Tillette v. Beneficial W.Va., Inc. (In re Tillette)

557 B.R. 902

In re: James Louis Tillette, II, and Nancy Carol Tillette, Debtors.

James Louis Tillette, II and Nancy Carol Tillette, Plaintiffs,

v.Beneficial West Virginia, Inc., Defendant.

Case No. 2:14-bk-20541

Adversary Proceeding No. 2:15-ap-02007

United States Bankruptcy Court, S.D. West Virginia, At Charleston .

Signed September 6, 2016

Paul W. Roop, II, Beckley, WV, for Plaintiffs.

Sean R Higgins, K & L Gates LLP, Boston, MA, for Defendant.

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).

I.

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.”).¹ The Tillettes further allege that BWV “failed to comply with appropriate and meaningful application, approval, underwriting and closing processes for the loan.” (Compl. ¶ 8).

On March 3, 2015, the Tillettes instituted this adversary proceeding. They allege claims for unconscionability (Count One), breach of fiduciary duty (Count Two), fraud and intentional misrepresentation (Count Three), negligent misrepresentation (Count Four), and illegal loan claims under West Virginia Code § 31–17–8(m)(8) (Count Five). Two damage counts make up the residue of the complaint.

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.

II.

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, 319 (4th Cir.2006) ), nor “credit allegations that offer only ‘naked assertions devoid of further factual enhancement ....’ ” Id. (quoting Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (internal quotation marks, alteration, and citation omitted)).

The decision in Iqbal provides some additional markers concerning the plausibility requirement:

A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a “probability requirement,” but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are “merely consistent with” a defendant's liability, it “stops short of the line between possibility and plausibility of ‘entitlement to relief. ...’ ”

Determining whether a complaint states a plausible claim for relief will, as the Court of Appeals observed, be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not “show [n]”—“that the pleader is entitled to relief.”

In keeping with these principles a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.

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) ).

B. Analysis

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...