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Holt v. First Horizon Home Loan


March 20, 2007


The opinion of the court was delivered by: Christopher C. Conner United States District Judge


Presently before the court is a motion of First Horizon Home Loan, doing business as MNC Mortgage and FT Mortgage (collectively "First Horizon"), to dismiss the claims asserted against them by plaintiffs Gary and Julie Mooney ("the Mooneys").*fn1 First Horizon argues that the Mooneys released all claims against the company by executing a "mutual release and hold harmless agreement." (See Doc. 10, Ex. B.) For the reasons that follow, the motion will be granted in part and denied in part.

I. Statement of Facts*fn2

The Mooneys allege that First Horizon conspired with real estate developers, appraisers, and brokers to con them into purchasing a home for an inflated price that was well beyond their financial means. (See Doc. 1 ¶¶ 1-2, 40, 61.) Specifically, the Mooneys allege that First Horizon: (1) "failed to follow their usual and customary underwriting guidelines and due diligence procedures" to determine if the Mooneys could afford their monthly mortgage payment, and (2) failed to confirm whether the Mooneys met certain equity requirements established by the Federal Housing Administration ("FHA") and the United States Department of Housing and Urban Development ("HUD"). (See id. ¶¶ 50, 57-58.)

On August 30, 2001, First Horizon issued the Mooneys a home loan in the amount of $127,900, which the Mooneys allege was "far in excess of market value." (Id. ¶¶ 72, 106.) Sometime thereafter, the Mooneys allege that they were approached by Dean McGee ("McGee"), a First Horizon employee, who told them that First Horizon "knew nothing about the fraud that [had been] committed" and asked them to release their claims against First Horizon in exchange for a reduction in their loan amount. (Id. ¶ 118.) On October 8, 2002, the Mooneys executed the requested "mutual release and hold harmless agreement," which purported to release First Horizon from liability on "any and all claims, demands, and/or liabilities arising out of the loan transaction" between the Mooneys and First Horizon.*fn3 (Doc. 10, Ex. B at 3.) In exchange, the Mooneys were to receive a free reappraisal of their property and a corresponding reduction of their loan balance and interest rate. (Doc. 10, Ex. B at 1-2.) On November 19, 2002, First Horizon reduced the balance owed on the Mooneys' loan by $91,000 in compliance with the terms of the release. (Doc. 1 ¶ 115.)

On January 4, 2006, plaintiffs filed the instant action, in which the Mooneys challenge the enforceability of the release. Specifically, the Mooneys claim that several First Horizon employees were "fully aware of the frauds being committed" and that McGee's statement to the contrary constituted fraud in the inducement. (Id. ¶ 118.) First Horizon filed the instant motion to dismiss, arguing that this court's decision to grant summary judgment in favor of First Horizon in the related case of Gertsen v. First Horizon Home Loan Corporation mandates dismissal of the Mooneys' claims against First Horizon in the instant action.*fn4 The motion has been fully briefed and is ripe for disposition.

II. Standard of Review

Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of claims that fail to assert a basis upon which relief can be granted. FED. R. CIV. P. 12(b)(6).

In the context of a motion to dismiss under Rule 12(b)(6), the court must accept as true all of the factual allegations in the complaint and all reasonable inferences that can be drawn therefrom. Langford v. City of Atlantic City, 235 F.3d 845, 847 (3d Cir. 2000) (citing Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996)). Although the court is generally limited in its review to the face of the complaint, it "may also consider matters of public record, orders, exhibits attached to the complaint and items appearing in the record of the case." Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 n.2 (3d Cir. 1994); see also In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997).

Federal notice pleading rules do not require plaintiffs to allege affirmatively every aspect of their claims, but only to present sufficient facts to allow the opposing party to conduct discovery and prepare a defense. See FED. R. CIV. P. 8(a) (stating that the complaint should include "a short and plain statement of the claim showing that the pleader is entitled to relief"); see also Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Thus, courts should not dismiss a complaint for failure to state a claim unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id.; see Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002). Under this liberal pleading policy, courts should generally grant plaintiffs leave to amend their claims before dismissing a complaint that is merely deficient. See Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir. 2002); Shane v. Fauver, 213 F.3d 113, 116-17 (3d Cir. 2000).

III. Discussion*fn5

To state a claim of fraud in the inducement, the plaintiff must allege that:

(1) the defendant made "a representation," (2) the representation was "material to the transaction at hand," (3) the representation was "made falsely, with knowledge of its falsity or recklessness as to whether it [was] true or false," (4) the representation was made "with the intent of misleading another into relying on it," (5) the plaintiff justifiably relied on the representation, and (6) the plaintiff's injury was "proximately caused by the reliance." Eigen v. Textron Lycoming Reciprocating Engine Div., 874 A.2d 1179, 1185 (Pa. Super. Ct. 2005). A written release is not binding where "the party seeking to use the release to avoid claims has actively and knowingly concealed from the other party information regarding potential claims covered by the release." Haymond, Napoli Diamond, P.C. v. Haymond, No. Civ.A. 02-721, 2004 WL 2030134, at *19 (E.D. Pa. Sept. 8, 2004) (citing Jenkins v. Peoples Cab Co., 220 A.2d 669 (Pa. 1966)).

In the instant case, the Mooneys allege that McGee represented to them that First Horizon "knew nothing about the fraud that [had been] committed." (Doc. 1 ¶ 118.) The Mooneys further allege that McGee's statement was "an intentional fraud and misrepresentation of facts material to the release, as bank personnel . . . were fully aware of the frauds being committed." (Id.) Finally, the Mooneys allege that they signed the release "in reliance" upon McGee's statement and were injured as a result. (Id. ¶¶ 117-118.) In the restricted posture of a Rule 12(b)(6) motion, the court finds that these allegations are sufficient to establish the First Horizon fraudulently induced the Mooneys into executing the release by concealing information regarding potential claims that were foreclosed by the release. See Haymond, 2004 WL 2030134, at *19. Whether the Mooneys can present evidence to support these assertions is a matter better suited for resolution in the context of summary judgment. Accordingly, First Horizon's motion to dismiss the Mooneys' claims will be denied.

An appropriate order will issue.


AND NOW, this 20th day of March, 2007, upon consideration of the motion to dismiss (Doc. 9) of First Horizon Home Loan, doing business as MNC Mortgage and FT Mortgage, and for the reasons set forth in the accompanying memorandum, it is hereby ORDERED that the motion to dismiss (Doc. 9) is GRANTED in part and DENIED in part as follows:

1. The motion to dismiss (Doc. 9) is GRANTED with respect to the claims of Michael Holt and Victoria Holt against First Horizon Home Loan.

2. The motion to dismiss (Doc. 9) is otherwise DENIED.

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