Heartland Payment Systems Inc v. Hickory Mist Luxury Cabin Rentals LLC et al (TV1)
Filing
52
MEMORANDUM AND OPINION as set forth in following order.Signed by District Judge Thomas A Varlan on 12/8/11. (ABF)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
HEARTLAND PAYMENT SYSTEMS, INC.,
)
)
Plaintiff,
)
)
v.
)
)
HICKORY MIST LUXURY CABIN RENTALS, )
LLC, JAMES EDWARD DeVANE,
)
BARBARA DeVANE, GLORIA DeVANE,
)
J. PATRICK LANDERS, RICKI LANDERS,
)
BANK OF AMERICA, N.A.,
)
SUNTRUST MORTGAGE, INC.,
)
PRLAP, INC., TRUSTEE, and
)
LARRY A. WEISSMAN, TRUSTEE,
)
)
Defendants.
)
No.:
3:11-CV-350
(VARLAN/GUYTON)
MEMORANDUM OPINION
This civil action is before the Court on Defendants’ Motion to Dismiss Fraudulent
Conveyance Claim and Motion to Dismiss Defendant Gloria DeVane [Doc. 27] and James
Edward DeVane’s Motion for Order Denying Plaintiff’s Petition for Writ of Attachment
[Doc. 29]. Plaintiff filed a response to each motion [Docs. 43, 44], and defendants replied
[Docs. 45, 46]. For the reasons explained herein, the Court will grant defendants’ motions.
I.
Background
Plaintiff commenced this action on July 25, 2011 [Doc. 1]. Plaintiff alleges that it and
defendant Hickory Mist Luxury Cabin Rentals, LLC (“Hickory Mist”) entered into a
Merchant Processing Agreement whereby plaintiff would process all bankcard transactions
for Hickory Mist’s cabin-rental business [Id. ¶ 18]. Plaintiff further alleges that in
conjunction with the agreement, defendants J. Patrick Landers and Ricki Landers (together,
the “Landers Defendants”) and James Edward Devane and Barbara Ann DeVane executed
personal guaranty agreements wherein the agreed to be jointly and severally liable to plaintiff
for all terms, conditions, and obligations imposed upon Hickory Mist pursuant to the
Merchant Processing Agreement (the “Guaranties”) [Id. ¶¶ 21, 24].
Plaintiff bases its claims on the alleged breach of the Merchant Processing Agreement
and the Guaranties [Id. ¶¶ 36, 43]. Plaintiff also alleges that defendants fraudulently
transferred assets and funds from Hickory Mist with the intent to hinder, delay, or defraud
plaintiff or other creditors of Hickory Mist in violation of Tennessee’s Uniform Fraudulent
Transfers Act (“TUFTA”) [Id. ¶¶ 46–51].
In addition, plaintiff’s complaint contains a petition for writ of attachment, which
seeks an attachment of James Edward DeVane’s interest in certain real property located in
the State of Tennessee [Doc. 1 ¶¶ 52–65]. In particular, plaintiff seeks to attach real property
located at: (1) 2610 Waldens Creek Road, Sevierville, Tennessee 37862; (2) 225 Collier
Drive #2108, Sevierville, Tennessee 27862; and (3) 225 Collier Drive #2208, Sevierville,
Tennessee 27862 (collectively, the “DeVane Properties”) [Id. ¶ 55].
II.
Analysis of James Edward DeVane’s Motion for Order Denying Plaintiff’s
Petition for Writ of Attachment
The procedural authority for seeking prejudgment attachment of the DeVane
Properties is Rule 64 of the Federal Rules of Civil Procedure. Rule 64 provides: “At the
commencement of and throughout an action, every remedy is available that, under the law
2
of the state where the court is located, provides for seizing a person or property to secure
satisfaction of the potential judgment.” Fed. R. Civ. P 64(a). “But a federal statute governs
to the extent it applies.” Id. Plaintiff has not asserted any ground under federal law, but
explicitly cites to Tennessee law, namely Tenn. Code Ann. § 29-6-101(1). That provision
of Tennessee law provides:
Any person having a debt or demand due at the commencement of an
action, or a plaintiff after action for any cause has been brought, and
either before or after judgment, may sue out an attachment at law or in
equity, against the property of a debtor or defendant, in the following
cases:
(1) Where the debtor or defendant resides out of the state.
Tenn. Code Ann. § 29-6-101(1).
Plaintiff alleges that the owner of the property, defendant
James Edward DeVane (“Mr. DeVane”), is a resident of the State of Maryland [Doc. 1 ¶ 4],
and Mr. DeVane concedes this point [Doc. 30]. Thus, statutory grounds exist for the
attachment of real property that he owns in the State of Tennessee.
Mr. DeVane argues that he owns the DeVane Properties with his wife, defendant
Gloria DeVane (together with Mr. DeVane, the “DeVanes”), as tenants by the entirety; thus,
he claims, plaintiff may attach only Mr. DeVane’s right of survivorship, but that such right
is essentially worthless, so the petition should be denied [Docs. 30, 46]. Plaintiff disputes
that all the properties are held by the DeVanes as tenants by the entirety and asserts that, even
if they are held by the DeVanes as tenants by the entirety, plaintiff may still attach Mr.
DeVane’s right of survivorship [Doc. 43]. Accordingly, the Court must first determine
whether the DeVane Properties are held by the DeVanes as tenants by the entirety.
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The parties agree that the Waldens Creek Road property is held by the DeVanes as
tenants by the entirety. Indeed, the deed for that property reflects such [See Doc. 31-1]. The
parties disagree that the Collier Drive properties are held by the DeVanes as tenants by the
entirety because only Mr. DeVane’s name is on the deeds for those properties [See Docs. 312, 31-3].
Under Tennessee law, property acquired during a marriage is presumed to be held as
a tenancy by the entirety, unless proven otherwise. See In re Estate of Grass, No. M2005COA-R3-CV, 2008 Tenn. App. LEXIS 343, at *34 (Tenn. Ct. App. June 4, 1988) (citation
omitted). Mr. DeVane has submitted an affidavit that he and his wife purchased the Collier
Drive properties after they were married and that it was his intent that the Collier Drive
properties be held by he and his wife as tenants by the entirety, despite the fact that only his
name appears on the deeds [Doc. 31]. The Tennessee Supreme Court has permitted extrinsic
evidence to establish the type of ownership intended by a husband and wife. Griffin v.
Prince, 632 S.W.2d 532, 535 (Tenn. 1982) (citing Oliphant v. McAmis, 273 S.W.2d 151
(1954)); see also United States v. Ragsdale, 206 F. Supp. 613, 615 (W.D. Tenn. 1962)
(noting that Oliphant holds that even where the instrument conveying title to property “shows
only the name of the husband, it may be proved by surrounding circumstances as well as
statements of the husband that he intended to hold as [sic] tenant by the entirety and such a
tenancy thereby established”). Although plaintiff claims the facts of these cases are
inapposite to the ones presently before the Court, the legal principal is nonetheless
controlling. Thus, and because the Tennessee Supreme Court has previously “gone very far
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in finding that spouses owned real or personal property as tenants by the entirety, despite the
fact that a title document indicated otherwise,” Griffin, 632 S.W.2d at 535 (citation omitted),
the Court affords credible weight to the affidavit of Mr. DeVane and finds that the Collier
Drive properties are held by the DeVanes as tenants by the entirety.
This brings the Court, then, to the question of whether Mr. DeVane’s survivorship
interests may be attached by plaintiff. The parties agree that only Mr. DeVane’s survivorship
interest may be attached by plaintiff, but Mr. DeVane argues that his survivorship interest
has no market value and should not therefore be subject to attachment at the prejudgment
stage [Doc. 43]. Further, he argues that, even if there is some market value, the request for
attachment is inappropriate at the prejudgment stage [Id.]. Plaintiff counters that defendant
has no authority for this proposition, and cites cases that it allege stand for the proposition
that a creditor may attach a spouse’s survivorship interest [Doc. 43].
The Court finds that it need not address Mr. DeVane’s argument that his survivorship
interest has no market value and thus cannot be attached prejudgment because Tenn. Code
Ann. § 29-6-102 precludes attachment in this case. That section provides: “An attachment
may, in like manner, be sued out upon debts or demands not due, in any of the cases
mentioned in § 29-6-101, except the first; that is, when the debtor or defendant resides out
of the state.” Tenn. Code Ann. § 29-6-102. Because plaintiff relies solely upon the fact that
Mr. DeVane resides out of the state for purposes of his petition for writ of attachment, and
because the debt is not yet due, plaintiff is precluded from seeking attachment. Also,
although plaintiff cites various cases, including Citizens & Southern National Bank v. Auer,
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640 F.2d 837 (6th Cir. 1981), United States v. Goddard, 735 F. Supp. 2d 820 (E.D. Tenn.
2010), Weaver v. Hamrick, 907 S.W.2d 385 (Tenn. 1995, and Weaks v. Gress, 474 S.W.2d
424 (Tenn. 1971), they are distinguishable because they address situations where Tennessee
courts have allowed judgment creditors to attach a spouse’s survivorship interest, and each
creditor had proved the validity of the asserted indebtedness. Again, that is not the case here
as no debt is yet due. Thus, in light of Tenn. Code Ann. § 29-6-102 and the fact that plaintiff
points to no case law to allow it to attach Mr. DeVane’s survivorship interest in the DeVane
Properties even though no debt is yet due, the Court will grant Mr. DeVane’s motion and
deny plaintiff’s petition for writ of attachment.
III.
Analysis of Defendants’ Motion to Dismiss Fraudulent Conveyance Claim and
Motion to Dismiss Defendant Gloria DeVane
A.
Standard of Review
Federal Rule of Civil Procedure 8(a)(2) sets out a liberal pleading standard, Smith v.
City of Salem, 378 F.3d 566, 576 n.1 (6th Cir. 2004), requiring only “‘a short and plain
statement of the claim showing that the pleader is entitled to relief,’ in order to ‘give the
[opposing party] fair notice of what the . . . claim is and the grounds upon which it rests,’”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S.
41, 47 (1957)). Detailed factual allegations are not required, but a party’s “obligation to
provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and
conclusions.” Twombly, 550 U.S. at 555. “[A] formulaic recitation of the elements of a
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cause of action will not do,” nor will “an unadorned, the-defendant-unlawfully-harmed-me
accusation.” Ashcroft v. Iqbal, — U.S. —, —, 129 S. Ct. 1937, 1949 (2009).
In deciding a Rule 12(b)(6) motion to dismiss, a court must construe the complaint in
the light most favorable to the plaintiff, accept all factual allegations as true, draw all
reasonable inferences in favor of the plaintiff, and determine whether the complaint contains
“enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at
570; Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007) (citation omitted). “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.” Iqbal, 129
S. Ct. at 1949 (citation omitted). “Determining whether a complaint states a plausible claim
for relief will [ultimately] . . . be a context-specific task that requires th[is Court] to draw on
its judicial experience and common sense.” Iqbal, 129 S. Ct. at 1950 (citation omitted).
B.
Plaintiff’s Claim for Fraudulent Conveyance Fails to Comport with Rule
9(b)
Plaintiff’s claim for fraudulent conveyance alleges that the DeVanes have filed a
separate action against the Landers in state court, which asserts that the Landers illegally
converted $838,000 to their own use from Hickory Mist [Doc. 1 ¶ 47]. Plaintiff attaches the
complaint in that action to the complaint in this action [Doc. 1, Ex. 5]. Plaintiff asserts that
to the extent any of the defendants transferred assets and funds from Hickory Mist with the
intent to hinder, delay, or defraud plaintiff or other creditors of Hickory Mist or to the extent
any of the defendants fraudulently transferred assets and funds from Hickory Mist without
7
reasonable equivalent consideration in exchange for the transfer, such transfers are fraudulent
conveyances under the TUFTA [Id. ¶¶ 49–51]. Defendants Hickory Mist, James Edward
Devane, Barbara Ann DeVane, and Gloria Salug DeVane argue that plaintiff’s claim fails
to comport with Rule 9(b) of the Federal Rules of Civil Procedure and thus should be
dismissed for failure to state a claim [Docs. 27, 28]
Courts have found that fraudulent conveyance claims brought under TUFTA must
comport with the particularity pleading requirement of Rule 9(b). See United States v. Buaiz,
No. 3:07-CV-83, 2008 U.S. Dist. LEXIS 100393, at *5–6 (E.D. Tenn. Dec. 11, 2008)
(applying Rule 9(b) to the plaintiff’s claim of fraudulent conveyance under TUFTA);
Eastwood v. IRS, No. 2:06-CV-164, 2007 U.S. Dist. LEXIS 71892, at *10–11 (E.D. Tenn.
Sept. 25, 2007) (same). Rule 9(b) requires that all averments of fraud or mistake be pleaded
with particularity. Fed. R. Civ. P. 9(b). In order to comply with the Rule 9(b) requirement,
a plaintiff must “allege the time, place, and content of the alleged misrepresentation on which
he or she relied; the fraudulent scheme; the fraudulent intent of the defendants; and the injury
resulting from the fraud.” Sanderson v. HCA-The Healthcare Co., 447 F.3d 873, 877 (6th
Cir. 2006) (citation and internal quotation marks omitted). Pleading these elements
“ensur[es] that a defendant is provided with at least the minimum degree of detail necessary
to bring a competent defense’ to a claim of fraud.” United States v. Ford Motor Co., 532
F.3d 496, 504 (6th Cir. 2008).
Plaintiff’s allegations fail to include any particularized facts with respect to the who,
the what, the when, the where, and the how regarding the alleged fraudulent conduct. There
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is no allegation regarding the time or place in which the fraudulent representations or
transfers were made. Thus, plaintiff’s allegations fail to satisfy the Rule 9(b) standard.
Moreover, the allegations refer to “the Defendants” in the plural sense without
specifying the particularities of the conduct of each defendant [See Doc. 1 ¶¶ 49–50]. Such
further compels the conclusion that plaintiff’s allegations do not comport with the
requirement of Rule 9(b). See Cricket Commc’ns, Inc. v. Eleiwa & Sons, Inc., No. 2:08-CV02541, 2009 U.S. Dist. LEXIS 104934, at *7 (W.D. Tenn. Nov. 10, 2009) (finding the
complaint, which referred to the defendants in the plural sense, failed to specify the
particularities of the conduct of each defendant and thus failed to afford the requisite notice
under Rule 9).
Plaintiff asserts that its claim satisfies Rule 9(b) because it relies upon the allegations
James Edward DeVane, Gloria DeVane, Samuel James DeVane, and Barbara DeVane made
against the Landers Defendants in a separate lawsuit filed in state court and because it
attached the complaint in that action to its complaint in this action [Doc. 44]. The attached
state-court complaint, however, also fails to contain allegations regarding the time or place
in which any fraudulent representations or transfers were made; thus, it does not help satisfy
the requirement of Rule 9(b). Plaintiff also attaches to its response to the motion to dismiss
the Landers Defendants’ answer and counter-complaint filed in the state-court action [See
Doc. 44-1]. Plaintiff’s reliance on this document, however, is misplaced. See, e.g., Tex.
Water Supply Corp. v. Reconstruction Finance Corp., 204 F.2d 190, 196 (5th Cir. 1953)
(“Rule 10(c), Federal Rules of Civil Procedure, permits reference to pleadings and exhibits
9
in the same case, but there is no rule permitting the adoption of a cross-claim in a separate
action
in
a
different
court
by
mere
reference.”);
Davis
v.
Bifani,
No.
07-CV-00122-MEHBNB, 2007 WL 1216518, at *1 (D. Colo. April 24, 2007) (“[T]he Court
does not believe that it is proper to incorporate by reference wholesale the allegations in a
complaint in a completely separate action, even if that action is between the same parties.
Such a practice violates the requirements of Fed. R. Civ. P. 8(a) requiring a short and plain
statement of the claim.” (citations omitted)); Hall v. Tyco Int’l, Ltd., 223 F.R.D. 219, 261
(M.D.N.C. 2004) (noting that although Federal Rule of Civil Procedure 10(c) allows
incorporation by reference of pleadings in the same action, allegations in pleadings in another
action, even if between the same parties, cannot be incorporated by reference). Further, Rule
11 provides that every pleading must be signed by at least one attorney of record, and the
answer and counter-complaint filed in state court was not signed by plaintiff’s attorney, but
rather the Landers Defendants’ attorney in that action [See Doc. 44-1].
Accordingly, plaintiff’s fraudulent conveyance claim will be dismissed pursuant to
Rule 9(b) and Rule 12(b)(6).
C.
Gloria DeVane Will be Dismissed from this Action
Defendants Hickory Mist, James Edward Devane, Barbara Ann DeVane, and Gloria
Salug DeVane argue that defendant Gloria DeVane should be dismissed from this action
because the complaint states that she was named as a defendant solely due to her ownership
interest in the DeVane Properties and because plaintiff may not attach the DeVane Properties
[Doc. 28]. Plaintiff concedes that Gloria DeVane was named as a party solely due to her
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ownership interest in the DeVane Properties [See Doc. 44]. Thus, in light of the fact that the
Court will grant Mr. DeVane’s motion and deny plaintiff’s petition for writ of attachment,
the Court finds that the complaint fails to state a claim against Gloria DeVane and that she
should be dismissed from this action.1
IV.
Conclusion
For the reasons explained herein, the Court will GRANT James Edward DeVane’s
Motion for Order Denying Plaintiff’s Petition for Writ of Attachment [Doc. 29] and GRANT
Defendants’ Motion to Dismiss Fraudulent Conveyance Claim and Motion to Dismiss
Defendant Gloria DeVane [Doc. 27]. Accordingly, the Court will DISMISS plaintiff’s
petition for writ of attachment, DISMISS plaintiff’s claim for fraudulent conveyance, and
DISMISS defendant Gloria DeVane as a party to this action. An appropriate order will be
entered.
ORDER ACCORDINGLY.
s/ Thomas A. Varlan
UNITED STATES DISTRICT JUDGE
1
For the same reason, the Court declines to address plaintiff’s argument that Gloria DeVane
is a necessary party.
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