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Cadence Bank, N.A. v. DLO Title, LLC

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

March 20, 2018

CADENCE BANK, N.A., Plaintiff,
DLO TITLE, LLC, Defendant.


          ALETA A. TRAUGER United States District Judge

         Plaintiff Cadence Bank, N.A. (“Cadence”) brings suit in diversity against defendant DLO Title, LLC (“DLO”), asserting a single claim of negligence and seeking to recover damages in excess of $800, 000. Now before the court is DLO's Motion to Dismiss. (Doc. No. 10.) For the reasons set forth herein, the court will grant the motion. The court will, however, deny DLO's Motion for Sanctions. (Doc. No. 19.)

         I. Factual Allegations and Procedural Background

         According to the allegations in the Verified Complaint, Cadence is a national banking association whose main office is in Alabama. DLO is a title company based in Williamson County, Tennessee. (Doc. No. 1, Compl. ¶¶ 1, 2.)

         In May 2006, non-party Richard Cammeron executed a Home Equity Line of Credit Agreement (the “HELOC”) in favor of Cadence in the principal amount of $1, 200, 000. (Compl. ¶ 6; HELOC, Doc. No. 13-1.) The HELOC was secured by Cammeron's residence, located at 1008 Monroe Lane, Brentwood, Tennessee (the “Property”), as set forth in the HELOC itself and as evidenced by a Home Equity Line Deed of Trust (“Deed of Trust”), executed by Cammeron and his wife, Margo Cammeron. (Compl. ¶¶ 7-8.) The Deed of Trust required Cammeron to pay off the HELOC with the proceeds of any sale of the Property. (Id. ¶ 9.)

         The Deed of Trust was duly recorded in the office of the Williamson County Register of Deeds and, for a period of time, constituted a validly perfected first priority consensual lien upon the Property. (Compl. ¶ 8.) However, in December 2012, in connection with the payoff of other loans by Cammeron, but not the HELOC, Cadence recorded a Release of Instruments in the office of the Williamson County Register of Deeds, accidentally and incorrectly releasing Cadence's Deed of Trust on the Property securing the HELOC. (Compl. ¶ 10; Release of Instruments, Doc. No. 24-2.) Neither Cadence nor the Cammerons were aware of the accidental release in December 2012. (Compl. ¶ 11.)

         Richard Cammeron continued to make timely interest-only payments on the HELOC over the next couple of years. In September 2014, the Cammerons agreed to sell the Property to third party Christopher Bostick for $1, 100, 000, as documented by a Purchase and Sale Agreement (“PSA”) dated September 20, 2014. (Compl. ¶ 12; PSA, Doc. No. 24-1.) The PSA also provided that the sale of the Property would be contingent upon “short sale approval by sellers' lender.” (PSA, Doc. No. 24-1, at 12; see Id. at 13-14 (“Short Sale Addendum”).)

         In October and November 2014, in preparation for the closing, the Cammerons hired Daryl McCubbin, a local investor, to negotiate the terms of a short sale of the Property with Cadence (Compl. ¶ 13), since the negotiated sale price was less than the amount due on the HELOC.

         The Cammerons and Bostick agreed to use DLO to close on the sale of the Property. In anticipation of closing, in October and November 2014, the Cammerons or their agent requested from Cadence information regarding the HELOC's pay-off amount and then engaged in written negotiations with Cadence concerning a short sale, meaning that Cadence would receive somewhat less than the full amount owed on the HELOC. Cadence specifically alleges that DLO was included on emails regarding the negotiations, was aware of the short-sale negotiations, and knew that the parties intended for the sale and closing to be a “short sale transaction.” (Compl. ¶ 14.) On October 28, 2014, DLO prepared a draft HUD-1 Settlement Statement documenting an anticipated pay-off to Cadence. On November 14, 2014, DLO was included on another email thread, stating that the sale would be a short sale and, on November 25, 2014, DLO requested a new pay-off statement from Cadence, reflecting a December 1, 2014 closing date. (Id.) Cadence responded to both requests from DLO, sending two separate payoff statements for the HELOC that identified the amount to be paid at closing to pay off the balance on the HELOC. (Compl. ¶ 15.)

         The closing on the sale of the Property to Bostick took place on December 1, 2014. Despite actual knowledge of the amount due and owing on the HELOC, DLO, apparently acting as escrow agent, [1] distributed the net proceeds of the sale to the Cammerons, rather than tendering the pay-off amount or any agreed short sale amount to Cadence. (Compl. ¶ 16.) Cadence alleges that DLO made that decision, “[d]espite knowledge” that deeds of trust, in accordance with “industry standard, ” typically contain so-called “due on sale clauses.” (Id.)[2]Cadence has not produced a copy of the escrow agreement between the Cammerons, Bostick, and DLO, but it does not allege that the escrow agreement in any way incorporated reference to Cadence or required distribution of funds to Cadence. In the absence of such allegations, the court can only infer that the escrow agreement did not require DLO to distribute the proceeds from the sale of the Property to Cadence and, instead, required distribution of the funds to the Cammerons.

         Cadence was unaware that the sale of the Property had closed, and Cammeron continued to make regular monthly payments on the HELOC to Cadence until the loan matured on May 16, 2016. At that time, Cammeron failed to make a timely final payment of the full amount due on the HELOC, and Cadence discovered that the Deed of Trust had been “incorrectly released” and that the Property had been sold to Bostick. Upon maturity, Cammeron owed $1, 084, 198.23 on the HELOC. (Compl. ¶ 17.)

         Cadence filed suit against the Cammerons in 2016 to recover the amount due on the HELOC. Cadence Bank, N.A. v. Cammeron, No. 3:16-cv-02384 (M.D. Tenn. Sept. 7, 2016) (the “Cammeron Lawsuit”), asserting various claims grounded in tort and contract. (Compl. ¶ 19; Cammeron Compl., Doc. No. 13-2.) The Cammeron Lawsuit eventually settled with the sale of the HELOC and other loan documents to a third party for the gross amount of $475, 000, substantially less than the amount owed to Cadence on the HELOC. (Compl. ¶ 19.)

         Cadence filed this lawsuit against DLO on August 17, 2017, asserting a single count of negligence. It claims that DLO owed Cadence a duty of reasonable care in closing on the purchase and sale of the Property, “which included the duty of reasonable care applicable to professionals in such situations”; that, by disbursing the proceeds of the sale to the Cammerons rather than to Cadence, despite actual knowledge of the HELOC indebtedness due and owing from Richard Cammeron to Cadence and despite knowledge that most mortgage instruments contain due-on-sale clauses, DLO breached its duty of care to Cadence; that DLO's breach of its duty of care was the proximate cause of damages to Cadence; and that Cadence suffered damages of “not less than” $866, 069.84. (Compl. ¶¶ 22-26.)

         In response to the Complaint, DLO has filed its Motion to Dismiss and supporting Memorandum (Doc. Nos. 10, 11), asserting that dismissal is required because the plaintiff's claim is barred by (1) settlement and release; (2) accord and satisfaction; (3) failure to allege facts to support each element of a negligence claim; (4) the statute of limitations; (5) lack of standing, and (5) res judicata. Filed with its motion are numerous exhibits, including the HELOC, the Cammeron Complaint, the Settlement Agreement between Cadence and the Cammerons, the Loan Purchase Agreement between Cadence and a third party, and the Joint Stipulation of Dismissal and Agreed Order of Dismissal entered in the Cammeron Lawsuit. (Doc. Nos. 13-1 through 13-7.)

         Cadence filed a Response in Opposition to Defendant's Motion to Dismiss, addressing each of the defendant's arguments. (Doc. No. 18.) In addition, while it does not dispute that some of the documents submitted by DLO in support of its Motion to Dismiss were referenced in the Complaint, Cadence asserts that these documents are not actually “central” to its claim. (Doc. No. 18, at 6.) It nonetheless introduces another document, a Representation Disclosure executed by and between the Cammerons and DLO (Doc. No. 18-1), to refute DLO's argument that it functioned as attorney or agent for the Cammerons in the closing on the sale of the Property.

         DLO filed a Reply (Doc. No. 24) as well as additional documents, including the PSA between the Cammerons and Bostick, the Release of Instruments referenced in the Verified Complaint, and Initial Disclosures produced by the Cammerons in the Cammeron Lawsuit. (Doc. Nos. 24-1 through 24-3.) Cadence, with the court's permission, filed a Sur-reply. (Doc. No. 29.)

         II. Standard of Review

         In deciding a motion to dismiss for failure to state a claim under Rule 12(b)(6), the court must “construe the complaint in the light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the plaintiff.” Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007); Inge v. Rock Fin. Corp., 281 F.3d 613, 619 (6th Cir. 2002). The Federal Rules of Civil Procedure require that a plaintiff provide “‘a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957) (quoting Fed.R.Civ.P. 8(a)(2)). The court must determine whether “the claimant is entitled to offer evidence to support the claims, ” not whether the plaintiff can ultimately prove the facts alleged. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511 (2002) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

         The complaint's allegations, however, “must be enough to raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). To establish the “facial plausibility” required to “unlock the doors of discovery, ” the plaintiff cannot rely on “legal conclusions” or “[t]hreadbare recitals of the elements of a cause of action”; instead, the plaintiff must plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).[3]

         III. Consideration of Matters ...

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