Locapo v. Colsia, et al.

2009 DNH 057

• Court: District Court, D. New Hampshire
• Decided: April 22, 2009
• Docket: CV-08-414-JL
• Status: Published

Opinion

Locapo v . Colsia, et a l . CV-08-414-JL 4/22/09 P UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE

John Locapo

v. Civil N o . 08-cv-414-JL Opinion N o . 2009 DNH 057 Brian Colsia et al.

O R D E R

Plaintiff John Locapo, proceeding pro s e , has sued MAK

Investments, LLC; its managing member, Brian Colsia; and Starter

Title Services, a title company that allegedly assisted in

placing a mortgage on Locapo’s residence to finance his purchase

of a different property from MAK.1 Locapo claims that, in the

course of these transactions, the defendants made

misrepresentations, engaged in unfair or deceptive acts and

practices, and committed other wrongs. The defendants have filed

motions to dismiss Locapo’s complaint, see Fed. R. Civ. P.

12(b)(6), arguing that these claims did not survive his

bankruptcy filing in September 2007.

This court has diversity jurisdiction over this matter,

since Locapo is a citizen of Massachusetts and the defendants

(or, in the case of MAK, its members) are citizens of New

1 While Locapo commenced this action in a pro se capacity, he retained counsel after the defendants filed their motions to dismiss--but counsel sought, and was granted, leave to withdraw three months later, returning Locapo to pro se status. Hampshire. See 28 U.S.C. § 1332. After oral argument, and for

the foregoing reasons, the court grants the defendants’ motions.

In ruling on a motion to dismiss for failure to state a

claim under Rule 12(b)(6) of the Federal Rules of Civil

Procedure, the court proceeds “on the assumption that all the

allegations in the complaint are true (even if doubtful in

fact).” Bell Atl. Corp. v . Twombly, 127 S . C t . 1955, 1965 (2007)

(citations and footnote omitted). Furthermore, Locapo’s pro se

complaint must be “liberally construed” and “held to less

stringent standards than formal pleadings drafted by lawyers.”

Erickson v . Pardus, 127 S . C t . 2197, 2200 (2007) (applying

Twombly standard to pro se complaint). The court has also taken

judicial notice of the records of Locapo’s bankruptcy proceeding.

See Banco Santander de P.R. v . Lopez-Stubbe (In re Colonial

Mortgage Bankers Corp.), 324 F.3d 1 2 , 16 (1st Cir. 2003).

The complaint alleges, in relevant part, that Colsia orally

agreed to sell Locapo an apartment building in Milford, New

Hampshire, and to assist him in securing the financing for the

purchase. With Colsia’s help, Locapo obtained a mortgage on his

residence, intending to use the proceeds to pay roughly half the

cost of the apartment building.2 Locapo claims that Starter,

2 As discussed infra at note 5 , the parties’ written agreement indicates that the deal had a significantly different

2 which served as the title company for the transaction,

nevertheless acted wrongfully in disbursing the proceeds to

Colsia. The transaction closed on April 2 6 , 2006.

Locapo alleges that, to pay the balance of the purchase

price, he granted MAK a second mortgage on his residence and

provided landscaping services and materials on another property

owned by Colsia and MAK.3 Locapo also claims to have spent money

making various improvements to the apartment building itself. In

July 2007, however, Colsia allegedly told Locapo that Colsia

would not be able to assist Locapo in getting more financing and,

furthermore, that Locapo would lose both his initial investment

and the value of the improvements as a result.

Locapo, represented by counsel, subsequently filed a

voluntary petition for bankruptcy protection, on September 1 7 ,

2007. In re Locapo, N o . 07-43444 (Bkrtcy. D. Mass. Sept. 1 7 ,

2007). Under Rule 1007 of the Federal Rules of Bankruptcy

structure, but the court has accepted Locapo’s characterization of it for the purpose of ruling on the motions to dismiss. 3 A mortgage secures a debt, rather than paying the debt in the manner Locapo alleges. Colsia and MAK represent (in their objection to Locapo’s motion for a preliminary injunction, which has been denied) that he gave them a promissory note which was secured by the mortgage. That detail has no bearing on the motions to dismiss, however.

3 Procedure, Locapo was required to file, together with the

petition, the schedule of assets and liabilities required by

11 U.S.C. § 521(a)(1)(B)(ii). Locapo did s o , using the official

bankruptcy court form. But the filing made no reference to any

claim against the defendants o r , indeed, any interest in the

apartment building at all; the line on the form for “contingent

and unliquidated claims of every nature” was checked “NONE.”

Locapo alleges in his complaint that he did not realize he

had any claim against Colsia until October 2007. 4 But after that

point, on November 2 8 , 2007, Locapo successfully moved the

bankruptcy court for leave to amend the schedule to add a

“Possible Workmen’s Compensation Settlement in an unknown

amount,” listing that asset in the space for “contingent and

unliquidated claims.” Locapo’s proposed amended schedule, like

his original one, made no reference to any claim against the

defendants. Eventually, on April 1 5 , 2008, the bankruptcy

trustee reported that the estate had “no nonexempt property

available for distribution to creditors.” This resulted in the

bankruptcy court’s discharging Locapo and closing the case, which

4 Locapo also represents in his objection to the motions to dismiss that he told his bankruptcy lawyer about the alleged agreement with Colsia but that “since there had been no transfer of property” the lawyer determined that the agreement was not an asset that needed to be listed on the schedule.

4 occurred on May 2 2 , 2008. Some months later, on October 7 , 2008,

Locapo commenced this action.

Section 521 of the bankruptcy code, as previously mentioned,

requires the debtor to file a schedule of assets and liabilities.

See 11 U.S.C. § 521(a)(1)(B)(ii). Because “[t]he basic principle

of bankruptcy is to obtain a discharge from one’s creditors in

return for all one’s assets, except those exempt, as a result of

which creditors release their own claims and the bankrupt can

start fresh,” the bankruptcy system cannot function fairly and

effectively unless the debtor scrupulously complies with this

requirement. Payless Wholesale Distribs., Inc. v . Alberto Culver

(P.R.) Inc., 989 F.2d 5 7 0 , 571 (1st Cir. 1992). So a debtor

cannot omit a cause of action from his schedule of assets,

leaving his creditors in the dark as to a potential source of

payment for their claims, then bring the cause of action on his

own once those claims have been compromised or released in the

bankruptcy, keeping any recovery for himself. See id.

Courts sometimes enforce this prohibition through the

doctrine of judicial estoppel, which generally prevents a party

from prevailing on one position in a legal proceeding, then

taking an inconsistent position in a subsequent case. See id.;

see also, e.g., Stallings v . Hussmann Corp., 447 F.3d 1041, 1047

(8th Cir. 2006); Browning Mfg. v . Mims (In re Coastal Plains,

5 I n c . ) , 179 F.3d 1 9 7 , 208 (5th Cir. 1999); Oneida Motor Freight,

Inc. v . United Jersey Bank, 848 F.2d 4 1 4 , 419 (3d Cir. 1988).

But others, including the court of appeals for this circuit, have

relied on the operation of § 521 in conjunction with another

provision of the bankruptcy code, § 5 5 4 , which provides for

abandonment of the property of the bankruptcy estate. Jeffrey v .

Desmond, 70 F.3d 183, 186 (1st Cir. 1995); see also, e.g., Cusano

v . Klein, 264 F.3d 936, 945-46 (9th Cir. 2001); Hutchins v . IRS,

67 F.3d 4 0 , 43 (3d Cir. 1995); Vreugdenhill v . Navistar Int’l

Transp. Corp., 950 F.2d 5 2 4 , 525-26 (8th Cir. 1991). The

defendants’ motions to dismiss invoke this second theory, so the

court need not consider judicial estoppel here.5

Section 554 provides, in relevant part, that “any property

scheduled under [§ 521(1)] and not otherwise administered is

abandoned to the debtor,” 11 U.S.C. § 554(c), but “property of

the estate that is not abandoned under this section and that is

not administered in the case remains property of the estate,” id.

§ 554(d). Because property cannot be abandoned to the debtor

unless it has been scheduled, per subsection ( c ) , property that

is not scheduled is not abandoned, but remains in the estate, per

subsection ( d ) . See, e.g., Cusano, 264 F.3d at 945-46. The

5 The defendants’ motions d o , however, expressly reserve their right to assert a judicial estoppel defense.

6 upshot is that, once a bankruptcy case closes through

administration of the estate, the debtor loses his rights in a

cause of action he had at the time he sought bankruptcy

protection but nevertheless failed to list on his schedule. See,

e.g., Jeffrey, 70 F.3d at 186.

That is the fate of Locapo’s claims against the defendants

here. While “generally, a debtor has no duty to schedule a cause

of action that did not accrue prior to bankruptcy,” Cusano, 264

F.3d at 9 4 7 , the causes of action here accrued before Locapo

filed his bankruptcy petition.

Indeed, Locapo states that Colsia announced, in July 2007,

that he would not help Locapo in getting further financing for

his purchase of the apartment building; Colsia’s alleged failure

to provide this assistance provides part of the basis for

Locapo’s claims against him here. At the same time, according to

Locapo, Colsia also allegedly said that Locapo would lose his

initial investment in the property, i.e., the money he obtained

by mortgaging his residence; Colsia’s alleged misappropriation of

those funds serves as the basis for a number of Locapo’s other

claims against him.6 Locapo’s claims against Starter Title,

6 Some of Locapo’s claims against Colsia arise out of his alleged misrepresentations that he or MAK was the owner of the apartment building, when in fact it was owned by another entity, 40 Nashua Street, LLC. The written agreement between Locapo and

7 which charge that it wrongfully directed those funds to Colsia,

likewise arose at that point, if not sooner (Locapo’s complaint

suggests that he knew, when that mortgage closed in April 2006,

that its proceeds were destined for Colsia, and Locapo did not

dispute this point when Starter Title made it at oral argument).

Locapo’s objection to the motions to dismiss does not

question that the claims he asserts here arose prior to his

bankruptcy filing. While his complaint states that he did not

“realize” that Colsia had breached his claimed agreement to help

procure financing for the purchase until October 2007 (the month

after the bankruptcy filing), that conclusory statement is

contradicted by his factual allegations--which state, again, that

Colsia announced in July 2007 that he would not honor that aspect

MAK, however, explicitly states that MAK was assigning “its right and interest in a certain lease” for the building--which included an option to purchase--rather than the building itself, and acknowledges Locapo’s obligation, as assignee, to continue paying rent. The court may take judicial notice of that document, see Perry v . New Eng. Bus. Serv., Inc., 347 F.3d 343, 345 n.2 (1st Cir. 2003), which leaves no doubt that Locapo knew, by the time he signed it at the latest, that neither Colsia nor MAK in fact owned the building, regardless of what they may have allegedly said beforehand. Locapo makes no allegation or argument to the contrary. Incidentally, the agreement also indicates that what Locapo calls his “initial investment” (including the proceeds from the first mortgage, the note secured by the second mortgage, and the landscaping work) was the consideration for acquiring the option to purchase from the defendants; the additional financing was needed to pay the owner of the building when the option was exercised.

8 of the agreement--and is therefore disregarded in ruling on the

motions to dismiss.7 See Bell Atl., 127 S . C t . at 1965.

Locapo does argue in his objection that he told his

bankruptcy attorney about the claimed agreement with Colsia, see

note 4 , supra, but simply telling someone about a claim--which is

not even in fact what Locapo says he did--is not equivalent to

listing it on the debtor’s schedule of assets. In Jeffrey, in

fact, the court of appeals ruled that the debtors had lost their

claim by failing to list it on their asset schedule, despite

their allegation that they had discussed it with the trustee at

the creditors’ meeting before the case closed, reasoning that the

debtors’ failure to list the claim on their schedule was what

mattered. 70 F.3d at 186; see also Vreugdenhill, 950 F.2d at 526

(“It is not enough that the trustee learns of the property

through other means; the property must be scheduled pursuant to

section 521(1).”).

As the court of appeals held in Jeffrey, “[t]he law is

abundantly clear that the burden is on the debtors to list the

asset and/or amend their schedules, and that in order for

property to be abandoned by operation of law pursuant to 11

7 The same is true of the complaint’s assertion that Locapo did not learn about Colsia’s alleged misappropriation of the initial investment in the property until May 2008.

9 U.S.C. § 554(c), the debtor must formally schedule the property

pursuant to 11 U.S.C. § 521(1) before the close of the case.” 70

F.3d at 186. Because Locapo did not discharge that burden in his

bankruptcy proceeding, his claims against the defendants remained

in the estate under § 554(d), rather than being returned to him

under § 554(c). He therefore can no longer maintain these claims

against the defendants. See id. To allow him to do would be

tantamount to letting him hide the claim (and any potential

recovery) from his creditors, who were never informed of its

existence during the bankruptcy proceeding--and walked away

empty-handed. See Payless Wholesale Distribs., 989 F.2d at 571.

There is a potential solution to this problem, however.

Locapo may file a motion in the bankruptcy court, under Rule 5010

of the Federal Rules of Bankruptcy Procedure, to reopen his

bankruptcy case to schedule his claims against the defendants

under 11 U.S.C. § 350(b). See Brooks v . Beatty, 25 F.3d 1037

(table), 1994 WL 224160, at *3 (1st Cir. May 2 7 , 1994)

(unpublished disposition). If he is allowed to do s o , the

trustee will decide whether to press the claims or otherwise

dispose of them for the benefit of Locapo’s creditors, or to

abandon the claims to him to pursue on his own. See id. Whether

to reopen the case, and what to do about the claims should the

case be reopened, are decisions left to the discretion of the

10 bankruptcy court and the trustee, respectively. This court

expresses no opinion on those issues or the merits of the claims.

For the foregoing reasons, the defendants’ motions to

dismiss8 are GRANTED. Locapo’s claims are dismissed without

prejudice to his attempting to reopen his bankruptcy proceedings.

The clerk of this court shall enter judgment accordingly and

close the case.

SO ORDERED.

Josep ___ N . Laplante United States District Judge

Dated: April 2 2 , 2009

cc: John Locapo, pro se Joseph A . Foster, Esq. Kenneth D. Murphy, Esq.

8 Documents n o . 8 and 1 0 .