Charlotte McCauley v. Home Loan Investment Bank, F.S

Filing

PUBLISHED AUTHORED OPINION filed. Originating case number: 2:11-cv-00087-JPB Paper copies to all parties and the district court/agency. [999071025]. [12-1181]

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PUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
CHARLOTTE M. MCCAULEY,
Plaintiff-Appellant,
v.
HOME LOAN INVESTMENT BANK,
F.S.B.; DEUTSCHE BANK NATIONAL
TRUST COMPANY,
Defendants-Appellees.
NATIONAL ASSOCIATION OF
CONSUMER ADVOCATES; NATIONAL
CONSUMER LAW CENTER; PUBLIC
CITIZEN,
Amici Supporting Appellant.





No. 12-1181



Appeal from the United States District Court
for the Northern District of West Virginia, at Elkins.
John Preston Bailey, Chief District Judge.
(2:11-cv-00087-JPB)
Argued: January 31, 2013
Decided: March 25, 2013
Before DUNCAN, WYNN, and FLOYD, Circuit Judges.

Affirmed in part, reversed in part, and remanded by published
opinion. Judge Duncan wrote the opinion, in which Judge
Wynn and Judge Floyd joined.

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COUNSEL
ARGUED: Bren Joseph Pomponio, MOUNTAIN STATE
JUSTICE, Charleston, West Virginia, for Appellant. R. Terrance Rodgers, KAY CASTO & CHANEY PLLC, Charleston, West Virginia, for Appellees. ON BRIEF: Daniel F.
Hedges, MOUNTAIN STATE JUSTICE, Charleston, West
Virginia, for Appellant. John W. Barrett, Patricia M. Kipnis,
BAILEY & GLASSER LLP, Charleston, West Virginia, for
Amici Supporting Appellant.

OPINION
DUNCAN, Circuit Judge:
This appeal arises from the district court’s dismissal of
Charlotte McCauley’s complaint against Home Loan Investment Bank, F.S.B. ("Home Loan") and Deutsche Bank
National Trust Company ("Deutsche Bank"), alleging state
law claims based on a mortgage contract. The district court
determined that McCauley’s claims were preempted by the
Home Owners’ Loan Act ("HOLA"), 12 U.S.C. § 1461 et
seq., and its implementing regulation, 12 C.F.R. § 560.2. For
the reasons that follow, we affirm in part, reverse in part, and
remand for further proceedings consistent with this opinion.
I.
A.
McCauley purchased her West Virginia home in 2001 on
a land installment contract. In the late summer or fall of 2006,
she contacted Ocean Bank, F.S.B. ("Ocean Bank") to obtain
financing to pay off her land contract. Ocean Bank sent an
appraiser to McCauley’s home. According to McCauley, the
appraisal falsely represented that the home had a market value

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of $51,000 or more, when it was actually worth only approximately $35,700. Ocean Bank offered McCauley a loan of
$51,000. McCauley alleges that the closing was rushed, and
that she received insufficient explanation of the loan documents. Although her initial interest rate was 9.49 percent, the
loan was an "exploding" adjustable rate mortgage ("ARM").
As such, the interest rate could adjust up to 15.49 percent, but
could not adjust below the initial rate. McCauley struggled
with her loan payments and ultimately declared bankruptcy in
2010.
B.
McCauley filed a complaint against Home Loan, the successor in interest to Ocean Bank, and Deutsche Bank, the current holder of the loan, in West Virginia state court alleging
two claims under state law: unconscionability ("Count I") and
fraud ("Count II"). Count I alleged that the mortgage contract
was unconscionable because the closing was hurried and conducted with inadequate explanation, the loan was induced by
an inflated appraisal, and the loan’s terms were substantively
unfair. Count II alleged that Ocean Bank misrepresented the
market value of McCauley’s property for the purpose of
inducing her into the mortgage contract, that McCauley reasonably relied on that representation, and that she was harmed
by it.
Home Loan and Deutsche Bank removed the case to district court on diversity grounds and moved to dismiss the
complaint. The district court dismissed each of McCauley’s
claims on the grounds that they were preempted by HOLA
and its implementing regulation, 12 C.F.R. § 560.2. This
appeal followed.
II.
On appeal, McCauley argues that neither her unconsciona-

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bility claim nor her fraud claim are preempted by federal law.1
In the alternative, she contends that HOLA’s implementing
regulation does not apply to her case, because it was vacated
by the Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 11–203, 124 Stat. 1376 (2010) (the
"Dodd-Frank Act"). Home Loan and Deutsche Bank contend
that the district court’s preemption decisions were correct, or
alternatively, that McCauley failed to state a claim upon
which relief could be granted.
We review the district court’s grant of a motion to dismiss
de novo, focusing only on the legal sufficiency of the complaint. Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir.
2008). We "take the facts in the light most favorable to the
plaintiff," but "we need not accept the legal conclusions
drawn from the facts." Eastern Shore Mkts., Inc. v. J.D.
Assocs. Ltd. P’ship, 213 F.3d 175, 180 (4th Cir. 2000).
A.
The primary question presented by this appeal is whether
HOLA and its implementing regulation preempt McCauley’s
claims. A discussion of HOLA’s preemption framework will
aid our consideration of that issue.
Congress enacted HOLA during the depths of the Great
Depression with the purpose of "restor[ing] public confidence
by creating a nationwide system of federal savings and loan
associations to be centrally regulated according to nationwide
‘best practices.’" Silvas v. E*Trade Mortg. Corp., 514 F.3d
1001, 1004 (9th Cir. 2008) (quoting Fid. Fed. Sav. & Loan
Ass’n v. de la Cuesta, 458 U.S. 141, 161 (1982)). HOLA
1

She also argues that the district court erred in dismissing her fraud
claim because the banks did not move for dismissal of that claim on preemption grounds and the argument that it was preempted was not raised
below until Deutsche Bank’s reply brief. Because we determine that her
fraud claim is not preempted, we need not reach this argument.

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granted the Office of Thrift Supervision ("OTS") the authority
to regulate savings banks.2 While HOLA itself does not delineate its preemptive effect, the implementing regulation promulgated by OTS is clear: it explains that the agency
"occupies the entire field of lending regulation for federal savings associations." 12 C.F.R. § 560.2(a).
Ordinarily, there is a presumption against preemption over
state police powers. This presumption does not, however,
apply in areas that have a history of significant federal presence, such as national banking. United States v. Locke, 529
U.S. 89, 108 (2000). Of further import here is that a federal
regulation has the same preemptive effect as a federal statute.
de la Cuesta, 458 U.S. at 153. Moreover, OTS itself instructs
that "[a]ny doubt should be resolved in favor of preemption,"
Lending & Investment, 61 Fed. Reg. 50951-01, 50966-67
(Sept. 30, 1996), and we are to defer to the agency’s interpretation of its own regulation, see Auer v. Robbins, 519 U.S.
452, 461 (1997).
HOLA’s implementing regulation provides that "federal
savings associations may extend credit as authorized under
federal law . . . without regard to state laws purporting to regulate or otherwise affect their credit activities . . . ." 12 C.F.R.
§ 560.2(a). Paragraph (b) of the regulation specifies, "without
limitation," the aspects of loans that states are preempted from
regulating by paragraph (a):
2

The Dodd-Frank Act abolished OTS and vacated its regulations. 12
U.S.C. §§ 5412, 5413. It did not, however, do so retroactively. The Office
of the Comptroller of the Currency has issued a superseding regulation
governing preemption, see 12 C.F.R. § 150.136, but that new regulation
does not govern this case. Regulations, like statutes, cannot be applied
retroactively absent express direction from Congress. Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988). Congress did not direct such
retroactive application in the Dodd-Frank Act. Because 12 C.F.R. § 560.2
was in effect when the loan contract was entered into, it governs here.

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(3) Loan-to-value ratios;
(4) The terms of credit, including amortization of
loans and the deferral and capitalization of interest
and adjustments to the interest rate, balance, payments due, or term to maturity of the loan, including
the circumstances under which a loan may be called
due and payable upon the passage of time or a specified event external to the loan;
...
(9) Disclosure and advertising, including laws
requiring specific statements, information, or other
content to be included in credit application forms,
credit solicitations, billing statements, credit contracts, or other credit-related documents and laws
requiring creditors to supply copies of credit reports
to borrowers or applicants; [and]
(10) Processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages[.]
Id. at § 560.2(b). Finally, under paragraph (c) of the implementing regulation, certain state laws—including contract and
tort law—are not preempted "to the extent that they only incidentally affect the lending operations of Federal savings associations or are otherwise consistent with the purposes of
paragraph (a) of this section." Id. at § 560.2(c).
OTS has outlined the steps a court should take in determining whether preemption applies:
When analyzing the status of state laws under
§ 560.2, the first step will be to determine whether
the type of law in question is listed in paragraph (b).
If so, the analysis will end there; the law is pre-

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empted. If the law is not covered by paragraph (b),
the next question is whether the law affects lending.
If it does, then, in accordance with paragraph (a), the
presumption arises that the law is preempted. This
presumption can be reversed only if the law can
clearly be shown to fit within the confines of paragraph (c). For these purposes, paragraph (c) is
intended to be interpreted narrowly. Any doubt
should be resolved in favor of preemption.
Lending & Investment, 61 Fed. Reg. at 50966-67. When
interpreting HOLA and its implementing regulation, however,
we are cautioned that they are not intended to "preempt state
laws that establish the basic norms that undergird commercial
transactions." OTS Op. Letter, Preemption of State Laws
Applicable to Credit Card Transactions, 1996 WL 767462, at
*5 (Dec. 24, 1996).
In light of these parameters, we turn to a consideration of
McCauley’s claims. We first address the question of whether
her unconscionability claim is preempted and then turn to her
fraud claim.
1.
As we have noted, in Count I of her complaint, McCauley
contends the mortgage contract was unconscionable. She
alleges that it was "closed in a hurried manner, without adequate explanation" and "induced by an inflated appraisal."
J.A. 100-01. She further alleges that the loan was substantively unfair, because, among other problems, she was
unaware that it exceeded the market value of her home. Id. at
101.3
3

Appellees contend, were we to find McCauley’s argument not preempted, she nevertheless fails to state a claim. Finding preemption, however, we need go no further.

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The district court analyzed each aspect of the alleged
unconscionability—the hurried closing, the inducement by
inflated appraisal, the disparity between the size of the loan
and the value of the home, and the "exploding"
ARM—separately, ultimately finding that each was of the
nature of the laws covered by § 560.2(b). McCauley contends
that this approach was improper. A finding of unconscionability often depends on the circumstances at the time of the
contract, see Troy Mining Corp. v. Itmann Coal Co., 346
S.E.2d 749, 753 (W. Va. 1986), and McCauley asserts those
circumstances cannot be viewed in isolation. She concedes
that none of the acts alleged in her complaint are per se
unconscionable. Rather, she contends that viewed in combination, they demonstrate that she was unconscionably induced
into an unfair contract. McCauley argues that had the district
court viewed her unconscionability claim as a whole rather
than assessing each of her allegations individually, it would
not have determined that the claim fell under § 560.2(b) and
thus would not have been constrained to find the claim preempted.
In considering § 560.2(b), however, we must look to all
"the acts alleged in the complaint." In re Ocwen Loan Servicing, LLC Mortg. Servicing Litigation, 491 F.3d 638, 648 (7th
Cir. 2007). Despite McCauley’s assertion to the contrary, the
framework supplied by HOLA’s implementing regulation
requires an examination of each component of her claim to
determine if it purports to regulate those aspects of loans enumerated in § 560.2(b). After considering McCauley’s allegations individually, we are constrained to conclude that the acts
she challenges all fall into § 560.2(b)’s list of activities that
states are preempted from regulating.
A close examination of each activity McCauley challenges
bears this out:
First, the allegedly hurried closing falls squarely
within Ocean Bank’s "[p]rocessing, origination, ser-

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vicing, sale or purchase of, or investment or participation in, mortgages." 12 C.F.R. § 560.2(b)(10). As
such, HOLA’s implementing regulation preempts
any state law claim based on the allegedly improper
closing.
Second, the allegation that the loan was induced
by an inflated appraisal falls within the regulation’s
coverage of both the bank’s "[d]isclosures and
advertising," id. at § 560.2(b)(9), and its
"[p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages," id. at § 560.2(b)(10).4
Third, the allegation that the loan is unconscionable because it exceeds the value of McCauley’s
home is an attempt to regulate "loan-to-value ratios,"
id. at 560.2(b)(3), as well as "terms of credit," id. at
§ 560.2(b)(4), which are specifically covered by
HOLA’s implementing regulation.
Fourth, and finally, to the extent Appellant argues
that the "exploding" ARM was substantively unconscionable, such a claim is preempted because it
attempts to regulate a bank’s "terms of credit, including . . . adjustments to the interest rate . . . ." Id. at
§ 560.2(b)(4).
4

It should be noted that although the second count of McCauley’s complaint alleges affirmative misrepresentation with respect to this inflated
appraisal, her unconscionability claim contains no underlying mens rea
component. Rather, it focuses on the manner in which the closing was
conducted and the fact that her loan was too high. While her two claims
arise from the same set of facts, they are distinct grievances: affirmative
misrepresentation is the most basic element of the tort of fraud, but it is
not an element of the contract claim of unconscionability. See Grayiel v.
Appalachian Energy Partners 2001-D, LLP, 736 S.E.2d 91, 100-04 (W.
Va. 2012).

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In her unconscionability claim, McCauley in essence asks
us to impose new, substantive requirements on mortgage
lenders. These requirements would go beyond those state laws
establishing a basic framework for commerce, such as laws
prohibiting deceptive practices. Although such proscriptions
"may be desirable from a public policy perspective, the discussion stops here, as HOLA precludes such an examination
in this case." Brown v. Wells Fargo Bank, N.A., 869 F. Supp.
2d 51, 63 (D.D.C. 2012). Having determined that McCauley’s
allegations supporting her first count fall under § 560.2(b), we
must conclude that her unconscionability claim is preempted
and dismissal of Count I was appropriate.
2.
Count II alleges that Ocean Bank fraudulently used an
inflated appraisal to induce McCauley to enter into the
$51,000 mortgage contract. McCauley alleges that the
appraisal indicated that the market value of her property was
$51,000 or more, when it was actually $35,700; that Ocean
Bank intentionally employed an appraiser to misrepresent the
value of the property for the purpose of inducing her to enter
into the contract; that use of the inflated appraisal was intentional and material; that she reasonably relied on the
appraisal; and that she has been harmed by the inflated
appraisal.
McCauley argues that HOLA does not prevent states from
requiring banks to deal honestly with their customers, and that
intentional misrepresentation does not fall under § 560.2(b).
For their part, Appellees make much the same argument
regarding this second count as they do regarding the
first—that the acts alleged in Count II fall under various components of § 560.2(b). In particular, they contend that the
alleged fraud based on an inflated appraisal amounts to a
complaint about a failure to disclose the ratio of the loan
amount to the value of McCauley’s collateral, which would
fall under §§ 560.2(b)(3) ("[l]oan-to-value ratios"), (9)

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("[d]isclosures and advertising") and (10) ("[p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages").
Appellees mischaracterize the nature of McCauley’s fraud
claim, however. In alleging fraud, she complains not of the
loan-to-value ratio per se, but of being misled regarding a
component of that ratio. Similarly, the alleged intentionally
inflated appraisal amounts to more than a simple failure to
disclose or an irregularity in the origination of a mortgage.
Rather, McCauley’s complaint alleges an affirmative deception by the issuer of her mortgage, an act outside the scope of
§ 560.2(b). See OTS Op. Letter, Preemption of State Laws
Applicable to Credit Card Transactions, 1996 WL 767462, at
*5 (Dec. 24, 1996) ("State laws prohibiting deceptive acts and
practices in the course of commerce are not included in the
illustrative list of preempted laws in § 560.2(b).").
Having concluded that Appellant’s fraud claim does not fall
under § 560.2(b), we continue our analysis by determining
whether it affects lending, and if so, whether it fits within
§ 560.2(c). See Lending & Investment, 61 Fed. Reg. at 5096667. The fraud claim relates to the standards to which a lender
dealing with a potential borrower will be held. As such, it
clearly affects lending, giving rise to a presumption that it is
preempted. Id. However, this presumption can be overcome if
we determine that the fraud claim fits within the narrow confines of the types of laws enumerated in § 560.2(c) and only
incidentally affects lending operations.
OTS "does not intend to preempt state laws that establish
the basic norms that undergird commercial transactions," and
"[a]ccordingly, in § 560.2(c), the OTS has identified certain
categories of state law that are not preempted." OTS Op. Letter, Preemption of State Laws Applicable to Credit Card
Transactions, 1996 WL 767462, at *5 (Dec. 24, 1996). Tort
law is one of these categories. See 12 C.F.R. § 560.2(c); see
also Lending & Investment, 61 Fed. Reg. at 50966 ("OTS

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wants to make clear that it does not intend to preempt basic
state laws such as state uniform commercial codes and state
laws governing real property, contracts, torts, and crimes.").
Determining that the tort of fraud falls within the scope of
§ 560.2 would preclude fundamental state regulation of
deceptive practices in which unscrupulous savings and loan
associations might engage. Such an interpretation would contravene the intent of OTS, whose "assertion of plenary regulatory authority does not deprive persons harmed by the
wrongful acts of savings and loan associations of their basic
state common-law-type remedies." Ocwen, 491 F.3d at 643.
Moreover, allowing for fraud actions in the vein of McCauley’s "would not change the regulatory landscape; rather, it
would merely provide a means of redress for an alleged misdeed in this particular case." Brown, 829 F. Supp. 2d at 61.
As OTS concluded regarding a state deceptive practices statute,
[w]hile [it] may affect lending relationships, the
impact on lending appears to be only incidental to
[its] primary purpose . . . . There is no indication that
the law is aimed at any state objective in conflict
with the safe and sound regulation of federal savings
associations, the best practices of thrift institutions in
the United States, or any other federal objective
identified in § 560.2(a). In fact, because federal
thrifts are presumed to interact with their borrowers
in a truthful manner[, the] general prohibition on
deception should have no measurable impact on their
lending operations.
OTS Op. Letter, Preemption of State Laws Applicable to
Credit Card Transactions, 1996 WL 767462, at *6 (Dec. 24,
1996).
We thus conclude that because McCauley’s state tort claim
for fraud only incidentally affects lending, it is not preempted

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by HOLA or its implementing regulation. Dismissal of Count
II on preemption grounds was therefore unwarranted.
B.
As they did with respect to McCauley’s contract claim
under Count I, Appellees argue that even if we conclude that
McCauley’s tort claim was not preempted, it should have
been dismissed for failure to state a claim. With respect to
Count II, they argue that she failed to state a claim under Federal Rule of Civil Procedure 12(b)(6) and that she failed to
meet the requirement under Federal Rule of Civil Procedure
9(b) that the circumstances of a fraud be stated with particularity. Having found that McCauley’s tort claim was not preempted, we turn to Appellees’ alternative arguments.
1.
Appellees argue that dismissal of Count II was appropriate
under Rule 12(b)(6) because McCauley failed to state a claim
for fraud. To demonstrate fraudulent misrepresentation, a
plaintiff must prove "(1) that the act claimed to be fraudulent
was the act of the defendant or induced by him; (2) that it was
material and false; that plaintiff relied on it and was justified
under the circumstances in relying upon it; and (3) that he was
damaged because he relied on it." Folio v. City of Clarksburg,
655 S.E. 2d 143, 150 (W. Va. 2007) (internal quotation marks
and citations omitted). McCauley alleges each of these elements, which Appellees attempt to rebut.
Appellees first contend that there was no misrepresentation.
They assert that they made no representation to McCauley
that her home was appraised for $51,000 but simply made her
a loan based on that amount. Putting aside the fact that fraud
may arise from a "party’s willful nondisclosure of a material
fact," Kessel v. Leavitt, 511 S.E.2d 720, 752 (W. Va. 1998)
(quotation marks and citation omitted), McCauley does assert
in her complaint that she "believed, based on representations

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from Ocean Bank, that her home had been valued at or in
excess of $51,000." J.A. 100.
Second, Appellees claim McCauley does not allege justifiable reliance, because a lender has no duty to notify a buyer
regarding the value of collateral. Regardless of whether a
lender has such a duty, however, McCauley alleges in her
complaint that she was so notified. A lender that informs a
borrower about how much her property is worth, whether
required to do so or not, is under an obligation not to misrepresent that value. See generally Restatement (Second) of Torts
§ 525.
We therefore find no basis for dismissal of McCauley’s
fraud count on Rule 12(b)(6) grounds.5
2.
Appellees argue that McCauley did not plead the circumstances of the alleged fraud with the degree of particularity
required by Federal Rule of Civil Procedure 9(b). Rule 9(b)
simply states, "In alleging fraud or mistake, a party must state
with particularity the circumstances constituting fraud or mistake." We have elaborated that "the ‘circumstances’ required
to be pled with particularity under Rule 9(b) are ‘the time,
place, and contents of the false representations, as well as the
identity of the person making the misrepresentation and what
he obtained thereby.’" Harrison v. Westinghouse Savannah
5

Appellees also assert that McCauley’s claim was not plausible on its
face, as required by Ashcroft v. Iqbal, 556 U.S. 662 (2009). The banks
argue that McCauley fails to allege how the making of undercollateralized loans would be in the interest of a lender, which makes her
claim implausible. See Goldstein v. Bank of America, N.A., No.
1:09cv329, 2010 WL 1252641, at *4 (W.D.N.C. Jan. 19, 2010). However,
as McCauley explains, "[l]enders have incentives to inflate the value of a
home because the larger the loan, the larger the proceeds to the lender."
Reply Br. at 15. We find her fraud claim sufficiently plausible on its face
to conclude that it survives a motion to dismiss.

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River Co., 176 F.3d 776, 784 (4th Cir. 1999) (quoting 5
Charles Alan Wright and Arthur R. Miller, Federal Practice
and Procedure: Civil § 1297, at 590 (2d ed. 1990)). The standard set forth by Rule 9(b) aims to provide defendants with
fair notice of claims against them and the factual ground upon
which they are based, forestall frivolous suits, prevent fraud
actions in which all the facts are learned only following discovery, and protect defendants’ goodwill and reputation. Id.;
see also U.S. ex rel. Nathan v. Takeda Pharmaceuticals North
America, Inc., ___ F.3d ___, 2013 WL 136030, at *3 (4th Cir.
Jan. 11, 2013).
We "should hesitate to dismiss a complaint under Rule 9(b)
if [we are] satisfied (1) that the defendant has been made
aware of the particular circumstances for which [it] will have
to prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those facts." Harrison, 176 F.3d
at 784. From McCauley’s complaint, we are able to glean the
following facts: (1) the time of the alleged fraud was late
summer or fall, 2006, when the appraisal and loan were made;
(2) the appraisal was undertaken at McCauley’s home, to
which Ocean Bank sent an appraiser; (3) the false representation consisted of the representation from Ocean Bank that
McCauley’s home was worth $51,000 or more; (4) the identity of the person making the misrepresentation was Ocean
Bank; and (5) as a result of the misrepresentation, McCauley
agreed to the $51,000 loan. J.A. 99-101. Moreover, McCauley’s fraud complaint is not the type of frivolous action or
strike suit Rule 9(b) is designed to avert.
Thus, we hold that McCauley’s complaint meets the
requirements of Rule 9(b).6 In concluding that McCauley
6

Appellees further argue that McCauley fails to state a claim against
Deutsche Bank because it is a subsequent holder of her mortgage and did
not participate in the alleged fraud of the originating lender. They note that
Rule 9(b) requires that where fraud claims are asserted against multiple
defendants, the claim must allege the facts outlining each defendant’s par-

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properly states a claim for fraud, we make no judgment as to
the merits of her argument, but simply determine that it would
be incorrect to prevent her from pursuing her claim in district
court at this stage.
III.
In conclusion, we affirm the district court’s dismissal of
Appellant’s claim for unconscionable contract, reverse its dismissal of her claim for fraud, and remand for further proceedings consistent with this opinion.
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED

ticipation in the fraud. Therefore, they argue, because McCauley’s allegations all deal only with Ocean Bank’s actions, she fails to properly state
a fraud claim against Deutsche Bank, which is only derivatively liable.
However, "in a suit to enforce a lien securing a negotiable note, the same
defenses are generally available as would be in a suit on the note itself."
Miller v. Diversified Loan Service Co., 382 S.E.2d 514, 517 (W. Va.
1989); see also W. Va. Code section 46-3-305; Herrod v. First Republic
Mortg. Corp., Inc., 625 S.E.2d 373, 388 (W. Va. 2005) (Starchar, J., concurring) ("To the extent that borrowers are defrauded, as a matter of contract law, they have defenses against the holder of the obligation in an
action for recoupment."). McCauley’s fraud claim against Deutsche Bank
thus may not be dismissed on this basis.