Heritage Equities, LLC v. Newman (In re Newman)

588 B.R. 281

IN RE: Nancy L. NEWMAN, Debtor

Heritage Equities, LLC d/b/a Commission Express of Central Connecticut, Plaintiff

v.Nancy L. Newman, Defendant

Case No.: 15-30382 (AMN)

Adv. Pro. No. 15-3019 (AMN)

United States Bankruptcy Court, D. Connecticut, New Haven Division.

Signed August 3, 2018

Heritage Equities, LLC d/b/a Commission Express of Central Connecticut Plaintiff, Houston Putnam Lowry, Esq., Polivy, Tachner, Lowry & Clayton LLC, 6 Central Row-Second Floor, PO Box 23-0294, Hartford, CT 06123

Nancy L. Newman Defendant, Julie A. Morgan, Esq., JA Morgan Law, LLC, 16 Spring Lane, Farmington, CT 06032, Bonnie C. Mangan, Esq., The Law Office of Bonnie C. Mangan, P.C., 1050 Sullivan Avenue, Suite A3, South Windsor, CT 06074

MEMORANDUM OF DECISION AFTER TRIAL

Ann M. Nevins, United States Bankruptcy Judge

I. INTRODUCTION

Plaintiff, Heritage Equities, LLC, doing business as Commission Express of Central Connecticut ("Heritage"), commenced this adversary proceeding against the defendant and debtor, Nancy L. Newman ("Newman"), seeking a determination that a debt owed by Newman to Heritage is non-dischargeable pursuant to 11 U.S.C. §§ 523(a)(2)(A), 523(a)(4), and/or 523(a)(6).¹

Though the parties dispute the precise nature and extent of the transactions, it is undisputed that Heritage and Newman engaged in a financial relationship whereby Newman, a real estate agent, purportedly transferred her interest in expected sales commissions to Heritage, and in consideration for these transfers, Heritage purportedly provided Newman with cash advances on such commissions. Heritage filed this adversary proceeding in Newman's underlying Chapter 7 case, In re Nancy L. Newman , Docket No. 15-30382 (the "Main Case"), asserting its claim, arising from six specific real estate transactions, was non-dischargeable because Newman committed various frauds in the course of those transactions. Newman denied the allegations of fraud, advanced various defenses, and filed a counterclaim alleging violations of the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. § 42-110b, et seq. ("CUTPA").

Having considered the pleadings, testimony, evidence admitted during trial, the court's own docket and arguments of the parties, the court finds Heritage did not meet its burden of proof to establish its claims are not dischargeable pursuant to §§ 523(a)(2)(A), 523(a)(4), or 523(a)(6), and therefore any debt owed by Newman is dischargeable. As to Newman's counterclaim against Heritage, the court finds Newman failed to meet her burden of proof to establish a violation of CUTPA.

II. JURISDICTION, VENUE, AND STANDING

This court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(b), and the United States District Court for the District of Connecticut's General Order of Reference dated September 21, 1984. This adversary proceeding is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(B) ("allowance of disallowance of claims"); 157(b)(2)(I) ("determinations as to the dischargeability of particular debts") and 157(b)(2)(O) ("other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship"). This adversary proceeding arises under the Main Case pending in this District; therefore, venue in this District is proper pursuant to 28 U.S.C. § 1409. Heritage has standing to seek the relief sought because it is a creditor pursuant to § 101(10). The parties each consented to this court entering a final order, on both the non-dischargeability claim and the CUTPA claim, subject to traditional rights to appeal. AP-ECP No. 94, 00:16:00 – 00:18:00;² see , Fed.R.Bank.P. 7008, 7012(b) (amended April 28, 2016, effective December 1, 2016).

III. PROCEDURAL HISTORY

Newman filed a voluntary Chapter 7 bankruptcy petition on March 16, 2015 (the "Petition Date"), listing a disputed claim owed to Heritage in the amount of $58,000.00, of which $27,491.00 was alleged to be secured. ECF No. 1. Heritage filed a proof of claim in the Main Case, number 2-1 ("POC 2-1"), on March 31, 2015, in the amount of $178,065.87, of which $178,064.87 was alleged to be secured, and $1.00 was unsecured.³ On June 19, 2015, Heritage filed the present adversary proceeding, asserting its claim is non-dischargeable pursuant to §§ 523(a)(2), 523(a)(4), and 523(a)(6). AP-ECF No. 1.

Common to all counts, the complaint alleged:

1. Newman signed a Master Security Agreement with Heritage that acknowledged, "each transaction represented by this Agreement is not a consumer transaction but the sale of a business account receivable at a purchase price discount." AP-ECF No. 1, ¶ 8.

2. Newman signed a Business Purpose Checklist with Heritage that acknowledged Heritage, "does not make loans and does not provide consumer financing." AP-ECF No. 1, ¶ 9.

3. Heritage filed a UCC-1 Financing statement with the Connecticut Secretary of State. AP-ECF No. 1, ¶ 12.

4. Newman, "intended to steal the proceeds of commissions" from Heritage and "owes [Heritage] treble damages pursuant to Conn. Gen. Stat. § 52-564." AP-ECF No. 1, ¶ 15.

5. Newman's debts to Heritage are therefore non-dischargeable pursuant to §§ 523(a)(2)(A), 523(a)(4), and 523(a)(6). AP-ECF No. 1, ¶ 7.

The complaint generally alleged it was brought pursuant to §§ 523(a)(2)(A), 523(a)(4) and 523(a)(6) but each count referenced a single property transaction and alleged a violation of the Connecticut larceny statute, Conn. Gen. Stat. § 52-564. Compare , ECF No. 1, ¶ 7 with ¶¶ 23 (page 4), 20 (page 4), 27 (page 6), 20 (page 6), 20 (page 7), and 20 (page 8). The counts in the complaint relate to six different property transactions, as follows:

Count Property 1	11 Lake Drive, Moodus, Connecticut
  2	1053 Middle Turnpike, Manchester, Connecticut
  3	213 Alling Street, Berlin, Connecticut
  4	37 Sunridge Lane, Cromwell, Connecticut
  5	12 Clubhouse Drive, Cromwell, Connecticut
  6	19 Lake Drive, East Haddam, Connecticut
 

Newman answered the complaint by generally denying the allegations, and asserting affirmative defenses including: payment; that Heritage failed to mitigate its damages; that Heritage's claims were barred by unclean hands; that the contracts were void pursuant to Connecticut and federal law; and, that the interest rate in the contracts was usurious.⁴ AP-ECF No. 28. Newman also alleged a counterclaim against Heritage, asserting the transactions between the parties were loans, the interest rates on those loans were usurious, Heritage lacked the requisite licenses for lending pursuant to Connecticut law, and Heritage's actions constituted unfair and deceptive business practices in violation of the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. § 42-110a. AP-ECF No. 28.

The matter was tried before the court on December 5, 2016, and December 6, 2016. AP-ECF Nos. 94, 95, 101, 102, 103, 104. Thereafter, the parties filed proposed findings of fact and conclusions of law, filed post-trial briefs and engaged in post-trial oral argument. AP-ECF Nos. 109, 110, 111, 112, 113, 114, 117.

IV. FINDINGS OF FACT

In accordance with Fed.R.Civ.P. 52 and Fed.R.Bankr.P. 7052, after consideration of the trial testimony and argument, the documents admitted into evidence, and examination of the official record of the Main Case and the instant adversary proceeding, the court finds the following facts.

1. Nancy Newman, the Debtor, worked as a real estate agent licensed in the State of Connecticut for approximately thirty (30) years. Testimony of Newman , AP-ECF No. 102, 00:11:30 – 00:12:00.

2. In 2012, the time period relevant to the instant case, Newman was affiliated with RE/Max Marketplace in Cromwell, Connecticut. Testimony of Newman , AP-ECF No. 102, 00:12:30 – 00:12:40.

3. Newman was paid by commission, based on a percentage of the sale price of each home she sold, but was entitled to a commission only if the sale transaction closed. Testimony of Newman , AP-ECF No. 102, 00:12:50 – 00:13:10.

4. Bruce Moore ("Moore") was a member of plaintiff Heritage Equities, LLC. Testimony of Moore , AP-ECF No. 94, 01:03:00 - 01:03:10.

5. Heritage was a franchisee of Commission Express National, and did business as Commission Express of Central Connecticut. Testimony of Moore , AP-ECF No. 94, 01:03:10 - 01:03:20; Pl. Ex. 101.

6. Heritage was not a licensed consumer loan lender in Connecticut. AP-ECF No. 37.

7. Richard Pentore, an attorney, represented the purchasers in the sale transactions of 1053 Middle Turnpike East, Manchester, Connecticut, and 6 Helena Drive, Cromwell, Connecticut. Pentore was responsible for issuing checks upon the closing of those sales. Testimony of Pentore , AP-ECF No. 94, 00:42:00 – 00:43:55.

8. Joseph Fazekas, was Newman's supervising broker, and co-owner of RE/Max Marketplace. Testimony of Fazekas , AP-ECF No. 95, 00:01:30 – 00:03:00.

9. On February 2, 2012, Newman signed a "Master Security Agreement" with Heritage. Pl. Ex. 102. Testimony of Newman , AP-ECF No. 102, 00:19:10 – 00:19:45. Moore signed the same agreement on behalf of Heritage. Pl. Ex. 102. Testimony of Moore , AP-ECF No. 94, 01:15:05 – 01:15:30.

10. On February 8, 2012, Newman signed a "Business Purpose Checklist and Declaration," with Heritage, which described her as a sole proprietor and independent contractor engaged in the real estate business. Pl. Ex. 103.

11. On February 11, 2012, Heritage filed a UCC-1 Financing Statement with the State of Connecticut Secretary of the State, asserting a security interest over all of Newman's "current and future accounts receivable," including proceeds from Newman's expected sales commissions. Pl. Ex. 104.

12. As relevant here, Newman signed six agreements entitled Account Receivable Sale and Assignment Agreement ("Sale and Assignment Agreement") with Heritage.⁵ Pl. Ex. 112, 113, 114, 115, 116, 117. With the exception of unique language identifying the address of the property to be sold, and amounts to be paid, each individual

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