KSB

Judge Nugent

09-05303 ReVest, LLC v. Long (Doc. # 29) - Document Text

SO ORDERED.
SIGNED this 26 day of May, 2010.


________________________________________
ROBERT E. NUGENT
UNITED STATES CHIEF BANKRUPTCY JUDGE
OPINION DESIGNATED FOR ON - LINE PUBLICATION
BUT NOT PRINT PUBLICATION

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS

IN RE: )

)
FREDDIE WAYNE LONG, ) Case No. 09-12827

) Chapter 11

)

Debtor. )
________________________________________________)

REVEST, LLC, )
)
Plaintiff, )
)
vs. ) Adversary No. 09-5303
)

FREDDIE WAYNE LONG, )
)
Defendant. )
________________________________________________)


ORDER GRANTING PLAINTIFF’S MOTION TO DISMISS
DEFENDANT’S COUNTERCLAIMS

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Plaintiff ReVest, LLC (“ReVest”) moves to dismiss Freddie Wayne Long’s counterclaims
for failure to state a claim pursuant to Fed. R. Bankr. P. 7012 and Fed. R. Civ. P. 12(b)(6).1 ReVest
filed this adversary proceeding seeking declaratory judgment that it owns certain real property free
and clear of any interest of Long. In his answer, Long denied the allegations of ReVest’s complaint
and asserted claims for relief against ReVest arising out of alleged violations of the Kansas
Consumer Protection Act (“KCPA”), the federal Truth In Lending Act (“TILA”), and the Real
Estate Settlement Procedures Act of 1974 (“RESPA”). Long also asserts claims sounding in
common law fraud claim and quiet title.

BACKGROUND

Long essentially claims that ReVest wrongfully induced him to enter into what is titled a
purchase and lease-back agreement, but which, according to Long, should be characterized as a loan
transaction. On October 4, 2005, Long and ReVest executed an agreement relating to five properties
then owned by Long: the Bonn Property, the St. Clair Property, the 167th Street Property, the Reno
County Property, and the Lark Property (collectively referred to as “the Properties”).2 The
agreement had three major provisions: the first provided for the sale of the Properties from Long to
ReVest for $250,000.00 plus closing costs and unpaid property taxes; the second provided for the
lease of the Properties back to Long beginning on November 1, 2005 and ending October 31, 2006;
and the third provided Long with an option to buy-back the Properties for $291,000.00. The

1 Dkt. 9. This adversary proceeding is a core proceeding over which this Court has
jurisdiction pursuant to 28 U.S.C. §§ 157(b) and 1334(b).

2 Exhibits to this agreement, including a list of the properties subject to the agreement,
were not attached to the copy of the Agreement that is an exhibit to Long’s Counterclaim.
According to the Counterclaim, the first four properties are rentals and the last is Long’s
personal residence.

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agreement recited that ReVest would finance its purchase of the Properties with a purchase money
loan (“PML”) of 100% of the purchase price ($266,000.00) and that the lease payments would
approximately be equal to the monthly payments on the PML. Any deficiencies would be added to
the buy-back purchase price. The agreement required the buy-back option to be exercised on or
before October 31, 2006. To exercise the buy-back option, Long had to tender the purchase price
in cash or cash equivalent to ReVest, whereupon ReVest would immediately payoff the PML and
execute deeds conveying the Properties back to Long.

Long claims that, on October 12, 2006, ReVest unilaterally increased the buy-back price to
$301,400.3 Long took a $148,200 loan from Wells Fargo and paid the funds to ReVest who
classified the funds as a “repurchase” of Long’s home. On December 29, 2006, Long and ReVest
executed a second agreement which granted Long an option to buy-back the four remaining
properties (“the Rental Properties”) for $161,000.00 as long as it was exercised by 5 p.m. February
28, 2007. This agreement also provided that Long could continue to lease these properties during
the option exercise period, i.e., from December 26, 2006 until February 28, 2007. Long paid an
additional $18,000 to ReVest for this new option. If the option was exercised, the $18,000 would
be the down payment. Were the option not exercised, the $18,000 would be a non-refundable fee.

Long failed to exercise the option. Although the lease-back of the remaining properties
appears to have expired per its terms, Long continued to make payments to ReVest from 2007 until
2009 and remained in possession. Long did not plead any specifics concerning these continuing
payments.

Long filed for Chapter 13 relief on August 31, 2009. He filed a Chapter 13 Plan on

3 Answer and Counterclaim of Freddie Wayne Long (“Counterclaim”), Dkt. 6, ¶15 at 4.
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November 17, 2009, which provided, in pertinent part, that:

ReVest will be paid $169,000, over 7 years at 6% interest per annum. Payments will
be semi-annual beginning July 1, 2010. All payments will be made through the
Trustee. Upon confirmation of the Plan, ReVest will execute release of all personal
property lien perfections and surrender any collateral rights, except as provided for
herein. Deeds from ReVest to the the Debtor are to be executed within 7 days of
confirmation and held by counsel for the Debtor. In the event any payment is
untimely, the Deeds will be returned to ReVest and the Debtor will have no further
interest in the subject properties.

Long converted this case to one under Chapter 11 on March 26, 2010. He has not, as yet, filed a

chapter 11 plan.

DISCUSSION

ReVest moves to dismiss Long’s counterclaims under Fed. R. Civ. P. 12(b)(6) for failure to
state a claim, arguing that each claim is barred by its respective statute of limitations and/or statute
of repose. ReVest also asserts that Long’s TILA claim fails because the transaction at issue, alleged
by Long to be a business loan, is not covered by TILA. Finally, ReVest claims that Long’s RESPA
claim must fail because the alleged misconduct (i.e., kickbacks and fee-splitting) did not involve a
third party. According to ReVest, if Long cannot prevail on any of these predicate claims, there is
no basis for him to quiet title in the Properties. Long concedes that his TILA and RESPA claims
can be dismissed,4 but argues that the statute of limitations has not run on his KCPA, fraud, or quiet
title claims because ReVest’s continuing conduct constitutes a continuing tort that tolls the statutes.

Federal Rule of Bankruptcy Procedure 7012(b) incorporates Federal Rule of Civil
Procedure 12(b) into all adversary proceedings. To withstand a Rule 12(b)(6) motion, a claim for

4 See Response of Freddie Wayne Long to ReVest’s Motion to Dismiss at 2.
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relief must contain enough allegations of fact “to state a claim to relief that is plausible on its face.”5
Applying the Supreme Court’s Twombly test, the Court must determine whether the Counterclaim
musters some facts supporting any of his claims. As the Tenth Circuit has noted, “[t]he burden is
on the plaintiff to frame a ‘complaint with enough factual matter (taken as true) to suggest’ that he
or she is entitled to relief” and these “[f]actual allegations must be enough to raise a right to relief
above the speculative level.”6 If Long’s Counterclaim contains enough facts to state a claim upon
which relief is “plausible,” the Court must deny the motion.7 “[T]he mere metaphysical possibility
that some plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the
complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of
mustering factual support for these claims.”8

Claims involving fraud are subject to a heightened pleading standard.9 Federal Rule of
Bankruptcy Procedure 7009 incorporates Federal Rule of Civil Procedure 9(b) and states in part: “In
alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud
or mistake.” To survive a motion to dismiss, an allegation of fraud must “set forth the time, place,
and contents of the false representation, the identity of the party making the false statements, and

5 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 547, 127 S.Ct. 1955, 167 L.Ed.2d 929
(2007)

6 Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir.2008) (quoting Twombly, 127
S.Ct. at 1965).

7 Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir.2007).

8 Id.

9 Fed. R. Civ. P. 9(b). See also Burton v. R.J. Reynolds Tobacco Co., 884 F.Supp. 1515,
1524 (D. Kan.1995) (Claims that arise under the KCPA are subject to Rule 9(b)'s particularity
requirement.).

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the consequences thereof.”10 Plaintiffs must set out the “who, what, where and when of the alleged
fraud.”11

“The statute of limitations is an affirmative defense; however, ‘when the dates given in the
complaint make clear that the right sued upon has been extinguished,’ this issue may be resolved
on a motion to dismiss.”12 “[O]nce a defendant satisfies his initial burden to show that a claim is
untimely, the burden shifts to [the plaintiff] to establish a later accrual date of the statute of
limitations or to show that there is a basis to toll the accrual date.”13

With these rudimentary principles in mind, the Court turns to the various counterclaims.

The TILA and RESPA claims

Long does not oppose ReVest’s motion to dismiss his TILA and RESPA claims. Because
the transactions between the parties were primarily for business purposes, neither TILA nor RESPA
offer Long a claim for relief.14 Even if RESPA did not exempt business loans, Long failed to allege
a requisite element for a RESPA anti-kickback claim: that fees were shared with a third party.15

10 Lawrence Nat'l Bank v. Edmonds ( In re Edmonds ), 924 F.2d 176, 180 (10th Cir.
1991). See also 5A C. Wright & A. Miller, Federal Practice and Procedure § 1297 at 74 (2004).

11 Plastic Packaging Corp. v. Sun Chemical Corp., 136 F.Supp.2d 1201, 1203 (D. Kan.
2001).

12 Thompson v. Jiffy Lube Inter’l., Inc., 505 F.Supp.2d 907, 925 (D. Kan. 2007) (quoting
Aldrich v. McCulloch Properties, Inc., 627 F.2d 1036, 1041 n.4 (10th Cir. 1980)).

13 Escobar v. Reid, 668 F.Supp.2d 1260, 1287 (D. Colo. 2009) (citing Aldrich v.
McCulloch Properties, Inc., 627 F.2d 1036, 1041 n.4 (10th Cir. 1980)).

14 See 15 U.S.C. §§ 1602(h), 1603(1) and 12 U.S.C. § 2606(a)(1). See also Poe v. First
Nat. Bank of DeKalb County, 597 F.2d 895 (5th Cir. 1979) (TILA specifically exempts from its
scope extensions of credit for business or commercial purposes).

15 See Boulware v. Crossland Mortgage Corp., 291 F.3d 261, 265 (4th Cir. 2002)
(holding § 2607(b) “only prohibits overcharges when a ‘portion’ or ‘percentage’ of the

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Both the TILA and RESPA claims are dismissed for failure to state a claim under Rule 12(b)(6).

The KCPA Claim

The KCPA prohibits any “deceptive act or practice” and any “unconscionable act or
practice” “in connection with a consumer transaction.”16 Long asserts ReVest’s actions are
unconscionable under K.S.A. 50-627 because it took advantage of his medical and emotional
condition and deceived him by continually representing to him that the Rental Properties would be
returned to him.17 Long also claims that ReVest’s continuing mischaracterization of these
transactions as sales, when they were in reality lending transactions, is also unconscionable. ReVest
argues that Long’s unconscionability claims are time-barred because more than three years has
elapsed since the dates of the agreements.

Kan. Stat. Ann. § 60-512(2) fixes the limitations period for claims arising out of statutory
violations at three years.18 Unlike Kan. Stat. Ann. § 60-513, the three-year statute does not provide
for a period to discover the claim or to assess the damages before the limitations period begins to

overcharge is kicked back to or ‘split’ with a third party”); Echevarria v. Chicago Title & Trust
Co., 256 F.3d 623, 626 (7th Cir. 2001) (affirming dismissal under Rule 12(b)(6) where the
plaintiffs failed to plead facts tending to show the third party involvement necessary for a §
2607(b) claim); Welch v. Centex Home Equity Co., L.L.C., 262 F.Supp.2d 1263 (D. Kan. 2003)
(RESPA fee-splitting provision is anti-kickback provision that unambiguously requires at least
two parties to share settlement fee in order to violate statute).

16 Kan. Stat. Ann. §§ 50-626 and 50-627.

17 Counterclaim, Dkt. 6, ¶¶ 5-6 of Count 1 at 6.

18 See also Alexander v. Certified Masters Builders Corp., 268 Kan. 812 (2000) (actions
under the KCPA seeking damages and civil penalties are subject to the three year statute of
limitations found in K.S.A. 60-512(2) rather than the 1-year statute of limitations found in

K.S.A. 60-514(c)).
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run, nor is there a statute of repose pertaining to KCPA claims.19

Long contends his KCPA claim is not barred by the statute of limitations because the
limitations period does not begin to run until the last payment has been made on the continuing
contract, citing Beltz v. Dings.20 Long alleged he made payments until 2009 and that those payments
toll the limitations period, making his KCPA claim timely.21 The Beltz court held that the statute
of limitations on a breach of contract claim did not begin to run until the last payment was made
under the agreement. Here, Long asserts that he has been wrongly induced to make these payments,
not that ReVest has breached a contract per se. The rule in Beltz does not apply to non-contractual
disputes.

Long also argues that his KCPA claim is not time-barred because ReVest made ongoing
representations to him that “[he] would be able to “pay off” the loan and have the properties retitled
[sic] in his name.”22 Long essentially urges this Court to apply the continuing violations doctrine
which provides that when the last act of a wrongful conduct is part of an ongoing pattern and occurs
within the filing period, allegations concerning earlier acts are not time-barred. There are two
problems with this argument.

First, and foremost, nowhere in the Counterclaim did Long assert that his lease payments
were made in reliance upon misrepresentations of the plaintiff. All his Counterclaim says is that he
has continued to make payments and that ReVest has continued to suffer his occupancy of the rented

19 Four Seasons Apts. v. AAA Glass Service, Inc., 37 Kan.App.2d 248, Syl. ¶¶ 2, 5, 152
P.3d 101 (2007).
20 27 Kan.App.2d 507 511, 6 P.3d 424 (2000).
21 Counterclaim, Dkt. 6, ¶ 24 at 5.
22 Response of Freddie Wayne Long to ReVest’s Motion to Dismiss at 1.
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properties. In deciding a motion to dismiss under Rule 12(b)(6), the Court is limited to the well-
pleaded allegations of the parties and such inferences as the law allows it to draw. Bootlegged facts
from the motion papers cannot be considered.

Second, in this case and on these facts, the Court cannot apply the continuing violations
doctrine. The doctrine is a narrow concept and has been applied very infrequently outside the Title
VII employment discrimination context.23 “The limited areas in which courts have broadened the
doctrine's application have involved explicit statutory language, unequivocal legislative intent, or
contractual arrangements.”24 Kan. Stat. Ann. § 50-627 contains no explicit statutory language
directing the application of the continuing violations doctrine.25

A KCPA claim accrues when the KCPA violation occurs.26 Here, the Counterclaim specifies
that ReVest made false or misleading statements to Long when it mischaracterized the true nature
of the agreements as purchases rather than loans and when it told Long that he would not “lose” his
properties. The Counterclaim states that he was induced to enter into the October 2005 purchase
agreement on the strength of these mis-statements. The Counterclaim also states that he entered into
the renewed option agreement on December 29, 2006 on the same basis. Long does not specify
when these statements were made or by whom, but does plead that “the transactions set forth herein

23 See Thompson v. Jiffy Lube Inter’l., Inc., 505 F.Supp.2d 907, 925 (D. Kan. 2007)
(citations omitted).

24 United Cities Gas Co. v. Brock Exploration Co., 984 F.Supp. 1379, 1388 (D. Kan.
1997) (internal quotations omitted).

25 See Thompson, 505 F.Supp.2d at 925. See also Cline v. Southern Star Central Gas
Pipeline, Inc., 356 F.Supp.2d 1203 (D. Kan. 2005).

26 Campbell v. Hubbard, 41 Kan.App.2d 1, 7 (Kan. App. 2008) (legal malpractice claim
accrued when attorneys quit representing him, rather than when he lost lawsuit in which
attorneys had represented him).

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[in the Counterclaim] were unconscionable under K.S.A. 50-627.”27 While Long's brief states that
ReVest has continued to let the optioned properties to Long well after the expiration of the 60-day
lease contemplated in the second option agreement, this fact is not pled in the Counterclaim. The
Counterclaim merely alleges that Long continued to make payments long after February of 2007.
Nor is there any statement about what ReVest told or may be telling Long in connection with his
continued occupation of the leased properties. Thus, the only pleaded statements upon which Long
can base his KCPA claim occurred incident to the formation of either the Purchase Agreement or
the Option Agreement, both of which were executed more than 3 years prior to January 13, 2010,
the date of the Counterclaim. Lacking any facts relating to the post-transaction misrepresentations
upon which Long apparently relies, the Court must conclude that Long’s KCPA claim as pled is
time-barred.28

The Fraud Claim

Long’s Counterclaim alleges ReVest instigated a scheme to set him up for the eventual loss
of his rental properties.29 Long argues that he has been the victim of a continuing fraud because he
has been continually induced to pay rents by ReVest’s misrepresentations that he will eventually get
his properties back if he continues to pay. Again, no such statements were pled in the Counterclaim.

 They are only referred to in the briefs. They are not part of the record upon which the Court

27 Counterclaim, Dkt. 6, ¶ 4 of Count 1 (emphasis added).

28 Kan. Stat. Ann. § 50-627 provides that an otherwise unconscionable act violates this
section whether it occurs before, during or after the transaction. To the extent that Long’s
KCPA claim is based on actions or statements of ReVest taken or made after the second
agreement was executed, there are no facts pleaded to which the Court can apply the plausibility
test.

29 Counterclaim, Dkt. 6, ¶ 2 of Count 4 at 9-10.

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considers a motion to dismiss. All that is pleaded is that Long was fraudulently induced to enter into
the agreements by ReVest’s false statements about the true nature of the deal.

Kan. Stat. Ann. § 60-513(a)(3) provides that an action for fraud shall be brought within two
years, but the cause of action shall not be deemed to have accrued until the fraud is discovered. Kan.
Stat. Ann. § 60-513(b) provides that:

a cause of action shall not be deemed to have accrued until the act giving rise to the
cause of action first causes substantial injury, or, if the fact of injury is not
reasonably ascertainable until some time after the initial act, then the period of
limitation shall not commence until the fact of injury becomes reasonably
ascertainable to the injured party, but in no event shall an action be commenced more
than 10 years beyond the time of the act giving rise to the cause of action.

Long argues his fraud claim accrued on December 11, 2009, the date of ReVest's Complaint because
that is when he first realized (i.e., discovered) that ReVest would not restore the properties to him
without litigation. Certainly Long knew or should have known that the properties would not be
“returned” to him when his option to repurchase them expired in February of 2007, more than two
years before the Counterclaim was filed.

Long also argues that the continuing tort doctrine applies to bring his fraud claim within the
limitations period. The Tenth Circuit recognizes that the continuing tort doctrine may apply in fraud
claims to affect when the limitations period begins to run.30 That doctrine provides that the
limitations period begin to run from the date of the last injury.31 Long relies on his continued
payments to toll the limitations period, but the fact that he made payments to ReVest in 2007, 2008,
and 2009 does not, standing alone constitute an allegation that ReVest continually induced him to

30 Tiberi v. CIGNA Corp., 89 F.3d 1423, 1430-1431 (10th Cir. 1996).
31 Id. at 1430.
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make payments on the assurance that he would eventually get his properties back. As noted above,
Rule 9 requires fraud claims to be pleaded with specific facts about who said what to whom, when
it was said, and the manner in which the pleader relied to his detriment. In the absence of these
facts, the Court is forced to conclude that Long’s fraud cause of action is time-barred, too.

The Quiet Title Claim

Long alleges that ReVest has no right, title or interest in the Rental Properties and that title
to said properties should be quieted in his name. Kansas law authorizes one claiming title to or an
interest in real property to maintain an action to quiet title against any person who claims an adverse
claim.32 In order to meet the plausibility test, Long must assert some basis for his claim to the
properties. In the Counterclaim, Long admits that he executed deeds to the properties and delivered
them to ReVest, albeit nominally. The only way the quiet title action would retain any vitality
would be if Long could successfully challenge the validity of those deeds or the formation of the
purchase agreement by demonstrating that ReVest acted wrongfully in inducing him to execute
them. In the absence of viable predicate causes of action, his quiet title action is implausible.
Because both those claims are time-barred, his quiet title claim would collapse for lack of a claim
to the properties.33

Leave to Amend

Dismissal of a claim with prejudice is a harsh remedy. “As a general matter, a party should

32 Kan. Stat. Ann. § 60-1002(a).

33 While the statute of limitations for a quiet title action is typically 15 years, see Kan.
Stat. Ann. § 60-507, the two-year statute pertaining to fraud set forth in Kan. Stat. Ann. § 60513(
a)(3) applies here. See Sutton v. Sutton, 34 Kan.App.2d 357 (2005) (affirming district
court’s decision to apply Kan. Stat. Ann. § 60-513(a)(3) rather than Kan. Stat. Ann. § 60-507 to
action for recovery of real property based on a conveyance of title obtained by fraud).

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be granted an opportunity to amend his claims prior to a dismissal with prejudice.”34 Indeed, leave
to amend is usually permitted if a pleader fails to plead fraud or mistake with sufficient
particularity.35 Dismissal with prejudice is warranted only when a court determines that the
allegation of other facts could not possibly cure the deficiency or would be futile.36 Because the
Court can easily conceive of amendments to the Counterclaim that would save it, the Court will
grant Long leave to amend to plead with specificity his allegations of misrepresentations made in
the conversations alleged to have occurred within the applicable statutes of limitation.
Conclusion

Long’s TILA and RESPA claim are dismissed with prejudice. Long’s KCPA, fraud, and
quiet title claims are dismissed with leave to amend to plead with specificity his allegations of
misrepresentations alleged to have occurred within the applicable statutes of limitation. Long is
cautioned to heed the mandates of Rule 8 and 9. Restatements of the claims dismissed with
prejudice will not be entertained. Long shall have 21 days from the date of this Order to file an
amended Counterclaim, or the KCPA, fraud, and quiet title claims will be dismissed without further
notice.

# # #

34 Sheldon v. Vermonty, 269 F.3d 1202, 1207 fn 5 (10th Cir. 2001).

35 2 Moore’s Federal Practice, §9.03[4], 933 (3rd ed. 2010). See also Firestone v.
Firestone, 76 F.3d 1205 (D.D. Cir. 1996) (neither the determination that claims were time-barred
nor the determination that the complaint failed to plead fraud with particularity support a
dismissal with prejudice); Luce v. Eelstein, 802 F.2d 49, 56 (2d Cir. 1986).

36 Firestone, 76 F.3d at 1209. See also Curley v. Perry, 246 F.3d 1278 (10th Cir. 2001)
(court should allow a plaintiff an opportunity to cure technical errors or otherwise amend the
complaint when doing so would yield a meritorious claim).

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