Nicholas Homes, Inc. et al v. M&I Marshall & Isley Bank, N.A., et al, No. 2:2009cv02079 - Document 33 (D. Ariz. 2010)

Court Description: ORDER granting in part and denying in part 12 Defendant's Motion to Dismiss Counts 5, 6, and 7; the Court grants Defendant's motion as it pertains to counts five and seven, but denies Defendant's motion as it pertains to count six. I f Plaintiffs choose to file an amended complaint, they shall file their amended complaint on or before May 17, 2010. IT IS FINALLY ORDERED denying 13 Plaintiff US Development Land, LLC's Motion to Refer Case to Bankruptcy Court.. Signed by Judge James A Teilborg on 4/30/10.(LSP)

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Nicholas Homes, Inc. et al v. M&I Marshall & Isley Bank, N.A., et al 1 Doc. 33 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 10 11 12 13 14 15 16 17 18 19 ) NICHOLAS HOMES, INC, ) U.S. LAND DEVELOPMENT LLC, ) U.S. BUILDERS LLC, ) MICHAEL NICHOLAS, ) PRISCILLA NICHOLAS, M I C H A E L N I C H O L A S A N D) PRISCILLA NICHOLAS AS TRUSTEES) OF THE AMENDED AND RESTATED) NICHOLAS FAMILY TRUST, DATED) ) SEPTEMBER 28, 1998, ) ) Plaintiffs, ) ) vs. ) ) M&I MARSHALL & ILSLEY BANK,) ) N.A. ) ) Defendant. ) ) No. CV 09-2079-PHX-JAT ORDER 20 21 Pending before the Court are Defendant’s Motion to Dismiss Counts 5, 6, and 7 (Doc. 22 # 12), and Plaintiff US Development Land, LLC’s Motion to Refer Case to Bankruptcy Court 23 (Doc. # 13). For the reasons that follow, the Court grants in part and denies in part 24 Defendant’s motion to dismiss, and denies Plaintiff’s motion to transfer. 25 I. BACKGROUND 26 Plaintiffs are borrowers and guarantors of various loans made by Defendant. 27 Eventually, Plaintiffs defaulted on certain of these loans. Plaintiffs then entered into 28 forbearance discussions with Defendant. During the course of the forbearance discussions, 1 Plaintiffs provided budgetary and project information concerning the real property that 2 secured the loans. Also during the course of the forbearance discussions, Defendant placed 3 the loans for sale to third parties. Upon learning of Defendant’s placing the loans for sale to 4 third parties, Plaintiffs offered to purchase the loans, and negotiations concerning the 5 purchase of the loans–in addition to the continuing negotiations concerning the forbearance 6 of the loans–ensued. 7 Plaintiffs allege that they entered into an agreement with Defendant to purchase the 8 loans for $35 Million. Shortly after the agreement was allegedly entered into, Defendant sold 9 the loans to Dolphin Quantum, LLC (“Quantum”). Throughout the various negotiations with 10 Defendant, and at Defendant’s request, Plaintiffs repeatedly provided Defendant with 11 financial information about Plaintiffs. 12 Plaintiffs filed the present action in Maricopa County Superior Court, and Defendant 13 timely removed to this Court. Plaintiffs allege eight counts of action in their complaint: 1) 14 breach of contract; 2) breach of covenant of good faith and fair dealing; 3) intentional 15 misrepresentation/omission; 4) negligent misrepresentation/negligent omission; 5) wrongful 16 disclosure of confidential financial information; 6) consumer fraud; 7) prima facie tort; 8) 17 punitive damages. Defendants now move to dismiss counts five, six, and seven under 18 Federal Rules of Civil Procedure 12(b)(6). 19 II. ANALYSIS 20 A. Motion to Dismiss 21 1. LEGAL STANDARD 22 To survive a Rule 12(b)(6) motion for failure to state a claim, a complaint must meet 23 the requirements of Federal Rule of Civil Procedure 8(a)(2). Rule 8(a)(2) requires a “short 24 and plain statement of the claim showing that the pleader is entitled to relief,” so that the 25 defendant has “fair notice of what the . . . claim is and the grounds upon which it rests.” Bell 26 Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 27 (1957)). 28 -2- 1 Although a complaint attacked for failure to state a claim does not need detailed 2 factual allegations, the pleader’s obligation to provide the grounds for relief requires “more 3 than labels and conclusions, and a formulaic recitation of the elements of a cause of action 4 will not do.” Twombly, 550 U.S. at 555 (internal citations omitted). The factual allegations 5 of the complaint must be sufficient to raise a right to relief above a speculative level. Id. 6 Rule 8(a)(2) “requires a ‘showing,’ rather than a blanket assertion, of entitlement to relief.” 7 Id. (citing 5 C. Wright & A. Miller, FEDERAL PRACTICE AND PROCEDURE §1202, pp. 94, 95 8 (3d ed. 2004)). 9 Rule 8’s pleading standard demands more than “an unadorned, the-defendant- 10 unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (citing 11 Twombly, 550 U.S. at 555). A complaint that offers nothing more than naked assertions will 12 not suffice. To survive a motion to dismiss, a complaint must contain sufficient factual 13 matter, which, if accepted as true, states a claim to relief that is “plausible on its face.” Iqbal, 14 129 S.Ct. at 1949. Facial plausibility exists if the pleader pleads factual content that allows 15 the court to draw the reasonable inference that the defendant is liable for the misconduct 16 alleged. Id. Plausibility does not equal “probability,” but plausibility requires more than a 17 sheer possibility that a defendant has acted unlawfully. Id. “Where a complaint pleads facts 18 that are ‘merely consistent’ with a defendant’s liability, it ‘stops short of the line between 19 possibility and plausibility of ‘entitlement to relief.’” Id. (citing Twombly, 550 U.S. at 557). 20 In deciding a motion to dismiss under Rule 12(b)(6), the Court must construe the facts 21 alleged in the complaint in the light most favorable to the drafter of the complaint and the 22 Court must accept all well-pleaded factual allegations as true. See Shwarz v. United States, 23 234 F.3d 428, 435 (9th Cir. 2000). Nonetheless, the Court does not have to accept as true 24 a legal conclusion couched as a factual allegation. Papasan v. Allain, 478 U.S. 265, 286 25 (1986). 26 2. COUNT FIVE 27 In count five of their complaint, Plaintiffs allege wrongful disclosure of confidential 28 financial information when Defendant disclosed confidential financial information to -3- 1 Quantum without Plaintiffs’ consent or knowledge. Plaintiffs allege that the disclosure of 2 confidential financial information to Quantum was “a violation of a duty owed to Plaintiffs 3 under both law and contract,” and “a violation of 15 U.S.C. § 6801, et. seq.,” commonly 4 known as the Gramm-Leitch-Bliley Act (“GLBA”) (Doc. # 1, Ex. 1, p. 9, ¶¶ 72-73.) Section 5 6801(a) of the GLBA provides that “each financial institution has an affirmative and 6 continuing obligation to respect the privacy of its customers and to protect the security and 7 confidentiality of those customers’ nonpublic personal information.” 15 U.S.C. § 6801(a). 8 Defendants argue that count five fails to state a claim because the GLBA does not 9 provide for a private cause of action. The Court agrees, that to the extent count five is 10 premised upon the GLBA for a private cause of action, Plaintiffs’ claim fails. Congress 11 expressly stated who may enforce the GLBA: “This subchapter and the regulations 12 prescribed thereunder shall be enforced by the Federal functional regulators, the State 13 insurance authorities, and the Federal Trade Commission with respect to financial institutions 14 and other persons subject to their jurisdiction under applicable law . . . .” 15 U.S.C. § 15 6805(a). Congress did not provide for a private cause of action under the GLBA, and 16 Plaintiff has failed to cite any court recognizing such a private cause of action. Indeed, the 17 overwhelming authority affirms that there is no private cause of action under the GLBA. 18 See, e.g., Dunmire v. Morgan Stanley DW, Inc., 475 F.3d 956 (8th Cir. 2007) (stating that 19 “[n]o private right of action exists for an alleged violation of the GLBA,” and collecting 20 cases affirming this principle). Hence, to the extent Plaintiffs’ claims under count five rely 21 upon the GLBA for a private cause of action, Plaintiffs’ count five fails. 22 Nevertheless, Plaintiffs argue that they are not precluded from alleging a common law 23 cause of action for Defendant’s wrongful conduct under count five. The Court agrees that, 24 although the GLBA does not provide for a private cause of action, it also does not preclude 25 a common law cause of action. However, Plaintiffs have failed to demonstrate that such a 26 common law cause of action exists in Arizona. 27 Plaintiffs do not cite any case in Arizona where the wrongful disclosure of 28 confidential information by a bank or other lending institution gave rise to a viable claim. -4- 1 Plaintiffs do, however, cite Indiana and Oklahoma state authorities in support of its theory. 2 See Indiana Nat’l Bank v. Chapman, 482 N.E.2d 474 (Ind. Ct. App. 1985); Djowharzedeh 3 v. City Nat’l Bank, 646 P.2d 616 (Okla. Civ. App. 1982). However, these cases involve 4 banks either wrongfully disclosing information provided in a loan application or disclosing 5 information resulting from a bank-depositor relationship. These cases do not involve a 6 debtor-creditor relationship in which the plaintiff defaulted on his or her obligation owed to 7 a bank, and then the bank disclosed otherwise confidential information in an effort to sale the 8 plaintiff’s obligation to a third-party. 9 In fact, the current trend of cases appears to be the opposite: there is no duty of 10 confidentiality in a debtor-creditor relationship, especially in the context of a debtor 11 defaulting on his or her obligation owed to the bank, and the bank disclosing the confidential 12 information to third-parties in an effort to sale the debtor’s obligation. See, e.g., Hopewell 13 Enters., Inc. v. Trustmark Nat’l Bank, 680 So.2d 812, 818 (Miss. 1996) (holding that no duty 14 of confidentiality exists in the bank-borrower relationship); Schoneweis v. Dando, 435 15 N.W.2d 666, 673 (Neb. 1989) (holding that “the statements related solely to that debtor- 16 creditor relationship,” and that the court was “not persuaded that under such circumstances 17 [the bank] owed [plaintiff] any duty of confidentiality.”). 18 The Court finds Plaintiffs’ cited authority inapposite to support a viable common law 19 theory that Defendant violated a duty of confidentiality when it disclosed Plaintiffs’ 20 confidential financial information to Quantum in an effort to sell Plaintiffs’ loans. The 21 Court’s conclusion is supported by the fact that in Arizona, absent any special agreement to 22 the contrary, there is no fiduciary relationship between a bank and its customer. McAlister 23 v. Citibank, 829 P.2d 1253, 1258 (Ariz. Ct. App. 1992). The Court finds that Plaintiffs have 24 failed to state a claim under count five. 25 3. COUNT SIX 26 In count six of their complaint, Plaintiffs allege that Defendant violated the Arizona 27 Consumer Fraud Act (“ACFA”), A.R.S. § 44-1521 et. seq., when it sold the loans in question 28 to Quantum. “The [ACFA] is a broadly drafted remedial provision designed to eliminate -5- 1 unlawful practices in merchant-consumer transactions.” Madsen v. W. Am. Mortgage Co., 2 694 P.2d 1228, 1232 (Ariz. Ct. App. 1985). A private right of action exists for breach of the 3 ACFA. Sellinger v. Freeway Mobile Home Sales, Inc., 521 P.2d 1119, 1122 (1974). 4 In order to prevail on a claim under the ACFA, “a plaintiff must show a false promise 5 or misrepresentation made in connection with the sale or advertisement of merchandise and 6 consequent and proximate injury resulting from the promise.” Kuehn v. Stanley, 129, 91 P.3d 7 346, 351 (Ariz. Ct. App. 2004). Defendants argue that Plaintiffs’ claims under count six 8 should be dismissed because Plaintiffs “do not claim to have been buyers, nor do they assert 9 that they were the target of any deceptive advertising.” (Doc. # 20 at p. 6.) The Court 10 disagrees. 11 Plaintiffs allege in their complaint that they entered into negotiations with Defendant 12 for both the forbearance of their debt, as well as the purchase of their debt in satisfaction for 13 the money owed. Plaintiffs proceeded with the negotiations under the belief that Defendant 14 was negotiating in good faith for either the forbearance or sale of their debt. Plaintiffs allege 15 that they eventually entered into an enforceable contract for the purchase of their debt, only 16 to find out that Defendant had sold the loans to Quantum. From these allegations, Plaintiffs 17 have satisfactorily alleged that they were buyers of the loans in question, and that they were 18 the target of Defendant’s deceptive advertising. 19 Defendant cites this Court to Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971 20 F.2d 401, 407 (9th Cir. 1992), in support of its proposition that Plaintiffs’ count six must be 21 dismissed for a failure to state a claim. In Sutter Home Winery, a wine distributor brought 22 suit under the ACFA alleging that a wine maker violated the ACFA when it secretly sold to 23 a different distributor the exclusive rights to distribute its wine. 971 F.2d at 407. The 24 entirety of the Court’s discussion of the ACFA in Sutter Home Winery took place in a single 25 paragraph, and the Court expressly found that the plaintiff was not a buyer under the act or 26 the recipient of deceptive advertising. As discussed above, Plaintiffs in this case allege that 27 an enforceable contract was entered into for the sale of their loans, and that this contract was 28 -6- 1 induced by Defendant’s allegedly deceptive advertising. The Court finds Sutter Home 2 Winery to be distinguishable. 3 Defendant next relies upon Enyart v. Transamerica Insurance Co., 985 P.2d 556, 562- 4 63 (Ariz. Ct. App. 1998), for the assertion that Plaintiffs’ claims under count six must be 5 dismissed. Enyart, however, involved a settlement agreement, which the court expressly 6 held was not a “sale” within the meaning of the ACFA. 985 P.2d at 563. Plaintiffs’ 7 allegations under count six, however, do not involve a settlement, but a contract for the 8 purchase of their loans.1 This distinction is especially true given that Arizona courts have 9 found that money constitutes “merchandise” under the ACFA; that a loan constitutes a “sale” 10 under the ACFA; and that negotiations surrounding a loan constitute an “advertisement” 11 under the ACFA. Villegas v. Transamerica Fin. Servs., Inc., 708 P.2d 781, 783 (Ariz. Ct. 12 App. 1985). In light of the fact that money constitutes merchandise and a loan constitutes 13 a sale under the ACFA, Plaintiffs’ state a plausible claim for relief under Rule 12(b)(6) by 14 alleging that Defendant committed deceptive practices during the sale of the loans in 15 question. 16 4. COUNT SEVEN 17 In count seven of their complaint, Plaintiffs allege that Defendant committed a prima 18 facie tort by selling the loans to Quantum. However, as Defendant argues and Plaintiffs 19 recognize, no Arizona court has ever adopted the prima facie tort doctrine as a viable cause 20 of action in Arizona. A number of Arizona courts have had occasion to reference the prima 21 facie tort doctrine–which finds its genesis in Restatement (Second) of Torts § 870–but none 22 have explicitly adopted the doctrine. See, e.g., State v. Bolt, 689 P.2d 519, 527 (Ariz. 1984); 23 Rutledge v. Phoenix Newspapers, Inc., 715 P.2d 1243, 1246 (Ariz. Ct. App. 1986), overruled 24 25 26 27 28 1 The Court agrees that if Plaintiffs allegations under count six were solely for violations of the ACFA that occurred during the forbearance negotiations, then this would be a closer question as to whether a forbearance agreement constitutes a settlement within the meaning of Enyart. However, Plaintiffs’ allegations clearly pertain to the sale of the loans, and the alleged contract entered into by the parties for the sale of the loans. -7- 1 on other grounds by Godbehere v. Phoenix Newspapers, Inc., 783 P.2d 781 (1989); Lips v. 2 Scottsdale Healthcare Corp., 214 P.3d 434, 440 n. 8 (Ariz. Ct. App. 2009). This Court, a 3 federal court sitting in diversity, is loathe to create a new tort when Arizona state courts have 4 refrained from doing so. 5 Moreover, the Court is guided by the wisdom of the Rutledge court: “The [prima facie 6 tort] has not been adopted in Arizona and even in those jurisdictions where it is recognized, 7 it is inapplicable where plaintiff can have adequate redress by any of the forms of action 8 known and practiced.” 715 P.2d at 1246 (quotations omitted). Plaintiffs allege multiple 9 causes of action in their complaint, and such other causes of action adequately redress the 10 alleged wrongs committed by Defendant. Hence, even if the Court were inclined to blaze 11 a new Arizona tort trail, which it is not, Plaintiffs have adequate remedies in their other 12 causes of action. 13 B. Motion to Transfer 14 On October 6, 2009, Plaintiff U.S. Development Land, LLC (“USDL”) filed a 15 voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the 16 United States Bankruptcy Court for the District of Arizona. Plaintiff USDL now seeks to 17 have this case transferred to the Bankruptcy Court. Plaintiff argues that this case is related 18 to the bankruptcy case because this action will have an impact on the administration of 19 Plaintiff USDL’s estate. 20 Defendant asserts that in deciding whether to refer this case to the Bankruptcy Court, 21 this Court must engage in a three-part analysis. In reply, Plaintiff USDL does not dispute the 22 applicability of this test, only Defendant’s characterization of the first element. The test is 23 as follows: 24 25 26 27 In deciding whether to refer this case, the Court must first determine (1) whether this action is sufficiently “related to” the bankruptcy cases to permit a referral under § 157(a), and (2) whether and to what extent a referral is permissible at all in light of the plaintiffs’ jury demand. If, after these issues are resolved, the Court finds that it has the discretion to grant defendants’ motion, it must still decide whether a referral would be of practical benefit to the administration of the action. 28 -8- 1 Travelers Ins. Co. v. Goldberg, 135 B.R. 788, 790 (D. Md. 1992). The Court need not dwell 2 on the extent to which the present action is related to Plaintiff USDL’s bankruptcy 3 proceeding, because referral would be inappropriate in view of Plaintiffs’ demand for a jury 4 trial, and because referral would be of little practical benefit. 5 Plaintiff USDL does not dispute that the present action involves exclusively non-core 6 claims. Because this action involves non-core claims and because the parties cannot agree 7 on a final adjudication of the non-core claims by the Bankruptcy Court, the Bankruptcy Court 8 is precluded from conducting a jury trial. In re Cinematronics, Inc., 916 F.2d 1444, 1451 9 (9th Cir. 1990) (“We agree with these courts and conclude that bankruptcy courts cannot 10 conduct jury trials on noncore matters, where the parties have not consented.”). 11 Plaintiff USDL, nevertheless, argues that the Court could refer this action to the 12 Bankruptcy Court for all pretrial matter and motions, only to be referred back to this Court 13 for Plaintiffs’ requested jury trial. 14 Bankruptcy Court is not forbidden from handling all pretrial matters–the Court finds that 15 such a referral would be of little practical benefit. The Court has already held a Rule 16 16 scheduling conference on this case. Furthermore, through this Order, the Court has already 17 ruled on Defendant’s motion to dismiss. Hence, the Court is familiar with the parties and the 18 claims asserted by Plaintiffs. The Court sees little value in referring this matter to the 19 Bankruptcy Court, which would require the Bankruptcy Court to further expend its time and 20 judicial resources in arriving at the same understanding and familiarity of Plaintiffs’ non-core 21 claims as this Court, only to refer the action back to this Court for a jury trial. The Court 22 denies Plaintiff USDL’s request to refer this case to the Bankruptcy Court. 23 III. While Plaintiff’s assertion might be correct–the CONCLUSION 24 The Court finds that Plaintiffs’ have failed in counts five and seven to state a claim 25 upon which relief may be granted. As such, the Court grants Defendant’s motion to dismiss 26 on counts five and seven of Plaintiffs’ complaint. However, the Court finds that Plaintiffs’ 27 have stated a viable claim for relief in count six for the purpose of surviving a Rule 12(b)(6) 28 motion. Lastly, the Court denies Plaintiff USDL’s motion to refer this case to the -9- 1 Bankruptcy Court because the Bankruptcy Court cannot conduct a jury trial and enter final 2 judgment on Plaintiffs’ claims, and because the Court finds that referring this case to the 3 Bankruptcy Court would not be of any practical value. 4 Accordingly, 5 IT IS ORDERED that Defendant’s Motion to Dismiss Counts 5, 6, and 7 (Doc. # 12) 6 is granted in part and denied in part. The Court grants Defendant’s motion as it pertains to 7 counts five and seven, but denies Defendant’s motion as it pertains to count six. 8 IT IS FURTHER ORDERED that pursuant to Rule 15(a) and Plaintiffs’ request, 9 Plaintiffs may file an amended complaint in an attempt to more fully state counts five and 10 seven. If Plaintiffs choose to file an amended complaint, they shall file their amended 11 complaint on or before May 17, 2010. 12 13 14 IT IS FINALLY ORDERED that Plaintiff US Development Land, LLC’s Motion to Refer Case to Bankruptcy Court (Doc. # 13) is denied. DATED this 30th day of April, 2010. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 10 -

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