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Schlossberg v. Nadel

United States District Court, D. Maryland

August 10, 2016

ROGER SCHLOSSBERG, Plan Administrator under the Confirmed Plan of Liquidation of 350113th Street, N.W., LLC, Plaintiff,
v.
JEFFREY NADEL d/b/a Law Offices of Jeffrey Nadel, Defendant.

          MEMORANDUM OPINION

          Paula Xinis United States District Judge

         Plaintiff, the Plan Administrator for a Chapter 11 bankruptcy liquidation plan for the LLC known as 350113 Street, N.W. (“3501”), brings this action based on his authority to pursue all claims on behalf of the bankrupt estate of 3501.[1] In essence, Plaintiff claims that attorney Jeffrey Nadel (“Nadel”) conspired with and aided and abetted two clear wrongdoers, Robert Schaechter (“Schaechter”) and Steven Madeoy (“Madeoy”) to falsify a secured loan using the real property held by 3501 as the collateral, the recordation of which in the land records triggered a series of events that led to 3501’s resort to filing bankruptcy. Presently pending and ready for resolution is Nadel’s Motion to Dismiss or, in the alternative, Motion for Summary Judgment. ECF No. 18. Because no hearing is necessary, pursuant to Local Rule 106.5, and for the reasons that follow, the Motion is GRANTED.

         I. BACKGROUND

         The following facts are derived from Plaintiff’s Amended Complaint, ECF No. 16. Because this matter can and is dispositively resolved without resort to facts outside the Amended Complaint, the Court will treat this Motion as one to Dismiss under Rule 12(b)(6) for failure to state a claim.

         3501 is a limited liability corporation organized under the laws of the District of Columbia. Steve Madeoy retained a 45% membership interest in 3501, and at some point became its managing member. ECF No. 16 at 2-3. In December of 2006, Robert Schaechter loaned $500, 000 to Madeoy personally (“the Schaechter Loan”). At no point did 3501 receive any benefits arising from the loan, directly or indirectly. Id.

         Defendant Nadel assisted in the preparation of the documents related to the Schaechter Loan. The documents consisted of a promissory note and a Deed of Trust (“DOT”) which made it appear as if Schaechter loaned the money to 3501, and that the loan was secured with 3501’s principle asset-the real property located at 350113th Street, N.W., Washington, D.C., and owned in fee simple by 3501. ECF No. 16 at 4. The DOT was executed by Schaechter, Madeoy and a third member of the LLC, but not recorded initially because the recordation would trigger the first mortgage lender to accelerate the entire balance due on the mortgage per the terms of its loan agreement with 3501. Id. at 5.

         By mid-2010, Schaechter grew concerned about Madeoy’s failure to repay any of the loan. As a result, Madeoy and Schaechter requested that Nadel amend the promissory note, altering only the time for repayment, and then record the DOT with the District of Columbia. Nadel complied even though he knew that 3501 was not an actual party to the loan. ECF No. 16 at 5.

         As a result of Nadel’s actions, the DOT was filed with the District of Columbia Recorder of Deeds on August 5, 2010. ECF No. 16 at 7. Almost three years later, Fannie Mae, the lender holding the first mortgage on 3501, accelerated the entire balance of its $3.8 million loan, leaving 3501 no choice but to file for bankruptcy on July 19, 2013. Id. Although Schaechter was initially listed as a secured creditor of 3501 arising from the recordation of the DOT, the bankruptcy court held in an adversary proceeding that Schaechter did not have an enforceable lien against 3501. Id. Consequently, 3501 incurred substantial attorneys’ fees and expenses litigating the adversary proceeding to clear title to 350113th Street, N.W. Id. To recover these losses on behalf of the bankrupt estate for 3501, Plaintiff filed the instant action.

         II. DISCUSSION

         A. Motion to Dismiss Standard

         When ruling on a motion under Rule 12(b)(6), the court must “accept the well-pled allegations of the complaint as true, ” and “construe the facts and reasonable inferences derived therefrom in the light most favorable to the plaintiff.” Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997). “The mere recital of elements of a cause of action, supported only by conclusory statements, is not sufficient to survive a motion made pursuant to Rule 12(b)(6).” Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). To survive a motion to dismiss, a complaint’s factual allegations “must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations omitted). “To satisfy this standard, a plaintiff need not ‘forecast’ evidence sufficient to prove the elements of the claim. However, the complaint must allege sufficient facts to establish those elements.” Walters, 684 F.3d at 439 (citation omitted). “Thus, while a plaintiff does not need to demonstrate in a complaint that the right to relief is ‘probable, ’ the complaint must advance the plaintiff’s claim ‘across the line from conceivable to plausible.’” Id. (quoting Twombly, 550 U.S. at 570).

         As a preliminary matter, the parties disagree over whether the substantive laws of the District of Columbia or Maryland apply. Because Maryland is the forum state, Maryland’s choice-of-law rules apply. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); see also Rawl’s Auto Auction Sales, Inc. v. Dick Herriman Ford, Inc., 690 F.2d 422, 426 (4th Cir. 1982). Maryland follows the principles of lex loci delicti in determining choice of law. Great American Ins. v. Nextday Network Hardware Corp., 73 F.Supp.3d 636, 640 (D. Md. 2014). In tort actions, the court applies the law of the state in which the last event required to constitute the tort had taken place. Id.

         In this case, Maryland law applies because the last event triggering the injury to 3501 occurred in Maryland. Specifically, Nadel, Schaechter and Madeoy executed the promissory note and DOT in Maryland in 2006, and amended the same in 2010. ECF No. 16 at 4, Ex. 2. Upon execution, a DOT is “valid between the parties, ” regardless of when recorded. Stebbins-Anderson, Co. v. Bolton, 208 Md. 183, 190 (1955); see also Chicago Title Ins. Co. v. Mary B., 190 Md.App. 305 (2010). The DOT and promissory note solidified that the property held by 3501 was fraudulently pledged as collateral to secure the loan between Schaechter and Madeoy. Accordingly, at the time of the DOT’s execution, the property held by 3501 became encumbered and could theoretically be used to satisfy the outstanding amount if Madeoy defaulted. Because these transactions occurred in Maryland, the laws of Maryland apply.

         B. Count I: ...


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