United States District Court, W.D. Tennessee, Western Division
LLOYD'S ACCEPTANCE, CORP.; BARRY COHEN; 21ST CENTURY COMMUNITIES, INC.; and HIGHLAND CREEK ACQUISITION, LLC, Plaintiffs,
CARROLL PROPERTY MANAGEMENT, LLC; HEDIGER ENTERPRISES, INC.; and CARROLL ORGANIZATION, LLC, Defendants.
H. MAYS, JR. JUDGE
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.)
following reasons, the Motion to Dismiss is GRANTED is part
and DENIED in part.
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.)
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.)
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.)
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.
September 27, 2011, Plaintiff Highland Creek purchased the
Property. (Id. ¶ 22.) 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.)
about November 16, 2011, Lloyd's foreclosed on the
Property and was the highest bidder at the foreclosure sale.
(Id. ¶ 24.)
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).)
discovered mold on the Property in March 2014. (Am. Compl.,
ECF No. 13 ¶ 26.)
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.)
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.
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.”
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.)
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.)
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.)
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.)
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.) 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.
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.
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.)
August 8, 2017, Defendants filed the Motion to Dismiss. (ECF
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.)
Jurisdiction & ...