Walton et al v. Carrington Mortgage Services, LLC et al
Filing
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MEMORANDUM OPINION: The Court will DISMISS Plaintiffs' claims against TBW WITHOUT PREJUDICE. AN APPROPRIATE JUDGMENT WILL ENTER. Signed by District Judge Travis R McDonough on 4/26/19. (aws, ) Mailed to James and Helen Walton.
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT CHATTANOOGA
JAMES R. WALTON and HELEN R.
WALTON,
Plaintiffs,
v.
TAYLOR, BEAN, & WHITAKER
MORTGAGE CORP.,
Defendant.
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Case No. 1:17-cv-330
Judge Travis R. McDonough
Magistrate Judge Susan K. Lee
MEMORANDUM OPINION
This action arises out of a foreclosure on real property located in Hixson, Tennessee.
Plaintiffs James R. Walton and Helen R. Walton, proceeding pro se, initiated this action against
Bank of America, N.A. (“BOA”), Carrington Mortgage Services, LLC (“Carrington”), and
Taylor, Bean and Whitaker Mortgage Corp. (“TBW”) on November 16, 2017. (Doc. 1.) On
March 16, 2018, Plaintiffs filed a proof of service, including an affidavit from Plaintiff James
Walton, stating that a copy of the civil summons and complaint was served by certified
registered mail to Taylor, Bean and Whitaker, c/o Carifield, Okon, Solomon, Pincus, West, 500
Austrian Ave., #825, West Palm Beach, FL 33401. (Doc. 21, at 2.) Plaintiffs also included a
copy of a certified mail receipt stating that Plaintiffs’ mailing was delivered to Taylor, Bean &
Whitaker c/o Owen H. Sokolof/Marjorie Livine, Carifield, Okon, Solomon, Pincus, West, 500
Austrian Ave., #825, West Palm Beach, FL 33401, and signed for by Patrick Cuadra on March 5,
2018. (Id. at 3.) When TBW did not answer or otherwise respond to Plaintiffs’ amended
complaint, Plaintiffs filed a motion for default judgment. (Doc. 41.)
On November 14, 2018, the Court entered an order granting BOA’s and Carrington’s
motions for judgment on the pleadings and dismissed Plaintiffs’ claims against them with
prejudice. (Doc. 56.) In that order, the Court also denied Plaintiffs’ motion for default judgment
against TBW, explaining that Plaintiffs’ amended complaint failed to state a claim against TBW.
(Id. at 14–16.) The Court specifically noted that Plaintiffs’ amended complaint included few
factual allegations related to TBW, namely that: (1) Plaintiffs closed a mortgage with TBW in
the amount of $277,148, and TBW sold the note to Ocala Funding, its wholly-owned subsidiary;
(2) TBW originated mortgages it sold to Ocala Funding and then acted as servicer for loans held
by Ocala Funding, meaning that TBW collected monthly loan payments, handled mortgagees’
escrow accounts, and paid taxes and insurance from mortgagees’ escrow accounts; and (3) TBW
filed for bankruptcy in 2009. (Doc. 11, at 2–3.) Based on these scant allegations, the Court
concluded that it could not determine what claims Plaintiffs sought to assert against TBW or how
these allegations support those claims. (Doc. 56, at 15.) As a result, the Court ordered Plaintiffs
to show cause as to why their claims against TBW should not be dismissed. (Id. at 16.)
On November 30, 2018, Plaintiffs responded to the Court’s show-cause order. (Doc. 57.)
Plaintiffs’ response included several new allegations not previously included in Plaintiffs’
amended complaint and, for the first time, sought to assert claims against TBW for: (1) mortgage
fraud; and (2) violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18
U.S.C. § 1961 et seq. (Doc. 57, at 1–3.) Additionally, on February 11, 2019, Plaintiffs filed a
“Motion in Response to Order to Show Cause.” (Doc. 61.) In their motion, Plaintiffs moved to
amend their complaint against TBW. (Id. at 1.) Like their response to the Court’s show-cause
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order, Plaintiffs’ motion included new factual allegations related to TBW and sought to assert a
claim against TBW for mortgage fraud.1 (See id., at 2–9.)
The Court construed Plaintiffs’ response to the Court’s show-cause order and their
motion in response to the Court’s show-cause order as motions for leave to file an amended
complaint pursuant to Rule 15 of the Federal Rules of Civil Procedure. The Court granted that
motion and ordered the Clerk of Court to file Plaintiffs’ response to the Court’s show-cause
order as Plaintiffs’ second amended complaint.2 (See Doc. 62.) In relevant part, Plaintiffs’
second amended complaint alleges:
On October 3, 2008, at 3:00 p.m. eastern standard time while closing on a
mortgage at the office of Realty, Title and Trust Company . . . TBW allegedly
misrepresented the appraisal value and mortgage value as $280,000 on the closing
statement (HUD-1 Statement). Property located at 1301 Windbrook Lane,
Hamilton County, Tennessee, Lot 24, Winbrook Sub. Unit. 2. Plaintiffs have
evidence to show that the value stated was $280,000 as opposed to the true value
of $240,000. TBW recklessly, without regard to truth failed allegedly to offer a
true mortgage value of $240,000.
(Doc. 63, at 2–4.) Plaintiffs allege that, based on TBW’s inflated appraisal value, they suffered
damages and assert a claim against TBW for mortgage fraud. (Id.)
Citing concerns that Plaintiffs had not properly effectuated service on TBW in
compliance with Rule 4 of the Federal Rules of Civil Procedure, the Court also ordered Plaintiffs
to serve a copy of the summons and second amended complaint on TBW and to file a new proof
of service with the Court. (Id.) On April 1, 2019, Plaintiffs filed a proof of service indicating
that they effectuated service on TBW by sending a copy of the summons and complaint by
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Plaintiffs’ motion also sought to “enjoin Bank of America, N.A. and Carrington Mortgage
Services “as successors in interest,” and seeks to assert claims against BOA and Carrington, but
the Court had already dismissed Plaintiffs’ claims against them with prejudice. (Doc. 56.)
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The Court denied Plaintiffs’ motion to the extent they sought to reassert claims against BOA
and Carrington.
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certified mail to “CT Corporation System, 1200 Pine Island Road, Plantation, FL 33324.” (Doc.
64, at 4–5.)
On April 9, 2019, TBW filed a “Notice of Entry of Confirmation Order Providing for
Discharge and Permanent Injunction.” (Doc. 65.) In the notice, TBW states that it has filed a
voluntary petition for relief under Chapter 11 of Title 11 of the United States Code by
commencing a bankruptcy case in the United States Bankruptcy Court for the Middle District of
Florida, Case No. 3:09-07047. (Id.) The notice also states that the bankruptcy court has entered
an order confirming the “Third Amended and Restated Joint Plan of Liquidation of the Debtors
and the Official Committee of Unsecured Creditors.” (Id.) The notice then states:
Pursuant to 11 U.S.C. § 1141 and the Confirmation Order, and except as
otherwise provided in the Plan and Confirmation Order, on or after the effective
date of the Plan, which has occurred, all persons who held, currently hold, or may
hold claims against or interests in TBW that arose prior to the effective date of the
Plan (including all Governmental Authorities) are permanently enjoined from, on
account of such claims or interests, taking any of the following actions, either
directly or indirectly, against or with respect to TBW, other parties identified in
the Plan and Confirmation Order or any of their respective properties: (i)
commencing or continuing in any manner any action or other proceeding of any
kind; (ii) enforcing, attaching, executing, collecting, or recovering in any manner
any judgment, award, decree, or attaching any properties pursuant to the
foregoing; (iii) creating, perfecting, or enforcing any lien or encumbrance of any
kind; (iv) asserting or effecting any setoff, recoupment, or right of subrogation of
any kind against any Claim or Cause of Action; (v) taking any act, in any manner,
in any place whatsoever, that does not conform to, comply with, or that is
inconsistent with any provision of the Plan. Moreover, pursuant to the confirmed
Plan, all injunctions or stays provided in the Bankruptcy Code remain in full force
and effect.
(Id. at 1–2; see also In re Taylor, Bean & Whitaker Mortg. Corp., Case No. 3:09-bk-07047, Doc.
3420, Bankr. M.D. Fla. Jul. 21, 2011.) The notice concludes that, because TBW has no interest
in the property at issue in this litigation, the above-referenced terms of the bankruptcy court plan
and confirmation order operate to enjoin Plaintiffs from “pursuing any type of in personam or
other monetary relief against TBW.” (Id. at 2.) Based on TBW’s filing and the terms of its
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confirmed Chapter 11 bankruptcy plan, the Court ordered Plaintiffs to show cause as to why their
claims against TBW should not be dismissed without prejudice. (Doc. 67.)
On April 24, 2019, Plaintiffs responded to the Court’s show cause order. (Doc. 68.) In
their response, Plaintiffs assert that the Court should not dismiss their claims against TBW for
mortgage fraud and violation of RICO because such claims are not dischargeable in bankruptcy.
(Id.) Specifically, Plaintiffs argue that TBW’s debt is not dischargeable under 11 U.S.C. §
523(a)(2) because their claims are based on TBW’s false pretenses, false representations, and
actual fraud. (Id.) Even if Plaintiffs are correct that their claims against TBW are not
dischargeable, the proper course of action is to seek a determination from the bankruptcy court
regarding whether the claimed debt is dischargeable. See 11 U.S.C. § 523(c); Fed. R. Bankr. P.
4007 advisory committee’s note (1983) (stating that “[t]he bankruptcy court has exclusive
jurisdiction to determine the dischargeability of [debts set out in § 523(a)(2)]”); Archer v.
Warner, 538 U.S. 314, 321 (2003) (“Congress also intended to allow the relevant determination
(whether a debt arises out of fraud) to take place in bankruptcy court. . . .”).
Based on the foregoing, as a result of TBW’s confirmed Chapter 11 bankruptcy plan,
Plaintiffs are enjoined from continuing this action against TBW in this Court because their
claims are predicated on actions taken by TBW before the effective date of the bankruptcy plan.
Accordingly, the Court will DISMISS Plaintiffs’ claims against TBW WITHOUT
PREJUDICE.3
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The Court is dismissing Plaintiffs’ claims without prejudice so that they are not foreclosed from
pursuing their claims as part of TBW’s bankruptcy proceedings in the United States Bankruptcy
Court for the Middle District of Florida.
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AN APPROPRIATE JUDGMENT WILL ENTER.
/s/ Travis R. McDonough
TRAVIS R. MCDONOUGH
UNITED STATES DISTRICT JUDGE
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