Hamilton, et al v. Car Credit, Inc., et al

Filing 23

MEMORANDUM OPINION OF THE COURT. Signed by District Judge Todd J. Campbell on 12/3/14. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(afs)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
MICHAEL HAMILTON and
JUANITA HAMILTON
v.
CAR CREDIT, INC., et al.

)
)
) NO. 3-14-1542
) JUDGE CAMPBELL
)
)

MEMORANDUM
Pending before the Court is Defendants’ Motion to Dismiss First Amended Complaint (Docket
No. 18). For the reasons stated herein, Defendants’ Motion to Dismiss is GRANTED. Plaintiffs’
federal claim is dismissed with prejudice, and Plaintiffs’ state law claims are dismissed without
prejudice.
FACTS
This action arises from Plaintiffs’ May 22, 2013 purchase of a truck from Defendant Car
Credit, which is owned and operated by Defendants Tracy and Catherine McMurtry. Plaintiffs allege
that Defendants fraudulently misrepresented on the Sales Contract between Plaintiffs and Defendants
that Plaintiffs had paid $3,000.00 cash in a down payment for the vehicle when, in fact, Plaintiffs and
Defendants had an oral agreement that Plaintiffs would endorse over to Defendants two checks from
their insurance company (totaling $3,000.00) for the down payment. Plaintiffs aver that Defendants
fraudulently misrepresented to Plaintiffs that they could pay the down payment in this manner and, if
they did, they could keep their truck.
Plaintiffs further contend that Defendants thereafter assigned Plaintiffs’ debt to Pinnacle Bank
without notice to Plaintiffs. Plaintiffs assert that Defendants did not tell them that their oral agreement
about the down payment could have any effect on the original debt. Plaintiffs allege that they made
what they thought was a regular monthly payment to Defendants on or about June 22, 2013. Plaintiffs

claim that, at the time, Defendants fraudulently told them that this payment was a regular monthly
payment on the debt, when Defendants actually applied the payment to the “side debt” for the down
payment. Two days later, Plaintiffs received a statement from Pinnacle Bank, setting payment dates
for the original debt which Defendants had sold to Pinnacle. Plaintiffs assert that they then made a
timely payment to Pinnacle.
The First Amended Complaint alleges that on July 25, 2013, Plaintiffs began receiving phone
calls from Defendants demanding the payment which they had already made to Pinnacle. Moreover,
Defendants threatened to repossess the truck unless the down payment was paid in full in three days.
Plaintiffs contacted Pinnacle, which advised them that their account was in good standing and not in
arrears. On July 28, 2013, Plaintiffs found that their truck was missing and reported the theft to the
Nashville police. In fact, the truck had been repossessed by Defendants. Plaintiffs again called
Pinnacle Bank and were told that their account was in good standing.
Within a few days, Plaintiffs received another billing statement from Pinnacle and were
advised by Pinnacle that the payoff amount on the loan was $13,758.00. Soon thereafter, an employee
of Pinnacle telephoned Plaintiffs and told them the payoff amount on the truck was $15,938.00 and
Pinnacle no longer owned the debt. Later in August 2013, Defendants advised Plaintiffs that the
payoff amount was $22,367.00, and that failure to pay that amount would result in the sale of the truck.
In fact, the August 12th date set for sale of the truck had already passed.
Plaintiffs argue that they made their installment payments on time to the entity they were told
held their loan. Plaintiffs also aver that Defendants repossessed the truck based upon an oral
agreement, with which Plaintiffs had complied, concerning the down payment. Plaintiffs claim that
Defendants had no right to repossess the truck because Defendants held no lien.

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Plaintiffs contend that Defendants’ fraudulent misrepresentations to them resulted in the truck’s
being wrongfully repossessed and sold and resulted in Plaintiffs’ loss of a portion of the down payment
and the regular monthly payments made. Plaintiffs claim they reasonably relied upon Defendants’
misrepresentations that if they paid their monthly payments on time and to the proper party, they would
continue to possess their truck. Plaintiffs say they also reasonably relied upon Defendants’
misrepresentations that the side debt down payment would not effect their ability to retain their truck
if they made timely payments.
Plaintiffs also assert that Defendants, for several years, had operated a criminal enterprise
predicated on similar fraudulent and unlawful financing schemes, taking an interest in the customers’
initial down payments through oral “side debts” and immediately selling the underlying debts to a third
party who eventually sold the debts back to Defendants. Plaintiffs allege that Defendants induced
purchasers to enter into these fraudulent transactions, expressly intending to make it impossible for the
purchaser/debtor to make his payments by offering to accept contracts as cash down payments.
Plaintiffs claim that the scheme involved Defendants’ “staying ahead” of the purchaser’s good faith
payments on the side and underlying debts, thus creating a deficiency.
The First Amended Complaint asserts claims under the Racketeer Influenced and Corrupt
Organizations Act (“RICO”) and the Tennessee Consumer Protection Act and also alleges state law
claims for common law fraud. Defendants have moved to dismiss Plaintiffs’ First Amended Complaint
for failure to state a claim.
MOTIONS TO DISMISS
For purposes of a motion to dismiss, the Court must take all of the factual allegations in the
complaint as true. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). To survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is

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plausible on its face. Id. 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. Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice. Id. When there are well-pleaded factual allegations, a court should assume
their veracity and then determine whether they plausibly give rise to an entitlement to relief. Id. at
1950. A legal conclusion couched as a factual allegation need not be accepted as true on a motion to
dismiss, nor are recitations of the elements of a cause of action sufficient. Fritz v. Charter Township
of Comstock, 592 F.3d 718, 722 (6th Cir. 2010).
Fed. R. Civ. P. 9(b) requires that a party alleging fraud must state with particularity the
circumstances constituting fraud. Fed. R. Civ. P. 9(b) adds additional pleading requirements for
allegations of fraud, but it should not be read to defeat the general policy of simplicity and flexibility
in pleadings contemplated by the Federal Rules. U.S. ex rel. SNAPP, Inc. v. Ford Motor Co., 532 F.3d
496, 503 (6th Cir. 2008). The principal purpose of Rule 9(b) is to ensure that the complaint provides
the minimum degree of detail necessary to begin a competent defense. McCarthy v. Ameritech Pub.,
Inc., 763 F.3d 469, 478, n. 2 (6th Cir. 2014).
CIVIL RICO
The Civil RICO statute provides that it shall be unlawful for any person employed by or
associated with any enterprise engaged in, or the activities of which affect, interstate or foreign
commerce, to conduct or participate, directly or indirectly, in the conduct of such an enterprise’s affairs
through a pattern of racketeering activity. 18 U.S.C. § 1962(c). A violation of this statute requires (1)
conduct (2) of an enterprise1 (3) through a pattern (4) of racketeering activity. Phelps v. MacConnell,

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An “enterprise” includes any individual, partnership, corporation, association, or
other legal entity and any union or group of individuals associated in fact although not a legal
entity. 18 U.S.C. § 1961(4). Plaintiffs have alleged conduct by Car Credit, Inc., Tracy McMurtry,

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2014 WL 3809806 at * 5 (S.D. Ohio Aug. 1, 2014); Heinrich v. Waiting Angels Adoption Servs., Inc.,
668 F.3d 393, 404 (6th Cir. 2012).
Defendants argue that Plaintiffs have not sufficiently alleged the illegal conduct (fraud) by the
Defendants. To plead fraud with particularity, the complaint must allege (1) the time, place and
content of the alleged misrepresentation(s); (2) the fraudulent scheme; (3) the defendant’s fraudulent
intent; and (4) the resulting injury. U.S. ex rel. Kreipke v. Wayne State University, 2014 WL 6085704
at * 3 (E.D. Mich. Nov. 13, 2014). Although fraud may be pled on information and belief when the
facts relating to the alleged fraud are peculiarly within the perpetrator’s knowledge, a plaintiff must
still set forth the factual basis for his belief. Id.; U.S. ex rel. Bledsoe v. Community Health Systems,
Inc., 501 F.3d 493, 512 (6th Cir. 2007).
Defendant contends that the First Amended Complaint does not properly allege a single
fraudulent statement made by Defendants. Docket No.18-1, p. 2. The Court disagrees. For example,
Plaintiffs allege that Defendants fraudulently listed the $3,000 down payment as a cash payment on
the Sales Contract/Note. Plaintiffs allege that Defendants fraudulently represented to Plaintiffs that
they could pay the down payment by endorsing over their two insurance checks to Defendants.
Plaintiffs allege fraud by omission in that Defendants never told Plaintiffs that the side debt for the
down payment had any effect on the underlying debt/note. Plaintiffs’ First Amended Complaint
alleges that Defendants fraudulently represented to Plaintiffs that their first payment of $427.44 to
Defendants was a regular monthly payment on the note when, in reality, Defendants applied the
payment to the side debt.

and Catherine McMurtry. Defendants do not contend that Plaintiff has failed to demonstrate an
enterprise.

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Plaintiffs have asserted that despite their timely payments to Pinnacle Bank, Defendants
fraudulently began to demand payment even when the account was current and in good standing.
Plaintiffs claim that Defendants illegally repossessed the truck when Plaintiffs’ account was current
and in good standing. Plaintiffs aver that Defendants gave them inconsistent payoff amounts and failed
to give advance notice of the sale of the truck.
The Court finds that Plaintiffs have sufficiently pled their allegations of fraud against
Defendants in connection with Plaintiffs’ purchase of and payments for the subject truck.
Defendants argue that Plaintiffs cannot show a pattern of racketeering activity. A “pattern of
racketeering activity” requires at least two acts of racketeering activity within ten years of each other.
18 U.S.C. § 1961(5); Hooker v. Hooker, 2014 WL 2433985 at * 7 (W.D. Tenn. May 28, 2014) (citing
H.J. Inc. v. NW Bell Tel. Co., 492 U.S. 229, 237-39 (1989)). A plaintiff must show that the
racketeering acts are related and that they amount to or pose a threat of continued criminal activity.
Id.2
Here, Plaintiffs allege sufficient facts to set forth their own individual claim for fraud, but they
do not set forth sufficient factual allegations to show a pattern of racketeering activity. Plaintiffs’
situation alone does not constitute a pattern. Plaintiffs allege that, starting in the 2000s, Defendants
began to form a criminal enterprise and take certain actions in furtherance of racketeering activity.
Plaintiffs do not, however, identify one specific act involving a party other than Plaintiffs actually
taken by Defendants in furtherance of this criminal activity. Paragraphs 4.1 through 4.4 of Plaintiffs’
First Amended Complaint assert that Defendants took certain actions, but no individual persons, loans,
agreements, down payments, defaults or misrepresentations are identified. For example, Plaintiffs

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A plaintiff may satisfy the relationship requirement if the predicate acts alleged
have the same or similar purposes, results, participants, interrelated by distinguishing
characteristics and are not isolated events. Vild v. Visconsi, 956 F.2d 560, 566 (6th Cir. 1992).

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allege that Defendant’s racketeering activity was comprised of a series of interlocking unnamed
business entities and that prospective unnamed purchasers were induced to purchase and finance their
vehicles with Defendants.
Plaintiffs assert, in the First Amended Complaint, that the facts set forth in paragraphs 4.1
through 4.4 are based upon information currently available to the Plaintiffs, but the pertinent
documents, exact dates, times of illegal transactions, and names of unknown entities are in the
exclusive knowledge and control of Defendants. Plaintiffs contend that these facts cannot be
discovered without the aid of the discovery process set forth in the Federal Rules of Civil Procedure.
Plaintiffs claim that because the pending Motion is a Motion to Dismiss, the Court must accept the
above factual “caveat” as true and consider Plaintiffs’ need for discovery in the context of the pending
Motion to Dismiss.
In setting new standards for assessing the adequacy of pleadings, the Supreme Court held, in
Ashcroft v. Iqbal, 556 U.S. 662 (2009) and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007),
that where a complaint pleads facts that are merely consistent with a defendant’s liability, it stops short
of the line between possibility and plausibility of entitlement to relief. Twombly at 557; Iqbal at 678.
The Court stated that Fed. R. Civ. P. 8 does not unlock the doors of discovery for a plaintiff armed
with nothing more than conclusions. Id. Moreover, the Court stated that it is no answer to say that a
claim just shy of a plausible entitlement to relief can, if groundless, be weeded out early in the
discovery process. Twombly at 559. A plaintiff is required to plead enough factual matter to raise a
plausible inference of wrongdoing. 16630 Southfield Ltd. v. Flagstar Bank, F.S.B., 727 F.3d 502, 504
(6th Cir. 2013).
The Sixth Circuit has noted that by foreclosing discovery to obtain information, the combined
effect of Twombly and Iqbal requires a plaintiff to have greater knowledge of factual details in order

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to draft a “plausible” complaint. New Albany Tractor, Inc. v. Louisville Tractor, Inc., 650 F.3d 1046,
1051 (6th Cir. 2011). Complaints in which the plaintiff has failed to plead enough factual detail to state
a claim that is plausible on its face may be dismissed for failure to state a claim. Id. The Court may
not accept conclusory legal allegations that do not include specific facts necessary to establish the
cause of action. Girl Scouts of Middle Tennessee, Inc. v. Girl Scouts of the U.S.A., 770 F.3d 414, 418
(6th Cir. 2014).
The First Amended Complaint alleges facts that, if true, could be consistent with a pattern of
racketeering activity by Defendants; but those allegations are not well-pleaded in that they include no
factual specifics. Basically, Plaintiffs argue that Defendants defrauded Plaintiffs and that Defendants
have defrauded people this way for several years. The Supreme Court has held that the Federal Rules
do not require courts to credit a complaint’s conclusory statements without reference to its factual
content. Iqbal at 686. Plaintiffs’ obligation to provide the grounds of their entitlement to relief requires
more than labels and conclusions or a formulaic recitation of the elements of the cause of action.
League of United Latin American Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007). The factual
allegations, assumed to be true, must do more than create speculation or suspicion of a legally
cognizable cause of action; they must show entitlement to relief. Id.
The Court finds that Plaintiffs have failed to state a plausible claim of a pattern of racketeering
activity.3 The Court also finds that Plaintiffs’ reliance on their need for discovery in order to establish
such a pattern is of no avail, given the holdings in Twombly and Iqbal.

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In addition, to establish a pattern of racketeering activity, Plaintiffs must show that
the alleged related racketeering acts amount to or pose a threat of continued criminal activity.
Hooker at * 7. The continuity of relationship required is not a continuity of relationship by and
between the Defendants, as Plaintiffs suggest. The continuity required is continuity of racketeering
activity or its threat. H.J. Inc, 492 U.S. at 241. Plaintiffs have not adequately alleged facts which
state a plausible claim for the threat of continued racketeering activity by Defendants.

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Because Plaintiffs have not sufficiently stated a claim for violation of the RICO statute,
Defendants’ Motion to Dismiss that claim is granted, and Plaintiffs’ civil RICO claim is dismissed with
prejudice.
STATE LAW CLAIMS
Having dismissed Plaintiffs’ federal claim, the Court declines to exercise supplemental
jurisdiction over Plaintiffs’ state law claims. 28 U.S.C. § 1367(c). The state law claims are dismissed
without prejudice.
CONCLUSION
For these reasons, Defendants’ Motion to Dismiss (Docket No. 18) is GRANTED. Plaintiffs’
federal claim is DISMISSED with prejudice, and Plaintiffs’ state law claims are DISMISSED without
prejudice.
IT IS SO ORDERED.

___________________________________
TODD J. CAMPBELL
UNITED STATES DISTRICT JUDGE

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