Sharp v. Memphis Bonding Company, Incorporated, et al
Filing
53
ORDER granting in part and denying in part 27 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
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KEVIN SHARP,
Plaintiff,
v.
MEMPHIS BONDING COMPANY,
INC.; GEORGE A. HITT; TRACY
VAN PITTMAN; and WENDY
BENTON,
Defendants.
No. 18-2143
ORDER
Before the Court is Defendants Memphis Bonding Company,
Inc. (“Memphis Bonding”), George A. Hitt, Tracy Van Pittman, and
Wendy Benton’s July 23, 2018 Motion to Dismiss for Failure to
State a Claim.
(ECF No. 27.)
on September 27, 2018.
February 25, 2019.
Plaintiff Kevin Sharp responded
(ECF No. 36-1.)
Defendants replied on
(ECF No. 46.)
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 Second Amended Complaint.
Memphis Bonding is a bail bonding company operating in the
Memphis, Tennessee area.
(See ECF No. 33 ¶ 2.)
Defendant Hitt
is the President and sole shareholder of Memphis Bonding.
¶ 3.)
(Id.
On August 7, 2015, Sharp went to Memphis Bonding’s office
to obtain a bail bond to secure the pretrial release of his
stepson, Darian Terrell. 1
(Id. ¶ 9.) Terrell had been arrested,
and the presiding court had set his bail at $75,000.
(Id.)
Sharp met with Defendant Wendy Benton, a bonding agent
working for Memphis Bonding.
that
his
estranged
wife,
(Id. ¶ 10.)
Melisha
Sharp,
Sharp told Benton
had
already
made
financial arrangements with Memphis Bonding, but Melisha Sharp
had asked him to sign certain documents which would guarantee
Terrell’s appearance in court.
(Id.)
When Sharp asked what the
documents were, Benton explained that Memphis Bonding was using
Sharp’s house as collateral to guarantee that Terrell would
appear in court.
(Id.)
Benton told Sharp that if Terrell did
not show up in court, Sharp would owe money.
1
(Id.)
If Terrell
Throughout the Second Amended Complaint and the parties’ motions and
memoranda, Plaintiff Kevin Sharp is frequently referred to as “Ms. Knight”
and “Mr. Bailey.” Knight and Bailey are plaintiffs in separate but related
lawsuits against Defendants. No party raises an objection on the basis of
these misnomers.
The Court construes references to Knight and Bailey as
references to the Plaintiff in this action unless context suggests otherwise.
2
did appear, Benton said, Sharp would owe no money and have no
obligation to Memphis Bonding.
(Id. ¶ 23.)
There was no
discussion about Memphis Bonding’s obtaining a lien on Sharp’s
home.
(Id. ¶ 10.)
Benton presented Sharp with one side of a two-sided document
to sign.
(Id.) Benton was the only person present to witness
Sharp signing that document.
(Id.)
Sharp did not see anyone
notarize the document, and he did not sign a notary book.
(Id.)
After signing, but without receiving a copy of what he had
signed, Sharp left.
(Id.)
Sharp alleges that Benton’s oral
representations about the agreement were false.
42.)
(Id. ¶ 23, 38,
Sharp represents that the paperwork he signed obligated
him to pay Memphis Bonding the unpaid portion of the bond premium
whether his stepson appeared in court or not.
(Id. ¶ 13, 14,
38.)
On August 18, 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 August 7, 2015,
the names of Kevin and Melisha Sharp as the “first part,” Memphis
Bonding Company as the “Trustee” and Grantee, the property
description of Sharp’s house, and a description of indebtedness
3
to Memphis Bonding in the sum of $75,000.00 “as . . . Collateral
for Darian Terrell.”
(Id.; Deed of Trust, ECF No. 33-1.)
On
the second page, Kevin Sharp and Melisha Sharp’s purported
signatures appear.
(Id.)
The signature of a notary appears
twice along with the notary seal of Defendant Pittman.
(Id.)
Sharp represents that he cannot determine whether his signature
on the Deed of Trust is authentic.
Terrell
forfeited.
appeared
in
(Id. ¶ 12.)
court,
(Id.)
and
the
bail
bond
was
not
Sharp learned in 2018, however, that
the Deed of Trust remained a $75,000 encumbrance on his house.
(Id.)
After learning of the encumbrance, Sharp went to Memphis
Bonding’s
office
to
ask
outstanding indebtedness.
about
the
Deed
(Id. ¶ 13.)
of
Trust
and
any
An employee told Sharp
that he continued to owe approximately $4,100 to Memphis Bonding.
(Id.)
On
March
Defendants.
1,
2018,
(ECF No. 1.)
Sharp
filed
a
complaint
against
Sharp alleges civil violations of the
Racketeering Influenced and Corrupt Organizations Act (“RICO”),
the Truth-in-Lending Act (the “TILA”), and various state laws.
(ECF No. 33 ¶¶ 17–53.)
on June 25, 2018.
Sharp filed his First Amended Complaint
(ECF No. 21.)
to Dismiss on July 23, 2018.
Defendants filed their Motion
(ECF No. 27.)
Sharp filed his
Second Amended Complaint on September 13, 2018.
(ECF No. 33.)
The Court determined that the Second Amended Complaint did not
4
moot Defendants’ Motion to Dismiss.
No. 34.)
(Order to Show Cause, ECF
On September 27, 2018, Sharp filed a Motion for Leave
to File a Response to Defendants’ Motion to Dismiss.
36.)
(ECF No.
On October 5, 2018, Defendants filed a Renewed Motion to
Dismiss and/or Motion for Judgment seeking dismissal of this
case based on Sharp’s alleged lack of appropriate response to
the Court’s September 13, 2018 Order to Show Cause.
37.)
(ECF No.
On February 12, 2019, the Court granted Sharp’s Motion for
Leave to File a Response and denied Defendants’ Renewed Motion
to Dismiss.
(Order, ECF No. 45.)
On January 18, 2019, the Court consolidated this case with
Bailey
v. Memphis
Bonding
Co.,
Inc.,
No.
18-2115,
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
Sharp
alleges that Defendants’ conduct constitutes a civil violation
of RICO, 18 U.S.C. §§ 1961, et seq., and the TILA, 15 U.S.C.
§§ 1601, et seq.
(See ECF No. 33 ¶¶ 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
5
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 supplemental jurisdiction over Sharp’s statelaw claims.
See 28 U.S.C. § 1367(a).
Those claims derive from
a “common nucleus of operative fact” with Sharp’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 Sharp’s state-law claims and ground
their arguments accordingly.
The Court will apply Tennessee
substantive law to Sharp’s state-law claims.
6
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
enough to raise a right to relief above [a] speculative level.”
7
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
Sharp alleges that Defendants engaged in a pattern of
racketeering activity to fraudulently obtain title to their
customers’ real property.
(ECF No. 33 ¶ 21.)
Sharp 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.)
Sharp
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.
(See id.)
Those deeds were falsely notarized by Defendant Pittman who did
8
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, 20.)
“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).
Sharp
brings
subsections. 2
2
claims
against
Defendants
under
(See ECF No. 33 ¶¶ 22, 25, 26.)
Sharp does not bring a claim under 18 U.S.C. § 1962(a).
9
these
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.
18
and
(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
See 18 U.S.C. § 1962.
that
Sharp’s
RICO
claims
should
be
dismissed for four reasons: (1) Sharp fails to plead plausibly
that RICO “persons” distinct from the alleged RICO “enterprise”
engaged in unlawful activity; (2) Sharp fails to allege two or
more
predicate
offenses;
(3)
Sharp
fails
to
allege
a
“conspiracy”; and (4) Sharp fails to allege the existence of a
RICO
enterprise
racketeering.”
separate
“from
the
alleged
pattern
of
(ECF No. 27-1 at 117—20, 120—21, 121, 121—22.)
1. Distinctness
To succeed, Sharp must show the existence of two distinct
entities: (1) a RICO “enterprise”; and (2) a RICO “person” who
used or conspired to use the enterprise to violate RICO.
10
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.”
Sharp
alleges
that
18 U.S.C. § 1961(4).
Defendants
Memphis
Bonding,
Hitt,
Pittman, and Benton are RICO “persons,” and that Memphis Bonding
is the RICO “enterprise.”
(ECF No. 33 at ¶¶ 19–20.)
Defendants
argue that Sharp fails to allege adequately the existence of
RICO persons distinct from the RICO enterprise.
(See ECF No.
27-1
the
at
117—20.)
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, Sharp
must allege facts suggesting that the enterprise is not the same
11
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
Benton are not distinct from Memphis Bonding because they are
“employed by or associated with” Memphis Bonding is not welltaken.
(ECF No. 27-1 at 118–19.)
“[I]ndividual defendants are
always distinct from corporate enterprises because they are
legally distinct entities, even when those individuals own the
corporations or act only on their behalf.”
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).
Sharp
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. 1:0712
cv-1031, 2008 WL 4057542, at *4 (W.D. Mich. Aug. 28, 2008).
Sharp’s RICO claims against Memphis Bonding must be dismissed.
Defendants’ Motion to Dismiss Sharp’s RICO claims against
Memphis Bonding is GRANTED.
Sharp has sufficiently pled that
Hitt, Pittman, and Benton are distinct from the alleged RICO
enterprise.
Defendants’ Motion to Dismiss RICO claims against
those defendants on grounds of distinctness is DENIED.
2. Pattern of Racketeering Activity
Sharp 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
181, 183–84 (6th Cir. 1993) vacated on other grounds by Bridge,
553 U.S. at 639.
Defendants argue that Sharp has alleged only one predicate
offense.
(See ECF No. 27-1 at 120.)
3
They contend that Sharp
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.,
13
alleges only one instance of mail fraud, and thus his RICO claims
must fail.
(Id.)
Sharp
responds
that
the
Second
Amended
Complaint alleges “much more than just two predicate offenses.”
(ECF No. 36-2 at 209.)
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.)
Sharp 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. 33 ¶ 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 Sharp 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
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.
14
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.
Sharp
Given those requirements,
sufficiently
alleges
that
Defendants committed at least two instances of mail fraud.
Sharp sets out Defendants’ alleged scheme to defraud their
customers
in
Complaint.
paragraphs
22
and
23
of
(See ECF No. 33 ¶ 22–23.)
his
Second
Amended
Defendants appear to
concede those allegations adequately allege one violation of
mail fraud.
conjunction
Sharp argues that paragraphs 22 and 23, read in
with
three
other
paragraphs,
allege
additional
instances of mail fraud that Defendants committed against other
victims.
(See ECF No. 36-2 at 209.) 4
The additional allegations are paragraphs 15, 16, and 27 of
the Second Amended Complaint.
(See id.)
4
In relevant part,
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.
15
paragraph 15 alleges that Memphis Bonding “has been a prolific
filer of Deeds of Trust identical in form” to the one Sharp
signed and that those deeds of trust were filed by mail.
No. 33 ¶ 15.)
(ECF
Paragraph 16 alleges that three other lawsuits
“with very similar allegations have been filed in this Court
. . . .”
(Id. ¶ 16 (case citations omitted).)
Paragraph 27
alleges that “[t]he scheme which the Defendants perpetrated on
Mr. Sharp 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 Sharp’s Second Amended Complaint when addressing a motion to
dismiss.
Within those four corners, Sharp does not allege mail
fraud against other individuals with sufficient particularity.
Rule 9(b) requires Sharp to allege, “with particularity the
circumstances constituting fraud . . . .” Fed. R. Civ. P. 9(b).
Although
Sharp
generally
alleges
that
Defendants
defrauded
“other customers” in a similar way, Sharp 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 Sharp’s Second Amended Complaint
refer to allegations made against Defendants in the complaints
16
of other cases pending in this court.
27.)
(See ECF No. 33 ¶¶ 16,
Sharp 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. 182115; 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 Sharp
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 Bailey
and Ray have been consolidated with Sharp.
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
17
of mail fraud against Defendants that occurred within ten years
of the mail fraud alleged in Sharp’s Second 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. 33 ¶ 23.)
18
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.
(See id.)
Ray
alleges that Pittman “falsely notarized a signature of the Deed
of
Trust
which
he
did
not
witness
“personally appear” before Pittman.
because”
(Id.)
Ray
did
not
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.)
19
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. 33 ¶ 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.
Sharp
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 Sharp 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. 27-1 at 121.)
“To plausibly state a claim for a violation of 18 U.S.C.
§ 1962(d), plaintiffs must successfully allege all the elements
20
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)).
Sharp alleges that Defendants agreed to engage in the scheme
described above with the purpose of “obtain[ing] money from Mr.
Sharp when none was owed.”
(ECF No. 33 ¶ 26.)
Sharp alleges
that each participant in the scheme played a particular role in
carrying it out.
(See id.)
The Court has determined that Sharp
has adequately pled RICO claims under § 1962(b) and § 1962(c)
against
Defendants
Sections
Hitt,
IV(A)(1)–(2).)
Pittman,
Sharp’s
and
Benton.
allegation
that
(See
infra
Defendants
agreed to take part in that scheme is sufficient to state a claim
for RICO conspiracy under § 1962(d).
Sharp adequately alleges that Hitt, Pittman, and Benton
violated 18 U.S.C. § 1962(d).
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. 27-1 at 122.)
They contend Sharp
fails to state a claim under RICO because Defendants’ business
21
activities are not “separate from the pattern of racketeering
activity.”
(Id. (quotation omitted).)
As noted, to state a claim under RICO, Sharp 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. 33 ¶ 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
22
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).
Sharp has adequately alleged the
existence of a RICO enterprise.
*
*
*
Sharp’s RICO claims against Defendants Hitt, Pittman, and
Benton 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
23
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.
See 15 U.S.C.
§ 1638(b)(1). Sharp 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. 33 ¶¶ 31—33.)
24
Defendants argue that Sharp’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. 27-1 at 123—24.)
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 August 7, 2015.
(See ECF No. 33 ¶ 9.)
Complaint was filed on March 1, 2018.
The
(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
25
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)).
Sharp’s claim for rescission of the credit agreement is
timely because the initial Complaint was filed within three years
of
the
alleged
bail
bonding
transaction.
See
15
U.S.C.
§ 1635(f). Sharp’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
26
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.
27
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)
Sharp alleges that Defendants’ oral misrepresentations and
falsely notarized deed of trust concealed his TILA claims until
he discovered that Defendants had misled him.
Sharp alleges
that he went to Memphis Bonding “to sign some documents which
would guarantee that [his stepson] would show up in court.”
No.
33
¶
10.)
He
alleges
that
Benton
“made
the
(ECF
false
representation that Mr. Sharp would not owe any money or have
any obligation to [Memphis Bonding] if his step-son showed up in
court.”
(Id. ¶ 23.)
Sharp alleges that “[t]here was no
discussion of owing any money since Melisha Sharp had already
made financial arrangements.” (Id. ¶ 10.) Sharp claims “[t]here
28
was
no
discussion
about
[Memphis
Bonding]
maintaining a lien on the Real Property.”
obtaining
(Id.)
Sharp also
alleges Pittman falsely notarized the Deed of Trust.
Sharp
adequately
alleges
Defendants’ TILA violations.
fraudulent
or
(Id.)
concealment
of
First, Sharp alleges that Benton’s
statements misled him to believe that he would owe money to
Memphis Bonding only if his stepson failed to appear in court
and that Memphis Bonding would take no property interest in his
real property unless his stepson failed to appear in court.
Second, Sharp alleges that Defendants knew the true nature of
the document Sharp was signing.
(See ECF No. 33 ¶ 22.)
Third,
Sharp alleges that Defendants made the oral misrepresentations
with the intent of inducing Sharp to sign the document.
id.)
(See
Fourth, Sharp represents that he “has no knowledge of the
existence or terms of [Memphis Bonding’s] debt because [Memphis
Bonding]
has
documents.”
Fifth,
it
refused
to
provide
copies
of
any
such
‘debt’
(ECF No. 36-2 at 215; see also ECF No. 33 ¶ 13.)
was
reasonable
for
Sharp
to
rely
on
Defendants’
representations about the document they gave to Sharp to sign.
Finally,
the
Court
cannot
conclude
at
this
stage
of
the
litigation that Sharp lacked diligence in pursuing his claim.
Sharp alleges that Defendants told him that he would owe no money
and would forfeit no collateral if his stepson appeared in court.
(See ECF No. 33 ¶ 10.)
If true, Sharp would have had no reason
29
to investigate his financial commitments to Defendants because
his stepson did appear in court.
Sharp’s allegations support the inference that equitable
estoppel for fraudulent concealment is appropriate in this case.
Defendants’ Motion to Dismiss Sharp’s TILA claims based on the
statute of limitations is DENIED.
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 Sharp’s TILA claims fail because he has not pled facts
showing Defendants extended credit to Sharp.
at 122—24.)
(See ECF No. 27-1
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.)
Sharp responds that Buckman is inapposite because it does
not address agreements to defer the payment of a bail bonding
premium.
(See ECF No. 36-2 at 212.)
Sharp 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
30
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,
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 Sharp, 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, Sharp alleges
31
that he became liable to Memphis Bonding for the unpaid portion
of the bail bond premium when the paperwork was signed on August
7, 2015.
(See ECF No. 33 ¶ 13, 14, 38.)
He owed money to
Memphis Bonding whether his stepson appeared in court or not.
That
liability
to
Memphis
Bonding
contingency or possible court order.
was
not
premised
on
any
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 Sharp’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).
Sharp alleges that Memphis Bonding violated the TCPA
when it falsely represented to Sharp that the Deed of Trust he
signed was collateral only to guarantee his stepson’s appearance
in court.
(ECF No. 33 ¶ 38.)
32
Sharp 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 Sharp has failed to state a claim
under the TCPA because: (1) Sharp’s claims are time-barred by
the applicable one-year statute of limitations; and (2) the
business practices about which Sharp complains are authorized by
Tennessee law. (See ECF No. 27-1 at 125–28.)
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 Sharp’s TCPA claims accrued when he
signed the Deed of Trust at Memphis Bonding’s offices.
(See ECF
No. 27-1 at 128.) They contend that, because Sharp “acknowledged
signing documents at Memphis 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,
33
if
Sharp
had
exercised
reasonable diligence, he would have ensured that his Deed of
Trust was released after his stepson 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.”
Co., 910 S.W.2d 851, 854 (Tenn. 1995).
Wyatt v. A–Best
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).
Sharp
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. 33 ¶ 12.)
Sharp has alleged that Benton told him any obligation he had to
Memphis Bonding would be released if his stepson appeared in
court.
(See id. ¶ 23.)
for his court date.
Sharp alleges his stepson did appear
(See id. ¶ 12.)
The Court cannot conclude
on the allegations before it that Sharp failed to exercise
reasonable care and diligence.
34
2. Application to Defendants’ Business
Defendants argue that Sharp 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. 27-1 at 125.)
Specifically, Defendants contend
that their practices do not violate Tenn. Code. Ann. § 40-11138(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 Sharp did not violate
the statute because Sharp is not a “principal.”
at 126.)
(ECF No. 27-1
Sharp 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
35
involve or [2] which are prohibited by law.”
104(b)(12) (bracketed numbers added).
Id. § 47–18–
That provision contains
two prongs, worded in the disjunctive.
Sharp need only allege
violation of one prong to state a claim.
To support his specific TCPA claims, Sharp alleges that
Defendants
misrepresented
the
nature
agreement.
(See ECF No. 33 ¶ 38.)
of
the
bail
bonding
Sharp 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 Sharp’s TCPA claims is DENIED.
D. Fraud
Sharp brings two claims of common-law fraud.
Sharp alleges
that Defendants falsely represented that the paperwork Sharp
signed was securing only the appearance of his stepson in court
and not pledging security for any other debt.
¶ 42.)
(See ECF No. 33
Sharp also alleges the Deed of Trust was fraudulently
notarized because Defendant Pittman did not witness Sharp signing
it.
(Id.)
To establish a claim for fraud in Tennessee, Sharp must
show that:
36
(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.
Walker v. Sunrise Pontiac–GMC Truck, Inc., 249 S.W.3d 301, 311
(Tenn. 2008).
Defendants contend Sharp fails to state a claim
for fraud because (1) the statute of limitations has run, and
(2) Sharp has not alleged legally adequate damages.
(See ECF
No. 129–30.)
1. Timeliness
Defendants argue the statute of limitations has run on
Sharp’s fraud claims.
(See ECF No. 27-1 at 129.)
Defendants
contend that the “gravamen” of Sharp’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 Sharp’s fraud claims should be treated as
claims under the TCPA, the Court has determined that Sharp’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.
37
See Vance
v. Schulder, 547 S.W.2d 927, 931 (Tenn. 1977).
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, Sharp must
show
he
suffered
pecuniary
loss
resulting
from
Defendants’
misrepresentations. See City State Bank v. Dean Witter Reynolds,
Inc., 948 S.W.2d 729, 738 (Tenn. Ct. App. 1996).
Sharp 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. 33 ¶ 42.)
Defendants argue that these alleged damages are too speculative
to sustain a claim for fraud.
(See ECF No. 27-1 at 129.)
They
contend Sharp’s alleged damages are not sufficiently concrete
because, for example, “Sharp 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
38
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
him
by
his
§ 525 (1977)
(Third)
of
Torts:
Liability for Economic Harm § 9 cmt. b(3) (Am. Law Inst.,
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
39
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.”
There are similar considerations here.
Id.
Sharp 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, Sharp’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
Sharp’s
common-law
fraud
claims is GRANTED.
E. Professional Negligence and Malpractice
Sharp alleges that Defendant Pittman breached his duty to
Sharp by notarizing the Deed of Trust without actually witnessing
Sharp’s signature.
(See ECF No. 33 ¶ 47.)
Defendants contend
Sharp fails to state a claim for professional negligence because
(1) the claim is untimely, and (2) Sharp fails to allege legally
adequate damages.
(See ECF No. 27-1 at 130–31.)
1. Timeliness
The parties dispute whether Sharp’s claim for professional
negligence is time-barred.
(See id. at 130.)
Defendants argue
that Tenn. Code Ann. § 28-3-104(a) imposes a one-year statute of
40
limitations on professional negligence and malpractice claims.
(Id.)
Sharp contends that his claim is subject to the three-
year statute of limitations under Tenn. Code Ann. § 28-3-105.
(See ECF No. 36-2 at 219.)
This matter was filed on March 1,
2018, and the alleged bail bonding agreement was executed on
August 7, 2015.
Absent tolling of the statute, the viability of
Sharp’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.
Sharp alleges that Pittman negligently breached his duty to
Sharp by notarizing the Deed of Trust without actually witnessing
Sharp’s signature.
(See ECF No. 33 ¶ 47.)
Sharp’s alleged
damages resulting from Pittman’s negligence are “the loss of
access to equity in his house” and the “attorneys’ fees and court
41
costs” required to clear the title to his home.
(ECF No. 33
¶ 48.)
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
42
“actions brought for injuries resulting from invasions of rights
that inhere in man as a rational being, that is, rights to which
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 Sharp’s claim is negligence.
He seeks
compensatory damages in an amount not less than $100,000.00,
costs, and attorneys’ fees.
(See ECF No. 33 ¶ 49.)
The gravamen
of Sharp’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
43
injuries accrue to Sharp “by virtue of an interest created by
. . . property.”
Brown, 409 S.W.2d at 367.
The three-year
statute of limitations imposed by Tenn. Code Ann. § 28–3–105
applies to this claim.
Sharp’s negligence claim against Pittman
is not time-barred.
2. Damages
Defendants argue that Sharp fails to state a claim for
negligence because Sharp has not identified any harm resulting
from Pittman’s alleged misconduct.
(See ECF No. 27-1 at 130.)
They contend that, even if Pittman were not present to witness
Sharp signing the Deed of Trust, Sharp “was able to accomplish
the purpose of his visit, which was to use real property to
obtain his stepson’s freedom . . . .”
(Id.)
Sharp’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. 33
¶ 48.)
The
Court
has
determined
that
one
of
Sharp’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
44
of
tort,
is
that
uncertain,
contingent, or speculative damages may not be recovered.’”)
(quoting 25 C.J.S. Damages § 26)
Sharp’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. 33 ¶ 48.)
(ECF
It is not clear whether Sharp 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 Sharp
seeks damages to recover legal costs from 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).
Sharp 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 Sharp 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 Sharp
in prosecuting this litigation are not a cognizable injury.
45
To
hold otherwise would render the damages element of negligence a
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)).
Sharp’s
entitlement
alleged
to
injuries
recover
cannot
damages
establish
for
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).
46
Hodges
Although the
complaint does not necessarily have to allege malice expressly,
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).
Sharp fails to allege malice or any facts that would give
rise to a reasonable inference of malice.
S.W.2d at 767.
of title.
See Waterhouse, 145
Sharp fails to state a claim for libel or slander
Defendants’ Motion to Dismiss Sharp’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
47
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