Johnson et al v. Nationstar Mortgage, LLC
MEMORANDUM OPINION AND ORDER signed by Chief Judge Joseph H. McKinley, Jr. on 8/8/17; granting in part and denying in part 5 Motion to Dismiss for Failure to State a Claim. cc: Counsel(DJT)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
CIVIL ACTION NO. 4:17-CV-00074-JHM
JOHN D. JOHNSON and
LISA R. JOHNSON
NATIONSTAR MORTGAGE, LLC
MEMORANDUM OPINION AND ORDER
This matter is before the Court on Defendant Nationstar Mortgage, LLC’s motion to
dismiss for failure to state a claim. (DN 5.) Fully briefed, this matter is ripe for decision.
Plaintiffs John and Lisa Johnson acquired property in Hawesville, Kentucky, in 2002.
(Pl.’s First Am. Compl. [DN 1-3, at 75–87] ¶ 3.) They executed a mortgage on this property in
favor of Countrywide Bank, FSA, in 2007. (Id. ¶ 4.) This mortgage was eventually transferred
to Defendant Nationstar Mortgage, LLC (“Nationstar”) in 2013. (Id. ¶¶ 13–14.) Following the
transfer of the mortgage, Nationstar repeatedly failed to correctly account for whether the
Johnsons had made payments in a timely fashion or whether they had paid the correct amount,
which required the Johnsons to undertake efforts to correct these errors. (Id. ¶¶ 26, 33, 35.)
In October 2016, the Johnsons were contacted by agents from New Cingular Wireless
(“Cingular”), who were inquiring about leasing a portion of the Johnson’s property to construct a
cell phone tower.
(Id. ¶ 42.)
Any such agreement would have required the consent of
Nationstar, as the property was subject to their mortgage. (Id.) A Cingular representative
informed the Johnsons that Nationstar was reporting that the Johnsons had not made their
mortgage payments for October and November of that year, despite the fact that these payments
had been made. (Id.) On December 5, 2016, Nationstar requested the following from Cingular
in regards to their interest in leasing a portion of the mortgaged property: a $250 subordination
fee, a complete/recorded copy of the lease agreement, an application for release of security, a
survey/drill site map that shows the location of the distance of the house and the oil and gas
operation, and a letter from an appraiser indicating the impact the operation will have on the
value of the property.1 (Id. ¶ 45.) Subsequently, on December 14, 2016, Cingular advised the
Johnsons that it was no longer interested in placing a cell phone tower on their property, as “they
could not deal with” Nationstar. (Id. ¶ 49.)
The Johnsons filed this action in Daviess Circuit Court on March 23, 2017, initially
asserting a single claim of negligent interference with a contractual relationship. (Pl.’s Compl.
[DN 1-3, at 2–11].) Nationstar moved to dismiss the action, on the grounds that Kentucky does
not recognize such a tort. (Def.’s Mot. to Dismiss [DN 1-3, at 17–20].) The Johnsons also
moved to amend their complaint. On May 30, 2017, the state court granted the Johnsons’ motion
to amend their complaint and denied Nationstar’s motion to dismiss. (State Court Orders [DN 13, at 88–89].) The Johnsons’ first amended complaint asserts five claims: tortious interference
with a contractual relationship (Count I), negligent misrepresentation (Count II), violations of the
Kentucky Consumer Protection Act (Count III), entitlement to recover damages for state
statutory violations (Count IV), and violations of the Fair Debt Collection Practices Act (Count
V). (Pl.’s First Am. Compl. [DN 1-3, at 75–87] ¶ ¶ 50–70.) Nationstar then removed to this
Court (DN 1) and filed a motion to dismiss for failure to state a claim. (DN 5.)
While the dates in the First Amended Complaint are not entirely clear or sequential, at some point Cingular did
contact Nationstar and inform them that many of the documents it was requesting, particularly those pertaining to oil
and gas drilling, were not relevant to the proposed cell tower operation. (Pl.’s First Am. Compl. [DN 1-3, at 75–87]
II. STANDARD OF REVIEW
Upon a motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6),
a court “must construe the complaint in the light most favorable to plaintiffs,” League of United
Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007) (citation omitted), “accept all
well-pled factual allegations as true,” id., and determine whether the “complaint . . . states a
plausible claim for relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Under this standard, the
plaintiff must provide the grounds for its entitlement to relief, which “requires more than labels
and conclusions, and a formulaic recitation of the elements of a cause of action.” Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007). A plaintiff satisfies this standard only when it “pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Iqbal, 556 U.S. at 678. A complaint falls short if it pleads facts
“merely consistent with a defendant’s liability” or if the alleged facts do not “permit the court to
infer more than the mere possibility of misconduct.” Id. at 678–79. Instead, a complaint “must
contain a ‘short and plain statement of the claim showing that the pleader is entitled to relief.’”
Id. at 677 (quoting Fed. R. Civ. P. 8(a)(2)). “But 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 (quoting Fed. R. Civ. P.
A. COUNT I – TORTIOUS INTERFERENCE WITH A CONTRACTUAL RELATIONSHIP
Count I of the First Amended Complaint alleges that the “negligent record keeping” of
Nationstar caused it to report incorrect information regarding the Johnsons’ mortgage to
Cingular, and that this incorrect information caused the Johnsons to lose the proposed contract
with Cingular for the lease. (Pl.’s First Am. Compl. [DN 1-3, at 75–87] ¶ 51.) Nationstar has
moved to dismiss this count, arguing that Kentucky does not recognize a tort for negligent
interference with business relations, and that the Johnsons have not alleged the existence of a
contract. The Johnsons argue in opposition that Kentucky courts do recognize business torts
grounded in negligent conduct.
In Kentucky, there are a number of distinctions among the so-called “business torts” that
require attention in this case. Under Kentucky law, tortious conduct is actionable both when
there is a contract that the defendant causes not to be performed, and when there is a business
relationship, expectancy, or advantage that the defendant causes the plaintiff to lose. See CMI,
Inc. v. Intoximeters, Inc., 918 F. Supp. 1068, 1079 (W.D. Ky. 1995) (citing Restatement
(Second) of Torts § 766).) Here, the Johnsons did not have a contract with Cingular; the first
amended complaint alleges that Cingular did not enter into the lease because of the conduct of
Nationstar. Therefore, the Johnsons can only recover for tortious interference with a prospective
However, Kentucky case law also establishes that “[t]ortious interference liability ‘is
predicated upon an intentional interference,’” rather than one grounded in negligence. Ventas,
Inc. v. Health Care Property Investors, Inc., 635 F. Supp. 2d 612, 621 (W.D. Ky. 2009) (citing
Carmichael-Lynch-Nolan Advert. Agency, Inc. v. Bennett & Assocs., Inc., 561 S.W.2d 99, 102
(Ky. Ct. App. 1977)). See also Byers v. Toyota Motor Mfg., Ky. Inc., 172 F.3d 47, at *2 (6th Cir.
1999) (Table) (“as a general rule, tortious interference with contractual relations requires an
intentional interference and . . . generally there is no liability for a negligent interference with a
contract”) (citing Kentucky law). Therefore, the Johnsons may only assert one claim against
Nationstar: intentional interference with a prospective business advantage.
For such a claim to survive a motion to dismiss, the Johnsons must assert six elements:
“(1) the existence of a valid business relationship or its expectancy; (2) [the defendant’s]
knowledge thereof; (3) [the defendant’s] intentional act of interference; (4) their improper
motive; (5) causation; and (6) special damages.” Ventas, 635 F. Supp. 2d at 621. Nationstar has
argued that the Johnsons do not allege any intentional act of interference, and the Court agrees.
The first amended complaint alleges the following in regards to Count I:
The defendant [Nationstar] has shown a pattern of failure to
maintain accurate records. This failure to maintain accurate
records has been a continuing problem. The negligent record
keeping of [Nationstar] caused them to report to Cingular and
AT&T that the Plaintiffs were not current on their mortgage. This
report of delinquency was a critical factor in the decision of AT&T
not to enter into a lease agreement with the Plaintiffs for space to
locate a cell tower.
(Pl.’s First Am. Compl. [DN 1-3, at 75–87] ¶ 51.) The Johnsons do not allege that Nationstar
intentionally failed to keep accurate records of their payments, or that they intentionally told
Cingular incorrect information. Instead, the allegations in the first amended complaint that are
relevant to the claim for tortious interference with a prospective business advantage all pertain to
negligent conduct by Nationstar. Thus, the Johnsons have failed adequately plead such a claim,
and Nationstar’s motion to dismiss Count I is GRANTED.
B. COUNT II – NEGLIGENT MISREPRESENTATION
Count II alleges that Nationstar negligently misrepresented to Cingular that the Johnsons
were in default on their monthly mortgage payments.
Kentucky follows the Restatement
(Second) of Torts § 552 for claims of negligent misrepresentation. Presnell Const. Mgrs., Inc. v.
EH Const., LLC, 134 S.W.3d 575, 580–81 (Ky. 2004). Section 552 reads in pertinent part:
One who, in the course of his business, profession or employment,
or in any other transaction in which he has a pecuniary interest,
supplies false information for the guidance of others in their
business transactions, is subject to liability for pecuniary loss
caused to them by their justifiable reliance upon the information, if
he fails to exercise reasonable care or competence in obtaining or
communicating the information.
Restatement (Second) of Torts § 552(1). Among other arguments, Nationstar argues that the
claim should be dismissed since the information was offered gratuitously outside of the course of
its business or a transaction in which it had a pecuniary interest.
Comment (c) to § 552 of the Restatement states that a negligent representation claim is
only cognizable “when the defendant has a pecuniary interest in the transaction in which the
information is given. If he has no pecuniary interest and the information is given purely
gratuitously, he is under no duty to exercise reasonable care and competence in giving it.”
Kentucky courts have followed comment (c) and its requirement that the alleged
misrepresentation must not have been offered gratuitously. See Barton Brands, Ltd. v. O’Brien
& Gere, Inc., 2009 WL 1037556, at *4 (W.D. Ky. Apr. 17, 2009) (“Without a legal duty
requiring Astec to determine the cause of the fires or face the prospect of liability, or a promise
to pay Astec if it determined the cause of the fires, it appears that Astec gratuitously provided
this information to Barton Brands. As such, Plaintiff has failed to satisfy the pecuniary interest
element of § 552”). A plaintiff can show that the information was not offered gratuitously two
ways. First, if the information is supplied in the course of the defendant’s business, profession,
or employment, it is a “sufficient [but not conclusive] indication that he has a pecuniary interest
in it[.]” Restatement (Second) of Torts § 552, cmt. (d). And second, a plaintiff can show that the
defendant stood to gain from the transaction, even indirectly. Id. Under this standard, the
Johnsons have failed to allege that Nationstar had a pecuniary interest in the transaction between
them and Cingular.
First, Nationstar is alleged to be a holder and servicer of mortgages. (Pl.’s First Am.
Compl. [DN 1-3, at 75–87] ¶ 13.) Kentucky courts have strictly construed what is meant by the
“course of his business, profession or employment,” by requiring that a defendant be in the
business of providing information to be liable for misrepresentations.
See Modern Holdings,
LLC v. Corning Inc., 2015 WL 1481457, at *13 (E.D. Ky. Mar. 31, 2015) (dismissing negligent
misrepresentation claim since defendant, who operated glass manufacturing facility that
allegedly dumped hazardous materials near plaintiffs’ property and did not publicly disclose this,
is “not in the business of supplying information about environmental conditions”); Our Lady of
Bellefonte Hosp., Inc. v. Tri-States Physicians Network, Inc., 2007 WL 2903231, at *7 (E.D. Ky.
Sep. 27, 2007) (dismissing negligent misrepresentation claim since counter-defendant hospital
“is in the business of providing medical services to individuals residing in its community . . .
[counter-plaintiff] has not and cannot allege that the hospital is in the business of supplying
information for the guidance of others in their business transactions with third parties”). The
Johnsons have not alleged that Nationstar is in the business of providing information about its
customers’ mortgages to third parties; instead, it is merely alleged to be a holder and servicer of
the Johnsons’ mortgage, whose only duties are to the Johnsons.
And second, Nationstar is not alleged to have a pecuniary interest in the proposed
transaction between Cingular and the Johnsons. The Johnsons do not allege that Nationstar
stood to profit from the proposed lease on the property.
Comment (d) to § 552 of the
Restatement indicates that a pecuniary interest “will normally lie in a consideration paid to [the
defendant] . . .” Kentucky courts have recognized the existence of a pecuniary interest when the
defendant stood to benefit from the transaction at issue. See Morris Aviation, LLC, v. Diamond
Aircraft Indus., Inc., 730 F. Supp. 2d 683 (W.D. Ky. 2010) (finding defendant had pecuniary
interest in its sale of aircraft to plaintiff when it allegedly misrepresented the state of engine
manufacturer’s finances); Peppers v. LTF Greenhouses, LLC, 2014 WL 68087, at *4 (W.D. Ky.
Jan. 8, 2014) (amended complaint stated claim for negligent misrepresentation when defendant
had a contract to provide plaintiff with a type of seed and ultimately provided mislabeled and
incorrect seeds). Here, the Johnsons have not alleged that Nationstar stood to gain from the
transaction, as they would be entitled to their monthly mortgage payments regardless of whether
the Johnsons were receiving additional income from Cingular. As such, the complaint fails to
establish that Nationstar had a pecuniary interest in the proposed transaction between the
Johnsons and Cingular, and the information was provided gratuitously.
Even if the Johnsons had properly alleged that Nationstar had a pecuniary interest in the
transaction, the claim would also fail for another important reason: the Johnsons have not alleged
that they justifiably relied on the representations made by Nationstar to Cingular. In fact, much
of the first amended complaint alleges that the Johnsons did not rely on any representation made
by Nationstar about having defaulted on their mortgage, as they consistently sought to have their
timely payments properly credited towards their debt. To the extent a viable claim may exist
against Nationstar for negligent misrepresentations, that claim would belong to Cingular, as they
are the only party that can plausibly allege that they justifiably relied upon the representations
made by Cingular about the Johnsons’ payment history.
See Boodram v. Coomes, 2015 WL
1248809, at *6 (W.D. Ky. Mar. 18, 2015) (dismissing negligent misrepresentation claim at
pleading stage for failing to plausibly allege reliance on misrepresentations). Therefore, because
the Johnsons have not stated a claim for negligent misrepresentations, Nationstar’s motion to
dismiss Count II is GRANTED.
C. COUNTS III AND IV – KENTUCKY CONSUMER PROTECTION ACT
Count III alleges that Nationstar violated the Kentucky Consumer Protection Act
(“KCPA”) by failing to honor a loan modification agreement with the Johnsons and initiating
foreclosure proceedings against them. Further, Count IV seeks to recover damages for the
KCPA violation pursuant to KRS § 446.070. Nationstar has moved to dismiss both counts on the
basis that the KCPA does not apply to real estate transactions.
Under the KCPA, “[a]ny person who purchases or leases goods or services primarily for
personal, family or household purposes” may bring an action against the seller or lessor for
damages suffered as a result of their “[u]nfair, false, misleading, or deceptive acts or practices[.]”
KRS §§ 367.170; 367.220(1). Nationstar argues that, as a lender and servicer of mortgages, it
does not provide goods or services that would make any of its conduct actionable under the
KCPA. The Johnsons argue that Nationstar provides financial services that fall within the scope
of the statute.
The Court of Appeals of Kentucky held in Craig v. Keene, 32 S.W.3d 90, 91 (Ky. Ct.
App. 2000) that the KCPA does not apply to real estate transactions by individual homeowners.
The Court of Appeals has also defined the term “real estate transaction” as “encompass[ing] any
transaction touching upon or involving real estate.” Todd v. Ky. Heartland Mortg., Inc., 2003
WL 21770805 (Ky. Ct. App. Aug. 1, 2003).
Federal district courts in Kentucky have
consistently relied upon these interpretations of the KCPA to determine that the statute does not
apply to claims by a homeowner against the holder of a mortgage, as this transaction touches
upon real estate. E.g., Riley v. Wells Fargo Bank, N.A., 2017 WL 2240570, at *5 (E.D. Ky. May
22, 2017) (“The transaction in question involves a mortgage loan for Plaintiff’s home, and, thus,
the KCPA is not applicable”); Busch v. Wells Fargo Home Mortg., Inc., 2017 WL 82473, at *8
(E.D. Ky. Jan. 9, 2017). The Johnsons rely upon Stevens v. Motorists Mut. Ins. Co., 759 S.W.2d
819 (Ky. 1988), to argue that a mortgage is more akin to a financial service transaction than a
real estate transaction. Stevens held that the sale of a home owners’ insurance policy was a
“service” under the KCPA, and therefore, deceptive conduct under the policy was actionable.
The court stated that “[a]n insurance policy is nothing more and nothing less than a contract
providing for delivery of financial services as specified in the policy when loss occurs as
described in the policy.” Stevens, 759 S.W.2d at 821. But equating a mortgage with a home
owners’ insurance policy renders the opinions in Craig and Todd null. If the granting of a
mortgage does not “touch[ ] upon or involv[e] real estate,” then it is hard to see what transactions
would qualify as real estate transactions. The sale of property, which very often will involve the
use of lender services and the granting of a mortgage, clearly touches upon the real estate at issue
in the transaction. Therefore, the Court will not interpret Stevens to equate a mortgage with an
The Johnsons’ claims under the KCPA are based upon Nationstar’s conduct in servicing
their mortgage. Because a mortgage is a real estate transaction, the KCPA does not apply to this
conduct. Therefore, Nationstar’s motion to dismiss Counts III and IV is GRANTED.
D. COUNT V – FAIR DEBT COLLECTION PRACTICES ACT
Count V alleges that Nationstar violated the Fair Debt Collection Practices Act
(“FDCPA”) by communicating information that was either known to be false or should have
been known to be false.
The FDCPA states that “[a] debt collector may not use any false,
deceptive, or misleading representation or means in connection with the collection of any debt.”
15 U.S.C. § 1692e.
Nationstar argues that this claim should be dismissed since its
communications in this case were not “in connection with the collection of any debt,” but rather
were in relation to the Johnsons’ attempted lease of the property. The Johnsons argue that every
communication by Nationstar is in furtherance of its collection of debts, as it only exists as an
entity to collect debts.
First, the Sixth Circuit has indicated that the Johnsons’ position on this issue is
overbroad. In Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 173 (6th Cir. 2011), the
The text of § 1692e makes clear that, to be actionable, a
communication need not itself be a collection attempt; it need only
be “connect[ed]” with one. Thus, we agree with the Seventh
Circuit that an explicit demand for payment is not always
necessary for the statute to apply. But it is just as clear that the
statute does not apply to every communication between a debt
collector and a debtor. So the question is where to draw the line.
(quotations and citations omitted). However, the court in Grden went on to draw the line at
whether the communication’s “animating purpose” is to collect payment:
for a communication to be in connection with the collection of a
debt, an animating purpose of the communication must be to
induce payment by the debtor . . . [a communication] that is not
itself a collection attempt, but that aims to make such an attempt
more likely to succeed, is one that has the requisite connection.
Id. When a motion to dismiss argues that a communication did not have the animating purpose
of inducing payment, “we need not determine [a debt collector’s] actual purpose when sending
the letter. Rather, we ask whether it is plausible, based on the facts alleged in the complaint, that
one of the purposes animating [the debt collector’s] decision to send the letter was to induce
payment by the [the debtor].” Estep v. Manley Deas Kochalski, LLC, 552 F. App’x 5002, 505
(6th Cir. 2014).
The Court finds that the Johnsons have plausibly alleged that the communications
referenced in the first amended complaint were aimed at collecting a debt. The Johnsons’ first
amended complaint references two general categories of communications made by Nationstar: its
communications directly with the Johnsons that incorrectly indicated they were in default or had
missed payments, and its communications with Cingular that indicated the same. (See Pl.’s First
Am. Compl. [DN 1-3, at 75–87] ¶¶ 65, 70) (incorporating prior allegations of conduct by
Nationstar). The first set of communications directly indicated to the Johnsons that they were in
default on their mortgage, while the second set was given to a third party that was in
communication with the Johnsons and who were not going to enter into a lease with the Johnsons
if they were in default. (Id. ¶ 46.) It is plausible that either or both sets of communications were
in part motivated by Nationstar’s desire to collect on the Johnson’s debt; a natural consequence
of a debtor learning they are in default is to attempt to cure the deficiency, even if no debt is
currently owed. See Bridge v. Ocwen Fed. Bank, FSB, 681 F.3d 355, 361 (6th Cir. 2012) (“The
legislative history of the FDCPA indicates that . . . the purpose of the Act’s debt verification is to
eliminate the recurring problem of debt collectors . . . attempting to collect debts which the
consumer has already paid”) (citations and quotations omitted). Dismissal of the FDCPA claim
on the grounds that the communications were not attempts to collect a debt is inappropriate at
this early stage.
See Estep, 552 F. App’x at 505 (“The ‘animating purposes’ of the
communication is a question of fact that generally is committed to the discretion of the jurors,
not the court”). Therefore, Nationstar’s motion to dismiss Count V is DENIED.
Therefore, for the reasons stated above, Defendant Nationstar Mortgage, LLC’s motion to
dismiss (DN 5) is GRANTED IN PART and DENIED IN PART.
August 8, 2017
cc: counsel of record
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