Houck v. LifeStore Bank et al

Filing 69

MEMORANDUM AND ORDER granting in part and denying in part 52 Motion to Dismiss for Failure to State a Claim; granting in part and denying in part 54 Motion to Dismiss for Failure to State a Claim. Signed by Magistrate Judge David S. Cayer on 1/15/14. (smj)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
STATESVILLE DIVISION
CIVIL ACTION NO: 5:13-CV-66-DSC
DIANA LOUISE HOUCK, et. al.,
Plaintiffs,
v.
LIFESTORE BANK, et. al.,
Defendants.

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MEMORANDUM AND ORDER
THIS MATTER is before the Court on “Defendant Lifestore Bank F.S.A.’s Motion to
Dismiss Second Amended Complaint or, in the alternative, … Motion for Summary Judgment”
(document #52) and “Defendant Grid Financial Services, Inc.’s Motion to Dismiss … Second
Amended Complaint or, in the alternative, … Motion for Summary Judgment” (document #54),
as well as the parties’ associated briefs and exhibits. See documents ## 52-56, and 65.
The parties have consented to Magistrate Judge jurisdiction under 28 U.S.C. § 636 (c).
These Motions are now ripe for consideration.
Having fully considered the arguments, the record, and the applicable authority, the Court
will grant in part and deny in part the Motions to Dismiss, as discussed below.

I. FACTUAL AND PROCEDRURAL BACKGROUND
This matter involves the foreclosure of a deed of trust on real property located at 318
Todd Railroad Grade Road (‘the Property”) in Todd, North Carolina.

On February 22, 2007,

Plaintiff Diana Louise Houck (“Houck”) borrowed $123,000.00, as evidenced by a promissory
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note (“the Note”) and secured by a Deed of Trust recorded in Book 361 at Page 2052 by the
Ashe County Register of Deeds (“the Deed of Trust”).
Plaintiffs allege that sometime in July or August 2009, Diana Houck contacted the Note
holder, Defendant LifeStore Bank Corporation, F.S.A. (“Lifestore”) requesting a loan
modification and lower monthly payments. Lifestore referred her to Defendant Grid Financial
Services, Inc. (“Grid”), which was acting as the collection agent on the delinquent loan.
Plaintiffs allege that a Grid employee advised Houck to stop making any mortgage payments so
that she could qualify for a modification of the loan. Plaintiffs contend that the employee knew
that Grid and Lifestore would not approve the modification.
On or about July 19, 2011, Defendant Substitute Trustee Services, Inc. (“STS”) initiated
a foreclosure action in Ashe County Superior Court at the request of Lifestore.
On August 23, 2011, an Assistant Clerk of Superior Court issued an Order Allowing
Foreclosure of the Property.
On September 12, 2011, Houck filed for Chapter 13 Bankruptcy Protection in the United
States Bankruptcy Court for the Western District of North Carolina, Case No.: 11-51141 (the
“first petition”).

According to the Second Amended Complaint, only LifeStore was sent notice

of the first petition. The foreclosure proceeding was stayed the following day.
On September 30, 2011, the Court dismissed the first petition.
On November 4, 2011, STS moved to re-open the foreclosure proceeding.
On December 16, 2011, Houck again filed for Chapter 13 Bankruptcy Protection in the
United States Bankruptcy Court for the Western District of North Carolina, Case No.: 11-51513
(the “second petition”). Houck failed to file a matrix, schedule and other information necessary
to properly serve her creditors. That same day, the Court issued a Notice of Deficient Filing and
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Order to Appear and Show Cause (W.D.N.C. Bankr. 11-51513 Docs. 2 and 3). According to the
Second Amended Complaint, only LifeStore was sent notice of the second petition. There is no
allegation that Grid ever received notice of the second petition.
On December 20, 2011, STS sold the Property at a foreclosure sale.
On December 21, 2011, the second petition was dismissed (W.D.N.C. Bankr. 11-51513
Doc. 9).
On April 26, 2013, Plaintiffs filed their Complaint, which as amended, asserts a claim
pursuant to 11 U.S.C. § 362(k) for conducting a foreclosure sale in violation of the bankruptcy
stay. Plaintiffs also assert state law claims for unfair and deceptive trade practices, unfair debt
collection, breach of contract, fraud, constructive fraud, intentional and negligent infliction of
emotional distress, and civil conspiracy. These claims are asserted against both Defendants. The
gravamen of the claims is that Lifestore and Grid conspired to cause Plaintiffs to fall behind on
mortgage payments so that Lifestore could foreclose. Plaintffs assert that Lifestore had notice of
the second petition and violated the bankruptcy stay by conducting the foreclosure sale.
On October 1, 2013, the Court granted Defendant STS’s Motion to Dismiss. The only
claims pled against STS were for violation of the bankruptcy stay. Plaintiffs did not allege that
STS had notice of the second petition. See “Memorandum and Order” at 4-5 (document #51).
On October 7, 2013, Lifestore and Grid filed their respective Motions to Dismiss which
have been fully briefed and are ripe for disposition.

II. DISCUSSION
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A. Standard of Review
In reviewing a Rule 12(b)(6) motion, “the court should accept as true all well-pleaded
allegations and should view the complaint in a light most favorable to the plaintiff.” Mylan
Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). The plaintiff’s “[f]actual allegations
must be enough to raise a right to relief above the speculative level.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007). “[O]nce a claim has been stated adequately, it may be
supported by showing any set of facts consistent with the allegations in the complaint.” Id. at
563. A complaint attacked by a Rule 12(b)(6) motion to dismiss will survive if it contains
enough facts to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id.
In Iqbal, the Supreme Court articulated a two-step process for determining whether a
complaint meets this plausibility standard. First, the court identifies allegations that, because
they are no more than conclusions, are not entitled to the assumption of truth. Id. “Threadbare
recitals of the elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Id. (citing Twombly, 550 U.S. at 555) (allegation that government officials adopted
challenged policy “because of” its adverse effects on protected group was conclusory and not
assumed to be true). Although the pleading requirements stated in “Rule 8 [of the Federal Rules
of Civil Procedure] mark[] a notable and generous departure from the hyper-technical,
code-pleading regime of a prior era ... it does not unlock the doors of discovery for a plaintiff
armed with nothing more than conclusions.” Id. at 678-79.
Second, to the extent there are well-pleaded factual allegations, the court should assume
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their truth and then determine whether they plausibly give rise to an entitlement to relief. Id. at
679. “Determining whether a complaint contains sufficient facts to state a plausible claim for
relief “will ... be a context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Id.. “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,’” and therefore should be dismissed. Id. (quoting
Fed. R. Civ. P. 8(a)(2)). In other words, if after taking the complaint’s well-pleaded factual
allegations as true, a lawful alternative explanation appears a “more likely” cause of the
complained of behavior, the claim for relief is not plausible. Id.

B. Claims Related to Violation of Bankruptcy Stay
Applying those legal principles to the factual allegations here, Plaintiffs have failed to
state a claim against Grid under 11 U.S.C. § 362(k). The Second Amended Complaint is replete
with generalized and conclusory allegations that the sale was “improper” or “conducted
improperly.” The only specific factual allegation against Grid is that the foreclosure sale was
conducted in violation of the bankruptcy stay.
In order to prevail on a claim for a violation of an automatic stay, the debtor must show
“(1) injury to the debtor (2) cause[d] by a ‘willful’ violation of the stay.” In re Peterson, 297 B.R.
467, 470 (W.D.N.C 2003)(citing In re Hamrick, 175 B.R. 890, 893 (W.D.N.C. 1994)). The
debtor must establish that: (1) the creditor knew of the existence of the stay; (2) the creditor’s
actions were willful; and (3) the creditor’s actions violated the stay. Campbell v. Countrywide
Home Loans, Inc., 545 F.3d 348, 355 (5th Cir. 2008). Despite amending their Complaint twice,
Plaintiffs have failed to allege that they sent notice of the second petition to Grid or that Grid had
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any notice of the petition.
Absent sufficient allegations that Grid had notice of the bankruptcy stay, Plaintiffs’ state
law claims for unfair debt collection (N.C. Gen. Stat § 75-55) and breach of contract fail as well.
See, e.g., Davis Lake Comm. Ass’n, Inc. v. Feldman, 138 N.C. App. 252 (2000)(claim for unfair
debt collection requires unfair act); Fletcher v. Fletcher, 123 N.C. App. 744, 752 (1996)
("breach of contract is only actionable if a material breach occurs -- one that substantially defeats
the purpose of the agreement or goes to the very heart of the agreement, or can be characterized
as a substantial failure to perform").

Bald assertions that the foreclosure sale was “improper”

are insufficient. Twombly, 550 U.S. at 555.
For these reasons, and the other reasons stated in Defendant Grid’s briefs, its Motion to
Dismiss is granted as to Plaintiffs’ claims under 11 U.S.C. § 362(k), N.C. Gen. Stat § 75-55, and
for breach of contract.
Plaintiffs have alleged that Lifestore received notice of the second petition. For this
reason, and the other reasons stated in Plaintiffs’ briefs, Defendant Lifestore’s Motion to Dismiss
is denied as to those claims.

C. Claims Related to Civil Conspiracy
The remainder of Plaintiffs’ claims rest on the allegation that Grid and Lifestore
conspired to facilitate a foreclosure by causing Plaintiff to fall behind on her mortgage payments.
The elements of a claim for intentional infliction of emotional distress are extreme and
outrageous conduct, which is intended to cause and does cause severe emotional distress to
another. Dickens v. Puryear, 302 N.C. 437, 452, 276 S.E.2d 325, 334-35 (1981). The initial
determination of whether conduct is extreme and outrageous is a question of law for the court.
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Briggs v. Rosenthal, 73 N.C. App. 672, 676, 327 S.E.2d 308, 311 (1985).
The Second Amended Complaint contains only general and conclusory allegations that
do not show the extreme and outrageous conduct necessary for intentional infliction of emotional
distress.
The Second Amended Compliant is also devoid of factual allegations to support a claim
for negligent infliction of emotional distress. To be actionable, the alleged tortuous action must
proximately cause a “severe and disabling emotional or mental condition which [is] generally
recognized and diagnosed by professionals trained to do so.” Johnson v. Ruark Obstetrics &
Gynecology Assocs., P.A., 327 N.C. 283, 304 (1990).

Although Plaintiffs allege that Diana

Houck has suffered “severe emotional distress” and “mental anguish,” they fail to allege that she
has suffered any recognized and diagnosed mental condition. See Horne v. Cumberland County
Hosp. Sys., 746 S.E.2d 13, 20 (N.C. Ct. App. 2013) (affirming dismissal of negligent infliction
of emotional distress claim where “the complaint merely asserts that [Defendant’s] actions were
‘the direct and proximate cause of [plaintiff]’s severe emotional distress’ - without any factual
allegations regarding the type, manner, or degree of severe emotional distress she claims to have
experienced”).
For these reasons, and the other reasons stated in Defendants’ briefs, their Motions to
Dismiss are granted as to Plaintiff’s claims for intentional and negligent infliction of emotional
distress.
For the reasons stated in Plaintiffs’ briefs, Defendants’ Motions are denied as to
Plaintiffs’ remaining claims.

III. ORDER
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IT IS THEREFORE ORDERED THAT:
1.

“Defendant Lifestore Bank’s, F.S.A.’s Motion to Dismiss Second Amended

Complaint” (document #52) is GRANTED IN PART and DENIED IN PART, that is, is
GRANTED as to Plaintiffs’ claims for intentional and negligent infliction of emotional distress.
The Second Amended Complaint is DISMISSED WITH PREJUDICE as to those claims. The
Motion is DENIED in all other respects.
2. “Defendant Grid Financial Services, Inc.’s Motion to Dismiss … Second Amended
Complaint” (document #54) is GRANTED IN PART and DENIED IN PART, that is, is
GRANTED as to Plaintiffs’ claims under 11 U.S.C. § 362(k), under N.C. Gen. Stat § 75-55, for
breach of contract, and for intentional and negligent infliction of emotional distress.

The

Second Amended Complaint is DISMISSED WITH PREJUDICE as to those claims. The
Motion is DENIED in all other respects.
3.

The Clerk is directed to send copies of this Memorandum and Order to the parties’

counsel.
SO ORDERED.

Signed: January 15, 2014

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