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Ray v. Nelson & Frankenberger, P.C.

United States District Court, S.D. Indiana, New Albany Division

September 3, 2014

JOHN RAY, AMY RAY, Plaintiffs,



This cause is before the Court on three motions: Defendant's motion for partial judgment on the pleadings [Docket No. 14], Plaintiff's motion for leave to file a sur-reply in opposition to the motion for judgment on the pleadings [Docket No. 24], and Plaintiff's motion for leave to file a second amended complaint [Docket No. 25]. Plaintiff's motion for leave to file a sur-reply is GRANTED, and the brief attached to their motion is deemed filed as of January 15, 2014. For the reasons set forth below, Defendant's motion for partial judgment on the pleadings is GRANTED, and Plaintiff's motion for leave to file an amended complaint is also GRANTED.

Factual and Procedural Background

Because Defendant has moved to dismiss only a portion of Plaintiffs' complaint, we present only those facts necessary to provide context for the portion of the complaint at issue. Plaintiffs John and Amy Ray are a married couple residing in Jefferson County, Indiana. Am. Compl. ¶ 1. On November 10, 2004, the Rays contracted with Ray Cavett[1] to purchase real estate located at 125 Montclair Street in Madison, Indiana. The property consisted of two lots: a small unimproved parcel measuring 10 feet by 150 feet, and a larger parcel containing a house in which the Rays intended to live. Am. Compl ¶ 3. The contract contained a description only of the smaller unimproved lot, and did not mention the larger lot. Id. at ¶ 4. The same day, Cavett executed a warranty deed in favor of the Rays and placed it in escrow, to be delivered to the Rays on payment of the contract price. Like the contract, the warranty deed described and purported to convey only the unimproved lot. Id. at ¶ 6.

In March 2006, the Rays obtained financing to effectuate their purchase of the property, granting a mortgage to Homecomings Financial Network, Inc. ("Homecomings") to secure a promissory note. The appendix to the mortgage described only the unimproved lot. Id. at ¶¶ 5-7. The Rays recorded the warranty deed on April 4, 2006, and Homecomings recorded the March 2006 mortgage on April 10, 2006. Pl.'s Resp. 6. According to both the Rays and Defendant, the omission of the larger improved lot from the purchase contract, warranty deed, and mortgage was unintentional. See Pl.'s Resp 4; Def.'s Br. 3. The Rays lived in the house on the improved parcel and maintained both lots for several years as neighbors to the original owner Cavett, until Cavett's death in 2009. Pl.'s Resp. 4, ¶ 2.

After Cavett's death, his estate discovered the omission of the improved portion of the property at 125 Montclair from the original 2004 warranty deed. In order to rectify the error, the estate prepared a "personal representative's deed" on March 25, 2011 conveying the parcel to the Rays. Am. Compl. ¶ 9. The Rays recorded this deed on April 14, 2011.

On September 14, 2011, a representative of the mortgage assignee, Wells Fargo Bank, sent the Rays a letter informing them that they were in default on their mortgage.[2] Pl.'s Resp. 7, ¶ 12. Subsequent communications with the Rays made them aware that their original 2006 mortgage described only the unimproved lot.[3] In early 2012, Defendant Nelson & Frankenberger, P.C. ("N&F"), Wells Fargo's counsel, modified the 2006 mortgage so that it included both the improved and unimproved lots at 125 Montclair. Am. Compl. ¶ 11; Pl.'s Resp. 10. According to Plaintiffs, N&F did not inform the Rays of this modification, and it recorded the altered mortgage on Wells Fargo's behalf on May 25, 2012. Pl.'s Resp. 10, ¶ 18. Wells Fargo, by counsel N&F, then brought a foreclosure action against the Rays in Jefferson County Superior Court on July 20, 2012. Am. Compl. ¶ 14. The Rays contend that this foreclosure complaint, prepared by N&F, contained a number of misrepresentations and untruths. See Am. Compl. ¶¶ 15-20.

Alleging that N&F's communications with them in connection with the foreclosure action qualified as "attempts to collect a debt" and that N&F thus violated the federal Fair Debt Collection Practices Act ("FDCPA"), the Rays filed a complaint against N&F in Jefferson County Circuit court on July 11, 2013. Am. Compl. ¶ 24. N&F removed the action to this Court shortly thereafter.

On September 11, 2013, Andrew Hull of Hoover Hull LLP, defense counsel for N&F in this FDCPA action, sent the Rays' counsel a letter requesting that they voluntarily dismiss their FDCPA complaint; the letter informed the Rays' counsel that if the complaint was not dismissed, he intended to move for summary judgment and the recovery of attorneys' fees under Rule 11 and the federal and Indiana attorneys' fees statutes. Am. Compl. ¶¶ 25-27. The letter summarized the opinion of N&F and counsel that the facts "demonstrate the lack of legal merit to the Rays' claims in this action." Def.'s Ex. 2 at 4. It then concluded: "We look forward to your clients' response on or before Monday, September 23, 2013. Following that date, we plan to prepare motions for summary judgment and for the recovery of all attorneys' fees and expenses." Id. [4]

Six days later, on September 17, 2013, Plaintiffs amended their complaint in the present action to add seven paragraphs of allegations relating to the September 11 letter from N&F's defense counsel. See Docket No. 9; Am. Compl. ¶¶ 25-31. Defendant's pending motion seeks the dismissal of these additional allegations, and does not address the contents of the original complaint.

After September 11, 2013, N&F and its counsel continued to communicate with the Rays and their counsel-both in connection with the state court foreclosure suit initiated by Wells Fargo and in connection with the Rays' own FDCPA suit against N&F in this Court. However, N&F withdrew as Wells Fargo's lead counsel in the foreclosure action-and designated "debt collector"-on December 9, 2013, and it did not have further communications with the Rays regarding the foreclosure after that date. On January 15, 2014, Plaintiffs filed the pending motion for leave to amend complaint; in it, they seek to supplement their FDCPA claim with allegations that N&F continued to engage in impermissible communications in the period between the September 11, 2013 letter and its withdrawal as Wells Fargo's counsel on December 9, 2013.

The proposed second amended complaint summarizes these new allegations as follows:

Following July 20, 2012 and through December 9, 2013, Nelson & Frankenberger continued to act as a debt collector in the state court foreclosure debt collection action it filed against the Rays on behalf of Wells Fargo Bank. Following the filing of its answer to the complaint in federal court and while continuing to act as a debt collector in connection with the collection of a debt against the Rays in state court, Nelson and Frankenberger initiated a litigation strategy on September 11, 2013 which involved threatening to seek attorney's fees and expense [sic] against the Rays if the Rays did not immediately forego [sic] the exercise of their federally protected right to redress violations of the FDCPA, did not relinquish their defenses and counterclaim in the foreclosure debt collection action, did not surrender a portion of their real property and did not sign a decree foreclosure. These threats were conveyed in writing to the Rays on September 11, 2013, October 3, 2013, October 4, 2013, October 9, 2013, and December 4, 2013.

Docket No. 25, Ex 1. ...

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