Jay Wilfong v. CRK Real Estate , LLC ( 2014 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
March 26, 2014 Session
JAY WILFONG v. CRK REAL ESTATE, LLC, ET AL.
Appeal from the Chancery Court for Wilson County
No. 08260 Charles K. Smith, Judge
No. M2013-00188-COA-R3-CV - Filed June 17, 2014
This case arose out of a contract for the sale of real estate. The contract included a
provision requiring the buyer to make “commercially reasonable efforts” to sell the
property, and to split any profits with the seller if the property was resold within 36
months. The buyer did not sell the property, and the seller brought suit, raising numerous
claims, including breach of contract, breach of fiduciary duty, violations of the Real
Estate Settlement Practices Act (RESPA), the Truth in Lending Act (TILA), the Fair Debt
Collection Practice Act, the Consumer Protection Act, RICO, wrongful foreclosure,
promissory fraud, civil conspiracy, collusion, intentional infliction of emotional distress,
constructive trust, conversion and unjust enrichment. After a hearing, the trial court
granted the buyer’s motion to dismiss thirteen of the seller’s claims, denied the motion to
dismiss another six of his claims, and certified its order as final for the purposes of appeal
under Tenn. R. Civ. P. 54.02. We affirm the trial court.
Tenn. R. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
D ON R. A SH, S R. J., delivered the opinion of the Court, in which F RANK G. C LEMENT, J R.
and R ICHARD H. D INKINS, JJ., joined.
Jay Wilfong, Mt. Juliet, Tennessee, Pro Se.
T. Price Thompson III, Lebanon, Tennessee; Sanford L. Michelman, Todd H. Stitt, Marc
R. Jacobs, Encino, California, for the appellee(s), CRK Real Estate, LLC, RM Wilson
County Investors, LLC, Hamid Mashhoon, Mondana Mashhoon Gordon, Mahasti
Mashhoon, and The Mashhoon Family Inter Vivos Trust Dated May 4, 1997;
W. Andrew Bobo, M. Wyatt Burk, Shelbyville, Tennessee, for the appellee, Traders
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Bank;
Timothy L. Warnock, Timothy G. Harvey, Nashville, Tennessee, for the appellee, Carol
Perrin;
John S. Hicks, Nashville, Tennessee; Sonya Smith Wright, Murfreesboro, Tennessee, for
the appellees, Charles R. Kaelin and Marcus French.
OPINION
I. A R EAL E STATE S ALES C ONTRACT
This case followed a long and convoluted course in the trial court, with the
plaintiff bringing numerous claims under different theories of recovery against a number
of different defendants. All the claims stemmed from a single contract for the sale of real
estate, and the issues on appeal are mostly procedural in nature. Before examining those
issues, however, we must first discuss the transaction from which the case arose.
In 2005, Jay Wilfong entered into a contract to sell a ten acre tract of property on
Beckwith Road in Mt. Juliet to CRK Real Estate, LLC for a price of $1.06 million (“The
Contract of Sale”). The property was subject to a pre-existing $59,000 mortgage held by
Traders National Bank. The financial terms of the sales contract required CRK to pay
Wilfong $140,000 upon the closing, and to execute a Deed of Trust note for the
remainder, “payable at the rate of zero percent (0%) interest,” with the note to be retired
at the end of four years by a balloon payment.
Another provision made a portion of the principal on the note, $115,000, payable
“within five business days of the letting of bids by the State of Tennessee for the
construction of an interchange at Interstate 40 and Beckwith Road, Wilson County,
Tennessee and Purchaser’s refinancing of it and other surrounding property.”
Section 9.14 of the sales contract, which is central to Mr. Wilfong’s claims, gave
him the possibility of realizing a greater return on the sale. The section reads, in relevant
part,
Seller and Purchaser agree that for a period of thirty-six (36) months
following the Closing Purchaser shall, using commercially reasonable
efforts, seek to resell the Property either singularly or in conjunction with
Purchaser’s other surrounding properties as Purchaser shall in its sole
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judgment determine. . . If Seller is able to sell the Property within thirty-six
(36) months of the closing date, Purchaser shall at the time of the resale of
the Property pay Seller fifty percent (50%) of the resale price applicable to
the property less $1,060,000, all costs of resale and closing costs so that the
profit split shall be the net proceeds after deduction of all costs of sale and
closing.
Section 9.14 further provided CRK would not “transfer, convey, or sell the
Property to any affiliated person or entity without the prior written consent of Seller . . .”
According to Mr. Wilfong’s complaints, however, CRK did not make any serious attempt
to sell the property in the three years following the execution of the contract, but instead
made plans to develop the land itself, together with adjoining property CRK owned.
II. C OMPLAINTS AND M OTIONS
On June 9, 2008, Mr. Wilfong filed the first of a number of pleadings in this
matter, a fairly brief complaint against CRK for declaratory judgment and for damages in
the Chancery Court of Wilson County. He claimed he sold the land for less than it was
worth and he gave CRK very lenient financing terms because the potential profit from its
sale was part of the bargained-for consideration. He also contended CRK violated the
contract by failing to make any serious attempt to sell the property in the three years
following the execution of the contract, but instead made plans to develop the land itself.
On July 14, 2010, Mr. Wilfong amended his complaint. He alleged CRK had
effectively transferred the property to an “affiliated entity,” a family-owned California
development company, in such a way as to avoid the trigger of an actual sale which
would require sharing the profit. His complaint named the California developer and its
individual members as additional defendants, as well as other individuals and real estate
development companies connected with CRK in Tennessee.1 Mr. Wilfong also asserted
CRK had failed to pay him the $115,000 he was entitled to under the contract of sale after
the City of Mt. Juliet awarded construction contracts on the Beckwith Road interchange,
and, as a result, he had to sell several other properties he owned at a discounted price in
order to generate needed cash.
On March 26, 2012, Mr. Wilfong filed a seventy page “Second Amended
Complaint.” This second amended complaint named still more defendants as well as
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Mr. Wilfong asserts, at the time of sale, the sole owner of CRK Real Estate LLC was defendant
Charles R. Kaelin, but the number of defendants increased because of repeated changes to the ownership
of the corporation and of its assets during the course of this litigation.
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“Unnamed Third-Parties that Provided Financing and Conspired with Named
Defendants.” Traders National Bank was named as a Defendant in Intervention.2 To
avoid confusion, we will hereinafter refer to all the defendants except Traders National
Bank as “CRK.” The Complaint recited twenty claims against the defendants, including
breach of contract, breach of fiduciary duty, violations of the Real Estate Settlement
Practices Act (RESPA), the Truth in Lending Act (TILA), the Fair Debt Collection
Practice Act, the Consumer Protection Act and RICO, wrongful foreclosure, promissory
fraud, civil conspiracy, collusion, intentional infliction of emotional distress, constructive
trust and unjust enrichment.
According to the Second Amended Complaint, CRK and its associates continued
to conspire against him and to engage in a cover-up to further deny him his rights under
the Contract of Sale. Among other things, he alleged CRK had purchased the mortgage
on his home and two other notes and attempted to foreclose on them before the balloon
payment on the Beckwith Road property became due. Mr. Wilfong asserted he had to file
a Chapter 13 bankruptcy to prevent the foreclosure.
On April 25, 2012, CRK filed a motion to dismiss nineteen of the twenty claims in
the Second Amended Complaint for failure to state a claim.3 Traders National Bank filed
its own motion to dismiss those claims which were directed against its participation in the
alleged schemes of the other defendants. Among other things, the defendants argued Mr.
Wilfong’s RESPA and TILA claims were barred by the statute of limitations. Four days
before the scheduled hearing on the motion to dismiss the Second Amended Complaint,
Mr. Wilfong filed a Motion for Leave to File a Third Amended Complaint.
III. T HE T RIAL C OURT’S D ECISION
On August 10, 2012, the trial court conducted a hearing on CRK’s motion to
dismiss the Second Amended Complaint without having ruled on the Motion for Leave to
File a Third Amended Complaint. After reading the briefs of the parties, the court ruled
from the bench. The court granted the motion to dismiss, at least in part, thirteen of the
claims in Mr. Wilfong’s second amended complaint, and it denied the motion as to six
claims. Among the claims the court let stand were those for breach of contract against
2
According to Mr. Wilfong’s Second Amended Complaint, CRK Real Estate and all the
remaining defendants demanded Traders National Bank be added as an “indispensable party” pursuant to
Tenn. R. Civ. P. 19, and the request was granted on March 12, 2012.
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The only claim unaddressed by CRK’s motion to dismiss was a claim for breach of fiduciary
duty against Marcus French. Mr. French had served as Mr. Wilfong’s agent, and Mr. Wilfong alleged he
deliberately withheld information about CRK’s actions from him.
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CRK and Charles R. Kaelin and claims for civil conspiracy against all the defendants.
The court also declared Mr. Wilfong needed to amend his undismissed claims to
better state the damages he had allegedly suffered. At the request of counsel for
defendants, the court agreed its rulings on the motion to dismiss could be considered a
final order for purposes of appeal under Tenn. R. Civ. P. 54.02. The trial court’s rulings
were memorialized in an order filed on August 27, 2012.
Two of the court’s most important rulings for the purposes of the issues in this
appeal, were its grant of the motion to dismiss Mr. Wilfong’s claims for violations of the
Real Estate Settlement Practices Act (RESPA) and the Truth in Lending Act (TILA) on
the basis of the expiration of the three year statute of limitations on those actions. The
court also addressed Mr. Wilfong’s request to be allowed to file a Third Amended
Complaint as follows: “Except as to any Counts, claims, causes of action and requests for
declaratory judgment ordered to be dismissed with prejudice above, Plaintiff shall be
granted leave to amend Plaintiff’s Second Amended Complaint as ordered above.”
Mr. Wilfong subsequently filed a Motion to Alter or Amend the trial court’s order,
which was denied. He also filed a Third Amended Complaint. The complaint included
the same claims which previously appeared in his Second Amended Complaint, including
some dismissed by the trial court, and specified an amount of damages for each claim, the
largest being a $50,000,000 claim for compensatory, statutory, and punitive damages
attached to Mr. Wilfong’s allegations of fraud and promissory fraud. However, this
appeal only involves the issues raised by trial court’s ruling on Mr. Wilfong’s Second
Amended Complaint and his Motion to Alter or Amend.4
IV. A NALYSIS
Mr. Wilfong filed his brief on appeal and presented his oral arguments to this court
pro se. His brief lists seven different issues on appeal which were initially articulated by
his former attorney. Mr. Wilfong announced in his brief and at oral argument he wishes
to withdraw four of those issues from this court’s consideration, and he asks us to
determine the remaining three, which we copy below verbatim, except we have
renumbered them to avoid confusion:
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We have examined Mr. Wilfong’s Second Amended Complaint and Third Amended Complaint
side-by-side and have found very few differences between them, aside from his specification of the
amounts of his damages and the addition of two new allegations against Traders National Bank. Mr.
Wilfong alleged the bank was guilty of violating his privacy by disclosing his financial information to
CRK, and it did not possess the original notes on his three mortgaged properties.
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I. Did the Trial Court Err in Ruling on the Motion to dismiss the Second
Amended Complaint while Plaintiff’s Motion for Leave to File Third
Amended Complaint was pending;
II. Did the Trial Court Err in dismissing the Second Amended Complaint’s
Claims under the Real Estate Settlement Practices (sic) Act and/or Truth in
Lending Act;
III. Did the Trial Court Err in Prohibiting Plaintiff from asserting
Additional Claims in his Third Amended Complaint.
We will discuss these issues in the order presented.
A. Issue I
The first issue presented is whether the trial court erred in ruling on the Motion to
Dismiss the Second Amended Complaint while Plaintiff’s Motion for Leave to File Third
Amended Complaint was pending. Under Rule 15.02 Tenn. R. Civ. P., a party may
amend its own pleadings once, as a matter of course, any time before a responsive
pleading is served. Otherwise, a party may amend its pleadings only by written consent of
the adverse party or by leave of the court, “and leave shall be freely given when justice so
requires.”
Mr. Wilfong filed his motion to be allowed to file a third amended complaint just
four days before the hearing on Defendants’ motion to dismiss was scheduled to take
place. Under Rule 6.04 Tenn. R. Civ. P., a written motion “shall be served not later than
five (5) days before the time specified for the hearing . . .” Obviously, Mr. Wilfong’s
motion was out of compliance with the Rules of Civil Procedure.
The trial court does have the discretion to ignore Rule 6.04 in appropriate cases,
and Mr. Wilfong’s tardiness would not have been sufficient, in and of itself, to serve as a
basis for denying the motion to amend, in light of the language in Rule 15.02: “leave [to
amend] shall be freely given when justice so requires.” We note, however, this case had
been pending for over four years when Mr. Wilfong filed his motion, and he had been
allowed to amend his complaint twice before.
Further, CRK’s motion to dismiss had been pending for almost four months and
all the parties had filed detailed memoranda in support of or in opposition to the motion.
Because of the complexity of the case and the number of parties involved, numerous
attorneys had prepared to appear at the motion hearing, including those who had to come
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to court from out of state to represent the California defendants.
If the trial court had granted Mr. Wilfong’s motion, the defendants would have had
to request a continuance in order to study the newly amended complaint and to meet the
allegations in it. See, Matus v. Metro. Gov't of Nashville, 128 S.W.3d 653, 656 (Tenn. Ct.
App. 2003). Thus, if Mr. Wilfong’s late-filed motion had been granted, it would have
caused great inconvenience and expense to the parties and resulted in more delay, while
not substantially altering the rights of the parties relative to one another.
The determination whether or not to grant a motion to amend a complaint lies
within the sound discretion of the trial court. Burton v. Carroll County, 60 S.W.3d 821,
832 (Tenn. Ct. App. 2001); State Dept. of Human Services v. Hauck, 872 S.W.2d 916,
919 (Tenn. Ct. App. 1993); Merriman v. Smith, 599 S.W.2d 548 (Tenn. Ct. App. 1979). A
trial court's discretionary ruling on amendments to pleadings will not be disturbed on
appeal unless there is a showing of abuse of discretion. Cumulus Broadcasting, Inc. v.
Shim, 226 S.W.3d 366, 374 (Tenn. 2007); George v. Building Materials Corp., 44 S.W.3d
481, 486 (Tenn. 2001); Harris v. St. Mary's Medical Ctr., Inc., 726 S.W.2d 902, 904
(Tenn. 1987).
In light of the lateness of the filing of Mr. Wilfong’s motion, the trial court’s grant
of two previous motions to amend, the amount of time the case and the motion to dismiss
had been pending in the trial court, and the lack of any compelling explanation why a new
version of the complaint was needed, we find the trial court did not abuse its discretion in
declining to grant the motion to amend the pleading before ruling on defendants’ motion
to dismiss.
B. Issue II
Mr. Wilfong’s second issue is whether the trial court erred in dismissing the claims
he asserted in his Second Amended Complaint under the Real Estate Settlement Practices
Act and/or Truth in Lending Act.5 Congress enacted the Real Estate Settlement Practices
Act (RESPA), 12 U.S.C. § 2601, in 1974, to protect those who enter into “federally
5
The Truth in Lending Act (TILA), 15 U.S.C. § 1640 et seq, is broader than RESPA, for it
applies to credit transactions other than those involving federally related mortgage loans. However, an
action under TILA, must be brought “within one year from the date of the occurrence of the violation.”
15 U.S.C. § 1640(e); Russell v. Household Mortgage Servs., M2008-01703-COA-R3CV, 2012 WL
2054388 (Tenn. Ct. App. June 7, 2012); Jones v. TransOhio Sav. Ass'n, 747 F.2d 1037, 1040 (6th Cir.
1984). Because Mr. Wilfong’s potential rights and remedies under TILA were no greater than those
available to him under RESPA, and because he himself did not suggest there were any meaningful
distinctions between the two Acts, we will henceforth only refer to RESPA in our discussion.
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related mortgage loans” from abusive practices by mortgage lenders.
In his Second Amended Complaint, Mr. Wilfong asserted RESPA required lenders
who intend to secure a mortgage note with the borrower’s personal residence to notify the
borrower he has a right to rescind the transaction within three days of the execution of the
note. He alleged Traders National Bank failed to notify him of his right to rescind when
he entered into a mortgage Note and Deed of Trust with the bank on his primary
residence on April 23, 2003.
He further alleged the bank failed to notify him of his right to rescind when he
entered into mortgage Notes and Deeds of Trust on two other properties on September 7,
2005 and December 5, 2005. Although neither of those properties was his primary
residence, Mr. Wilfong contended a subsequent cross-collateralization of the three notes
brought them within RESPA’s ambit, and he asked the court for a declaratory judgment
finding he was entitled to rescind the three notes and for other remedies available under
RESPA and TILA.
Mr. Wilfong asserted other violations of RESPA as well. Among the many
provisions of the current version of the Act as effective January 16, 2009, is a
requirement lenders, who assign or sell a mortgage loan or who transfer the loan
servicing, notify borrowers of such assignment, sale or transfer no less than fifteen days
before the effective date of the transaction. 12 U.S.C. § 2605(b). Mr. Wilfong alleged
CRK purchased the mortgage notes from Traders National Bank on July 18, 2008,
without giving him the required notification, and it subsequently cross-collateralized the
three loans in order to begin wrongful foreclosure proceedings against him.
The trial court dismissed Mr. Wilfong’s RESPA claims because of the passing of
the statute of limitations. 12 U.S.C. § 2614 requires a party who brings suit for violation
of the disclosure requirements of 12 U.S.C. § 2605 to do so within three years of the date
of the violation. The court reasoned the right of rescission only applied to the 2003
mortgage on Mr. Wilfong’s primary residence, and not to the mortgages on his two other
properties, action on which would be barred in any case because of the statute of
limitations. The court also held there could be no right of rescission related to the 2008
purchase of the notes by CRK, because Mr. Wilfong was not a party to the 2008
transaction.
The court did not directly address the question of the failure of Traders National
Bank to give Mr. Wilfong the statutorily required notice CRK had purchased the
mortgage notes, but simply dismissed all the RESPA claims against all the parties. We
note, however, Traders National Bank was not added as party until March 17, 2012, more
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than three years after CRK purchased the notes.
Mr. Wilfong acknowledges more than three years had passed between the date of
the above transactions and his assertion of RESPA claims against the bank, but he argues
the trial court should have applied the principal of equitable tolling to extend the statute
of limitations. In the context of a defense predicated on a statute of limitations, the
doctrine of equitable estoppel tolls the running of the statute of limitations when the
defendant has misled the plaintiff into failing to file a lawsuit within the statutory
limitations period.6 The rationale for equitable tolling was articulated by the United
States Supreme Court as long ago as the Nineteenth Century:
[Statutes of limitation] were enacted to prevent frauds; to prevent parties
from asserting rights after the lapse of time had destroyed or impaired the
evidence which would show that such rights never existed, or had been
satisfied, transferred, or extinguished, if they ever did exist. To hold that by
concealing a fraud, or by committing a fraud in a manner that it concealed
itself until such time as the party committing the fraud could plead the
statute of limitations to protect it, is to make the law which was designed to
prevent fraud the means by which it is made successful and secure.
Bailey v. Glover, supra, 88 U.S. (21 Wall.) 342, 349 (1874).
Conversely, too liberal an application of equitable tolling would frustrate the
legitimate purposes of statutes of limitations. Thus, “[e]quitable tolling is a remedy that
must be used sparingly, that is, in extreme cases where failure to invoke the principles of
equity would lead to unacceptably unjust outcomes.” Whitehead v. State, 402 S.W.3d 615,
626 (Tenn. 2013)(citing Downs v. McNeil, 520 F.3d 1311, 1318 (11th Cir. 2008)).
The Sixth Circuit Court of Appeals has defined the elements required to establish
equitable tolling by the doctrine of fraudulent concealment as follows: (1) defendants
must have concealed the conduct constituting the cause of action; (2) defendants'
concealment must have prevented the plaintiffs from discovering the cause of action
within the limitations period; and (3) until discovery, the plaintiffs must have exercised
due diligence in trying to find out about the cause of action. Egerer v. Woodland Realty,
6
Unlike other state courts and the federal courts, our Tennessee courts have declined to recognize
the doctrine of equitable tolling in civil cases. Redwing v. Catholic Bishop for Diocese of Memphis, 363
S.W.3d 436, 460 (Tenn. 2012) (citing Fahrner v. SW Mfg., Inc., 48 S.W.3d at 145 n. 2; Norton v.
Everhart, 895 S.W.2d 317, 321 (Tenn. 1995)). Since, however, RESPA is a federal statute, we are not
prevented by Tennessee law from considering the equitable tolling defense.
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Inc., 556 F.3d 415, 422 (6th Cir. 2009).
Mr. Wilfong is an experienced businessman who was already aware CRK was an
untrustworthy partner as early as 2008 when he filed his first complaint. He does not
allege he took any steps to ascertain the status of the loan against the property which was
the subject of the contract at the heart of the complaint. Further, Mr. Wilfong did not
explain exactly how the alleged failure to disclose the transfer of the three notes injured
him. In short, we do not believe his RESPA claim falls within the class of extreme cases
theat would justify the use of the remedy of equitable tolling. We therefore conclude the
trial court was correct to dismiss all of Mr. Wilfong’s RESPA claims. Of course, our
conclusion does not prevent Mr. Wilfong from alleging CRK’s actions in regard to the
notes were wrongful, or to use those allegations to support any of his remaining claims
for which they may be relevant, such as his claims for wrongful foreclosure, fraud, and
civil conspiracy.
C. Issue III
The third issue Mr. Wilfong recited in his brief was whether the trial court erred in
prohibiting him from asserting additional claims in his third amended complaint.
However, Mr. Wilfong did include additional claims in his third amended complaint, and
he acknowledged doing so during oral argument. Further, there is nothing in the record to
suggest Mr. Wilfong could not amend his complaint again if further discovery discloses
the existence of new claims and if the trial court grants his motion amend. Thus, Mr.
Wilfong’s appeal of this issue is moot.
V.
The order of the trial court is affirmed. We remand this case to the Chancery
Court of Wilson County for any further proceedings necessary, including a determination
of Mr. Wilfong’s unadjudicated claims. Tax the costs on appeal to the appellant, Jay
Wilfong.
_________________________________
DON R. ASH, SR. JUDGE
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