible claims for relief. See Fed.R. Civ.
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P. 12(b)(1) and (b)(6), made applicable to this proceeding by Fed. R. Bankr. P. 7012.
The Court now makes its findings of fact and rulings of law in accordance with Fed.
R. Bankr. P. 7052.
II. BACKGROUND
The Debtor filed a voluntary Chapter 11 petition on August 17, 2009, the same day
Golden, an attorney, transferred property located at 140 Stearns Road, Ogunquit, Maine
(the “property”) to it for nominal consideration. 	The Debtor listed the property, a
residence, on Schedule A-Real Property with a value of $2,500,000. The Debtor also listed
a “Counterclaim” with a value of $2,500,000 against unidentified parties on Schedule B-
Personal Property. On Schedule D-Creditors Holding Secured Claims, the Debtor listed
Pine Banks and Wallace as secured creditors with contingent, unliquidated and disputed
claims of $1,200,000 and $600,000, respectively. The Debtor listed the Town of Ogunquit,
Maine on Schedule E-Creditors Holding Unsecured Priority Claims with a claim in the
amount of $8,500 for property taxes. It listed no other creditors.1
Approximately six weeks after the Debtor commenced its Chapter 11 case, Golden
executed an “Assignment of Rights,” dated September 24, 2009. The Assignment provides:
I, 	Roberta 	A. 	Golden, 	of 	Framingham, 	Middlesex 	County,
Massachusetts, hereby fully transfer and assign all my right, title and interest
in any and all actions and choses-in-action [sic] in law, equity or otherwise,
now standing in my name, or as I may otherwise have, whether brought by
me, involving Pine Banks Nominee Trust, Wallace Capital Corporation [sic]
and or [sic] Steven Ross, arising from my former ownership of realty in
As will be discussed below, the property taxes owed to the Town of Ogunquit1
properly should have been listed on Schedule D as it holds a secured claim.
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Ogunquit, York County, in the State of Maine, located at 140 Stearns Road,
to Sunshine Three Real Estate Corporation of said Framingham.
Golden and her husband, Peter A. Poulos, the president of the Debtor, have owned
the property through various entities for approximately twenty years. Golden intended
to build a large home on the lot, from which there is an unobstructed view of the Atlantic
Ocean and the Marginal Way in Ogunquit, Maine, and eventually make it her retirement
home. Golden personally borrowed money from Pine Banks to construct the home. On
November 24, 2004, she executed a promissory note for a construction loan in the amount
of $1,050,000, and granted Pine Banks a mortgage on the property. Under the terms of the
note, which provided for interest at an annual rate of 14%, Golden received an initial
advance of $550,000. Interest only was payable beginning on June 29, 2005, with the entire
balance due before November 29, 2005. On November 24, 2004, Golden also executed a
Construction Holdback Agreement. The note expressly provided, in bold type, that it was
a contract for a short-term loan and that the obligation was commercial in nature and, thus,
was exempt from the Federal Truth in Lending Act and Regulation Z (emphasis supplied).
See generally 15 U.S.C. §§ 1601 et seq.
Golden encountered difficulties in constructing the home at 140 Stearns Road. The
original contractor breached his obligations under the construction contract and, in
addition, abutters challenged the issuance of the building permit by the Town of Ogunquit.
Because of defaults under the Pine Banks note, on January 17, 2006, Golden, executed a
note and second mortgage in favor of Wallace. That note was in the original principal
amount of $600,000 and required the payment of 10 points. It also required the payment
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of monthly interest. The entire principal balance was due on September 17, 2006.
Golden defaulted on her obligations under both notes, and, on March 23, 2006, Pine
Banks and Wallace filed a Complaint for Foreclosure in the York County Maine Superior
Court. Golden answered the Complaint and asserted twenty affirmative defenses, as well
as six counterclaims, including breach of contract (Count I); breach of the implied covenant
of good faith and fair dealing (Count II); failure to comply with the loan documents and
change in course of dealings (Count III); fraud, deceit and misrepresentation (Count IV);
“violation of Me. Rev. St. Ann. tit. V., ch. 10 	and violation of the Federal Trade2
Commission Act (15 U.S.C. 45(a)(1)” [sic] (Count V); and violation of Mass. Gen. Laws, ch.3
93A, §§ 2 and 11 (Count VI). She specifically complained about the failure of Pine Banks
and Wallace to account for payments of the mortgage and application of interest payments.
The Court is unable to locate a section of Maine Revised Statutes that2
corresponds to this citation.
Section 45(a) provides in relevant part:3
(a) Declaration of unlawfulness; power to prohibit unfair practices;
inapplicability to foreign trade
(1) Unfair methods of competition in or affecting commerce,
and unfair or deceptive acts or practices in or affecting
commerce, are hereby declared unlawful.
15 U.S.C. § 45(a)(1). Subsection (a)(2) empowers the Federal Trade Commission to
prevent the use of unfair methods of competition. The Debtor did not explain how or
why § 45 would apply to the conduct of Pine Banks and Wallace.
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Although the Superior Court denied the Motion for Summary Judgment filed by Pine
Banks and Wallace on February 7, 2007, the parties eventually executed an Allonge on July
31, 2007.
The Allonge provided that Golden would pay $50,000 upon its execution for
reinstatement of both loans with the funds to be applied to accrued interest under the Pine
Banks note. Additionally, the parties agreed to the modification of Golden’s obligations
to Pine Banks and Wallace as follows:
1) The extension of the maturity date for both obligations to August 1, 2008
with no required monthly payments;
2) A reduction in the interest rate on the Wallace note to 12%, retroactive to
the closing on January 17, 2006;
3) Disbursement by Wallace of the remaining balance of the construction loan
in the amount of $405,152.30 in accordance with a disbursement schedule
agreed to among the parties and the advance of funds for the payment of all
delinquent real estate taxes;
4) Golden’s agreement to pay increased costs above those set forth in the
disbursement schedule from her own funds within a period of 30 days after
any individual disbursements;
5) The waiver by Pine Banks and Wallace of any default interest and late fees
accrued to date;
6) Substantial completion of construction by February 1, 2008; and
7) Golden’s agreement to be responsible for attorneys’ fees and costs in the
aggregate amount of $18,000, which were to be collected upon the maturity
of the obligations without interest and without prejudice to the collection of
additional fees for any future defaults.
In the Allonge, Golden also acknowledged that, as of July 30, 2007, she owed Pine Banks
$987,634.66 in principal and interest and Wallace $271,762.69 in principal and accrued
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interest. Additionally, she acknowledged and confirmed “the validity and enforcement
of the underlying Notes and Mortgages with Pine Banks and Wallace.” Finally, Golden
agreed to the following:
[Entry of] a stipulation and Judgment and dismissal of he [sic] counterclaims
in the Superior Court, which shall be held in escrow, and not be filed until
August 1, 2008, or sooner if the loan is paid in full, which judgment shall
acknowledge that Golden has defaulted on the obligations, but there shall be
no judgment of Foreclosure entered. The Judgment shall also provide that
a Judgment for Foreclosure shall be entered by the Court in the future, if
there are any further defaults by Golden in the loan obligations, and in the
performance of this Agreement. 	The Court would accept an affidavit as
evidence of any default, and the Plaintiff would provide a copy to Golden’s
attorney upon filing. [sic] Golden would have 14 days from the date of the
filing of the affidavit to object. 	After the filing of an objection, the Court
would have the discretion to either enter the Judgment of Foreclosure, or
conduct a hearing on the alleged default on the next available trial date. [sic]
A default as defined herein shall be the failure of Golden to perform any of
the following terms:
a. Have the construction substantially completed on or before
February 1, 2008.
b. Pay off the underlying obligation on or before August 1,
2008.
c. Pay the difference for any increased costs beyond the
disbursement schedule out of her own funds within a period
of 30 days after any of the individual disbursement. [sic]
d. Maintain adequate homeowners insurance on the property.
In mid-July or early August, 2008, Pine Banks and Wallace sought entry of
Judgments of Foreclosure in the Maine Superior Court pursuant to the terms of the
Allonge. Golden filed five affidavits in opposition to affidavits filed by counsel to Pine
Banks and Wallace, specifically the affidavits of Alan E. Shepard, Esq. and Steven Ross,
Esq. In the cover letter to her first affidavit, Golden requested a hearing before Superior
Court Judge Brennan, opposing the requests of Pine Banks and Wallace for the entry of
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judgments without a hearing. In her affidavit, dated July 10, 2008, which she attached to
her August 7, 2008 cover letter, she asserted that “there was a modification of the Allonge
and Reinstatement Agreement” and that she was not in default under the terms of the
Allonge, stating that she had made the $50,000 payment, achieved “substantial completion”
of construction, and obtained a certificate of occupancy as of June 25, 2008. In a cover letter
to the Superior Court, dated August 18, 2008, to which she attached a supplemental
affidavit, Golden again requested a hearing and reiterated her belief that the Allonge had
been “modified by the parties shortly after it was signed.” 	She attached e-mail
correspondence to her supplemental affidavit, indicating her intention to rent the
property. 	Golden transmitted a third affidavit to the Superior Court on August 25, 2008.4
In the cover letter, she noted that Judge Brennan intended to conduct a hearing on August
26, 2008. Golden submitted two additional affidavits after the August 26, 2008 hearing.
In an affidavit dated September 3, 2008, she objected to the amount of the judgments
sought by Pine Banks and Wallace and requested an evidentiary hearing. She reiterated
those objections in her final affidavit dated September 4, 2008.
Rejecting the arguments advanced by Golden, the Superior Court entered judgments
in favor of Pine Banks and Wallace on or around September 15, 2008 in the amounts of
$1,070,101.40 and $735,005.85, excluding per diem interest accruing at the rates of $424.89
In its Memorandum in Opposition to the Joint Motion to Dismiss, the Debtor4
stated that “[i]n the summer of 2008, Golden and Ross collaborated in preparing
Golden’s home for sale or rent. . . .
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and $213.57, respectively. 	According to the Debtor in its Memorandum, Golden moved5
for reconsideration, but the Superior Court denied the motion on June 12, 2008. Golden
appealed. 	On May 12, 2009, the Maine Supreme Judicial Court affirmed, stating the
following:
Contrary to Golden’s contentions, the court did not violate her right of due
process 	when 	it 	entered 	the 	judgments 	of 	foreclosure 	without 	first
conducting an evidentiary hearing on her allegation that an allonge
agreement, entered into in settlement of the claims, had been modified.
Golden acknowledged in the allonge agreement that she had defaulted on
the promissory notes. She also agreed that a judgment of foreclosure could
be entered upon any further defaults. Golden defaulted by failing to pay the
underlying obligations by the date set forth in the allonge agreement. The
agreement further provided that the court could accept an affidavit as
evidence of any default and would have the discretion either to enter a
judgment of foreclosure or to conduct a hearing. The allonge agreement is a
binding contract in settlement of defaults. By entering into the allonge agreement,
Golden waived any due process argument on this issue, as to either the defaults or
the amounts owed.
In re Sunshine Three Real Estate Corp., 2009 WL 3617798 at *4 (citing Housman v. Golden,
No. Yor-08-559, Slip op. at 1-2 (May 12, 2009) (citations omitted)(emphasis supplied).
Golden requested reconsideration of the decision of the Maine Supreme Judicial
Court. It denied her motion on June 12, 2009. Golden then appealed the decision of the
Maine Supreme Judicial Court to the United States Supreme Court. 	The United States
Supreme Court entered an order, dated January 10, 2010, denying Golden’s petition for
certiorari.
Accrued interest through the petition date equals approximately $213,000 on5
both notes. Therefore, the total debt, excluding any outstanding real estate taxes, equals
approximately $2,018,000.
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In the Adversarial Complaint filed with this Court on October 16, 2009, the Debtor
set forth additional facts with respect to the proceedings in the Maine state court
proceedings that were not part of the record before the Court pertaining to the Motion for
Relief from the Automatic Stay filed by Pine Banks. The Debtor stated that on August 18,
2009, the Maine Superior Court had denied Golden’s request for a stay of the redemption
period. 	It also acknowledged that Sunshine Three Real Estate Corporation was
incorporated on August 6, 2009, eleven days before it filed a Chapter 11 case and four days
before Golden transferred the property to it.
Additionally, at the January 21, 2010 hearing, Pine Banks represented that it
conducted a foreclosure sale of the property at which it was the successful bidder. 	It
obtained the property for $1,600,000.
III. THE ADVERSARY PROCEEDING
On October 16, 2009, the Debtor filed a complaint against Charles J. Housman, as
Trustee of Pine Banks Nominee Trust, Wallace and Ross. Its Adversarial Complaint tracks
Golden’s counterclaim set forth in the “Answer of Defendant Roberta A. Golden and
Counterclaim with Jury Demand” filed in the Maine Superior Court, supplemented with
the allegations made by Golden in the letters and affidavits she filed in the Superior Court,
following the execution of the Allonge. For the reasons set forth below, the Court shall
enter orders denying the Debtor’s Motion for Leave to File an Amended Adversarial
Complaint and granting the Defendants’ Motion to Dismiss the Debtor’s Adversarial
Complaint.
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On November 16, 2009, the Defendants filed their Joint Motion to Dismiss together
with a Memorandum. 	On January 5, 2010, the Debtor filed a Memorandum of Law in
Opposition to the Joint Motion to Dismiss, as well as a Motion for Leave to File an
Amended Complaint to add Golden as a necessary party and to add “necessary facts in
order to cure any pleading deficiencies and add any necessary Counts.” On January 11,
2010, the Defendants filed a Joint Opposition to the Motion for Leave to File Amended
Complaint.
Golden’s Counterclaims filed in the Maine Superior Court, the Debtor’s original
Adversarial Complaint, and the Debtor’s Amended Adversarial Complaint contain most
of the same allegations. Through its Motion for Leave to File an Amended Adversarial
Complaint, the Debtor, in addition to seeking to add Golden as a co-plaintiff, expanded the
grounds for relief sought in Count VI, VII and IX by citing, inter alia, the Massachusetts
Consumer Credit Cost Disclosure Act, Mass. Gen. Laws ch. 140D, and the Federal Truth6
in Lending Act, 15 U.S.C. § 1601 et seq., and 1638(b), as well as various state and federal7
regulations. With respect to Count IX of the Amended Adversarial Complaint, the Debtor
asserted a claim against Ross “as agent and individually,” and it added an additional
count, Count X. The Amended Adversarial Complaint contains the following counts:
The Plaintiffs did not cite any particular sections of the Consumer Credit Cost6
Disclosure Act or address section 2 which provides that commercial credit transactions
are exempt. See Mass. Gen. Laws ch. 140D, § 2(a).
The disclosure requirements of 15 U.S.C. § 1638 apply only to “consumer credit7
transaction[s].” 15 U.S.C. § 1638(a).
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Count I: By Sunshine and Golden for Disallowance of Default Interest as a
Penalty and Disallowance of Interest from September 1, 2005 through August
1, 2007 as a Penalty to Pine Banks;
Count II: By Sunshine and Golden for Declaratory Judgment as to the
Amount Due Pine Banks;
Count III: By Sunshine and Golden for Disallowance of Default Interest as a
Penalty and Disallowance of Interest from September 1, 2005 through August
1, 2007;
Count IV: By Sunshine and Golden For Declaratory Judgment as to the
Amount Due Wallace;
Count V: By Sunshine and Golden for Subordination of the Wallace Claim
pursuant to section 510(c) of the Bankruptcy Code;
Count VI: By Sunshine and Golden for Damages from Unfair and Deceptive
Acts and Practices as to Pine Banks;
Count VII: By Sunshine and Golden for Damages for Unfair and Deceptive
Acts and Practices by Wallace;
Count VIII: Breach of Contract of Good Faith and Fair Dealing as to Pine
Banks, Wallace and Ross;
Count IX: By Sunshine and Golden for Unfair and Deceptive Practices by
Ross, as Agent and Individually;
Count 	X: 	By 	Golden 	for 	Deceit, 	Negligent 	Misrepresentation 	and
Misrepresentation against Ross, as Agent and Individually.8
The Statement of Facts in the Adversarial Complaint and the Statement of Facts in
As noted above, Golden filed the following counterclaims in the York County8
Superior Court action: breach of contract (Count I); breach of the implied covenant of
good faith and fair dealing (Count II); failure to comply with the loan documents and
change in course of dealings (Count III); fraud, deceit and misrepresentation (Count IV);
“violation of Me. Rev. St. Ann. tit. V., ch. 10 and violation of the Federal Trade
Commission Act (15 U.S.C. 45(a)(1)” [sic] (Count V); and violation of Mass. Gen. Laws,
ch. 93A, §§ 2 and 11 (Count VI).
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the Amended Adversarial Complaint omit reference to the judgments entered by the Maine
Superior Court and the Maine Supreme Judicial Court, but the Debtor acknowledged the
judgments and their affirmance in its Memorandum. The Court took judicial notice of
those judgments as well as the denial of the petition for certiorari by the United States
Supreme Court at the January 21, 2010 hearing, without objection by the Debtor or Golden.
Moreover, the Statement of Facts in the Adversarial Complaint and the Statement of Facts
in the Amended Adversarial Complaint contains no specific allegations or references to
conduct by the Defendants that occurred after the entry of judgments by the Maine
Superior Court.
IV. POSITIONS OF THE PARTIES
A. The Defendants
The Defendants seek dismissal of the Debtor’s Complaint, citing Fed. R. Bankr. P.
12(b)(6). They argue that the Adversarial Complaint should be dismissed for five reasons:
1) the Court lacks subject matter jurisdiction under the Rooker-Feldman doctrine; 2) res
judicata precludes relitigation of the claims set forth in the Adversarial Complaint because
they are based upon the same allegations and were fully adjudicated in the Maine state
courts by Golden; 3) the Debtor lacks standing to assert the claim because it was neither a
party nor third party beneficiary of any contract; 4) the Debtor’s claim for equitable
subordination fails to set forth the requisite elements of the cause of action with sufficient
particularity; and 5) Massachusetts law does not apply to the Debtor’s claims for unfair
and deceptive practices and the Debtor failed to send a demand letter under Mass. Gen.
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Laws c.93A.
The Defendants oppose the Debtor’s Motion for Leave to File an Amended
Adversarial Complaint as yet another dilatory tactic by Golden, adding that “[t]he
amendments proposed by the Debtor in the Motion are futile to its claim for relief” as the
proposed Amended Adversarial Complaint fails to state a claim upon which relief can be
granted under Rule 12(b)(6). The Defendants also maintain that Golden is not a necessary
party where she both transferred the property and assigned her causes of action to the
Debtor.
B. The Debtor
The Debtor opposes the Defendants’ Motion to Dismiss, rejecting each of their five
arguments. 	In the first place, it relies upon the pendency of its petition for writ of
certiorari, to challenge the following:
. . . Maine Supreme Court’s denial of due process to Roberta Golden, the
predecessor in title to Sunshine, when she was prevented from adducing any
proof in support of her objections to foreclosure, denied the right to take
testimony from or confront the respondents in rebuttal to their foreclosure
request, and denied the opportunity to show and then argue on this evidence
that the Allonge and Reinstatement Agreement was modified by the parties
so that foreclosure was not warranted.
It adds:
It should therefore be further noted that the Debtor and Plaintiff, Sunshine,
is a holding company, a shell corporation composed of Roberta Golden and
her husband, holding Golden’s rights to the property, including rights
subsumed by the petition for certiorari filed in the United States Supreme
Court. The foreclosure judgment was not final as to Sunshine. . . The rights
assigned to Sunshine on September 2, 2009, [sic] are the same rights Golden
had, i.e., the right to have a final decision on the redemption rights ruled
upon by the U.S. Supreme Court via a timely filed petition for writ of
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certiorari which was timely pursued. . . .
In support of its contentions, the Debtor includes in its Memorandum a “Factual
Background” in which it outlined the proceedings in the Maine courts as well as Golden’s
execution of the Allonge. 	The Debtor asks this Court take judicial notice of Golden’s
statement in Golden’s Motion for Reconsideration that “the lower court improperly
entered final judgment on Housman’s foreclosure claim because the unresolved counterclaims
are intertwined with the merits of foreclosure. Golden’s counterclaims are meritorious and have
never been addressed.” (emphasis supplied).
The Debtor also argues that Golden did not waive her constitutional rights when
she executed the Allonge, and it sets forth the numerous ways that it was modified by the
parties after its execution. It emphasizes its view that Golden’s claims have never been
addressed or adjudicated by the Maine state courts, while simultaneously asking that this
Court take judicial notice of Golden’s Statement of the Issues Presented with respect to her
appeal to the Maine Supreme Judicial Court. 	It concludes:
The claims brought in the Adversary Proceeding do not require bankruptcy
Court [sic] review and rejection of the State Court judgment. The claims, in
some part, arose after the decision in the Maine State Court [sic]; that is,
disallowance of default interest as a penalty, and subordination of the
Wallace claim pursuant to Sec. 510(c) of the Bankruptcy Code. Furthermore,
the claims against Steven Ross, Esq., have never been brought prior to this
Adversary Proceeding, neither by Sunshine nor by Golden. 	Further,
Sunshine is not a state court loser.
V. DISCUSSION
A. Applicable Legal Standards under Rules 12 and 15
A motion to dismiss under Rule 12(b)(6) must be granted unless the complaint
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contains sufficient factual matter, accepted as true, to “‘state a claim to relief that is
plausible on its face.’” Cunningham v. Nat’l City Bank, 588 F.3d 49, 52 (1st Cir. 2009) (citing
Ashcroft v. Iqbal, __U.S. __, 129 S.Ct. 1937, 1949 (2009), and quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). If matters outside the pleadings are presented to and
not excluded by the court, the motion to dismiss must be treated as a motion for summary
judgment under Rule 56. See Fed. R. Civ. P. 56(d), made applicable to this proceeding by
Fed. R. Bankr. P. 7012.
Without so stating, the Defendants rely upon Fed. R. Civ. P. 12(b)(1) in asserting that
this Court lacks jurisdiction under the Rooker-Feldman doctrine, as well as Fed. R. Civ. P.
12(b)(6), in seeking dismissal of the Debtor’s Adversarial Complaint. 	The court in
Desrosiers v. Transamerica Fin. Corp. (In re Desrosiers), 212 B.R. 716, 718 n.1. (Bankr. D.
Mass. 1997), explained the relationship between Rule 12(b)(1) and (b)(6):
Transamerica based its Motion to Dismiss the Adversary Proceeding on
Federal Rule of Civil Procedure 12(b)(1), made applicable here by Federal
Rule of Bankruptcy Procedure 7012. 	Rule 12(b)(1) relates to the lack of
subject matter jurisdiction. . . . Transamerica argues only that the causes of
action raised in this adversary proceeding are barred by the doctrine of res
judicata. Thus, the applicable ground for dismissal is the Complaint’s failure
to state a claim upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6);
see, e.g., Mullens v. United States, 785 F.Supp. 216, 222 (D. Me. 1992)
(dismissing a cause of action barred by res judicata under Fed.R.Civ.P.
12(b)(6)). Further, because Transamerica relies on matters outside the
pleadings, the Court must treat the motion as one for summary judgment
under Federal Rule of Bankruptcy Procedure 7056, incorporating Federal
Rule of Civil Procedure 56. See Fed.R.Civ.P. 12(b) (“If, on a motion asserting
the defense numbered (6) to dismiss . . . matters outside the pleading are
presented to and not excluded by the court, the motion shall be treated as
one for summary judgment and disposed of as provided in Rule 56”). . . .
Rule 12(b) requires that all parties “be given reasonable opportunity to
present all material made pertinent to such a motion by Rule 56” . . . .
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212 B.R. at 718 n.1.
Under these standards, and based upon the record of proceedings in this case,
including the entry of final judgments by the Maine Superior Court in favor of Pine Banks
and Wallace, the decision of the Maine Supreme Judicial Court affirming the Maine
Superior Court judgments, and the denial of the petition for certiorari by the United States
Supreme Court, the Defendants are entitled to an order 1) dismissing the Debtor’s
Adversarial Complaint for lack of subject matter jurisdiction with respect to Counts I
through IV and VI through VIII, and 2) an order dismissing Count I through IV and VI
through X of the Amended Adversarial Complaint for failure to state a claim upon which
relief can be granted. 	As a further alternative, the Defendants are entitled to an order
granting summary judgment with all Counts, including Count V, for the reasons set forth
below.
With respect to the Debtor’s Motion for Leave to Amend, the First Circuit has set
forth the following standard:
Rule 15(a) reflects a liberal amendment policy, and provides that a court
“should freely give leave when justice so requires.” Even so, “the district
court enjoys significant latitude in deciding whether to grant leave to
amend,” and we “defer to the district court's decision ‘if any adequate reason
for the denial is apparent on the record.’” Reasons for denying leave include
undue delay in filing the motion, bad faith or dilatory motive, repeated
failure to cure deficiencies, undue prejudice to the opposing party, and
futility of amendment.
U.S. ex rel. Gagne v. City of Worcester, 565 F.3d 40, 48 (1st Cir. 2009). For the reasons set
forth below, the Court finds that the Debtor’s Motion for Leave to Amend is futile.
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A. Analysis
1. The Rooker-Feldman Doctrine
Even were this Court to permit the Debtor to amend its Adversarial Complaint to
add Golden as a plaintiff, the Court lacks jurisdiction to determine the merits of the causes
of action set forth in Counts I, II, III, IV, VI, VII, and VIII based upon the Rooker-Feldman
doctrine with respect to Pine Banks and Wallace. The Rooker-Feldman doctrine bars “cases
brought by state-court losers complaining of injuries caused by state-court judgments
rendered before the district court proceedings commenced and inviting district court
review and rejection of those judgments.” Exxon Mobil Corp. v. Saudi Basic Indus. Corp.,
544 U.S. 280, 284 (2005). It “strip[s] federal subject matter jurisdiction over lawsuits that
are, in substance, appeals from state court decisions.” In re Sanders, 408 BR. 25, 33 (Bankr.
E.D.N.Y. 2009) (citing Book v. Mortgage Elec. Registration Systems, 608 F.Supp.2d 277, 288
(D. Conn. 2009) and Hoblock v. Albany County Bd. of Elections, 422 F.3d 77, 84 (2d Cir.
2005)).
The relief sought by the Debtor and Golden in the Amended Adversarial Complaint
is a repetition of previous assertions made by Golden in the Maine state court proceedings.
In the Maine Superior Court, Golden asserted Counterclaims against Pine Banks and
Wallace and made additional allegations in her affidavits against the Defendants and Ross
filed with that court. 	Both the Maine Superior Court and the Maine Supreme Judicial
Court rejected her claims. Golden’s appeal to the Maine Supreme Judicial Court was not
an interlocutory appeal. In entering judgments against Golden on or around September
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15, 2008, setting forth the amount of principal, accrued interest, attorneys’ fees and per
diem interest, the Maine Superior Court disposed of Golden’s Counterclaims and rejected
her arguments relating to modification of the Allonge and any misconduct on the part of
the Defendants relating to its procurement and implementation. The Maine Supreme
Judicial Court similarly rejected Golden’s arguments, concluding that “Golden waived any
due process argument on this issue [namely that the Allonge was a binding contract in
settlement of defaults], as to either the defaults or the amounts owed.”
Through Counts I, II, III, IV, the Debtor and Golden seek to reverse the decisions of
the Maine Superior Court and Supreme Judicial Court, review of which was denied by the
United States Supreme Court. This Court finds that, to the extent the Debtor purports to
challenge the validity and amount of the foreclosure judgments based upon modification
of the Allonge, this Court lacks jurisdiction to adjudicate the merits of those claims under
the Rooker-Feldman doctrine. In re Sanders, 408 B.R. at 33.
With respect to the claims set forth in Count VI through VIII, the Court finds that
they also involve allegations that were asserted in Golden’s Counterclaims and were
extinguished by the final judgments of the Maine Superior Court in mid-September 2008,
which were affirmed by the Maine Supreme Judicial Court. Accordingly, this Court lacks
jurisdiction with respect to those claims under the Rooker-Feldman doctrine. Id.
The Court also rejects the Debtor’s assertion that it is not “a state court loser.”
Golden transferred the property to the Debtor shortly after its incorporation and shortly
before the commencement of the Debtor’s bankruptcy case for the purpose of preventing
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Pine Banks from conducting a foreclosure sale. 	She assigned her rights against the
Defendants with respect to the property. She cannot, as sole shareholder of the Debtor,
confer any perceived benefit from ownership of the property on the Debtor, while
simultaneously attempting to shield it from the ramifications stemming from her actions
in the Maine state court proceedings.
Unquestionably, there is an identity of interest between the Debtor and Golden. The
Debtor in moving to amend its Adversarial Complaint to add Golden as a co-plaintiff and
in opposing the Motion of Pine Banks for Relief from the Automatic Stay admitted as
much. 	Under Maine law, “if a corporation is closely held, then the judgment in the9
shareholder’s action is conclusive on the corporation except when relitigation is necessary
to protect the interest of another owner or a creditor of the corporation. See Spickler v.
Dube, 644 A.2d 465, 468 (Me. 1994) (citing Red Carpet Corp. of Panama City Beach v.
In its memorandum filed in conjunction with the Motion of Pine Banks for9
Relief from the Automatic Stay, the Debtor stated:
Title to the property was taken by Sunshine Three Real Estate
Corporation, a real estate holding corporation, with Peter A. Poulos as
President. Peter Poulos is former owner and Trustee of an entity which
owned the property in the past. He is also the husband of Roberta
Golden. Golden had transferred the property to Sunshine, which was
established to take title to the property and to become a Chapter 11 debtor
in the event that the Pine Banks/Wallace/Ross foreclosure could not be
enjoined. This was the only means by which Roberta Golden could
protect and preserve her multi-million dollar investment in the property
and could avoid having the value of the property radically diminished
through foreclosure by Pine Banks - a notorious “hard money” lender.
In re Sunshine Three Real Estate Corp., 2009 WL 3617798 at * 12.
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Roberts, 443 So.2d 377, 380 (Fla. App.1983) (closely held corporation barred from bringing
abuse of process action against former law firm when owners had previously filed and lost
on counterclaims on same issues). See also Rivera v. Banco Santander (In re Rivera), No. 07-
00340, 2009 WL 2898844 (Bankr. D. P.R. Mar. 12, 2009)(citing Ford Gas Co. v. Wanda
Petroleum Co., 833 F.2d 1172, 1174 (5th Cir.1987), Freeman v. Lester Coggins Trucking, Inc.,
771 F.2d 860, 864 (5th Cir.1985), and Southwest Airlines Co. v. Texas Int’l Airlines, Inc., 546
F.2d 84, 95 (5th Cir. 1977), reh’g denied, 550 F.2d 42 (1977), cert. denied, 434 U.S. 832 (1977)).
Because the Debtor is in privity with Golden, its sole shareholder, the Court finds that for
purposes of the Rooker-Feldman doctrine the Debtor stands in her shoes as a state court
loser.
2. Res Judicata
The Court also concludes that res judicata, or claim preclusion, bars consideration
of the allegations relating to modification of the Allonge as a basis to challenge the
judgments of the Superior Court which established the amounts due and owing Pine Banks
and Wallace, namely $1,07010.40 and $735,005.85, excluding per diem interest accruing at
the rates of $424.89 and $213.57 to Pine Banks and Wallace, respectively.
In Schwartz v. Schwartz (In re Schwartz), 409 B.R. 240 (B.A.P. 1st Cir. 2008), the
United States Bankruptcy Appellate Panel for the First Circuit explained the parameters
of claim preclusion. It stated:
The doctrine of res judicata prohibits all parties and their privies from
relitigating issues which were raised or could have been raised in a previous
action, once a court has entered a final judgment on the merits in the previous
action. See FDIC v. Shearson-Amer. Express, Inc., 996 F.2d 493, 497 (1st
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Cir.1993) (citations omitted). The res judicata doctrine is generally used to
refer to claim preclusion. See Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26,
30-31 (1st Cir.1994) (citing Dennis v. Rhode Island Hosp. Trust Nat’l Bank,
744 F.2d 893, 898 (1st Cir.1984)). The essential elements of res judicata are: (1)
a final judgment on the merits in an earlier action; (2) an identity of parties
or privies in the two suits; and (3) an identity of the cause of action in both
suits. Id. (citing Aunyx Corp. v. Canon U.S.A., Inc., 978 F.2d 3, 6 (1st
Cir.1992)). Once these elements are established, the parties are barred not
only from relitigating previously disputed matters, but also from introducing
any related matters that could have been offered in the original action. See id.
(citing Dennis, 744 F.2d at 898).
Schwartz, 409 B.R. at 249 (emphasis supplied). See also Dall v. Goulet, 817 F.Supp. 518, 521
(D. Me. 1994) (“Under Maine law, prior to applying the doctrine of res judicata, “the court
must satisfy itself that 1) the same parties, or their privies are involved; 2) a valid final
judgment was entered in the prior action; and 3) the matters presented for decision were,
or might have been, litigated in the prior action.”).
The essential elements for application of res judicata are present here. The Debtor’s
Amended Adversarial Complaint and Golden’s assignment of her claims to the Debtor fail
to revive her claims for consideration by this Court. For purposes of res judicata in this
case, the foreclosure judgments are final as to both Golden and the Debtor. Because the
Debtor is in privity with Golden for purposes of claim preclusion, amendment of the
Adversarial Complaint to add her as co-plaintiff is futile. 	See FDIC v. Fordham (In re
Fordham), 130 B.R. 632, 646 (Bankr. D. Mass. 1991)(citing Liberty Leather Corp. v. Callum,
653 F.2d 694, 700 (1st Cir. 1981), and Comm’ns Sys., Inc. v. City of Danville, Ky., 880 F.3d
887, 895 (6th Cir. 1989)). Indeed, because the Debtor corporation did not exist at the time
of the acts and conduct complained of in the Adversarial Complaint and was not a
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signatory to the notes and mortgages pursuant to which Golden encumbered the property,
the Court infers that Golden’s assignment and her attempted joinder as a co-plaintiff was
little more than a ruse to create jurisdiction in this Court and to shield Golden’s other assets
from potential deficiency claims. In view of the principles set forth above, the Defendants’
Motion to Dismiss is meritorious with respect to Counts I through IV and VI through VIII.
Res judicata also bars relitigation of the Debtor’s fraud and consumer protection
claims. Golden, in executing the note to Pine Banks, specifically acknowledged that the
loan was commercial in nature and exempt from truth in lending laws. In executing the
Allonge, as the Maine Supreme Judicial Court determined, she waived any claims
associated with the alleged misconduct of Pine Banks and Wallace and the applicability of
consumer protection and truth in lending laws.
C. Counts IX and X of the Amended Adversarial Complaint against Ross
Through the proposed amended Adversarial Complaint, Golden and the Debtor
request leave to expand the relief requested in Count IX against Ross, as the agent for the
other Defendants, and individually, and to add Count X, against Ross, as the agent of Pine
Banks and Wallace, and individually, for unfair and deceptive trade practices, violations
of state and federal truth in lending laws, and misrepresentation. 	The proposed
amendments under Counts IX and the addition of Count X fail to state plausible claims for
relief against Ross, either individually or as agent, under the Iqbal standard discussed
above.
First, the state and federal lending laws cited by the Debtor in support of Counts IX
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and X do not apply in the circumstances of this case. The short-term note executed by
Golden, which was for the purpose of constructing a vacation and retirement home,
provided that it was commercial in nature. 	In the Allonge, Golden acknowledged the
validity of the note and thus waived any consumer protection causes of action.
Additionally, in her affidavits filed in the Maine Superior Court, Golden attached copies
of e-mails referencing her decision to rent the property. Accordingly, state and federal truth
in lending disclosures were not required, and the note so stated. Mortgages on homes,
which are not the principal dwelling of the consumer or which are for the purposes of
securing construction financing, as well as business or commercial loans, are not subject
to state and federal lending laws. See 15 U.S.C. § 1602(w) (“The term “residential mortgage
transaction” means a transaction in which a mortgage, deed of trust, purchase money
security interest arising under an installment sales contract, or equivalent consensual
security interest is created or retained against the consumer’s dwelling to finance the
acquisition or initial construction of such dwelling.”); 15 U.S.C. § 1635(e)(1) (“This section
[Right of rescission as to certain transactions] does not apply to . . . a residential mortgage
transaction as defined in section 1602(w) of this title”); 	Mass. Gen. Laws. ch. 140D § 1
(using § 1602(w) definition of “residential mortgage transaction”), Mass. Gen. Laws. ch.
140D § 2 (This chapter shall not apply to the following: . . . Credit transactions involving
extensions of credit primarily for business, commercial, or agricultural purposes, or to
government or governmental agencies or instrumentalities, or to organizations”), Mass.
Gen. Laws. ch. 140D § 	10(e)(1)(A) (“[t]his section shall not apply to . . . a residential
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mortgage transaction as defined in section one”).
With respect to the consumer protection and fraud claim against Ross, this Court
finds that they fail to state plausible causes of action under the Iqbal standard. Even if
Golden could assert such claims, the Debtor corporation was not the recipient of the
disclosures and even as assignee, would lack standing to assert causes of action that apply
to consumers. 	See Kawa v. U.S. Bank, No. 08:08CV91, 2009 WL 700593 (D. Neb. 2009)
(“Congress clearly intended the TILA to apply to the ‘extension of consumer credit’ by
defining consumer credit as transactions that are ‘primarily for personal, family, or
household purposes.’”). In view of the provisions of applicable state and federal truth in
lending laws cited by the Debtor, the Court finds that it has failed to state plausible claims
for relief under Counts IX and X of the Amended Adversarial Complaint using the Iqbal
standard.
Count IX against Ross fails to state a plausible claim for relief under M.G.L. c. 93A.
Golden and the Debtor are suing Ross in his capacity as agent, namely, the attorney for the
Defendants in the transactions. Only a client or someone acting on a client’s behalf can
assert a claim under Mass. Gen. Laws ch.93A claim against an attorney. See Tetrault v.
Mahoney, Hawkes & Goldings, 425 Mass. 456, 462-63 (1997). Golden and the Debtor were
not Ross’s clients, and he was not engaged in business or commerce with either of them.
Furthermore, Count X, in which Golden and the Debtor assert a claim for “Deceit,
Negligent Misrepresentation and Misrepresentation as Agent and Individually” also fails.
Any claims Golden may have had against Ross could have and should have been brought
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in the Maine state court action, as they arose out of the same loan transactions and are
based on the same causes of action which Golden asserted there. The instant claims against
Ross are thus barred by principles of res judicata.
D. Count V
Through Count V, the Debtor and Golden seek to equitably subordinate the claim
of Wallace (presumably a deficiency claim) to the claims of creditors. Section 510(c)
provides:
(c) . . . after notice and a hearing the court may-
(1) under principles of equitable subordination, subordinate for
purposes of distribution all or part of an allowed claim to all or
part of another allowed claim or all or part of an allowed
interest to all or part of an allowed interest; or
(2) order that any lien securing such a subordinated claim be
transferred to the estate.
11 U.S.C. § 510(c). In Cohen v. KB Mezzanine Fund II, LP (In re SubMicron Sys. Corp.), 432
F.3d 448 (3d. Cir. 2006), the United States Court of Appeals for the Third Circuit discussed
section 510(c). It stated:
[T]he doctrine of equitable subordination “is remedial, not penal, and should
be applied only to the extent necessary to offset specific harm that creditors
have suffered on account of the inequitable conduct.” [In re SubMicron Sys.
Corp., 291 B.R. 314, at 327 (D. Del. 2003)] (citing Trone v. Smith ( In re
Westgate-California Corp.), 642 F.2d 1174, 1178 (9th Cir.1981)); see also
Citicorp Venture Capital, 160 F.3d at 991 (“A bankruptcy court should ...
attempt to identify the nature and extent of the harm it intends to
compensate in a manner that will permit a judgment to be made regarding
the proportionality of the remedy to the injury that has been suffered by
those who will benefit from the subordination.”); Stoumbos v. Kilimnik, 988
F.2d 949, 960 (9th Cir.1993) (“A claim will be subordinated only to the claims
of creditors whom the inequitable conduct has disadvantaged.”); Estes v. N
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& D Props., Inc. ( In re N & D Props., Inc.), 799 F.2d 726, 733 (11th Cir.1986)
(stating that “equitable subordination operates only to redress the amount
of actual harm done”).
In re SubMicron Sys. Corp., 432 F.3d at 462.
The Court takes judicial notice of the Debtor’s schedule of liabilities. The Debtor
listed no creditors, other than Pine Banks, Wallace and the Town of Ogunquit, on its
schedules. 	The Court takes further judicial notice that the Debtor moved to amend its10
Schedule F on January 22, 2010 following the hearing on January 21, 2010, and submitted
an Amended Schedule F, listing Golden as the holder of a contingent claim in the amount
of $500,000 as follows:
06/2006-01/201 [sic] Monies lent for construction - potential
claims for deceit etc setoff
The Debtor did not execute the Declaration Concerning Debtor’s Schedules, which must
be signed under penalty of perjury.
The Court finds that Count V of the Amended Adversarial Complaint in which the
Plaintiffs seek the equitable subordination of Wallace’s claim pursuant to 11 U.S.C. § 510(c)
fails to state a plausible claim upon which relief can be granted and, in view of the
undisputed facts, Wallace is entitled to summary judgment on Count V.
In Count V, the Plaintiffs allege that Wallace engaged in numerous instances of
As noted above, the Town of Ogunquit should have been listed on Schedule D.10
See In re Jennings, 304 B.R. 8, 12 (Bankr. D. Me. 2004) (“In Maine, municipalities are
granted a lien on real estate to secure the payment of legally assessed real estate taxes.
36 M.R.S.A. § 552. The lien “takes precedence over all other claims . . . The lien
“continue[s] in force until the taxes are paid or until said lien is otherwise terminated by
law.” 36 M.R.S.A. § 552.”).
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inequitable conduct in connection with its grant of a mortgage to Golden which harmed
“Sunshine and its’ creditors” [sic]. Unless this Court were to give credence to the Debtor’s
Amended Schedule F, the Debtor has no unsecured creditors, other than the potential
deficiency claims of Wallace and Pine Banks. The Court gives no credence to the Debtor’s
Amended Schedule F. Golden is the sole shareholder of the Debtor with an “interest” in
the Debtor. The Debtor’s amendment of Schedule F to list loans from Golden before it was
even incorporated is preposterous.
The Debtor was not incorporated until eleven days before the filing of its
bankruptcy petition. It could not owe money to Golden for sums she expended on the
property before its inception. The only debt listed on the schedules other than Pine Banks
and Wallace is a debt owed to the Town of Ogunquit, Maine in the sum of $8,500 for 2009
real estate taxes. This debt, erroneously listed on Schedule E - Creditors Holding
Unsecured Priority Claims, was a secured tax claim that was satisfied at the time of the
foreclosure sale. 	Thus, there are no creditors that could have been harmed by Wallace’s11
alleged inequitable conduct, other than Wallace. Moreover, in view of the foreclosure sale
conducted by Pine Banks and the rejection of the claims set forth in this adversary
proceeding, subordination of Wallace’s claim to Golden’s interest is meaningless. 	The
Debtor has no income and no assets so there will be no distributions to Wallace or Golden.
Thus, the Plaintiffs’ claim for equitable subordination must fail. In view of the existing
schedules and the Debtor’s purported, unmeritorious and defective Motion to Amend
See note 10, supra.11
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Schedule F, Count V fails to state a cause of action under Fed. R. Civ. P. 12(b)(6).
VI. THE MOTION TO RECOVER LEGAL FEES AND COSTS
The Defendants have sought to recover their attorneys’ fees and costs incurred in
seeking dismissal and in this action pursuant to Fed. R. Bankr. P. 7008(b) which provides:
“A request for an award of attorney’s fees shall be pleaded as a claim in a complaint, cross-
claim, third party complaint, answer, or reply as may be appropriate. The Defendants have
not asserted a legal theory in support of their request, and several authorities may be a
basis for an award of attorneys’ fees. 	See, e.g., 28 U.S.C. § 1927; Fed. R. Bankr. P. 9011.
Accordingly, the Court shall defer ruling on the Defendant’s request pending further
submissions.
VII. CONCLUSION
Because this Court lacks jurisdiction to consider Counts I through IV and Counts VI
through VIII under the Rooker-Feldman doctrine and because res judicata prevents
relitigation of Counts I through IV and IV through X, and because Count V fails to state a
claim upon which relief can be granted, the Court shall grant the Defendants’ Motion to
Dismiss. Alternatively, the Court grants summary judgment with respect to Count V of
the Debtor’s Adversarial Complaint.
In view of the foregoing, the Court shall enter orders denying the Motion for Leave
to File an Amended Adversarial Complaint and granting the Joint Motion to Dismiss
Adversary Proceeding. The Court also shall enter an order requiring the Defendants to file
a Memorandum of Law setting forth the basis for their fee request, the amount requested,
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and an itemization of all services and expenses in the form of an application for
compensation in accordance with MLBR 2016-1 by March 12, 2010, and permitting the
Debtor to file a Reply Memorandum by March 19, 2010.
By the Court,
Joan N. Feeney
United States Bankruptcy Judge
Dated: February 18, 2010
cc: Gershon M. Gulko, Esq., Charles A. Dale, III, Esq.
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