92 F. Supp. 3d 747
E.D. Tenn.2015Background
- Plaintiff Garrett J. Hanas executed a promissory note and recorded Deed of Trust (2009) for his Knoxville residence; Quicken Loans was original lender and Fannie Mae holds the loan; Seterus services the loan.
- Deed of Trust contains an express escrow clause requiring monthly payments for taxes, assessments, and other "Escrow Items."
- Hanas, a disabled veteran, claims entitlement under Tenn. Code Ann. § 67-5-704 and refuses to make the escrow payments for property taxes; he nonetheless alleges he has not missed his mortgage principal and interest payments.
- Seterus reported Hanas as delinquent to credit bureaus and threatened foreclosure for failure to make escrow tax payments; Hanas sued Seterus for breach of contract, breach of duty of good faith and fair dealing, defamation, and violation of the Tennessee Consumer Protection Act (TCPA).
- Seterus moved to dismiss under Rule 12(b)(6). The court considered Tennessee statutory tax-relief guidance showing § 67-5-704 provides reimbursement, not an exemption, and that homeowners remain responsible for paying taxes and applying for relief.
- Court granted Seterus’s motion and dismissed all claims for failure to state a claim; Hanas’s motion for temporary injunction was denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract | Hanas: Quicken/servicer excused him from paying escrow for property taxes; Seterus breached by demanding/collecting. | Seterus: No enforceable modification; Deed of Trust requires escrow; any oral modification barred by Statute of Frauds and no privity. | Dismissed — any modifying agreement must be in writing under Tenn. Statute of Frauds; oral modification unenforceable. |
| Duty of good faith and fair dealing | Hanas: Seterus acted in bad faith by reporting delinquency and seeking escrow funds contrary to his claimed exemption. | Seterus: Duty claim is derivative of contract claim; if contract claim fails, duty claim fails. | Dismissed — derivative of contract claim; fails with contract claim. |
| Defamation | Hanas: Reporting delinquency to credit bureaus was false and defamatory. | Seterus: Reports were true because Hanas refused escrow tax payments required by the Deed; truth is a defense. | Dismissed — truth is a defense; alleged reports were accurate. |
| Tennessee Consumer Protection Act | Hanas: Seterus’s conduct was unfair/deceptive in collecting escrow and reporting delinquency. | Seterus: No unfair/deceptive act; tax relief statute reimburses but does not exempt from paying taxes; truthful reporting not deceptive. | Dismissed — no unlawful act or ascertainable loss caused by deceptive conduct as a matter of law. |
Key Cases Cited
- Meador v. Cabinet for Human Resources, 902 F.2d 474 (6th Cir.) (standard for Rule 12(b)(6) review)
- Lawler v. Marshall, 898 F.2d 1196 (6th Cir.) (courts must accept pleaded facts as true on motion to dismiss)
- Miller v. Currie, 50 F.3d 373 (6th Cir.) (courts should not weigh evidence or assess credibility on motion to dismiss)
- Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434 (6th Cir.) (complaint must allege all material elements of a viable claim)
- Lambert v. Home Fed. Sav. & Loan Ass’n, 481 S.W.2d 770 (Tenn.) (mortgage/deed of trust falls within Statute of Frauds; oral modification unenforceable)
- Betts v. Demumbrune, 3 Tenn. 39 (Tenn.) (parol evidence rule forbids contradicting a written agreement)
- Sullivan v. Baptist Memorial Hosp., 995 S.W.2d 569 (Tenn.) (elements of defamation; fault and falsity required)
- West v. Media Gen. Convergence, Inc., 53 S.W.3d 640 (Tenn.) (truth is a defense to defamation)
- Bassett v. NCAA, 528 F.3d 426 (6th Cir.) (courts may consider public records attached to or central to complaint on Rule 12(b)(6) motion)