United States District Court, M.D. Tennessee, Northeastern Division
Crenshaw Chief Judge.
REPORT AND RECOMMENDATION
Brown, United States Magistrate Judge.
Honorable Waverly D. Crenshaw, Jr., Chief United States
before the Court are Defendant's motion to dismiss
(Docket Entry No. 27), Plaintiffs' motion for leave to
file second amended complaint (Docket Entry No. 39), and
Plaintiffs' motion for preliminary injunction (Docket
Entry No. 45). For the following reasons, the Magistrate
Judge RECOMMENDS that Plaintiffs' motion
for leave to file second amended complaint be
DENIED as futile; that Defendant's
motion to dismiss be GRANTED; that
Plaintiffs' motion for preliminary injunction be
DENIED as moot; and that this action be
DISMISSED WITH PREJUDICE.
INTRODUCTION AND BACKGROUND
31, 2018, Plaintiffs, James Mullin and Shannon Menece Mullin,
proceeding pro se, filed this action against
Defendant, SouthEast Bank, along with an application for
leave to proceed in forma pauperis and a motion for
temporary restraining order to stop the foreclosure sale of
Plaintiffs' primary residence. (Docket Entry Nos. 1-3).
Plaintiffs alleged that in the summer or fall of 2017,
Defendant extended a mortgage loan to Plaintiffs that was
secured by Plaintiffs' primary residence as collateral,
that the purpose of the mortgage was to satisfy a balloon
payment of $42, 000 owed upon the maturity of a previous loan
earlier in 2017, and that based upon the terms of the loan
extended by Defendant, Plaintiffs were required to make
payments of at least $852.49 per month, even though their
monthly income was only $915 per month. (Docket Entry No. 1,
at ¶ 4). The Court granted leave to Plaintiffs to file
their complaint in forma pauperis, pursuant to 28
U.S.C. 1915(a), and the Court ordered the parties to maintain
the status quo, including postponement of the foreclosure
sale of Plaintiffs' residential property, until Defendant
could respond to Plaintiffs' TRO Motion. (Docket Entry
Nos. 4 and 5). On May 31, 2018, the action was referred to
the Magistrate Judge for entering a scheduling order for the
management of the case and for disposition of pre-trial,
non-dispositive motions and for a report and recommendation
on all dispositive motions. (Docket Entry No. 5).
25, 2018, the District Court ordered the parties to maintain
the status quo, including postponement of the foreclosure
sale of Plaintiffs' residential property and gave
Plaintiffs seven days to file a motion to amend their
complaint. (Docket Entry No. 18). On July 10, 2018, the
District Court ordered Defendant to maintain the status quo
and postpone the foreclosure sale pending resolution of
Plaintiffs' request for an injunction. (Docket Entry No.
On July 31, 2018, the Magistrate Judge granted
Plaintiffs' motion to file an amended complaint and set a
hearing for September 20, 2018. (Docket Entry No. 25). On
August 7, 2018, Defendant filed a motion to dismiss, to which
Plaintiffs responded on September 17, 2018. (Docket Entry
Nos. 27 and 33).
September 20, 2018 hearing, the Magistrate Judge instructed
Defendant to file with the Court a hard-copy CD containing
all of the documents pertaining to Plaintiffs' account
with Defendant and to send a hard-copy CD of the documents to
Plaintiffs. On September 25, 2018, Defendant filed a notice
of filing and delivery of the CD. (Docket Entry No. 35). On
September 27, 2018, the Magistrate Judge entered and Order
giving Plaintiffs until October 26, 2018, to file a motion to
amend their pleadings. (Docket Entry No. 37).
their first amended complaint (Docket Entry No. 26),
Plaintiffs assert a violation of the Truth in Lending Act
(“TILA”), 15 U.S.C. § 1639c(a)(1), and state
law claims for fraud, “unconscionability, ”
intentional infliction of emotional distress, and negligent
infliction of emotional distress. In response, Defendant
filed a motion to dismiss, contending: (1) that
Plaintiffs' factual allegations fail to state a claim for
fraud; (2) that Plaintiffs' fraud claims are barred by
the applicable statute of limitations; (3) that Defendant did
not violate TILA because the September 21, 2017 modification
agreement was not a new extension of credit requiring new
disclosures under TILA; (4) that any claims under TILA are
barred by the applicable statute of limitations; (5) that
Plaintiffs are judicially estopped from asserting any claims
against Defendant that accrued prior to their filing of their
bankruptcy petition in 2010; (6) that the Ability-to-Repay
Rule under 15 U.S.C. § 1639c(a)(1) could not apply to
either the original promissory note or the subsequent 2011
note because that rule had not yet been enacted and it also
does not apply to loan modifications; (7) that injunctive
relief is not available under TILA; (8) that the amended
complaint is devoid of any plausible factual allegations
supporting a claim and/or defense of unconscionability; and
(9) that Plaintiffs have failed to sufficiently allege a
factual basis to establish a claim for intentional or
negligent infliction of emotional distress. Plaintiffs filed
a response challenging some of the exhibits submitted by
Defendant as suspicious. (Docket Entry No. 33).
to the Magistrate Judge's September 27, 2018 Order
(Docket Entry No. 37), Plaintiffs filed a motion for leave to
file a second amended complaint (Docket Entry No. 39) on
October 29, 2018. In response (Docket Entry No. 42),
Defendant contends that Plaintiffs' motion to amend
should be denied because (1) it is untimely; (2) it fails to
describe any reason supporting the proposed amendment and
fails to describe the substance of the amendments sought as
required under Local Rule 15.01(a)(1); and (3) the amendment
would be futile. Defendant also asserts the same arguments as
set forth in its motion to dismiss the first amended
complaint. In their reply (Docket Entry No. 43), Plaintiffs
assert that they do not remember signing the August 5, 2011
TILA disclosure form attached to Defendant's memorandum
in support of its motions to dismiss. (Docket Entry No.
dispositive motion and a motion to amend the complaint are
pending, a court abuses its discretion if it fails to
consider and rule on a plaintiff's pending motion to
amend the complaint. Ellison v. Ford Motor Co., 847
F.2d 297, 300-01 (6th Cir. 1988). “This is not to say
that the court [is] required to grant plaintiff's motion.
Rather, . . . the district court should evaluate the pending
motion in light of the amendment policy embodied in the
Federal Rules and should provide a reasoned explanation for
its action.” Id. at 301.
party may amend its pleading once as a matter of course
within: (A) 21 days after serving it, or (B) if the pleading
is one to which a responsive pleading is required, 21 days
after service of a responsive pleading or 21 days after
service of a motion under Rule 12(b), (e), or (f), whichever
is earlier.” Fed.R.Civ.P. 15(a)(1). “In all other
cases, a party may amend its pleading only with the opposing
party's written consent or the court's leave. The
court should freely give leave when justice so
requires.” Fed.R.Civ.P. 15(a)(2). “Because Rule
15(a)(2) directs courts to ‘freely give leave when
justice so requires,' the rule embodies a ‘liberal
amendment policy.'” Brown v. Chapman, 814
F.3d 436, 442 (6th Cir. 2016) (citation omitted).
“‘Several elements may be considered in
determining whether to permit an amendment. Undue delay in
filing, lack of notice to the opposing party, bad faith by
the moving party, repeated failure to cure deficiencies by
previous amendments, undue prejudice to the opposing party,
and futility of amendment are all factors which may affect
the decision.'” Brooks v. Celeste, 39 F.3d
125, 130 (6th Cir. 1994) (citations omitted).
“‘A proposed amendment is futile if the amendment
could not withstand a Rule 12(b)(6) motion to
dismiss.'” Riverview Health Institute LLC v.
Medical Mutual of Ohio, 601 F.3d 505, 512 (6th Cir.
2010) (citations omitted).
survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to state a claim
to relief that is plausible on its face.'”
Jackson v. Ford Motor Co., 842 F.3d 902, 906 (6th
Cir. 2016) (quoting Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (internal quotation marks and citation omitted)).
A claim to relief is plausible if the facts pled
“allow the court to draw the reasonable inference
that the defendant is liable for the misconduct
alleged.” Iqbal, 556 U.S. at 678 (citing
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556
(2007)). The plausibility standard requires “more than
a sheer possibility that a defendant has acted unlawfully.
Where a complaint pleads facts that are ‘merely
consistent with' a defendant's liability, it
‘stops short of the line between possibility and
plausibility of entitlement to relief.'”
Id. (quoting Twombly, 550 U.S. at 556-57)
(brackets and internal quotation marks omitted).
must construe the complaint “‘in the light most
favorable to the plaintiff, accept all its allegations as
true, and draw all reasonable inferences in favor of the
plaintiff.'” Mills v. Barnard, 869 F.3d
473, 479 (6th Cir. 2017) (citation omitted). However, courts
“need not accept as true legal conclusions or
unwarranted factual inferences, and conclusory allegations or
legal conclusions masquerading as factual allegations will
not suffice.” D'Ambrosio v. Marino, 747
F.3d 378, 383 (6th Cir. 2014) (citation omitted).
“Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not
suffice.” Iqbal, 556 U.S. at 678. Further,
“where the well-pleaded facts do not permit the court
to infer more than the mere possibility of misconduct, the
complaint has alleged--but it has not
‘show[n]'-‘that the pleader is entitled to
relief.'” Id. at 679 (citation omitted).
While pro se complaints are liberally construed and
are held “to less stringent standards than formal
pleadings drafted by lawyers, ” Haines v.
Kerner, 404 U.S. 519, 520 (1972), pro se
complaints “must still contain ‘enough facts to
state a claim to relief that is plausible on its
face.'” Brown v. Matauszak, 415 Fed.Appx.
608, 612 (6th Cir. 2011) (quoting Twombly, 550 U.S.
at 570); Martin v. Overton, 391 F.3d 710, 714 (6th
Cir.2004) (citations omitted) (pro se plaintiffs
“‘are not automatically entitled to take every
case to trial'” and “‘[l]iberal
construction does not require a court to conjure allegations
on a litigant's behalf.'”).
motion under Rule 12(b)(6) is directed solely to a complaint
itself . . . .” Sims v. Mercy Hosp., 451 F.2d
171, 173 (6th Cir. 1971). Yet, in evaluating a
plaintiff's complaint, under Fed.R.Civ.P. 10(c), any
matters attached to the pleadings are considered part of the
pleadings as are documents that a defendant attaches to a
motion to dismiss that are referred to in the complaint and
“central” to the claim. Fagan v.
Luttrell, 225 F.3d 658, No. 97-6333, 2000 WL 876775, at
*2 (6th Cir. June 22, 2000) (citing Weiner v. Klais and
Co., Inc., 108 F.3d 86, 88-89 (6th Cir. 1997));
Rondigo, L.L.C. v. Township of Richmond, 641 F.3d
673, 680-81 (6th Cir. 2011) (“[A] court may
consider ‘exhibits attached [to the complaint], public
records, items appearing in the record of the case and
exhibits attached to defendant's motion to dismiss so
long as they are referred to in the complaint and are central
to the claims contained therein,' without converting the
motion to one for summary judgment.”) (quoting
Bassett v. National Collegiate Athletic Ass'n,
528 F.3d 426, 430 (6thCir. 2008)). “[W]hen a
written instrument contradicts allegations in the complaint
to which it is attached, the exhibit trumps the
allegations.” Williams v. CitiMortgage, Inc.,
498 Fed.Appx. 532, 536 (6th Cir. 2012) (citations omitted and
citing Fayetteville Inv'rs v. Commercial Builders,
Inc., 936 F.2d 1462, 1465 (4th Cir. 1991) (“[I]n
the event of conflict between the bare allegations of the
complaint and any exhibit attached pursuant to Rule 10(c),
Fed.R.Civ.P., the exhibit prevails.”)).
proposed second amended complaint is essentially a verbatim
copy of their first amended complaint, with four exceptions:
(1) Plaintiffs omitted quotations of various statutes and
regulations cited in the first three pages of the first
amended complaint, as well as some background information and
statements allegedly made by a loan officer in the first
paragraph of the fraud claim, (Docket Entry No. 26, at 1-4;
Docket Entry No. 39-1, at 1); (2) Plaintiffs omitted
reference to the reaffirmation agreement and added quoted
language from Tenn. Code § 45-13-401(8) and one
additional paragraph to their fraud claim, (Docket Entry No.
26, at 4-5; Docket Entry No. 39-1, at 2-3); (3) as to their
claim for negligent infliction of emotional distress,
Plaintiffs omitted two sentences from the first amended
complaint and replaced it with one additional sentence,
(Docket Entry No. 26, at 8-9; Docket Entry No. 39-1, at 6);
and (4) Plaintiffs added the phrase “as well as removal
of any negative entry on either of plaintiff's credit
report” to their prayer for relief, (Docket Entry No.
26, at 9; Docket Entry No. 39-1, at 6).
Defendant's response seeks the Court to deny the proposed
second amended complaint on much the same basis as its motion
to dismiss, the Magistrate Judge will consider
Defendant's motion to dismiss and its response to
Plaintiffs' motion to amend in determining the futility
of Plaintiff's proposed second amended complaint in
conjunction with deciding Defendant's motion to dismiss
Plaintiffs' first amended complaint.
DOCUMENTS REFERRED TO IN COMPLAINT AND CENTRAL TO
August 8, 2003, Plaintiffs executed and delivered to
Defendant a promissory note in the original principal amount
of $72, 854.48 at 7% interest, with an annual percentage rate
(“APR”) of 7.094%. (Docket Entry No. 9-1, Simple
Interest Fixed Rate Note/Disclosure and Security Agreement).
The principal and interest were amortized over 240 payments
in the amount of $565.10 a month with a final amount of $63,
420.69 due on the note's maturity date on August 8, 2008.
Id. The note was secured by a deed of trust on
certain real property and improvements located at 4164 Cowan
Road, Cookeville, Tennessee 38506. (Docket Entry No. 9-2,
Deed of Trust).
12, 2006, the note was modified to extend the maturity date
to July 12, 2011, with an interest rate of 7% and an APR of
7.005%. (Docket Entry No. 9-3, Modification, Extension,
Change in Terms of Agreement; Docket Entry No. 15, at 15,
Truth in Lending Disclosure Statement). Plaintiffs'
monthly payments were in the amount of $565.14 with a final
amount of $63, 407.92 due on July 12, 2011. Id.
April 5, 2010, Plaintiffs filed Chapter 7 bankruptcy in the
Middle District of Tennessee. In re: Mullin,
2:10-bk-03695. On June 1, 2010, Plaintiffs, represented by an
attorney, executed a Reaffirmation Agreement reaffirming
Plaintiffs' debt in the amount of $66, 793.98 at 7%
interest, with 13 monthly payments in the amount of $565.10
with the final amount due on July 12, 2011. (Docket Entry No.
August 5, 2011, Plaintiffs executed a renewal agreement, in
which the amount financed was $66, 001.75; the monthly
payments, amortized over 144 payments, was $701.35; the
interest rate was 7.5%; the APR was 7.665%; there was a final
balloon payment of $55, 418.88 due on August 5, 2014; and the
note was secured by the same deed of trust. (Docket Entry No.
9-5, Multi Purpose Note and Security Agreement; Docket Entry
No. 28-1, Truth-in-Lending Disclosure Statement (Final), at
3-4). On August 1, 2014, the parties entered into a consumer
debt modification agreement, effective July 30, 2014, that
extended the maturity date of the debt from August 5, 2014,
to August 5, 2017, with “All Other Terms and Conditions
. . . remain[ing] the same.” (Docket Entry No. 9-6).
The agreement noted that the parties had entered into a
“Prior Obligation, ” evidenced by a promissory
note dated August 8, 2003 in the original amount of $72,
854.48, with a maturity date of August 5, 2014, and that as
of the date of the modification, the remaining amount due was
$57, 023.26 in principal plus $178.19 in accrued interest,
for a total amount of $57, 201.45. “Prior
Obligation” was defined as Plaintiffs'
“previous agreement governing [their] promise to pay
[Defendant] money, including any loan agreement, note, or
document that evidences [Plaintiffs'] indebtedness, and
any extensions, renewals, modifications, and
substitutions.” Id. The modification agreement
provided that “[e]xcept as specifically amended in the
Modification, all terms of the Prior Obligation remain in
August 5, 2017, the maturity date was extended to October 5,
2017, with payments to continue on the same monthly basis as
described in the original agreement and “All Other
Terms and Conditions . . . remain[ing] the same.”
(Docket Entry No. 9-7). The modification agreement noted
Plaintiffs' August 8, 2003 promissory note with a
maturity date of August 5, 2017, and that as of the date of
the modification, the remaining amount due was $42, 467.02 in
principal plus $867.03 in accrued interest, for a total
amount of $43, 334.05. Id. All terms of the Prior
Obligation were to remain in effect. Id. On
September 21, 2017, the parties entered into another
modification agreement, which extended the maturity date to
October 5, 2020, with payments to continue on the same
monthly basis as described in the original agreement and
“All Other Terms and Conditions . . . remain[ing] the
same.” (Docket Entry No. 9-8). The modification
agreement noted Plaintiffs' August 8, 2003 promissory
note with a maturity date of October 5, 2017, and that as of
the date of the modification, the remaining amount due was
$42, 467.02 in principal plus $439.95 in accrued interest,
for a total amount of $42, 906.97. Id. Once again,
the modification agreement referenced “Prior
Obligation” as including “any extensions,
renewals, modifications, and substitutions.”
“TILA Violation” claim in their proposed second
amended complaint is a verbatim copy of their claim in their
first amended complaint. As to this claim, citing 12 C.F.R.
§ 226.20, Plaintiffs allege the following:
Since the most recent document signed between the defendant
and the plaintiffs claims that all terms of the mortgage
remain the same as the original loan originated August
8th, 2003 and considering the APR on that contract
is somewhere between 7% and 7.1% and the payment on that
contract is $565.10, whereas the actual interest rate being
charged by the defendant after September 21st, 2017 is 7.5%
and the actual payment is 701.35. This, by the rule above,
makes the changes to our mortgage by the defendant
not exempt from the classification of a
refinance, and therefore subject to TILA compliance,
including the requirement for a new TILA disclosure, which
was not provided, and requiring ...