Saturday, March 2, 2019

FYI: 8th Cir Holds Alleged Contract For Interest Rate Reduction May Not Be Barred by Statute of Frauds

The U.S. Court of Appeals for the Eighth Circuit ("Eighth Circuit") recently held that a borrower's claims concerning lender-placed insurance practices were barred by res judicata, because the alleged practices were the subject to a class action suit in which the borrower was a class member, was provided notice of the settlement, and did not object to the settlement.


However, the Eighth Circuit also concluded that the servicer failed to establish that the statute of frauds barred the borrower's claims concerning an alleged contract for interest rate reduction.


A copy of the opinion is available at:  Link to Opinion


A homeowner ("Borrower") took out a home equity loan in 2000 (the "Loan").  The original lender was acquired by a successor in 2008. 


In December 2014, the Borrower filed suit against the successor and its affiliates (collectively, "Lender") pro se, asserting five separate causes of action.  The Borrower subsequently filed an amended complaint which asserted twenty various causes of action regarding the Loan documents and servicing of the Loan— five of which were dismissed by the trial court for failure to state a claim. 


The Lender moved for summary judgment as to the remaining fifteen claims.  Rather than respond to the summary judgment motion, Borrower filed various unsupported motions, which were all denied.  Accordingly, Lender's material facts were deemed admitted, and the trial court granted summary judgment in its favor. 


On appeal, the Eighth Circuit primarily noted that it could not accept numerous facts Borrower asserted in his briefs that are not supported in the summary judgment record due to his inexcusable disregard of the applicable rules of civil procedure, nor take as true the fact assertions in his first amended complaint.  However, de novo review of the summary judgment order still required the appellate court to "still determine that the moving party is entitled to judgment as a matter of law on [each] claim." Interstate Power Co. v. Kansas City Power & Light Co., 992 F.2d 804, 807 (8th Cir. 1993).


The Lender's motion for summary judgment and the trial court's analysis of same divided Borrower's fifteen claims into three categories. 


Eleven counts of the amended complaint related to Lender's practice of imposing lender preferred insurance ("LPI") on mortgage borrowers who fail to maintain voluntary insurance on the mortgaged homes —t he same practice that was subject to a class action lawsuit filed in the Southern District of Florida in July 2012 in which Lender was a named defendant.  That Court entered final approval of a global settlement that included a broad release of claims by all class members, and Lender's unopposed statement of material facts established that Borrower was a member of the class, received adequate notice of the settlement, and did not object to or request exclusion from the class. 


In fact, Borrower's reply to a prior trial court order admitted that he used "essentially the same form, format and information" used in the class action.  Accordingly, the Eighth Circuit agreed with the trial court's conclusion that Borrower's LPI claims predated the effective date of the class action settlement agreement, and affirmed the trial court's judgment that those eleven counts are barred by the doctrine of res judicata.  Cooper v. Fed. Res. Bank of Richmond, 467 U.S. 867, 874 (1984) ("[U]nder elementary principles of prior adjudication a judgment in a properly entertained class action is binding on class members in any subsequent litigation."); see also In re Gen. Am. Life Ins. Sales Prac. Lit., 357 F.3d 800, 802-03 (8th Cir. 2004) (a class member with actual notice is barred from later asserting individual claims that class members released in the settlement agreement with benefits to class). 


For the reasons stated by the trial court, and without further analysis, the Eighth Circuit also affirmed the dismissal of two counts of Borrower's amended complaint based upon Lender's alleged failure to honor Borrower's alleged early payoff rights.


Lastly, the Eighth Circuit reviewed the trial court's entry of summary judgment on Borrower's claims based on allegations that Borrower's Loan included an "eEasyRate Reduction Plan" (the "Reduction Plan") that gave Borrower the option to reduce the loan interest rate "from 7.625% to approximately 5.25%" in exchange for a $350 fee. 


Borrower's amended complaint alleged that he applied for this program in December 2007 with the original lender, and was advised that the new rate would be implemented effective February 2008.  However, once Lender took over, it supposedly wrongfully "nullified" this contractual right in August, refused to fix the issue, and threatened to accelerate the loan to foreclosure if Borrower took the issue to court.


On summary judgment, Lender attached a copy of the Reduction Plan, and relying upon the document and Borrower's deposition testimony that the document was not signed by anyone and was not referenced in the Note or Deed of Trust, successfully argued that Borrower's claims fail as a matter of law because "the alleged contract was not a signed writing, as required by the Statute of Frauds," Mo. Rev. Stat. § 432.010.1.


Acknowledging that the document itself was not signed by the original lender, the Eighth Circuit noted that the Borrower's amended complaint alleged that it was an integral part of a financial arrangement that included one or more documents signed by the original lender. 


The Eighth Circuit noted that the trial court failed to address well-established Missouri Law that "[w]hen separate documents are relied on to establish the existence of an agreement, they must be connected by express reference to one another or by clear implication established through their respective contents." Mayer v. King Cola Mid-Am., Inc., 660 S.W.2d 746, 748 (Mo. App. 1983) (emphasis added, citation omitted); see Vess Beverages, Inc. v. Paddington Corp., 941 F.2d 651, 654 (8th Cir. 1991) ("Even if only one of the documents is signed, the requirement is satisfied as long as one document refers to the other, or their contents clearly show they are related.").


Here, the Reduction Plan, which Lender dismissively referred to as a "flier" gives the appearance of a contract, and on their face, the financing documents "by clear implication established through their respective contents," reflect an agreement including any obligations created by the Reduction Plan that satisfies the statute of frauds. 


At a minimum, the Eighth Circuit concluded that Lender's proffered evidence failed to support its assertion that the document was a mere "filer," and failed to establish that the statute of frauds bars these claims as a matter of law on this record. 


Accordingly, the judgment of the trial court was reversed as to Borrower's claims concerning the Reduction Plan and remanded for further proceedings, and entry of summary judgment in Lender's favor as to all other claims was affirmed.




Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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