UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

ROK Builders, LLC

v. Case No. 12-cv-57-PB Opinion No.

2010-1 SFG Venture, LLC

MEMORANDUM AND ORDER

This bankruptcy appeal involves the competing claims of two

creditors to the real property of Moultonborough Hotel Group,

LLC ("Debtor"). 2010-1 SFG Venture, LLC ("SFG") holds a secured

claim against the Debtor in the amount of $10,622,997 as the

assignee of a construction mortgage on the Debtor's hotel. ROK

Builders, LLC ("ROK") , the contractor who built the hotel, also

has a claim against the Debtor in the amount of $2,487,412 for

unpaid work that is secured by a mechanic's lien attachment.

After the Debtor filed a petition for reorganization under

chapter 11 of the Bankruptcy Code, SFG commenced this adversary

proceeding against ROK, seeking a declaration that its mortgage

is senior to ROK's mechanic's lien to the extent of

$6,434,074.40, the amount disbursed to ROK for materials and

labor via the mortgage loan. ROK asserted eleven counterclaims

1 against SFG. The bankruptcy court dismissed most of ROK's

counterclaims for failure to state a claim and subsequently

entered summary judgment in SFG's favor on the priority claim.

ROK appeals both decisions. For the reasons provided below, I

a f fir m .

I. BACKGROUND

A. Factual Background

On September 21, 2007, ROK entered into an agreement with

the Debtor for the construction of a Hampton Inn & Suites hotel

in Tilton, New Hampshire. The construction had begun previously

but had stalled due to lack of funds.

Three weeks later, the Debtor entered into a loan agreement

with Specialty Finance Group ("Specialty") , in which Specialty

agreed to lend $8,700,000 to finance construction of the hotel.

As security, the Debtor executed and delivered to Specialty a

mortgage on the property, which was recorded the next day.

Shortly after the loan closing, ROK resumed construction of

the hotel and completed the project in June 2008. ROK received

$6,434,074.40 from loan disbursements as payment for preparing

the building site, constructing the hotel, installing permanent

fixtures, and providing architectural and engineering services.

2 Specialty, however, refused to disburse the balance of the loan

to pay ROK's invoices for the last two months of construction

work. Specialty made the decision to stop payments because the

Debtor had breached the loan agreement by failing to secure

additional funding to ensure completion of the project. Without

notifying ROK of its decision to stop payments. Specialty

continued to accept ROK's invoices for proposed work during the

last two months of construction. As a result, ROK incurred

total unpaid costs in the amount of $2,487,412.

In May 2010, Specialty assigned the mortgage on the

Debtor's hotel to the Federal Deposit Insurance Corporation

("FDIC"), as receiver for Silverton Bank, N.A., Specialty's

parent company. The FDIC then assigned the mortgage to SFG.

The assignments are identical in form and contain the following

clause:

The mortgage is conveyed 'as is' and 'with all faults , ' without any representation or warranty whatsoever, including as to collectability, enforceability, value of collateral, ability of any obligor to repay . . .

Doc. No. 3-6; Doc. No. 3-8.

At some point, the Debtor defaulted on the loan. In

response, SFG scheduled a foreclosure sale of the property to be

held on October 1, 2010.

3 B. The Debtor's Bankruptcy

The Debtor filed a voluntary petition for Chapter 11

bankruptcy on September 30, 2010. As debtor-in-possession, it

then began an adversary proceeding against SFG, seeking to avoid

SFG's mortgage based on alleged irregularities in the execution

of the mortgage deed. On cross-motions for summary judgment,

the bankruptcy court determined that the mortgage is valid and

enforceable.

The Debtor and SFG subsequently negotiated a settlement.

The settlement is incorporated into the Debtor's proposed Plan

of Liquidation. The Plan provides that "Debtor, on behalf of

itself, its estate, its successors and assigns, shall release

any and all claims, causes of action, rights and/or remedies

asserted in the [Debtor] Adversary Proceeding and/or the

[Debtor] Complaint and any other avoidance or other claims

[against SFG], including without limitation any claims or causes

of action based on theories of equitable subordination." Doc.

N o . 16-6.

The bankruptcy court has not yet approved the Plan. ROK

has objected to the Plan on a number of bases, including that it

improperly releases ROK's equitable subordination claim against

SFG.

4 C. Adversary Proceeding between ROK and SFG

In March 2011, SFG commenced this adversary proceeding

against ROK, seeking a declaration that its mortgage is senior

to ROK's mechanic's lien to the extent of $6,434,074.40, the

amount of the mortgage loan disbursed to ROK for materials and

labor.

In response, ROK asserted eleven counterclaims against SFG.

Nine counterclaims (labeled Counterclaim I through VIII1) involve

claims that Specialty breached contractual duties it owed to ROK

and engaged in tortious conduct. Counterclaim IX seeks to

equitably subordinate SFG's claim to ROK's claim, and

Counterclaim X seeks to avoid the mortgage on the basis ofthe

same alleged irregularities raised by the Debtor in its

unsuccessful challenge against SFG. Lastly, in Counterclaim XI,

ROK seeks a declaration that its mechanic's lien is senior to

SFG's mortgage.

Following a hearing on SFG's motion to dismiss all

counterclaims, the bankruptcy court issued an oral ruling

dismissing counterclaims I through VIII, including the redundant

fifth counterclaim, because ROK failed to allege any basis on

1 ROK erroneously labeled two separate counterclaims as "Fifth Counterclaim." 5 which SFG, as assignee of the mortgage, could be held liable for

the alleged misconduct of Specialty, the assignor. The court

also dismissed the equitable subordination claim, reasoning that

the claim belongs to the Debtor.

SFG subsequently filed a motion for summary judgment. The

court issued an oral ruling granting the motion on December 15,

2011. Applying the rule of priority set out in RSA 447:12-a,

the court determined that SFG's mortgage is senior to ROK's

mechanic's lien to the extent of $6,434,074, and dismissed the

remaining counterclaims.

II. STANDARD OF REVIEW

This court has jurisdiction to hear appeals from final

judgments, orders, and decrees issued in bankruptcy court

pursuant to

(a)(1). All of the challenged

rulings in this case involve pure questions of law.

Accordingly, I review the bankruptcy court's rulings de novo.

See Dahar v. Jackson (In re Jackson),

(1st

Cir. 2006); Watman v. Grotman (In re Watman),

(1st C i r . 2006) .

The bankruptcy court disposed of certain claims on summary

judgment and others on a motion to dismiss. The summary

6 judgment standard under Federal Rule of Civil Procedure 56

applies to bankruptcy adversary proceedings. Fed. R. Bankr. P.

7056; see Canzano v. Ragosa (In re Colarusso),

(1st Cir. 2004). Accordingly, "a motion for summary judgment

should be granted only when there are no genuine issues of

material fact and when the moving party is entitled to summary

judgment as a matter of law." In re Colarusso,

.

Similarly, "[t]he jurisprudence of Rule 12(b)(6) is

applicable to motions to dismiss in bankruptcy cases." Banco

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

Bankers Corp.),

(1st Cir. 2003); see Fed. R.

Bankr. P. 7012(b). I must "assume the truth of all well-pleaded

facts and indulge all reasonable inferences that fit the

plaintiff's stated theory of liability." In re Colonial

Mortgage Bankers Corp.,

. I must then determine

whether those allegations and inferences "state a plausible, not

a merely conceivable, case for relief." Sepulveda-Villarini v.

Dep't of Educ. of P.R.,

(1st Cir. 2010).

Il l . ANALYSIS

ROK appeals the bankruptcy court's determination that SFG's

mortgage takes priority over ROK's mechanic's lien, as well as

7 the court's dismissal of ROK's remaining counterclaims. I

address each claim in turn.

A. Priority

The bankruptcy court determined on summary judgment that

SFG's construction mortgage is senior to ROK's mechanic's lien

to the extent of $6,434,074, the amount of the mortgage loan

disbursed to ROK for materials and labor. The court reasoned

that RSA 447:12-a unambiguously resolves the priority dispute in

SFG's favor. I agree.

The general rule of priority in New Hampshire is "race-

notice," that is, "a purchaser or creditor who records without

notice of a prior unrecorded interest has the senior lien."

Lewis v. Shawmut Bank, N.A.,

(1994). RSA

447:12-a creates an exception to that rule. It provides that

that a mechanic's lien attachment has priority over any

construction mortgage.

-a. The

priority, however, is qualified as follows: "[S]uch attachment

shall not be entitled to precedence as provided in this section

to the extent that the mortgagee shows that the proceeds of the

mortgage loan were disbursed either toward payment of invoices

from or claims due subcontractors and suppliers of materials or

labor for the work on the mortgaged premises[.]"

ROK does not dispute that it received the amount at issue

as payment for materials and labor from proceeds of the mortgage

loan. Instead, ROK contends that the statute has no effect on

its rights. ROK's convoluted argument boils down to the

following two assertions: (1) RSA 447:12-a was enacted against a

backdrop of common law that provided unqualified priority to a

mechanic's lienholder in ROK's position; and (2) the statute was

enacted to expand rather than abrogate mechanic's lienholders'

common law rights. To construe the statute as subordinating its

lien to the extent it received payments from loan disbursements,

ROK argues, would be an unwarranted derogation of the common

law. ROK's argument is meritless in light of the plain language

of the statute.

When the language of a statute is plain and unambiguous,

the court must "ascribe the plain and ordinary meaning to the

words used," State v. Formella,

(2008), and

"need not look beyond the statute for further indications of

legislative intent," Hynes v. Hale,

(2001)

(internal quotation marks omitted). Although statutes "should

be narrowly construed [when] they are in derogation of the

common law," the court cannot "read into these statutes a

9 limitation that the legislature left out." Collins v. Martella,

(1st Cir. 1994).

Applying these well-established cannons of statutory

interpretation to RSA 447:12-a, I conclude that the statute

unambiguously sets forth the exact terms of priority between a

mechanic's lien attachment and a construction mortgage,

notwithstanding any prior inconsistent common law. The statute

plainly provides that the attachment is not entitled to priority

to the extent that mortgage loan proceeds have been disbursed to

suppliers of materials or labor.

-

a; see Bascom Const., Inc. v. City Bank & Trust,

(1993) (interpreting RSA 447:12-a as "establish[ing] the

priority of mechanic's liens over construction mortgages, to the

extent that mortgage loan proceeds have not been disbursed to

suppliers of materials or labor"). Accordingly, I need not

consider whether the legislative history is indicative of a

narrower scope of applicability. See Hynes,

.

More importantly, I cannot read into the statute a

limitation that conflicts with the plain language the

legislature chose to use. Nothing in the language of the

statute suggests that when the application of the statute is

unfavorable to a mechanic's lienholder, the court must instead

10 apply preexisting common law rules. The statute clearly

delineates terms of priority between a secured mechanic's lien

and a construction mortgage and leaves no room for inconsistent

common law.-

Applying the statutory priority rules in this instance,

moreover, is consistent with the overall statutory scheme. See

Hammell v. Warden,

(2001) ("[The courts]

interpret statutes in the context of the overall statutory

scheme and not in isolation." (quoting Rye Beach Country Club v.

Town of Rye,

(1998))). A mechanic's lien is a

creation of statute. See

. To

perfect a mechanic's lien, a party must acquire an attachment on

the specific property to which it supplied labor or materials.

I d . § 447:10. It is the attachment, rather than the lien

itself, that has a qualified priority over a construction

mortgage. I d . § 447:12-a. ROK obtained an attachment to

- The plain-meaning interpretation of the statute is not inconsistent with the idea that RSA 447:12-a is a remedial statute designed to benefit mechanic's lienholders, as ROK suggests. At common law, mechanic's liens were for the most part subordinate to mortgages, with certain limited exceptions. RSA 447:12-a changed the priority rules to give precedence to mechanic's liens in most circumstances, but carved out an exception for mortgage loan disbursements to suppliers of materials or labor. That the legislature specifically chose to limit the extent of the remedy it bestowed does not somehow create an internal conflict in the statute. 11 perfect its lien pursuant to RSA 447. See Doc. No. 3-16 at 25-

27. It therefore seeks precedence by virtue of the same

statutory chapter that limits the effect of its attachment as

outlined in RSA 447:12-a. ROK cannot avail itself of the

statutory benefits of attachment and then seek to avoid the

limitations that the legislature imposed on that statutory right

by reverting back to common law rules.

The priority of ROK's attachment is plainly subject to the

qualification in RSA 447:12-a. Accordingly, the bankruptcy

court correctly determined that SFG's construction mortgage is

superior to ROK's mechanic's lien to the extent of the loan

disbursements ROK received as payment for materials and labor on

the hotel.J

B. Equitable Subordination

As an alternative means of gaining priority over SFG's

mortgage, ROK asserts an equitable subordination claim. The

bankruptcy court dismissed the claim, reasoning that ROK is not

3 In its appeal brief, ROK also appears to argue that the priority rule set out in RSA 447:12-a only comes into effect after the mechanic's lien attachment is given priority over the construction mortgage to the extent of all loan disbursements made to pay for non-construction expenses, here totaling approximately $ 1.9 million. This argument is founded in basic misreading of the case law, and is wholly without merit. See Lewis v. Shawmut Bank, N.A.,

(1994); Gerrity Co. v. Laconia Sav. Bank,

(1980). 12 the appropriate party to seek equitable subordination. I need

not go as far to affirm dismissal of the claim.

Section 5 1 0 (c) of the Bankruptcy Code permits the

bankruptcy court to subordinate claims otherwise entitled to

priority based on principles of equitable subordination.

(c). The bankruptcy court apparently agreed with

SFG that a creditor may not assert an equitable subordination

claim without leave of the court because the claim belongs to

the trustee. The theory finds support in several First Circuit

cases. See Bezanson v. Bayside Enters., Inc. (In re Medomak

Canning),

(1st Cir. 1990) ("The Trustee is

ordinarily the appropriate party to seek equitable subordination

on behalf of the estate and unsecured creditors."); see also

Petitioning Creditors of Melon Produce, Inc. v. Braunstein, 112

F .3d 1232, 1240 (1st Cir. 1997) (same).

Both Medomak and Braunstein, however, were decided on

narrower grounds not present in the instant case. Specifically,

the issue in both cases was whether an unsecured creditor's

equitable subordination claim is barred by the res-judicata

effect of a court-approved settlement wherein the trustee either

released all equitable subordination claims on behalf of the

estate or chose not to petition the court for this type of

13 relief. Here, the bankruptcy court has not yet approved the

settlement between the Debtor and SFG that proposes to release

all claims, including equitable subordination claims, which

might be asserted against SFG. The First Circuit precedent is

nonetheless relevant because it teaches that when a creditor has

notice of and an opportunity to challenge a trustee's proposed

settlement that purports to surrender all equitable

subordination claims, the creditor must present its equitable

claim in opposition to the settlement, rather than in a separate

adversary proceeding.

As the court explained in Medomak, unsecured creditors have

a duty "to pursue their individual equitable subordination

claims in an orderly fashion within the context of the Trustee's

proposed settlement with the secured creditors."

. If creditors are allowed to bring equitable subordination

claims in a separate proceeding, "there is no reason for the

settlement, since the settling parties are neither protected

from further unfavorable consequences nor allowed to enjoy the

safe harbor of their settlement arrangement." Braunstein, 112

F.3d at 1240. Accordingly, where a trustee - or, as in this

14 case, the debtor-in-possession4 - enters into a settlement

agreement that proposes to surrender all equitable subordination

claims against a secured creditor, and unsecured creditors

receive notice of and an opportunity to object to the

settlement, it is incumbent upon them to press their equitable

subordination claims in objecting to the proposed settlement.

See i d . at 1239-40; Medomak,

. If the bankruptcy

court approves the settlement over the creditors' objections,

the creditors may preserve their right to bring the claim only

by directly appealing the court's decision. Braunstein, 112

F.3d at 1239-40; Medomak,

.

In the present case, the proposed settlement is pending

before the bankruptcy court. ROK has objected to it on a number

of bases, including that it improperly releases ROK's equitable

subordination claim against SFG. ROK must continue to pursue

its equitable subordination claim within the main bankruptcy

case. Because this adversary proceeding is not the appropriate

forum to bring the claim, I dismiss it without prejudice.

4 "[I]n a Chapter 11 case, the debtor-in-possession enjoys all the rights and powers of the trustee." Eagle Ins. Co. v. BankVest Capital Corp (In re BankVest Capital Corp.),

, 295 n .8 (1st Cir. 2004). 15 C. Avoidance Claim

ROK also asks the court to declare as void the mortgage

that the Debtor executed and delivered to Specialty. The basis

for the challenge is the allegation that the mortgage was not

conveyed by a party with authority and was not acknowledged by

notary public. In the previous adversary proceeding against

SFG, the Debtor in fact sought to avoid the mortgage on the

exact same grounds.5 The bankruptcy court determined that the

mortgage is valid and enforceable and dismissed the claim. See

Doc. No. 7.

Section 5 4 4 (a) of the Bankruptcy Code makes it clear that

only the trustee can bring an avoidance claim. See

4 4 (a). That ROK repackages the claim in the dress of a

declaratory judgment action to have the mortgage declared void

does not change the nature of the claim. The cause of action

belongs to the Debtor and the Debtor litigated it and lost. Fo

ROK to continue to press the claim in the context of this

adversary proceeding without developing an argument or even

acknowledging that the same claim was pressed in another

adversary proceeding in the same chapter 11 case is indicative

5 Indeed, as SFG points out, ROK's counterclaim is a nearly verbatim reproduction of Count I of the Debtor's complaint. 16 of a counsel who is less than serious about his obligations to

his adversary and to this court. The claim is dismissed.

D. ROK's Remaining Counterclaims

ROK also challenges the bankruptcy court's dismissal of the

nine counterclaims that ROK asserted against SFG based on

alleged contractual violations and tortious conduct of

Specialty, SFG's predecessor in interest. The bankruptcy court

dismissed the claims on Rule 12(b)(6) grounds, reasoning that

ROK has alleged no basis on which SFG could be held liable for

the misconduct of its assignor. I address the claims in turn.

1. Breach of the Loan Agreement

ROK alleges that it was owed contractual duties under the

loan agreement between the Debtor and Specialty as a third-party

beneficiary and that Specialty breached those duties. The

bankruptcy judge did not address the claim separately, but

dismissed it with the rest of ROK's counterclaims on the basis

that SFG cannot be held liable for Specialty's alleged

misconduct. Under certain circumstances, however, an assignee

of a contract can be liable for the assignor's breach of that

contract. See, e.g.. Restatement (Second) of Contracts § 328

(1981) (describing circumstances under which assignee of

contract assumes assignor's duties under contract). Indeed, SFG

17 does not argue that the claim should be dismissed because it

took the assignment free of contractual claims against the

assignor. Instead, it argues that ROK is not a third-party

beneficiary under the contract. I agree.

The loan agreement provides that the laws of Georgia govern

the construction of the contract and the parties do not argue

otherwise. Under Georgia law, "[t]he beneficiary of a contract

made between other parties for his benefit may maintain an

action against the promisor on the contract." G a . Code Ann. §

9-2-20. Because third-party beneficiary status constitutes an

exception to the general rule that a contract does not grant

enforceable rights to nonsignatories, "[i]n order for a third

party to have standing to enforce a contract . . . it must

clearly appear from the contract that it was intended for his

benefit." Backus v. Chilivis, 236 G a . 500, 502 (1976). "The

mere fact that [a third party] would benefit from performance of

the agreement is not alone sufficient." Id. The contract in

the instant case fails to meet this standard.

ROK points to a number of provisions in the loan agreement

to demonstrate that it was intended for ROK's benefit. None of

those provisions, or the contract as a whole, however, evinces

any intent to confer a benefit on ROK. The provisions either

18 merely mention that ROK is the contractor hired to construct the

hotel or they impose obligations on the Debtor vis-a-vis its

conduct toward ROK for the benefit of Specialty. See, e.g..

Doc. No. 3-2, § 3.23 ("Borrower will not (i) permit any default

under the terms of the Construction Contract, (ii) waive any

obligations of Contractor thereunder, [or] (iii) do any act

which would relieve Contractor from its obligations . . . .").

More importantly, the loan agreement specifically provides

that

[a]11 conditions of the obligations of [Specialty] hereunder, including the obligation to make advances, are imposed solely and exclusively for the benefit of [Specialty] and its successors and assigns and no other person or entity shall have standing to require satisfaction of such conditions . . . and no other person or entity shall, under any circumstances, be deemed to be a beneficiary of such conditions . . . .

I d . § 8.01. This provision, in no uncertain terms, precludes

third parties from seeking to enforce the contract. The claim

was properly dismissed.6

6 To salvage the claim, ROK argues that its construction agreement with the Debtor, which was assigned to Specialty as additional security for the loan, must be read in conjunction with the loan agreement because the two documents constitute a single, integrated contract. Although separate agreements may be construed together in certain circumstances, here both the loan agreement and the construction agreement contain integration clauses specifying that each instrument embodies the entire agreement between the contracting parties. See Doc. No. 19 2. Unjust enrichment

In another counterclaim, ROK asserts that it is entitled to

restitution based on the theory of unjust enrichment. It

alleges that SFG's assignor misled ROK into completing the

construction of the hotel when it had no intention to pay for

the work done, and that as a result, SFG received the benefit of

a more valuable collateral. The bankruptcy judge dismissed the

claim on the basis that the alleged misconduct of SFG's assignor

is not attributable to SFG. I dismiss the claim on other

grounds.

Under New Hampshire law,7 "[t]he doctrine of unjust

enrichment is that one shall not be allowed to profit or enrich

himself at the expense of another contrary to equity." Cohen v.

Frank Developers, Inc.,

(1978) (internal

3-2, § 8.10; Doc. No. 3-12, § 9.2.2. Accordingly, it would be inconsistent with the parties' intentions, as expressed in the two agreements, to construe them as a single, integrated contract.

7 The parties cite to both New Hampshire and Georgia cases in addressing quasi-contract and tort claims without conducting a choice-of-law analysis. I apply New Hampshire law to those claims because neither party argues that the matter would be decided differently under Georgia law. See Okmyansky v. Herbalife Int'l of Am., Inc.,

(1st Cir. 2005) ("[W]hen the resolution of a choice-of-law determination would not alter the disposition of a legal question, a reviewing court need not decide which body of law controls."). 20 quotation marks omitted). A plaintiff is entitled to

restitution when the court determines that the defendant has

"received a benefit and it would be unconscionable for [him] to

retain that benefit." Nat'l Emp't Serv. Corp. v. Olsten

Staffing Serv., Inc.,

(2000). A plaintiff

need not prove that the defendant obtained the benefit through

wrongful acts; passive acceptance of a benefit may also

constitute unjust enrichment. R. Zoppo Co. v. City of

Manchester,

(1982); see also Petrie-Clemons

v. Butterfield,

(1982) ("Unjust enrichment may

exist when an individual receives a benefit as a result of his

wrongful acts, or when he innocently receives a benefit and

passively accepts it.").

The mere fact, then, that SFG did not engage in any of the

alleged misconduct is not dispositive. Even so, ROK has failed

to state a claim for unjust enrichment. It is not enough to

allege that SFG received a benefit from services that ROK

rendered without payment. See Cohen,

("Merely that [thedefendant] might be receiving a benefit from

services furnished by the plaintiff . . . is not sufficient in

itself to impose a duty of restitution on [the defendant ] .") .

To state a claim, ROK must allege facts showing that it would be

21 unconscionable for SFG to retain the benefit it received. See

Olsten Staffing,

. Because ROK has failed to do

so, I dismiss the claim.

4. Other Contractual Claims

ROK asserts three other contractual claims: (1) breach of

contract "implied in fact"; (2) promissory estoppel; and (3)

breach of implied covenants of good faith and fair dealing. The

bankruptcy court dismissed all three claims because the

allegations relevant to the claims involve the conduct of

Specialty, and ROK alleged no basis for holding SFG liable under

those theories. I address each in turn.

First, ROK claims that the course of dealings between

itself and Specialty resulted in a separate and distinct

contract "implied in fact" that obligated Specialty to pay for

ROK's services. Specifically, ROK alleges that even after

Specialty made the decision to stop disbursing loan proceeds to

cover ROK's costs, it continued to accept ROK's invoices for

proposed work, as it had done throughout the project.

"[T]he conduct of the parties, apart from oral and written

words, may establish an enforceable, implied-in-fact

contract[.]" Durgin v. Pillsbury Lake Water Dist.,

(2006); see Morgenroth & Assocs., Inc. v. Town of

22 Tilton,

(1981) ("An implied in fact contract

is a true contract that is not expressed in words; the terms of

the parties' agreement must be inferred from their conduct.").

Assuming that such a contract existed between Specialty and ROK,

nothing suggests that SFG can be liable for Specialty's breach.

SFG is the assignee of Specialty's loan agreement with the

Debtor, a separate contract. That SFG may stand in the shoes of

Specialty with regard to the loan agreement is by no means

sufficient to hold SFG liable for Specialty's breach of other

contracts. Accordingly, the bankruptcy court correctly

dismissed the claim.

ROK's promissory estoppel claim must suffer the same fate.

Even if Specialty promised to pay for ROK's services and thereby

induced ROK to complete the construction of the hotel to its

detriment, ROK alleges no factual or legal basis for holding SFG

liable for Specialty's conduct. In the absence of an allegation

that SFG made promises or representations of any kind to ROK,

the claim must fail.

Lastly, the claim for breach of implied covenants of good

faith and fair dealing hinges on the existence of a contract

that ROK could enforce against SFG. There is no such contract

and so the claim fails as a matter of law.

23 5. Tort Claims

ROK asserts a number of counterclaims that sound in tort,

including negligent lending, fraud, negligent misrepresentation

in business, and violation of the New Hampshire Consumer

Protection Act. All of the claims are based on the alleged

tortious conduct of Specialty, however, and not SFG. ROK has

failed to provide any legal or factual basis to hold SFG, as

assignee of the mortgage, liable for the torts of the assignor.

The assignee-assignor relationship is clearly not

sufficient for tort liability to attach. See In re Riga, 10-

11415-FJB,

, at *1 (Bankr. D. Mass. Mar. 25,

2011) ("The mere fact that Deutsche Bank now holds by assignment

the promissory note and mortgage that IndyMac is alleged to have

procured by fraud does not render Deutsche Bank liable for the

fraud of IndyMac."); Krauss v. Fed. Deposit Ins. Corp.,

(S.D.N.Y. 1991) ("As FCNB's assignee on the Note,

JVAA . . . is not generally liable for all of the bank's past

torts. In order to recover from JVAA for fraud, Krauss must

establish that JVAA was itself involved in the alleged

misrepresentations."). ROK's argument that SFG assumed

Specialty's tort liability because it accepted the mortgage "as

is" and "with all faults" is unavailing. The language clearly

24 refers to defects related the mortgage itself, rather than to

the previous mortgagee's tortious conduct unrelated to the

execution of the mortgage. The bankruptcy court correctly

dismissed the tort counterclaims.

IV. CONCLUSION

For the foregoing reasons, I affirm the bankruptcy court's

decisions.

SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge

August 30, 2 012

cc: Deborah Ann Notinger, Esq. Steven M. Notinger, Esq. William S. Gannon, Esq. Edmond J. Ford, Esq. Gary D. Ticoll, Esq. John H. Bae, Esq. Geraldine L. Karonis, Esq.

25