Chevy Chase Funding, LLC v. Walsh

CHEVY CHASE FUNDING, LLC Plaintiff, v. TIMOTHY F. WALSH, et al. Defendants.

Case No.: GJH-16-1804

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND Southern Division

March 7, 2017

MEMORANDUM OPINION

Plaintiff Chevy Chase Funding, LLC, Mortgage-Backed Certificates, Series 2005-1, U.S. Bank National Association as Trustee ("Plaintiff" or "CCF Trust") brings suit against Defendants Timothy F. Walsh, as Trustee of the Berwyn Road Historic Preservation and Conservation Trust (the "Berwyn Road Trust"), Gregory & Walsh, Christina Walsh, and Branch Banking and Trust Co. ("BB&T")¹ (collectively, "Defendants"), seeking declaratory and other relief, adjudging that the Berwyn Road Trust is void and that Plaintiff holds the first-priority lien against Defendants' Property. Presently pending before the Court is Gregory and Christina Walsh's Motion to Dismiss, ECF No. 7. No hearing is necessary. See Loc. R. 105.6. For the following reasons, the Walshes' Motion to Dismiss is denied.

I. BACKGROUND

On January 12, 2004, Gregory and Christina Walsh (the "Walshes") purchased the Property located at 5012 Berwyn Road, College Park, Maryland 20740 (the " Property") for $206,000.00. ECF No. 1 ¶ 9. To effectuate this purchase, the Walshes took out two purchasemoney loans from Impac Funding Corp. d/b/a Impac Lending Group. Id. ¶ 10. The Walshes executed the first Deed of Trust ("First DCT") to secure one purchase money loan for $164,800.00. Id. ¶ 11. They then executed a second Deed of Trust ("Second DOT") to secure another purchase money loan for $41,200.00, both loans in favor of Impac Funding. Id. ¶ 12.

On May 20, 2004, the Walshes transferred the Property via deed of conveyance (the "Deed") to "Timothy F. Walsh as Trustee of the Berwyn Road Historic Preservation and Conservation Trust." ECF No. 1-2 at 1.² The Deed was executed "in consideration of Zero Dollars (0.00)." Id. This conveyance was recorded in the Land Records for Prince George's County on June 28, 2004. ECF No. 1 ¶ 13. Gregory and Christina Walsh certified under penalty of perjury on a signed Affidavit that as "sole owners of the property referenced above," they were "the sole beneficiaries of the trust." ECF No. 1-2 at 3. The Affidavit also stated that the Berwyn Road Trust was "revocable," but did not describe the methods by which the Trust could be revoked. Id.

On October 1, 2004, the Walshes borrowed $212,000.00 from Chevy Chase Bank, FSB (the "Subject Loan"), the terms and conditions of which were set forth in a promissory note (the "Subject Note"). ECF No. 1 ¶ 19. The Walshes also executed a deed of trust (the "Subject DOT") in which "they purported to grant the Property in trust as security for the Subject Loan." Id. According to Plaintiff's Complaint, during the transaction, the Walshes "signed an Owner's Affidavit attesting to the fact that they were owners of the Property and that they had not conveyed the Property to any third party." Id. ¶ 20. The Walshes then used the $212,000.00 Subject Loan to pay off the First DOT and Second DOT. Id. ¶¶ 21-23. The Walshes allegedly also took out another loan for $100,000.00 from Defendant BB&T on July 22, 2005. Id. ¶ 25.

This Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332. Plaintiff is a citizen of Delaware, having its principal office and place of formation in Delaware. ECF No. 1 ¶ 2. The Complaint states on information and belief that the Berwyn Road Trust is a citizen of Maryland or Virginia, and that the Walshes are citizens of Virginia. Id. ¶¶ 3-4. The amount in controversy exceeds $75,000. Id. ¶ 6. The CCF Trust is the owner of the Subject Loan and beneficiary of the Subject DOT in this case. ECF No. 1 ¶ 24. Plaintiff has brought suit against Defendants for 1) a declaratory judgment that the Subject DOT pierces the Berwyn Trust, 2) a declaratory judgment that the Berwyn Trust is void, 3) equitable mortgage, 4) unjust enrichment, 5) equitable subrogation, 6) reformation, and 7) fraudulent conveyance, and 8) breach of contract.

II. STANDARD OF REVIEW

Plaintiff seeks declaratory relief, inter alia, in this action. "Because the Declaratory Judgment Act ("DJA"), 28 U.S.C. §§ 2201-2202, is procedural in nature, Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240, 57 S.Ct. 461, 81 L.Ed. 617 (1937), in a diversity action such as this, federal, not state, law determines whether a district court may properly render a declaratory judgment." Miller v. Pac. Shore Funding, 224 F. Supp. 2d 977, 993 (D. Md. 2002). "The same pleading standards that apply in other civil actions govern proceedings under the DJA. Thus, in seeking a declaratory judgment—just as in seeking any other remedy—a plaintiff must state a claim upon which relief can be granted." Id.

Federal Rule of Civil Procedure 12(b)(6) provides for "the dismissal of a complaint if it fails to state a claim upon which relief can be granted." Velencia v. Drezhlo, No. RDB-12-237, 2012 WL 6562764, at *4 (D. Md. Dec. 13, 2012). A motion to dismiss under 12(b)(6) "test[s] the adequacy of a complaint." Prelich v. Med. Res., Inc., 813 F. Supp. 2d 654, 660 (D. Md. 2011) (citing German v. Fox, 267 F. App'x 231, 233 (4th Cir. 2008)). Motions to dismiss for failure tostate a claim do "not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Prelich, 813 F Supp. 2d at 660 (citing Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999)). Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief " Hall v. DIRECTV, LLC, 846 F.3d 757, 765 (4th Cir. 2017). To overcome a Rule 12(b)(6) motion, a complaint must allege enough facts to state a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim is plausible when "the plaintiff pleads factual content that allows the Court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.

In evaluating the sufficiency of the Plaintiff's claims, the Court accepts factual allegations in the complaint as true and construes the factual allegations in the light most favorable to the Plaintiff. See Albright v. Oliver, 510 U.S. 266, 268 (1994); Lambeth v. Bd. of Comm'rs of Davidson Cty., 407 F.3d 266, 268 (4th Cir. 2005). However, the complaint must contain more than "legal conclusions, elements of a cause of action, and bare assertions devoid of further factual enhancement." Nemet Chevrolet, Ltd v. Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009). The court should not grant a motion to dismiss for failure to state a claim for relief unless "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." GE Inv. Private Placement Partners II v. Parker, 247 F.3d 543, 548 (4th Cir. 2001) (citing H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249-50).

Additionally, to state a claim sounding in fraud, as here, a party must also 'state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). Rule 9(b) requires "that a plaintiff alleging fraud must make particular allegations of the time, place,speaker, and contents of the allegedly false acts or statements." Adams v. NVR Homes, Inc., 193 F.R.D. 243, 249-50 (D. Md. 2000); U.S. ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008) (describing the "who, what, when, where, and how" of the fraud claim). Despite these heightened requirements, "a court should hesitate to dismiss if it finds (1) that the defendant[s] [have] been made aware of the particular circumstances for which [they] will have to prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those facts." Nat'l Mortg. Warehouse, LLC v. Trikeriotis, 201 F. Supp. 2d 499, 505 (D. Md. 2002) (describing pleading requirements in case of fraudulent conveyance) (internal citations omitted).

By submitting the affidavit of Gregory Walsh, the Walshes invite the Court to treat their motion to dismiss as a motion for summary judgment. See Trikeriotis, 201 F. Supp. 2d at 502. The Court declines to do so in this case. When "matters outside the pleadings are presented to and not excluded by the court, [a 12(b)(6) motion] shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." Id. (citing Fed. R. Civ. P. 12(d)) (alterations in original). "Reasonable opportunity means that all parties must be given some indication by the court that it is treating the 12(b)(6) motion as a motion for summary judgment, with the consequent right in the opposing party to file counter affidavits and pursue reasonable discovery." Id. (citing Gay v. Wall, 761 F.2d 175, 177 (4th Cir. 1985) (internal citations omitted). Here, summary judgment would be premature, as the parties have not had adequate opportunity for discovery to address the issues raised in the affidavit. The Court will resolve the pending motion as a motion to dismiss.

III. ANALYSIS

A. The Berwyn Road Trust and Deed of Conveyance - Counts One, Two, Six, and Seven

The majority of Plaintiff's claims arise from the Walshes' transfer of the Property to the Berwyn Road Trust prior to their execution of the Subject Note and Subject DOT with Plaintiff. Plaintiff asserts that "the existence of the Deed [conveying the Property to the Berwyn Road Trust] creates a cloud on the CCF Trust's interest in the Property through the Subject DOT." ECF No. 1 ¶ 43. Plaintiff further alleges that the Walshes created the Berwyn Road Trust and transferred the Property to the Berwyn Road Trust "for the sole purpose of avoiding creditors and defrauding the CCF Trust." Id. ¶ 36. Plaintiff asks the Court to declare the Deed a nullity and declare the Subject DOT as the first-priority lien against the entire Property.

In...