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Oceanic Inn, Inc. v. Sloan's Cove, LLC

Superior Court of Maine, Cumberland

October 15, 2014

OCEANIC INN, INC. and ARMAND VACHON, Plaintiffs,
v.
SLOAN'S COVE, LLC, Defendant and PETER FESSENDEN, Chapter 13 Trustee, and JEFF CORBIN Parties-in-Interest

ORDER ON AMENDED MOTION FOR SUMMARY JUDGMENT OF DEFENDANT SLOAN'S COVE

A. M. HORTON JUSTICE.

Pursuant to MR. Civ. P. 56, Defendant Sloan's Cove, LLC [Sloan's Cove] has filed an Amended Motion for Summary Judgment on Count I of the complaint of Plaintiffs Oceanic Inn, Inc. ["Oceanic"] and Armand Vachon, alleging breach of contract, and on Sloan's Cove's counterclaim for declaratory judgment. Sloan's Cove's motion does not seek summary judgment on Count IX of the Complaint, for accounting.

At Plaintiffs' request, their obligation to respond to Sloan's Cove's motion was deferred pursuant to M.R. Civ. P. 56(1) in order for Plaintiffs to take certain discovery, Plaintiffs have now filed an Opposition to the Motion and Sloan's Cove has filed a reply memorandum.

BACKGROUND

This Order is based on the following facts, most of which are undisputed, with disputed facts noted, Plaintiff Armand Vachon is the principal and sole shareholder of Oceanic, a Maine corporation. Sloan's Cove is a Maine limited liability company wholly owned by Pauline Beale, Vachon's sister, For several years, Vachon and Beale have been involved in litigation surrounding the probate of their mother's estate, of which Beale is the personal representative. The relationship between brother and sister is contentious.

The real estate at issue in this case is a 15-unit motel, pub and cafe, collectively doing business as the Oceanic Inn and located at 43 West Grand Avenue in Old Orchard Beach. The real estate is assessed by the Town for approximately $650, 000, and Vachon estimates its replacement value to be in the range of $1.5 million.

Prior to 2007, Oceanic owned the real estate and Vachon was the principal of Oceanic and operated the motel, pub and cafe business for many years. However, sometime around 2006-07, when Vachon, according to his affidavit, was having emotional problems, his mother and stepfather, Georgette Proulx and Gerald Proulx, became involved as principals in the Oceanic corporation and evidently operated the business for a time. The details of their involvement are not clear in the record. They apparently had their own operating entity, Proulx Real Estate Investment, LLC.

In 2006, Oceanic, acting through Georgette and Gerald Proulx, executed a mortgage and note on its real property in Old Orchard Beach in favor of TD Banknorth, N.A. Proulx Real Estate Investment, LLC was also involved in the transaction, In 2007, Oceanic conveyed the real estate to the Proulxs, who immediately conveyed it to Mr. Vachon, both deeds being dated April 6, 2007. From these events, it can be inferred that Vachon had returned to an active role in operating the Oceanic Inn.

In November 2009, TD Banknorth, N.A. assigned the note and mortgage to Sloan's Cove pursuant to a settlement agreement to satisfy Oceanic's debts. The settlement agreement called for Oceanic and Vachon to make interest only payments to Sloan's Cove for three years and then a balloon payment.

As part of the settlement and consistent with Vachon's ownership of the real estate, Sloan's Cove and Armand Vachon entered into an Allonge and Modification Agreement dated November 12, 2009. Pursuant to express terms of the Allonge and Modification Agreement, Vachon became the sole obligor under the note, and acknowledged and ratified the mortgage, waiving all defenses to its enforceability.

All interest only payments due under the settlement were paid in a timely fashion to Sloan's Cove, but in November of 2012, Oceanic and Vachon were unable to make the balloon payment when it became due.

Meanwhile, Vachon and his sister, Pauline Beale, the principal of Sloan's Cove, were also involved in litigation for years regarding the conservatorship of their mother and then regarding her estate. Vachon has been represented in the conservatorship and estate litigation by attorney John Campbell. According to Vachon's affidavit and Plaintiffs' Statement of Additional Material Facts, one of the issues in the conservatorship/estate litigation has been Beale's claim that Vachon had wrongfully induced the Proulxs to convey the Oceanic Inn real estate to him in 2007:

[Beale and her attorneys] had claimed falsely that I had taken advantage of my mother and stepfather and that the Oceanic Inn should be considered to be not my property but the property of Oceanic Inn, Inc. which stock was owned by my mother and step father.

Vachon Affidavit ¶8 (emphasis in original).

In November 2012, when Vachon missed the balloon payment due to Sloan's Cove under the 2009 settlement agreement, Vachon and Oceanic, of which Vachon was once again the sole shareholder, retained attorney Joseph Goodman to represent them. For reasons not clear in the record, Vachon apparently never informed attorney Goodman that he, not Oceanic owned the real estate.[1] Attorney Joseph Goodman believed that Oceanic owned the property and was still liable on the note and mortgage.

In December of 2012, attorney Goodman on behalf of Oceanic filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code and listed Sloan's Cove as its only secured creditor. The purpose of the filing was to invoke the automatic stay and allow Oceanic time to formulate a plan to pay its debts without apprehension of foreclosure. Oceanic proposed a plan with the Bankruptcy Court to resolve its debt, but Sloan's Cove objected, and the case was ultimately dismissed. Throughout the proceeding, Sloan's Cove and Oceanic, as well as the bankruptcy court, treated the real estate as owned by Oceanic rather than Vachon individually.

During 2012 and well into 2013, attorneys for the three parties to this case were in frequent communication. By then, Sloan's Cove was represented by attorneys Daniel Cummings and John Bonneau.

Sometime during the summer of 2013, Sloan's Cove decided to exercise its power of sale pursuant to the mortgage now held by it. In an internal e-mail dated August 8, 2013, attorney Cummings asked a corporate/real estate paralegal in his law firm to ascertain ownership of the real estate for purposes of foreclosing on the mortgage. The paralegal responded the same day, advising that Vachon was the record owner, and that there was a "Clerk's Certificate on record claiming a fraudulent transfer, " see Exhibit A to Campbell Affidavit.

There is nothing in the record to indicate that Sloan's Cove's attorneys had actual knowledge of who or what owned the real estate prior to August 8, 2013, whereas Vachon and Beale plainly knew that Vachon owned it because his ownership was an issue in the litigation with Beale, On August 19, 2013, attorney Cummings on behalf of Sloan's Cove, sent two documents and a cover letter via registered mail, addressed to Armand Vachon and mailed to Vachon at the Oceanic property rather than to Vachon's home address. The cover letter was addressed to Armand Vachon. One of the two documents was a notice of mortgagee's sale of real estate pursuant to the power of sale provisions of the mortgage and note granted by Oceanic to TD Bank and now held by Sloan's Cove. The other document was titled Notice of Intention to Foreclose and Liability for Deficiency After Foreclosure of Mortgage, and it was addressed to both Vachon and Oceanic. Both documents indicated that Sloan's Cove intended to foreclose on the mortgage given by Oceanic to TD Banknorth, N.A. pursuant to the power of sale provisions of the mortgage, and to hold the sale September 13, 2013.

Although Vachon refused to sign for Sloan's Cove's August 19 mailing, there is no dispute that he and Oceanic received actual notice of Sloan's Cove's intent to exercise the power of sale. Prior to the sale, Sloan's Cove recorded the notice of sale in the York County Registry of Deeds and caused it to be published in the Portland Press Herald for three successive weeks.

Attorney Cummings for Sloan's Cove and Attorney Goodman for Vachon and Oceanic were in communication regarding possible alternatives to the sale up to the morning of September 13. During those communications, Attorney Cummings suspected that attorney Goodman was under the mistaken belief that Oceanic rather than Vachon owned the real estate, and never told attorney Goodman that he had learned that Vachon rather than Oceanic owned the real estate.

The day before the scheduled September 13 sale, attorney Cummings asked the paralegal in his firm to update ownership of the real estate, and she reported back that record ownership remained with Vachon.

As scheduled in the notice of sale, Attorney Cummings conducted the power of sale foreclosure auction on behalf of Sloan's Cove on September 13, 2013. Attorney Cummings is not an auctioneer licensed by the State of Maine. The auction was held at 55 West Grand Avenue, Old Orchard Beach, a very short distance from the real estate being auctioned.

In an attempt to stop the auction, Oceanic filed a second voluntary petition for relief under chapter 11 of the U.S. Bankruptcy Code, again listing Sloan's Cove as the only creditor, and alerting Sloan's Cove of the filing before the auction began. Attorney Cummings alerted the bidders at the auction that a bankruptcy case had been filed, but stated lie anticipated he would be able to consummate a sale. He also clarified that only real estate and fixtures to the real estate were being sold, and that no personal property (other than fixtures attached to the real estate) would be sold.

Three prospective buyers registered and paid the required $25, 000 deposit to bid, and two of the three actually bid. Bidding started at $345, 000, and the two bidders bid the price upward. The winning bid of $455, 000 was submitted by Jeff Corbin. After the sale, Corbin executed a purchase and sale agreement, and satisfied Sloan's Cove of his ability to close on the purchase, Plaintiffs filed suit in York County Superior Court on September 24, 2013. The case was approved for transfer to the Business and Consumer Docket on October 24, 2013. As a result of the uncertainty caused by this litigation, Corbin has requested to defer the closing on his purchase, and Sloan's Cove has granted him multiple extensions of the closing deadline.

STANDARD OF REVIEW

For Sloan's Cove to obtain summary judgment on Count I of the complaint and on its counterclaim for declaratory judgment, it must establish that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law. M.R, Civ. P. ...


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