Centrix Bank and Trust v. Kehl

• Court: Superior Court of Maine
• Decided: July 7, 2014
• Docket: YORre-11-62
• Status: Unpublished

Opinion

f NTF P f D AIIG o 8 1014

STATE OF MAINE SUPERIOR COURT YORK, SS. DOCKET NO. RE-11-62

CENTRIX BANK AND TRUST a/k/ a :ToN-(OR- Dl-ol-lY. CENTRIX BANK & TRUST, ) ) Plaintiff, ) v. ) ORDER ON CROSS-MOTIONS FOR ) SUMMARY JUDGMENT ON COUNT IV JUDITH KEHL, STEPHEN KEHL, ) OF THE AMENDED COMPLAINT 35 THAXTER LANE, LLC, and ) 37 THAXTER LANE, LLC, ) ) Defendant. )

I. Background

On January 4, 2008, Defendants Judith and Stephen Kehl transferred the property

located at 35 Thaxter Lane, Kittery Point, Maine, to Defendant 35 Thaxter Lane, LLC

and the property situated at 37 Thaxter Lane Kittery Point, Maine to 37 Thaxter Lane,

LLC by Quitclaim Deed recorded in the York County Registry of Deeds. 1 That same

day, a "Non-Encumbrance Covenant" between Defendants Judith and Stephen Kehl,

dated December 18, 2007, was recorded in the York County Registry of Deeds for each

of the 35 and 37 Thaxter Lane properties. The Non-Encumbrance Covenant for 35

Thaxter Lane (which is exactly mirrored in the language of the Non-Encumbrance

Covenant for 37 Thaxter Lane) states:

I, Judith Kehl, individually and as a member of 35 Thaxter Lane, LLC hereby grants a Non-Encumbrance Covenant on property located at 35 Thaxter Lane, Kittery Point, Kittery, Maine to:

Stephen Kehl of 28 Thaxter Lane, Kittery Point, Maine, as collateral security for the payment of the sum of $250,000.00 owed to Stephen L. Kehl under the terms of a certain Agreement between Stephen L. Kehl and JudithR. Kehl, on land located at 35 Thaxter Road, I

1 Judith Kehl is the sole member of 35 Thaxter Lane, LLC, and of 37 Thaxter Lane, LLC.

1 The Non-Encurnrance Covenants further state that the purpose of the Covenants is to

ensure that no encumbrance is placed on the properties without prior approval by

Defendant Stephen Kehl.

Plaintiff brought this action in December 2009 seeking pre-judgment attachment of

the amount due subsequent to the default on three promissory notes executed by

Defendant Judith Kehl in its favor. The court issued an Order Approving Plaintiff's

Motion for Ex Parte Approval of Attachment and Attachment on Trustee Process on

February 5, 2010 granting an attachment to Plaintiff on the real and personal property of

Defendants Judith Kehl, 35 Thaxter Lane, LLC and 37 Thaxter Lane, LLC in the amount

of $1,595,292.65. Plaintiff recorded the Order in the York County Registry of Deeds. In

March 2011, Plaintiffs filed a second action, which has been consolidated with the first,

asking the court to grant foreclosure on the 2007 Mortgage, and to find fraud and

fraudulent transfer on behalf of Defendants. Plaintiffs have amended the complaint to

add a count of declaratory judgment.

The parties have filed cross motions for summary judgment on Plaintiffs Count N

of the amended complaint seeking declaratory judgment. Parties dispute whether

Plaintiff may attach a lien against the Thaxter Lane properties in light of the recorded

Non-Encumbrance Covenants.

ll. Standard of Review

"Cross motions for summary judgment neither alter the basic Rule 56 standard, nor

warrant the grant of summary judgment per se." F.R. Carroll, Inc. v. TD Bank, N.A.,

2010 ME 115,

issue of material fact exists and the moving party is entitled to judgment as a matter of

law. Beal v. Allstate Ins. Co., 2010 ME 20,

Department of Transportation, 2008 ME 106, <][ 14, 951 A.2d 821 (Me. 2008). When

2 reviewing a motion for summary judgment, the court reviews the parties' statements of

material facts and the cited record evidence in the light most favorable to the non-

moving party. Id.

A genuine issue of material fact exists where the fact finder must make a

determination between differing versions of the truth. Reliance National Indemnity v.

Knowles Industrial Services Corp., 2005 ME 29, <][7, 868 A.2d 220; citing Univ. of Me.

Found. v. Fleet Bank of Me., 2003 ME 20, 120, 817 A.2d 871. Furthermore, "a fact is

material if it could potentially affect the outcome of the case." Id.

III. Discussion

Plaintiff moves the court for summary judgment on the basis that, as a third party

seeking recovery of potential debt, Plaintiff is not affected by the "Non-Encumbrance

Covenant" between Defendants Judith and Stephen Kehl. Defendants move the court

for summary judgment on the basis that the "Non-Encumbrance Covenant", recorded

in the York County Registry of Deeds, precludes the ability of Plaintiff to encumber the

property with an attachment. A covenant of freedom from encumbrances is often found

in a warranty deed. 2 The covenant of freedom from encumbrances granted in a

warranty deed is a promise from the grantor to the grantee that there are no

encumbrances on the property at the time of execution. The promise is solely between

the grantor and grantee. COVENANT, Black's Law Dictionary (9th ed. 2009), covenant.

There is no reason to believe that the Non-Encumbrance Covenants bind anyone

other than those party to the Covenants. If the Non-Encumbrance Covenants are

equivalent to a covenant of freedom from encumbrances, as found in a warranty deed, 2 Black's Law Dictionary describes a warranty deed as follows: A deed containing one or more covenants of title; esp., a deed that expressly guarantees the grantor's good, clear title and that contains covenants concerning the quality of title, including warranties of seisin, quiet enjoyment, right to convey, freedom from encumbrances, and defense of title against all claims. DEED, Black's Law Dictionary (9th ed. 2009), deed.

3 the Covenants would not be relevant to encumbrances placed on the properties after the

Covenants were entered. In this case, the Covenants state: "The purpose of this Non-

Encumbrance Covenant ... is to ensure that the above described property ... shall not be

further pledged or encumbered after this date without the concurrence and written

consent of Stephen L. Kehl." It is clear from the face of the Covenants that they are not

meant to replicate the warranty offered in a warranty deed, but as agreements between

Defendant Judith and Stephen Kehl going forwards. Defendant Stephen Kehl may have

some recourse against Defendant Judith Kehl for encumbrances placed on the property

after the execution of the Covenants. However, the Covenants between Stephen Kehl

and Judith Kehl may not be enforced upon Plaintiff, who was not a party to the

agreement. "It goes without saying that a contract cannot bind a nonparty." E.E.O.C. v.

Waffle House, Inc., 534 U.S. 279, 294, 122 S. Ct. 754, 764, 151 L. Ed. 2d 755 (2002). In the

situation at hand, in which Plaintiff seeks attachment in order to recover potential debt,

Defendants' agreement not to further encumber the properties is inapplicable to

Plaintiff.

Defendants argue that the Non-Encumbrance Covenants are equitable mortgages

with priority. (Qavis v. Picciandra, 662 A.2d 898, 899 (Me. 1995); Stinchfield v. Milliken,

71 Me. 567, 570 (1880) "If a transaction resolve itself into a security, whatever may be its

form, and whatever name the parties may choose to give it, it is in equity a mortgage." )

Maine is a "race-notice" state. Spickler v. Ginn, 2012 ME 46, 9I 10, 40 A.3d 999; 33 M.R.S.

§ 201.

Under a "race-notice" recordation statute, a purchaser or creditor who first records without notice of a prior, unrecorded interest in the real estate has a senior interest or lien. A subsequent purchaser or creditor cannot have a senior claim to the real estate, under such a statute, if he or she has actual notice of a prior interest at the time the subsequent claim is recorded.

4 92A C.J.S. Vendor and Purchaser§ 567. If the Non-Encumbrance Covenants are

equitable mortgages on the property, the Non-Encumbrance Covenants would take

priority over Plaintiff's lien. The Non-Encumbrance Covenants themselves are

ambiguous as to whether they are enforceable equitable mortgages deserving of

priority. There are genuine issues of material fact. The court denies summary judgment

on the matter of whether the Non-Encumbrance Covenants are enforceable equitable

mortgages.

IV. Conclusion

As a matter of law, Plaintiff may attach a lien against 35 Thaxter Lane, LLC and 37

Thaxter Lane, LLC. Summary Judgment is denied to both parties on the issue of

whether the Non-Encumbrance Covenants amount to equitable mortgages.

DATE: John O'Neil, Jr. Justice, Superior Court

5 DOCKET NO. RE-11-62

ATTORNEYS FOR PLAINTIFF: DAVID M HIRSHON MARSHALL J TINKLE HIRSHON LAW GROUP PC 208 FORE STREET PORTLAND ME 04101

ATTORNEY FOR DEFENDANT STEPHEN KEHL: JAMES B BARTLETT JAMES B BARTLETT PA POBOX836 YORK ME 03909

ATTORNEYS FOR DEFENDANTS JUDITH KEHL, 37 THAXTER LANE LLC & 35 THAXTER LANE LLC MARK A KEARNS LAW OFFICE OF MARK KEARNS MARK RANDALL RANDALL LAW OFFICE PA POBOX 17915 PORTLAND ME 04112 DOCKET NO. CV-09-381

ATTORNEYS FOR PLAINTIFF: DAVID M HIRSHON HIRSHON LAW GROUP PC 208 FORE STREET PORTLAND :ME 04101

JEFFREY P WlllTE LAW OFFICE OF JEFFREY P WHITE 243 MOUNT AUBURN AVE S-B-1 AUBURN:ME 04210

ATTORNEYS FOR DEFENDANTS JUDITH KEHL & PORT OF CALL LLC MARK A KEARNS LAW OFFICE OF MARK KEARNS MARK RANDALL RANDALL LAW OFFICE PA POBOX 17915 PORTLAND :ME 04112