Baty v. Aloha Oahu, LLC et al

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
BILLY B. BATY
DEBTOR
CASE NO.
06-00894-5-ATS
BILLY B. BATY
Plaintiff
v.
ALOHA OAHU, LLC, MARK F. HOLZAPFEL,
and WELLS FARGO BANK, N.A.
Defendants.
ADVERSARY PROCEEDING NO.
S-06-00079-5-AP
ORDER DENYING DEFENDANT WELLS FARGO'S MOTION TO DISMISS
The matter before the court is the motion of the defendant Wells
Fargo Bank, N.A. to dismiss the complaint pursuant to Rule 12(b)(6) of
the Federal Rules of Civil Procedure, made applicable to this adversary
proceeding by Rule 7012 of the Federal Rules of Bankruptcy Procedure.
A hearing took place in Raleigh, North Carolina on August 22, 2006.
SO ORDERED.
SIGNED this 24 day of August, 2006.
________________________________________
A. Thomas Small
United States Bankruptcy Judge
____________________________________________________________
Case 06-00079-5-ATS Doc 26 Filed 08/24/06 Entered 08/24/06 13:28:19 Page 1 of 6

2
Billy B. Baty filed a petition for relief under chapter 11 of the
Bankruptcy Code on June 19, 2006. Also on June 19, 2006, Mr. Baty
filed the instant adversary proceeding against his stepfather, Mark F.
Holzapfel, his stepfather's limited liability company, Aloha Oahu, LLC,
and Wells Fargo Bank, N.A. The allegations of the complaint as they
relate to Wells Fargo contend generally that on August 10, 2004, Mr.
Baty gave Mr. Holzapfel an express power of attorney to conduct real
estate transactions on behalf of Mr. Baty, that subsequently Mr. Baty
learned that Mr. Holzapfel was using the power of attorney for his own
benefit, and that in December 2004 Mr. Baty notified the attorney
closing real estate transactions pursuant to the power of attorney,
Charles Mooney, that Mr. Holzapfel was not authorized to conduct any
further business on behalf of Mr. Baty without Mr. Baty's express
consent. In December 2005, Mr. Holzapfel refinanced Mr. Baty's
property at 501 Ashebrook Drive, Raleigh, North Carolina, and used the
property for his own benefit. Mr. Mooney was the closing attorney, and
Wells Fargo was the lender. After Mr. Baty learned of the refinance,
he contacted Wells Fargo to advise it of the unauthorized transaction,
but received no response.
Mr. Baty contends that Mr. Mooney's actual knowledge that Mr.
Holzapfel was not authorized to conduct business on behalf of Mr. Baty
is imputed to Wells Fargo, and that Wells Fargo was negligent in
failing to verify the authority of Mr. Holzapfel to act for Mr. Baty.
Case 06-00079-5-ATS Doc 26 Filed 08/24/06 Entered 08/24/06 13:28:19 Page 2 of 6

3
See Complaint at ¶¶ 108, 131. Mr. Baty seeks a judgment declaring that
the Wells Fargo loan secured by 501 Ashebrook is not his debt, setting
aside the lien on the property, and declaring that Wells Fargo is not
entitled to enforce its lien against Mr. Baty or any of his property.
Wells Fargo contends that Mr. Baty is precluded from recovering
against it by North Carolina General Statute § 32A-40, which provides
(a) Unless (i) a person has actual knowledge that a writing
is not a valid power of attorney, or (ii) the action taken
or to be taken by a person named as attorney-in-fact in a
writing that purports to confer a power of attorney is
beyond the apparent power or authority of that named
attorney-in-fact as granted in that writing, a person who in
good faith relies on a writing that on its face is duly
signed, acknowledged, and otherwise appears regular, and
that purports to confer a power of attorney, durable or
otherwise, shall be protected to the full extent of the
powers and authority that reasonably appear to be granted to
the attorney-in-fact designated in that writing, and no
person so dealing in good faith with that named attorney-in-
fact shall be held responsible for any breach of fiduciary
duty by that attorney-in-fact, including any breach of
loyalty, any act of self-dealing, or any misapplication of
money or other property paid or transferred as directed by
that attorney-in-fact. This subsection applies without
regard to whether or not the person dealing with the
attorney-in-fact demands or receives an affidavit under
subsection (b) of this section. A person who conducts
activities through employees or other agents has actual
knowledge of a fact involving a power of attorney only from
the time the information was received by an employee or
agent having the authority to approve the power of attorney
presented.
N.C. Gen. Stat. § 32A-40(a).
Wells Fargo contends that the complaint on its face shows that the
power of attorney was valid, and thus there is no way that Wells Fargo
could have had actual knowledge that the power of attorney was not
Case 06-00079-5-ATS Doc 26 Filed 08/24/06 Entered 08/24/06 13:28:19 Page 3 of 6

4
valid. Wells Fargo further disputes that Mr. Baty adequately revoked
the power of attorney, and that notice to Mr. Mooney that Mr. Holzapfel
was not authorized to conduct business on Mr. Baty's behalf without his
express consent was not imputed to Wells Fargo sufficient to overcome
the statutory protection.
For purposes of deciding a motion to dismiss for failure to state
a claim upon which relief may be granted under Rule 12(b)(6) of the
Federal Rules of Civil Procedure (made applicable by Rule 7012 of the
Federal Rules of Bankruptcy Procedure), the court must accept the
plaintiff’s factual allegations as true, drawing all reasonable
inferences in the plaintiff’s favor. Ibarra v. United States, 120 F.3d
472, 474 (4th Cir. 1997). Because the rules require only notice
pleading, courts construe a plaintiff’s allegations liberally. In
addition, the court may not consider materials outside the pleadings
without converting the motion to one for summary judgment under Rule 56
of the Federal Rules of Civil Procedure. See Fed. R. Bankr. P. 7012.
An attorney-client relationship is an agency relationship, State
v. Ali, 329 N.C. 394, 403, 407 S.E.2d 183, 189 (1991), and it is well-
accepted agency law that notice to an agent is imputed to its
principal. As the North Carolina Court of Appeals explained in Long v.
Joyner, 155 N.C. App. 129, 134-35, 574 S.E.2d 171, 175 (2002):
The knowledge of an attorney hired by a client and doing
work on behalf of that client is imputed to the client.
Rogers v. McKenzie, 81 N.C. 164 (1879). Therefore the
knowledge held by defendants' attorney was imputed to them.
Case 06-00079-5-ATS Doc 26 Filed 08/24/06 Entered 08/24/06 13:28:19 Page 4 of 6

5
. . . The attorney acts as an agent for the client. "In
this jurisdiction there is a presumption in favor of an
attorney's authority to act for the client he professes to
represent." Greenhill v. Crabtree, 45 N.C. App. 49, 51, 262
S.E.2d 315, 316, aff'd per curiam by an equally divided
court, 301 N.C. 520, 271 S.E.2d 908 (1980).
The complaint clearly alleges that prior to closing the
refinancing transaction, Mr. Mooney had actual knowledge that Mr.
Holzapfel was not to be conducting business on behalf of Mr. Baty, and
that Mr. Mooney's actual knowledge is imputed to Wells Fargo.
Complaint at ¶¶ 107, 108. The statute upon which Wells Fargo relies
specifically contemplates notice through an agent, providing, "[a]
person who conducts activities through employees or other agents has
actual knowledge of a fact involving a power of attorney only from the
time the information was received by an employee or agent having the
authority to approve the power of attorney presented." N.C. Gen. Stat.
§ 32A-40(a).
The complaint sufficiently alleges that Wells Fargo was on notice,
through its agent Mr. Mooney, that Mr. Holzapfel was not to conduct any
business on Mr. Baty's behalf despite the power of attorney. Whether
Mr. Mooney was in fact acting as Wells Fargo's attorney may be in
dispute, but the complaint on its face sufficiently alleges that Wells
Fargo had notice that would defeat the protection allowed by North
Carolina General Statute § 32A-40.
Based on the foregoing, the motion to dismiss pursuant to Rule
12(b)(6) of the Federal Rules of Civil Procedure, made applicable to
Case 06-00079-5-ATS Doc 26 Filed 08/24/06 Entered 08/24/06 13:28:19 Page 5 of 6

6
this adversary proceeding by Rule 7012 of the Federal Rules of
Bankruptcy Procedure, is DENIED.
SO ORDERED.
END OF DOCUMENT
Case 06-00079-5-ATS Doc 26 Filed 08/24/06 Entered 08/24/06 13:28:19 Page 6 of 6