Lloyd's Acceptance Corp., et al. v. Carroll Property Management, LLC, et al.

Filing 35

ORDER granting in part and denying in part 21 Motion to Dismiss. Defendants motion is GRANTED as to Plaintiffs Cohen, 21st Century, and Highland Creek. Defendants motion is DENIED as to Plaintiff Lloyds. Signed by Judge Samuel H. Mays, Jr on 6/26/2018. (Mays, Samuel)

IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION

LLOYD’S ACCEPTANCE, CORP.;
BARRY COHEN; 21ST CENTURY
COMMUNITIES, INC.; and
HIGHLAND CREEK ACQUISITION,
LLC,
Plaintiffs,
v.
CARROLL PROPERTY MANAGEMENT,
LLC; HEDIGER ENTERPRISES,
INC.; and CARROLL
ORGANIZATION, LLC,
Defendants.

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No. 2:17-cv-02203-SHM-tmp

ORDER

Before the Court is Defendants Carroll Property Management
LLC (“Carroll Property”), Hediger Enterprises, Inc.
(“Hediger”), and Carroll Organization, LLC’s (“Carroll
Organization”) (collectively, “Defendants”) August 3, 2017
Motion to Dismiss.

(ECF No. 21.)

Plaintiffs Lloyd’s

Acceptance Corp. (“Lloyd’s”), Barry Cohen, 21st Century
Communities, Inc. (“21st Century”), and Highland Creek
Acquisition, LLC (“Highland Creek”) (collectively,
“Plaintiffs”) responded on September 8, 2017.
Defendants replied on September 19, 2017.

(ECF No. 13.)

(ECF No. 28.)

For the following reasons, the Motion to Dismiss is
GRANTED is part and DENIED in part.
I.

Background
Plaintiffs allege that Defendants negligently

misrepresented the existence of mold at the Highland Creek
Apartments located at 1305 Turkey Run Lane in Memphis,
Tennessee (“the Property”) prior to purchase.

(Am. Compl., ECF

No. 13 ¶¶ 9, 29, 31-32.)
On July 10, 2007, MPI Coventry Village, LLC (“MPI
Coventry”), then-owner of the Property, contracted with Miles
Properties, Inc. (“Miles”) for property management services
(the “Management Agreement”).

(Id. ¶ 9.)

In May 2010, Defendant “Carroll Property and/or Carroll
Organization” purchased Defendant Hediger.

(Id. ¶ 10.)

Also

in 2010, Miles filed for bankruptcy protection and sought to
transfer its interest in certain property management contracts,
including the Management Agreement for the Property, to
Hediger.

(Id. ¶¶ 11-12.)

On January 27, 2011, Plaintiff Barry Cohen, in his
capacity as president of Lloyd’s and 21st Century, visited the
Property to consider a potential purchase and is alleged to

2

have been incorrectly informed by Defendants’ employees that
the Property had no mold.

(Id. ¶¶ 13-19.)

On September 27, 2011, Plaintiff Highland Creek purchased
the Property.

(Id. ¶ 22.) 1

Lloyd’s, of which Cohen was

president, loaned Highland Creek the funds to purchase the
Property and held a first mortgage on the Property.

(Id. ¶¶

13, 22.)
On or about November 16, 2011, Lloyd’s foreclosed on the
Property and was the highest bidder at the foreclosure sale.
(Id. ¶ 24.)
Forest Creek Townhomes, LLC (“Forest Creek”) was formed on
November 28, 2011.

(ECF No. 21-7.)

Lloyd’s transferred the

Property to Forest Creek on November 29, 2011.

(Forest Creek

Townhomes, LLC v. Carroll Management Group, LLC et al, No.
2:15-cv-02577-JPM-tmp (W.D. Tenn.) (“Forest Creek”), ECF No. 44
at 621-22 (citing Cohen Aff. ¶ 7).)
Plaintiffs discovered mold on the Property in March 2014.
(Am. Compl., ECF No. 13 ¶ 26.)
On October 22, 2014, Forest Creek filed a complaint in the
Tennessee Chancery Court against “Carroll Management Group,
1

On September 16, 2011, Highland Creek was formed to purchase the
Property. (Forest Creek Townhomes, LLC v. Carroll Management Group, LLC et
al, No. 2:15-cv-02577-JPM-tmp (W.D. Tenn.)(“Forest Creek”), ECF Nos. 36,
44.)

3

LLC, d/b/a Carroll Organization and Carroll Property
Management, LLC” and Hediger.
13.)

(Forest Creek, ECF No. 1-2 at

The complaint sought damages for breach of the Management

Agreement and negligent misrepresentation.

(Id. at 16.)

On

February 5, 2015, Forest Creek amended the complaint, removing
“Carroll Management Group, LLC, d/b/a Carroll Organization”
from the action.

(Id. at 41.)

On September 2, 2015,

Defendants Carroll Property and Hediger filed a notice of
removal in this Court.

(Id., ECF No. 1.)

On September 9, 2015, Defendants Carroll Property and
Hediger filed a Motion for Judgment on the Pleadings.
ECF No. 6.)

(Id.,

They argued that Forest Creek lacked standing to

assert its claim for breach of the Management Agreement and had
failed to plead negligent misrepresentation adequately.

(Id.)

On January 25, 2016, the court found that Forest Creek had
failed to state a claim for negligent misrepresentation.
“[T]he Court cannot reasonably infer that because Defendants
made a statement to one potential purchaser, they intended to
share the statement or had knowledge that the statement would
be shared with all future potential purchasers, ad infinitum,
without further due diligence.”

(Id., ECF No. 36 at 466.)

Forest Creek had not alleged that “Defendants intended to

4

supply or knew that Cohen intended to supply this information
to any class of persons outside of Highland Creek.”

(Id.)

On February 8, 2016, Forest Creek filed a Brief in
Response to Order on Motion for Judgment on the Pleadings and
Request for Permissive Joinder of Additional Parties, seeking
to add Cohen as a co-plaintiff.
opposed.

(Id., ECF No. 37.)

Defendants

(Id., ECF No. 41.)

On May 3, 2016, the Court decided that Cohen could not be
joined to bring a negligent misrepresentation claim, giving two
reasons.

(Id., ECF No. 44 at 638.)

First, the negligent

misrepresentation claim had been dismissed.

(Id.)

Second,

Cohen lacked standing to bring a negligent misrepresentation
claim against Defendants Carroll Property and Hediger.

(Id.)

The Court entered judgment in defendants’ favor the same
day.

(Id., ECF No. 45.)

Forest Creek appealed the dismissal

of its negligent misrepresentation claim and the denial of its
request that Cohen be joined as a co-plaintiff.

(See id., ECF

Nos. 47, 52-53.)
On March 21, 2017, Lloyd’s, Cohen, 21st Century, and
Highland Creek filed this action.

(ECF No. 1.)

The same day

they moved to stay pending the Sixth Circuit’s decision in

5

Forest Creek.

(ECF No. 10.)

stay on March 23, 2017.

The Court granted the motion to

(ECF No. 11.)

On June 13, 2017, the Sixth Circuit affirmed the district
court’s decision in Forest Creek.

(Forest Creek, ECF No. 52.)

The Court of Appeals concluded that the complaint did “not
allege that during Cohen’s 2011 visit he informed Defendants’
representatives how he might be purchasing the Property . . .
[or that] Defendants were aware of Cohen’s connections to
Highland Creek, Lloyd’s, or Forest Creek.”

(Id. at 711.) 2

The

court noted that “Defendants arguably could have foreseen that
any entity controlled by Cohen that ultimately purchased the
Property would rely on Defendants’ statements to Cohen in
making that purchase (even if Defendants could not have known
the name of that entity at the time of their statements because
it did not yet exist).”

(Id.)

On the facts alleged, the court

concluded that Highland Creek was the only foreseeable relying
entity.

(Id. at 711-12.)

The court concluded that Forest

Creek was not a foreseeable relying entity and affirmed the
district court.
The Sixth Circuit also addressed the joinder of Cohen, and
affirmed the district court’s decision that Cohen could not be
joined on a previously dismissed claim.
2

(Id. at 712-13.)

Unless otherwise noted, all in-cite citations to docketed material
refer to the “PageID” number.

6

On June 21, 2017, Plaintiffs filed the amended complaint
in this case.

(Am. Compl., ECF No. 13.)

the case the same day.

The Court reopened

(ECF No. 14.)

On August 8, 2017, Defendants filed the Motion to Dismiss.
(ECF No. 21.)
On October 16, 2017, the Court ordered Plaintiffs to
submit evidence to establish complete diversity between the
parties.

(ECF No. 29.)

October 25, 2017.
II.

Plaintiffs submitted that evidence on

(ECF No. 30.)

Jurisdiction & Choice of Law

A. Jurisdiction
The Court has diversity jurisdiction under 28 U.S.C.
§ 1332.

Plaintiff Lloyd’s is a Nevada corporation with its

principal place of business in Nevada.
¶ 1.)

(Am. Compl., ECF No. 13

Nevada.

Plaintiff Cohen is an adult citizen and resident of
(Id. ¶ 2.)

Plaintiff 21st Century is a Nevada

corporation with its principal place of business in Nevada.
(Id. ¶ 3.)

Plaintiff Highland Creek is a Tennessee limited

liability company, whose sole member resides in Nevada.

(Id. ¶

4.)
Defendant Carroll Property is a Georgia limited liability
company, whose members reside in Georgia and South Carolina.
7

(ECF No. 13 ¶ 5.)

Defendant Hediger is a South Carolina

corporation with its principal place of business in Georgia.
(Id. ¶ 6.)

Defendant Carroll Organization is a Georgia limited

liability company.
Georgia.

(Id. ¶ 7.)

(ECF No. 34-1.)

Its sole member is a citizen of

There is complete diversity.

Cf. 28

U.S.C. § 1332(a)(1).
Plaintiffs allege that the amount in controversy exceeds
$75,000.

(Id. ¶ 33.)

“[T]he sum claimed by the plaintiff

controls if the claim is apparently made in good faith.”

St.

Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288
(1938); see also Mass. Cas. Ins. Co. v. Harmon, 88 F.3d 415,
416 (6th Cir. 1996).

The requirements of diversity

jurisdiction are satisfied.
B. Choice of Law
A motion to dismiss is a matter of federal procedure to
which federal law applies.
The parties’ underlying dispute is a claim for negligent
misrepresentation.
governs.
(1938).

In diversity actions, state substantive law

See, e.g., Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78
A federal court applies the choice-of-law provisions

of the state in which it sits.

Id.; Klaxon Co. v. Stentor

Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Cole v. Mileti, 133
F.3d 433, 437 (6th Cir. 1998) (“It is well-established that
8

federal courts sitting in diversity must apply the choice-oflaw rules of the forum state.”) (citing cases).

For tort

claims, Tennessee follows the “most significant relationship”
rule, which provides that “the law of the state where the
injury occurred will be applied unless some other state has a
more significant relationship to the litigation.”
McKinley, 830 S.W.2d 53, 59 (Tenn. 1992).

Hataway v.

To determine which

state has the “most significant relationship,” Tennessee courts
consider seven principles:
(a)
the
needs
of
international systems,

the

interstate

and

(b) the relevant policies of the forum,
(c) the relevant policies of other interested
states and the relative interests of those
states in the determination of the particular
issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular
field of law,
(f) certainty, predictability, and uniformity of
result, and
(g) ease in the determination and application of
the law to be applied.
Timoshchuk v. Long of Chattanooga Mercedes–Benz, No. E2008–
01562–COA–R3–CV, 2009 WL 3230961, at *10 (Tenn. Ct. App. Oct.
8, 2009) (quoting Restatement (Second) of Conflict of Laws § 6
(1971)).

When applying those principles, courts must consider

four factors: “(a) the place where the injury occurred, (b) the
9

place where the conduct causing the injury occurred, (c) the
domicile, residence, nationality, place of incorporation and
place of business of the parties, [and] (d) the place where the
relationship, if any, between the parties is centered.”

Id. at

*10–11 (quoting Restatement (Second) of Conflict of Laws § 145
(1971)); accord Hataway, 830 S.W.2d at 59.

“[T]hese contacts

are to be evaluated according to their relative importance with
respect to the particular issue.”

Timoshchuk, 2009 WL 3230961,

at *11; accord Hataway, 830 S.W.2d at 59.
Here, Plaintiffs and Defendants appear to agree that
Tennessee law applies to Plaintiffs’ negligent
misrepresentation claim.

(See Def.’s Mem. in Support of Mot.

to Dismiss, ECF No. 21-1 at 110-11 (summarizing Tennessee
negligent misrepresentation elements); Pl.’s Resp., ECF No. 27
at 196 (same).)
Although Plaintiff Highland Creek is the only citizen of
Tennessee, it allegedly suffered harm because of Defendants’
acts in Tennessee.

(ECF No. 13 ¶¶ 4, 19-20.)

Even if the

other Plaintiffs ultimately suffered financial harm in Nevada,
the conduct causing their alleged injuries occurred in
Tennessee.

(Id. ¶¶ 19-20.)

Tennessee has a more significant

relationship to the litigation.

See Hataway, 830 S.W.2d at 59.

No principle weighs against applying Tennessee law.

10

See

Timoshchuk, 2009 WL 3230961, at *10.

Therefore, the Court will

apply Tennessee law to Plaintiffs’ negligent misrepresentation
claim.

See Hataway, 830 S.W.2d at 59; Timoshchuk, 2009 WL

3230961, at *10; see also GBJ Corp. v. E. Ohio Paving Co., 139
F.3d 1080, 1085 (6th Cir. 1998).
The parties also dispute the application of res judicata
and collateral estoppel to Plaintiffs’ claim for negligent
misrepresentation.

A federal court sitting in diversity

applies the choice-of-law rules of the forum state to determine
questions of res judicata and collateral estoppel.

Ventas,

Inc. v. HCP, Inc., 647 F.3d 291, 303 n.4 (6th Cir. 2011)
(citing Taveras v. Taveraz, 477 F.3d 767, 783 (6th Cir. 2007))
(res judicata); JZG Resources, Inc. v. Shelby Ins. Co., 84 F.3d
211, 213–14 (6th Cir. 1996) (collateral estoppel).

The Forest

Creek action for negligent misrepresentation was brought in
Tennessee.

See Forest Creek, No. 2:15-cv-02577 (W.D. Tenn.).

Because Tennessee has the most significant relationship to the
litigation, and because no principle weighs against applying
Tennessee law, the Court will apply Tennessee law in deciding
res judicata and collateral estoppel.
III. Standard of Review
Federal Rule of Civil Procedure 12(b)(6) allows dismissal
of a complaint that “fail[s] to state a claim upon which relief

11

can be granted.”

A Rule 12(b)(6) motion permits the “defendant

to test whether, as a matter of law, the plaintiff is entitled
to legal relief even if everything alleged in the complaint is
true.”

Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir. 1993)

(citing Nishiyama v. Dickson Cnty., 814 F.2d 277, 279 (6th Cir.
1987)).

A motion to dismiss is designed to test whether the

plaintiff has pled a cognizable claim and allows the court to
dismiss meritless cases that would waste judicial resources and
result in unnecessary discovery.

See Scheid v. Fanny Farmer

Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988).
When evaluating a motion to dismiss for failure to state a
claim, the Court must determine whether the complaint alleges
“sufficient factual matter, accepted as true, to ‘state a claim
to relief that is plausible on its face.’”

Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007)).

If a court decides, in light of its

judicial experience and common sense, that the claim is not
plausible, the case may be dismissed at the pleading stage.
Iqbal, 556 U.S. at 679.

The “[f]actual allegations must be

enough to raise a right to relief above [a] speculative level.”
Ass'n of Cleveland Fire Fighters v. City of Cleveland, 502 F.3d
545, 548 (6th Cir. 2007) (quoting Twombly, 550 U.S. at 555).

A

claim is plausible on its face if “the plaintiff pleads factual

12

content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).

A

complaint need not contain detailed factual allegations.
However, a plaintiff's “[t]hreadbare recitals of the elements
of a cause of action, supported by mere conclusory statements,
do not suffice.”

Id.

When deciding a 12(b)(6) motion to

dismiss, the court may look to “matters of public record,
orders, items appearing in the record of the case and exhibits
attached to the complaint” for guidance.

Barany-Snyder v.

Weiner, 539 F.3d 327, 332 (6th Cir. 2008) (quoting Amini v.
Oberlin Coll., 259 F.3d 493, 502 (6th Cir. 2001)).
IV.

Analysis

Defendants move to dismiss Plaintiffs’ claim for negligent
misrepresentation, asserting res judicata and lack of standing.
(See generally ECF No. 21-1.)

Defendants contend that “Cohen

is barred from bringing this lawsuit in his individual
capacity” because in Forest Creek “Cohen was found to lack
standing to bring such a claim in the prior lawsuit and his
lawsuit here is res judicata.”

(Id. at 106-07.)

Defendants

argue that Plaintiffs’ remaining negligent misrepresentation
claims are barred by res judicata because they are in privity
with Cohen.

(Id. at 107-08.)

Alternatively, Defendants argue

13

that Plaintiffs lack standing because they fail to establish
that they suffered an injury.

(Id. at 109-14.)

A. Res Judicata
Defendants argue that Plaintiffs are barred from bringing
a negligent misrepresentation claim under the doctrine of res
judicata.
Tennessee bars under res judicata “all claims
that were actually litigated or could have been
litigated in the first suit between the same
parties.” Am. Nat'l Bank & Trust Co. of Chattanooga
v. Clark, 586 S.W.2d 825, 826 (Tenn. 1979).
Four
elements must be established before res judicata can
be asserted as a defense: (1) the underlying judgment
must have been rendered by a court of competent
jurisdiction; (2) the same parties were involved in
both suits; (3) the same cause of action was involved
in both suits; and (4) the underlying judgment was on
the merits.
Collins v. Greene County Bank, 916
S.W.2d 941, 945 (Tenn. Ct. App. 1995) (citing Lee v.
Hall, 790 S.W.2d 293, 294 (Tenn. Ct. App. 1990)).
Hutcherson v. Lauderdale Cty., Tennessee, 326 F.3d 747, 758
(6th Cir. 2003).
[R]es judicata under Tennessee law extends not
only to parties of a prior action, but also those
with an “identity of interest.”
Tennessee ex. rel.
Cihlar v. Crawford, 39 S.W.3d 172, 180 (Tenn. Ct.
App. 2000); see also Cotton v. Underwood, 223 Tenn.
122, 442 S.W.2d 632, 635 (1969). Privity relates to
the subject matter of the litigation, not simply to
the relationship between the parties themselves.
Cantrell v. Burnett & Henderson Co., 187 Tenn. 552,
216 S.W.2d 307, 309–10 (1948); see also Harris v. St.
Mary's Med. Ctr., 726 S.W.2d 902, 905 (Tenn. 1987).
Establishing this identity of interest for purposes
of applying res judicata will “depend[ ] on the facts
of each case.” Cihlar, 39 S.W.3d at 181.
14

Id. at 759 (6th Cir. 2003); accord Goza v. SunTrust Bank, No.
W201400635COAR3CV, 2015 WL 4481267, at *6 (Tenn. Ct. App. July
22, 2015).
The party raising the defense of res judicata carries the
burden of proving it.

Boyce v. LPP Mortg. Ltd., 435 S.W.3d

758, 768 (Tenn. Ct. App. 2013).
In Tennessee, parties are in privity for purposes of res
judicata if they share the same interest in the subject matter
of a lawsuit.

Cihlar, 39 S.W.3d at 180.

“In other words,

privity requires a person so identified in interest with
another that the person represents the same legal rights.”
C.J.S. Judgments § 1099 (2017).

50

A party fails to meet its

burden of establishing privity if it does not explain how the
parties share an identity of interest or only considers the
parties’ relationship to one another rather than their
relationship to the ligation.

Edwards v. City of Memphis, No.

W200702449COAR3CV, 2009 WL 2226222, at *4 (Tenn. Ct. App. July
27, 2009); Glass v. Suntrust Bank, No. W2013-00404-COA-R3CV,
2013 WL 4855400, at *12 (Tenn. Ct. App. Sept. 11, 2013); Acuity
v. McGhee Eng'g, Inc., 297 S.W.3d 718, 735 (Tenn. Ct. App.
2008)
It is undisputed that Plaintiffs Lloyd’s, Cohen, 21st
Century, and Highland Creek were not named plaintiffs in the
15

previous action between plaintiff Forest Creek and defendants
Carroll Property and Hediger.
Defendants do not explain how Plaintiffs share Forest
Creek’s interest in the subject matter of the prior suit.
Defendants argue that the principal-agent relationship between
Cohen and the other Plaintiffs satisfies the privity
requirement of res judicata.

(ECF No. 21-1 at 108 (citing ABS

Indus., Inc. v. Fifth Third Bank, 333 F. App’x 994, 999 (6th
Cir. 2009)(applying res judicata to Ohio state law claims);
Sanders Confectionery Prod., Inc. v. Heller Fin., Inc., 973
F.2d 474, 481 (6th Cir. 1992)(applying res judicata to federal
law claims)).

That is not the issue in Tennessee.

Plaintiffs

must have the same interest in the subject matter of the
litigation.

Defendants have failed to meet their burden of

establishing privity.

Plaintiffs’ claim is not barred by res

judicata.
B. Collateral Estoppel
Defendants argue that Cohen is barred by res judicata from
bringing a negligent misrepresentation claim because he was
found to lack standing in Forest Creek.

(ECF No. 21-1 at 106.)

Tennessee courts consider standing in this context to be a
question of collateral estoppel.

Cihlar, 39 S.W.3d at 179

(analyzing whether collateral estoppel on question of standing

16

prevented plaintiff from relitigating parentage claim because
an interim statute had afforded plaintiff standing since his
previous litigation).

Defendants’ argument is grounded in

collateral estoppel.
Collateral estoppel is an issue-preclusion doctrine that
promotes finality, conserves judicial resources, and prevents
inconsistent decisions by barring the same parties or their
privies from relitigating in a later proceeding legal or
factual issues that were actually raised and necessarily
determined in an earlier proceeding.

Bowen ex rel. Doe v.

Arnold, 502 S.W.3d 102, 107 (Tenn. 2016).
To prevail on a claim of collateral estoppel, a party must
establish:
(1) that the issue to be precluded is identical to an
issue decided in an earlier proceeding, (2) that the
issue to be precluded was actually raised, litigated,
and decided on the merits in the earlier proceeding,
(3) that the judgment in the earlier proceeding has
become final, (4) that the party against whom
collateral estoppel is asserted was a party or is in
privity with a party to the earlier proceeding, and
(5) that the party against whom collateral estoppel
is asserted had a full and fair opportunity in the
earlier proceeding to contest the issue now sought to
be precluded.
Id. (quoting Mullins v. State, 294 S.W.3d 529, 535 (Tenn.
2009).

In Tennessee, it is not necessary that the party

17

asserting estoppel have been a party to or in privity with the
parties to the original action.

Id. at 115.

In Forest Creek, Cohen sought to join as an additional
plaintiff, arguing that he had standing in his individual
capacity to assert a claim for negligent misrepresentation
against Defendants Carroll Property and Hediger.
Creek, ECF No. 37 at 4.)

(Forest

Carroll Property and Hediger argued

that Cohen could not demonstrate that he suffered any harm
resulting from his reliance on the alleged misrepresentation
because (1) he never owned the Property in his individual
capacity and (2) he was not a member of Highland Creek or
Forest Creek during the relevant time.
4.)

(Id., ECF No. 41 at 3-

The court held “that Cohen would lack standing to assert

this claim . . . [b]ecause Cohen, in his individual capacity,
suffered no harm as a result of the alleged misrepresentation,
[and thus] he could not state a plausible claim of negligent
misrepresentation.”
appealed.

(Id., ECF No. 44 at 638.)

Forest Creek

On appeal, the Sixth Circuit affirmed the district

court’s decision as to Cohen.

The Sixth Circuit found that,

because the negligent misrepresentation claim had been
previously dismissed, the district court properly rejected
Cohen’s attempt to join.

(No. 16-5759.)

not reach the standing issue.

18

The Sixth Circuit did

Cohen’s claim for negligent misrepresentation against
Defendants is barred by collateral estoppel.

His standing to

bring a negligent misrepresentation claim is the issue decided
in Forest Creek.

His standing was raised in that action, the

parties litigated the issue, and the district court decided
that Cohen lacked standing.

The district court entered a

judgment on the merits that was affirmed by the Sixth Circuit.
Cohen had a full and fair opportunity to contest standing.

He

made arguments to the district court and challenged the
district court’s finding on appeal.

The Sixth Circuit’s

decision to affirm on grounds unrelated to Cohen’s standing
does not depreciate the district court’s holding on the merits
or the finality of its judgment in Forest Creek.
elements of collateral estoppel is satisfied.

Each of the

Cohen is

precluded from bringing a negligent misrepresentation claim
against Defendants under the doctrine of collateral estoppel.
C. Standing
Defendants argue that Plaintiffs Cohen, 21st Century,
Highland Creek, and Lloyd’s lack standing to bring a negligent
misrepresentation claim.

(ECF No. 21-1 at 109-14.)

Article III of the Constitution limits the jurisdiction of
federal courts to “cases and controversies.”
3, § 2.

U.S. Const. art.

“[T]he core component of standing is an essential and

19

unchanging part of the case-or-controversy requirement of
Article III.”
560 (1992).
standing.
(2009).

Lujan v. Defenders of Wildlife, 504 U.S. 555,
The plaintiff bears the burden of establishing

Summers v. Earth Island Inst., 555 U.S. 488, 493
To establish standing a “plaintiff must have (1)

suffered an injury in fact, (2) that is fairly traceable to the
challenged conduct of the defendant, and (3) that is likely to
be redressed by a favorable judicial decision.”

Spokeo, Inc.

v. Robins, 136 S. Ct. 1540, 1547 (2016) (citing Lujan, 504 U.S.
at 560).

An injury in fact must be both “concrete” and

“particularized.”

Id.

“A ‘concrete’ injury must be ‘de

facto’; that is, it must actually exist.”
Law Dictionary 479 (9th ed. 2009)).

Id. (citing Black's

“For an injury to be

‘particularized,’ it ‘must affect the plaintiff in a personal
and individual way.’”

Id. (quoting Lujan, 504 U.S. at 560).

Plaintiffs Cohen, 21st Century, and Highland Creek lack
standing because they fail to allege a concrete and
particularized injury that is fairly traceable to Defendants’
misrepresentation.
The Amended Complaint alleges that “Plaintiffs have
sustained damages as a result of their reasonable reliance on
false, misleading and otherwise incorrect information provided
by Defendants in an amount to be proven at trial, but in no

20

event less than the sum of $750,000.00.”

(ECF No. 13 ¶ 33.)

The Amended Complaint does not explain how 21st Century or
Cohen incurred any monetary injury.

The Amended Complaint also

does not allege any causal connection between Cohen and 21st
Century’s alleged monetary injury and Defendants’ alleged
misconduct.

The Amended Complaint does not allege that Cohen

or 21st Century purchased the property or had any ownership
rights.

Because the Amended Complaint does not allege that

Cohen or 21st Century suffered a concrete and particularized
injury and because there is no causal connection between Cohen
and 21st Century’s alleged injury and Defendants’ alleged
misconduct, Cohen and 21st Century lack standing.
The Amended Complaint alleges that “Highland Creek
purchased the Property,” but did not use its own funds.
No. 13 ¶ 22.)

(ECF

Rather, Lloyd’s “loan[ed] Highland Creek the

funds necessary to purchase the Property.”

(Id.)

Before the

mold was discovered, Lloyd’s conducted a foreclosure sale at
which Lloyd’s “was the highest and best bidder. . . .”
24.)

(Id. ¶

The Amended Complaint does not allege that Highland Creek

recovered title or ownership of the property.

The Amended

Complaint does not allege that Highland Creek attempted to pay
back its loan or that it defaulted on its loan.

The Amended

Complaint does not allege that the foreclosure sale was related

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to the mold.

Rather, the Amended Complaint alleges that, “in

order to obtain clear title to the Property, Lloyd’s declared a
default and conducted a foreclosure sale . . . [and] was the
highest and best bidder. . . .”

(Id. ¶ 24.)

Highland Creek

does not appear to have sustained any monetary loss.

Without

alleging a monetary loss or a causal connection between any
loss and a misrepresentation, the Amended Complaint fails to
state that Highland Creek suffered a concrete and
particularized injury.
Lloyd’s does allege a concrete and particularized injury
that is fairly traceable to Defendants’ misrepresentations. 3
Lloyd’s is alleged to have relied on Defendants’
misrepresentations and loaned Highland Creek money to purchase
the Property.

(Id. ¶¶ 21-22.) 4

That injury is sufficiently

concrete and particularized.
The only Plaintiff with standing is Lloyd’s.

Defendants’

motion is GRANTED as to Plaintiffs Cohen, 21st Century, and
Highland Creek.

Defendants’ motion is DENIED as to Plaintiff

Lloyd’s.

3

In the context of negligent misrepresentations, Tennessee courts
recognize pecuniary loss that includes the difference between the value of
the transaction and the purchase price. Valmet-Enerdry v. Alcoa Steel
Fabricators, Inc., No. 03A01-9412-CH-00436, 1995 WL 329126, at *5 (Tenn.
Ct. App. May 31, 1995) (citing Restatement (Second) of Torts, § 552B(1)).
4
Defendants do not dispute that they could reasonably foresee Lloyd’s
would rely on the information.

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V.

Conclusion
For the foregoing reasons, Defendants’ motion to dismiss

is GRANTED in part and DENIED in part.

So ordered this 26th day of June, 2018.
/s/ Samuel H. Mays, Jr.
SAMUEL H. MAYS, JR.
UNITED STATES DISTRICT COURT JUDGE

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