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Lloyd's Acceptance Corp. v. Carroll Property Management, LLC

United States District Court, W.D. Tennessee, Western Division

June 26, 2018

LLOYD'S ACCEPTANCE, CORP.; BARRY COHEN; 21ST CENTURY COMMUNITIES, INC.; and HIGHLAND CREEK ACQUISITION, LLC, Plaintiffs,
v.
CARROLL PROPERTY MANAGEMENT, LLC; HEDIGER ENTERPRISES, INC.; and CARROLL ORGANIZATION, LLC, Defendants.

          ORDER

          SAMUEL H. MAYS, JR. JUDGE

         Before the Court is Defendants Carroll Property Management LLC (“Carroll Property”), Hediger Enterprises, Inc. (“Hediger”), and Carroll Organization, LLC's (“Carroll Organization”) (collectively, “Defendants”) August 3, 2017 Motion to Dismiss. (ECF No. 21.) Plaintiffs Lloyd's Acceptance Corp. (“Lloyd's”), Barry Cohen, 21st Century Communities, Inc. (“21st Century”), and Highland Creek Acquisition, LLC (“Highland Creek”) (collectively, “Plaintiffs”) responded on September 8, 2017. (ECF No. 13.) Defendants replied on September 19, 2017. (ECF No. 28.)

         For the following reasons, the Motion to Dismiss is GRANTED is part and DENIED in part.

         I. Background

         Plaintiffs allege that Defendants negligently misrepresented the existence of mold at the Highland Creek Apartments located at 1305 Turkey Run Lane in Memphis, Tennessee (“the Property”) prior to purchase. (Am. Compl., ECF No. 13 ¶¶ 9, 29, 31-32.)

         On July 10, 2007, MPI Coventry Village, LLC (“MPI Coventry”), then-owner of the Property, contracted with Miles Properties, Inc. (“Miles”) for property management services (the “Management Agreement”). (Id. ¶ 9.)

         In May 2010, Defendant “Carroll Property and/or Carroll Organization” purchased Defendant Hediger. (Id. ¶ 10.) Also in 2010, Miles filed for bankruptcy protection and sought to transfer its interest in certain property management contracts, including the Management Agreement for the Property, to Hediger. (Id. ¶¶ 11-12.)

         On January 27, 2011, Plaintiff Barry Cohen, in his capacity as president of Lloyd's and 21st Century, visited the Property to consider a potential purchase and is alleged to have been incorrectly informed by Defendants' employees that the Property had no mold. (Id. ¶¶ 13-19.)

         On September 27, 2011, Plaintiff Highland Creek purchased the Property. (Id. ¶ 22.)[1] Lloyd's, of which Cohen was president, loaned Highland Creek the funds to purchase the Property and held a first mortgage on the Property. (Id. ¶¶ 13, 22.)

         On or about November 16, 2011, Lloyd's foreclosed on the Property and was the highest bidder at the foreclosure sale. (Id. ¶ 24.)

         Forest Creek Townhomes, LLC (“Forest Creek”) was formed on November 28, 2011. (ECF No. 21-7.) Lloyd's transferred the Property to Forest Creek on November 29, 2011. (Forest Creek Townhomes, LLC v. Carroll Management Group, LLC et al, No. 2:15-cv-02577-JPM-tmp (W.D. Tenn.) (“Forest Creek”), ECF No. 44 at 621-22 (citing Cohen Aff. ¶ 7).)

         Plaintiffs discovered mold on the Property in March 2014. (Am. Compl., ECF No. 13 ¶ 26.)

         On October 22, 2014, Forest Creek filed a complaint in the Tennessee Chancery Court against “Carroll Management Group, LLC, d/b/a Carroll Organization and Carroll Property Management, LLC” and Hediger. (Forest Creek, ECF No. 1-2 at 13.) The complaint sought damages for breach of the Management Agreement and negligent misrepresentation. (Id. at 16.) On February 5, 2015, Forest Creek amended the complaint, removing “Carroll Management Group, LLC, d/b/a Carroll Organization” from the action. (Id. at 41.) On September 2, 2015, Defendants Carroll Property and Hediger filed a notice of removal in this Court. (Id., ECF No. 1.)

         On September 9, 2015, Defendants Carroll Property and Hediger filed a Motion for Judgment on the Pleadings. (Id., ECF No. 6.) They argued that Forest Creek lacked standing to assert its claim for breach of the Management Agreement and had failed to plead negligent misrepresentation adequately. (Id.)

         On January 25, 2016, the court found that Forest Creek had failed to state a claim for negligent misrepresentation. “[T]he Court cannot reasonably infer that because Defendants made a statement to one potential purchaser, they intended to share the statement or had knowledge that the statement would be shared with all future potential purchasers, ad infinitum, without further due diligence.” (Id., ECF No. 36 at 466.) Forest Creek had not alleged that “Defendants intended to supply or knew that Cohen intended to supply this information to any class of persons outside of Highland Creek.” (Id.)

         On February 8, 2016, Forest Creek filed a Brief in Response to Order on Motion for Judgment on the Pleadings and Request for Permissive Joinder of Additional Parties, seeking to add Cohen as a co-plaintiff. (Id., ECF No. 37.) Defendants opposed. (Id., ECF No. 41.)

         On May 3, 2016, the Court decided that Cohen could not be joined to bring a negligent misrepresentation claim, giving two reasons. (Id., ECF No. 44 at 638.) First, the negligent misrepresentation claim had been dismissed. (Id.) Second, Cohen lacked standing to bring a negligent misrepresentation claim against Defendants Carroll Property and Hediger. (Id.)

         The Court entered judgment in defendants' favor the same day. (Id., ECF No. 45.) Forest Creek appealed the dismissal of its negligent misrepresentation claim and the denial of its request that Cohen be joined as a co-plaintiff. (See id., ECF Nos. 47, 52-53.)

         On March 21, 2017, Lloyd's, Cohen, 21st Century, and Highland Creek filed this action. (ECF No. 1.) The same day they moved to stay pending the Sixth Circuit's decision in Forest Creek. (ECF No. 10.) The Court granted the motion to stay on March 23, 2017. (ECF No. 11.)

         On June 13, 2017, the Sixth Circuit affirmed the district court's decision in Forest Creek. (Forest Creek, ECF No. 52.) The Court of Appeals concluded that the complaint did “not allege that during Cohen's 2011 visit he informed Defendants' representatives how he might be purchasing the Property . . . [or that] Defendants were aware of Cohen's connections to Highland Creek, Lloyd's, or Forest Creek.” (Id. at 711.)[2] The court noted that “Defendants arguably could have foreseen that any entity controlled by Cohen that ultimately purchased the Property would rely on Defendants' statements to Cohen in making that purchase (even if Defendants could not have known the name of that entity at the time of their statements because it did not yet exist).” (Id.) On the facts alleged, the court concluded that Highland Creek was the only foreseeable relying entity. (Id. at 711-12.) The court concluded that Forest Creek was not a foreseeable relying entity and affirmed the district court.

         The Sixth Circuit also addressed the joinder of Cohen, and affirmed the district court's decision that Cohen could not be joined on a previously dismissed claim. (Id. at 712-13.)

         On June 21, 2017, Plaintiffs filed the amended complaint in this case. (Am. Compl., ECF No. 13.) The Court reopened the case the same day. (ECF No. 14.)

         On August 8, 2017, Defendants filed the Motion to Dismiss. (ECF No. 21.)

         On October 16, 2017, the Court ordered Plaintiffs to submit evidence to establish complete diversity between the parties. (ECF No. 29.) Plaintiffs submitted that evidence on October 25, 2017. (ECF No. 30.)

         II. Jurisdiction & ...


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