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Bell v. Paducah Bank and Trust Co.

United States District Court, W.D. Kentucky, Paducah Division

August 31, 2017




         This matter is before the Court on Defendants' Motion to Dismiss (DN 13). The motion has been fully briefed and is ripe for decision. For the reasons stated below, the motion is GRANTED.


         A. Factual Background of the Case

         Defendant Paducah Bank and Trust Company (“Paducah Bank”) provided Plaintiff McCracken Builders, Property & Management, LLC (“McCracken Builders”), which is wholly owned by Plaintiff Dennis Bell (“Bell”), with a $66, 500.00 line of credit secured by a mortgage against one of McCracken Builders' properties on Dixie Street in Paducah (“Dixie Street Property”). (Ellis Aff. ¶ 3(a), DN 14). McCracken Builders paid off the balance of this loan in 2010, but because the terms of the Dixie Street mortgage included an “additional advance” clause allowing for additional loan advances, the mortgage was not released at the time of repayment. (Ellis Aff. ¶ 3(b)-(c)). Later Paducah Bank consolidated two loans held by McCracken Builders with an $82, 500.00 promissory note on March 31, 2011, that was secured by a mortgage against Bell's properties located along 28th Street and Benton Road (“28th & Benton Properties”). (Ellis Aff. ¶ 3(d)). Paducah Bank also provided McCracken Builders with a $10, 868.78 loan on October 6, 2011, that was secured by a second mortgage on Bell's real estate located on 28th Street (“28th Street Property”). (Defs.' Mot. Dismiss 4).

         B. Procedural History of the Case

         When a third party, Kentucky Lien Holdings, LLC, initiated a foreclosure proceeding against a tax lien it held against the Dixie Street Property, Paducah Bank was notified because of its recorded mortgage on that property. (Defs.' Mot. Dismiss 5). Defendant John Ellis (“Ellis”), the loan collection officer for Paducah Bank, consulted Paducah Bank's legal counsel to determine what rights Paducah Bank had with respect to the Dixie Street Property. (Ellis Aff. ¶ 4). Acting upon counsel's advice, Ellis authorized a mortgage claim against the Dixie Street Property. (Ellis Aff. ¶ 4).

         This claim was later withdrawn after McCracken Builders responded asserting that the mortgage against the Dixie Road property was reassigned. (Defs.' Mot. Dismiss 6). McCracken Builders then filed counterclaims alleging that Paducah Bank intentionally forged mortgage documents and used them to try and foreclose on the Dixie Road property. (Defs.' Mot. Dismiss Ex. G, DN 13-8). Paducah Bank moved for summary judgment on those claims, and that motion was granted. (Defs.' Mot. Dismiss 7). McCracken Builders did not appeal this order. (Defs.' Mot. Dismiss 7).

         Paducah Bank later initiated a separate foreclosure proceeding on the 28th Street Property and the 28th & Benton Properties after Plaintiffs defaulted on both the March 2011 and October 2011 loans. (Ellis Aff. ¶ 7). Both of those foreclosure actions were filed in McCracken Circuit Court. (Defs.' Mot. Dismiss Ex. E, DN 13-6; Defs.' Mot. Dismiss Ex. J, DN 13-11). Plaintiffs filed counterclaims in that action alleging that Paducah Bank forged documents to fraudulently foreclose on their property. (Defs.' Mot. Dismiss Ex. J, ¶¶ 9-11). Paducah Bank successfully moved for summary judgment on all claims in December of 2015. (Defs.' Mot. Dismiss 7). Neither McCracken Builders nor Bell appealed that adverse state-court decision. (Defs.' Mot. Dismiss 8).

         On August 5, 2016, Plaintiffs filed this suit to recover damages from the fraud and other violations of state and federal law they allege that Defendants committed in the pursuing the aforementioned mortgage claims. (Compl. ¶¶ 40, 41, 43, 91, DN 1). Defendants have moved to dismiss the claims asserted against them based on res judicata, judicial privilege, and their reliance on advice of counsel. (Defs.' Mem. Supp. Mot. Dismiss 10-15, DN 13-1). In addition, Defendants argue that Plaintiffs' claims should be dismissed because Defendants had a bona fide mortgage claim on the Dixie Street mortgage, and Plaintiffs have failed to state claims under Kentucky's Residential Mortgage Fraud Act, the Fair Debt Collection Practices Act, or the Racketeer Influenced & Corrupt Organizations Act. (Defs.' Mem. Supp. Mot. Dismiss 15-23). Finally, Defendants argue that McCracken Builders has suffered no damages arising from the Bank's assertion of a mortgage claim. (Defs.' Mem. Supp. Mot. Dismiss 23).


         Upon a motion to dismiss for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6), the Court “must construe the complaint in the light most favorable to plaintiff[], ” accepting all of the plaintiff's allegations as true. League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007) (citation omitted); Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Under this standard, a plaintiff must provide the grounds for its entitlement to relief, which “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A plaintiff satisfies this standard when it “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. A complaint falls short if it pleads facts that are merely “consistent with a defendant's liability” or if the facts do not “permit the court to infer more than the mere possibility of misconduct.” Id. at 678-79. The allegations must “‘show[] that the pleader is entitled to relief.'” Id. at 679 (quoting Fed.R.Civ.P. 8(a)(2)).


         A. Rooker-Fe ...

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