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First Mount Vernon Industrial Loan Association, et al v. Keith J. Smith

January 14, 2011

FIRST MOUNT VERNON INDUSTRIAL LOAN ASSOCIATION, ET AL., PLAINTIFFS,
v.
KEITH J. SMITH, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Alexander Williams, Jr. United States District Court

MEMORANDUM OPINION

Plaintiffs, First Mount Vernon Industrial Loan Association ("FMV") and Ticor Title Insurance Company ("Plaintiffs") bring this action against Defendants, Keith Smith, Christian Title & Escrow ("Christian Title"), and Latonya Abrom, claiming violations of Fraud, Constructive Fraud, Aiding and Abetting Fraud or Constructive Fraud, Civil Conspiracy, and Negligence. Pending before the Court is Keith Smith and Latonya Abrom's ("Smith Defendants") Motion for Summary Judgment. (Doc. No. 43). Defendant Latonya Abrom has requested partial summary judgment as to all claims against her. Christian Title has filed an Amended Cross-claim against Defendant Keith Smith. (Doc. No. 29). The Court has reviewed the record in this case and deems that no hearing is necessary.

I.FACTUAL AND PROCEDURAL BACKGROUND

According to Plaintiffs, on November 17, 2006, Joy Kelly executed a Balloon Deed of Trust Note with First Mount Vernon in consideration for a loan in the amount of $557,500 from FMV to Joy Kelly. As security for the loan, Kelly gave First Mount Vernon a Commercial Deed of Trust on properties that Kelly owned. The properties at issue in this case are located at 4717 Georgia Avenue, N.W., Washington, DC 20011 ("the Georgia Ave. Property") and 3722 9th Street NW, Washington, DC 20011 (the "9th Street Property"), collectively, "the properties." Allegedly, Defendant Keith Smith was Kelly's attorney for the purpose of assisting Kelly with the process of obtaining loans on her properties and avoiding Kelly's lenders from instituting foreclosure on her properties.

Plaintiffs aver that before FMV extended a loan to Kelly, Plaintiffs hired Defendant Christian Title as a closing agent for the FMV loan. According to Plaintiffs, as the closing agent for this loan, Christian Title was charged with ensuring that there were no prior loans on Joy Kelly's properties. Christian Title purportedly contacted First Washington Insurance Company ("FWIC") to obtain release information concerning FWIC's deeds of trust on Kelly's properties. Plaintiffs contend that Defendant Smith knew of Christian Title's request for payoff information from FWIC. Aware of Christian Title's request, Smith alerted FWIC via fax that he would submit the information that Christian Title had requested from FWIC, thus assuming the role of submitting payoff information to Christian Title as opposed to having FWIC directly submit this information to Christian Title.*fn1 Smith later provided Christian Title with an FWIC release of a Deed of Trust dated March 16, 2006 for Kelly's Georgia Avenue Property. Additionally, Defendant purportedly provided Christian Title with a payoff statement for one unrecorded deed of trust on the 9th Street property held by FWIC in the amount of $250,000. According to Plaintiffs, Smith did not notify Christian Title or Plaintiffs about any remaining liens on the Georgia Avenue or the 9th Street Properties.

A bring-to-date title search which FMV and its settlement agent conducted on November 7, 2006, demonstrated that no other deeds of trust existed on the Kelly's Georgia Avenue or 9th Street Properties, and FMV was not aware of any other liens. On November 13, 2006, Kelly completed a loan application, in which she allegedly represented that the properties at issue in this case were not subject to any mortgages. Relying on Kelly's assertions, FMV believed that they would have first priority over the property in the event of foreclosure. Plaintiffs allege that in reality, Kelly's properties were subject to four undisclosed deeds of trust at the time that FMV closed on the loan.*fn2 Consequently, Plaintiffs indicate that $960,000 worth of liens on Kelly's property were not disclosed to FMV at the time they closed on the loan with Kelly.

Alleging further illegal conduct on behalf of Smith, Plaintiffs aver that on August 28, 2006, two weeks before Kelly executed a Deed of Trust in favor of FC Partners on her 9th Street Property, Smith faxed Lucy Edwards, an attorney for Kelly, a fax which reflected his fee for conducting a title search on for Ms. Kelly. According to Plaintiffs, Smith was involved in the process of helping Kelly obtain a loan from FC Partners, and he concealed his possession of a Deed of Trust in favor of FWIC in the process of attempting to obtain this FC Partners loan.

Plaintiffs state that at the time that Kelly closed on her loan with FMV, Smith, as Kelly's attorney, was aware of the prior deeds of trust on Kelly's property. Moreover, Plaintiffs allege that Smith assisted Kelly in concealing these prior deeds of trust from FMV. Plaintiffs believe that Latonya Abrom, Defendant Smith's wife and paralegal, knew of at least one of the prior deeds of trust and helped conceal this deed of trust from FMV. Furthermore, Plaintiffs assert that one of the undisclosed deeds of trust was a deed to FWIC on the Georgia Avenue Property which was executed on June 7, 2006. Plaintiffs aver that this deed was not recorded until November 14, 2006, which was only three days prior to the closing of the First Mount Vernon Loan. According to Plaintiffs, Kelly and Smith knew of this FWIC Deed of Trust on the Georgia Avenue property and engaged in fraud by failing to disclose this existing mortgage. As support for this allegation, Plaintiffs contend that Smith had this particular deed in his possession while Kelly was in the process of applying for other loans, thus acting fraudulently by failing to disclose this deed until November 14, 2006.

Furthermore, Plaintiffs allege that on November 16, 2006 (a day before the closing on the FMV loan), Smith signed Kelly's name to a deed of trust to Anthony Bolling. Plaintiffs allege that this deed was falsely notarized by Latonya Abrom, as Ms. Kelly did not actually sign this deed herself. The Bolling Deed of Trust was never disclosed to FMV.

On November 17, 2006, Kelly closed on the loan with FMV. Plaintiffs aver that Kelly made no payments on her loan to FMV after January 9, 2007, and FMV sent her a default notice on March 6, 2007 which demanded payment on the loan. On March 8, 2007, Smith allegedly called FMV to address the default notice that had been sent to Kelly, informing FMV that Kelly was planning to sell her property, which would allow her to pay off her loan by April of that year. According to Plaintiffs, Smith failed to inform FMV that there were multiple deeds of trust on the properties which had priority over FMV. Plaintiffs aver that Smith did not inform them that there were multiple deeds of trust that had priority over the FMV mortgage until March 22, 2007. Subsequently, in April 2007, FWIC sold the Georgia Avenue property in foreclosure, which extinguished FMV's fourth priority lien on the property. Later, FC Partners Deeds of Trust sold the 9th Street property in foreclosure, which extinguished First Mount Vernon's second priority lien on that property. Smith's failure to disclose these existing liens when assisting Kelly in applying for a loan from FMV gives rise to this suit.

First Mount Vernon filed suit against Joy Kelly in the United States District Court for the Eastern District of Virginia for breach of the note and for fraud. A bench trial was conducted on June 23, 2008 in the case against Kelly. The Court found Ms. Kelly liable for breach of the Note and for fraud. Plaintiffs bring the instant suit for fraud, aiding and abetting fraud, constructive fraud, and civil conspiracy against Smith. Plaintiffs bring claims of aiding and abetting fraud, constructive fraud, and civil conspiracy to commit fraud against Abrom. Defendant Christian Title brings a cross-claim for indemnification and contribution against Defendant Keith Smith for his alleged unlawful acts.

II. STANDARD OF REVIEW

Summary judgment is only appropriate if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). The Court must draw all justifiable inferences in favor of the nonmoving party, including questions of credibility and of the weight to be accorded to particular evidence. Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 520 (1991) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)). To defeat a motion for summary judgment, the nonmoving party must provide evidence that shows a genuine issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). While the evidence of the nonmoving party is to be believed and all justifiable inferences drawn in his or her favor, a party cannot create a genuine dispute of material fact through mere speculation or compilation of inferences. See Deans v. CSX Transp. Inc., 152 F.3d 326, 330-31 (4th Cir. 1998). Additionally, hearsay statements or conclusory statements with no evidentiary basis cannot support or defeat a motion for summary judgment. See Greensboro Prof'l Fire Fighters Ass'n, Local 3157 v. City of Greensboro, 64 F.3d 962, 967 (4th Cir. 1995).

III. ANALYSIS

A. Fraud-Count I

Plaintiffs make several factual allegations to support the claim that both Smith and Abrom engaged in fraud while helping Ms. Kelly obtain a loan from FMV. As this Court determined in its Memorandum Opinion on Defendant's Motion to Dismiss, since all alleged transactions involving Defendants arose in the District of Columbia, the Court will apply District of Columbia law. See Doc. No. 27, at 8. Under District of Columbia law, to prove a claim for fraud, the Plaintiffs must show that the Defendant, (1) made a false representation, (2) in reference to material fact, (3) made with knowledge of its falsity, (4) with the intent to deceive, and (5) action is taken in reliance upon the representation. See Bennett v. Kiggins, 377 A.2d 57, 59 (D.C. 1977). "Nondisclosure of material information may constitute fraud, especially where there is a duty to disclose." Pyne v. Jamaica Nutrition Holdings, Ltd., 497 A.2d 118, 131 (D.C. 1985). The District of Columbia requires the plaintiffs to prove by clear and convincing evidence that the defendant acted fraudulently. See id.

As a preliminary matter, the Court will address claims filed against Defendant Abrom. Plaintiffs recognize Defendants' assertion that "there is but one specific allegation pertaining to Abrom . . . that 'Abrom falsely notarized it' [a deed of trust securing Bolling that was never funded or consummated, and thus never became a lien on any property.]" (Doc. Nos. 43-1, at 5; 43, at 24). Plaintiffs argue that Kelly signed an un-notarized power of attorney, which seemed to authorize Smith to sign a deed of trust in favor of Anthony Bolling on her behalf. (Doc. No. 43, at 10). Consequently, Plaintiffs aver that because the power of attorney allowing Smith to sign the deed of trust on Kelly's behalf was un-notarized, it was invalid. Id. Thus, when Abrom signed the Bolling Deed of Trust, she was signing a false deed of trust.

Contrary to Plaintiffs' assertions, there is no evidence that when Abrom notarized the deed, she knew that she was making a false representation, with the intent to deceive the Plaintiffs. The evidence in the record clearly demonstrates that Abrom simply notarized the Bolling Deed of Trust. There is no suggestion from the record that Abrom knew that the power of attorney was invalid or that she falsely notarized the deed in order to record it in advance of the First Mount Vernon Loan. Imputing this knowledge requirement and intent to deceive requirement to Abrom would require the Court to make several inferences that the record simply does not allow. Viewing the facts in the light most favorable to the Plaintiffs, there is no genuine dispute of material fact that Abrom failed to engage in any illegal activity in this matter. As Abrom clearly lacked the requisite knowledge or intent to commit any illegal conduct, summary judgment shall be GRANTED to Defendant Abrom as to all counts against her.

The remaining discussion will address counts against Defendant Keith Smith. To demonstrate that he is entitled to summary judgment on the fraud claim, Defendant alleges that there is no evidence that Defendant Smith was directly involved in Joy Kelly's efforts to obtain any loans. (Doc. No. 43-1, at 6). However, Plaintiffs points to six primary incidents which manifest fraudulent conduct on behalf of Defendant Smith. According to Plaintiffs, Smith engaged in the following acts:

1) Retained possession of the FWIC deeds of trust on the 9th Street and Georgia Ave. Properties while assisting Kelly in seeking and obtaining other loans on the properties;

2) Assisted Kelly in entering into the FC Partners Deeds of Trust while the unrecorded FWIC Deeds of Trust ...


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