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In re Cole

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

June 11, 2019

INSOUTH BANK, Defendant. MILDRED B. COLE Plaintiff,



         Before the Court is the Report and Recommendation on Motion to Dismiss Complaint filed by United States Bankruptcy Judge Jennie D. Latta on January 7, 2015. (ECF No. 1.) The Bankruptcy Judge recommends that Plaintiff Mildred B. Cole's Complaint “be dismissed without prejudice to amendment.” (Id. at 17.) Plaintiff's objection was filed on January 26, 2015. (ECF No. 3.) Defendant responded on February 19, 2015. (ECF No. 4.)

         For the reasons below, the Court ADOPTS the proposed findings of fact and conclusions of law set out by the Bankruptcy Judge in the Report and Recommendation. Plaintiff's claims are DISMISSED without prejudice.

         I. Background

         Before 2004, Plaintiff Mildred Cole and her husband, Charles Cole, African-American residents of Brownsville, Tennessee, invested in real estate. (Compl. ¶ 1, In re Mildred B. Cole, No. 13-24387, (Bankr. W.D. Tenn.), ECF No. 35.) In 2004, Defendant InSouth Bank refinanced loans and made new loans to Plaintiff and her husband for the purchase of rental properties. (Id. ¶ 10.)

         The properties were allegedly personal investments intended for long-term rentals. (Id. ¶ 14.) Despite knowing their intended purpose, Defendant allegedly financed the properties with short-term loans, which were “flipped” repeatedly. (Id. ¶ 16.) Because of the serial short-term financing, the Coles were unable to acquire equity in their properties. (Id. ¶ 19.) Their loan balances grew from approximately $90, 000 to more than $300, 000, and their monthly payments increased from $1, 592 a month in 2005 to approximately $3, 117 in 2011. (Id. ¶¶ 20-21.) The loans were evidenced by balloon notes with maturity dates within two to five years. (Id. ¶ 22.) Defendant allegedly knew the Coles would be unable to pay the loans on maturity. (Id. ¶ 23.)

         In 2011, the Coles' daughter met with a Memphis branch In-South Bank loan officer, who said the Coles “should be able to” convert their notes to a long-term, fully amortized loan. (Id. ¶¶ 30-32.) Later, a Brownsville branch InSouth Bank loan officer informed the Coles that the bank could not convert the loans “because the bank did not maintain long-tern debts in its portfolio or service them.” (Id. ¶ 33.) Defendant also informed the Coles that “the loans could not be refinanced because of loan to collateral ratios and an insufficient income stream.” (Id. ¶ 34.) The Coles allege that, contrary to the loan officer's statement, InSouth Bank “does sometimes make long-term loans for investor-owned houses and duplexes.” (Id. ¶ 35.)

         Defendant offered to refinance the Coles' loans in exchange for a security interest in the Coles' home and a laundromat they owned. (Id. ¶ 37-38.)

         As the result of pressure by Defendant, Mildred Cole agreed to surrender an apartment building for sale to reduce the outstanding debt. (Id. ¶¶ 41-42.) Mildred Cole asserts that she “believes” the building was sold for much less than its fair market value. (Id. ¶ 43.)

         Defendant continued to deduct loan payments from a bank account that the Coles maintained at InSouth bank, which contained rents and other revenues from properties. In November 2011, however, Defendant stopped deducting payments and began foreclosure proceedings because the Coles refused to provide additional collateral. (Id. ¶¶ 46-50.) The Complaint alleges that Defendant has refused to negotiate in good faith with the Coles be- cause they are African-American and their properties are in identifiably African-American neighborhoods. (Id. ¶ 52.)

         Plaintiff filed the Complaint in her Chapter 13 bankruptcy proceeding on June 5, 2013. (Id.) Plaintiff contemporaneously filed a motion for temporary restraining order. (In re Cole et al. v. InSouth Bank, Adv. Pro. No. 13-00247, (Bankr. W.D. Tenn.), ECF No. 3.) The Bankruptcy Court granted the preliminary injunction contingent on Plaintiff's meeting with Defendant's counsel. (Id., ECF No. 23.) Plaintiff failed to satisfy the conditions for a preliminary injunction, and the Bankruptcy Court permitted Defendant to pursue its state law remedies. (Id., ECF No. 25.)

         On October 9, 2014, Defendant filed a Motion to Dismiss the Complaint for failure to state a claim. (Id., ECF No. 42.) Plaintiff responded on November 11, 2014. (Id., ECF No. 48.) Defendant filed its reply on November 18, 2014. (Id., ECF No. 52.) The Bankruptcy Court held oral argument on the motion to dismiss on December 18, 2014. (Id., ECF No. 54.)

         On January 7, 2015, the Bankruptcy Court entered a Report and Recommendation, dismissing all of Plaintiff's claims. (Id., ECF No. 70.) Plaintiff filed a timely, but improperly labelled, objection on January 26, 2015. (Id., ECF Nos. 71, 74.) Plaintiff's proper objection was filed on February 16, 2015. (Id., ECF No. 78.) Defendant filed a response on February 19, 2015. (Id., ECF No. 81.)

         II. Jurisdiction & ...

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