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8th Cir. Rejects Borrower’s Negligent Misrepresentation and Other Claims Against Mortgagee

missouriThe U.S. Court of Appeals for the Eighth Circuit recently affirmed the dismissal of a homeowner-borrower’s action for wrongful foreclosure, violation of the Missouri Merchandising Practices Act (MMPA), and negligent misrepresentation against his mortgagee. 

The lawsuit was initiated in state court, where a motion for temporary restraining order (TRO) was granted to halt a scheduled foreclosure sale before the mortgagee removed the matter to federal court.  The federal trial court dissolved the TRO and dismissed the borrower’s action with prejudice and without leave to amend. 

The Eighth Circuit affirmed dismissal, rejecting the borrower’s argument that the federal trial court lacked jurisdiction to rule on the motion to dismiss after the TRO dissolved because a live case or controversy existed in the form of the claims raised in his motion to dismiss. 

The Eighth Circuit also rejected the borrower’s argument that he stated a valid claim for negligent misrepresentation as waived for being raised for the first time on appeal and concluded that the trial court did not err in denying his request for leave to file a second amended complaint, which was not made by separate motion, but instead raised in a single sentence in response to the motion to dismiss.

A copy of the opinion in Rivera v. Bank of America, N.A. is available at:  Link to Opinion.

A homeowner borrower-mortgagor entered into a loan modification agreement with his mortgage lender after falling behind on his mortgage payments.  Because the borrower did not make any payments on the modified loan, foreclosure proceedings were initiated.  The mortgagee rejected the borrower’s request for a new modification and set a foreclosure sale date.

On the eve of the foreclosure sale, the borrower initiated a pro se action in Missouri state court by submitting a filing styled as a Motion for Temporary Restraining Order requesting postponement of the sale and alleging that the mortgagee misrepresented to him that he was eligible for loan modification assistance and notified him that he was not eligible when it would be too late for him to cure any default before the sale.  The state court entered an ex parte temporary restraining order barring the sale from proceeding.

The mortgagee removed the borrower’s state court action to federal court and moved to dismiss the complaint and to dissolve the TRO.  The federal trial court granted the request to dissolve the TRO and ordered the borrower to respond to the mortgagee’s motion to dismiss. 

The borrower, now represented by counsel, instead sought and obtained leave to file an amended complaint alleging claims of wrongful foreclosure, violations of the MMPA, and negligent misrepresentation, which the mortgagee again moved to dismiss. The trial court granted the mortgagee’s motion and dismissed the borrower’s amended complaint with prejudice and without leave to amend.  The borrower timely appealed the judgment. 

On appeal, the borrower primarily argued that the federal trial court lacked jurisdiction to rule on the motion to dismiss because the entirety of this case consisted only of his motion for a temporary restraining order and accompanying state court TRO, and once the court dissolved the TRO, the case became moot because there was no longer any live controversy. Alternatively, the borrower asserted that he stated a claim for negligent misrepresentation and that the federal trial court should have granted him leave to again amend his complaint.

The Eighth Circuit first addressed the borrower’s claim that the case is moot, by determining whether a live case or controversy existed to retain federal court jurisdiction under Article III.  McGehee v. Neb. Dep’t of Corr. Servs., 987 F.3d 785, 787 (8th Cir. 2021).   The Court noted that Missouri’s rules of civil procedure governed the borrower’s initial filing seeking a temporary restraining order, which require a party to “support that request with a verified petition or affidavit reciting the specific facts that support” that petition (Mo. R. Civ. P. 92.02).

Even though the borrower’s filing was styled only as a motion for temporary restraining order, because the pleading was accepted as adequate in state court and in giving the pro se pleading the appropriate liberal construction (See Erickson v. Pardus, 551 U.S. 89, 94 (2007)), it construed the pro se motion for a temporary restraining order as a petition initiating a civil action against the mortgagee under Missouri law.  Moreover, the borrower’s conduct throughout the course of litigation — specifically, his request for leave to amend the complaint — demonstrated his understanding that the original state court filing was a petition, and not solely a motion for temporary restraining order as he now claimed. 

Accordingly, the Eighth Circuit concluded that a live case and controversy remained after the TRO dissolved in the form of the borrower’s wrongful foreclosure, violation of the MMPA, and negligent misrepresentation claims, and that the federal trial court properly considered the mortgagee’s motion to dismiss for failure to state a claim.

The Eighth Circuit next evaluated the borrower’s argument that the federal trial court improperly dismissed his negligent misrepresentation for failing to state a claim. 

The basis of the dismissal was that the borrower failed to raise a plausible inference that the mortgagee did not act with reasonable care, as required under governing Missouri law.  However, on appeal, the borrower argued that a claim for negligent misrepresentation lies where the alleged statement containing the misrepresentation was within the speaker’s control and that he stated a claim by alleging that the mortgagee falsely represented it would timely process his loan modification application.

Because the borrower did not raise this argument before the federal trial court in opposition to the mortgagee’s motion to dismiss, the argument was waived and could not be considered on appeal. Kosulandich v. Survival Tech., Inc., 997 F.3d 431, 433 (8th Cir. 1993).  Accordingly, the Eighth Circuit held that the federal trial court did not err in dismissing the borrower’s negligent misrepresentation claim for failure to state a claim.

Lastly, the borrower argued that the federal trial court erred in denying his request for leave to file a second amended complaint.  While acknowledging that “[t]he court should freely give leave when justice so requires” under Rule 15, here, the borrower made no motion for leave nor attempted to explain the substance of the proposed motion, instead, including only a conclusory “request” within his response to the mortgagee’s motion to dismiss, which the Eighth Circuit has previously deemed inadequate.  See Misischia v. St. John’s Mercy Health Sys., 457 F.3d 800, 805 (8th Cir. 2006).  Thus, the federal trial court did not abuse its discretion in dismissing the complaint with prejudice and without leave to amend.

For all the foregoing reasons, the judgment of dismissal was affirmed.

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Christopher P. Hahn practices in Maurice Wutscher’s Commercial Litigation, Consumer Credit Litigation and Insurance Recovery and Advisory groups. Prior to joining Maurice Wutscher LLP, he served under the General Counsel at the Florida Office of Financial Regulation. He also obtained extensive experience litigating property insurance claims through all phases of discovery, motion practice and other pre-trial activities. Christopher obtained his Bachelor of Science degree in Business Administration from the University of Southern California, followed by his Juris Doctorate degree from the University of Miami School of Law. He is also a graduate of the University of Miami’s Masters of Business Administration program, completing his degree with an emphasis on finance and mergers and acquisitions. For more information, see https://mauricewutscher.com/attorneys/christopher-p-hahn/

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