MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT BENEFICIAL WEST VIRGINIA, INC'S RENEWED MOTION FOR JUDGMENT ON THE PLEADINGS
Frank W. Volk, Chief Judge, United States Bankruptcy Court, Southern District of West Virginia
Pending is Defendant Beneficial West Virginia Inc.'s ("BWV") Renewed Motion for Judgment on the Pleadings (the "Motion") (docket no. 23), filed February 9, 2016. Plaintiffs James Louis Tillette II and Nancy Carol Tillette (collectively, the "Tillettes") responded on April 17, 2016. No reply has been received. The Motion is ready for adjudication.
This is a noncore proceeding related to a case under Title 11. The parties are deemed to have implicitly, if not explicitly, consented to entry of final judgment by the undersigned subject to review under 28 U.S.C. § 158 in accordance with 28 U.S.C. § 157(c)(2).
The Tillettes reside in Fayette County, West Virginia. BWV makes consumer credit loans and insurance sales in Charleston, West Virginia. The Tillettes purchased their home, located in Lansing, West Virginia, in February 2005 for $50,000. Compl. ¶ 4. The loan was extended by First Community Bank, N.A. The home appraised at that time for $75,000. Id. In April 2006, the Tillettes secured an additional loan on their home through BWV in the amount of $28,065.64. Compl. ¶ 5. In March 2008, the Tillettes refinanced the loan obligations with BWV, which resulted in a single obligation in the amount of $88,907.05. The loan was secured by their home. The refinancing caused the Tillettes difficulty in meeting their monthly mortgage payments. They ultimately defaulted. Compl. ¶ 9.
The Tillettes characterize themselves as "unsophisticated consumers ...." (Compl. ¶ 13). They allege that the refinancing transaction was a "predatory loan transaction" accomplished "[t]hrough ... sophisticated sales tactics" and that BWV "convinced" them that the transaction "was in their best interest." (Compl. ¶¶ 10, 6; see also id. ¶ 14 ("aggressively marketed its products to [them] ... and unduly pressured them into believing its loans were in their best interest.").
On March 3, 2015, the Tillettes instituted this adversary proceeding. They allege claims for unconscionability (Count One), breach of fiduciary duty (Count Two),
The Tillettes filed their underlying Chapter 7 bankruptcy case on October 16, 2014. The Chapter 7 Trustee filed a Report of No Distribution in the case on January 29, 2015. The Tillettes were granted a discharge on February 12, 2015. The Tillettes then filed this adversary proceeding. BWV moved for judgment on the pleadings on June 30, 2015. The motion was denied on January 19, 2016, without prejudice with leave to refile based on the then-recent decision in McFarland v. Wells Fargo Bank, N.A., 810 F.3d 273 (4th Cir.2016). BWV then renewed its challenge to the complaint with the Motion.
A. Governing Standard
Federal Rule of Civil Procedure 8(a)(2) requires that a pleader provide "a short and plain statement of the claim showing... entitle[ment] to relief." Fed. R. Civ. P. 8(a)(2); Erickson v. Pardus, 551 U.S. 89, 127 S.Ct. 2197, 2200, 167 L.Ed.2d 1081 (2007). While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). In order to state a claim for relief, a pleading must contain "a short and plain statement of the claim showing the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The pleadings must at least set forth sufficient information for the court to determine whether some recognized legal theory exists on which relief could be accorded to the pleader. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 563, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citing Car Carriers v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984)). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.
Rule 12(c) is made applicable in adversary proceedings by Federal Rule of Bankruptcy Procedure 7012(b). Rule 12(c) provides that "[a]fter the pleadings are closed — but early enough not to delay trial — a party may move for judgment on the pleadings." Fed. R. Civ. P. 12(c). Rule 12(c) motions are subject to the same legal standards applied to motions made under Rule 12(b)(6). Butler v. United States, 702 F.3d 749, 751-52 (4th Cir.2012); Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir.1999). Federal Rule of Civil Procedure 12(b)(6) correspondingly permits a defendant to challenge a complaint when it "fail[s] to state a claim upon which relief can be granted ...." Fed. R. Civ. P. 12(b)(6). The party moving for dismissal has the burden of showing that no claim for which relief can be granted has been stated. Moore's Federal Practice § 12.34.
In adjudicating a motion for judgment on the pleadings, a court evaluates whether the pleadings state "a claim to relief that is plausible on its face." Twombly, 550 U.S. at 547, 127 S.Ct. 1955; U.S. ex rel. Oberg v. Penn. Higher Educ. Assistance Agency, 745 F.3d 131, 136 (4th Cir.2014). In doing so, a court must construe the "facts in the light most favorable to the [non-movant]" Oberg, 745 F.3d at 136 (quoting Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir.2009)), and "draw all reasonable inferences in [the non-movant's] favor." Id. (quoting E.I. du Pont de Nemours & Co. v. Kolon, Indus., Inc., 637 F.3d 435, 440 (4th Cir.2011)). The court need not, however, "accept as true unwarranted inferences, unreasonable conclusions, or arguments," Id. (quoting Kloth v. Microsoft Corp., 444 F.3d 312,
The decision in Iqbal provides some additional markers concerning the plausibility requirement:
Iqbal, 556 U.S. at 678-79, 129 S.Ct. 1937 (internal citations omitted).
Akin to a Rule 12(b)(6) analysis, the Rule 12(c) calculus prescribes that "a court is not confined to the four corners of the complaint"; rather, a court "`may properly take judicial notice of matters of public record,' including statutes." Oberg, 745 F.3d at 136 (quoting Philips v. Pitt Cnty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir.2009)); see Papasan v. Allain, 478 U.S. 265, 283, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986). Further, although "`[c]ourts have not explicitly defined what constitutes a public record for 12(b)(6) purposes ... some have determined ... letter decisions of government agencies and published reports of administrative bodies' to be public records that properly can be considered on a motion to dismiss." Guthrie v. McClaskey, No. 1:11CV00061, 2012 WL 5494457, at *3 (W.D.Va. Nov. 13, 2012) (footnote omitted) (quoting Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1197 (3d Cir.1993)).
1. Count One — Unconscionability
As recently reiterated by the Supreme Court of Appeals of West Virginia, "Under West Virginia law, we analyze unconscionability in terms of two component parts: procedural unconscionability and substantive unconscionability." Nationstar Mortgage, LLC v. West, 237 W.Va. 84, 88, 785 S.E.2d 634, 638 (2016) (internal quotation marks and cited authority omitted). In West Virginia, "[t]he doctrine of unconscionability means that, because of an overall and gross imbalance, one-sidedness or lop-sidedness in a contract, a court may be justified in refusing to enforce the contract as written." Brown v. Genesis Healthcare Corp., 229 W.Va. 382, 391, 729 S.E.2d 217,
In Nationstar, Justice Loughry revisited the familiar concept of procedural unconscionability:
Nationstar, 237 W.Va. at 88, 785 S.E.2d at 638 (internal quotation marks and cited authority omitted). Substantive unconscionability, on the other hand, focuses "on the nature of the contractual provisions rather than on the circumstances surrounding the contract's formation ...." Id. at 92, 785 S.E.2d at 642. The summary of substantive unconscionability was recited as follows:
Id. (internal quotation marks and cited authority omitted).
The Tillettes claim that the loan obtained through BWV was induced by unconscionable conduct. Compl. ¶ 15. They allege that the loan agreements contained unfair terms, including a loan amount in excess of the fair market value of the collateral upon which the loan was underwritten. Compl. ¶ 16. It is true that "the amount of a mortgage loan, by itself, cannot show substantive unconscionability under West Virginia law." McFarland, 810 F.3d at 276. Indeed, "receiving too much money from a bank is not what is generally meant by `overly harsh treatment.'" Id. at 280. But the decision in McFarland left open the possibility that the loan amount, combined with other circumstances, could give rise to a claim for unconscionable contract.
At bottom, the Tillettes must allege that the terms of the loan were "unconscionable at the time [the loan] was made or [that it was] induced by unconscionable conduct." McFarland, 810 F.3d at 284 (alteration in original) (quoting W.Va. Code § 46A-2-121(1)(a)). In making the determination, the Supreme Court of Appeals has noted that "[t]he concept of unconscionability must be applied in a flexible manner, taking into consideration all
While the circumstances here are exceptionally close to the Rule 12 line of demarcation, the allegations make the wicket. The Tillettes allege unfair terms and surprise, providing the non-exclusive averment that they are "unsophisticated consumers" who were preyed upon through "sophisticated sales tactics," "aggressive market[ing]," and "undu[e] pressure" and ultimately cajoled by BWV personnel to take a sizeable loan and put their home at risk, ultimately driving them to insolvency. The Tillettes further allege that BWV "failed to comply with appropriate and meaningful application, approval, underwriting and closing processes for the loan" and steered the Tillettes to convert "unsecured debt to secured debt." These allegations are minimally sufficient to warrant further inquiry through discovery.
It is, accordingly,
2. Count Two — Breach of Fiduciary Duty
Regardless of the label chosen, the Tillettes are attempting in Count Two to "maintain an action in tort for an alleged breach of contractual duty." Lockhart v. Airco Heating & Cooling, Inc., 211 W.Va. 609, 614, 567 S.E.2d 619, 624 (2002). This they may not do. In West Virginia, a lender owes a legal duty to a borrower only if there exists between the two a "special relationship." See e.g. White v. AAMG Constr. Lending Ctr., 226 W.Va. 339, 346, 700 S.E.2d 791, 798 (2010); Glascock v. City Nat'l Bank of West Virginia, 213 W.Va. 61, 62, 576 S.E.2d 540, 541 (2002). In Glascock, the Supreme Court of Appeals found that a "special relationship" exists in situations such as where a lender so immerses itself in the borrower's business that a tort duty necessarily arose. Glascock, 213 W.Va. at 67, 576 S.E.2d at 546. Another instance where a special relationship arose was where a "lender maintain[ed] oversight of, or intervene[ed] in the quality of ... [a] construction process." White, 226 W.Va. at 347, 700 S.E.2d at 799. Distilled to its essence, a special relationship may exist when a lender performs "services not normally provided by a lender to a borrower." Tinsley v. OneWest Bank, FSB, 4 F.Supp.3d 805, 839 (S.D.W. Va. 2014).
Measured against this standard, the Tillettes' pleading is insufficient. The Tillettes' central allegation is as follows:
(Compl. ¶ 20). This is not, however, unlike what commercial lenders do each day. Borrowers fill out detailed loan applications with extensive financial information and lending institutions, quite permissibly, recommend options. This type of information disclosure and resultant financial advice is not unusual in any way. The Tillettes' allegations are thus insufficient to give rise to a special relationship.
It is, accordingly,
3. Count Three — Fraud/Intentional Misrepresentation
The Supreme Court of Appeals noted recently the well-established elements governing a fraud claim:
Sneberger v. Morrison, 235 W.Va. 654, 670, 776 S.E.2d 156, 172 (2015) (quoting Horton v. Tyree, 104 W.Va. 238, 242, 139 S.E. 737 (1927); Syl. Pt. 1, Lengyel v. Lint, 167 W.Va. 272, 280 S.E.2d 66 (1981)).
It is incumbent upon the Tillettes to plead fraud "with particularity [as to] the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). As noted by our court of appeals, "[t]hese circumstances are `the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.'" Weidman v. Exxon Mobil Corp., 776 F.3d 214, 219 (4th Cir.2015) (quoting Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir.1999) (quoting 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1297, at 590 (2d ed.1990)).
The Tillettes allegations are generalized. For example, they assert that BWV "by way of its acts, omissions and concealment, intentionally made representations to the plaintiffs that were false and/or made misrepresentations with a reckless disregard as to their veracity." (Compl. ¶ 26). They also contend that, "[a]s a direct and proximate result of the defendants' misrepresentations, as herein above alleged, the plaintiffs suffered the injuries, damages and losses set forth" in the Complaint. (Compl. ¶ 31). Their timing allegations are similarly imprecise. (See Compl. ¶¶ 5, 7).
These and similar, general allegations are insufficient to state a fraud "claim ... that is plausible on its face." Twombly, 550 U.S. at 547, 127 S.Ct. 1955.
It is, accordingly,
Based upon the foregoing discussion, it is
An updated scheduling order will be issued in due course but, if it is not, counsel shall notify the Bankruptcy Clerk of Court
It is, accordingly,