Skibbe v. Accredited Home Lenders, Inc. et al

Filing 82

MEMORANDUM OPINION AND ORDER denying as moot defendants' 63 MOTION to Strike Second Amended Complaint; and denying as moot defendants' 36 RENEWED MOTION to Dismiss Amended Complaint; denying in part and granting in part defendants' 68 MOTION to Dismiss Third Amended Complaint as more fully set forth herein. Signed by Judge Joseph R. Goodwin on 5/21/2014. (cc: attys; any unrepresented party) (tmh)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION

WILLIAM C. SKIBBE,
Plaintiff,
v.

CIVIL ACTION NO. 2:08-cv-01393

ACCREDITED HOME LENDERS, INC., et al.,
Defendants.

MEMORANDUM OPINION AND ORDER
Pending before the court is the defendants Residential Credit Solutions, Inc. (“RCS”) and
Deutsche Bank National Trust’s (“Deutsche”) Renewed Motion to Dismiss [Docket 36], Motion to
Strike Second Amended Complaint, Count IV of Plaintiff’s Amended Complaint, and Reference
to Defendant Real Estate Appraiser from Plaintiff’s Amended Complaint [Docket 63], and Motion
to Dismiss Third Amended Complaint [Docket 68]. For the reasons discussed below, the
defendants’ motion to strike [Docket 63] and renewed motion to dismiss [Docket 36] are DENIED
as moot. The defendants’ motion to dismiss the Third Amended Complaint [Docket 68] is
GRANTED in part and DENIED in part.
I.

Background

The plaintiff, William C. Skibbe, resides in a 900 square-foot home in Hurricane, West
Virginia. (Third Am. Compl. [Docket 67] ¶¶ 2, 6). In May 2005, the plaintiff responded to a
solicitation for a mortgage from the defendants Aames Funding Corp. (“Aames”) and Dana
Capital Group, Inc. (“Dana”). (Id. ¶ 7). An independent appraisal valued the house at $90,000 and
the plaintiff obtained a loan for $71,825 on May 7, 2005. (Id. ¶¶ 8(c), 9(a)). The plaintiff alleges

that his home had a market value of $51,200 at the time he accepted the loan. (See id.). The
defendant Accredited Home Lenders, Inc. (“Accredited”) is the successor to Aames as Lender and
Servicer of the mortgage obtained by the plaintiff and Dana was the broker for the mortgage
transaction. (Id. at ¶¶ 3, 7). The mortgage is currently held by the defendant RCS and upon
foreclosure the property was purchased by the defendant Deutsche. (Id. ¶¶ 4-5).
In February 2008, the plaintiff filed suit against Aames, RCS, Deutsche, and Dana in state
court. In April 2008, the state court suit was removed to this court and immediately referred under
our Local Rules of Civil Procedure to the United States Bankruptcy Court for the Southern District
of West Virginia as an adversary proceeding. (See In re Skibbe, Case No. 2:08-ap-02024 [Docket
1]). While the case was pending before the bankruptcy court, the plaintiff moved to amend his
complaint, which the court granted. (See AP-9 Order Granting Motion to Amend [Docket 15-8]).
The defendant moved to dismiss the amended complaint. (See AP-16 Motion to Dismiss [Docket
15-15]). Upon motion, this court withdrew the reference from the bankruptcy court. (See In re
Skibbe, Case No. 2:08-ap-02024 [Docket 44]). From May 2009 to April 2013, the case was stayed
because of Accredited’s Chapter 11 bankruptcy, which ended in liquidation of the company. (See
Order [Docket 20]; Order [Docket 33]).
After the stay was lifted, the defendants renewed their motion to dismiss the plaintiff’s
amended complaint. On February 12, 2014, the defendants gave the plaintiff written consent to file
an amended complaint. (See Consent to File Second Am. Compl. by RCS and Deutsche [Docket
59]). The plaintiff filed his Second Amended Complaint on the same day. (See Second Am.
Compl. [Docket 60]). The defendants moved to strike the Second Amended Complaint because it
added Dana as a defendant, who was not a party in the prior complaint, alleged a count of breach of

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fiduciary duty against Dana, and identified Dana’s appraiser as a defendant.
On February 25, 2014, with the defendants’ consent, the plaintiff filed a Third Amended
Complaint. (See Third Am. Compl. [Docket 67]). The Third Amended Complaint asserts four
counts: (1) the loan was unconscionable under W. Va. Code § 46A-2-121; (2) the defendants
fraudulently originated the loan to induce the plaintiff into entering into it; (3) the acts of each
defendant were undertaken in the furtherance of a joint venture or conspiracy and that Dana and
the appraiser were agents of the remaining defendants; and (4) the loan was originated in violation
of W. Va. Code § 31-17-8. (Id. ¶¶ 13-31).The Third Amended Complaint also removed Dana as a
defendant. (See id.).
The defendants moved to dismiss the Third Amended Complaint. The defendants also
moved for summary judgment on all counts. In his reply to the motion for summary judgment, the
plaintiff abandoned Count II (Fraudulent Origination) and Count III (Joint Venture/Agency). (Pl.’s
Mem. of Law in Resp. to Defs.’ Mot. for Summ. J. (“Pl.’s Resp. Summ. J.”) [Docket 75], at 2 n.1).
The plaintiff stated that the “Defendants’ motion for summary judgment on these two claims is
therefore moot and the counts should be dismissed.” (Id.).
II.

Legal Standard

A motion to dismiss filed under Rule 12(b)(6) tests the legal sufficiency of a complaint or
pleading. Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008). Federal Rule of Civil
Procedure 8 requires that a pleading contain a “short and plain statement of the claim showing that
the pleader is entitled to relief.” Fed. R. Civ. P. 8. As the Supreme Court recently reiterated in
Ashcroft v. Iqbal, that standard “does not require ‘detailed factual allegations’ but ‘it demands
more than an unadorned, the-defendant-unlawfully-harmed-me accusation.’” 556 U.S. 662, 678

3

(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “[A] plaintiff=s
obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not do.”
Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986) for the proposition
that “on a motion to dismiss, courts ‘are not bound to accept as true a legal conclusion couched as
a factual allegation’”). A court cannot accept as true legal conclusions in a complaint that merely
recite the elements of a cause of action supported by conclusory statements. Iqbal, 129 S. Ct. at
678-79. “To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. at 678 (quoting
Twombly, 550 U.S. at 570). To achieve facial plausibility, the plaintiff must plead facts that allow
the court to draw the reasonable inference that the defendant is liable, and those facts must be more
than merely consistent with the defendant=s liability to raise the claim from merely possible to
probable. Id.
In determining whether a plausible claim exists, the court must undertake a
context-specific inquiry, “[b]ut where the well-pleaded facts do not permit the court to infer more
than the mere possibility of misconduct, the complaint has allegedCbut it has not ‘show[n]’C‘that
the pleader is entitled to relief.’” Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)). A complaint must
contain enough facts to “nudge[] [a] claim cross the line from conceivable to plausible.” Twombly,
550 U.S. at 570.

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III.

Discussion
A. Renewed Motion to Dismiss [Docket 36] and Motion to Strike [Docket 63]

“The general rule . . . is that an amended pleading supersedes the original pleading,
rendering the original pleading of no effect.” Young v. City of Mount Ranier, 238 F.3d 567, 573
(4th Cir. 2001). When a plaintiff amends a complaint while a motion to dismiss is pending, a court
may deny the motion as moot. See Turner v. Kight, 192 F. Supp. 2d 391, 397 (D. Md. 2002)
(denying as moot motion to dismiss original complaint because it was superseded by the amended
complaint); see also State Farm Fire & Cas. Co. v. Kudasz, No. 3:10-cv-545-RJC-DCK, 2011 WL
1830399, at *1 (W.D.N.C. May 12, 2011) (“It is well-settled that a timely filed amended pleading
supersedes the original pleading, and that motions directed at superseded pleadings are to be
denied as moot.”); Suntrust Mortgage, Inc. v. Busby, No. 2:09-cv-3, 2009 WL 1658484, at *1
(W.D.N.C. June 11, 2009) (collecting cases standing for the proposition that a motion to dismiss is
moot when a plaintiff files an amended complaint). The Third Amended Complaint superseded the
Amended Complaint and the Second Amended Complaint. Accordingly, the defendants’ renewed
motion to dismiss [Docket 36] and motion to strike [Docket 63] are DENIED as moot.
B. Motion to Dismiss Third Amended Complaint [Docket 68]
As discussed above, the plaintiff has abandoned and recommended the dismissal of Count
II (Fraudulent Origination) and Count III (Joint Venture/Agency). (Pl.’s Resp. Summ. J. [Docket
75], at 2 n.1). Accordingly, Count II and III are DISMISSED. I will now review the Third
Amended Complaint to determine whether Count I (Unconscionable Contract) and Count IV
(Illegal Loan Contract) survive the defendants’ motion to dismiss.

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i. Res Judicata and Waiver
The defendants argue that the doctrines of res judicata and waiver bar the plaintiff’s
arguments regarding the legal sufficiency of the loan, including whether the loan is
unconscionable. In support of their position, the defendants note the plaintiff did not raise any
defenses to RCS’s motion and the bankruptcy court’s Agreed Order to lift the automatic stay. In
addition, the defendants observe that the plaintiff did not dispute that he was in default or the
propriety of the foreclosure sale. 1
Res judicata precludes the assertion of a claim after a judgment on the merits in a prior suit
between the same parties. Pueschel v. United States, 369 F.3d 345, 354-55 (4th Cir. 2004). The
doctrine of res judicata has three elements: “(1) a final judgment on the merits in a prior suit, (2) an
identity of the cause of action in both the earlier and the later suit, and (3) an identity of parties or
their privies in the two suits.” Pension Benefit Guar. Corp. v. Beverley, 404 F.3d 243, 248 (4th Cir.
2005) (quotations omitted). Res judicata affects all of the claims actually presented in the prior
action as well as “all grounds for, or defenses to, recovery that were previously available to the
parties, regardless of whether they were asserted or determined in the prior proceeding.” Id.
The critical element missing here is an adjudication on the merits. As the Fourth Circuit has
acknowledged in dicta, an order granting relief from the automatic stay, standing alone, should not
“be considered a final judgment on the merits sufficient to invoke strict res judicata principles.”
1

The defendants cite my prior decision in Sampson v. Chase Home Fin., 667 F. Supp. 2d 692 (S.D. W. Va. 2009) to
support their arguments of res judicata. In Sampson, during their Chapter 13 bankruptcy, the plaintiffs did not object to
the lender’s proof of claim or the bankruptcy court’s confirmation order. See id. at 693-94. After they were discharged,
the plaintiffs filed suit in state court asserting several causes of actions, including unconscionable contract. Id. at 694.
I found that res judicata barred some of the plaintiffs’ state law claims, including the one for unconsionability, which
arose prior to the plaintiffs’ bankruptcy petition. Id. at 696-97. Unlike Sampson, the defendants here are not arguing
that the plaintiff failed to challenge RCS’s proof of claim. In addition, as the plaintiff filed a Chapter 7 liquidation, the
bankruptcy court did not enter an order confirming a rehabilitation plan. Instead, the defendants focus on the plaintiff’s
failure to dispute the validity of the loan during the proceedings to lift the automatic stay. Therefore, my analysis will
be limited to that argument.

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Cnty. Fuel Co., Inc. v. Equitable Bank Corp., 832 F.2d 290, 293 (4th Cir. 1987). When a debtor
files a petition for bankruptcy, the automatic stay provisions prevent creditors from collecting on
any pre-petition debts. 11 U.S.C. § 362. The automatic stay “gives the debtor a breathing spell
from creditors[.]” 2 Norton Bankruptcy Law and Practice § 43:4 (3d ed. 2011). It also prevents
individual creditors from depleting the bankruptcy estate’s finite assets. See 1-1 Collier
Bankruptcy Manual § 1.05 (4th ed. 2010). The stay is problematic for secured creditors who want
to foreclose on their collateral before it declines in value. See id. “In such a case, bankruptcy
proceedings may only delay the inevitable result.” Matter of Vitreous Steel Prods. Co., 911 F.2d
1223, 1231 (7th Cir. 1990). For this reason, under certain circumstances, secured creditors can
seek relief from the stay under 11 U.S.C. § 362(d). Id.
This section allows the bankruptcy court to lift the stay for cause, such as lack of adequate
protection for the creditor’s interest, or “if the debtor has no equity in the collateral and the
collateral is not necessary to an effective reorganization of the debtor.” Estate Const. Co. v. Miller
& Smith Holding Co., Inc., 14 F.3d 213, 219 (4th Cir. 1994); see also 11 U.S.C. § 362(d).
Therefore, “the only matters potentially in issue in relation to a motion to lift an automatic stay
relate to the adequacy of the creditor’s protection, the debtor’s equity, and the necessity of the
property to effective reorganization; the merits of claims are not in issue and the procedural setting
is not one appropriate for the assertion of counterclaims.” Cnty. Fuel, 832 F.2d at 293. A lift stay
proceeding does not “involve full adjudication on the merits of claims, defenses, or counterclaims,
but simply a determination as to whether a creditor has a colorable claim to property of the estate.”
Canterbury v. J.P. Morgan Mortgage Acquisition Corp., No. 3:10-cv-54, 2010 WL 5314543, at *2
(W.D. Va. Dec. 20, 2010) (quotations omitted). Importantly, “[r]elief from the stay is obtained by

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a simple motion . . . and it is a contested matter, rather than an adversary proceeding with verified
pleadings.” Id. (quotations omitted). In other words, a contested or uncontested order lifting the
automatic stay says nothing about the validity of the underlying obligation. At most, the plaintiff’s
agreement to lift the stay is an admission that RCS had a colorable claim. See id. Because the lift
stay proceeding did not adjudicate the merits of the plaintiff’s claims, I FIND res judicata does not
apply.
Citing County Fuel Co., Inc. v. Equitable Bank Corp., 832 F.2d 290 (4th Cir. 1987), the
defendants argue the doctrine of waiver bars the plaintiff’s claims. In County Fuel, the debtor,
County Fuel, filed for Chapter 11 bankruptcy. Id. at 291. The creditor, Equitable, filed a proof of
claim that included the principal due on the loan as well as attorney fees. See id. County Fuel did
not object to the validity of the claim, but did object to the inclusion of attorney fees. See id. The
bankruptcy court allowed the claim and lifted the automatic stay. See id. at 291-93. By further
order, the bankruptcy court also allowed Equitable to recover attorney fees. Id. at 293. County Fuel
contested the attorney fees, but “expressly conceded that Equitable’s secured claim for pre-petition
debts ‘are not objected to, and in fact have been paid in full.’” Id. at 293. Two years later, County
Fuel filed a breach of contract action against Equitable in state court. Id. at 292, 294 n.2. County
Fuel alleged that Equitable breached its oral promise not to call the loan so long as County Fuel’s
accounts receivable provided adequate security for the loan. Id. at 292.
The Fourth Circuit found that County Fuel had waived its breach of contract claim for
several reasons:
[W]e are satisfied that County Fuel’s failure to object or to assert its claim as a
counterclaim to Equitable’s claim in the bankruptcy proceeding, followed by
Equitable’s satisfaction of the principal amount of its claim upon lifting of the
automatic stay, followed by County Fuel’s express concession of the validity of
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Equitable’s principal claim in the course of objecting to its further claim for
attorney fees, suffices to preclude County Fuel’s later independent actions.
Id. at 293. The successful prosecution of the breach of contract claim would have nullified the
bankruptcy court’s order allowing attorney fees. See id. In addition, it would have forced Equitable
to return the amount it had received in satisfaction of its claim. Id.
With the exception of RCS’s successful foreclosure of the plaintiff’s property, the “total
compass” of the County Fuel factors are not present here. Unlike County Fuel, the plaintiff did not
explicitly concede to the validity of RCS’s proof of claim. To the contrary, in his amended
schedules, the plaintiff listed his claim against the defendants as an asset. (See Am. Schedule of
Assets and Liabilities [Docket 72-1]). In addition, it is not clear, as it was in County Fuel, that the
plaintiff’s successful prosecution of his claims would nullify the prior order of the bankruptcy
court. In County Fuel, the successful counterclaim would have nullified the prior attorney fees
decision because if County Fuel did not owe the principal amount, due to breach of contract, then
the attorney fees were not recoverable. See Cnty. Fuel, 832 F.2d at 293.
Here, the Agreed Order lifts the automatic stay to permit the foreclosure sale, removes the
property from the bankruptcy estate, and states that the plaintiff will surrender possession on
January 16, 2008. (See Agreed Order Granting Relief from Automatic Stay [Docket 68-2]). The
Agreed Order does not indicate that the plaintiff is waiving all claims or defenses with respect to
the underlying loan. Thus, the successful prosecution of the plaintiff’s claims does not nullify the
Agreed Order, which only permitted RCS to foreclose. Accordingly, I will not dismiss the
plaintiff’s claims on the theory of waiver.
ii. Count IV – Illegal Loan Contract
The plaintiff alleges that the loan was originated in violation of W. Va. Code §
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31-17-8(m)(8). 2 Section 31-17-8(m)(8) states in relevant part:
(m) In making any primary or subordinate mortgage loan, no licensee may, and
no primary or subordinate mortgage lending transaction may, contain terms
which:
....
(8) Secure a primary or subordinate mortgage loan in a principal amount that,
when added to the aggregate total of the outstanding principal balances of all
other primary or subordinate mortgage loans secured by the same property,
exceeds the fair market value of the property on the date that the latest mortgage
loan is made.
W. Va. Code § 31-17-8(m)(8) (emphasis added).
By its terms, the statute does not apply when a borrower takes out her first mortgage loan
and the principal balance of that loan exceeds the fair market value of the property at the time the
loan is made. This section applies when a borrower takes out an additional mortgage loan, and the
principal balance of that loan, when added to the outstanding balance of other existing loans,
“exceeds the fair market value of the property on the date that the latest mortgage loan is made.”
Id. Thus, the plain language of the statute requires the existence of other mortgage loans before it
will apply. Here, the plaintiff has not alleged the existence of other loans or their corresponding
balances. The plaintiff has only alleged that the principal balance of his mortgage loan exceeded
the fair market value of his home at the time the loan was made. Therefore, the plaintiff has not
alleged facts upon which relief may be granted. Accordingly, I GRANT the defendants’ motion to
dismiss with respect to Count IV (Illegal Loan Contract).

2

Although it is unclear in the complaint which provision of W. Va. Code § 31-17-8 the defendants are alleged to have
violated, the defendants assume that this refers to clause (m)(8) of the statute. The plaintiff confirms this assumption in
his Response. (See Pl.’s Mem. of Law in Resp. to Defs.’ Mot. to Dismiss Pl.’s Third Am. Compl. [Docket 72], at 8
n.3). Therefore, I will proceed as if this were the only clause pled in Count IV of the Amended Complaint.

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IV.

Conclusion

For the reasons discussed above, the defendants’ motion to strike [Docket 63] and renewed
motion to dismiss [Docket 36] are DENIED as moot. The defendants’ motion to dismiss the Third
Amended Complaint [Docket 68] is DENIED in part and GRANTED in part.
The court DIRECTS the Clerk to send a copy of this Order to counsel of record and any
unrepresented party.
ENTER:

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May 21, 2014