Security Service Federal Credit Union v. First American Mortgage Funding, LLC et al

Filing 1236

ORDER Denying 1161 Defendant First American Mortgage Funding, LLC, First American Mortgage, Inc., Construction Disbursement Services, Inc., Construction Financial Services, LLC, Kevin B. Jordan, William Depuy, Shaun Jordan and Mark Campbells Consolidated Motion for Summary Judgment, by Judge Wiley Y. Daniel on 1/13/2016.(evana, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Senior Judge Wiley Y. Daniel
Civil Action No. 08-cv-0955-WYD-CBS
SECURITY SERVICE FEDERAL CREDIT UNION,
Plaintiff,
v.
FIRST AMERICAN MORTGAGE FUNDING, LLC, et al.,
Defendants;

FIRST AMERICAN MORTGAGE FUNDING, LLC,
Third Party Plaintiff,
v.
STEWART TITLE OF CALIFORNIA, INC., et al.,
Third Party Defendants.
___________________________________________________________________
ORDER
__________________________________________________________________
THIS MATTER is before the Court on Defendant First American Mortgage
Funding, LLC, First American Mortgage, Inc., Construction Disbursement Services, Inc.,
Construction Financial Services, LLC, Kevin B. Jordan, William Depuy, Shaun Jordan
and Mark Campbell’s Consolidated Motion for Summary Judgment (ECF No. 1161),
filed on March 6, 2015. This motion, among others, was argued at a hearing before me
on December 16, 2015.

Summary judgment for this motion was denied as to the

breach of contract claim against the movant. The motion was taken under advisement

to evaluate the movant’s claim that tort claims against it are precluded under Colorado’s
Economic Loss Rule.
I.

EXPLANATION OF PARTIES
The parties implicated in this motion are as follows: Plaintiff, Security Service

Federal Credit Union (“SSFCU”), successor in interest to New Horizons Community
Credit Union (“New Horizons”); First American Mortgage Funding, LLC (“FAM
Funding”); First American Mortgage, Inc. (“FAM”); Construction Disbursement Services,
Inc. (“CDS”); Construction Financial Services, LLC (“CFS”); and officers Kevin B.
Jordan, William Depuy, Shaun Jordan, and Mark Campbell (“FAM Officers”). All of
these Defendants are collectively referred to here as the FAM Defendants.
As alleged in the Fourth Amended Complaint (“FAC”), although FAM Funding
was the contracting party under a Funding Services Agreement (“FSA”) with New
Horizons, FAM “provided service to New Horizons under the [FSA], and received a
majority of the income under the [FSA].” FAC, ¶ 3. Under the FSA, Plaintiff alleges that
FAM Funding and FAM had an obligation to originate, close, service and administer
construction loans on behalf of New Horizons. Construction draws were made through
CDS. FAM Funding, FAM, and CDS have allegedly ceased business operations, and
Plaintiff alleges that CFS has continued the business operations of FAM Funding, FAM,
and CDS, and CFS is the successor in interest to FAM Funding, FAM, and CDS. FAC,
¶ 10. The acts of FAM Funding, FAM, and CDS were allegedly performed by or with the
knowledge of the FAM Officers. FAC, ¶¶ 4, 5, 7, 8.

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II.

INTRODUCTION AND BACKGROUND
Plaintiff alleges that the FSA required FAM Funding and FAM to procure

permanent financing for borrowers upon the maturity of their construction loans, and to
purchase the construction loans if permanent financing could not be obtained. Plaintiff
alleges that individual borrowers defaulted on at least forty-one of the construction loans
originated by FAM Funding and FAM, twenty-six of which are at issue in this case.
Plaintiff alleges that despite demand for payment under the FSA, FAM Funding and
FAM have failed to pay amounts owed to Plaintiff.
Plaintiff asserts seven claims against the FAM Defendants: breach of contract
against FAM Funding and FAM; fraudulent misrepresentation against all of the FAM
Defendants; fraudulent concealment against all of the FAM Defendants; aiding and
abetting fraud against FAM Funding, FAM, and the FAM Officers; conspiracy against all
of the FAM Defendants; negligence against FAM Funding, FAM, and CDS; and a RICO
violation against all of the FAM Defendants.
III.

COLORADO ECONOMIC LOSS RULE
The Colorado Economic Loss Rule is discussed at length in Town of Alma v.

AZCO Constr. Inc., 10 P.3d 1256 (Colo. 2000). There, the court analyzed the question
of whether, when a breach of contractual duty has been asserted, a plaintiff may
maintain an action in tort for purely economic loss. The court held that “a party suffering
only economic loss from the breach of an express or implied contractual duty may not
assert a tort claim for such a breach absent an independent duty of care under tort law.”
Id. at 1264. The court also recognized that “certain common law claims that sound in

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tort and are expressly designed to remedy economic loss may exist independent of a
breach of contract claim.” Id. at 1263, citing Brody v. Bock, 897 P.2d 769, 776 (Colo.
1995) (common law fraud claim is based on violation of a duty independent of contract);
Keller v. A.O. Smith Harvestore Prods., Inc., 819 P.2d 69, 73 (Colo. 1991) (negligent
misrepresentation is a tort claim based “not on principles of contractual obligation but on
principles of duty and reasonable conduct.”).

“In these situations where we have

recognized the existence of a duty independent of any contractual obligations, the
economic loss rule has no application and does not bar a plaintiff's tort claim because
the claim is based on a recognized independent duty of care and thus does not fall
within the scope of the rule.” Town of Alma, 10 P.3d at 1263.
Despite the existence of a standard of care provision in the FSA, I find that
Plaintiff has sufficiently alleged facts that would indicate an independent duty under tort
law to survive dismissal under the Colorado Economic Loss Rule. For example, to
establish a prima facie case of fraud, a plaintiff must present evidence that the
defendant made a false representation of a material fact; that the party making the
representation knew it was false; that the party to whom the representation was made
did not know of the falsity; that the representation was made with the intent that it be
acted upon; and that the representation resulted in damages. Kinsey v. Preeson, 746
P.2d 542, 550 (Colo. 1987).
Plaintiff

alleges

that

the

FAM

Defendants

intentionally

made

false

representations to the Plaintiff about the borrowers and their packages, and knew that
they were straw borrowers (FAC, ¶ 71); that they intended for Plaintiff to rely on the

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misrepresentations (FAC, ¶ 78); that they failed to provide requested copies of checks
received from borrowers to the Plaintiff because they knew that none of the borrowers
had ever cut checks, and they instead represented that making copies was burdensome
and unnecessary (FAC, ¶ 72(c)); that the FAM Defendants profited from the fraudulent
acts by receiving fees for each loan, including a 1% fee for each loan closed, and
interest (FAC, ¶ 79); that they knew that the borrowers in question did not intend to live
in the subject properties, the borrowers’ incomes were fabricated, and the borrowers
were being paid to close on the loans (FAC, ¶ 84); and that they submitted loan
packages knowing they contained false information (FAC, ¶¶ 95-96). The focus of
Plaintiff’s tort claims rests on the allegations of false representations made with the
intention that the Plaintiff rely on them to its detriment. The facts as alleged do not
support an argument that the allegations constitute the substance of Plaintiff’s breach of
contract claim.

The content of the allegedly false representations is material in

demonstrating that the FAM Defendants may have engaged in intentional tortious
actions, and Plaintiff acted reasonably, although detrimentally, in justifiable reliance
upon their false statements.
As to the FAM officers – Kevin B. Jordan, William Depuy, Shaun Jordan, and
Mark Campbell – no breach of contract claim has been asserted against them by the
Plaintiff. Therefore, they may not rely on the Colorado Economic Loss Rule as a basis
to dismiss the tort claims against them, and those claims remain.

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IV.

CONCLUSION
In accordance with the above discussion, Defendant First American Mortgage

Funding, LLC, First American Mortgage, Inc., Construction Disbursement Services, Inc.,
Construction Financial Services, LLC, Kevin B. Jordan, William Depuy, Shaun Jordan
and Mark Campbell’s Consolidated Motion for Summary Judgment (ECF No. 1161), as
it relates to the tort claims against the movants, is hereby DENIED.

Dated: January 13, 2016

BY THE COURT:

s/ Wiley Y. Daniel
Wiley Y. Daniel
Senior United States District Judge

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