United States District Court, W.D. Kentucky, Louisville Division
MEMORANDUM OPINION AND ORDER
THOMAS B. RUSSELL, Senior District Judge.
This matter comes before the Court upon the Motion to Dismiss filed by Defendants Harold L. Cunningham and DBHL Investments, LLC, doing business as ColorTyme Financial Services ("ColorTyme"), (Docket No. 18), to which Plaintiffs Geneva Thompson and Gary Estes have responded, (Docket No. 21), and Defendants have replied, (Docket No. 18). Fully briefed, the matter stands ripe for adjudication.
As an initial matter, the Court notes that Plaintiffs have moved to amend their initial complaint, (Docket No. 6). They seek to clarify their allegation the Defendants charged them unlawful fees, to add an allegation for intentional infliction of emotional distress, and to plead class allegations for various violations. Federal Rule of Civil Procedure 15(a)(1) provides that a "party may amend its pleading only with the opposing party's written consent or the court's leave." The rule directs that the "court should freely give leave when justice so requires." Fed.R.Civ.P. 15(a)(2). Based upon the court's review, Plaintiffs' motion to amend their complaint will be granted. The Court's analysis therefore addresses Plaintiffs' Amended Complaint.
Defendant Cunningham operates ColorTyme, a Louisville, Kentucky, establishment that specializes in making payday loans. Also known as "cash advances" or "deferred deposit transactions, " lenders generally issue these short-term, high-interest loans with little consideration of the borrower's ability to repay them. The application process is convenient by design, with few questions asked and minimal paperwork required: even a consumer with shaky financial footing must provide only basic information and a postdated check to obtain cash, often within minutes of applying. Borrowers who take out such loans may become ensnared in debt as they pay additional fees to delay repayment.
The instant lawsuit arises from the series of payday loans that Plaintiffs Geneva Thompson and her son, Gary Estes, obtained from ColorTyme. Thompson, whose monthly Social Security payments constitute her only source of income, alleges that she remained indebted to ColorTyme for over two years and has paid over $2, 000.00 on a $500.00 loan. (Docket No. 6-2 at 2, 6.) Estes contends that he remained in ColorTyme's debt for over nine months, having paid over $1, 000.00 on a principal amount of $500.00. (Docket No. 6-2 at 2.)
As told by Plaintiffs, Thompson's transactions with ColorTyme began with a $200.00 loan issued in February 2012. Cunningham did not collect the applicable "service fee" at the time of the transaction. Instead, he instructed Thompson to give him a check left blank but for her signature, with no amount, payee, or date indicated. Thompson gave Cunningham such a check. She alleges that when her payment became due during the following month, she requested an additional $500.00 loan to purchase eyeglasses for her granddaughter. (Docket No. 6-2 at 5.) Cunningham agreed to advance Thompson an additional $300.00 and to roll the $200.00 owed from February into a new transaction. He advised her to keep the $200.00 cash that she had planned to repay him and to pay only the $36.00 service fee.
Because Thompson was unable to travel to ColorTyme, Cunningham came to her home to finalize the transaction. She contends that after she paid the service fee, Cunningham told her to sign on two lines of an otherwise blank sheet of paper; he then gave her the $300.00 and advised that she would incur a monthly $90.00 "service fee" until the balance was paid. (Docket No. 6-2 at 5-6.) Thompson alleges that Cunningham has required additional signed but otherwise blank checks to accompany each of her $90.00 monthly payments. (Docket No. 6-2.)
On June 23, 2014, Thompson learned that her bank account had been overdrawn, leaving her unable to purchase necessities until the next month's Social Security check arrived. During Thompson's telephone conversation with her bank regarding the overdraft, Cunningham arrived at her home to collect a check. Thompson explained to him that she would be unable to make her payment for June and asked if she could instead make a double payment in July. She alleges that Cunningham then asked for her debit card, ran it through a program on his cell phone, and showed her a message indicating that the card had been rejected. (Docket No. 6-2 at 7.) Cunningham then drafted a contract that authorized him to apply a $180.00 charge to Thompson's card on July 16, 2014. The contract continued, "I give him permission to debit my card for the $180.00 amount and then $90.00 every month after till [sic] paid in full." ( See Docket No. 6-2 at 7.) Cunningham then made a phone call and left, taking the document with him. Thompson states that she does not recall having signed this contract. (Docket No. 6-2 at 7.) After Cunningham left her home, Thompson called ColorTyme and spoke to another individual who told her that he had charged $5.00 to her debit card and that the transaction was accepted. Thompson alleges that this debit caused additional overdraft charges.
On July 14, 2014, Thompson left Cunningham a voicemail message advising him not to debit her account until she could verify that the funds were available. She left a similar message on the following day. Thompson contends that despite these requests, Cunningham debited her account for $180.00 without her authorization, causing her to incur overdraft charges.
Thompson's son, Gary Estes, engaged in similar transactions with ColorTyme. On January 3, 2014, Estes borrowed $500.00 and told Cunningham that he planned to pay the balance upon receiving his tax refund. On January 18, 2014, Estes made a $90.00 payment. Thompson alleges that on February 20, 2014, Cunningham told her that she had guaranteed Estes' debt and assessed her a $90.00 payment on his account. (Docket No. 6-2 at 6.) On March 1, 2014, after Estes had received his tax refund, he traveled to ColorTyme and paid the $590.00 balance on his account. After Estes left the store, Cunningham called him to advise that the payment was applied not to Estes' own account, but that of his sister, leaving Estes with an outstanding balance of $589.25. Cunningham continued to charge Estes the $90.00 "service fee" associated with the loan and demanded that Estes provide a signed check, otherwise left blank, with each payment. (Docket No. 6-2 at 8.)
On March 11, 2014, Estes traveled to ColorTyme to speak with Cunningham about settling the debt. Estes alleges that Cunningham led him into a back room, where he drafted a contract that required Estes to pay $100.00 for six months, beginning on March 21, 2014, for a loan issued on February 21, 2014. According to the contract, Estes would be liable for attorney fees, court costs, and filing fees if he failed to issue timely payments. (Docket No. 6-2 at 8.) Estes made these $100.00 payments to ColorTyme thereafter, generally on the twenty-first day of each month.
When Estes failed to make his May 2014 payment, Cunningham cautioned via text message that he would file a lawsuit if Estes did not pay by the following Tuesday. He threatened to serve Estes with court papers at his place of employment. (Docket No. 6-2 at 9; Exhibit 2 at 20.) Cunningham also noted that in the event that a lawsuit was filed, Estes' debt would "go back to the full balance plus attorney fees and late fees and [court] cost along with court fines and interest and would be right at around $1125." (Docket No. 6-2 at 9; Exhibit 3 at 22.) After Cunningham indicated that he had communicated with Estes' supervisor about the matter, Estes paid $50.00. (Docket No. 6-2 at 9; Exhibit 4 at 24.) On June 23, 2014, Cunningham sent Estes an additional text message: "[I]f I don't have the check in my office by 9 [a.m.] you have defaulted on our contract agreement and it will then be the full amount plus attorney fees and court cost along with fine[, ] per the contract you signed on camera with my office." (Docket No. 6-2 at 9; Exhibit 5 at 26.)
On August 21, 2014, Estes left work to make his final payment at ColorTyme's office before its 6:00 p.m. closing time. At approximately 5:20 p.m., Estes called Cunningham to advise that he was en route. Cunningham replied that he would not be in the store to accept the payment. The men argued until Cunningham ended the call, prompting Estes to drive to his home rather than to ColorTyme's office. At 6:05 p.m., Cunningham informed Estes that he was in default for failing to remit his final payment. (Docket No. 6-2 at 9-10.) On August 23, 2014, Estes traveled to ColorTyme to make this payment. He alleges that Cunningham demanded payment of an additional $200.00 over the next two months to avoid court proceedings. (Docket No. 6-2 at 10.)
Thompson and Estes now assert that the actions and omissions of Cunningham and ColorTyme constitute fraudulent omission, intentional infliction of emotional distress, usury, violation of the Kentucky Consumer Protection Act, and violation of the Truth in Lending Act.
Although Defendants styled their motion as one to dismiss claims pursuant to Federal Rule of Civil Procedure 12(b)(6), it is accompanied by several exhibits outside of the pleadings. Such documents include an affidavit produced by Cunningham, various consumer loan agreements that Thompson and Estes purportedly signed, court documents associated with Thompson's petition for bankruptcy, ColorTyme's examination by the Kentucky Department of Financial Institutions, and the handwritten debit authorization that ostensibly bears Thompson's signature. (Dockets Nos. 18-2, 18-3, 18-4, 18-5, 18-6, 18-7, and 18-8.)
Plaintiffs argue that the Court must convert the motion into one for summary judgment under Federal Rule of Civil Procedure 12(d). Pursuant to Rule 12(d), "[i]f, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56." A district court has broad discretion in determining whether to convert a motion to dismiss to one for summary judgment but must afford all parties a reasonable opportunity to present all material pertinent to the motion. Bruce v. Correctional Medical Servs., Inc., 389 Fed.App'x 462, 465 (6th Cir. 2010); Fed.R.Civ.P. 12(d). The Court is satisfied that all parties enjoyed ample notice of the motion's conversion and will consider the exhibits before it at this time. Where appropriate, the motion will be weighed under the summary judgment standard.
Summary judgment is appropriate where the pleadings, the discovery and disclosure materials on file, and any affidavits reflect "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "[N]ot every issue of fact or conflicting inference presents a genuine issue of material fact." Street v. J.C. Bradford & Co., 886 F.2d 1472, 1477 (6th Cir. 1989). The key inquiry is whether the party bearing the burden of proof has presented a jury question as to each element in the case. Hartsel v. Keys, 87 F.3d 796, 799 (6th Cir. 1996). Moreover, while the substantive law of Kentucky applies to Plaintiffs' state law claims pursuant to Erie R.R. v. Tompkins, 304 U.S. 64 (1938), the Court will apply the standards of Federal Rule of Civil Procedure 56 rather than Kentucky's summary judgment standard. See Gafford v. Gen. Elec. Co., 997 F.2d 150, 165 (6th Cir. 1993), abrogated on other grounds by Hertz Corp. v. Friend, 130 S.Ct. 1181 (2010).
The Court will apply the 12(b)(6) standard to those claims to which the exhibits are not germane. "When considering a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the district court must accept all of the allegations in the complaint as true, and construe the complaint liberally in favor of the plaintiff." Lawrence v. Chancery Court of Tenn., 188 F.3d 687, 691 (6th Cir. 1999) (citing Miller v. Currie, 50 F.3d 373, 377 (6th Cir. 1995)). To survive a Rule 12(b)6) motion to dismiss, the complaint must include "only enough facts to state a claim to relief that is plausible on its face." Bell Atl. v. Twombly, 550 U.S. 544, 570 (2007); see also Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009). The "[f]actual allegations in the complaint must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true." Twombly, 550 U.S. at 555 (internal citation and quotation marks omitted). A plaintiff must allege sufficient factual allegations to afford the defendants fair notice concerning the nature of the claims and the grounds upon which they rest. Id.
I. Judicial estoppel
Defendants first contend that they are entitled to judgment as a matter of law as to several of Thompson's claims, relying on the doctrine of judicial estoppel. They argue that she improperly failed to list her claims for fraudulent omission, violations of the Kentucky Consumer Protection Act, usury, and violations of the Truth in Lending Act in her bankruptcy court filings of August 31, 2012.
Section 521(1) requires a debtor to file "a schedule of assets and liabilities, a schedule of current income and current expenditures, and a statement of the debtor's financial affairs." 11 U.S.C. § 521(1). A cause of action constitutes an asset that must be scheduled pursuant to this provision. See Eubanks v. CBSK Fin. Group, Inc., 385 F.3d 894, 897 (6th Cir. 2004). Further, "[t]he duty of disclosure is a continuing one, and a debtor is required to disclose all potential causes of action." In re Coastal Plains, Inc., 179 F.3d 197, 208 (5th Cir. 1999) (quoting Youngblood Group v. Lufkin Fed. Savings & Loan Ass'n, 932 F.Supp. 859, 867 (E.D. Tex. 1996)). A debtor's duty to disclose is essential to the bankruptcy system: "[T]he disclosure obligations of consumer debtors are at the very core of the bankruptcy process and meeting these obligations is part of the price debtors pay for receiving the bankruptcy discharge." In re Colvin, 288 B.R. 477, 481 (Bankr. E.D. Mich. 2003).
Given Thompson's error, the Court consider whether it constitutes the "intentional selfcontradiction... as a means of obtaining unfair advantage" contemplated by the doctrine of judicial estoppel. New Hampshire v. Maine, 532 U.S. 742, 751 (2001). "Judicial estoppel forbids a party from taking a position inconsistent with one successfully and unequivocally asserted by that same party in an earlier proceeding." Warda v. C.I.R., 15 F.3d 533, 538 (6th Cir. 1994). This equitable doctrine safeguards the integrity of the courts by barring attempts at "cynical gamesmanship" by those who would "achiev[e]success on one position, then argu[e] the opposite to suit an exigency of the moment." Eubanks, 385 F.3d at 897 (quoting Teledyne Indus., Inc. v. NLRB, 911 F.2d 1214, 1218 (6th Cir. 1990)). However, the doctrine must be applied with caution in order to "avoid impinging on the truth-seeking function of the court, because the doctrine precludes a contradictory position without examining the truth of either statement.'" Id. (quoting ...