Chau et al v. Traditional Bank, Inc.

Filing 22

MEMORANDUM OPINION AND ORDER: It is ORDERED that Dft's 11 Motion to Dismiss is GRANTED. Signed by Judge Joseph M. Hood on May 9, 2011. (AWD) cc: COR, Plaintiffs via US Mail -- Modified cc on 5/9/2011. (AWD)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
ALAN CHAU, et al.,

)
)
) Civil Action No. 5:10-cv-416-JMH
)
)
) MEMORANDUM OPINION AND ORDER
)
)
)

Plaintiffs,
v.
TRADITIONAL BANK, INC.,
Defendant.
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This matter is before the Court upon Defendant’s Motion to
Dismiss the plaintiffs’ Complaint [Record No. 11].

Plaintiffs

filed a Response in Opposition to the Motion to Dismiss [Record No.
14], and Defendant Replied [Record No. 15].

Additionally, the

plaintiffs were granted leave to file a Surreply1 [Record No. 21].
This matter has been fully briefed and is ripe for review.
In their Complaints, filed on December 7, 2010 in Civil Action
No. 10-cv-416-JMH and December 10, 2010 in Civil Action No. 10-cv417-JMH, which were consolidated on December 28, 2010, Plaintiffs
Alan Chau and Huong Chau assert that Defendant Traditional Bank
violated the Racketeering Influenced and Corrupt Organizations Act,

1

Plaintiffs’ Surreply also requests leave to file an
Amended Complaint, but fails to develop any argument supporting
this request. Further, Plaintiffs fail to allege any specific facts
which, if pled in an Amended Complaint, would alter this Court’s
analysis herein. Accordingly, Plaintiff’s request is denied as
futile. See Winget v. JP Morgan Chase Bank, N.A., 537 F.3d 565
(6th Cir. 2008).

the Equal Credit Opportunity Act, the Real Estate Settlement
Practices Act, and the Truth-in-Lending Act and are liable to them
on the state law theories of fraud, unconscionability, and civil
conspiracy.

Based on the Complaint and the exhibits appended

thereto, the Court understands that Plaintiff’s claims arise out of
loan agreements made by the parties for the purchase of seven real
properties:
1)
2)
3)
4)
5)
6)
7)

627 Martin Luther King Boulevard, Lexington, Kentucky;
508 Dunaway Street, Lexington, Kentucky;
103 Hagerman Court, Lexington, Kentucky;
9101 Hickory Hill Road, Lexington, Kentucky;
145 Montmullin Street, Lexington, Kentucky;
100 Creek Ridge Drive, Nicholasville, Kentucky; and
306 Anza Drive, Nicholasville, Kentucky.

The property located at 306 Anza Drive, Nicholasville, Kentucky,
was purchased and maintained as the Chaus’ primary residence.

The

remaining locations were all commercial properties.
The Court notes that the allegations in the Complaint are
nearly identical to the issues raised in two similar cases filed in
the Eastern District of Kentucky, styled Alan Chau, et al., v.
First Federal Bank, et. al., Civil Action No. 5:10-cv-353-JMH and
Alan Chau, et al., v. First Federal Bank, et. al., Civil Action No.
5:10-cv-396-JMH, in which similar motions to dismiss were granted.
I.

BACKGROUND
On

or

about

June

25,

2010,

Traditional

Bank

filed

a

foreclosure action in Fayette Circuit Court, Action No. 10-CI03755, regarding the real properties located at 627 Martin Luther

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King Boulevard, Lexington, Kentucky; 508 Dunaway Street, Lexington,
Kentucky; 103 Hagerman Court, Lexington, Kentucky; 9101 Hickory
Hill Road, Lexington, Kentucky; 145 Montmullin Street, Lexington,
Kentucky. The Fayette Circuit Court granted Summary Judgment on or
about October 21, 2010, and these properties have since been sold
by the Fayette County Master Commissioner.
On

or

about

June

28,

2010,

Traditional

Bank

filed

a

foreclosure action in Jessamine Circuit Court, Action No. 10-CI00752, regarding the real properties located at 100 Creek Ridge
Drive, Nicholasville, Kentucky and
Kentucky.

306 Anza Drive, Nicholasville,

The Jessamine Circuit Court awarded Judgment and Order

of Sale on or about October 25, 2010, and the properties have since
been sold.
It is undisputed that Plaintiffs did not assert any of their
claims herein as defenses or counterclaims in the state court
actions.

Furthermore,

Plaintiffs

did

not

appeal

or

otherwise

challenge the judgments entered in the state court actions.
II.

STANDARD OF REVIEW
A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) tests

the sufficiency of a plaintiff’s complaint.

The Court views the

complaint in the light most favorable to the plaintiff and “must
accept as true ‘well-pleaded facts’ set forth in the complaint.”
PR Diamonds, Inc. v. Chandler, 364 F.3d 671, 680 (6th Cir. 2004)
(quoting Morgan v. Church’s Fried Chicken, 829 F.2d 10, 12 (6th

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Cir.

1987)).

“[T]he

Court

may

consider,

without

converting

Defendants' motion to dismiss into a motion for summary judgment,
the facts alleged in the . . . Complaint, any documents attached or
incorporated in . . . Amended Complaint, and public documents of
which the Court can take judicial notice.”

U.S. ex rel. Dingle v.

BioPort Corp., 270 F.Supp.2d 968, 971-72 (W.D.Mich. 2003), citing
Jackson v. City of Columbus, 194 F.3d 737, 745 (6th Cir. 1999),
overruled in part on other grounds, Swierkiewicz v. Sorema N.A.,
534 U.S. 506, 508-14 (2002); Yeary v. Goodwill Indus.-Knoxville,
Inc., 107 F.3d 443, 445 (6th Cir. 1997); Armengau v. Cline, 7 F.
App’x 336, 344-45 (6th Cir. 2001). Accordingly, the background set
forth below has been taken from the averments in Plaintiffs’
Complaint, with the exception of the facts related to certain
filings in the state court proceedings set forth above, of which
the court may take judicial notice.2

With respect to the averments

set forth in Plaintiffs’ Complaint, the Court accepts Plaintiffs’

2

Under Fed. R. Evid. 201, this Court may take judicial
notice of adjudicative facts, i.e., those which are “not subject to
reasonable dispute in that it is either (1) generally known within
the territorial jurisdiction of the trial court or (2) capable of
accurate and ready determination by resort to sources whose
accuracy cannot reasonably be questioned.” Public records, such as
the pleadings filed in a state court action, and government
documents are generally considered “not to be subject to reasonable
dispute.” Jackson v. City of Columbus, 194 F.3d 737, 745 (6th Cir.
1999).
The Court construes Defendants’ Motion to Dismiss to
include a request to take judicial notice of the fact that
Plaintiffs failed to raise any of the claims in their Complaint as
defenses or counterclaims in the state court actions, and has
determined, in the absence of any objection on this issue by the
Chaus, to take notice as requested.
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averments as true for the purposes of evaluating Defendant’s Motion
to Dismiss.
“A

complaint

must

contain

either

direct

or

inferential

allegations with respect to all material elements necessary to
sustain a recovery under some viable legal theory.”
Klais & Co., 108 F.3d 86, 88 (6th Cir. 1997).
doubt

that

the

plaintiff’s

complaint

Weiner v.

If it appears beyond

does

not

state

facts

sufficient to “state a claim that is plausible on its face,” then
the claims must be dismissed.

Bell Atlantic Corp. v. Twombly, 550

U.S. 544, 570 (2007); Weisbarth v. Geauga Park Dist., 499 F.3d 538,
541-42 (6th Cir. 2007); Our Lady of Bellefonte Hospital, Inc. v.
Tri-State

Physicians

Network,

Inc.,

2903231, *2 (E.D. Ky. Sept. 27, 2007).

No.

06-141-HRW,

2007

WL

The factual allegations in

the complaint need to be sufficient to give notice to the defendant
as to what claims are alleged, and the plaintiff must plead
“sufficient factual matter” to render the legal claim plausible,
i.e., more than merely possible. Ashcroft v. Iqbal, --- U.S. ----,
129 S.Ct. 1937, 1949-50, 173 L.Ed.2d 868 (2009).
III. DISCUSSION
The issue before this Court is whether Plaintiff’s claims
against Traditional Bank in this suit should have been brought as
compulsory counterclaims in the state court actions and, as a
consequence, whether the failure to raise these claims before that
those courts forecloses their litigation here.
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Having carefully

considered the matter, the Court concludes that to be the case and
shall dismiss Plaintiffs’ claim on that ground.
Ky. CR 13.01 provides as follows:
A pleading shall state as a counterclaim any
claim which at the time of serving the
pleading the pleader has against any opposing
party, if it arises out of the transaction or
occurrence that is the subject matter of the
opposing party’s claim and does not require
for its adjudication the presence of third
parties of whom the court cannot acquire
jurisdiction.
“The counterclaim must be asserted only if it [arises] out of the
transaction or occurrence that is the subject matter or foundation
of the opposing party’s claim.

If it is not presented by pleading

the matter will be res judicata, and it would not support an
independent action.”

England v. Coffey, 350 S.W.2d 163, 164 (Ky.

1961). This is true whether the party filed a responsive pleading,
or if judgment was entered by default.

“[W]hen one is duly

summonsed and suffers a default, he not only loses his right to
defend in that litigation, but also his right to assert in an
independent action a claim deemed to have been a compulsory
counterclaim under CR 13.01.”

Cianciolo v. Lauer, 819 S.W.2d 726,

727 (Ky.App. 1991).
“Kentucky law thus precludes assertion of counterclaims for
the first time in a subsequent action,” and the same is true where
the subsequent action is filed or removed to a federal court.
Holbrook v. Shelter Insurance Company, 186 F. App’x 618, 622, 2006
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WL 1792514 (6th Cir. 2006). “[C]laims coming within the definition
of ‘compulsory counterclaim’ are lost if not raised at the proper
time.”

Bluegrass Hosiery, Inc. v. Speizman Indus., Inc., 214 F.3d

770, 772 (6th Cir. 2000)(citing Baker v. Gold Seal Liquors, Inc.,
417 U.S. 467, 469 n. 1 (1974)).
The rationale is simple, as explained by the United States
Supreme Court in Southern Const. Co. v. Pickard:
The requirement that counterclaims arising out
of the same transaction or occurrence as the
opposing party’s claim ‘shall’ be stated in
the
pleadings
was
designed
to
prevent
multiplicity of actions and to achieve
resolution in a single lawsuit of all disputes
arising out of common matters. The Rule was
particularly directed against one who failed
to assert a counterclaim in one action and
then instituted a second action in which that
counterclaim
became
the
basis
of
the
complaint.
See, e.g., United States v.
Eastport S.S. Corp., 2 Cir., 255 F.2d 795,
801-802.
Southern Const. Co. v. Pickard, 371 U.S. 57, 60 (1962) (construing
Fed. R. Civ. P. 13);

See also Williams v. Carter Bros., 390 S.W.2d

873, 875 (Ky. 1965) (“The real purpose of [Ky. CR] 13.01 is to
require that all issues be resolved between the parties in one
trial and to avoid the multiplicity of trials.”).
The claims that Plaintiffs now seek to prosecute against
Traditional Bank arise out of the same transactions or occurrences
as Traditional Bank’s claims against them and were claims that the
Chaus had at the time they served, or should have served, their
responsive pleading in the state court actions.
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In other words,

they were required to bring the claims averred in the Complaint in
this matter in the state court action.

Accordingly, Plaintiffs’

claims against Traditional Bank, all of which could and should have
been raised as compulsory counterclaims in the state court action,
shall be dismissed as res judicata.
IV.

CONCLUSION
For all of the reasons stated above, Plaintiffs have failed to

state legal claims against Defendant that are “plausible, i.e.,
more than merely possible”.

It follows that Defendant’s Motion to

Dismiss shall be granted and that Plaintiffs’ Complaint shall be
dismissed.
Accordingly, IT IS ORDERED that Defendant’s Motion to Dismiss
is GRANTED.
This the 9th day of May, 2011.

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