Bailey v. Memphis Bonding Company, Incorporated et al
Filing
51
ORDER granting in part and denying in part 25 Motion to Dismiss for Failure to State a Claim. Signed by Judge Samuel H. Mays, Jr on 03/21/2019.
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION
ROBERT BAILEY,
Plaintiff,
v.
MEMPHIS BONDING COMPANY,
INC.; GEORGE A. HITT; TRACY
VAN PITTMAN; and JOHN DOE (a
fictitious party),
Defendants.
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No. 18-2115
ORDER
Before the Court is Defendants Memphis Bonding Company,
Inc. (“Memphis Bonding”), George A. Hitt, Tracy Van Pittman,
Melody Martin, and Brooks McGowan’s July 23, 2018 Motion to
Dismiss for Failure to State a Claim. 1
(ECF No. 25.)
Plaintiff
Robert Bailey responded on September 27, 2018.
(ECF Nos. 28,
28-1.)
(ECF No. 44.)
1
Defendants replied on February 25, 2019.
Defendants bring this Motion to Dismiss on behalf of Melody Martin and
Brooks McGowan. Martin and McGowan are not named as defendants in the caption
of the Amended Complaint, there are no allegations against them in the Amended
Complaint, and they do not appear on the Court’s docket. The parties do not
mention Martin or McGowan in their respective memoranda. Martin and McGowan
are not parties to this action.
For the following reasons, Defendants’ Motion to Dismiss is
GRANTED in part and DENIED in part.
I.
Background
For purposes of the Motion to Dismiss, the facts are taken
from the Amended Complaint.
Memphis Bonding is a bail bonding company operating in the
Memphis, Tennessee area.
(See ECF No. 22 ¶ 2.)
Defendant Hitt
is the president and sole shareholder of Memphis Bonding.
¶ 3.)
(Id.
On or around September 18, 2015, Bailey went to Memphis
Bonding’s office to obtain a bail bond to secure the pretrial
release of his brother, Lee Johnson.
(Id. ¶ 10.)
Johnson had
been arrested, and the presiding court had set his bail at
$75,000.
(Id. ¶ 9.)
Bailey met with Defendant John Doe, a bonding agent working
for Memphis Bonding.
(Id. ¶ 10.)
Bailey explained that he was
there to arrange for the release for his brother, but that “he
was not going to pay any money out of his pocket or agree to pay
any money in the future.”
(Id.)
Bailey said the only agreement
that he would make was to pledge his house as security to
guarantee Johnson’s appearance in court.
he understood and agreed.
(Id.)
(Id.)
Doe said that
Doe presented Bailey with a
document for his signature and told Bailey that Memphis Bonding
would release its security interest in Bailey’s house if Johnson
appeared in court.
(Id.)
Doe was the only person present to
2
witness Bailey signing the document.
(Id.)
After signing, but
without receiving a copy of what he had signed, Bailey left.
(Id.)
Bailey’s entire visit to Memphis Bonding lasted about
five minutes.
(Id. ¶ 11.)
Bailey alleges that the paperwork he
signed did not match his agreement with Doe.
42.)
(Id. ¶ 23, 38,
Bailey represents that the paperwork obligated him to pay
Memphis Bonding the unpaid portion of the bond premium whether
his brother appeared in court or not.
(Id. ¶ 13, 14, 38.)
On October 1, 2015, Memphis Bonding filed a deed of trust
(the “Deed of Trust”) with the Shelby County Register’s Office,
which recorded the deed.
(Id. ¶ 11.)
The Deed of Trust arrived
by United States Mail with a check from Memphis Bonding to cover
the filing fee.
(Id.)
The Deed of Trust is a preprinted form
with blanks that were filled in with the date September 18, 2015,
the name of Robert Bailey as the “first part,” Memphis Bonding
Company as the “Trustee” and Grantee, the property description
of Bailey’s house, and a description of indebtedness to Memphis
Bonding in the sum of $75,000.00 “as . . . Collateral for Lee
Johnson.”
(Id.; Deed of Trust, ECF No. 22-1.)
On the second
page, Bailey’s purported signature appears. (Id.) The signature
of a notary appears twice along with the notary seal of Defendant
Pittman.
(Id.)
Johnson
forfeited.
Bailey denies signing the Deed of Trust.
appeared
(Id. ¶ 12.)
in
court,
and
the
bail
bond
(Id.)
was
not
Bailey learned in 2018, however, that
3
the Deed of Trust remained a $75,000 encumbrance on his house.
(Id.)
After learning of the encumbrance, Bailey went to Memphis
Bonding’s
office
to
ask
about
outstanding indebtedness.
the
Deed
(Id. ¶ 13.)
of
Trust
and
any
An employee told Bailey
that he continued to owe approximately $5,500 to Memphis Bonding.
(Id.)
On February 21, 2018, Bailey filed a complaint against
Defendants.
the
(ECF No. 1.)
Racketeering
Bailey alleges civil violations of
Influenced
and
Corrupt
Organizations
Act
(“RICO”), the Truth-in-Lending Act (the “TILA”), and various
state laws.
(ECF No. 22 ¶¶ 17–53.)
Amended Complaint on June 25, 2018.
Bailey filed his First
(ECF No. 22.)
filed their Motion to Dismiss on July 23, 2018.
Defendants
(ECF No. 25.)
On January 18, 2019, the Court consolidated this case with
Sharp
v. Memphis
Bonding
Co.,
Inc.,
No.
18-2143,
and
Ray
v. Memphis Bonding Co., Inc., No. 18-2144, for all purposes.
(Min. Entry, ECF No. 42.)
II.
Jurisdiction & Choice of Law
The Court has federal-question jurisdiction.
U.S.C.
§ 1331,
jurisdiction
United
“of
all
States
district
civil
actions
courts
Under 28
have
arising
original
under
Constitution, laws, or treaties of the United States.”
the
Bailey
alleges that Defendants’ conduct constitutes a civil violation
of RICO, 18 U.S.C. §§ 1961, et seq., and the TILA, 15 U.S.C.
4
§§ 1601, et seq.
(See ECF No. 22 ¶¶ 17–29, 30—34.)
arise under the laws of the United States.
Those claims
See 28 U.S.C. § 1331;
see also 18 U.S.C. § 1964(d) (“Any person injured in his business
or property by reason of a violation of section 1962 of this
chapter
may
sue
therefor
in
any
appropriate
United
States
district court . . . .”); Advocacy Org. for Patients & Providers
v. Auto Club Ins. Ass’n, 176 F.3d 315, 318 (6th Cir. 1999)
(noting that RICO claims provide basis for federal-question
jurisdiction).
The
Court
has
state-law claims.
supplemental
jurisdiction
See 28 U.S.C. § 1367(a).
over
Bailey’s
Those claims derive
from a “common nucleus of operative fact” with Bailey’s federal
claims against Defendants.
United Mine Workers of Am. v. Gibbs,
383 U.S. 715, 725 (1966); Soehnlen v. Fleet Owners Ins. Fund,
844 F.3d 576, 588 (6th Cir. 2016); see also 28 U.S.C. § 1367(a).
State substantive law applies to state-law claims brought
in federal court.
(1938).
See Erie R.R. Co. v. Tompkins, 304 U.S. 64
Where, as here, there is no dispute that a certain
state’s substantive law applies, the court will not conduct a
choice-of-law analysis sua sponte.
See GBJ Corp. v. E. Ohio
Paving Co., 139 F.3d 1080, 1085 (6th Cir. 1998).
The parties
assume in their respective motions and memoranda that Tennessee
substantive law applies to Bailey’s state-law claims and ground
5
their arguments accordingly.
The Court will apply Tennessee
substantive law to Bailey’s state-law claims.
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
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 Cty., 814 F.2d 277, 279 (6th Cir. 1987)).
A motion to dismiss tests only 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 Brown v. City of Memphis, 440 F. Supp. 2d 868,
872 (W.D. Tenn. 2006).
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
6
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 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.”
IV.
Id.
Analysis
A. RICO Claims
Bailey alleges that Defendants engaged in a pattern of
racketeering activity to fraudulently obtain title to their
customers’ real property.
(ECF No. 22 ¶ 22.)
Bailey alleges
Defendants falsely represented that the deeds of trust customers
gave to Memphis Bonding as collateral would be released when the
criminal charges against the bond’s principal were resolved.
(See
id.)
Bailey
representations
to
represents
induce
partially filled in forms.
that
customers
(See id.)
Defendants
to
sign
made
blank
or
false
only
Defendants later used
those forms to create deeds of trust on the customers’ property
naming Memphis Bonding or Defendant Hitt as grantee.
7
(See id.)
Those deeds were falsely notarized by Defendant Pittman who did
not witness customers signing the deeds.
(See id.)
Defendants
then filed the deeds of trust in Tennessee and Mississippi by
sending them through the mail.
(Id. ¶ 15, 21.)
“RICO” is the acronym for the Racketeer Influenced and
Corrupt Organizations Act, 18 U.S.C. §§ 1961-68.
RICO provides
a private right of action to any person “injured in his business
or property by reason of” a RICO violation.
Id. § 1964(c).
Congress included a civil cause of action to “prevent organized
crime from obtaining a foothold in legitimate business.”
In re
ClassicStar Mare Lease Litig., 727 F.3d 473, 483 (6th Cir. 2013)
(internal quotations omitted). In pertinent part, RICO prohibits
the following conduct:
•
Section 1962(b) prohibits a person from using a
pattern
of
racketeering
activity,
or
the
collection of an unlawful debt, to acquire or
maintain control over an enterprise.
See 18
U.S.C. § 1962(b).
•
Section
1962(c)
prohibits
a
person
from
conducting the affairs of an enterprise through
a pattern of racketeering, or the collection of
an unlawful debt. See 18 U.S.C. § 1962(c).
•
Section
1962(d)
prohibits
a
person
from
conspiring to violate Sections 1962(b) or (c).
See 18 U.S.C. § 1962(d).
Bailey
brings
subsections. 2
2
claims
against
Defendants
under
these
(See ECF No. 22 ¶¶ 22, 25, 26.)
Bailey does not bring a claim under 18 U.S.C. § 1962(a).
8
three
Five elements are common to all RICO violations: (1) the
commission of at least two predicate RICO offenses; (2) the
predicate offenses formed a “pattern of racketeering activity”;
(3) the existence of an “enterprise” as defined under RICO; (4)
a connection between the pattern of racketeering activity and
the
enterprise;
violation.
and
18
(5)
U.S.C.
damages
§
resulting
1962(a)-(c);
from
see
the
RICO
VanDenBroeck
v. CommonPoint Mortg. Co., 210 F.3d 696, 699 (6th Cir. 2000)
abrogated on other grounds by Bridge v. Phx. Bond & Indem. Co.,
553 U.S. 639 (2008).
A plaintiff showing the collection of an
unlawful debt, however, need not otherwise establish a “pattern
of racketeering activity.”
Defendants
argue
that
See 18 U.S.C. § 1962.
Bailey’s
RICO
claims
should
be
dismissed for four reasons: (1) Bailey fails to plead plausibly
that RICO “persons” distinct from the alleged RICO “enterprise”
engaged in unlawful activity; (2) Bailey fails to allege two or
more
predicate
offenses;
(3)
Bailey
fails
to
allege
a
“conspiracy”; and (4) Bailey fails to allege the existence of a
RICO
enterprise
racketeering.”
separate
“from
the
alleged
pattern
of
(ECF No. 25-1 at 101—03, 103—04, 104–05, 105—
06.)
1. Distinctness
To succeed, Bailey must show the existence of two distinct
entities: (1) a RICO “enterprise”; and (2) a RICO “person” who
9
used or conspired to use the enterprise to violate RICO.
See
Fleischhauer v. Feltner, 879 F.2d 1290, 1297 (6th Cir. 1989).
Section 1961(3) defines a “person” as an “entity capable of
holding a legal or beneficial interest in property.”
§ 1961(3).
Section
1961(4)
defines
an
18 U.S.C.
enterprise
as
“any
individual, partnership, corporation, association or other legal
entity, and any union or group of individuals associated in fact
although not a legal entity.”
Bailey
alleges
that
18 U.S.C. § 1961(4).
Defendants
Memphis
Bonding,
Hitt,
Pittman, and Doe are RICO “persons,” and that Memphis Bonding is
the RICO “enterprise.”
(ECF No. 22 at ¶¶ 19–20.)
Defendants
argue that Bailey fails to allege adequately the existence of
RICO persons distinct from the RICO enterprise.
(See ECF No.
25-1
the
at
101—03.)
Defendants
contend
that
alleged
relationship between Defendants and Memphis Bonding is a routine
business relationship, which is insufficient to create RICO
liability.
(See id.)
To state a valid RICO claim, the RICO person and the RICO
enterprise must be separate and distinct entities, “since only
‘persons’ can be held liable for RICO violations, while the
‘enterprise’ itself is not liable.” In re ClassicStar Mare Lease
Litig., No. 5:07-cv-353-JMH, 2019 WL 289070, at *3 (E.D. Ky.
Jan. 18, 2019).
To satisfy the “distinctness” requirement,
Bailey must allege facts suggesting that the enterprise is not
10
the same person referred to by a different name.
Cedric Kushner
Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001).
Defendants’ argument that Defendants Hitt, Pittman, and Doe
are not distinct from Memphis Bonding because they are “employed
by or associated with” Memphis Bonding is not well-taken.
No.
25-1
at
101–02.)
“[I]ndividual
defendants
are
(ECF
always
distinct from corporate enterprises because they are legally
distinct
entities,
even
when
those
individuals
corporations or act only on their behalf.”
own
the
ClassicStar, 727
F.3d at 492 (relying on Cedric Kushner); see also United States
v. Najjar, 300 F.3d 466, 484 (4th Cir. 2002) (“A certain degree
of ‘distinctness’ is required for RICO liability; however, where
a corporate employee . . . ‘conducts the corporation’s affairs
in a RICO-forbidden way,’ the only ‘separateness’ required is
that the corporate owner/employee be a natural person and so
legally distinct from the corporation itself”) (quoting Cedric
Kushner, 533 U.S. at 163).
Memphis Bonding, however, is “a corporation [that] cannot
be
both
the
‘enterprise’
and
the
‘person’
participating in the affairs of that enterprise.”
conducting
or
Begala v. PNC
Bank, Ohio, Nat. Ass’n, 214 F.3d 776, 781 (6th Cir. 2000). Bailey
cannot maintain an action against Memphis Bonding as both the
“enterprise” and the “person” subject to liability under RICO.
See Begala, 214 F.3d at 781; accord Gilman v. Trott, No. 1:0711
cv-1031, 2008 WL 4057542, at *4 (W.D. Mich. Aug. 28, 2008).
Bailey’s RICO claims against Memphis Bonding must be dismissed.
Defendants’ Motion to Dismiss Bailey’s RICO claims against
Memphis Bonding is GRANTED.
Hitt,
Pittman,
enterprise.
and
Doe
Bailey has sufficiently pled that
are
distinct
from
the
alleged
RICO
Defendants’ Motion to Dismiss RICO claims against
those defendants on grounds of distinctness is DENIED.
2. Pattern of Racketeering Activity
Bailey must adequately allege “a pattern of racketeering
activity.”
activity
18 U.S.C. § 1962(b), (c).
requires,
at
a
minimum,
A pattern of racketeering
two
activity within ten years of each other.
acts
of
racketeering
Id. § 1961(5). 3
The
acts of racketeering that constitute predicate offenses for RICO
violations
are
listed
at
18
U.S.C.
§
1961(1).
See
Hubbard
v. Select Portfolio Servicing, Inc., 736 F. App’x 590, 593 (6th
Cir. 2018).
“[T]he plaintiff must prove each prong of the
predicate offense . . . to maintain a civil action under the
RICO statute.”
Cent. Distribs. of Beer, Inc. v. Conn, 5 F.3d
3
Two acts of racketeering are the minimum required.
See 18 U.S.C.
§ 1961(5). “In practice, two acts of racketeering activity within ten years
will not generally give rise to liability.” Grubbs v. Sheakley Grp., Inc.,
807 F.3d 785, 804 (6th Cir. 2015). The plaintiff must also establish “that
the racketeering predicates are related, and that they amount to or pose a
threat of continued criminal activity.” H.J. Inc. v. Nw. Bell Tel. Co., 492
U.S. 229, 237–39 (1989). This requirement is known as the “relationship plus
continuity” test. See Brown v. Cassens Transp. Co., 546 F.3d 347, 355 (6th
Cir. 2008). The parties do not address that test, and the Court need not
consider it sua sponte.
12
181, 183–84 (6th Cir. 1993) vacated on other grounds by Bridge,
553 U.S. at 639.
Defendants argue that Bailey has alleged only one predicate
offense.
(See ECF No. 23-1 at 103–04.)
They contend that Bailey
alleges only one instance of mail fraud, and thus his RICO claims
must fail.
(Id.)
Bailey responds that the Amended Complaint
alleges “much more than just two predicate offenses.”
28-1 at 132.)
(ECF No.
He contends that he has alleged “many years of
racketeering activity in interstate filings of Deeds of Trust[,]”
and that he “actually name[s] four other victims in three other
lawsuits . . . .”
(Id.)
Bailey alleges that Defendants committed acts of mail fraud
as part of their scheme to defraud their customers and that those
acts constitute a pattern of racketeering activity.
No. 22 ¶ 24.)
(See ECF
Mail fraud is a predicate offense under RICO.
See 18 U.S.C. § 1961(1).
When an alleged pattern of racketeering
consists entirely of fraudulent acts, a plaintiff’s allegations
must comply with the heightened pleading standard under Federal
Rule of Civil Procedure 9(b).
Rule 9(b) requires Bailey to
allege, “[a]t a minimum, . . . the time, place and contents” of
the misrepresentation he alleges.
Frank v. Dana Corp., 547 F.3d
564, 569–70 (6th Cir. 2008).
At the motion to dismiss stage, the court must also consider
Federal Rule of Civil Procedure 8, which says that a plaintiff
13
need only provide a “short and plain statement of the claim” and
“simple,
concise,
and
direct”
allegations.
“Rule
9(b)’s
particularity requirement does not mute the general principles
set out in Rule 8”; rather, “the two rules must be read in
harmony.”
Michaels Bldg. Co. v. Ameritrust Co., N.A., 848 F.2d
674, 679 (6th Cir. 1988).
Read together, Rules 8 and 9(b)
require that a plaintiff “provide a defendant fair notice of the
substance of a plaintiff’s claim in order that the defendant may
prepare a responsive pleading.”
the
question
is
whether
Id.
Bailey
Given those requirements,
sufficiently
alleges
that
Defendants committed at least two instances of mail fraud.
Bailey sets out Defendants’ alleged scheme to defraud their
customers in paragraphs 22 and 23 of his Amended Complaint.
ECF
No.
22
allegations
¶ 22–23.)
adequately
Defendants
allege
one
appear
to
violation
concede
of
mail
(See
those
fraud.
Bailey argues that paragraphs 22 and 23, read in conjunction
with three other paragraphs, allege additional instances of mail
fraud that Defendants committed against other victims.
(See ECF
No. 25-1 at 103–04.) 4
The additional allegations are paragraphs 15, 16, and 27 of
the Amended Complaint.
(See id.)
4
In relevant part, paragraph
The plaintiff in a RICO case need only be injured by a single predicate
act committed in furtherance of the scheme. See Sedima, S.P.R.L. v. Imrex
Co., 473 U.S. 479, 488-93 (1985). He may use predicate acts against other
victims to show of a pattern of racketeering. Id.
14
15 alleges that Memphis Bonding “has been a prolific filer of
Deeds of Trust identical in form” to the one Bailey signed and
that those deeds of trust were filed by mail.
(ECF No. 22 ¶ 15.)
Paragraph 16 alleges that three other lawsuits “with very similar
allegations have been filed in this Court . . . .”
(case citations omitted).)
(Id. ¶ 16
Paragraph 27 alleges that “[t]he
scheme which the Defendants perpetrated on Mr. Bailey is a
pattern which appears in other cases of [Memphis Bonding’s]
customers, including cases already filed in this Court (as
mentioned above).”
(Id. ¶ 27.)
Ordinarily, the Court would be limited to the four corners
of
Bailey’s
dismiss.
Amended
Complaint
when
addressing
a
motion
to
Within those four corners, Bailey does not allege mail
fraud against other individuals with sufficient particularity.
Rule 9(b) requires Bailey to allege, “with particularity the
circumstances constituting fraud . . . .” Fed. R. Civ. P. 9(b).
Although
Bailey
generally
alleges
that
Defendants
defrauded
“other customers” in a similar way, Bailey does not allege the
identity of those other customers or specifically allege the
time, place, and contents of the misrepresentations made to them.
Those allegations fail to state additional instances of mail
fraud adequately.
Paragraphs 16 and 27 in Bailey’s Amended Complaint refer to
allegations made against Defendants in the complaints of other
15
cases pending in this court.
(See ECF No. 22 ¶¶ 16, 27.)
Bailey
alleges that Memphis Bonding has committed acts of mail fraud
against other customers and that those allegations are adequately
pled in: (1) Knight v. Memphis Bonding Co., Inc., No. 18-2112;
(2) Bailey v. Memphis Bonding Co., Inc., No. 18-2115; and (3)
Ray v. Memphis Bonding Co., Inc., No. 18-2144.
On a motion to
dismiss under Rule 12(b)(6), the Court “consider[s] the complaint
in its entirety, as well as . . . documents incorporated into
the complaint by reference, and matters of which a court may
take judicial notice.”
Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 551 U.S. 308, 322 (2007).
The Court may take judicial
notice of the facts alleged in the cases Bailey cites.
See Buck
v. Thomas M. Cooley Law Sch., 597 F.3d 812, 816 (6th Cir. 2010)
(“[A] court may take judicial notice of other court proceedings
without converting the motion into one for summary judgment.”).
That is especially true here, where Sharp and Ray have been
consolidated with Bailey.
Mail fraud consists of (1) a scheme to defraud and (2) use
of the mails in furtherance of the scheme.
See Riverview Health
Inst. LLC v. Med. Mut. of Ohio, 601 F.3d 505, 513 (6th Cir.
2010).
The factual allegations in the Ray complaint are similar
to the allegations here.
Therefore, the Court will consider
whether Ray adequately alleges one or more additional instances
16
of mail fraud against Defendants that occurred within ten years
of the mail fraud alleged in Bailey’s Amended Complaint.
a. Scheme to Defraud
A scheme to defraud is “[i]ntentional fraud, consisting in
deception intentionally practiced to induce another to part with
property or to surrender some legal right and which accomplishes
the designed end.”
Kenty v. Bank One, Columbus, N.A., 92 F.3d
384, 389-90 (6th Cir. 1996) (quoting Blount Fin. Servs., Inc.
v. Walter E. Heller & Co., 819 F.2d 151, 153 (6th Cir. 1987)).
A plaintiff must allege “misrepresentations or omissions which
were
‘reasonably
calculated
to
deceive
persons
of
ordinary
prudence and comprehension’” on which the plaintiff relied.
Id.
Plaintiffs Glenn Ray and Loris Shepard (collectively “Ray”)
set forth Defendants’ scheme to defraud as follows:
The pattern of racketeering consists of a fraudulent
scheme by [Defendants] to obtain title to the Real
Property of its customers by falsely representing that
the collateral provided by the customers will be
returned (as required by Tennessee law) when the
criminal charges against the criminal defendant are
resolved.
By making that false representation,
customers either sign documents which are blank or not
fully
completed,
or
customers
provide
enough
information to the Defendants to create a Deed of Trust
which is later signed and notarized, allowing [Memphis
Bonding] to file a seemingly executed and notarized
Deed of Trust with the appropriate office for recording
such Deeds.
(No. 18-2144 ECF No. 22 ¶ 23.)
17
Ray went to Memphis Bonding to secure a bail bond for
Shepard’s son.
(See id. ¶ 24.)
Ray alleges that Sam Hawkins,
a bonding agent employed by Memphis Bonding, falsely represented
that Ray would owe no money and have no obligation to Memphis
Bonding if Shepard’s son appeared in court.
son appeared.
(See id.)
Shepard’s
Ray alleges that Pittman “falsely notarized a
signature of the Deed of Trust which he did not witness because”
Ray
did
not
“personally
appear”
before
Pittman.
(Id.)
Defendants mailed the allegedly false deed of trust to the Shelby
County Register’s Office on February 14, 2016.
(Id. ¶ 12.)
Ray
alleges that, as a result, Defendants obtained a lien on his
home “under false and fraudulent circumstances.”
(Id. ¶ 24.)
Ray identifies the alleged misrepresentations, how those
misrepresentations were false or misleading, and the dates or
approximate dates on which they were made.
Ray also alleges
that Defendants’ misstatements and omissions were intentional.
(See id. ¶¶ 22, 23, 26.)
Ray adequately sets out a scheme to
defraud.
b. Use of Mails
Ray alleges that Defendants’ “scheme to obtain the Deed of
Trust fully anticipates the use of the mail because the recording
office accepts instruments by mail.
[Memphis Bonding] has
actually used the mail . . . to send the falsified Deed of Trust
to the recording office.”
(Id. ¶ 23.)
18
Although Ray does not allege who sent the deeds of trust to
the Register’s Office, that is not dispositive.
“Where one does
an act with knowledge that the use of the mails will follow in
the ordinary course of business, or where such use can reasonably
be foreseen, even though not actually intended, then he ‘causes’
the mails to be used.”
United States v. Oldfield, 859 F.2d 392,
400 (6th Cir. 1988) (quoting Pereira v. United States, 347 U.S.
1, 8-9 (1954)).
Ray alleges that Memphis Bonding and its
employees engaged in a scheme that regularly sent fraudulent
deeds of trust in the mail.
(See ECF No. 22 ¶ 22.)
Ray alleges
Defendants used the mails in the ordinary course of business.
Because Ray has adequately alleged a scheme to defraud and the
use of the mail, he has pled an instance of mail fraud with
sufficient particularity.
Bailey
incorporates
the
factual
allegations
of
Ray’s
complaint and thereby adequately alleges two or more instances
of mail fraud that serve as RICO predicates.
3. Conspiracy
Defendants argue that Bailey has failed to allege a RICO
conspiracy in violation of 18 U.S.C. § 1962(d) adequately because
their business practices are authorized by Tennessee law.
(See
ECF No. 25-1 at 104–05.)
“To plausibly state a claim for a violation of 18 U.S.C.
§ 1962(d), plaintiffs must successfully allege all the elements
19
of a RICO violation, as well as alleg[e] ‘the existence of an
illicit agreement to violate the substantive RICO provisions.’”
Heinrich v. Waiting Angels Adoption Servs., Inc., 668 F.3d 393,
411 (6th Cir. 2012) (quoting United States v. Sinito, 723 F.2d
1250, 1260 (6th Cir. 1983)).
Bailey alleges that Defendants agreed to engage in the
scheme described above with the purpose of “obtain[ing] money
from Mr. Bailey when none was owed.”
(ECF No. 22 ¶ 26.)
Bailey
alleges that each participant in the scheme played a particular
role in carrying it out.
(See id.)
The Court has determined
that Bailey has adequately pled RICO claims under § 1962(b) and
§ 1962(c) against Defendants Hitt, Pittman, and Doe.
Sections IV(A)(1)–(2).)
(See infra
Bailey’s allegation that Defendants
agreed to take part in that scheme is sufficient to state a claim
for RICO conspiracy under § 1962(d).
Bailey
adequately
alleges
violated 18 U.S.C. § 1962(d).
that
Hitt,
Pittman,
and
Doe
Defendants’ Motion to Dismiss the
§ 1962(d) claims against those defendants on grounds that their
business practices were authorized by Tennessee law is DENIED.
4. Separateness
Defendants argue that any alleged relationship among them
is a routine business relationship that is insufficient to create
RICO liability.
(See ECF No. 25-1 at 105–06.)
They contend
Bailey fails to state a claim under RICO because Defendants’
20
business
activities
are
racketeering activity.”
not
“separate
from
the
pattern
of
(Id. at 105(quotation omitted).)
As noted, to state a claim under RICO, Bailey must allege
the existence of an “enterprise” within the meaning of the
statute.
See VanDenBroeck, 210 F.3d at 699.
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).
To show the existence of an enterprise under RICO,
a plaintiff must plead that the enterprise has: (1) a common
purpose; (2) a structure or organization; and (3) the longevity
necessary to accomplish the purpose. See Boyle v. United States,
556 U.S. 938, 946 (2009).
The plaintiff must show that the
enterprise exists “separate and apart from” the pattern of
racketeering.
United
States
v. Turkette,
452
U.S.
576,
583
(1981). “[S]imply conspiring to commit a fraud is not enough to
trigger [RICO] if the parties are not organized in a fashion
that would enable them to function as a racketeering organization
for other purposes.”
VanDenBroeck, 210 F.3d at 699.
Memphis Bonding Company, Inc. is the alleged enterprise.
(ECF No. 22 ¶ 20.)
distinct
existence.
As a corporation, Memphis Bonding has a
organizational
structure
and
a
continuing
legal
See Dolle v. Fisher, No. E2003-02356-COA-R3-CV, 2005
WL 2051288, at *5 (Tenn. Ct. App. Aug. 26, 2005) (Under Tennessee
21
law, there is a “strong presumption” that a corporation is a
separate legal entity).
At the motion to dismiss stage, absent
allegations that cast doubt on the existence of the alleged
enterprise, “[c]ourts can reasonably assume that individuals and
corporations have an organizational structure, are continuous,
and have an existence separate and apart from any alleged pattern
of racketeering activity.”
In re Am. Inv’rs Life Ins. Co.
Annuity Mktg. & Sales Practices Litig., 2006 WL 1531152, at *9
(E.D. Pa. June 2, 2006).
Bailey has adequately alleged the
existence of a RICO enterprise.
*
*
*
Bailey’s RICO claims against Defendants Hitt, Pittman, and
Doe are adequately pled.
Defendants’ Motion to Dismiss the RICO
claims against those defendants is DENIED.
B. Truth-in-Lending Act Claims
The Truth-in-Lending Act (the “TILA”) is a federal consumer
protection statute intended to promote the informed use of credit
by requiring certain uniform disclosures by creditors.
See In
re Cmty. Bank of N. Va., 418 F.3d 277, 303-04 (3d Cir. 2005)
(citing 15 U.S.C. § 1607, as implemented by Regulation Z, 12
C.F.R. §§ 226.1, et seq.).
The TILA has a dual purpose: “to
facilitate the consumer’s acquisition of the best credit terms
available; and to protect the consumer from divergent and at
times fraudulent practices stemming from the uninformed use of
22
credit.”
Jones v. TransOhio Sav. Ass’n, 747 F.2d 1037, 1040
(6th Cir. 1984) (citing Mourning v. Family Publ’ns Serv., Inc.,
411 U.S. 356 (1973)).
Consistent with its purposes, the TILA gives a consumerborrower the right to rescind a loan secured by the borrower’s
principal dwelling within three business days of the transaction.
See 15 U.S.C. § 1635(a).
The TILA allows rescission of a loan
secured by the borrower’s principal dwelling after three days if
“the
lender
fails
to
deliver
certain
forms
or
to
disclose
important terms accurately.” Beach v. Ocwen Fed. Bank, 523 U.S.
410, 411 (1998) (citing 15 U.S.C. § 1635(f)).
the
TILA
allows
an
action
for
damages,
Alternatively,
including
“actual
damages,” statutory damages in an amount “not less than $400 or
greater than $4,000,” and costs and attorney’s fees.
See 15
U.S.C. § 1640(a)(1)—(3).
To state a claim, the borrower must allege that the lender
failed to disclose one of the enumerated items of information
about the terms and conditions of the loan.
§ 1638(b)(1).
See 15 U.S.C.
Bailey alleges that the “agreement to defer
payment of the 10% premium and other fees associated with a bail
bond constitutes consumer credit extended for a personal or
family purpose,” and that Memphis Bonding committed several
violations of Regulation Z because it provided no disclosures
for the alleged debt.
(See ECF No. 22 ¶¶ 31—33.)
23
Defendants argue that Bailey’s TILA claims fail because:
(1) they are time-barred by the applicable one-year statute of
limitations; and (2) because the TILA does not apply to the bail
bonding agreements.
(See ECF No. 25-1 at 106—08.)
1. Timeliness
Fifteen U.S.C. § 1640(e) provides that actions for damages
alleging TILA regulation violations “may be brought . . . within
one year from the date of the occurrence of the violation.”
15
U.S.C. § 1640(3). As a general rule, “the statute of limitations
begins to run ‘when the plaintiff has [a] complete and present
cause of action’ and ‘can file suit and obtain relief.’”
Wike
v. Vertrue, Inc., 566 F.3d 590, 593 (6th Cir. 2009) (quoting Bay
Area Laundry & Dry Cleaning Pension Tr. Fund v. Ferbar Corp. of
Cal., Inc., 522 U.S. 192, 201 (1997) (internal quotation marks
omitted)).
This suit is based on a bail bonding transaction
that occurred on September 18, 2015.
(See ECF No. 22 ¶ 11.)
The Complaint was filed on February 21, 2018.
(ECF No. 1.)
If TILA disclosures were never made to the borrower, the
borrower “has a continuing right to rescind,” and that right is
“not dependent upon the one year statute of limitations period
for a claim for damages.”
F.2d
243,
247–48
(6th
Rudisell v. Fifth Third Bank, 622
Cir.
1980);
see
also
12
C.F.R.
§ 226.23(a)(3) (“If the required notice or material disclosures
are not delivered, the right to rescind shall expire 3 years
24
after consummation.”).
“the
obligor
transaction.”
has
If the required disclosures were made,
[only]
three
days
to
rescind
a
credit
McCoy v. Harriman Util. Bd., 790 F.2d 493, 496
(6th Cir. 1986).
The borrower’s continuing right to rescind
“‘shall expire three years after the date of consummation of the
transaction or upon sale of the property, whichever occurs first,
notwithstanding the fact that’ the required disclosures have not
been made.”
Mills v. EquiCredit Corp., 172 F. App’x 652, 656
(6th Cir. 2006) (quoting 15 U.S.C. § 1635(f)).
Bailey’s claim for rescission of the credit agreement is
timely because the initial Complaint was filed within three years
of
the
alleged
§ 1635(f).
bail
bonding
transaction.
See
15
U.S.C.
Bailey’s claims for damages under the TILA are
subject to a one-year limitations period.
See id. § 1640(f).
Those claims are time-barred unless equitable tolling or estoppel
applies.
“The doctrine of equitable tolling is distinct from the
doctrine
of
equitable
estoppel
or
fraudulent
concealment.”
Cheatom v. Quicken Loans, 587 F. App’x 276, 281 (6th Cir. 2014).
“Although a motion under Rule 12(b)(6), which considers only the
allegations in the complaint, is generally not an appropriate
vehicle
for
dismissing
a
claim
based
upon
the
statute
of
limitations, if the allegations in the complaint affirmatively
25
show that the claim is time-barred, dismissing the claim under
Rule 12(b)(6) is appropriate.”
Id. at 279.
A defendant may be estopped from invoking a statute of
limitations defense in cases of fraudulent concealment.
See
Jones, 747 F.2d at 1041–43 (holding that equitable tolling was
available in a TILA case when the complaint alleged “knowing and
fraudulent concealment of the variable interest rate provision
and of the mortgage note itself”).
In such a case, the one-year
limitations period begins to run when the borrower “discovers or
had reasonable opportunity to discover the fraud involving the
complained of TILA violation.”
Id. at 1041.
The elements of fraudulent concealment are:
(1) there must be conduct or language amounting to a
representation of a material fact; (2) the party to be
estopped must be aware of the true facts; (3) the party
to be estopped must intend that the representation be
acted on, or the party asserting the estoppel must
reasonably believe that the party to be estopped so
intends; (4) the party asserting the estoppel must be
unaware of the true facts; and (5) the party asserting
the estoppel must reasonably or justifiably rely on
the representation to his detriment.
Cheatom, 587 F. App’x at 280 (internal quotations omitted).
“The Federal Rules of Civil Procedure . . . require that
the acts constituting fraudulent concealment of a claim be pled
in the complaint.”
Evans v. Pearson Enters., Inc., 434 F.3d
839, 851 (6th Cir. 2006).
Those allegations must be pled with
particularity under Rule 9(b).
See id. at 850–51.
26
Equitable
tolling based on fraudulent concealment should be “narrowly
applied since ‘[s]tatutes of limitation are vital to the welfare
of society and are favored in the law.’”
Hill v. U.S. Dep’t of
Labor,
1995)
65
F.3d
1331,
1336
(6th
Cir.
(quoting
Wood
v. Carpenter, 101 U.S. 135, 139 (1879)).
The plaintiff must show that the defendant took affirmative
steps to prevent the plaintiff from suing in time, “such as by
hiding
evidence
limitations.”
F.3d
883,
or
promising
not
to
plead
the
statute
of
Bridgeport Music Inc. v. Diamond Time, Ltd., 371
891
(6th
Cir.
2004).
The
plaintiff
must
also
demonstrate that his failure to bring a timely suit “is not
attributable to a lack of diligence on his part.”
Id. at 891.
(internal quotation omitted)
Bailey alleges that Defendants’ oral misrepresentations and
falsely notarized deed of trust concealed his TILA claims until
he discovered that Defendants had misled him.
Bailey alleges
that he went to Memphis Bonding to pledge his house as security
for his brother’s court appearance.
(ECF No. 22 ¶ 10.)
He
alleges that Doe “made the false representation that Mr. Bailey
would not owe any money or have any obligation to [Memphis
Bonding] if his brother showed up in court.”
Bailey
adequately
alleges
Defendants’ TILA violations.
fraudulent
(Id. ¶ 23.)
concealment
of
First, Bailey alleges that Doe’s
statements misled Bailey to believe that he would owe money to
27
Memphis Bonding only if his brother failed to appear in court
and that Memphis Bonding would take no property interest in
Bailey’s real property unless his brother failed to appear.
Second, Bailey alleges that Defendants knew the true nature of
the document Bailey was signing.
(See ECF No. 22 ¶ 22.)
Third,
Bailey alleges that Defendants made the oral misrepresentations
with the intent of inducing Bailey to sign the document.
id.)
(See
Fourth, Bailey represents that he “has no knowledge of the
existence or terms of [Memphis Bonding’s] debt because [Memphis
Bonding]
has
documents.”
refused
to
provide
copies
of
any
such
‘debt’
(ECF No. 28-1 at 138; see also ECF No. 22 ¶ 13.)
Fifth, it was reasonable for Bailey to rely on Defendants’
representations about the document they gave to Bailey to sign.
Finally,
the
Court
cannot
conclude
at
litigation that Bailey lacked diligence in
this
stage
of
the
pursuing his claim.
Bailey alleges that Defendants told him that he would owe no
money and would forfeit no collateral if his brother appeared in
court.
(See ECF No. 22 ¶ 10.)
If true, Bailey would have had
no reason to investigate his financial commitments to Defendants
because his brother did appear in court.
Bailey’s allegations support the inference that equitable
estoppel for fraudulent concealment is appropriate in this case.
Defendants’ Motion to Dismiss Bailey’s TILA claims based on the
statute of limitations is DENIED.
28
2. Applicability to Bail Bond Collateral
The
TILA
defines
“credit”
as
“the
right
granted
by
a
creditor to a debtor to defer payment of debt or to incur debt
and defer its payment.”
15 U.S.C. § 1602(f).
Defendants argue
that Bailey’s TILA claims fail because he has not pled facts
showing Defendants extended credit to Bailey.
1 at 106—07.)
(See ECF No. 25-
Citing Buckman v. American Bankers Insurance Co.
of Florida, 115 F.3d 892 (11th Cir. 1997), Defendants argue that
bail bond agreements are not extensions of credit within the
meaning of the TILA.
(Id.)
Bailey responds that Buckman is inapposite because it does
not address agreements to defer the payment of a bail bonding
premium.
(See ECF No. 28-1 at 134–36.)
Bailey argues that
where, as here, a person enters into a separate agreement with
a bail bondsman to defer payment on the amount owed for the bond
premium, the TILA applies.
(Id.)
In Buckman, the plaintiff signed a bail bond agreement
guaranteeing her daughter’s court appearance on certain criminal
charges.
See 115 F.3d at 893.
The plaintiff paid the defendant
an $800 premium on her daughter’s $8,000 bond and, as collateral
for the bond, executed a promissory note and mortgage deed.
(Id.)
The plaintiff’s daughter failed to appear for her court
date, and the court forfeited the bond. (Id.) When the defendant
attempted
to
collect
on
the
note,
29
the
plaintiff
sued
the
defendant claiming the bail bond agreement violated the TILA.
(Id.)
The Eleventh Circuit rejected the plaintiff’s argument that
the TILA applied to the promissory note where she agreed to be
“obligated to the surety should the accused fail to appear in
court.”
Buckman, 115 F.3d at 894.
The court decided that this
arrangement was a “contingent obligation,” not an extension of
credit.
Id.
(because “no amount is due . . . unless and until
the bond is forfeited by the court,” the plaintiff only became
liable “by court order when the bond was breached”).
The court
explained that the lack of a “credit arrangement” -– that is,
liability for a debt regardless of a certain condition being met
-– meant no credit had been extended for purposes of the TILA.
Id.
Unlike Bailey, however, the Buckman plaintiff paid the
entire bail bond premium up front.
See id. at 893; see also
Buckman v. Am. Bankers Ins. Co. of Fla., 924 F. Supp. 1156 (S.D.
Fla. 1996).
Viewed in the light most favorable to him, Bailey
alleges that he became liable to Memphis Bonding for the unpaid
portion of the bail bond premium when the paperwork was signed
on September 18, 2015.
(See ECF No. 22 ¶ 13, 14, 38.)
He owed
money to Memphis Bonding whether his brother appeared in court
or not.
That liability to Memphis Bonding was not premised on
any contingency or possible court order.
30
Such an agreement is
a right granted by Memphis Bonding “to defer payment of debt”
and thereby constitutes “credit” under the TILA.
15 U.S.C.
§ 1602(f).
Defendants’ Motion to Dismiss Bailey’s TILA claims on the
grounds that the TILA does not apply to bail bonding agreements
is DENIED.
C. Tennessee Consumer Protection Act Claims
The
Tennessee
Consumer
Protection
Act
(the
“TCPA”)
“prohibits [u]nfair or deceptive acts or practices affecting the
conduct of any practice which is deceptive to the consumer or to
any other person.”
Conner v. Hardee’s Food Sys., Inc., 65 F.
App’x 19, 25 (6th Cir. 2003); see Tenn. Code Ann. § 47–18–104(b);
Timoshchuk v. Long of Chattanooga Mercedes–Benz, No. E2008–
01562–COA–R3–CV, 2009 WL 3230961, at *3 (Tenn. Ct. App. Apr. 15,
2009).
Bailey alleges that Memphis Bonding violated the TCPA
when it falsely represented to Bailey that the Deed of Trust he
signed was collateral only to guarantee his brother’s appearance
in court.
(ECF No. 22 ¶ 38.)
Bailey alleges that act was
deceptive because the Deed of Trust also served as collateral
for the unpaid portion of the bail bond premium.
(Id.)
Defendants argue that Bailey has failed to state a claim
under the TCPA because: (1) Bailey’s claims are time-barred by
the applicable one-year statute of limitations; and (2) the
31
business practices about which Bailey complains are authorized
by Tennessee law. (See ECF No. 25-1 at 108–12.)
1. Timeliness
A TCPA claim must be brought “within one (1) year from a
person’s discovery of the unlawful act or practice.”
Tenn. Code
Ann.
Co.,
§
47-18-110;
see
also
Power
&
Tel.
Supply
v. SunTrust Banks, Inc., 447 F.3d 923, 929 (6th Cir. 2006).
Inc.
The
statute of limitations for TCPA claims begins to run when a
plaintiff discovers the injury or when, in the exercise of
reasonable care and diligence, a plaintiff should have discovered
it.
Potts v. Celotex Corp., 796 S.W.2d 678, 680 (Tenn. 1990).
Defendants argue that Bailey’s TCPA claims accrued when he
signed the Deed of Trust at Memphis Bonding’s offices.
No.
25-1
at
111.)
“acknowledged
signing
They
contend
documents
that,
at
because
Memphis
(See ECF
Bailey
Bonding
Company. . . . he knew or reasonably should have known of the
‘injury’ to his property upon the signing of the promissory note
and the deed of trust.”
(Id.)
Defendants represent that, if
Bailey had exercised reasonable diligence, he would have ensured
that his Deed of Trust was released after his brother appeared
in court.
(Id.)
The issue of “[w]hether the plaintiff exercised reasonable
care and diligence in discovering the injury or wrong is usually
a fact question for the jury to determine.”
32
Wyatt v. A–Best
Co., 910 S.W.2d 851, 854 (Tenn. 1995).
To succeed at this stage,
Defendants must show that “the undisputed facts demonstrate that
no reasonable trier of fact could conclude that a plaintiff did
not know, or in the exercise of reasonable care and diligence
should not have known, that he or she was injured as a result of
the defendant’s wrongful conduct . . . .”
Schmank v. Sonic
Auto., Inc., No. E200701857COAR3CV, 2008 WL 2078076, at *3 (Tenn.
Ct. App. May 16, 2008).
Bailey alleges he did not discover Defendants’ alleged
misrepresentations about their bail bonding agreement until 2018
when he learned of the Deed of Trust.
(See ECF No. 22 ¶ 12.)
Bailey has alleged that Doe told him any obligation he had to
Memphis Bonding would be released if his brother appeared in
court.
(See id. ¶ 23.)
for his court date.
Bailey alleges his brother did appear
(See id. ¶ 12.)
The Court cannot conclude
on the allegations before it that Bailey failed to exercise
reasonable care and diligence.
2. Application to Defendants’ Business
Defendants argue that Bailey fails to state a claim under
the TCPA because the practices about which he complains are
“standard bail bond procedures” authorized by Tennessee law.
(See ECF No. 25-1 at 108.)
Specifically, Defendants contend
that their practices do not violate Tenn. Code. Ann. § 40-11-
33
138(8).
That
statute
makes
it
sanctionable
conduct
for
a
bondsman to:
Accept anything of value from a principal except the
premium; provided, that the bondsman shall be
permitted to accept collateral security or other
indemnity from the principal which shall be returned
upon final termination of liability on the bond. . . .
Tenn. Code. Ann. § 40-11-138(8) (emphasis added).
Defendants
argue that obtaining a deed of trust from Bailey did not violate
the statute because Bailey is not a “principal.”
at 109.)
(ECF No. 25-1
Bailey is the bond “indemnitor” to whom the statute
does not apply.
(Id.)
The TCPA prohibits a number of actions that constitute
“unfair or deceptive acts or practices affecting the conduct of
any trade or commerce” in Tennessee.
18-104.
Section
104(b)
of
the
See Tenn. Code Ann. § 47-
TCPA
enumerates
forty-nine
specific acts that constitute “unfair or deceptive acts or
practices.”
Id.
§ 47-18-104(b).
The
list
includes
“[r]epresenting that a consumer transaction confers or involves
rights, remedies or obligations that [1] it does not have or
involve or [2] which are prohibited by law.”
Id. § 47–18–
104(b)(12) (bracketed numbers added).
That provision contains
two prongs, worded in the disjunctive.
Bailey need only allege
violation of one prong to state a claim.
To support his specific TCPA claims, Bailey alleges that
Defendants
misrepresented
the
34
nature
of
the
bail
bonding
agreement.
(See ECF No. 22 ¶ 38.)
Bailey plausibly pleads that
Memphis Bonding violated the first prong of § 104(b)(12) when it
represented
the
agreement
conferred
or
involved
“rights,
remedies or obligations that it does not have or involve . . . .”
Tenn. Code Ann. § 47–18–104(b)(12).
The Court need not address
Defendants’ argument that Memphis Bonding’s business practices
are not “prohibited by law” under the second prong.
Defendants’
Motion
to
Dismiss
Bailey’s
TCPA
claims
is
DENIED.
D. Fraud
Bailey brings two claims of common-law fraud.
Bailey
alleges that Defendants falsely represented that the paperwork
Bailey signed secured only the appearance of his brother in court
and did not pledge security for any other debt.
¶ 42.)
(See ECF No. 22
Bailey also alleges the Deed of Trust was fraudulently
notarized
because
signing it.
Defendant
Pittman
did
not
witness
Bailey
(Id.)
To establish a claim for fraud in Tennessee, Bailey must
show that:
(1) the defendant made a representation of an existing
or past fact; (2) the representation was false when
made; (3) the representation was in regard to a
material fact; (4) the false representation was made
either knowingly or without belief in its truth or
recklessly; (5) plaintiff reasonably relied on the
misrepresented material fact; and (6) plaintiff
suffered damage as a result of the misrepresentation.
35
Walker v. Sunrise Pontiac–GMC Truck, Inc., 249 S.W.3d 301, 311
(Tenn. 2008).
Defendants contend Bailey fails to state a claim
for fraud because (1) the statute of limitations has run, and
(2) Bailey has not alleged legally adequate damages.
(See ECF
No. 129–30.)
1. Timeliness
Defendants argue the statute of limitations has run on
Bailey’s fraud claims.
(See ECF No. 25-1 at 112.)
Defendants
contend that the “gravamen” of Bailey’s claims “sounds in fraud
under the TCPA, [so] the same statute of limitations should be
applied . . . .”
argument.
(Id.)
The Court need not address Defendants’
Assuming Bailey’s fraud claims should be treated as
claims under the TCPA, the Court has determined that Bailey’s
TCPA claims are timely.
(See infra Section IV.C.1.)
2. Damages
In Tennessee, a party induced by fraud to enter a contract
may elect between two remedies: he may treat the contract as
void and sue for the equitable remedy of rescission; or he may
treat the contract as existing and sue for damages.
v. Schulder, 547 S.W.2d 927, 931 (Tenn. 1977).
See Vance
A party seeking
to rescind a contract based on fraud need not show pecuniary
loss.
See 13 Am. Jur. 2d Cancellation of Instruments § 17.
Having elected to pursue monetary damages, however, Bailey must
show
he
suffered
pecuniary
loss
36
resulting
from
Defendants’
misrepresentations. See City State Bank v. Dean Witter Reynolds,
Inc., 948 S.W.2d 729, 738 (Tenn. Ct. App. 1996).
Bailey alleges no specific out-of-pocket loss.
He alleges
that his house “remains encumbered to the extent of $75,000” and
the “fraudulent scheme has caused [him] damages in the loss of
access to credit on the equity in his home.”
(ECF No. 22 ¶ 42.)
Defendants argue that these alleged damages are too speculative
to sustain a claim for fraud.
(See ECF No. 25-1 at 112–13.)
They
damages
contend
Bailey’s
alleged
are
not
sufficiently
concrete because, for example, “Bailey has not asserted facts
that suggest or confirm he went to a bank and applied for access
to his equity.”
(Id.)
Under Tennessee law, speculative damages cannot support a
cause of action for fraud.
See Saltire Indus., Inc. v. Waller,
Lansden, Dortch & Davis, PLLC, 491 F.3d 522, 531 (6th Cir. 2007)
(citing Anderson–Gregory Co. v. Lea, 370 S.W.2d 934, 937 (Tenn.
Ct. App. 1963) (noting that “it is the rule that speculative
damages cannot be recovered”)).
(Second)
of
Torts,
“[o]ne
According to the Restatement
who
fraudulently
makes
a
misrepresentation of fact . . . is subject to liability to the
other
in
deceit
for
pecuniary
loss
caused
to
justifiable reliance upon the misrepresentation.”
(emphasis
added);
see
also
Restatement
(Third)
him
by
his
§ 525 (1977)
of
Torts:
Liability for Economic Harm § 9 cmt. b(3) (Am. Law Inst.,
37
Tentative Draft No. 2, 2014) (“Damages awarded in tort for fraud
may be measured on an ‘out of pocket’ basis”).
The Supreme Court
has similarly noted that “the common law has long insisted that
a plaintiff in [a deceit or misrepresentation] case show . . .
that he suffered actual economic loss.”
Dura Pharm., Inc.
v. Broudo, 544 U.S. 336, 343–44 (2005).
The parties do not cite, and the Court has not found,
Tennessee authority establishing whether an encumbrance on a
plaintiff’s real property is itself a sufficient injury to
sustain a fraud action.
an
Illinois
appellate
In Shah v. Chicago Title & Trust Co.,
court
considered
the
fraud
claim
of
condominium purchasers who complained that the defendant had
misrepresented
property.
the
status
of
certain
encumbrances
on
the
See 457 N.E.2d 147, 149 (Ill. App. Ct. 1983).
The
court recognized that the plaintiffs could not recover for a
“purely speculative loss.”
Id. at 151.
The plaintiffs argued
that, if they had tried to sell the condominium during the threemonth period when the title was encumbered, they “may have
encountered difficulty,” but there was no evidence that the
plaintiffs had actually tried to sell the property.
Id.
The
court held that the plaintiffs’ “hypothetical difficulty in
selling their condominium is a purely speculative loss for which
the law of common law fraud will offer no remedy.”
38
Id.
There are similar considerations here.
Bailey alleges his
house was encumbered by the fraudulently-induced Deed of Trust,
but he does not allege actual out-of-pocket losses resulting
from that encumbrance.
Without more, Bailey’s “hypothetical
difficulty” in obtaining credit secured by the equity in his
home is a speculative loss that cannot sustain his claims for
fraud.
Defendants’ Motion to Dismiss Bailey’s common-law fraud
claims is GRANTED.
E. Professional Negligence and Malpractice
Bailey alleges that Defendant Pittman breached his duty to
Bailey
by
witnessing
notarizing
Bailey’s
the
Deed
signature.
of
Trust
(See
ECF
without
No.
22
actually
¶ 47.)
Defendants contend Bailey fails to state a claim for professional
negligence because (1) the claim is untimely, and (2) Bailey
fails to allege legally adequate damages.
(See ECF No. 25-1 at
113–14.)
1. Timeliness
The parties dispute whether Bailey’s claim for professional
negligence is time-barred.
(See id. at 114.)
Defendants argue
that Tenn. Code Ann. § 28-3-104(a) imposes a one-year statute of
limitations on professional negligence and malpractice claims.
(Id.)
Bailey contends that his claim is subject to the three-
year statute of limitations under Tenn. Code Ann. § 28-3-105.
39
(See ECF No. 28-1 at 143.)
This matter was filed on February
21, 2018, and the alleged bail bonding agreement was executed on
September 18, 2015. Absent tolling of the statute, the viability
of Bailey’s claim turns on which statute of limitations applies.
No party cites, and the Court has not found, any Tennessee
authority discussing which statute of limitations applies to
claims of negligence arising from a notary’s misconduct.
To
determine the applicable statute of limitations, the court “must
ascertain the gravamen of each claim . . . .”
Benz-Elliott
v. Barrett Enters., LP, 456 S.W.3d 140, 149 (Tenn. 2015).
To
ascertain the gravamen of a claim, the “court must first consider
the legal basis of the claim and then consider the type of
injuries for which damages are sought.”
step
approach
is
“fact-intensive
and
Id. at 151.
requires
This twoa
careful
examination of the allegations of the complaint as to each claim
for the types of injuries asserted and the damages sought.”
Id.
Bailey alleges that Pittman negligently breached his duty
to Bailey by notarizing the Deed of Trust without actually
witnessing Bailey’s signature.
(See ECF No. 22 ¶ 47.)
Bailey’s
alleged damages resulting from Pittman’s negligence are “the
loss of access to equity in his house” and the “attorneys’ fees
and court costs” required to clear the title to his home.
No. 22 ¶ 48.)
40
(ECF
Negligence claims for “injuries to the person” are subject
to a one-year statute of limitations.
Tenn. Code Ann. § 28-3-
104(a)(1)(A).
Negligence claims for injuries to property are
subject
three-year
to
a
statute
of
limitations.
See
Id.
§§ 105(1)–(2); Taylor v. Miriam’s Promise, No. M201701908COAR3CV,
2019 WL 410700, at *7 (Tenn. Ct. App. Jan. 31, 2019).
Tennessee courts have recognized that the phrase “injures
to the person,” as it is used in Tenn. Code Ann. § 28–3–
104(a)(1)(A), carries a broader meaning than merely physical
injury to the body.
See Blalock v. Preston Law Grp., P.C., No.
M2011–00351–COA–R3–CV, 2012 WL 4503187, at *5 (Tenn. Ct. App.
Sept. 28, 2012).
Courts have applied this one-year limitations
statute to retaliatory discharge claims, Sudberry v. Royal & Sun
All., M2005–00280–COA–R3–CV, 2006 WL 2091386, at *5 (Tenn. Ct.
App. July 27, 2006), abuse of process claims, Blalock, 2012 WL
4503187, at *7, mental anguish claims, In re Estate of Wair, No.
M2014–00164–COA–R3–CV, 2014 WL 3697562, at *3 (Tenn. Ct. App.
July 23, 2014), and wrongful death claims, Sullivan ex rel.
Wrongful Death Beneficiaries of Sullivan v. Chattanooga Med.
Inv’rs., LP, 221 S.W.3d 506, 508 (Tenn. 2007).
In adopting this broader interpretation, Tennessee courts
have held that the one-year statute of limitations applies to
“actions brought for injuries resulting from invasions of rights
that inhere in man as a rational being, that is, rights to which
41
one is entitled by reason of being a person in the eyes of the
law.” Brown v. Dunstan, 409 S.W.2d 365, 367 (Tenn. 1966)
However, injuries to the person should be “distinguished
from those [injuries] which accrue to an individual by reason of
some peculiar status or by virtue of an interest created by
contract or property.”
Id.
Tennessee courts have rejected the
narrow conclusion that “injury to property as contemplated [by
Tenn. Code Ann. § 28–3–105] is limited to physical injury to
property.”
Vance, 547 S.W.2d at 932.
They have adopted the
“opinion that a loss in value is also considered injury to
property.”
Gunter v. Lab. Corp. of Am., 121 S.W.3d 636, 642
(Tenn. 2003).
When a court is faced with a dispute about which
of the two statutes of limitations cited above applies, it must
“determine whether [the plaintiff’s] alleged injuries arise out
of [his] property rights or [his] rights as a ‘rational being.’”
Id.
The legal basis for Bailey’s claim is negligence.
He seeks
compensatory damages in an amount not less than $100,000.00,
costs, and attorney’s fees.
(See ECF No. 22 ¶ 49.)
The gravamen
of Bailey’s claim is an encumbrance on his real property, his
resulting lack of access to his real property’s equity, and legal
costs associated with defending his title to the property. Those
injuries accrue to Bailey “by virtue of an interest created by
. . . property.”
Brown, 409 S.W.2d at 367.
42
The three-year
statute of limitations imposed by Tenn. Code Ann. § 28–3–105
applies to this claim. Bailey’s negligence claim against Pittman
is not time-barred.
2. Damages
Defendants argue that Bailey fails to state a claim for
negligence because Bailey has not identified any harm resulting
from Pittman’s alleged misconduct.
14.)
(See ECF No. 25-1 at 113–
They contend that, even if Pittman were not present to
witness Bailey signing the Deed of Trust, Bailey “was able to
accomplish the purpose of his visit, which was to use real
property to obtain his brother’s freedom . . . .”
(Id. at 113.)
Bailey’s damages resulting from Pittman’s alleged negligence are
“the loss of access to equity in his house” and the “attorney’s
fees and court costs” required to clear the title to his home.
(ECF No. 22 ¶ 48.)
The Court has determined that one of Bailey’s alleged
injuries, his hypothetical loss of access to the equity in his
house, was insufficient to sustain his fraud claims.
Section IV.D.2.)
(See infra
The same is true of his negligence claim.
See
Maple Manor Hotel, Inc. v. Metro. Gov’t of Nashville & Davidson
Cty., 543 S.W.2d 593, 599 (Tenn. Ct. App. 1975) (“‘The rule,
applicable
.
.
.
in
actions
of
tort,
is
that
uncertain,
contingent, or speculative damages may not be recovered.’”)
(quoting 25 C.J.S. Damages § 26)
43
Bailey’s allegation about legal expenses is ambiguous.
He
seeks “damages in the form of attorneys’ fees and other costs
which will be necessary to clear up the title to his home.”
No. 22 ¶ 48.)
(ECF
It is not clear whether Bailey is referring to
the legal costs resulting from this litigation or a possible
future legal action to quiet title to his property.
To the
extent
from
Bailey
seeks
damages
to
recover
legal
costs
a
hypothetical future action, those damages are too speculative.
“[T]o recover for [the] future effects of an injury, the future
effects must be shown to be reasonably certain and not a mere
likelihood or possibility . . . .”
Rye v. Women’s Care Ctr. of
Memphis, MPLLC, 477 S.W.3d 235, 267 (Tenn. 2015) (internal
quotation omitted).
Bailey has not alleged facts suggesting
future litigation is “reasonably certain” to occur.
Assuming
that a future lawsuit is reasonably certain, the amount of costs
incurred
during
that
hypothetical
litigation
is
mere
speculation.
To the extent Bailey argues the instant litigation is itself
the injury suffered, the Court finds no Tennessee authority
addressing whether damages resulting from the cost of litigation
are sufficient to meet the damages element of a negligence claim.
The Court concludes, however, that the costs incurred by Bailey
in prosecuting this litigation are not a cognizable injury.
To
hold otherwise would render the damages element of negligence a
44
nullity for every plaintiff who hires an attorney or pays a court
filing fee. Cf. Saltire, 491 F.3d at 530 (“‘Damages attributable
solely to the existence of litigation are clearly insufficient
to sustain the necessary element of damages in a fraud claim.’”)
(quoting Morse/Diesel, Inc. v. Fid. & Deposit Co. of Md., 763 F.
Supp. 28, 33 (S.D.N.Y. 1991)).
Bailey’s
entitlement
alleged
to
injuries
recover
cannot
damages
for
establish
a
Pittman’s
plausible
negligence.
Defendants’ Motion to Dismiss that claim is GRANTED.
F. Libel and Slander of Title
To establish a claim for slander or libel of title under
Tennessee law, a plaintiff must show: “(1) that it has an
interest in the property, (2) that the defendant published false
statements
defendant
about
was
the
acting
title
to
the
maliciously,
property,
and
(4)
(3)
that
that
the
the
false
statement proximately caused the plaintiff accumulative loss.”
Brooks v. Lambert, 15 S.W.3d 482, 484 (Tenn. Ct. App. 1999).
“[M]alice is a necessary ingredient of the action and must
be both alleged and proven . . . .”
Waterhouse v. McPheeters,
176 Tenn. 666, 145 S.W.2d 766, 767 (Tenn. 1940); see Brooks, 15
S.W.3d at 484.
“A person acts maliciously when the person is
motivated by ill will, hatred, or personal spite.”
v. S.C. Toof & Co., 833 S.W.2d 896, 901 (1992).
Hodges
Although the
complaint does not necessarily have to allege malice expressly,
45
it must at least allege “sufficient facts to give rise to a
reasonable inference that the defendants acted maliciously.”
Ezell v. Graves, 807 S.W.2d 700, 704 (Tenn. Ct. App. 1990).
The
Federal Rules of Civil Procedure also require the plaintiff to
plead malice either directly or by inference because it is an
essential element of a claim for slander or libel of title under
Tennessee law.
See Wittstock v. Mark A. Van Sile, Inc., 330
F.3d 899, 902 (6th Cir. 2003).
Bailey fails to allege malice or any facts that would give
rise to a reasonable inference of malice.
S.W.2d at 767.
slander of title.
See Waterhouse, 145
Bailey fails to state a claim for libel or
Defendants’ Motion to Dismiss Bailey’s libel
and slander of title claims is GRANTED.
V.
Conclusion
For the foregoing reasons, Defendants’ Motion to Dismiss is
GRANTED in part and DENIED in part.
So ordered this 21st day of March, 2019.
/s/ Samuel H. Mays, Jr.
SAMUEL H. MAYS, JR.
UNITED STATES DISTRICT JUDGE
46
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