BRUCE R. ELWORTHY and ANNE B. MARSHALL, Appellants (Plaintiffs),
FIRST TENNESSEE BANK, FIRST HORIZON LOAN CORPORATION, and RBS CITIZENS BANK, Appellees (Defendants).
from the District Court of Sheridan County The Honorable John
G. Fenn, Judge
Representing Appellants: Bruce R. Elworthy and Anne B.
Marshall of Elworthy & Marshall, P.C., Sheridan, WY.
Argument presented by Mr. Elworthy and Ms. Marshall.
Representing Appellees: Stephenson D. Emery of Williams,
Porter, Day & Neville, P.C., Casper, WY; and Steven A.
Ellis of Goodwin Proctor, LLP, Los Angeles, CA for Appellees
First Tennessee Bank National Association and First Horizon
Loan Corporation; and Rick A. Thompson and Lucas Buckley of
Hathaway & Kunz, P.C., Cheyenne, WY for Appellee RBS
Citizens Bank. Argument presented by Messer's Emery,
Ellis, and Thompson.
BURKE, C.J., and HILL, DAVIS, FOX, and KAUTZ, JJ.
Bruce Elworthy and Anne Marshall (collectively
"Plaintiffs") filed an action against Defendants
alleging claims for breach of contract, fraud in the
inducement, and violation of a California law governing
fraudulent business practices, all claims in relation to
Defendants' financing of Plaintiffs' real property
located in Wyoming and California. Plaintiffs filed their
action in Wyoming and sought monetary and punitive damages,
rescission and restitution, and an order declaring all
encumbrances recorded against their Sheridan, Wyoming
property void and expunged.
The district court granted Defendants' Rule 12 motions to
dismiss and for judgment on the pleadings. In so ruling, the
court applied Wyoming law and found that Plaintiffs'
breach of contract claims were barred by the statute of
frauds and that Plaintiffs had failed to plead their fraud
and fraud-based claims with the required particularity. We
Plaintiffs failed to include in their brief a separate
statement of issues presented for review, as required by
W.R.A.P. 7.01(d). Within their statement of the case,
Plaintiffs do, however, state as follows:
Appellants respectfully submit that the findings by the
District Court that: (1) the Procedural and Substantive Laws
of the State of Wyoming controlled the litigation and (2)
that the fraud counts were defective was reversible error and
that the subsequent [dismissal] pursuant to Rule 12 of the
Wyoming Rules of Civil Procedure that the District Court
ordered was based upon an improper analysis of the applicable
Plaintiffs do not reference the district court's ruling
on their breach of contract claim, but in the argument
portion of their brief, they contend the court erred in that
ruling. Given Plaintiffs' statement above and the
arguments they make in their briefing, we summarize the
issues on appeal as follows:
A. Did the district court err in ruling that Wyoming law
should govern the parties' dispute?
B. Did the district court err in ruling that Plaintiffs'
breach of contract claims were barred by the statute of
C. Did the district court err in ruling that Plaintiffs
failed to plead their fraud-based claims with the
particularity required by W.R.C.P. 9(b)?
D. Did the district court abuse its discretion in ruling that
it would not permit any further amendments to Plaintiffs'
Events Leading to Wyoming Litigation
Bruce Elworthy and Anne Marshall (collectively
"Plaintiffs") are married and are both attorneys.
In 1997, Plaintiffs bought a home in Sheridan, Wyoming, and
in 2002, they began looking for a home in California, where
they hoped to spend winters. In 2005, they found a home they
wished to purchase in Monterey, California, priced at around
$3, 000, 000. Along with the home purchase, Plaintiffs
were also required to purchase the sellers' country club
membership for $118, 000.
To purchase the California property, Plaintiffs worked with a
mortgage broker by the name of Sherri Wall. Ms. Wall
originally recommended a mortgage that required only the
California property as collateral, but before Plaintiffs
closed on the property, Ms. Wall informed Plaintiffs that she
had found a better mortgage deal. This deal, which Ms. Wall
referred to as the "best financing deal by far, "
required that Plaintiffs take out four mortgages to secure
financing on the California property. The mortgages were to
be issued by First Horizon Home Loan Corporation, which
subsequently merged into First Tennessee Bank National
Association ("First Tennessee"), and consisted of:
a $1, 000, 000 first mortgage on the Sheridan property; a
$150, 000 home equity line of credit (HELOC) on the Sheridan
property; a $1, 500, 000 first mortgage on the California
property; and a $282, 000 HELOC on the California property.
Plaintiffs agreed to this financing arrangement and closed on
the California property.
After Plaintiffs moved into the California property, they
discovered numerous defects that had not been disclosed by
the sellers, including flooding and failing windows and an
insect and rodent infestation. Plaintiffs contacted the
sellers, their real estate broker, and the contractor that
built the home to have the undisclosed defects addressed.
When no resolution had been reached by the spring of 2007,
Plaintiffs demanded rescission of the sales agreement. After
that demand was rejected, Plaintiffs, in November 2007, filed
litigation in California against the sellers, the contractor,
and the real estate brokers, seeking damages and rescission
of the sales agreement on the California property.
In December 2007, shortly after filing the California
litigation, Mr. Elworthy was diagnosed with a brain tumor
that required surgery. After Plaintiffs were advised this
would affect Mr. Elworthy's ability to work for some
time, they asked Ms. Wall for the name of someone with the
lender who could discuss their situation. Ms. Wall referred
Plaintiffs to John Harris, an attorney with First Tennessee
in its Irving, Texas office.
Plaintiffs thereafter contacted Mr. Harris and informed him
of their situation. Mr. Harris offered a forbearance
agreement on the California portion of the loans, by which
payments would be deferred on those loans until the
conclusion of the California litigation and then rolled into
the principal balance. Plaintiffs agreed they would continue
to prosecute the law suit and would pay the property taxes,
homeowner assessments, insurance, maintenance, utilities and
other such expenses on the property. Plaintiffs also agreed
they would do as much "fix up" as was required to
market the property and would move out over the coming months
to enable the property to be marketed. In discussing the
matter, Plaintiffs asked Mr. Harris if he wanted some form of
written documentation of the forbearance and he stated that
no writing was required for the action he was taking.
Plaintiffs thereafter stopped making payments on the
Mr. Harris contacted Plaintiffs in the spring of 2008 and
informed them that he was leaving First Tennessee but that
the oral forbearance agreement would remain in place. Shortly
thereafter, however, Plaintiffs learned that a MetLife entity
was servicing the loans, and they began receiving late
notices from MetLife. Plaintiffs then contacted an attorney
with MetLife, who denied the existence of a forbearance
agreement and informed Plaintiffs that if they did not bring
the mortgages on the California property current, MetLife
would issue a notice of default. Plaintiffs were unable to
bring the mortgages current, and in June 2008, MetLife issued
a notice of default. Foreclosure proceedings on the
California property began in 2009.
While the foreclosure was pending, Plaintiffs settled with
some of the defendants in the California litigation. In April
2010, Plaintiffs contacted First Tennessee in an effort to
delay foreclosure proceedings on the California property and
find out what type of payment would be required to stop the
foreclosure proceedings. First Tennessee would not consent to
a delay and would not allow Plaintiffs to cure the default by
making a payment on the mortgage. First Tennessee informed
Plaintiffs that the only way they could avoid foreclosure was
to immediately pay the primary mortgage and HELOC on the
California property. Plaintiffs could not do that, and on
April 23, 2010, First Tennessee foreclosed on the property.
The suit against the sellers of the California property went
to trial in March 2011. The California court found negligent
misrepresentations by the sellers but denied the rescission
remedy that Plaintiffs sought on two grounds: 1) the property
had already been foreclosed on so it could not be returned to
the sellers; and 2) Plaintiffs delayed bringing the
litigation for two years and the doctrine of laches therefore
barred the remedy of rescission. By a decision issued in
November 2013, a California appellate court affirmed,
agreeing with the trial court that the remedy of rescission
was no longer available because of the foreclosure.
Proceedings in Wyoming District Court
On April 16, 2012, while Plaintiffs' California appeal
was still pending, Plaintiffs filed a complaint in district
court in Sheridan County. The complaint named First Tennessee
and First Horizon Loan Corporation (collectively "First
Tennessee") as well as other financial institutions as
defendants and asserted three counts: 1) breach of contract
relating to the oral forbearance agreement; 2) interference
with prospective economic advantage, relating to
Plaintiffs' loss of the rescission remedy following the
foreclosure on the California property; and 3) declaratory
relief, seeking a declaration cancelling all encumbrances on
Plaintiffs' Sheridan, Wyoming property.
On September 6, 2012, Plaintiffs filed their first amended
complaint, which added two new defendants and two new claims.
The new claims were for: 1) misrepresentation related to
foreign bank manipulation of the London Interbank Offered
Rate ("LIBOR") and First Tennessee's issuance
of mortgages, including those on Plaintiffs' California
property, pegged to the LIBOR rate; and 2) reformation and
restitution related to First Tennessee's use of mortgages
tied to the LIBOR rate.
All defendants named in the first amended complaint filed
motions to dismiss or for judgment on the pleadings. The
district court dismissed all claims against some of the named
defendants. The court denied First Tennessee's motion to
dismiss except for the claim against it for interference with
a prospective economic advantage. The court denied in its
entirety the motion for judgment on the pleadings filed by
RBS Citizens Bank ("RBS"), the entity that now owns
the HELOC on the Sheridan, Wyoming property. With respect to
Plaintiffs' misrepresentation claim against First
Tennessee, the court ruled:
At the hearing, Plaintiffs admitted that this count does not
meet the pleading requirements of W.R.C.P. 9. However, they
made an oral motion to amend this count to allege fraud in
the inducement by Ms. Wall. Plaintiffs contend that Ms. Wall
was acting as the agent for First Tennessee, and that they
never would have entered into these mortgages if she had not
misrepresented her status as an independent broker.
Plaintiffs also alleged that they would not have put the
Pioneer Property up as collateral if Ms. Wall had not induced
them to do so, and they are seeking to invalidate those
mortgages due to Ms. Wall's fraud. Under these facts,
Plaintiffs could potentially be entitled to relief. The Court
recognizes that Plaintiffs' misrepresentation claim has
become a "moving target." W.R.C.P. Rule 15 provides
that leave to amend "shall be freely given when justice
so requires." Therefore, the Court finds that Plaintiffs
shall be granted leave to amend their complaint to correct
the deficiencies of their misrepresentation claim.
Accordingly, the motion to dismiss this claim should be
denied at this time.
On February 27, 2015, Plaintiffs filed their second amended
complaint against First Tennessee and RBS. The second amended
complaint asserted claims for breach of contract, fraud in
the inducement, violation of the California Business and
Professions Code, and violation of the Truth in Lending Act
("TILA"), and sought monetary and punitive damages,
rescission and restitution in relation to the TILA and fraud
claims, and a declaration that all encumbrances on
Plaintiffs' Wyoming property are void.
RBS answered the second amended complaint and filed a Rule
12(c) motion for judgment on the pleadings. First Tennessee
also filed an answer, which it followed with a combined Rule
12(b)(6) motion to dismiss and 12(c) motion for judgment on
the pleadings. On May 20, 2016, the district court issued its
Second Order on Motions to Dismiss and for Judgment on the
Pleadings. In ruling on the dispositive motions, the court
judged the sufficiency of the second amended complaint based
solely on facts and allegations contained therein, and it
ruled that Wyoming law governed the parties' dispute.
Applying Wyoming law, the district court ruled that
Plaintiffs' breach of contract claim was barred by the
statute of frauds and that no exception to the statute
applied. Turning to Plaintiffs' fraud claims, the court
found that Plaintiffs failed to plead the claims with the
particularity required by W.R.C.P. 9(b) and thus dismissed
those claims. The court likewise dismissed Plaintiffs'
fraudulent business practices claim under the California
Business and Professions Code for failing to plead that claim
with the specificity required for a fraud claim. In ruling on
Plaintiffs' claims for restitution and rescission and
declaratory relief, the court found the claims derivative of
the other defective claims and ruled that those must likewise
be dismissed. Finally, the court noted that Plaintiffs had
not formally made a motion to amend during the motions
hearing but had suggested they might seek to amend the
complaint to add new allegations of fraud based on the
disavowal of the forbearance agreement. The court then ruled:
In this case, the Plaintiffs have previously been given two
opportunities to amend their complaint to cure the
deficiencies. They were put on notice of the defects in their
First Amended Complaint during the first round of
motions, but they did not cure these defects through
amendment. Therefore, the Court finds in its discretion that
a third amendment should not be allowed.
Plaintiffs filed a timely notice of appeal to this Court.
In dismissing Plaintiffs' complaint, the district court
ruled pursuant to W.R.C.P. 12(b)(6), which governs motions to
dismiss for failure to state a claim, and W.R.C.P. 12(c),
which governs motions for judgment on the pleadings. Our
review of a dismissal under either rule is de novo.
Swinney v. Jones, 2008 WY 150, ¶ 6, 199 P.3d
512, 515 (Wyo. 2008). Concerning our review of a Rule
12(b)(6) dismissal, we have said:
When reviewing W.R.C.P. 12(b)(6) motions to dismiss, we
accept the facts stated in the complaint as true and view
them in the light most favorable to the plaintiff. We will
sustain such a dismissal when it is certain from the face of
the complaint that the plaintiff cannot assert any fact which
would entitle him to relief. Sinclair v. City of
Gillette, 2012 WY 19, ¶ 8, 270 P.3d 644, 646
(Wyo.2012). Although we view the facts in the light most
favorable to the plaintiff, we have also stated that
"Liberal construction of pleadings does not excuse
omission of that which is material and necessary in order to
entitle one to relief." Excel Constr., Inc. v. HKM
Eng'g, Inc., 2010 WY 34, ¶ 35, 228 P.3d 40, 49
(Wyo.2010) (citing William F. West Ranch, LLC v.
Tyrrell, 2009 WY 62, ¶ 9, 206 P.3d 722, 726
Stroth v. North Lincoln County Hosp. Dist., 2014 WY
81, ¶ 6, 327 P.3d 121, 125 ...