Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_09-cv-02079/USCOURTS-azd-2_09-cv-02079-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

NICHOLAS HOMES, INC,

U.S. LAND DEVELOPMENT LLC,

U.S. BUILDERS LLC,

MICHAEL NICHOLAS,

PRISCILLA NICHOLAS,

MICHAEL NICHOLAS AND

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. 

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No. CV 09-2079-PHX-JAT

ORDER

Pending before the Court are Defendant’s Motion to Dismiss Counts 5, 6, and 7 (Doc.

# 12), and Plaintiff US Development Land, LLC’s Motion to Refer Case to Bankruptcy Court

(Doc. # 13). For the reasons that follow, the Court grants in part and denies in part

Defendant’s motion to dismiss, and denies Plaintiff’s motion to transfer.

I. BACKGROUND

Plaintiffs are borrowers and guarantors of various loans made by Defendant.

Eventually, Plaintiffs defaulted on certain of these loans. Plaintiffs then entered into

forbearance discussions with Defendant. During the course of the forbearance discussions,

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Plaintiffs provided budgetary and project information concerning the real property that

secured the loans. Also during the course of the forbearance discussions, Defendant placed

the loans for sale to third parties. Upon learning of Defendant’s placing the loans for sale to

third parties, Plaintiffs offered to purchase the loans, and negotiations concerning the

purchase of the loans–in addition to the continuing negotiations concerning the forbearance

of the loans–ensued.

Plaintiffs allege that they entered into an agreement with Defendant to purchase the

loans for $35 Million. Shortly after the agreement was allegedly entered into, Defendant sold

the loans to Dolphin Quantum, LLC (“Quantum”). Throughout the various negotiations with

Defendant, and at Defendant’s request, Plaintiffs repeatedly provided Defendant with

financial information about Plaintiffs.

Plaintiffs filed the present action in Maricopa County Superior Court, and Defendant

timely removed to this Court. Plaintiffs allege eight counts of action in their complaint: 1)

breach of contract; 2) breach of covenant of good faith and fair dealing; 3) intentional

misrepresentation/omission; 4) negligent misrepresentation/negligent omission; 5) wrongful

disclosure of confidential financial information; 6) consumer fraud; 7) prima facie tort; 8)

punitive damages. Defendants now move to dismiss counts five, six, and seven under

Federal Rules of Civil Procedure 12(b)(6).

II. ANALYSIS

A. Motion to Dismiss

1. LEGAL STANDARD

To survive a Rule 12(b)(6) motion for failure to state a claim, a complaint must meet

the requirements of Federal Rule of Civil Procedure 8(a)(2). Rule 8(a)(2) requires a “short

and plain statement of the claim showing that the pleader is entitled to relief,” so that the

defendant has “fair notice of what the . . . claim is and the grounds upon which it rests.” Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47

(1957)).

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Although a complaint attacked for failure to state a claim does not need detailed

factual allegations, the pleader’s obligation to provide the grounds for relief requires “more

than labels and conclusions, and a formulaic recitation of the elements of a cause of action

will not do.” Twombly, 550 U.S. at 555 (internal citations omitted). The factual allegations

of the complaint must be sufficient to raise a right to relief above a speculative level. Id.

Rule 8(a)(2) “requires a ‘showing,’ rather than a blanket assertion, of entitlement to relief.”

Id. (citing 5 C. Wright & A. Miller, FEDERAL PRACTICE AND PROCEDURE §1202, pp. 94, 95

(3d ed. 2004)).

Rule 8’s pleading standard demands more than “an unadorned, the-defendantunlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (citing

Twombly, 550 U.S. at 555). A complaint that offers nothing more than naked assertions will

not suffice. To survive a motion to dismiss, a complaint must contain sufficient factual

matter, which, if accepted as true, states a claim to relief that is “plausible on its face.” Iqbal,

129 S.Ct. at 1949. Facial plausibility exists if the pleader pleads factual content that allows

the court to draw the reasonable inference that the defendant is liable for the misconduct

alleged. Id. Plausibility does not equal “probability,” but plausibility requires more than a

sheer possibility that a defendant has acted unlawfully. Id. “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.’” Id. (citing Twombly, 550 U.S. at 557).

In deciding a motion to dismiss under Rule 12(b)(6), the Court must construe the facts

alleged in the complaint in the light most favorable to the drafter of the complaint and the

Court must accept all well-pleaded factual allegations as true. See Shwarz v. United States,

234 F.3d 428, 435 (9th Cir. 2000). Nonetheless, the Court does not have to accept as true

a legal conclusion couched as a factual allegation. Papasan v. Allain, 478 U.S. 265, 286

(1986).

2. COUNT FIVE

In count five of their complaint, Plaintiffs allege wrongful disclosure of confidential

financial information when Defendant disclosed confidential financial information to

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Quantum without Plaintiffs’ consent or knowledge. Plaintiffs allege that the disclosure of

confidential financial information to Quantum was “a violation of a duty owed to Plaintiffs

under both law and contract,” and “a violation of 15 U.S.C. § 6801, et. seq.,” commonly

known as the Gramm-Leitch-Bliley Act (“GLBA”) (Doc. # 1, Ex. 1, p. 9, ¶¶ 72-73.) Section

6801(a) of the GLBA provides that “each financial institution has an affirmative and

continuing obligation to respect the privacy of its customers and to protect the security and

confidentiality of those customers’ nonpublic personal information.” 15 U.S.C. § 6801(a).

Defendants argue that count five fails to state a claim because the GLBA does not

provide for a private cause of action. The Court agrees, that to the extent count five is

premised upon the GLBA for a private cause of action, Plaintiffs’ claim fails. Congress

expressly stated who may enforce the GLBA: “This subchapter and the regulations

prescribed thereunder shall be enforced by the Federal functional regulators, the State

insurance authorities, and the Federal Trade Commission with respect to financial institutions

and other persons subject to their jurisdiction under applicable law . . . .” 15 U.S.C. §

6805(a). Congress did not provide for a private cause of action under the GLBA, and

Plaintiff has failed to cite any court recognizing such a private cause of action. Indeed, the

overwhelming authority affirms that there is no private cause of action under the GLBA.

See, e.g., Dunmire v. Morgan Stanley DW, Inc., 475 F.3d 956 (8th Cir. 2007) (stating that

“[n]o private right of action exists for an alleged violation of the GLBA,” and collecting

cases affirming this principle). Hence, to the extent Plaintiffs’ claims under count five rely

upon the GLBA for a private cause of action, Plaintiffs’ count five fails.

Nevertheless, Plaintiffs argue that they are not precluded from alleging a common law

cause of action for Defendant’s wrongful conduct under count five. The Court agrees that,

although the GLBA does not provide for a private cause of action, it also does not preclude

a common law cause of action. However, Plaintiffs have failed to demonstrate that such a

common law cause of action exists in Arizona.

Plaintiffs do not cite any case in Arizona where the wrongful disclosure of

confidential information by a bank or other lending institution gave rise to a viable claim.

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Plaintiffs do, however, cite Indiana and Oklahoma state authorities in support of its theory.

 See Indiana Nat’l Bank v. Chapman, 482 N.E.2d 474 (Ind. Ct. App. 1985); Djowharzedeh

v. City Nat’l Bank, 646 P.2d 616 (Okla. Civ. App. 1982). However, these cases involve

banks either wrongfully disclosing information provided in a loan application or disclosing

information resulting from a bank-depositor relationship. These cases do not involve a

debtor-creditor relationship in which the plaintiff defaulted on his or her obligation owed to

a bank, and then the bank disclosed otherwise confidential information in an effort to sale the

plaintiff’s obligation to a third-party.

In fact, the current trend of cases appears to be the opposite: there is no duty of

confidentiality in a debtor-creditor relationship, especially in the context of a debtor

defaulting on his or her obligation owed to the bank, and the bank disclosing the confidential

information to third-parties in an effort to sale the debtor’s obligation. See, e.g., Hopewell

Enters., Inc. v. Trustmark Nat’l Bank, 680 So.2d 812, 818 (Miss. 1996) (holding that no duty

of confidentiality exists in the bank-borrower relationship); Schoneweis v. Dando, 435

N.W.2d 666, 673 (Neb. 1989) (holding that “the statements related solely to that debtorcreditor relationship,” and that the court was “not persuaded that under such circumstances

[the bank] owed [plaintiff] any duty of confidentiality.”).

The Court finds Plaintiffs’ cited authority inapposite to support a viable common law

theory that Defendant violated a duty of confidentiality when it disclosed Plaintiffs’

confidential financial information to Quantum in an effort to sell Plaintiffs’ loans. The

Court’s conclusion is supported by the fact that in Arizona, absent any special agreement to

the contrary, there is no fiduciary relationship between a bank and its customer. McAlister

v. Citibank, 829 P.2d 1253, 1258 (Ariz. Ct. App. 1992). The Court finds that Plaintiffs have

failed to state a claim under count five.

3. COUNT SIX

In count six of their complaint, Plaintiffs allege that Defendant violated the Arizona

Consumer Fraud Act (“ACFA”), A.R.S. § 44-1521 et. seq., when it sold the loans in question

to Quantum. “The [ACFA] is a broadly drafted remedial provision designed to eliminate

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unlawful practices in merchant-consumer transactions.” Madsen v. W. Am. Mortgage Co.,

694 P.2d 1228, 1232 (Ariz. Ct. App. 1985). A private right of action exists for breach of the

ACFA. Sellinger v. Freeway Mobile Home Sales, Inc., 521 P.2d 1119, 1122 (1974).

In order to prevail on a claim under the ACFA, “a plaintiff must show a false promise

or misrepresentation made in connection with the sale or advertisement of merchandise and

consequent and proximate injury resulting from the promise.” Kuehn v. Stanley, 129, 91 P.3d

346, 351 (Ariz. Ct. App. 2004). Defendants argue that Plaintiffs’ claims under count six

should be dismissed because Plaintiffs “do not claim to have been buyers, nor do they assert

that they were the target of any deceptive advertising.” (Doc. # 20 at p. 6.) The Court

disagrees.

Plaintiffs allege in their complaint that they entered into negotiations with Defendant

for both the forbearance of their debt, as well as the purchase of their debt in satisfaction for

the money owed. Plaintiffs proceeded with the negotiations under the belief that Defendant

was negotiating in good faith for either the forbearance or sale of their debt. Plaintiffs allege

that they eventually entered into an enforceable contract for the purchase of their debt, only

to find out that Defendant had sold the loans to Quantum. From these allegations, Plaintiffs

have satisfactorily alleged that they were buyers of the loans in question, and that they were

the target of Defendant’s deceptive advertising.

Defendant cites this Court to Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971

F.2d 401, 407 (9th Cir. 1992), in support of its proposition that Plaintiffs’ count six must be

dismissed for a failure to state a claim. In Sutter Home Winery, a wine distributor brought

suit under the ACFA alleging that a wine maker violated the ACFA when it secretly sold to

a different distributor the exclusive rights to distribute its wine. 971 F.2d at 407. The

entirety of the Court’s discussion of the ACFA in Sutter Home Winery took place in a single

paragraph, and the Court expressly found that the plaintiff was not a buyer under the act or

the recipient of deceptive advertising. As discussed above, Plaintiffs in this case allege that

an enforceable contract was entered into for the sale of their loans, and that this contract was

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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.

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induced by Defendant’s allegedly deceptive advertising. The Court finds Sutter Home

Winery to be distinguishable.

Defendant next relies upon Enyart v. Transamerica Insurance Co., 985 P.2d 556, 562-

63 (Ariz. Ct. App. 1998), for the assertion that Plaintiffs’ claims under count six must be

dismissed. Enyart, however, involved a settlement agreement, which the court expressly

held was not a “sale” within the meaning of the ACFA. 985 P.2d at 563. Plaintiffs’

allegations under count six, however, do not involve a settlement, but a contract for the

purchase of their loans.1

 This distinction is especially true given that Arizona courts have

found that money constitutes “merchandise” under the ACFA; that a loan constitutes a “sale”

under the ACFA; and that negotiations surrounding a loan constitute an “advertisement”

under the ACFA. Villegas v. Transamerica Fin. Servs., Inc., 708 P.2d 781, 783 (Ariz. Ct.

App. 1985). In light of the fact that money constitutes merchandise and a loan constitutes

a sale under the ACFA, Plaintiffs’ state a plausible claim for relief under Rule 12(b)(6) by

alleging that Defendant committed deceptive practices during the sale of the loans in

question.

4. COUNT SEVEN

In count seven of their complaint, Plaintiffs allege that Defendant committed a prima

facie tort by selling the loans to Quantum. However, as Defendant argues and Plaintiffs

recognize, no Arizona court has ever adopted the prima facie tort doctrine as a viable cause

of action in Arizona. A number of Arizona courts have had occasion to reference the prima

facie tort doctrine–which finds its genesis in Restatement (Second) of Torts § 870–but none

have explicitly adopted the doctrine. See, e.g., State v. Bolt, 689 P.2d 519, 527 (Ariz. 1984);

Rutledge v. Phoenix Newspapers, Inc., 715 P.2d 1243, 1246 (Ariz. Ct. App. 1986), overruled

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on other grounds by Godbehere v. Phoenix Newspapers, Inc., 783 P.2d 781 (1989); Lips v.

Scottsdale Healthcare Corp., 214 P.3d 434, 440 n. 8 (Ariz. Ct. App. 2009). This Court, a

federal court sitting in diversity, is loathe to create a new tort when Arizona state courts have

refrained from doing so.

Moreover, the Court is guided by the wisdom of the Rutledge court: “The [prima facie

tort] has not been adopted in Arizona and even in those jurisdictions where it is recognized,

it is inapplicable where plaintiff can have adequate redress by any of the forms of action

known and practiced.” 715 P.2d at 1246 (quotations omitted). Plaintiffs allege multiple

causes of action in their complaint, and such other causes of action adequately redress the

alleged wrongs committed by Defendant. Hence, even if the Court were inclined to blaze

a new Arizona tort trail, which it is not, Plaintiffs have adequate remedies in their other

causes of action.

B. Motion to Transfer

On October 6, 2009, Plaintiff U.S. Development Land, LLC (“USDL”) filed a

voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the

United States Bankruptcy Court for the District of Arizona. Plaintiff USDL now seeks to

have this case transferred to the Bankruptcy Court. Plaintiff argues that this case is related

to the bankruptcy case because this action will have an impact on the administration of

Plaintiff USDL’s estate.

Defendant asserts that in deciding whether to refer this case to the Bankruptcy Court,

this Court must engage in a three-part analysis. In reply, Plaintiff USDL does not dispute the

applicability of this test, only Defendant’s characterization of the first element. The test is

as follows:

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.

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Travelers Ins. Co. v. Goldberg, 135 B.R. 788, 790 (D. Md. 1992). The Court need not dwell

on the extent to which the present action is related to Plaintiff USDL’s bankruptcy

proceeding, because referral would be inappropriate in view of Plaintiffs’ demand for a jury

trial, and because referral would be of little practical benefit.

Plaintiff USDL does not dispute that the present action involves exclusively non-core

claims. Because this action involves non-core claims and because the parties cannot agree

on a final adjudication of the non-core claims by the Bankruptcy Court, the Bankruptcy Court

is precluded from conducting a jury trial. In re Cinematronics, Inc., 916 F.2d 1444, 1451

(9th Cir. 1990) (“We agree with these courts and conclude that bankruptcy courts cannot

conduct jury trials on noncore matters, where the parties have not consented.”).

Plaintiff USDL, nevertheless, argues that the Court could refer this action to the

Bankruptcy Court for all pretrial matter and motions, only to be referred back to this Court

for Plaintiffs’ requested jury trial. While Plaintiff’s assertion might be correct–the

Bankruptcy Court is not forbidden from handling all pretrial matters–the Court finds that

such a referral would be of little practical benefit. The Court has already held a Rule 16

scheduling conference on this case. Furthermore, through this Order, the Court has already

ruled on Defendant’s motion to dismiss. Hence, the Court is familiar with the parties and the

claims asserted by Plaintiffs. The Court sees little value in referring this matter to the

Bankruptcy Court, which would require the Bankruptcy Court to further expend its time and

judicial resources in arriving at the same understanding and familiarity of Plaintiffs’ non-core

claims as this Court, only to refer the action back to this Court for a jury trial. The Court

denies Plaintiff USDL’s request to refer this case to the Bankruptcy Court.

III. CONCLUSION

The Court finds that Plaintiffs’ have failed in counts five and seven to state a claim

upon which relief may be granted. As such, the Court grants Defendant’s motion to dismiss

on counts five and seven of Plaintiffs’ complaint. However, the Court finds that Plaintiffs’

have stated a viable claim for relief in count six for the purpose of surviving a Rule 12(b)(6)

motion. Lastly, the Court denies Plaintiff USDL’s motion to refer this case to the

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Bankruptcy Court because the Bankruptcy Court cannot conduct a jury trial and enter final

judgment on Plaintiffs’ claims, and because the Court finds that referring this case to the

Bankruptcy Court would not be of any practical value.

Accordingly,

IT IS ORDERED that Defendant’s Motion to Dismiss Counts 5, 6, and 7 (Doc. # 12)

is granted in part and denied in part. 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.

IT IS FURTHER ORDERED that pursuant to Rule 15(a) and Plaintiffs’ request,

Plaintiffs may file an amended complaint in an attempt to more fully state counts five and

seven. If Plaintiffs choose to file an amended complaint, they shall file their amended

complaint on or before May 17, 2010.

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.

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