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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 recently held that a borrower’s claims concerning lender-placed insurance practices were barred by res judicata, because the alleged practices were the subject of a class action suit in which the borrower was a class member who 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 in Calon v. Bank of America, NA is available at:  Link to Opinion.

A homeowner (“borrower”) took out a home equity loan in 2000.  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 20 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 15 claims.  Rather than respond to the summary judgment motion, the borrower filed various unsupported motions, which were all denied.  Accordingly, the 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 the 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 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 the borrower’s 15 claims into three categories.

Eleven counts of the amended complaint related to the lender’s practice of imposing lender preferred insurance (“LPI”) on mortgage borrowers who fail to maintain voluntary insurance on the mortgaged homes —the same practice that was subject to a class action lawsuit filed in the Southern District of Florida in July 2012 in which the 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 the lender’s unopposed statement of material facts established that the 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, the 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 the borrower’s LPI claims predated the effective date of the class action settlement agreement, and affirmed the trial court’s judgment that those 11 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 the borrower’s amended complaint based upon the lender’s alleged failure to honor the borrower’s alleged early payoff rights.

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

The 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 the 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 the borrower took the issue to court.

On summary judgment, the lender attached a copy of the reduction plan, and relying upon the document and the 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 the 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 the 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 the lender’s proffered evidence failed to support its assertion that the document was a mere “flier,” 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 the borrower’s claims concerning the reduction plan and remanded for further proceedings, and entry of summary judgment in the lender’s favor as to all other claims was affirmed.

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