Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-arwd-6_06-cv-06073/USCOURTS-arwd-6_06-cv-06073-0/pdf.json

Parties Involved:
American Home Mortgage Corp.
Plaintiff
BHS Enterprise
Defendant
Janet Brown
Defendant
Brown Appraisal Services, Inc.
Defendant
ERA Rushing Realty
Defendant
Elite Crete Midsouth
Defendant
Richard Gray
Defendant
HMI Property Company Limited Partners
Defendant
Investment Management Services
Defendant
Paradise Bay Condos, LLC
Defendant
Rushing Realty & Auction Service
Defendant
Clarence Thompson
Defendant
Vibra Construction, LLC
Defendant

Document Text:

IN THE UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF ARKANSAS

HOT SPRINGS DIVISION

AMERICAN HOME MORTGAGE CORP. PLAINTIFF

v. Civil No. 06-6073

BROWN APPRAISAL SERVICES, INC.; 

JANET BROWN, an individual; 

INVESTMENT MANAGEMENT SERVICES; 

RICHARD GRAY, an individual; 

BHS ENTERPRISE; CLARENCE THOMPSON, 

an individual; RUSHING REALTY & AUCTION

SERVICE, INC., a/k/a ERA RUSHING REALTY; 

PARADISE BAY CONDOS, LLC; HMI PROPERTY

COMPANY LIMITED PARTNERS; VIBRA 

CONSTRUCTION, LLC, a/k/a ELITE 

CRETE MIDSOUTH DEFENDANTS

MEMORANDUM OPINION & ORDER

This case was filed on December 6, 2006, by Plaintiff

seeking money damages from the Defendants. Currently before

the Court are several filings by the parties, to include: 

(1) Motion to Dismiss by Separate Defendants Paradise

Bay Condos, LLC; HMI Property Company Limited Partners;

and Vibra Construction, LLC, a/k/a Elite Crete Midsouth

(Doc. 12), and the Brief in Support (Doc. 13); 

(2) Motion to Dismiss for Lack of Jurisdiction by

Separate Defendant Vibra Construction, LLC (Doc. 14),

and the Brief in Support (Doc. 15); 

(3) Response in Opposition to First Motion to Dismiss

(Doc. 12) and Motion to Dismiss (Doc. 14) filed by

Plaintiff (Doc. 19);

(4) Reply to Response by Separate Defendant Vibra (Doc.

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22); 

(5) Amended Motion to Dismiss by Separate Defendants

Investment Management Services and Richard Gray (Doc.

30), and Brief in Support (Doc. 31); 

(6) Amended Motion to Dismiss by Separate Defendants

BHS Enterprise and Clarence Thompson (Doc. 32), and

Brief in Support (Doc. 33); and 

(7) Response and Brief in Opposition to Motions to

Dismiss (Docs. 30 & 32) filed by Plaintiff (Doc. 35).

The motions to dismiss are based on allegations of lack

of subject matter jurisdiction, failure to plead fraud with

specificity, failure to attach required exhibits, failure to

join a party, and failure to comply with Federal Rules of

Civil Procedure (F.R.C.P.) 17. 

For the reasons set out herein, the Court finds

Defendants’ motions should be and are DENIED. 

I. Motion to Dismiss Standard

In ruling on a motion to dismiss, the district court

must accept the allegations contained in the complaint as

true, and all reasonable inferences from the complaint must

be drawn in favor of the non-moving party. Hafley v. Lohman,

90 F.3d 264, 266 (8th Cir. 1996). Complaints should be

liberally construed in the plaintiff’s favor and should not

be dismissed for failure to state a claim “unless it appears

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beyond doubt that the plaintiff can prove no set of facts in

support of [its] claim which would entitle [it] to relief.”

Rucci v. City of Pacific, 327 F.3d 651, 652 (8th Cir. 2003)

(quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).

II. Factual Summary and Discussion

In 2006, Separate Defendant BHS Enterprise (“BHS”)

posted an online advertisement for the sale of Paradise Bay

Condominiums in Hot Springs, Arkansas. The advertisement

promised “620 FICO gets you no out of pocket and 25K cash

back.” The properties were owned by Separate Defendant

Paradise Bay Condos, LLC (who owned Unit D-1) and Separate

Defendant Vibra Construction, LLC (who owned Unit E-1).

Separate Defendant Rushing Realty & Auction Service, Inc.

(“Realtor”) listed the original purchase prices of the

properties on the Multiple Listing Service (“MLS”). 

Separate Defendants Clarence Thompson, on behalf of BHS,

and Richard Gray, on behalf of Investment Management Services

(“IMS”) are collectively referred to herein as the

“Investment Firms.” The Investment Firms recruited several

potential buyers for the Paradise Bay condominiums. The

potential buyers included Setoa Teo, Phong Tien, Philip

Smith, and Janet Wilson (“Borrowers”). The Borrowers agreed

to purchase respective units at Paradise Bay in exchange for

cash as promised in BHS’s online advertisement. 

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On July 17, 2006, Setoa Teo applied for mortgage

financing with Plaintiff to purchase Unit D-1 of Paradise

Bay. On July 18, 2006, Phong Tien applied for mortgage

financing with Plaintiff to purchase Unit D-2 of Paradise

Bay. Phong Tien stated on his loan application that his

monthly income was $25,000, but on his 2005 tax return, his

annual wages were listed as $40,534. On July 18, 2006,

Philip Smith applied for mortgage financing with Plaintiff

to purchase Unit E-1 of Paradise Bay. Philip Smith stated

on his loan application that his monthly income was $25,000,

but on his 2005 joint tax return his annual wages were listed

as $26,621 and total income as $42,931. On July 18, 2006,

Janet Wilson applied for mortgage financing with Plaintiff

to purchase Unit E-4 of Paradise Bay. Janet Wilson stated

on her loan application that her monthly income was $17,990,

but on her 2005 tax return her annual wages were listed as

$86,835. 

The Borrowers completed loan applications and submitted

them to the Investment Firms. In connection with the loan

applications, Separate Defendant Janet Brown (“Brown”) and

Brown Appraisal (“the Appraisers”) issued appraisals for each

of the individual Units. Plaintiff argues, that by the time

the Unit Appraisals were prepared, the MLS listing for each

of the Properties was changed to reflect an artificially

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inflated value by approximately $100,000 per Unit. Brown

prepared and signed each Unit Appraisal for Plaintiff. 

The appraisal of Unit D-1 estimated the market value at

$560,000, a figure Plaintiff alleges to be overstated.

Plaintiff contends the more accurate value was approximately

$435,000, or about 22% less than the value assigned by the

Appraisers. The appraisal of Unit D-2 estimated the market

value at $545,000, a figure Plaintiff alleges to be

overstated. Plaintiff contends the more accurate value was

approximately $435,000, or about 22% less the value assigned

by the Appraisers. The appraisal of Unit E-1 estimated the

market value at $560,000, and Plaintiff alleges the same as

with Unit D-1. The appraisal of Unit E-4 estimated the

market value at $475,000, a figure Plaintiff alleges to be

overstated of the actual market value of E-4. Plaintiff

contends the more accurate value was approximately $339,000,

or about 28% less than the value assigned by the Appraisers.

Plaintiff alleges the Appraisers completed the Unit

Appraisals and submitted them to the Realtor and Investment

Firms, and the Investment Firms submitted the Borrowers’

completed loan applications and Unit Appraisals to Plaintiff.

On July 18, 2006, Setoa Teo executed the purchase contract

for Unit D-1. The general addendum stated that $100,840

would be paid to IMS as a seller concession, and Plaintiff

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argues this concession was used by Defendants to artificially

inflate the sales price of Unit D-1 over and above the fair

market value of the Unit. On July 17, 2006, Plaintiff made

two loans in the amount of $412,500 and $125,000,

respectively, to Setoa Teo, both secured by mortgages on Unit

D-1. 

On July 25, 2006, Phong Tien executed the purchase

contract for Unit D-2. The general addendum stated that

$95,840 would be paid to IMS as a seller concession, and

Plaintiff argues this concession was used to inflate the

sales price. On July 24, 2006, Philip Smith executed the

purchase contract for Unit E-1, and the general addendum

stated that $95,840 would be paid to IMS as a seller

concession. Plaintiff argues this concession was used in the

same manner as above by Vibra, the Realtor, and the

Investment Firms to inflate the sales price. On July 18,

2006, Plaintiff made two loans in the amounts of $381,500 and

$163,500, respectively, to Philip Smith, both secured by

mortgages on Unit E-1. 

On August 3, 2006, Janet Wilson executed the purchase

contract for Unit E-4, and the general addendum stated that

$110,000 would be paid to IMS as a seller concession, and

Plaintiff argues the same result as above. On August 3,

2006, Plaintiff made two loans in the amounts of $321,300 and

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$137,700, respectively, to Janet Wilson, both secured by

mortgages on Unit E-4. 

Plaintiff contends the Appraisers, Sellers, and Realtors

knew or should have known Plaintiff would rely upon the Unit

Appraisals in connection with its evaluation of the mortgage

loan applications. Plaintiff alleges the Appraisers

intentionally misrepresented the fair market value of the

Properties, concealed the original list price for the

Properties, obtained unearned appraisal fees after the

Borrowers had completed their purchases of the Properties,

and facilitated the activities of the Investment Firms and

the other Defendants in obtaining loan proceeds in excess of

the true values of the Properties. Plaintiff also argues the

Investment Firms knew or should have known the loan

applications contained material misrepresentations, and that

Plaintiff would rely on the applications. Plaintiff alleges

it did rely on the representations of Defendants. 

Plaintiff alleges negligence against Separate Defendants

Appraisers and Brown, fraud as to all Defendants, conspiracy

to defraud as to all Defendants, and tortious interference

as to all Defendants. Defendants filed various motions to

dismiss Plaintiff’s Complaint and those arguments are set out

in this opinion. 

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A. Failure to state a claim. 

Defendants have filed, in several motions, motions to

dismiss for failure to state a claim upon which relief may

be granted under Federal Rules of Civil Procedure

(“F.R.C.P.”) § 12(b)(6). The Court finds, for reasons

discussed below, Plaintiff made its prima facie case for each

count alleged in the Complaint. 

1. Failure to join parties. 

Defendants contend Plaintiff failed to join the

Borrowers as necessary defendants to this action under

F.R.C.P. 19(a). It is not necessary for all joint

tortfeasors to be named as defendants in a single lawsuit.

Temple v. Synthes, 498 U.S. 5, 7 (1990). The Committee Notes

to Rule 19(a) state that “a tortfeasor with the usual ‘jointand-several’ liability is merely a permissive party to an

action against another with like liability.” Id. The Court

concludes Rule 19(a) does not require Plaintiff to join the

Borrowers in its Complaint. 

2. Failure to plead with specificity. 

Defendants contend Plaintiff failed to sufficiently

plead its claims for tortious interference, conspiracy to

defraud, and fraud. 

Plaintiff properly set out its prima facie case for a

fraud cause of action in its Complaint. In order to

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establish a claim for fraud, a party must allege the

defendants knowingly and falsely represented a material fact

with the intent to induce action or inaction in reliance upon

the representation and that in relying on that

representation, the party suffered damages as a result.

Joplin v. Joplin, 88 Ark. App. 190, 196 S.W. 3d 496, 497

(2004). F.R.C.P. § 9(b) requires “in all averments of fraud

or mistake, the circumstances constituting fraud or mistake

shall be stated with particularity.” A plaintiff has

sufficiently plead fraud when the complaint “specifically

allege[s] the circumstances constituting fraud, such as the

time, place and contents of the false representations, as

well as the identity of what was obtained or given up

thereby.” Abels v. Farmers Commodities Corp., 259 F.3d 910,

920 (8th Cir. 2001). 

Plaintiff identified each Separate Defendant’s role and

actions as related to the fraud allegation. The Complaint

provided several pages of information relating to conduct of

Defendants, and set out specific provisions to address the

alleged wrong of the particular Defendants. The Court finds

Plaintiff has sufficiently plead its fraud claim under the

requirements of F.R.C.P. § 9(b). 

Plaintiff alleged civil conspiracy against Defendants.

To establish a prima facie case, five elements must be shown:

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(1) two or more persons; (2) an object to be accomplished;

(3) a meeting of the minds on the object or course of action

to be taken; (4) the commission of one or more unlawful overt

acts; and (5) damages as the proximate result of the

conspiracy. Lane v. Chowning, 610 F.2d 1385, 1390 (8th Cir.

1979)(citing Mason v. Funderburk, 247 Ark. 521 (1969)).

While conspiracy “may be shown by direct evidence of an

actual agreement or understanding between conspirators, it

may also be shown by circumstantial evidence.” Mason, 247

Ark. At 529. 

Defendants contends the Complaint fails to establish any

direct or indirect relationship and that none could be

supported relating all of the Defendants. The pleading

requirements of Rule 9(b) have been met if not directly, then

indirectly, through the recitals of information within

paragraphs 75-85 of Plaintiff’s Complaint. 

Defendants argue in the alternative that Plaintiff

alleged criminal conduct, thus requiring “even greater

specificity,” and Defendants cite an Eighth Circuit Court of

Appeals decision to support this position. Flowers v.

Continental Grain Co., 775 F.2d 1051 (8th Cir. 1985). The

case cited by Defendants centered around the federal

Racketeer Influence and Corrupt Organizations (RICO) statute,

18 U.S.C. §§ 1961 - 1968, which requires certain criminal

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acts be committed. Accordingly the Court finds this argument

to be without merit. 

Defendants, specifically Separate Defendant Vibra, argue

Plaintiff failed to sufficiently set forth a claim for

tortious interference because the Complaint did not allege

a contractual relationship or business expectancy with a

third party. The Court finds this argument without to be

without merit as the Complaint details the contractual

relationships and wrongful conduct which allegedly caused the

breaches. 

Defendants contend Plaintiff failed to attach certain

documents to its Complaint, but the Court has considered a

12(b)(6) motion and not one for summary judgment. Only the

facts alleged in the complaint are considered in ruling on

a motion to dismiss, and the court is “under no obligation

to resolve the issues in the complaint through materials

outside the pleadings.” Pennington Seed, Inc. v. Produce

Exchange No. 299, 457 F.3d 1334, 1342 n.4 (Fed. Cir.

2006)(citing Meehan v. United Consumers Club Franchising

Corp., 312 F.3d 909 (8th Cir. 2002). The Plaintiff was not

required to attach any additional documents for its Complaint

to properly maintain a prima facie case for its causes of

action. 

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B. Lack of Subject Matter Jurisdiction. 

Finally, Defendants contend this Court does not have

subject matter jurisdiction and move for dismissal under

F.R.C.P. 12(b)(1) and 28 U.S.C. § 1332. Defendants argue a

lack of complete diversity between Plaintiff and all

Defendants because Plaintiff is allegedly a citizen of Texas,

as are Separate Defendants IMS, Gray, BHS, and Thompson. In

its Complaint, Plaintiff provided that it is “[A] New York

domestic business corporation with its principal place of

business at 520 Broadhollow Road, Melville, New York.” (Doc.

1, ¶ 4). Defendants bring to this Court a mere allegation

“upon information and belief,” coupled with a reference to

Plaintiff’s website, to support their position that

Plaintiff’s true principal place of business is Texas.

Construing the evidence in favor of Plaintiff, the Court

finds, for the limited purposes of this order, Plaintiff’s

principal place of business is New York, and Plaintiff is not

a citizen of Texas. Therefore, complete diversity of

citizenship exists and 28 U.S.C. § 1332 is satisfied. 

C. Misnomer Principle.

Separate Defendants BHS and IMS move to dismiss

Plaintiff’s Complaint alleging the correct parties were not

named in the Complaint. Where a plaintiff has sued a

corporation but misnamed it, F.R.C.P. § 15(c) allows the

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plaintiff to amend its complaint under the misnomer

principle. Roberts v. Michaels, 219 F.3d 775, 777-78 (8th

Cir. 2000). 

Separate Defendant Clarence Thompson was served as an

agent for BHS Enterprise, and BHS claims this was improper

because Clarence Thompson was the registered agent for BHS

Thompson Enterprises, Ltd. Separate Defendant Richard Gray

was served on behalf of IMS, and IMS claims this was improper

as IMS is not a corporation, partnership, or other legal

entity. The Court grants Plaintiff leave to amend its

complaint to correct any defects in the naming of these

corporations. 

III. Conclusion

Based on the aforementioned, the Court finds the motions

to dismiss should be and are hereby DENIED. 

IT IS SO ORDERED this 7th day of March, 2007. 

/s/ Robert T. Dawson 

HONORABLE ROBERT T. DAWSON

UNITED STATES DISTRICT JUDGE

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