Asset Protection Concepts and Strategies by Riser Adkisson LLP

Corporation gives no protection to family home - In re Levitsky

United States Bankruptcy Court, D. Maryland.

In re Leon R. LEVITSKY, Debtor.

Lori S. Simpson, Chapter 7 Trustee, Plaintiff

v.

Leon R. Levitsky and Jane Lambert, Defendants.

Manufacturers and Traders Trust Company, Plaintiff

v.

Leon R. Levitsky, et al., Defendants.

Bankruptcy No. 04-16203-JS.  Adversary Nos. 04-2024, 05-1254.

Sept. 30, 2008.

Jennifer J. Karangelen, Neuberger, Quinn, Gielen, Rubin &
Gibber, Kristin Case Lawrence, Bishop, Daneman & Simpson, LLC, Baltimore, MD,
for Plaintiff Lori S. Simpson.

Michael Scott Cohen, Cumberland, MD, for Plaintiff
Manufacturers and Traders Trust Company.

Leon R. Levitsky, pro se.

MEMORANDUM OPINION GRANTING CHAPTER 7 TRUSTEE'S COMPLAINT
FOR TURNOVER OF PROPERTY OF THE ESTATE, UPHOLDING LIEN OF CIT GROUP CONSUMER
FINANCE, INC., AND AVOIDING LIEN OF MANUFACTURERS AND TRADERS TRUST COMPANY AS
TO THE SAID PROPERTY

JAMES F. SCHNEIDER, Bankruptcy Judge.

Before the Court are two adversary proceedings that relate
to the debtor's residence ("the Property"). The first, Adversary Proceeding No.
04-2024, brought by Lori S. Simpson, the Chapter 7 Trustee, asks the Court to
declare that the Property is includable as property of the debtor's estate, even
though it is titled in the name of a corporation, and to grant other relief. The
second, Adversary Proceeding No. 05-1254, brought by Manufacturers and Traders
Trust Company ("M & T"), seeks a declaratory judgment against CIT Group Consumer
Finance, Inc. ("CIT") as to the priority of recorded liens on the Property. In
that proceeding, the parties have filed cross-claims and counterclaims.FN1 The
Court having issued an order setting the order of proof, trial was held on the
Trustee's complaint, at the conclusion of which this Court held that the
debtor's residence was property of the estate. The Trustee then presented her
case in the second adversary proceeding to establish the invalidity of the liens
of both CIT and M & T. At the close of the Trustee's case, CIT and M & T filed
the instant motions for judgment. Counsel for CIT informed the Court that were
its motion to be denied, it would put forward its own case, while counsel for M
& T stated that it had no further case to put forward. For the reasons set
forth, the motion for judgment filed by CIT will be granted, that of M & T will
be denied, and the lien of M & T will be avoided.

FN1. On May 19, 2005, these adversary proceedings were
consolidated by consent order [P. 22]. Thereafter, all pleadings were filed in
Adversary Proceeding No. 05-1254.

THE PARTIES

1. Leon R. Levitsky ("Levitsky," or "the debtor") is a
resident of the State of Maryland.

2. Jane A. Lambert ("Jane") is the debtor's wife.

3. Lori S. Simpson ("Trustee") is the debtor's Chapter 7
Trustee.

4. Contemporary Magic Kingdom, Inc., t/a CMK Company
("Contemporary"), is a corporation organized under the laws of the State of
Maryland by Levitsky, and holds record title to the Property.

5. Associated Enterprises Ltd. is a defunct corporation
organized by Levitsky under the laws of Great Britain on the Isle of Man. When a
subpoena was sent to Associated in this action, it was returned two months later
with a sticker that stated simply, "Gone Away."

6. JP Morgan Chase Bank, N.A. ("JP Morgan") is a
corporation organized under the laws of the United States and was a holder of a
deed of trust on the Property.

7. Manufacturers and Traders Trust Company ("M & T"), is a
commercial bank chartered under the laws of the State of New York, registered
and qualified to do business in the State of Maryland, and claims to hold a
first lien on the Property.

8. CIT Group Consumer Finance, Inc. ("CIT") was assigned
the deed of trust from JP Morgan and claims to hold a lien on the Property.

9. The Internal Revenue Service ("IRS") asserts a secured
claim against the debtor in the amount of $462,190.85, a priority claim in the
amount of $10,252.78, and an unsecured claim in the amount of $347,890.76, for a
total claim in the amount of $820,334.39. Claim No. 50.

FINDINGS OF FACT

1. The debtor has been in continuous possession of the
Property from September 1983 to the present. It is his personal residence, a
waterfront property identified as Lots E and F in the subdivision known as
"Arundel on the Bay," located at 1315 Magnolia Avenue, Annapolis, Maryland
21403. In a 2001 financial statement, the debtor valued the Property and its
contents at $1 million. Trustee's Exhibit 4. The Trustee's investigation
disclosed that the Property is titled in the name of CMK Company, Inc., a
purported trade name of Contemporary. The debtor's ownership of Contemporary was
not disclosed in either his Schedule A or B (listing, respectively, real and
personal property). However, CMK, Inc. was listed as an unsecured non-priority
creditor in Schedule F, and as a party to an executory contract with the debtor
in Schedule G. Bankruptcy Schedules, Trustee's Exhibit No. 20.

2. On March 2, 1982, Levitsky separated from his first
wife, Carol Leigh Levitsky ("Carol"), left their marital home and moved into an
apartment with Jane.FN2

FN2. Carol and Levitsky were not divorced until May 31,
2000. Divorce decree of the Circuit Court for Anne Arundel County, Maryland,
dated May 31, 2000, Trustee's Exhibit No. 152. Levitsky and Jane were married on
June 2, 2000. Deposition of Jane Lambert, July 19, 2006, at 7.

3. In April 1982, one month after he separated from Carol,
Levitsky purchased the Property and titled it in the trade name of Contemporary,
the corporation he created in order to put the house that he purchased for
himself and Jane beyond the reach of creditors, particularly Carol.FN3

FN3. 3Levitsky testified that the corporate name was based
on his romantic ideal that the Property would serve as the perfect residence for
him to enjoy his "magical relationship" with Jane. Tr. at 62:11, where Levitsky
agrees with Trustee's opening statement at 10:16.

4. Evidence of Levitsky's motivation to shield the home
from Carol manifested itself in the following actions taken by the debtor .FN4

FN4. Carol filed a secured claim [Claim No. 11] in the
amount of $641,795.90, representing the net judgment against Levitsky entered by
the Circuit Court for Anne Arundel County in her divorce proceeding, and a
priority claim [Claim No. 12] for unpaid support obligations in the amount of
$10,363.65. In a separate adversary proceeding, Adv. Proc. 04-02395, this Court
found part of her claim to be non-dischargeable, when Levitsky sold their
interest in real property owned by their Prince George's Doctor's Hospital Joint
Venture without reimbursing her.

A. The timing of the purchase of the Property in 1983
occurred shortly after the separation from Carol.

B. His relationship with Jane created the potential for a
financially unfavorable divorce.

C. A handwritten notation in a letter written by James K.
Stitcher, the debtor's accountant (now deceased), with additional notations made
by the debtor in his own handwriting, indicated that Levitsky set up
Contemporary "[i]n order to get [the home] out of his wives (sic) grasp." Memo
from James Stitcher, Trustee's Exhibit No. 61.FN5

FN5. The following is the complete text of the
memorandum:RE: Dr. Levitsky Condemnation Replacement

Since our last discussion regarding your [illegible] of the
use of the Magnolia Avenue property, as the replacement property, due to the
fact the property was put into a corporation which did not exist at the time of
the condemnation, certain additional facts have emerged as a result of my recent
discussion with Dr. Levitsky. They are as follows:

1. The Magnolia property was acquired from Mr. Benbasset in
1983 and owned by him as an individual until he subsequently transferred it to
the corporation.

2. The sale was financed by a down payment of $37,500.00
plus made by Dr. Levitsky and a personal loan made by Dr. Levitsky from Maryland
National Bank.

3. Shortly after purchasing the property, a contractor was
hired to perform renovations to the property.

4. The deed was not recorded at that time due to the fact
that permanent financing had not been obtained and there was no sense of to
record since the parties maintained an on-going business and personal
relationship existent to this day.

5. We are providing you with signed letters from Mr.
Benbasset and Mr. Cailuette attesting to aforementioned.

6. Dr. Levitsky was engaged in a divorce action during 1983
and wished protect his property rights relative to this property. In order to do
so, when he obtained permanent financing on the property he decided to put the
property into a corporation in order to get it out of his wives [sic] grasp.

7. The corporation in this issue, had no cash, therefore
the down payment had to have been made by Dr. Levitsky. The sales price was
$167,500. But the permanent financing was for $130.00. Furthermore, the
corporation would not have been sufficiently credit-worthy to obtain this loan
on its own.

8. 6. Additionally the improvements were contracted for and
paid for by Dr. Levitsky and almost completed by the time the deed was.

As a result of the foregoing, our position is that Dr.
Levitsky in fact owned the property prior to its transfer to a corporation. He
wholly owned and paid for this property. This property qualifies as replacement
property in the matter under consideration.

Should you continue to disagree with this position, write
this case up as disagreed and we shall proceed to amend our 1981 tax court
proceedings to include this issue. This matter has been discussed with legal
council [sic] and they believe our position has merit.

Id.

D. Levitsky had no explanation for his decision to place
the ownership of his residence in a corporate name.

E. The Property was the sole asset of Contemporary.

5. Levitsky has resided in the Property for nearly 25 years
but paid no rent to the corporation, except for the one payment of approximately
$36,000, that he paid shortly before the petition date, which he denominated as
"arrears." FN6 Despite being so far in arrears, Contemporary never sought to
evict Levitsky. Trial Transcript ("Tr.") at 193.

FN6. The Trustee sued Contemporary in a separate adversary
proceeding, Adv. Proc. 06-01285, in order to recover fraudulent conveyances.

6. A $3,610 figure recorded as "rent" on the books of the
corporation was actually money lent to Contemporary by Maryland National Bank
("MNB").

7. The only written leases on the Property between Levitsky
and Contemporary that were entered into evidence, purportedly executed in 1983,
were crude forgeries that contained a telltale 2006 facsimile date with the
debtor's signature written in ink. Facsimile copy of lease, Trustee's Exhibit
No. 147.

8. For many years, the corporation had only $5 in its bank
account.

9. Levitsky paid all expenses accruing from the ownership
of the Property from his personal checking account or from the operating
accounts of his personal secretaries. These payments included real estate taxes
and homeowner's insurance, as well as corporate expenses, such as SDAT filing
fees and accounting expenses. Travelers invoices and checks, Trustee's Exhibit
No. 27; 2003 tax bill for Property, and checks paying taxes, Trustee's Exhibit
No. 28; and checks paying water bills for Property, Trustee's Exhibit No. 29.FN7

FN7. Levitsky routinely commingled funds between himself
and Contemporary. Post-petition, Levitsky opened a checking account in the name
of Contemporary but used it to pay personal expenses. One check, No. 1032, was
written by Contemporary to Levitsky but payable to the order of "Me." Tr. at
402.

10. Levitsky obtained homeowner's insurance, listing
himself as the beneficiary and personally received payment of claims for damage
to the Property. Hartford Homeowner's Policy, Trustee's Exhibit No. 17;
Travelers Homeowners Insurance Policy, Trustee's Exhibit No. 18;
Correspondence/documentation regarding flood damage to Property, Trustee's
Exhibit No. 19; and Chubb Homeowner's Insurance Policy, Trustee's Exhibit No.
21.

11. On Schedule B (Personal Property) filed with his
bankruptcy petition, Levitsky scheduled a $140,000 insurance claim for storm
damage to the Property resulting from Hurricane Isabel.

12. On his personal income tax returns, Levitsky deducted
interest payments paid on the mortgage on the Property.

13. Levitsky stopped filing tax returns for Contemporary
after his divorce from Carol became final.

14. Despite the fact that the Property was titled in the
name of the corporation, Levitsky claimed the Property as tax exempt when he
filed for a state homestead property tax exemption that was available only to
individual homeowners. Trustee's Exhibit No. 12.

15. During an audit by the IRS, Levitsky defended his
non-payment of capital gains taxes resulting from the sale of different piece of
real property, on the ground that he had used monies from that sale to purchase
the Property, even though the defense was available only to an individual
purchaser. Trustee's Exhibit No. 64.

16. In his Last Will and Testament, Levitsky devised to
Jane "any interest which I may possess at the time of my death in [the
Property]," thereby treating it as his own. Article V. B., Last Will and
Testament dated October, 1994, Trustee's Exhibit No. 3.

17. Levitsky was the sole shareholder FN8 and sole director
of Contemporary. Although he originally disputed at depositions that he was also
president of the corporation, Levitsky suddenly remembered at trial that he was.
Tr. at 130:5.

FN8. A t various times during his trial, Levitsky testified
that there were other shareholders of Contemporary, including his son, Jeffrey
Levitsky and someone named Britt Day. This was inconsistent with his prior
deposition testimony. Levitsky offered no proof, other than his own testimony,
of the existence of these other shareholders. Contemporary kept no stock
register. The evidence offered by the Trustee established that Levitsky was the
sole shareholder of Contemporary. Tr. at 152-59.

18. There are no other current officers or directors of
Contemporary, although the corporate bylaws required that there be four
officers, namely a president, vice president, secretary and treasurer, and that
the president and secretary could not be the same person. M & T Exhibit No.
14.FN9

FN9. At one time, Helen DeWire was listed as secretary.
Before her death, she was Levitsky's secretary at his medical offices.

19. Contemporary never had any employees or conducted any
business.FN10

FN10. Levitsky testified that Contemporary was engaged in
the fishing and shrimping industry, but was unable to produce any evidence other
than his own self-serving testimony that he had imported fish and shrimp from a
warehouse in Mexico for several years until the warehouse was destroyed by fire.
Tr. at 211:20 et. seq., see also Levitsky's opening statement at Tr. at 54:3 et
seq. Despite many opportunities to provide such information at depositions,
Levitsky never mentioned any involvement of Contemporary in the fishing and
shrimping industries until his debut on the witness stand at trial. However, he
listed a shrimp packing plant worth $500,000 among his personal assets in a 1992
loan application. Uniform Residential Loan Application dated October 9, 1992,
Statement of Assets, Liabilities and Net Worth as of January 10, 1992, Trustee's
Exhibit No. 6.

20. On May 25, 1982, Levitsky registered the trade name
"CMK Company" in the Circuit Court for Prince George's County, Maryland,
identifying himself as president of Contemporary. SDAT Certified copy of Tradename Designation for registration of trade name CMK Company by Contemporary
Magic Kingdom, Inc. dated May 25, 1982 and received by the Maryland State
Department of Assessments and Taxation ("SDAT") on July 19, 1982 or 1983, M & T
Exhibit No. 19.

21. Levitsky engaged an attorney (now deceased) named Paul
M. Nussbaum ("Nussbaum"),FN11 who incorporated an entity entitled Title Nominee,
Inc. ("Title Nominee"), of which Nussbaum was president, for the sole purpose of
purchasing the Property, in order to assign the contract of sale to a different
entity chosen by Levitsky. The contract between the sellers and Title Nominee
was dated August 25, 1983. Nussbaum file, Trustee's Exhibit No. 93, pp. K094-96.

FN11. Not to be confused with a Maryland attorney of the
same name currently practicing law in Baltimore.

22. Title Nominee assigned the sale contract to "CMK Company, a Maryland
Corporation."

23. On September 7, 1983, CMK took title to the Property by
deed from Roseanne Druian and the Magnolia Way Joint Venture for consideration
of $167,500. Deed dated September 7, 1983, recorded among the Land Records of
Anne Arundel County at Liber No. 3642, folio 666, Trustee's Exhibit No. 1-A.

24. In order to purchase the property, Levitsky arranged
for the payment of a $50,000 deposit from L Enterprises, another of his
corporations. He also arranged to obtain a loan from MNB to Contemporary in the
amount of $130,000. On the promissory note from Contemporary to MNB, Levitsky
wrote, "I'm a one man corporation." Corporate certificate of authority to
borrow, dated September 17, 1983, Trustee's Exhibit No. 93, K045. He
simultaneously executed a deed of trust from CMK Company, which he signed as
president. Purchase Money Deed of Trust dated September 30, 1983, recorded among
the Land Records of Anne Arundel County at Liber No. 3642, folio 668, Trustee's
Exhibit No. 1B. Levitsky personally guaranteed the loan. The sum of $3,610
remained after closing costs and was entered on the books of Contemporary as
rent from Levitsky, despite the fact that the figure represented the residue of
the loan from MNB to Contemporary.

25. Levitsky and Jane resided together in the Property
until their separation in 2002.

26. On September 29, 1983, Levitsky filed "CMK Company" as
a trade name in the Circuit Court for Anne Arundel County, Maryland.FN12 M & T
Exhibit No. 20.

FN12. Levitsky testified that he preferred to use various
permutations of the name "CMK" when conducting transactions because it sounded
more professional than Contemporary Magic Kingdom. The Trustee has contended
that Levitsky actually used the various permutations (including "CMK, Inc.,"
"CMK Company, Inc.," "CMK," and "CMK1") in order to confuse creditors. In order
to avoid confusion, in referring to the corporate entity created by Levitsky,
this opinion will employ the term "Contemporary" in place of the full corporate
moniker of "Contemporary Magic Kingdom, Inc.".

27. Between October 3, 1991 and February 19, 2004, the
corporate charter of Contemporary was in forfeiture status with the SDAT.
Trustee's Exhibit No. 108.

28. On October 28, 1997, Tega Cay Properties, LLC ("Tega
Cay") sued Levitsky in the Court of Common Pleas for York County, South
Carolina, styled Tega Cay Properties, LLC, et al. v. Levitsky, et al., Case No.
97-CP-46-1974. The complaint alleged that Levitsky was a minority investor and
an active manager of Tega Cay; that he improperly filed a Chapter 7 bankruptcy
petition in the District of Maryland in 1995, purportedly on behalf of Tega Cay;
and that this Court (Mannes, C.J.) dismissed the petition as having been filed
in bad faith and sanctioned Levitsky because he had filed the petition for the
improper purpose of delaying a corporate shareholders meeting.

29. On March 18, 1998, Contemporary obtained a loan in the
amount of $450,000 from Associated, an entity incorporated by Levitsky on the
Isle of Man, and not licensed to do business in the State of Maryland.

30. The evidence indicated that Levitsky controlled
Associated. He had previously formed an offshore trust called the Meridian
Management Trust ("Meridian"), and then had Meridian form a corporation known as
the Mendoza Corporation ("Mendoza") on the island of Nevis. Levitsky then
transferred approximately $680,000 worth of Crestar stock to Mendoza, which
Mendoza sold without tax consequences and invested the proceeds to fund a
tax-free annuity payable to himself. Mendoza also lent some of the proceeds to
Levitsky through Associated, an affiliate of Meridian. Funds held by Mendoza in
the amount of $450,000 were in fact disbursed through Associated pursuant to a
loan agreement whereby Contemporary was the supposed borrower.FN13

FN13. Approximately $157,000 of the $450,000 "borrowed"
from Associated was used by Levitsky to pay off the loan from MNB. He cannot
account for the $300,000 amount remaining from the transaction. James Stitcher,
the debtor's accountant, reported to the IRS that the figure was loaned to
Levitsky. There is no evidence that Levitsky ever repaid it.

LIENS ON THE PROPERTY

31. On September 16, 1998, First National Bank of Maryland
("FNB") made a $100,000 loan to CMK Company, Inc., in exchange for a promissory
note for the same amount. The note was signed, "LEON R. LEVITSKY, SIGNING AS
PRESIDENT CMK COMPANY, INC.". FNB recorded its mortgage among the Land Records
of Anne Arundel County, Maryland in Liber 8713, folio 551. Trustee's Exhibit 1
L. FNB later sold the note to M & T.

32. In 2001, Jane decided to build a dance studio, and
Levitsky agreed to pay for it with a loan based on the equity in the Property,
which had greatly increased in value. However, he was unable to obtain credit
using his own name because of the pending lawsuit brought by Tega Cay.
Accordingly, he arranged a more complicated financing transaction. On May 21,
2001, Bank One, N.A. ("Bank One"), made a loan in the amount of $680,000 to
Jane, who delivered a promissory note for the same to Bank One and also signed a
deed of trust. Simultaneously, Contemporary executed and delivered to Jane a
deed to the Property for no consideration. The deed was signed by "Leon
Levitsky, President CMK Company." Trustee's Exhibit 1Q.

33. Bank One was later acquired by JP Morgan Chase Bank,
N.A., one of the parties to this action, which assigned the deed of trust to
CIT.

34. Bank One engaged Mark Reges ("Reges") and Central
Processing Services, LLC ("CPC") to conduct the settlement.

35. Reges and CPC erred in the recording of Bank One's deed
of trust. They mistakenly treated the Bank One deed of trust with Jane as one
for the refinance of the Property, rather than as a purchase money deed of
trust. While transfer taxes are required to be paid on a purchase money deed of
trust, they need not be paid on an interspousal refinancing deed of trust.
Accordingly, Reges and CPC did not verify that appropriate transfer taxes were
paid. However, because Jane was married to Levitsky rather than to Contemporary,
there was no interspousal exemption. Accordingly, the Clerk of the Circuit Court
for Anne Arundel County declined to accept the deed for recording.

36. A second error committed by Reges and CPC involved the
coordination of the payout of prior lenders, the loans to which were secured by
the Property. The settlement sheet from the May 21, 2001 settlement indicated
that $146,299.49 was disbursed to First Liberty National Bank, $458,470.90 was
disbursed to Associated, and $50,334.79 was disbursed to Jane for the purpose of
starting a dance studio. The disposition of funds supposedly disbursed to
Associated is unknown. It is undisputed that FNB received no disbursement. Reges
relied on an abstractor's summary that identified Levitsky by mistake as the
secured party, rather than FNB.

*6 37. Accordingly, as part of the settlement transactions,
Levitsky signed a certificate of satisfaction of the FNB loan and either Reges
or Levitsky recorded in the land records the certificate that stated that the
loan from FNB had been satisfied.FN14

FN14. The certificate of satisfaction, recorded in Liber
0434, folio 368 of the Land Records of Anne Arundel County, stated as
follows:That Leon R. Levitsky does hereby acknowledge that the indebtedness
secured by a certain Deed of Trust/Mortgage made by CMK Company and recorded
among the Land Records of Anne Arundel County, Maryland in Liber 8713, Folio
551, which encumbers the real property described in Exhibit A hereto, has been
fully paid and discharged, that Leon R. Levitsky was, at the time of
satisfaction, the holder of the Deed of Trust Note/Mortgage, and that the lien
of the Deed of Trust/Mortgage is hereby released....

Id. It was signed by Levitsky. Trustee's Exhibit 1N.
Beneath his signature was a notarization executed by Jonathan S. Bach, a CPC
employee. Under the notary seal appeared the following statement, signed by
Reges: "THIS IS TO CERTIFY that the within instrument was prepared by or under
the supervision of the undersigned, an Attorney duly admitted to practice before
the Court of Appeals of Maryland."

38. It is undisputed that the certificate was incorrect in
describing Levitsky as the holder FN15 of the deed of trust.

FN15. "Holder" is defined in the Maryland Commercial Code
as "(a) The person in possession of a negotiable instrument that is payable
either to bearer or to an identified person that is the person in possession;
(b) The person in possession of a negotiable tangible document of title if the
goods are deliverable either to bearer or to the order of the person in
possession; or (c) The person in control of a negotiable electronic document of
title." Md. Comm. Law Code Ann. § 1-201(20). The deed of trust is a negotiable
instrument; however, because it was not payable to bearer or to Levitsky, he did
not qualify as a holder under the law.

39. By 2002, Levitsky and Jane had separated. At the time
of this opinion, they have not obtained a final decree of divorce.

40. On August 2, 2002, as part of a marital property
settlement between Levitsky and Jane, Jane conveyed her interest in the Property
back to Contemporary by quitclaim deed. Trustee's Exhibit No. 139, Quitclaim
Deed Exhibit 2 to Jane Lambert Deposition.

41. By the time Reges and CPC discovered that the Bank One
deed of trust had not been properly recorded, they had lost the original deed of
trust. Consequently, CPC obtained a replacement deed from Contemporary to Jane,
and a replacement deed of trust from Jane to Bank One.

42. Levitsky refused to pay the transfer taxes, and
pressured by Bank One to have the deed recorded, Reges paid the transfer taxes
out of his own pocket. The replacement deed and replacement deed of trust were
recorded among the Land Records of Anne Arundel County, Maryland on December 17,
2002 at Liber No. 12273, folios 773 and 776, respectively. However, by that
date, Jane had already deeded the Property back to Contemporary, although that
deed was not then recorded.

43. On June 13, 2003, the Court of Common Pleas in South
Carolina (Nicholson, J.) ruled against Levitsky in the Tega Cay litigation and
awarded the plaintiff $6.7 million in compensatory damages and $3.3 million in
punitive damages.FN16 (On April 28, 2005, by order [P. 38] entered in Tega Cay
Properties, LLC v. Leon R. Levitsky, Adversary Proceeding No. 04-2082-JS, this
Court declared $5.1 million of the judgment to be nondischargeable.)

FN16. In a 35-page final order, Judge Nicholson stated:...
I find and conclude as follows: (1) Dr. Levitsky's deliberate and unrepentant
fraud, fraudulent concealment and breach of his fiduciary duties, which the
plaintiffs demonstrated time and time again through the course of trial, leave
no doubt that Dr. Levitsky's actions were intentional and malicious, for which
he is fully culpable. (2) Dr. Levitsky's conduct was not an isolated incident,
but a continuous pattern of fraud and deceit over a period of at least seven
years. (3) There can be no doubt from the almost incredible efforts expended by
Dr. Levitsky in concealing his fraud that he was fully aware of his acts and
they were fully intentional. (4) The continuing pattern of fraudulent behavior
and breach of fiduciary duty with Dr. Levitsky bespeaks, at last to the
plaintiff, that Dr. Levitsky['s] past conduct was similarly egregious. Dr.
Levitsky's attempt to engage the mayor in fraudulent kickback scheme serves as a
prime example. (5) Dr. Levitsky's continuous disrespect for the courts of this
state and other states, coupled with his abuse of the discovery process in this
proceeding has demonstrated that a firm and significant award of punitive
damages is necessary to deter future similar conduct. (6) The malfeasance of Dr.
Levitsky caused actual damages in excess of $6 million to the plaintiff, even
when conservatively calculated. Dr. Levitsky's fraud and breach of his fiduciary
duties are clearly related to the actual harm which was caused by Dr. Levitsky's
malfeasance. (7) Dr. Levitsky has deliberately concealed and obfuscated his net
worth from this Court. Therefore, the Court cannot precisely determine his net
worth and ability to pay. Since Dr. Levitsky has been the cause of this
information not being available, it is appropriate not to consider this factor.
Wilhoit v. WCSC, Inc., 298 S.C. 34; 358 S.E.2d 397 (Ct.App.1987). However, the
Court notes that the financial information which has been submitted shows that
Dr. Levitsky has substantial income from investments and holds substantial
property, so that the Court can fairly conclude that his net worth is at least
$5 to $7 million dollars. (9) Finally the Court cannot overemphasize that Dr.
Levitsky has continuously thumbed his nose at the judicial process, not only in
this Court, but in several other state and federal courts. There needs to be an
end to this abuse of the judicial process and punitive damages are available to
end this misconduct." Final Order at 33-34. Judge Nicholson also found that,
quite similar to leases which Dr. Levitsky produced in this case, "many of the
documents presented by Dr. Levitsky in support of his position were fraudulently
created and backdated."

Id.

44. On June 20, 2003, Levitsky recorded the quitclaim deed
from Jane to Contemporary among the Land Records of Anne Arundel County at Liber
No. 13234, Page 177. Trustee's Exhibit No. 139.

45. At the time of all of the foregoing transactions,
Contemporary's corporate charter had been forfeited. On February 19, 2004, less
than one month before the petition date, Levitsky filed articles of revival on
behalf of Contemporary, in response to the pending enforcement by Tega Cay of
the $10 million South Carolina judgment. He revived the company charter in the
name of "Contemporary Magic Kingdom, Inc.," but did not mention "CMK Company."
Articles of Revival for Contemporary Magic Kingdom, Inc., filed February 20,
2004, Trustee's Exhibit 110, CIT Exhibit No. 65, M & T Exhibit No. 23.

46. Simultaneously, Levitsky attempted to register the
trade name "CMK." However, because of a mark made by accident on the
application, the trade name was registered as "CMK 1." Trade Name Application
for CMK 1 filed February 19, 2004 [T00202213]. Trustee's Exhibit 109; see also
Tr. at 266:5.FN17

FN17. According to the procedures and practices of SDAT,
when the number ‘1’ appears by itself in a corporate name or trade name, it is
recorded by the Roman Numeral ‘I.’ Thus, on the SDAT records, the trade name
appeared as "CMK I."

47. In 2004 and again in 2005, CIT prepared to bring
foreclosure proceedings against the Property. CIT engaged Nation's Title Agency
of Maryland to perform a title search. Commitment for Title Insurance, effective
date Oct. 4, 2005 (McGinnis Dep. Exhibit 2B), and Commitment for Title
Insurance, effective date Oct. 4, 2005 (McGinnis Dep. Exhibit 2C), Trustee's
Exhibits 129 and 130. In both instances, the title reports listing outstanding
liens on the property failed to disclose that any lien existed in favor of
either FNB or M & T.

48. On March 16, 2006, after the bankruptcy petition was
filed, Levitsky filed with SDAT a "Trade Name Amendment or Cancellation
Application," which sought to retroactively change the trade name of CMK 1 to
CMK. Trade Name Amendment Application filed March 16, 2006, amending T00202213
to CMK, Trustee's Exhibit No. 115. SDAT accepted Levitsky's statement that the
"1" was a mistake, and changed the file to read "CMK." However, Levitsky has not
requested permission to use the trade name "CMK Company" from SDAT since the
revival of the corporation.

49. On February 23, 2005, the Trustee's counsel, Kristin
Case Lawrence, sent an email to SDAT seeking to verify to registration of the
trade name "CMK Company." On February 28, 2005, SDAT replied: "There is no
record of this name on file." On March 14, 2006, the Trustee received from SDAT
a certification that "there is no record of a trade name by the name CMK
Company." Trustee's Exhibit No. 114.

50. However, SDAT sells its records to Lexis Nexus, a
search of which would have alerted the Trustee to the registration of the trade
name. M & T's Exhibit No. 22.

51. At this time, Contemporary is not in good standing as a
Maryland corporation. SDAT Certification regarding current standing of
Contemporary Magic Kingdom, Inc., Trustee's Exhibit No. 120. The corporation has
not filed a personal property tax return with SDAT for 2006, nor has it paid its
2005 personal property return filing fee. Trustee's Exhibit No. 120.

52. Since the inception of this case, Levitsky has been
non-cooperative with the Court, the Trustee, or his creditors. In his testimony
at this trial, his answers were evasive and his behavior was obstructive. On
several occasions, he accused the Trustee of stealing his personal property and
documents. He did not appear at the hearing on Tega Cay's motion to convert his
case to Chapter 7 [P. 11], later filed a motion to reconsider the conversion [P.
167], and then appealed the denial of reconsideration [P. 221 ]. He has not
complied with reasonable requests for discovery. Tega Cay has had to file
motions to compel the corporations he owns to provide a representative for
Federal Rule 30(b)(6) depositions [P.157], as well as motions to compel the
production of tax returns [P. 298]. At depositions held by the Trustee, he
refused to answer the Trustee's questions unless they were ended with the
phrase, "End of Question." When the Trustee's counsel complied, his answers
remained evasive. See Exhibit C to P. 199, pp. 10-12, 14. He did not bring
required documents to his deposition. Id., at 15. The Trustee had to file a
request for assistance by the U.S. Marshal to obtain needed documents from the
debtor's house, where they were kept in approximately 60 separate boxes and
trash bags. Tr. at 314:3. The Trustee also found approximately 90 boxes of
similar documents, but only because the storage facility at which they were kept
called her in an effort to receive payment on an unpaid bill. Tr. at 315:14.

PROCEDURAL HISTORY

1. On March 12, 2004 ("the petition date"), Levitsky filed
the instant bankruptcy case in this Court as a Chapter 13 proceeding.

2. On June 1, 2004, the case was converted to Chapter 11 by
consent order [P. 52]. The order also provided for the appointment of a Chapter
11 trustee. Accordingly, by order dated July 29, 2004 [P. 91], this Court
approved the appointment by the U.S. Trustee of Lori Simpson, Esquire, as
Chapter 11 Trustee.

3. By order [P. 158] entered on October 6, 2004, this Court
granted the motion of a creditor, Tega Cay Properties LLC ("Tega Cay"), to
convert the instant case to a Chapter 7 proceeding. By order [P. 178] entered on
October 20, 2004, Lori Simpson was appointed Chapter 7 Trustee.

4. On September 2, 2004, the Trustee filed Adversary
Proceeding No. 04-2024-JS, against Levitsky and Jane, from whom he was
separated. Complaint for Declaratory Judgment, Turnover of Property to the
Estate, To Avoid and Recover Fraudulent Transfer, and to Sell Property Pursuant
to 11 U.S.C. § 363.

5. On November 29, 2004, this Court granted the Trustee a
default judgment against Jane by order [P. 14].

6. On January 31, 2005, the Trustee filed a motion for
summary judgment [P. 16] against Levitsky, to which Levitsky filed an opposition
[P. 17] on February 18, 2005. This Court denied the motion by order [P. 24]
entered on May 18, 2005.

7. On March 11, 2005, M & T filed Adversary Proceeding No.
05-1254-JS against Levitsky, Contemporary, the Trustee, Associated,FN18 JP
Morgan, and Jane seeking a declaratory judgment that the lien of M & T on the
Property was valid and that the certificate of satisfaction was void.

FN18. On April 28, 2005, M & T attempted to voluntarily
dismiss Associated Enterprises from the suit and also filed an answer to the
counterclaim. However, the dismissal notice was defective and Associated remains
as a party to these proceedings.

8. On April 4, 2005, the Trustee filed an answer and a
counterclaim against M & T, and a crossclaim against Associated and JP Morgan
Chase Bank, N.A. [P. 11]. Answer to Complaint, Counterclaim by Lori Simpson
against Manufacturers and Traders Trust Company to Determine Validity, Priority,
and Extent of Liens, to Avoid and Recover Transfers, and for Declaratory Relief,
Crossclaim to Determine Validity, Priority, and Extent of Liens, to Avoid and
Recover Transfers, and for Declaratory Relief.

9. On June 29, 2005, as successor to J. P Morgan, CIT filed
an answer to M & T's complaint, a counterclaim against M & T and a cross-claim
against Associated [P. 36]. Answer to Complaint of Manufacturers and Traders
Trust Company, Counterclaim by CIT Group Consumer Finance Inc. against
Manufacturers and Traders Trust Company, Crossclaim by CIT Group Consumer
Finance Inc. against Associated Enterprises Limited.

10. On the same date, CIT also filed an answer to the
Trustee's cross-claim, as well as a counterclaim for declaratory judgment [P.
37]. Answer to Counterclaim, Answer to Crossclaim, Counterclaim by CIT Group
Consumer Finance Inc. against Lori Simpson, Trustee.

11. On January 20, 2006, CIT filed a motion for summary
judgment [P. 76] as to the Trustee's claim or in the alternative, on its
counterclaim.

*9 12. On January 24, 2006, M & T filed a motion for
summary judgment [P. 80].

13. On January 24, 2006, the Trustee filed a motion for
summary judgment [P. 82].

14. On March 29, 2006, a hearing was held on the parties'
cross motions for summary judgment. All of the motions were denied by orders [P.
111, 112 and 113] entered on April 5, 2006. The grounds for the denial of
summary judgment were that issues of material fact were in dispute, including
whether the Property allegedly subject to the liens was property of the
bankruptcy estate (a determination of which would either endow this Court with
the subject matter jurisdiction to determine the validity and priority of liens
or preclude it from so doing); the effective dates of various transfers; whether
Contemporary was a valid corporation having the legal capacity to take title to
the Property and to encumber and/or transfer it; whether it operated under a
valid trade name; and whether any of the transfers in question were fraudulent.
Transcript of March 29, 2006 Hearing, 61-2 [P. 123].

15. On October 16, 2006, the IRS filed a motion to
intervene [P. 250], which was opposed by CIT and M & T. On October 20, 2006, the
motion was granted by order [P. 260].

16. On November 21, 2006, the Trustee filed a cross-claim
[P. 272] against the IRS, to which the IRS filed an answer [P. 273] on December
4, 2006. The IRS then filed a motion to continue the trial [P. 318], which was
denied. On February 21, 2008, the IRS filed a motion [P. 353] to be dismissed as
a party from the litigation, which this Court granted by order [P. 359] on
February 27, 2008.

17. On October 20, 2006, this Court granted the Trustee's
motion to set the order of proof at trial by allowing her to proceed first on
her turnover complaint, and by allowing her to present her evidence that the
liens of M & T and CIT were avoidable. Order [P. 259].FN19

FN19. The order provided, in pertinent part:ORDERED that
the Court will first hear evidence and argument on the issue of whether the
Annapolis House is property of the estate, with the order of proof as follows:
(1) Trustee to present her case; (2) any party disputing that the Annapolis
House is property of the estate to present its case; (3) any rebuttal; and it is
further

ORDERED that, if there is a determination that the
Annapolis House is property of the estate, the Court will then hear evidence and
argument on the validity and priority of liens with the order of proof as
follows: (1) M & T to present its case; (2) CIT to present its case; (3) the
Trustee to present [her] case; (4) any other party disputing either lien would
then put on their cases; (5) any rebuttal.

Order [P. 259] dated October 20, 2006.

18. On February 19, 2008, Levitsky filed a motion to
continue the trial for approximately six months [P. 348]. The motion was denied
by order [P. 350] entered on February 21, 2008. The Court notes, however, that
Levitsky essentially achieved his goal of a six-month postponement because of
the time it has taken the Court to analyze the four days of trial testimony,
nearly 200 exhibits, multiple deposition transcripts, and a large, divergent
body of case law.

19. Trial on both adversary proceedings was held on
February 25, 26, and 28, 2008, and March 3, 2008. On February 28, 2008, this
Court ruled from the bench in Adv. Proc. No. 04-2024, that the Property was
property of the debtor's bankruptcy estate.

20. After the ruling, M & T presented its case and the
Trustee presented hers, after which M & T and CIT moved for judgment. At that
point, the Court suspended the proceedings in order to consider the motions.

CONCLUSIONS OF LAW

Subject matter jurisdiction

1. This Court has subject matter jurisdiction to determine
whether the Property is included in the debtor's bankruptcy estate. This is a
core matter pursuant to 28 U.S.C. § 157(b)(2)(K). Venue is appropriate under 28
U.S.C. § 1409.

Property of the estate

2. Property of the estate includes "all legal or equitable interests of the
debtor in property," "wherever located and by whomever held," "as of the commencement of the case." 11 U.S.C. § 541(a).
"This definition of
estate property is broad and will reach to bring within the estate every
conceivable interest that the debtor may have in property." In re Osterwalder,
---B.R. ----, 2008 WL 704412 (Bankr.N.D.Ohio March 14, 2008).

3. Assets owned by a corporation in which a debtor is a
stockholder are not property of the debtor, but that of the corporation.
Kreisler v. Goldberg, 478 F.3d 209, 214 (4th Cir.2007) ("The fact that a parent
corporation has an ownership interest in a subsidiary, however, does not give
the parent any direct interest in the assets of the subsidiary."). Thus, the
assets of a non-debtor corporation do not become assets of the bankruptcy estate
of a stockholder of the corporation, even when the individual owns all of the
stock. It is only the interest in stock held by an individual debtor in a
corporation that is property of the debtor's bankruptcy estate, because it
represents the debtor's equitable ownership interest in the corporation.
McCormick v. Frisch, 199 Md. 181, 85 A.2d 793, 794 (1952) ("A share of stock of
a corporation represents an aliquot portion of the net capital assets.... It is
merely the evidence of the holder's ownership of the stock and of his rights as
a stockholder to the extent therein specified.").

4. In the instant case, in seeking to bring into the
bankruptcy estate the debtor's residence which is titled in the name of the
non-filing corporation (and which is the sole asset of the debtor's solely-owned
corporation), the Trustee bears the burden of proving that the corporation is a
fraud, created by the debtor to hinder, delay and defraud creditors, and that
the debtor disregarded corporate formalities in using the corporation for his
own personal benefit. The Trustee is not seeking to pierce the corporate veil in
the usual sense of holding a stockholder individually liable for the debts of
the corporation. Rather, she contends that because the debtor has fraudulently
treated the corporate property as his own, reverse veil piercing permits her to
administer the Property for the benefit of the debtor's creditors.

5. For purposes of determining whether any given property
is an asset of the bankruptcy estate, a debtor's interest in property is
determined by state law. Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914,
918, 59 L.Ed.2d 136 (1979). Therefore, this Court must look to the law of
Maryland to determine the extent of the debtor's interest in the Property held
by the corporation and whether the Trustee has carried her burden of proof so
that the debtor's residence may be administered as property of the estate, even
though it is titled in a corporate name.

6. In Maryland, "courts will pierce the corporate veil only
when necessary to prevent fraud or enforce a paramount equity." Bart Arconti &
Sons, Inc. v. Ames-Ennis, Inc., 275 Md. 295, 310-11, 340 A.2d 225, 234 (1975),
citing Damazo v. Wahby, 259 Md. 627, 633, 270 A.2d 814, 817 (1970); and Gordon
v. SS Vedalin, 346 F.Supp. 1178, 1181 (D.Md.1972). However, in none of the cases
cited was the corporate veil allowed to be pierced in order to enforce corporate
debts against an individual, in the absence of proof of actual fraud. In
reversing the judgment entered against corporate insiders in Bart Arconti, the
Maryland Court of Appeals held that the mere shifting of corporate assets from
one insolvent entity to another in order to evade legal obligations did not
justify holding the corporate insiders liable by veil piercing. Likewise, in
Damazo, the Court of Appeals reversed the trial court that held a corporate
insider individually liable for commissions due a broker engaged to sell
property titled in the names of two corporations. The appeals court stated that
"[t]he fact that Damazo controlled and operated the corporations would not of
itself justify piercing the corporate veil or make him liable for that which the
corporations owed." 270 A.2d at 817. The court commented on the lack of evidence
that Damazo "used or intended to use the corporations as instruments to
perpetrate a fraud," or that he failed to observe "the separate identities of
Damazo and the corporations." Id. Indeed, all of the corporate formalities of a
business that was a going concern were followed.FN20

FN20. At 270 A.2d 816-17, the Court of Appeals stated:...
Damazo always used a corporation to hold title to and operate a property he
bought. Both [corporations] were fully formed and legally existing corporate
entities in good standing. Although their capitalizations were small, each
corporation owned substantial assets in its own right and each maintained its
own financial records. The stock of each was fully issued and separate minutes
books were kept. Damazo recognized, respected and used the corporate entities as
such. Those who dealt with Damazo knew this and knew that corporations owned the
properties. The exclusive listing agreement Wahby [the broker] obtained was
executed for [the corporations] expressly by Damazo as president and Wahby's
subsequent agency was based on an extension of that agreement.

Id.

In Gordon v. SS Vedalin, the U.S. District Court for the
District of Maryland (Northrop, D.J.) applying Maryland law, held that one
bidding at an auction on behalf of a corporate purchaser was not individually
liable for costs of resale when the corporate purchaser defaulted. The court so
held regardless of the fact that the individual had established the corporation
so that he could conduct a business despite the existence of personal judgments
pending against him and despite the fact that he never properly capitalized the
corporation. This was held "not enough to pierce the corporate veil," where the
corporation was created in order to purchase a ship and was not therefore a
manufacturing business that required start-up capital to operate. In addition,
even though the court found that "there was significant doubt from the evidence
that the legal niceties of corporate existence, such as the formal issuance of
stock and corporate meetings, were regularly, if ever, observed," and that "proof of the existence of the corporation as a separate entity and not as the
mere alter ego of Harold Johnson is tenuous at best," the court refused to
pierce the corporate veil, stating that, "under Maryland law, the corporate
entity cannot be disregarded in this case." Gordon, at 1181. It duly noted that
articles of incorporation had been drafted by a lawyer and were filed with the
SDAT. The missing elements required to pierce the veil were fraud on the part of
the targeted individual or the need to protect a paramount equity. But see Nat'l
City Bank of Minneapolis v. Lapides ( In re Transcolor Corp.), 296 B.R. 343,
369-70 (Bankr.D.Md.2003), where this Court found fraud on the part of the
individual corporate insider and imposed liability.

7. This remedy of veil piercing has been applied in
Maryland when a corporation was used by its sole owner for his personal gain to
defraud the creditors of the corporation. See, e.g., Colandrea v. Colandrea, 42
Md.App. 421, 437, 401 A.2d 480 (Md.App.1979) (piercing corporate veil when
former spouse received ownership of corporation in divorce settlement with
agreement to pay other spouse over time, and then transferred all assets of that
corporation to a new corporation and defaulted on the payment plan).

8. The Trustee has cited no case in Maryland where reverse
veil piercing was applied to impute individual ownership to property ostensibly
held by a corporation in order to satisfy the debts of the individual, and none
has been found. However, bankruptcy courts in other jurisdictions have held that
when a debtor in bankruptcy treats a corporation as his alter ego, the corporate
assets become part of the bankruptcy estate. Kendall v. Turner (In re Turner),
335 B.R. 140, 147 (Bankr.N.D.Cal.2005) (in allowing judgment creditors to
recover fraudulent conveyances, the court found that a corporation and limited
liability company were alter egos of the debtor who created them with no
business purpose and fraudulently transferred to them his residence as a means
of shielding it from creditors); Mass v. Bell Atlantic Tricon Leasing Corp. (In
re Mass), 178 B.R. 626 (M.D.Pa.1995); see also Smith v.. Richels (In re
Richels), 163 B.R. 760 (Bankr.E.D.Va.1994); Halverson v. Schuster (In re
Schuster), 132 B.R. 604, 612 (Bankr .D.Minn.1991); Hovis v. United Screen
Printers, Inc., (In re Elkay Inds., Inc.), 167 B.R. 404, 410 (D.S. C.1994); and
The Cadle Co. v. Brunswick Homes, LLC ( In re Moore), 379 B.R. 284, 295 (Bankr.N
.D.Tex.2007).

9. The facts found in the Turner case are similar to those
in the instant case, albeit in a different procedural context. In Turner, the
debtor set up a Bahamian trust and a Nevada corporation in order to take title
to his house. He directed the trust and the corporation to transfer the property
to his wife within one year of his filing bankruptcy. The Chapter 7 trustee
sought to avoid the transfer as fraudulent, with the implication that because
the debtor operated the corporation as his alter ego, the house was property of
the bankruptcy estate. The court found that while asset protection is not per se
illegal, "entities may not be created with no business purpose and personal
assets transferred to them with no relationship to any business purpose, simply
as a means of shielding them from creditors." Turner at 147. In viewing the
corporation and trust as the debtor's alter egos, the court disregarded it "to
prevent injustice." Id.

10. The Mass case is also instructive because the
procedural context is similar to that of the present case. In Mass, the married
debtors were sole owners of a corporation supposedly engaged in the business of
dry cleaning. Mass, at 627-28. However, the corporation observed few corporate
formalities and took only one action during its existence, that of entering into
an equipment lease that the debtors personally guaranteed. The court granted the
trustee's complaint for turnover of money in the corporate bank account over the
objection of the equipment lessor which by that time had obtained a judgment
lien and garnishment against the corporate bank account. Id. at 630. The court
applied a reverse veil-piercing theory to declare that the account "rightfully
belong[ed] in the debtors' estate," and concluded that the equipment lessor
"should not enjoy a preferential treatment as the only business creditor to have
contracted with a sham corporation." Id. at 630-31.

11. Other courts have held, and this Court agrees, that
"that there is no logical basis upon which to distinguish between a traditional
veil piercing action and an outsider reverse piercing action. In both instances,
a claimant requests that a court disregard the normal protections accorded a
corporate structure to prevent abuses of that structure." C.F. Trust, Inc. v.
First Flight L.P., 266 Va. 3, 10-11, 580 S.E.2d 806, 810 (2003), adopted by the
Fourth Circuit after certification of question, 338 F.3d 316 (4th Cir.2003),
aff'g 140 F.Supp.2d 628 (E.D.Va.2001); see also Cent. Nat'l Bank & Trust Co. of
Des Moines v. Wagener, 183 N.W.2d 678, 682 (Iowa 1971) ("it cannot be accepted
in this jurisdiction ... that assets may be traced from a corporation to an
individual but not vice versa"); Minich v. Gem State Developers, Inc., 99 Idaho
911, 917, 591 P.2d 1078, 1084 (1979) ("court can find no reason in law or logic
to limit the application of the alter ego doctrine ..." to traditional veil
piercing but not reverse veil piercing). Indeed, federal courts have implied
state law recognition of reverse-veil piercing from recognition of the ability
to pierce a corporate veil. See Moore, 379 B.R. at 289 (discussing, somewhat
disapprovingly, Zahra Spiritual Trust v. U.S., 910 F.2d 240, 243 (5th Cir.1990),
which made that implication).

12. The facts of the instant case are replete with fraud on
the part of the debtor and require this Court to apply the doctrine of reverse
veil piercing.

A. There is no question that Levitsky created Contemporary
as a sham corporation for the sole purpose of hindering, delaying and defrauding
his creditors, in particular, his former wife, Carol, by shielding the Property
within a corporate shell. Finding of Fact No. 4. For a discussion of factors
constituting a sham corporation, see Comptroller v. SYL, Inc., 375 Md. 78, 825
A.2d 399 (2003) (describing an out-of state holding company as a sham
corporation for state taxation purposes as having "no real economic substance as
[a] separate entit[y]" no full-time employees and ostensible part-time employees
were actually officers and directors, and where corporate offices "were little
more than mail drops." 825 A.2d at 415. B. Levitsky named the corporation "Contemporary Magic Kingdom," a name that had no reference to the Property or to
any corporate purpose, the effect of which, the Court has determined, was to
purposely mislead and confuse creditors and the general public. He then had the
corporation take title to the Property using its trade name, CMK Company, which
likewise was confusing and bore no connecting reference to the Property. Finding
of Fact No. 3.

C. Throughout its duration, the corporation was the
debtor's alter ego and had no business purpose, kept virtually no records, had
no corporate existence and received no income, other than the one and only time
Levitsky allegedly paid it overdue rent for the privilege of residing in the
Property. Findings of Fact Nos. 5-9, 17-19.

D. The corporation was dormant and defunct for long periods
of time until shortly before Levitsky filed the bankruptcy petition. Finding of
Fact No. 45. The revival of the defunct corporate charter on the eve of
bankruptcy served no purpose other than to hinder, delay and defraud the
debtor's personal creditors, including Carol, the IRS, and the Trustee, by
shielding the Property from the efforts of his creditors to satisfy their
obligations against the Property, which is his personal residence.FN21 Finding
of Fact No. 5.

FN21. Under Maryland law, it does not matter that Carol had
not obtained a final judgment at the time of the incorporation, because
Levitsky's extramarital conduct rendered her a future creditor, and Levitsky had
actual intent to defraud her. Under such circumstances, Levitsky's transactions
were fraudulent. See Md. Comm. Law Code § 15-207 ("Every conveyance made and
every obligation incurred with actual intent, as distinguished from intent
presumed in law, to hinder, delay, or defraud present or future creditors, is
fraudulent as to both present and future creditors.").

E. In his sole ownership of the stock of Contemporary,
Levitsky ignored corporate formalities and dealt with the Property as his own,
living there virtually rent-free for much of its 25-year ostensible ownership of
the Property. Findings of Fact Nos. 1 and 5. The Court notes that, assuming the
debtor resided on the Property subject to a valid lease, which is questionable
under the circumstances, such a lease was rejected as a matter of law by the
debtor's failure to assume it, pursuant to Section 365 of the Bankruptcy Code.

F. Other than the Property, Contemporary possessed no other
assets. Finding of Fact No. 4.

G. Levitsky used the Property titled in the name of
corporation to obtain personal loans and used the borrowed money for
non-corporate purposes, based upon the equity of the corporation in the
Property. In addition, he laundered the money for his personal benefit and to
avoid the payment of taxes through offshore shell corporations that he created
and controlled and even sheltered from his creditors the ostensible rental
payment of more than $30,000 that Levitsky transferred to the corporation
shortly before bankruptcy, thus defrauding his personal creditors. Findings of
Fact Nos. 28-36.

H. The debtor's fraudulent intent may be inferred from his
causing the corporation to transfer the Property to Jane for no consideration by
an unrecorded deed at a time when he owed money to his former wife, Carol and to
Tega Cay. Findings of Fact Nos. 4 and 32.

I. In short, the Property is in actuality property of the
debtor's estate because he has treated the Property as his own throughout the
time that it was titled in the corporate trade name and because he has used the
sham corporation to hinder, delay and defraud his creditors.

13. In the instant case, the application of reverse
veil-piercing will not prejudice creditors of the corporation. See Moore, 379
B.R. at 295, Stoebner v. Lingenfelter, 115 F.3d 576, 579-80 (8th Cir.1997)
(reverse piercing only appropriate when none of corporation's creditors will be
prejudiced). CIT and M & T are the only creditors of Contemporary, other than
possibly Levitsky himself. Both have purported liens on the Property, which are
equally valid or invalid inside or outside of bankruptcy. Thus, the disregard of
Contemporary as a corporate entity and the treatment of the Property as property
of the bankruptcy estate will have no adverse impact on or cause prejudice to
either CIT or M & T.FN22

FN22. In light of the parties' apparent agreement that the
Property is worth well over one million dollars, CIT's interest will also be
protected assuming that the Trustee accedes to M & T's alleged first lien
position.

14. Having determined that the Property is property of the
estate, this Court has subject matter jurisdiction under 26 U.S.C. § 1334 to
require its turnover by the debtor to the Trustee, and also to determine the
priority of the liens of M & T and CIT as to the Property.

15. CIT and M & T are precluded by the doctrine of
collateral estoppel from rearguing that the Property is not property of the
estate, having argued and lost on the issue. See Colandrea v. Wilde Lake Cmty.
Ass'n, Inc., 361 Md. 371, 761 A.2d 899, 908 ("If a proceeding between parties
does not involve the same cause of action as a previous proceeding between the
same parties, the principle of collateral estoppel applies, and only those facts
or issues actually litigated in the previous action are conclusive in the
subsequent proceeding ... When the principle of collateral estoppel applies,
facts or issues decided in the previous action are conclusive only if identical
to facts or issues presented in the subsequent proceeding.").

16. Although not argued by the Trustee as grounds for
relief, the Court notes the following alternative grounds that might have been
claimed to authorize the Chapter 7 Trustee to take possession of the Property.

A. The first of these is found in the case of In re Bonham,
226 B.R. 56 (Bankr.D.Ala.1998), where the bankruptcy court granted a trustee's
motion to substantively consolidate the Chapter 7 debtor's estate with her
closely-held, non-filing corporations that had been used to defraud creditors in
a Ponzi-type scheme. Quoting J. Stephen Gilbert, Substantive Consolidation in
Bankruptcy: A Primer, 43 VAND. L.REV.. 207, 218, the court differentiated
substantive consolidation from the similar result obtained under state law alter
ego doctrines by stating:

... Substantive consolidation more closely resembles the
bankruptcy rule of subordination because competition for the consolidated assets
is between creditors alone. Thus, substantive consolidation ignores artificial
legal structures but looks only to the combined assets of the consolidated
entities for satisfaction of all claims against the collective group.

Bonham, 226 B.R. at 77. Contra, Maiz v. Virani, 311 F.3d
334, 343-45 (5th Cir.2002) (turnover proceeding may not be used to adjudicate
whether a corporation is an individual judgment debtor's alter ego); and Morse
Operations, Inc. v. Robins LeCoq, Inc. (In re Lease-A-Fleet), 141 B.R. 869
(Bankr.E.D.Pa.1992) (involuntary consolidation of debtor's case with that of
non-debtor corporation was not appropriate in the absence of extraordinary
circumstances).

B. A second case in which a Chapter 7 trustee obtained
possession of a debtor's corporate property without piercing the corporate veil
is Fowler v. Shadel, 400 F.3d 1016 (7th Cir.2005). In that case, the Seventh
Circuit held that where, as here, the debtor who was the sole shareholder of a
corporation failed to exempt his interest in the corporate stock, the trustee
acceded to the debtor's interest in the stock and therefore had the right to
liquidate the assets of the corporation, even though the corporate assets
themselves (in that case, trucks) were not property of the debtor's bankruptcy
estate. 400 F.3d at 1018-19.

The Priority and/or Avoidance of the Liens of M & T and CIT

17. The liens of M & T and CIT are not invalid on the
ground that the 1983 deed from the Magnolia Way Joint Venture did not
effectively convey good title of the Property to Contemporary. The Trustee's
assertion to the contrary is based upon the deed's recitation that the Property
was being conveyed to "CMK Company, a Maryland Corporation," at a time when
there was no such corporation or trade name recorded among the land records.
However, it must be remembered that the trade name of "CMK Company" was recorded
in the land records on September 29, 1983, 22 days after the deed was executed
and 21 years before the petition date. While the failure to record a deed might
have resulted in its invalidation during the period between execution and
recordation, Maryland courts have not invalidated deeds when such a mistake in
corporate formalities is later corrected. See, e.g., Zulver Realty Co. v.
Snyder, 191 Md. 374, 379, 62 A.2d 276, 279 (holding that deed was valid when the
deed was conveyed to grantee corporation which formally incorporated after the
conveyance). In light of the brief period between the execution of the deed and
the proper recordation of the trade name, and the long duration between the
recordation of the trade name and the filing of the bankruptcy petition, the
liens may not be invalidated based on the late-filing of the trade name.

18. The liens of M & T and CIT are not invalid on the
ground that the corporate charter of Contemporary Magic Kingdom, Inc., had been
forfeited for almost seven years when FNB made the loan to "CMK Company." While
it is true that Bank One made its loan at a time when the charter had been
forfeited for nearly a decade, courts have employed concepts of estoppel to
prevent a bankruptcy trustee from using her strong-arm powers to void a lien
obtained in the name of a corporation whose charter was forfeited. See Exchange
Nat'l Bank v. A.J. Rackers, Inc. (In re A.J. Rackers, Inc.), 167 B.R. 168,
175-76 (Bankr.W.D.Mo.1994); Matter of Pubs, Inc. of Champaign, 618 F.2d 432 (7th
Cir.1980) (interpreting the Bankruptcy Act). In A.J. Rackers, a bank made a
secured loan to a corporation approximately one month after its charter had been
forfeited without knowledge of the forfeiture by either party. Rackers, at 170.
Subsequently, without having its charter reinstated, the corporation operated
its heating and air conditioning repair and installation business for the next
seven months before it closed its doors and wound down its affairs. Although the
court found that the activities of a business which has forfeited its corporate
charter are limited to winding down the operation, it held the loan to be valid
because the corporation was a "corporation by estoppel." Despite the proposition
that, "as a general rule, the trustee is not bound by estoppel," the court was
persuaded that under the Uniform Commercial Code, there was proper attachment by
estoppel that the trustee could not overcome. Id. at 175.

19. Like Missouri, Maryland recognizes the concept of
"corporation by estoppel." See Cranson v. Int'l Bus. Mach. Corp ., 234 Md. 477,
487, 200 A.2d 33, 38 (1964) (to prevent creditor from pursuing claim against
president of corporation personally when creditor had dealt with the corporation
as though it were a corporation even though it had failed to incorporate).
Accordingly, had Levitsky not personally guaranteed the loans in question, and
assuming that M & T and CIT for some reason could not pierce the corporate veil,
both would be estopped from denying the existence of Contemporary and from
pursuing their claims against Levitsky personally.

20. Finding persuasive the reasoning in Rackers and Pubs,
this Court holds that while a trustee is not estopped from challenging the
perfection of a lien by estoppel, a trustee is estopped from challenging the
attachment of a security interest, when that attachment occurred through
estoppel. Rackers, at 175.

21. The Court also notes that in this case, unlike Rackers,
the corporate charter was revived by the time the bankruptcy petition was filed.
While the circumstances surrounding that corporate revival are suspicious,
(having been revived one month prior to the filing of the petition after more
than a decade of dormancy), there is no evidence that the revival was
ineffective, at least with regard to the corporate name.

22. Pursuant to Section 544(a)(3),FN23 a Chapter 7 trustee
possesses all of the lien avoidance powers that would be bestowed by state law
upon a hypothetical purchaser of property who purchased the property on the date
the bankruptcy petition was filed. See 11 U.S.C. § 544(a)(3); Rinn v. First
Union Nat. Bank of Md., 176 B.R. 401, 25 UCC Rep. Serv.2d 1057 (D.Md.1995). This
Court (Derby, J.) has previously invalidated a lien on the personal property of
a corporation when the allegedly secured party filed a financing statement that
referred to the debtor by its trade name. Greenbelt Coop., Inc. v. Werres Corp.
(In re Greenbelt Coop.), 124 B.R. 465, 470 (Bankr.D.Md.1991) (citing In re
Bumper Sales, Inc., 907 F.2d 1430 (4th Cir.1990)); see also Lawrence Bach, Trade
Name Filing: Should It be Sufficient to Perfect A Security Interest Under U.C.C.
Section 9-402?, 35 CASE W. RES. L. REV 51 (1985). As noted, that case dealt with
personal and not real property, and was decided based upon provisions of the
Uniform Commercial Code. FN24

FN23. Section 544(a) provides, as follows:(a) The trustee
shall have, as of the commencement of the case, and without regard to any
knowledge of the trustee or of any creditor, the rights and powers of, or may
avoid any transfer of property of the debtor or any obligation incurred by the
debtor that is voidable by-

(1) a creditor that extends credit to the debtor at the
time of the commencement of the case, and that obtains, at such time and with
respect to such credit, a judicial lien on all property on which a creditor on a
simple contract could have obtained such a judicial lien, whether or not such a
creditor exists;

(2) a creditor that extends credit to the debtor at the
time of the commencement of the case, and obtains, at such time and with respect
to such credit, an execution against the debtor that is returned unsatisfied at
such time, whether or not such a creditor exists; or

(3) a bona fide purchaser of real property, other than
fixtures, from the debtor, against whom applicable law permits such transfer to
be perfected, that obtains the status of a bona fide purchaser and has perfected
such transfer at the time of the commencement of the case, whether or not such a
purchaser exists.

11 U.S.C. § 544(a).

FN24. In Greenbelt Coop., the debtor corporation operated a
furniture store known to consumers as SCAN or SCAN Furniture, but was
incorporated under the name "Greenbelt Cooperative, Inc." Id . at 467. An
equipment lessor entered into what was effectively a purchase-money loan for
forklifts with the corporation, but filed a financing statement under the name
Scan Furniture. Judge Derby granted the complaint brought by the
debtor-in-possession to avoid the lessor's lien on the forklifts and held that
because the trade name "SCAN Furniture" was not remotely similar to the
corporate name "Greenbelt Cooperative, Inc.," the debtor-in-possession could use
the trustee's strong-arm powers under 11 U.S.C. § 544(a)(1) to avoid the lien.
Id. at 471.

23. In order to properly distinguish Greenbelt Coop., it is
necessary to briefly describe the history of the methods by which Maryland
allows corporations to record trade names. Before 1991, the law required that
trade names be filed in every county in which the trade name was used. Upon
filing, the clerks of court forwarded the trade names to SDAT, which maintained
a trade name master list. The filing of a trade name gave the corporation the
right to use the trade name forever, but not the exclusive right. In 1991, the
General Assembly enacted important revisions to the law that became effective on
July 1, 1991. First, trade names were required to be filed with SDAT, and were
given statewide effect. Second, once registered properly, trade names were to be
exclusive, that is, no one but the filer was allowed to use them. Third, trade
names were to last for only 10 years, instead of in perpetuity.

24. The current statute governing the recordation of trade
names is found in Sections 1-401 through 1-415 of the Business Regulation
Article of the Maryland Code. The following quoted sections are relevant to the
instant case:

1-401. Definitions.

(c) Mark. "Mark" means a name, symbol, word, or combination
of 2 or more of these that a person:

(1) places on goods that the person sells or distributes, a
container of the goods, a display associated with the goods, or a label or tag
affixed to the goods to identify those goods that the person makes or sells and
to distinguish them from goods that another person makes or sells; or

(2) displays or otherwise uses to advertise or sell
services that the person performs to identify those services that the person
performs and to distinguish them from services that another person performs.

* * *

1-401(f) Trade name.-"Trade name" means a name, symbol,
word, or combination of 2 or more of these that a person uses to identify the
business or occupation of the person and to distinguish it from the business or
occupation of another person.

1-402. Effect of Subtitle.

This subtitle does not affect adversely a right or the
enforcement of a right in a mark acquired in good faith at any time at common
law.

1-403. Records.

The Secretary of State shall keep a public record of the
marks registered under this subtitle.

1-404. Registration authorized.

(a) In general.-If a person uses a mark in the State, the
person may register the mark in accordance with this subtitle.

(b) Exceptions.-A person may not register a mark that:

* * *

(5) is likely, when applied to the goods or services of the
person, to confuse or deceive because the mark resembles:

(i) another mark registered in the State; or

(ii) a mark or trade name that another person has used in
the State and has not abandoned.

(d) Registration of trade name prohibited.-A person may not
register a trade name that is not a mark.

1-410. Term and renewal of registration.

(a) Term of registration.-Unless registration of a mark is
renewed for a 10-year term as provided in this section, the registration expires
on the tenth anniversary of its effective date.

1-412. Cancellation of registration.

(a) The Secretary of State shall cancel a registration of a
mark if:

(1) the registrant asks that it be canceled;

(2) the registrant fails to renew it;

(3) a court of competent jurisdiction orders that it be
canceled on any ground; or

(4) a court of competent jurisdiction finds that:

(i) the mark is abandoned;

(ii) the registrant does not own the mark;

(iii) the registration was granted improperly; or

(iv) the registration was obtained fraudulently.

Id.FN25

FN25. The status of prior recorded trade names is ambiguous
under the new law, and SDAT was uncertain how to treat them. For a period, it
maintained the trade names filed after the 1991 change in the same file as those
filed before it. However, because the primary purpose for searching trade name
records is to determine whether a name has already been registered, and because
the pre-1991 trade names were non-exclusive (and arguably lasted forever), SDAT
decided that it would no longer be worthwhile to keep the pre-1991 records open
to the public. Accordingly, it removed the pre-1991 trade name files from the
records open to the public, although SDAT employees continued to have access to
them. The records are now available only on microfilm. They are not viewable
either in an online search of the SDAT database nor if a party went to the SDAT
counter in person. Online search capabilities of SDAT allow a party to access
any trade name by search using its initial letters followed by a percentage
sign. For example, one could search for all trade names beginning with the
letters CMK, by searching for CMK%. However, an online search for CMK% would not
yield CMK Company because that trade name was filed before 1991. A party may
also search online for all of the trade names of a Maryland-registered
corporation by its "Department ID number." However, once again, such a search
would not disclose any trade name registered before 1991. The website does not
inform one that it will not permit access to trade names filed before 1991. In
order to compel SDAT to produce the old trade names, a party must appear in
person at the office of SDAT and request a clerk to search the microfilm records
for a specific trade name. Due to a lack of institutional memory, there is a
good chance that most SDAT clerks are unaware of the existence of the old trade
name files. Thus, there is no method by which the Trustee could obtain the trade
name, CMK Company from SDAT without specifically asking a knowledgeable clerk to
search the microfilm records. However, a search of the Lexis-Nexus database,
which is available to private parties for a fee, would have revealed the
existence of the old trade names.

25. The holding in Greenbelt Coop. is not applicable here,
not only because the instant case deals with real property, but because the
facts of the instant case differ from Greenbelt Coop. in two ways. First,
Greenbelt Coop. was decided before the 1991 change in the Maryland trade name
recordation law, and there was no finding that the trade name "SCAN Furniture"
had been filed with the clerks of the circuit courts in the counties in which
the forklifts were located. In the instant case, "CMK Company" was ultimately
recorded properly as a trade name. Second, in the instant case, a hypothetical
purchaser would have knowledge of the trade name "CMK Company," because that was
the name used on all the deeds in the chain of title as far back as 1983.

26. Maryland courts have been unforgiving of a purchaser's
mistake of law. See Cooke's Lessee v. Kell, 13 Md. 469, 493, 1859 WL 3857 at *
16 (Md.1859) ("If registration laws do not give notice to the community which
will bind it, then they are of no use whatever ..."); see also Janusz v.
Gilliam, 404 Md. 524, 536, 947 A.2d 560, 567 (May 9, 2008), quoting Hoffman v.
Chapman, 34 A.2d 438, 441, 182 Md. 208, 213 (1943) ("[t]he general rule is
accepted in Maryland that a mistake of law in the making of an agreement is not
a ground for reformation ..."). The system of recording trade names employed by
SDAT comports with the law of Maryland. Accordingly, a purchaser of a home in
Maryland is charged with knowledge of the recording system of the jurisdiction
in which she is purchasing a home, including the system of recording trade
names, if for some reason the home is titled in a trade name.

27. When conducting a title search, a purchaser is
obligated to look back as far as is reasonable under the circumstances. Coe v.
Hays, 105 Md.App. 778, 786, 661 A.2d 220, 224 (1995) (finding that, based on
expert testimony, a title search going back 99 years was sufficient and that 60
years would have also been sufficient to convey marketable title).

28. From the deeds in the chain of title to the Property, a
hypothetical purchaser would realize that there was a deed to "CMK Company"
which existed as far back as 1983. Accordingly, a hypothetical purchaser would
be on notice that it would be necessary to search the pre-1991 trade name
records to find that trade name.

29. The Trustee cites the recent opinion the Maryland Court
of Appeals for the proposition that the burden of risk of a clerk's mistake is
on the party recording, not on the purchaser. See Greenpoint Mortgage Funding,
Inc. v. Schlossberg, 390 Md. 211, 234-35, 888 A.2d 297, 311 (2005) ("Indexing
mistakes should be at the risk of the person who had the ability to insure that
the document was indexed correctly-the filer."). Here, unlike Greenpoint
Mortgage, the trade name CMK Company was properly recorded in the Anne Arundel
County Circuit Court under the laws in existence at the time of recordation.
SDAT may have provided an incorrect answer to the Trustee's question when it
advised her that no such trade as "CMK Company" existed; but the Trustee asked
the wrong question. As a hypothetical purchaser, the Trustee is charged not only
with knowledge of the recording laws, but also with the knowledge of the
recording practices of SDAT. Those practices apparently include not informing
inquirers about trade names registered before July 1, 1991, unless the inquirer
specifically asks for them.

30. For these reasons, the Trustee cannot use her §
544(a)(3) powers to avoid the lien of CIT on the theory that a hypothetical
purchaser would not have notice of the trade name "CMK Company."

31. Maryland is a race-notice jurisdiction. See Md. Real
Prop.Code Ann. § 3-203.FN26 Accordingly, when a grantor conveys a deed or deed
of trust to one purchaser or lender, and then subsequently conveys a deed or
deed of trust on the same property to another purchaser or lender who takes
without notice of the first deed or deed of trust, the first purchaser or lender
who properly records its interest in the land records will defeat the other
purchaser or lender's interest.

FN26. Section 3-203 of the Real Property Article of the
Maryland Code provides as follows:Every recorded deed or other instrument takes
effect from its effective date as against the grantee of any deed executed and
delivered subsequent to the effective date, unless the grantee of the subsequent
deed has: (1) Accepted delivery of the deed or other instrument: (i) In good
faith; (ii) Without constructive notice under § 3-202; and (iii) For a good and
valuable consideration; and (2) Recorded the deed first.

Md. Real Prop.Code Ann. § 3-203.

32. While it is true that Jane conveyed her interest in the
Property back to Contemporary before Bank One recorded its deed of trust,
Contemporary also delayed recording the transfer to Jane. Because it delayed
recording the reconveyance, Contemporary would not have been able to defeat Bank
One's unrecorded deed of trust, even had it taken back the Property without
knowledge of the deed of trust. Of course it did not, because Bank One recorded
its deed of trust before Contemporary recorded the deed. Therefore, a
hypothetical purchaser analyzing the chain of title to the Property would have
had notice of this entire series of events.

33. The Trustee argued that the Replacement Deed of Trust
between Jane and Bank One was actually a new deed of trust that Jane did not
have authority to execute because she had already transferred the Property back
to Contemporary. This Court disagrees, and so do the Maryland cases that have
held replacement deeds to be valid. See, e.g., Bugg v. Md. Transp. Auth., 31
Md.App. 622, 358 A.2d 562, 586 (1976). Generally, courts will only invalidate a
replacement deed when there is some indicia of fraud. See, e.g., RKB Investments
v. Maxfield ( In re B.L. Jennings, Inc.), 373 B.R. 742 (Bankr.M.D.Fla.2007).
While there are plenty of indicia of fraud present in this case, the Replacement
Deed of Trust itself has none of these; rather, it was executed and recorded to
replace the original deed of trust rejected by SDAT because it mistakenly
purported to be a refinancing deed of trust. The addition of the words "Purchase
Money" on the top of the Replacement Deed of Trust corrected that error and
served to effectuate the intent of all parties to the original deed of trust.
Accordingly, because the Replacement Deed of Trust properly replaced the
original deed of trust, it therefore relates back in time to the date of the
deed of trust it replaced. There might be a different result if the deed from
Jane to Contemporary was recorded prior to the recordation of the replacement
deed of trust.

34. Nevertheless, even were the Replacement Deed of Trust
in fact a new deed of trust, it is still effective even if Jane had no authority
to convey it, because it was recorded by Bank One before Contemporary recorded
the deed from Jane. As a race-notice jurisdiction, Maryland law holds that when
the owner of real property conveys a deed to one party and later a deed of trust
to a different party, the first party takes the property subject to the deed of
trust if the holder of the deed of trust records first. Thus, assuming the
Replacement Deed of Trust was in fact a new deed of trust, it is still effective
because Bank One obtained it without knowledge of the deed back to Contemporary,
and Bank One recorded first. Md.Code Ann., Real Prop § 3-203. Therefore, the
trustee's argument that the Replacement Deed destroyed the lien of CIT fails.

35. The Trustee also seeks to use her Section 544(a)(3)
hypothetical purchaser powers to prevent M & T from asserting a lien on the
Property, on the theory that a hypothetical purchaser would have had no inquiry
notice that the certificate of satisfaction of M & T's lien had been either
fraudulently or mistakenly recorded. It is black letter law that a certificate
of satisfaction recorded by mistake does not release a mortgagee from a lien or
from the obligations that the lien secures. Numerous state court opinions have
held in cases where a certificate of satisfaction was fraudulently entered onto
the land records, the lien survived, even against an innocent purchaser. See,
e.g., Leedom v. Spano, 436 Pa.Super. 18, 34, 647 A.2d 221, 229 (1994) (innocent
purchasers took property subject to lien even though fraudulent lien release was
filed by unidentified individual in land records); Sunrise Sav. & Loan Ass'n of
Fla. v. Giannetti, 524 So.2d 697, 700 (Fla.Dist.Ct.App.1988) ("where a mortgage
has been cancelled because of the fraudulent conduct of an intervening third
party, without authority or consent of the mortgagee, the result is [that the
mortgagee's lien survives]") (citing Zimmer v. Fryer, 190 La. 814, 183 So. 166
(1938)); Luther v. Clay, 100 Ga. 236, 248, 28 S.E. 46, 49-50 (1897) (bona fide
purchaser took real property subject to lien on which certificate of
satisfaction had been fraudulently filed by mortgagor); Keeler v. Hannah, 52
Mich. 535, 536, 18 N.W. 346, 346 (1884) (original mortgagee's lien was effective
against subsequent mortgagee even though mortgagor had filed fraudulent release
of first mortgage and subsequent mortgagee had no knowledge of fraud); Crecelius
v. Home Heights Co., 217 S .W. 508, 512 (Mo.1919) (deed of trust fraudulently
released by third party was still effective against bona fide purchaser);
Scardone v.. Sozzi, 108 N.J. Eq. 415, 155 A. 376 (N.J. Ch.1931) ("Between a
mortgagee whose mortgage has been discharged of record solely through the
unauthorized act of another party, and a purchaser who buys the title in the
belief, induced by such cancellation, that the mortgage is satisfied and
discharged, the equities are balanced, and the rights in the order of time must
prevail") (citations omitted).FN27 The only exception is where the certificate
of satisfaction was mistakenly recorded because of the lienholder's own
negligence. One bankruptcy opinion went so far as to hold that anytime a
certificate of satisfaction is mistakenly recorded due to anyone's fault other
than that of the affected lienholder, the lien is still effective even against a
bona fide purchaser. See Home Sav. & Loan. Co. v. O'Reilly (In re O'Reilly), 30
B.R. 562, 564 (Bankr.N.D.Ohio 1983). Indeed, when the mistaken release of a lien
was entirely due to the fault of the holder of the released lien, one bankruptcy
court allowed § 544(a)(3) to avoid the lien. See Collins v. Bank of New
England-West, N.A. (In re Daylight Dairy Prods., Inc.), 125 B.R. 1, 4-5
(Bankr.D.Mass.1991) (allowing trustee to use § 544(a)(3) where bank had
mistakenly recorded a certificate of satisfaction of its own lien).

FN27. An exhaustive list of similar decisions is contained
at 35 A.L .R.2d 948 (1951 & Supp.2002).

36. However, under Maryland law, a properly-recorded
certificate of satisfaction acts to release property from any lien contained
thereon. Md. Real Prop.Code Ann. § 7-103(a).FN28 Two Maryland decisions,
seemingly unique in the nation, hold that when one purchases property without
notice that a certificate of satisfaction was mistakenly recorded, the purchaser
takes the property free and clear of any lien that was mistakenly released. Van
Schaik v. Van Schaik, 35 Md.App. 19, 26, 369 A.2d 133, 137 (1977) ("[I]f a
release of mortgage is mistakenly recorded, that release is effective as to
subsequent bona fide purchasers ..."); FN29 and Bond v. Dorsey, 65 Md. 310, 316,
4 A. 279, 281 (1886) ("Of course, the mortgage cannot be restored as against one
who has in good faith purchased the property after the cancellation, or has
advanced money upon it upon the faith of a clear record title"). These opinions
permit a bona fide purchaser to take title to real property free and clear of a
lien mistakenly released as a result of a third party's negligence. Accordingly,
even though the lien of M & T was allegedly released as a result of the
negligence of a third-party, under the authority of the cases cited, the Trustee
is empowered to avoid the lien of M & T for the reason that a bona fide
purchaser could do so in Maryland.

FN28. Section 7-103(a) of the Real Property Article of the
Maryland Code provides as follows:The title to any promissory note, other
instrument, or debt secured by a mortgage, both before and after the maturity of
the note, other instrument, or debt, conclusively is presumed to be vested in
the person holding the record title to the mortgage. If the mortgage is duly
released of record, the promissory note, other instrument, or debt secured by
the mortgage, both before and after the maturity of the promissory note, other
instrument, or debt, conclusively is presumed to be paid as far as any lien on
the property granted by the mortgage is concerned.

Md. Real Prop.Code Ann., § 7-103(a).

FN29. In Van Schaik, owners of real property sold it to
their son and daughter-in-law, subject to a purchase-money mortgage which they
sold to a third-party bank. The bank later attempted to reassign the mortgage
back to the original owners, but instead mistakenly released the mortgage. The
son and daughter-in-law sold part of the real property to a third party who had
no notice that the release had been mistakenly recorded. When one of the
original owners (the other had since died) discovered the release, she filed a
bill of complaint seeking to vacate the release. In affirming the trial court's
grant of the vacatur of the release as to the son and daughter-in-law, the Court
of Special Appeals of Maryland also held that the released mortgage did not
apply to the land that was sold to the bona fide purchaser. 35 Md.App. at 26-27,
369 A.2d at 137-39. Thus, the decision held, in disagreement with every other
state that has decided the issue, that even though the original lienholder's
lien was mistakenly released by a third party, the lien was ineffective as to a
bona fide purchaser.

37. M & T argued that a hypothetical purchaser would be put
on inquiry notice that the certificate of satisfaction was mistakenly recorded,
in support of which M & T noted that the certificate was signed by Levitsky, and
not by an employee or agent of M & T. This Court disagrees. In order to be
precluded from the status of a bona fide purchaser, there must be "circumstances
which ought to have put a person of ordinary prudence on inquiry," in which case
a purchaser "will be presumed to have made such inquiry and will be charged with
notice of all facts which such an investigation would in all probability have
disclosed if it had been properly pursued." Fertitta v. Bay Shore Dev. Corp.,
266 Md. 59, 72, 291 A.2d 662, 669 (1972). M & T asserted that while the
certificate of satisfaction did not disclose the status of Levitsky as president
and/or sole shareholder of Contemporary/CMK Company, his status was readily
ascertainable based on four different documents recorded in the Land Records of
Anne Arundel County, including the deed of trust between Levitsky and FNB as
referenced by the certificate, which the certificate purportedly released. On
the other hand, the Trustee argued that a hypothetical purchaser would not be on
notice that the certificate was fraudulently or mistakenly recorded. In so
arguing, the Trustee relies on the two title searches conducted by title
agencies employed by CIT that certified that there were no mortgages recorded on
the Property, other than that of CIT. The Trustee also argued that a
hypothetical purchaser would have had no reason to believe that FNB had not
assigned the deed of trust to Levitsky after he had fully paid the mortgage. The
Trustee noted that the certificate was certified as properly executed by a
Maryland attorney, Mark Reges, whose signature is notarized.

38. Subsection (b) of Section 3-105 of the Maryland Real
Property Code, which governs the release of deeds of trust, mortgages or liens,
authorizes the assignee of a lien to record a certificate of satisfaction
without the necessity of recording the actual assignment of the lien.FN30
Therefore, a reasonable title searcher could believe that M & T assigned its
deed of trust to Levitsky, who released it as the assignee, as the two CIT title
searchers apparently believed. A title searcher would note that the certificate
of satisfaction was signed and certified by a member of the Maryland bar
experienced in real estate transactional law. Additionally, the existence of
later loans accompanied by the certificate of satisfaction of the M & T lien
would indicate to a prudent title searcher that the loan had been paid off by
the CIT loan. Accordingly, the Court disagrees with M & T's contention that a
hypothetical purchaser would have inquiry notice that M & T's loan had not been
paid off.

FN30. Section 3-105(b) provides, as follows:(b) A release
may be endorsed on the original mortgage or deed 62 of trust by the mortgagee or
his assignee, the trustee or his successor under a deed of trust, or by the
holder of the debt or obligation secured by the deed of trust. The mortgage or
the deed of trust, with the endorsed release, then shall be filed in the office
in which the mortgage or deed of trust is recorded. The clerk shall record the
release photographically, with an attachment or rider affixed to it containing
the names of the parties as they appear on the original mortgage or deed of
trust, together with a reference to the book and page number where the mortgage
or deed of trust is recorded. When the mortgage or deed of trust, with the
attached release, is filed for the purpose of recording the release, the clerk
shall retain the mortgage or deed of trust in his office and not permit it to be
withdrawn for 25 years, after which time he may destroy it. If, however, the
clerk preserves a photographic copy of the release, he may permit the original
mortgage or deed of trust with the release to be withdrawn.

Id.

39. In response to the argument of M & T that, despite the
release, it retains an equitable lien, courts have repeatedly refused to enforce
equitable liens against the powers of a hypothetical purchaser accorded to a
bankruptcy trustee by Section 544(a)(3). See, e.g., Barclays American/Mortgage
Corp. v. Wilkinson (In re Wilkinson), 186 B.R. 186 (Bankr.D.Md.1995) (Keir, J.)
(Defect in execution of mortgage barred lender from asserting an equitable lien
against a Chapter 13 debtor in possession); Wolf v. Mahrdt ( In re Chenich), 100
B.R. 512, 515 (9th Cir. BAP1987) (hypothetical bona fide purchaser "takes title
to the real property free from all equitable liens") (quotations omitted).
Indeed, the only equitable liens enforced in the context of Section 544(a)(3)
are those of a first-in-time lender against a second-in-time lender. See, e.g.,
In re Price, 97 B.R. 264, 266 (Bankr.E.D.N.C.1989) (substituting trustee in
place of first lender and allowing trustee to occupy first lien position); First
Am. Nat'l Bank v. Miller (In re Miller), 286 B.R. 334, 343-44
(Bankr.E.D.Tenn.1999) (same). Similarly, if it is found that an agent of CIT
negligently released the lien of M & T, M & T may have an equitable lien on the
proceeds of CIT's lien, under a theory of unjust enrichment. However, such a
claim was not a part of M & T's motion for judgment and therefore it is not
appropriate to rule on it now.

40. By avoiding the lien of M & T, which was recorded prior
to that of CIT, the Trustee succeeds to the former lien position of M & T, ahead
of that of CIT.

Standard of review

41. The Court will grant CIT's motion for judgment and deny
that of M & T. Judgment as a matter of law is appropriate when, "without
weighing the credibility of witnesses, there can be but one reasonable
conclusion as to the correct judgment ... If, however, evidence viewed in a
light most favorable to the nonmovant indicates that more than one conclusion is
plausible, judgment as a matter of law is improper." In re Byrd Foods, Inc., 253
B.R. 196, 199 (E.D.Va.2000), citing Siegfried Construction, Inc. v. Gulf Ins.
Co., 203 F.3d 822 (4th Cir.2000)(table) (unpublished). See Federal Rule of Civil
Procedure 52(c), made applicable herein by Federal Bankruptcy Rule 7052. The
Court will grant CIT's motion, because weighing all of the evidence in favor of
the Trustee, the Court finds that a conclusion in the Trustee's favor is
implausible. Because a decision in favor of M & T is implausible, and because M
& T has stated that it does have any further evidence to present, the Court will
enter judgment against M & T, thereby allowing the Trustee to avoid its lien
against the Property.

WHEREFORE, in Adversary Proceeding No. 04-2024, this Court
will enter a decree in favor of the Trustee declaring that the Property is
includable as property of the debtor's estate, and will require that the debtor
turn over the said Property to the Trustee forthwith. In Adversary Proceeding
No. 05-1254, this Court will declare that the lien of M & T is avoidable by the
Trustee, who will take priority over the recorded lien of CIT; and that the
Trustee will be authorized to sell the Property for the benefit of the general
unsecured creditors of the bankruptcy estate of Leon R. Levitsky, including M &
T, subject to the prior lien of CIT.

ORDER ACCORDINGLY.

Labels: Alter Ego, asset protection, corporate veil, fraudulent transfer, reverse alter ego, veil piercing