Paul F. Mik, Jr., Lee Ann Mik, & Pals Enters., LLC v. Fed. Home Loan Mortg. Corp.

• Citation: 743 F.3d 149
• Decision Date: 07 February 2014
• Docket Number: No. 12–6051.,12–6051.
• Parties: Paul F. MIK, Jr., Lee Ann Mik, and PALS Enterprises, LLC, Plaintiffs–Appellants, v. FEDERAL HOME LOAN MORTGAGE CORPORATION, Defendant–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

743 F.3d 149

Paul F. MIK, Jr., Lee Ann Mik, and PALS Enterprises, LLC, Plaintiffs–Appellants,

v.FEDERAL HOME LOAN MORTGAGE CORPORATION, Defendant–Appellee.

No. 12–6051.

United States Court of Appeals,Sixth Circuit.

Argued: June 19, 2013.

Decided and Filed: Feb. 7, 2014.

ARGUED:Alan W. Roles, Coleman, Roles & Associates, PLLC, Louisville, Kentucky, for Appellants. Rick D. DeBlasis, Lerner, Sampson & Rothfuss, Cincinnati, Ohio, for Appellee. ON BRIEF:Alan W. Roles, Theodore J. Palmer, Coleman, Roles & Associates, PLLC, Louisville, Kentucky, for Appellants. Rick D. DeBlasis, Lerner, Sampson & Rothfuss, Cincinnati, Ohio, for Appellee. Kent Qian, National Housing Law Project, San Francisco, California, C. Matthew Hill, Public Justice Center, Baltimore, Maryland, for Amici Curiae.

Before: GIBBONS and STRANCH, Circuit Judges; HOOD, District Judge. ^*

OPINION

JULIA SMITH GIBBONS, Circuit Judge.

In May 2012, Paul F. Mik, Jr., Lee Ann Mik, and PALS Enterprises, LLC (collectively, “the Miks”) filed suit against the Federal Home Loan Mortgage Corporation (“Freddie Mac”), arguing that they were unlawfully evicted from their rental home after their landlord defaulted on her mortgage and the property was sold at a foreclosure sale. The district court granted Freddie Mac's motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). It interpreted the Miks' complaint as asserting claims under the Protecting Tenants at Foreclosure Act of 2009 (“PTFA”), which imposes certain requirements on successors in interest to foreclosed properties in order to protect tenants. The district court held that the PTFA does not provide a private right of action and dismissed the complaint. On appeal, the Miks argue that their claims do not arise under the PTFA and that their complaint asserts claims for wrongful eviction, denial of due process, and outrageous infliction of emotional distress under Kentucky law.

We hold that the PTFA does not provide a private right of action. Nonetheless, the PTFA requires successors in interest to foreclosed properties to provide bona fide tenants with 90 days' notice to vacate and to allow them to occupy the premises until the end of their lease term unless certain conditions are met. The PTFA's requirements preempt state laws that provide less protection to tenants. While tenants may not bring a federal cause of action for violations of the PTFA, they may use such violations to establish the elements of a state law cause of action. We hold that the Miks have stated a claim for wrongful eviction but have failed to state claims for denial of due process and outrageous infliction of emotional distress. Therefore, we reverse in part and affirm in part.

I.

The Miks allege the following facts in their complaint, and for purposes of reviewing the district court's grant of Freddie Mac's motion to dismiss, we accept their allegations as true. See Reilly v. Vadlamudi, 680 F.3d 617, 622 (6th Cir.2012).

Paul Mik and his wife Lee Ann own and operate PALS Enterprises, LLC (“PALS”). In October 2010, PALS entered into an agreement with Wanda Meyer giving PALS a lease with an option to purchase a residence that Meyer owned in Meade County, Kentucky. Paul and Lee Ann Mik lived in the residence leased by PALS.

Meyer defaulted on her mortgage, and her lender, CITI Mortgage, Inc., initiated foreclosure proceedings. The Miks were not named as parties in the foreclosure action either by name or as “unknown tenant(s) or occupant(s).” CITI Mortgage was the successful bidder at the foreclosure sale on April 20, 2011, and it assigned its bid to Freddie Mac. The Miks recorded their lease—which they concede was initially unrecorded—on April 12, 2011, but they did not notify CITI Mortgage of the existence of their lease until April 28, 2011. The Miks paid rent on April 1, 2011, but they claim that they did not pay rent thereafter because they did not know to whom rent should be paid.

In June 2011, the Miks contacted Joe Mai, a paralegal at the law firm that represented Freddie Mac. They told him that they had a lease with an option to purchase Meyer's residence and that they desired to remain in the home. Mai told the Miks that they could avoid eviction and stay in the residence until July 25, 2011 if they participated in a relocation assistance program called Cash for Keys, whereby they would be paid $1,500 to vacate the residence. The Miks signed the agreement, but they were not paid $1,500 and did not vacate the residence. The Miks were told to contact Freddie Mac's agent Sherry Bennett Webb, who would arrange for the property to be inspected before the Miks were paid. In July 2011, Paul Mik contacted Webb and informed her that he had a lease with an option to purchase the residence.

On June 15, 2011, Freddie Mac obtained a writ of possession ¹ for the property. The writ stated that Meyer was to be evicted from the premises, but it did not mention the Miks. On July 27, 2011, the Miks were informed that they could buy the property for $190,000 and avoid being evicted if they could demonstrate that they qualified for a loan by 5 p.m. on Friday, July 29, 2011. On July 28, 2011, deputies from the Meade County Sheriff's Department arrived at the residence with a copy of the writ of possession. Lee Ann Mik explained that Meyer did not live on the property and that the Miks had not been served with legal documents concerning the eviction. The deputy said that he would return on Monday to lock the Miks out of the residence.

The Miks contacted Mai, who reiterated that the Miks could avoid eviction only by showing that they were approved for a $190,000 home loan by 5 p.m. that Friday. The Miks applied for a loan, and the bank notified Mai that the Miks had submitted an application but that it would take about two weeks to have the property appraised. On July 31, 2011, Webb informed the Miks that they would be evicted the following day. Paul Mik again told Webb that he had a lease and that he had not been served with any court documents.

On August 8, 2011, Paul Mik posted a copy of the lease on the door of the residence with a note stating: “We are asserting our rights under this lease and object to entry by anyone.” That day, deputies from the Meade County Sheriff's Department “set out” the Miks' property, removingit from the residence and placing it in the yard. More than $38,000 of property was damaged or destroyed by rain. In November 2011, the Miks obtained the loan for which they had applied and purchased the property from Freddie Mac.

In May 2012, the Miks filed suit against Freddie Mac in federal district court. The complaint alleged that Freddie Mac “disregarded [Section 702] of the Protecting Tenants at Foreclosure Act of 2009.” The Miks claimed that they

relied on the provisions of the Protecting Tenants at Foreclosure Act of 2009 to be able to continue to reside in their home until they were given the notice to vacate required in the statute and until the expiration of the remaining term of the lease as prescribed in the statute, during which time the [Miks] anticipated that their loan application would be approved and they would be able to purchase the subject property from [Freddie Mac].

Next, the complaint alleged that the Miks “were wrongfully evicted when [Freddie Mac] failed to follow due process prior to evicting the [Miks] from their home.” More specifically, it alleged that Freddie Mac evicted the Miks without naming them as parties to the foreclosure action or bringing a forcible detainer action ² against them. Finally, the complaint alleged that Freddie Mac's actions “were outrageous and inflicted severe emotional distress upon the [Miks].” Paul Mik claimed that he “has suffered mental anguish” and Lee Ann Mik stated that she “has experienced severe emotional pain and suffering for which she has been provided medical treatment.”

Freddie Mac filed a motion to dismiss the Miks' complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that Miks' claims are premised on the PTFA, which does not create a private right of action. The district court granted Freddie Mac's motion to dismiss. First, it held that the Miks cannot state a claim under the PTFA, which does not provide an express or implied private right of action. It observed that while the PTFA may be raised as a defense in a foreclosure action in state court, it does not provide a basis for recovering damages in federal court. Second, the district court held that “a reading of the Complaint makes it clear that [the Miks] have asserted only causes of actions under the Act and not under state law.” Moreover, it noted that a foreclosure sale extinguishes the rights of tenants under Kentucky law and, therefore, tenants must raise a defense of due process or unfair conduct during foreclosure proceedings, which the Miks did not do. The Miks timely appealed the district court's dismissal of their complaint.

II.

“[A]ll civil actions to which [Freddie Mac] is a party shall be deemed to arise under the laws of the United States, and the district courts of the United States shall have original jurisdiction of all such actions, without regard to amount or value.” 12 U.S.C. § 1452(f); see also28 U.S.C. § 1331. We have jurisdiction to hear the Miks' appeal pursuant to 28 U.S.C. § 1291.

We review de novo a district court's order granting a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). U.S. Citizens Ass'n v. Sebelius, 705 F.3d 588, 597 (6th Cir.2013). In so doing, we “construe the complaint in the light most favorable to the plaintiff[s] and accept all allegations as true.” Keys v. Humana, Inc., 684 F.3d 605, 608 (6th Cir.2012).

Federal Rule of Civil Procedure 8(a)(2) requires that a complaint contain only “a short and plain statement of the claim showing that the pleader is entitled to relief.” However, a complaint must contain “more than labels and conclusions, and a formulaic recitation of the...