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Thorburn v. Fish

United States District Court, M.D. Tennessee, Nashville Division

September 16, 2014

JAMES THORBURN, DEBRA K. THORBURN, and TULLOSS SPRINGS, LLC, Plaintiffs,
v.
SCOTT FISH, LINDA FISH, UP DEVELOPMENT FRANKLIN, LLC, and BROTHERS LAND TRUST, LLC, Defendants.

MEMORANDUM

ALETA A. TRAUGER, District Judge.

Pending before the court is a Motion for Leave to File a Second Amended Answer and Counterclaim filed by the defendants, Scott and Linda Fish (Docket No. 76), which the plaintiffs have opposed (Docket No. 81). Also pending is the plaintiffs' Motion for Partial Summary Judgment (Docket No. 49). For the reasons discussed herein, the defendants' Motion for Leave to File a Second Amended Answer and Counterclaim will be denied and the plaintiffs' Motion for Partial Summary Judgment will be granted.

BACKGROUND

On August 8, 2014, the court issued an Order denying without prejudice the defendants' first Motion to Amend their Answer and Counterclaim. (Docket No. 75.) In a Memorandum accompanying the August 8, 2014 Order, the court thoroughly detailed the factual and procedural events in the case, familiarity with which is assumed. (Docket No. 74.) For purposes of context, the court will briefly outline the facts underlying the parties' claims.

I. Relevant Factual Background

A. Tulloss Springs and the Property

The parties have a long history of business dealings, some of which relate to the property at issue here and some of which do not. The plaintiffs' claims, set forth in the Complaint (Docket No. 1), relate to real property located at 1071 Tulloss Road in Franklin, Tennessee (the "Property"). Plaintiffs James and Debra Thorburn are residents of Nebraska and members of plaintiff Tulloss Springs, LLC ("Tulloss Springs"). Prior to 2011, Tulloss Springs owned the Property, subject to a deed of trust ("First Deed of Trust") securing a promissory note, which was owned by Cumberland Bank and, later, GreenBank ("First Promissory Note"). In support of the First Promissory Note, the Thorburns executed personal guaranties of indebtedness, promising to fulfill the obligations of the First Promissory Note in the event of Tulloss Springs' default (the "Thorburn Guaranties").

Sometime in 2011, Tulloss Springs defaulted on the First Promissory Note. On August 22, 2011, Tulloss Springs, the Thorburns, and defendants Scott and Linda Fish entered into a Forbearance Agreement with GreenBank (the "Forbearance Agreement").[1] (Docket No. 1, Ex. E.) Pursuant to the Forbearance Agreement, the Fishes executed personal guaranties, promising to fulfill the obligations of the First Promissory Note in the event of Tulloss Springs' default (the "Fish First Promissory Note Guaranties"). The Forbearance Agreement states that, as of August 22, 2011, the amount owed under the First Promissory Note was $1, 259, 064.05 plus GreenBank's attorney's fees, expenses, and costs. The Forbearance Agreement further provides that GreenBank consented to a sale of the Property to a new entity to be formed by Mr. Fish.

B. The Tennessee Farm Purchase Agreement

On September 8, 2011, Tulloss Springs and defendant UP Development Franklin, LLC ("UP Franklin") (the new entity formed by Mr. Fish) entered into a Tennessee Farm Purchase Agreement (the "Purchase Agreement"). The Purchase Agreement, which is incorporated into and attached to the Complaint, provides that UP Franklin, subject to certain terms and conditions, agreed to purchase the Property. (Docket No. 1, Ex. F at Section 1.01.) The Purchase Agreement provides that the purchase price for the Property is $1, 600, 000.00. It further states that the purchase price will be remitted by (1) a deposit of $10, 000.00; (2) UP Franklin's assumption of the First Deed of Trust and First Promissory Note in favor of GreenBank, assessed in the amount of $1, 255, 787.03 as of August 5, 2011, plus other costs, to be applied toward payment of the purchase price; (3) a promissory note in the amount of $325, 502.82 to be owned by Tulloss Springs, secured by a pledge and additional deed of trust upon the property, as well as by the personal guaranties of the Fishes; and (4) the conveyance to the plaintiffs of one lot from the Property to be selected by the plaintiffs at a specific point in time set forth by the general warranty deed ("General Warranty Deed").

Pursuant to the Purchase Agreement, UP Franklin executed a promissory note dated September 8, 2011, in the principal amount of $325, 502.82 (the "Second Promissory Note") in favor of Tulloss Springs. UP Franklin also executed a deed of trust securing the note (the "Second Deed of Trust"), which encumbered the Property. (Docket No. 1, Exs. H, I.) The Second Promissory Note provides for principal payments in the amount of $50, 000.00 plus accrued interest at a rate of 5% per annum, to be made payable at six-month increments after closing, and the remainder to become due and payable exactly two years after closing. ( Id., Ex. H.)

Further, pursuant to the Purchase Agreement, the Fishes executed a "Continuing Guaranty" related to the Second Promissory Note. (Docket No. 1, Ex. J ("Fish Second Deed of Trust Guaranty").) The guaranty promised "the full and timely payment and performance" of UP Franklin's obligations under the Second Promissory Note and stated that the guarantors' "guarantee of [UP Franklin's obligations] is continuing, absolute and unconditional." ( Id. )

C. After the Sale

Following the execution of the Purchase Agreement, UP Franklin (which appears to be owned solely by the Fishes) owned the Property, subject to two mortgages. The first mortgage, in the original principal amount of over $1, 300, 000.00, was owned by GreenBank and secured by a deed of trust to the Property. The first mortgage was also guaranteed personally by the Thorburns and the Fishes. The second mortgage, in the amount of $325, 502.82, was owned by Tulloss Springs, secured by the Second Deed of Trust, and guaranteed personally by the Fishes.

According to the Complaint, the balance of the Second Promissory Note matured on September 11, 2013. In October 2013, Mr. Fish formed defendant Brothers Land Trust, LLC ("BLT"), a Florida limited liability corporation. Mr. Fish is the sole managing member of BLT. In December 2013, BLT purchased the First Promissory Note from its owner and, on December 4, 2013, the First Deed of Trust was assigned to BLT. On December 5, 2013, BLT demanded payment of the First Promissory Note from the Thorburns and Tulloss Springs pursuant to the Thorburn Guaranties. On December 10, 2013, BLT commenced foreclosure on the Property (which is still owned by UP Franklin, another entity that is allegedly owned by Mr. Fish). Simply put, according to the allegations of the Complaint, Mr. Fish (through his alleged alter ego, BLT) is essentially foreclosing as a lender on his own property.

II. Procedural Background

The plaintiffs filed this action on December 18, 2013, asserting a variety of claims including, inter alia, (1) a claim for a money judgment against UP Franklin based on its failure to repay the Second Promissory Note and (2) a claim for money judgment against the Fishes pursuant to the Fish Second Deed of Trust Guaranty (the "Second Promissory Note claims").[2] In short, the plaintiffs allege in this action that the defendants have engaged in a fraudulent scheme-foreclosure by BLT (an alleged alter ego of Mr. Fish) on a property owned by UP Franklin (a second alleged alter ego of Mr. Fish)-in order to acquire the Property free and clear of the Second Deed of Trust and to avoid repaying the Second Promissory Note.

The plaintiffs have filed a Motion for Partial Summary Judgment as to the Second Promissory Note claims. The defendants opposed the plaintiffs' motion on the ground that the plaintiffs' motion is premature. The defendants further argue that, because they seek to add a counterclaim against the plaintiffs for fraudulent misrepresentation related to the Purchase Agreement, they should be entitled to engage in discovery related to the counterclaim, and a ruling on the plaintiffs' motion for summary judgment should be deferred. (Docket No. 51.)

The defendants filed their first Motion to Amend/Correct their Answer on April 15, 2014 (Docket No. 55), which the plaintiffs opposed. On August 8, 2014, the court denied the defendants' first Motion to Amend as to their proposed second counterclaim. The court held that, because the proposed counterclaim "includes only vague and conclusory allegations regarding the alleged fraud perpetrated by the plaintiffs, " the proposed counterclaim was futile. The court's opinion focused on the defendants' failure to meet the heightened pleading standard of Fed.R.Civ.P. 9(b), particularly their failure to identify the time, place, or specific content of alleged misrepresentations by the plaintiffs, as well as any injuries caused by the transactions induced by the alleged misrepresentations.

Despite the deficiencies of the defendants' first proposed amended pleading, the court's August 8, 2014 Order granted the defendants an opportunity to remedy the defects and file a second motion for leave to amend and deferred consideration of the plaintiffs' partial summary judgment motion. On August 20, 2014, the defendants filed a second Motion for Leave ...


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