Brown et al v. Florida Coastal Partners, LLC et al

Filing 31

OPINION AND ORDER denying 9 Motion to Change Venue; denying 12 Motion to Change Venue; denying as moot 15 Motion to Dismiss for Failure to State a Claim; granting 19 Motion for Leave to File Amended Complaint & denying 26 Motion for Rehearing. Signed by Magistrate Judge Terence P Kemp on 5/23/2014. (kk2)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
Ronald Brown, et al.,

:

Plaintiffs,

:

v.

:

Florida Coastal Partners, LLC,
et al.,

Case No. 2:13-cv-1225

:

JUDGE PETER C. ECONOMUS
Magistrate Judge Kemp

:
Defendants.
OPINION AND ORDER
Plaintiffs Ronald Brown and Tonya Brown are property owners
who are subject to a foreclosure action in state court.

They

filed this lawsuit against certain entities and individuals who
they claim defrauded them, violated the Fair Debt Collection
Practices Act, and clouded the title to their property in
connection with the mortgage involved in the foreclosure action.
Several motions are currently pending before the Court:
Plaintiffs’ Motion for Leave to File Amended Complaint (Doc. 19),
a Motion to Dismiss by Defendant Charles R. Griffith Pursuant to
Civil Rule 12(b)(6) and 9(b) (Doc. 15), two motions for change of
venue filed by Plaintiffs (Docs. 9 & 12), and Plaintiffs’ Motion
for Rehearing (Doc. 26).

Plaintiffs have also filed a Notice of

Removal / Federal Rule 18 Joinder of Claims (Doc. 27) and Notice
of Electronic Transfer of Docket Entries (Doc. 28).

This Opinion

and Order, which will rule on all of the pending motions, is a
final order based on the parties’ consent to the jurisdiction of
the Magistrate Judge and the District Judge’s order of reference
(Doc. 22).
I.

PROCEDURAL BACKGROUND

In 2008, Mr. and Mrs. Brown were named as defendants in a
state foreclosure action in the Delaware County Court of Common

Pleas, Case No. 08-CVE-12-1598.

A Chapter 7 bankruptcy

proceeding was initiated on October 25, 2011, in the United
States Bankruptcy Court for the Southern District of Ohio,
Eastern Division, at Columbus, and assigned Case No. 2:11-BK60762.

In 2012, Mr. and Mrs. Brown filed an Adversary

Proceeding, Case No. 2:12-AP-02059 (S.D. Ohio), which is now
closed.

In 2013, Mr. and Mrs. Brown filed another Adversary

Proceeding, Case No. 2:13-AP-02155 (S.D. Ohio), which has been
dismissed, but in which there is a pending motion for
reconsideration.
On December 13, 2013, Mr. and Mrs. Brown filed this action
alleging that Defendants Florida Coastal Partners, LLC (“Florida
Coastal”) and John Doe, Individuals 1-50 violated the Fair Debt
Collection Practices Act and committed fraud in connection with
the mortgage on Mr. and Mrs. Brown’s property.

Mr. and Mrs.

Brown also brought an action for quiet title.

On January 3,

2014, Mr. and Mrs. Brown filed an amended complaint adding
Charles R. Griffith, Statutory Agent for Florida Coastal, as a
defendant and adding, among other allegations, a count for
slander of title.

Finally, on January 31, 2014, the Browns filed

a motion for leave to file an amended complaint.

The proposed

“3rd Amended Complaint” would add Carlisle, McNellie, Rini,
Kramer & Ulrich Co., L.P.A. (“Carlisle”) as a defendant, and add
claims for “slander of credit” and “emotional distress” as well
as additional factual allegations.
II.

MOTION TO AMEND

Generally, motions to amend pleadings are governed by Rule
15(a) of the Federal Rules of Civil Procedure, which provides
that after the time for amending as a matter of course has
passed, “a party may amend its pleading only with the opposing
party's written consent or the court's leave.
freely give leave when justice so requires.”
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The court should
Fed. R. Civ. P.

15(a).

The higher standard set forth in Rule 16(b) for modifying

a scheduling order only applies when a court has issued a
scheduling order setting a deadline for motions to amend the
pleadings.

Fed. R. Civ. P. 16(b).

scheduling order in this case.

The Court has not entered a

Accordingly, the liberal standard

set forth in Rule 15(a) applies here.
Under this standard, motions for leave to amend may be
denied “where the court finds ‘undue delay, bad faith or dilatory
motive on the part of the movant, repeated failure to cure
deficiencies by amendments previously allowed, undue prejudice to
the opposing party by virtue of allowance of the amendment,
futility of the amendment, etc.’”

Marquette Gen. Hosp. v.

Excalibur Med. Imaging, LLC, 528 F. App'x 446, 448 (6th Cir.
2013) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)).

“A

proposed amendment is futile if the amendment could not withstand
a Rule 12(b)(6) motion to dismiss.”

Rose v. Hartford

Underwriters Ins. Co., 203 F.3d 417, 420 (6th Cir. 2000)
(citation omitted).

Fed. R. Civ. P. 12(b)(6) provides that the

Court may, upon motion, dismiss a claim for relief asserted in
any pleading for failure to state a claim upon which relief can
be granted.

Fed. R. Civ. P. 8(a) requires the party pleading a

claim for relief to make a “short and plain statement of the
claim showing that the pleader is entitled to relief.”

When

evaluating such a claim in the context of a Rule 12(b)(6) motion,
the Court must ordinarily accept as true all of the well-pleaded
factual allegations of the complaint.

However, Rule 8(a) has

been interpreted to require that the pleader allege “more than
labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do....”
Twombley, 550 U.S. 544, 555 (2007).

Bell Atlantic v.

In addition, allegations of

fraud must be pleaded with particularity.

Fed. R. Civ. P. 9(b).

Here, Mr. and Mrs. Brown seek leave to amend their complaint
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to add the Carlisle law firm as a defendant and to add claims for
“slander of credit” and “emotional distress” as well as to make
additional factual allegations.

The proposed 3rd Amended

Complaint makes the following allegations relevant to the dispute
presented by this motion.

Mr. and Mrs. Brown allege that

Carlisle initiated the foreclosure action against them in state
court on behalf of their clients and falsely represented that its
clients were proper party plaintiffs (specifically, holders of
the loan) when, in fact, they were debt collectors.
directly alleged in the proposed 3

rd

Although not

Amended Complaint, it

appears from the exhibits to the Complaint and corresponding
allegations that CitiGroup Global Markets Realty Corp. and
Kondaur Capital Corporation were two clients of Carlisle who were
plaintiffs in the foreclosure action at separate times.
Mr. and Mrs. Brown also allege, in the proposed amended
complaint, that Defendants Florida Coastal and Charles R.
Griffith were “Substitute Plaintiffs” in the foreclosure action
and that Florida Coastal, by and through its counsel, Griffith
Law, made false and misleading representations that it was a
proper plaintiff in both the state court foreclosure proceeding
and the federal court bankruptcy proceeding.

The Browns aver

that Griffith Law was actually a debt collector which was using
Florida Coastal for debt collection purposes.

Mr. and Mrs. Brown

also allege that those Defendants have misrepresented the
“character, amount, and legal status of the Plaintiffs mortgage
and note” in various documents.
Defendants oppose this motion for leave to amend on futility
grounds.

They argue that these amendments are futile because the

Browns rely on an incorrect understanding of the term “servicer.”
Specifically, the proposed 3rd Amended Complaint attaches a
letter from Kondaur Capital Corporation to Mr. Brown with a
subject line reading, “Notice of Assignment, Sale or Transfer of
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Servicing Rights,” that informed Mr. Brown that the right to
collect payments from him “is being transferred from your present
servicer, Kondaur Capital Corporation (“Kondaur”), to Florida
Coastal Partners, LLC, which will be your new servicer effective
December 24, 2011.”

(Doc. 19-1 at Exh. A).

The proposed 3rd

Amended Complaint also attaches an earlier letter from Citi
Residential Lending to Mr. Brown with the same subject line,
which informed Mr. Brown that the servicing of the mortgage loan
was being assigned, sold or transferred from Citi Residential
Lending to Kondaur Capital Corp.

(Doc. 19-1 at Exh. B).

Defendants’ opposition brief states, “[t]he entire basis of this
attempted amendment is that Exhibits A and B state that Kondaur
Capital Corporation and Florida Coastal Partners, LLC are
‘servicers,’ therefore it was fraudulent to claim that these
parties were the ‘real party in interest.’”

Defendants argue

that because 12 U.S.C. §2605(i)(2) defines “servicer” to include
the person who makes or holds a loan if that person also services
the loan, the Complaint fails to properly support its allegations
that Defendants were not the real parties in interest in the
foreclosure action.
Defendants’ argument fails to demonstrate that Mr. and Mrs.
Brown could not withstand a 12(b)(6) motion to dismiss.

Here,

Mr. and Mrs. Brown have alleged that Florida Coastal and
Carlisle’s clients were not proper parties because they were debt
collectors.

Mr. and Mrs. Brown’s arguments are not limited to

the use of the term “servicer” in the letters.

They also argue

that Exhibits A and B stated that the terms and conditions of the
loan had not changed and only the party who had a right to
collect the payments changed, which they took to mean that the
holder of the loan has not changed.

This argument does not rely

on the definition of “servicer” but rather on the definition of
“terms and conditions of the loan.”
5

In addition, Mr. and Mrs. Brown set forth additional factual
allegations relating to the status of Florida Coastal and
Carlisle’s clients.

With respect to Florida Coastal, Mr. and

Mrs. Brown allege that Florida Coastal is not a bank, mortgage
company, financial institution or a Trustee, and therefore cannot
be a creditor or owner of Mr. and Mrs. Brown’s mortgage and note.
They also allege that because they were already in foreclosure at
the time Florida Coastal allegedly acquired the mortgage and
note, Florida Coastal would have been a debt collector under the
FDCPA.

With respect to at least one client of Carlisle, Mr. and

Mrs. Brown allege that Carlisle “fraudulently executed a backdated assignment of Plaintiffs[’] mortgage and note in November,
2008 to make it appear that the assignment was executed by its
client (Ex. B & C) at a time when the Plaintiffs[’] mortgage was
not in default and to conceal that its client was a debt
collector and not owner of the plaintiffs’ mortgage and note (Ex.
B).”

Defendants respond that signing a document on November 20,

2008 and recording it with the Court ten days later is not
backdating.

However, Mr. and Mrs. Brown appear to be referring

not to the date of signing and recording, but rather to the
effective date of the Mortgage Assignment, which is stated as
“March 1, 2007,” more than a year before the signing.
at 3).

(Doc. 25

While it is not clear that Mr. and Mrs. Brown are correct

that it was fraudulent backdating, their argument – that the
effective date was a disingenuous attempt to avoid being labeled
a debt collector - has not been addressed by Defendants.

In

light of all of those arguments, Defendants have failed to
demonstrate that, taking the allegations in the proposed 3rd
Amended Complaint as true, the proposed amendment fails as a
matter of law.
Defendants also point to evidence outside the pleadings to
demonstrate that Florida Coastal and the clients of Carlisle were
6

holders of the loan at the time they were claiming to be the real
party in interest.

However, district courts may not consider

matters outside the pleadings in determining whether an amendment
to a complaint would be futile.

Rose v. Hartford Underwriters

Ins. Co., 203 F.3d 417, 420-21 (6th Cir. 2000) (holding that the
evidence outside the complaint should not be considered in ruling
on a motion for leave to amend because, “[t]he test for futility,
however, does not depend on whether the proposed amendment could
potentially be dismissed on a motion for summary judgment;
instead, a proposed amendment is futile only if it could not
withstand a Rule 12(b)(6) motion to dismiss”).
motion for leave to amend will be granted.

Accordingly, the

As a result, the

motion to dismiss the “2nd Amended Complaint” will be denied as
moot.
III. MOTIONS FOR CHANGE OF VENUE
Mr. and Mrs. Brown have filed two motions for change of
venue.

The first seeks to move Adversary Proceeding 2:13-AP-

02155 from the United States Bankruptcy Court for the Southern
District of Ohio to this Court.

The memorandum in support argues

that this motion for transfer of venue should be granted because
the claims are related and because the transfer would be in the
interest of justice.
Defendants counter that this motion is moot because the
Bankruptcy Court dismissed the Adversary Proceeding with
prejudice in an order dated December 19, 2013.

The Court’s Order

further states in its conclusion that, “[a]ny further filings by
the Browns raising issues that the Court has previously
adjudicated will be subject to appropriate sanctions under
Bankruptcy Rule 9011.”

(Doc. 16-1).

In reply, Mr. and Mrs. Brown argue that res judicata permits
them to join the claims in their Adversary Proceeding with the
claims brought here because the complaint in this action was
7

filed before the December 19, 2013 dismissal order.

They also

argue that their motion to transfer is not moot because they have
filed a motion to alter or amend the December 19, 2013 dismissal
order and may still file other motions and an appeal.
While styled as a motion for transfer of venue, Mr. and Mrs.
Brown are not actually seeking to transfer venue with this
motion.

Transfers of venue are governed by 28 U.S.C. § 1404(a),

which provides, “[f]or the convenience of parties and witnesses,
in the interest of justice, a district court may transfer any
civil action to any other district or division where it might
have been brought or to any district or division to which all
parties have consented.”

Section 1404(a) does not apply here

because both this Court and the bankruptcy court in which the
Adversary Proceeding was filed are in the same district (the
Southern District of Ohio) and the same division (the Eastern
Division).

Likewise, section 1404(b) does not apply because it

governs transfers from one division to another in the same
district, and section 1404(c) does not apply because it governs
designating a particular city within a division as the place of
trial.

See El Ranco, Inc. v. First Nat. Bank of Nev., 406 F.2d

1205, 1219 (9th Cir. 1968).
Instead, Mr. and Mrs. Brown’s motion should be construed as
a motion to withdraw the reference to the bankruptcy court.
Typically, cases that arise “under the Bankruptcy Act and Title
11 of the United States Code,” or that are “related to a case
under the Bankruptcy Act and Title 11 of the United States Code,”
are referred to the Bankruptcy Court in accordance with under
this Court's General Order of Reference to the bankruptcy courts.
See General Order No. 05–02.

However, there are certain

circumstances in which a district court is permitted or required
to withdraw a reference to the bankruptcy courts:
The district court may withdraw, in whole or in part,
8

any case or proceeding referred under this section, on
its own motion or on timely motion of any party, for
cause shown. The district court shall, on timely motion
of a party, so withdraw a proceeding if the court
determines that resolution of the proceeding requires
consideration of both title 11 and other laws of the
United States regulating organizations or activities
affecting interstate commerce.
28 U.S.C.A. § 157(d) (West).
Under section 157(d), the district court “shall” withdraw a
proceeding in certain circumstances if the proceeding requires
consideration of United States laws other than title 11 of the
United States Code.

In the Adversary Proceeding at issue, the

Amended Complaint alleges that it “is a core proceeding as
defined at 28 U.S.C. §157(a)[&](b)(1) in that it is an action to
determine whether the assignment of the Plaintiffs[’] property
during the automatic stay is void and the property should
returned [sic] back to the Debtor.

To the extent this proceeding

is determined to be a non-core proceeding, Plaintiff consents to
the entry of final orders or judgment by the bankruptcy court.”
(2:13-ap-02155, Am. Compl. at ¶3).

Accordingly, there does not

appear to be any reason for mandatory withdrawal of the
reference.
Also under section 157(d), the district court “may” withdraw
a proceeding in whole or part “for cause shown.”

There is no

cause for the Court to withdraw the reference here, especially
because the case has been dismissed and there is a pending motion
to alter or amend the bankruptcy court’s order of dismissal.

In

addition, Defendants are correct that Mr. and Mrs. Brown’s motion
for change of venue is moot because at the time the motion was
filed, the bankruptcy court had already entered an order
dismissing the Adversary Proceeding.

See, e.g., Lundahl v.

Fireman's Fund Ins. Co., 129 F. App'x 479, 480 (10th Cir. 2005)
(holding that the motion to withdraw the reference was moot
9

because the bankruptcy proceeding had been remanded and,
therefore, there was no bankruptcy matter pending at the time the
motion to withdraw the reference was filed).
Mr. and Mrs. Brown’s second motion for change of venue seeks
to move the state foreclosure action from the Delaware County
Court of Common Pleas to this Court.

However, section 1404(a)

does not govern transfers between state and federal courts.

See,

e.g., Viron Int'l Corp. v. David Boland, Inc., 5:01-CV-42, 2002
WL 31990366, *4 (W.D. Mich. Mar. 4, 2002) (Ҥ 1404(a) provides no
authority for a federal court to transfer a case to a state or
foreign court”).

Neither does Rule 18 of the Federal Rules of

Civil Procedure permit such a transfer.1

Rather, the proper

mechanism for transferring a state court action to a federal
district court is to file a notice of removal pursuant to 28

1

Mr. and Mrs. Brown include
citation to suggest that somehow
action in state court. (Doc. 18
quoted by the Supreme Court in a
quotation in context:

a quote out of context with no
Rule 18 permits removal of an
at 3). The same language is
footnote, which places the

Care was taken to maintain opportunity for state trial
of non-federal matters. 28 U.S.C. s 1441, 28 U.S.C.A. s
1441, Reviser's Note:‘Rules 18, 20, and 23 of the
Federal Rules of Civil Procedure permit the most
liberal joinder of parties, claims, and remedies in
civil actions. Therefore there will be no procedural
difficulty occasioned by the removal of the entire
action. Conversely, if the court so desires, it may
remand to the State court all nonremovable matters.’
See McFadden v. Grace Line, 82 F.Supp. 494.
Am. Fire & Cas. Co. v. Finn, 341 U.S. 6, 11 n. 3 (1951). It is
clear in context that the Reviser’s Note to section 1441 was
explaining that the changes to section 1441 would not cause
procedural problems because parties are permitted significant
leeway in pleading claims, counterclaims, crossclaims, and thirdparty claims under the Federal Rules. The Reviser’s note is not
discussing the meaning of Rule 18, much less indicating that it
provides the power to remove an action.
10

U.S.C. §1446 if removal is proper under that statute.

The filing

of the present action has no bearing on whether or not Mr. and
Mrs. Brown can properly remove their state court action.

The

motions for change of venue will be denied.
IV. MOTION FOR REHEARING AND NOTICES
Mr. and Mrs. Brown have filed a Motion for Rehearing in
which they discuss a decision made by the bankruptcy court.

This

Court does not have authority to order a rehearing on the
bankruptcy court’s decision in a separate case.

The second to

last sentence of the Motion for Rehearing states that Mr. and
Mrs. Brown also seek to join their Adversary Proceeding to the
present claim pursuant to Rule 18 of the Federal Rules of Civil
Procedure.

Rule 18 does not provide a mechanism for district

courts to transfer claims from bankruptcy courts to them.

As

discussed above, the mechanism for transferring a case from
bankruptcy court to the district courts is a motion to withdraw
the reference.

The motion for rehearing will be denied.

Mr. and Mrs. Brown have filed a “Notice of Removal Federal
Rule 18 Joinder of Claims” in which they purport to remove a
bankruptcy case with the docket number 2:11-BK-60762 to this
Court, or in the alternative, to join that case with the present
case under Rule 18 of the Federal Rules of Civil Procedure.

The

removal statute, 28 U.S.C.A. §1441, governs civil actions brought
in state court that defendants seek to remove to federal court.
The civil action at issue here is in federal bankruptcy court,
not state court, so section 1441 does not apply.

Furthermore,

Rule 18 of the Federal Rules of Civil Procedure is not a
mechanism for district courts to transfer claims from bankruptcy
courts to them.

Accordingly, the notice has no force or effect.

Lastly, Mr. and Mrs. Brown have filed a notice of electronic
transfer of docket entries.

That notice presumes that the prior

notice had some force or effect.
11

As it did not, this motion is

also without force or effect.
IV. CONCLUSION
For the foregoing reasons, the Motion to Change Venue (Doc.
9) and the Motion to Change Venue (Doc. 12) are denied.

The

Motion to Dismiss for Failure to State a Claim (Doc. 15) is
denied as moot.

The Motion for Leave to File Amended Complaint

(Doc. 19) is granted.
denied.

The Motion for Rehearing (Doc. 26) is

The Clerk shall detach and file the amended complaint

attached to Doc. 19.
/s/ Terence P. Kemp
United States Magistrate Judge

12