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Mullin v. Southeast Bank

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

February 4, 2019

JAMES IRA MULLIN and SHANNON MENECE MULLIN Plaintiffs,
v.
SOUTHEAST BANK, Defendant.

          Crenshaw Chief Judge.

          REPORT AND RECOMMENDATION

          Joe B. Brown, United States Magistrate Judge.

         To: The Honorable Waverly D. Crenshaw, Jr., Chief United States District Judge

         Pending 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.

         I. INTRODUCTION AND BACKGROUND

         On May 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).

         On June 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. 21).[1] 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).

         At the 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).

         In 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).

         Pursuant 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.[2] 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. 28-1).

         II. LEGAL STANDARD

         Where a 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.

         “A 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).

         “‘To 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).

         A court 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.'”).

         “A 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.”)).

         III. ANALYSIS

         Plaintiffs' 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).

         Because 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.[3]

         A. DOCUMENTS REFERRED TO IN COMPLAINT AND CENTRAL TO CLAIMS

         On 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).

         On July 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.

         On 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. 9-4).

         On August 5, 2011, Plaintiffs executed a renewal agreement, in which the amount financed was $66, 001.75;[4] 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 effect.” Id.

         On 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.” Id.

         B. TILA CLAIM

         Plaintiffs' “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 ...

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