## Facts

- Joshua Wayne Perry was a low-income homeowner with a high school education who had lived in his Nashville, Tennessee home since the late 1970s.
- Perry’s home was subject to two mortgages. After he fell behind on the second mortgage, the second mortgagee began foreclosure proceedings.
- Sean Queen, president of Royalty Properties, LLC, contacted Perry with a foreclosure-rescue solicitation offering to stop the foreclosure and help Perry keep his home.
- Queen provided Perry about $6,000 to bring mortgage payments current and an additional $5,000 for Perry to keep.
- In exchange, Perry executed a warranty deed conveying the property to Queen (or an affiliated entity) and entered a one-year lease allowing him to remain in the home.
- The lease documents included a repurchase provision permitting Perry to buy the property back by paying Queen roughly $44,000 by the end of the lease term.
- Perry alleged the property was worth approximately $94,000, making the cash advanced by Queen far less than the home’s value.
- Perry did not exercise the repurchase option by the time the lease ended.
- Queen claimed ownership based on the deed and sought to evict Perry.
- Perry sued in federal court asserting, among other claims, that the deed/leaseback/repurchase arrangement functioned as an equitable mortgage (a loan secured by the home) and therefore was a consumer credit transaction subject to the Truth in Lending Act (TILA), which defendants allegedly violated by failing to give required disclosures.
- Defendants moved to dismiss under Rule 12(b)(1) for lack of subject-matter jurisdiction, arguing TILA did not apply because the transaction was an outright sale rather than credit.

## Issues

1. Whether Perry’s complaint alleged a nonfrivolous TILA claim—based on an equitable-mortgage theory—sufficient to invoke federal-question jurisdiction, such that dismissal under Rule 12(b)(1) was improper.

## Decision

- The court denied defendants’ Rule 12(b)(1) motion to dismiss.
- Taking the complaint’s allegations as true at the pleading stage, the court concluded Perry alleged facts that could support treating the transaction as an equitable mortgage rather than an unconditional sale.
- Because the asserted TILA theory was not wholly insubstantial or frivolous, the court held federal-question jurisdiction existed under 28 U.S.C. § 1331; defendants’ arguments about the transaction’s true nature went to the merits, not jurisdiction.

## Legal Principles

- On a facial Rule 12(b)(1) challenge, the court accepts well-pleaded factual allegations as true and draws reasonable inferences in the plaintiff’s favor.
- A federal court has federal-question jurisdiction unless the asserted federal claim is wholly insubstantial, implausible, or made solely to obtain jurisdiction.
- When the jurisdictional objection is bound up with the same dispute that controls the federal claim’s merits, dismissal for lack of jurisdiction is not appropriate merely because the defendant contests the claim’s validity.
- Under equitable-mortgage doctrine (including Tennessee law principles), courts may treat a deed and related agreements as security for a debt when the alleged substance of the deal is a loan, even if the documents are styled as a sale with a leaseback and repurchase option.
- If a transaction is plausibly alleged to be consumer credit secured by the borrower’s principal dwelling, TILA’s disclosure obligations may apply despite the transaction’s formal labels.

## Conclusion

The court refused to dismiss for lack of subject-matter jurisdiction because Perry’s allegations—foreclosure pressure, a small cash advance compared to the home’s value, continued possession through a leaseback, and a buyback provision—supported a colorable claim that the deal was a disguised, home-secured loan subject to TILA, leaving defendants’ “sale versus loan” dispute for the merits stage.


Perry v. Queen, 2006 WL 481666 (2006)