Davis v. Citibank, N.A.

Filing 21

MEMORANDUM AND ORDER, IT IS HEREBY ORDERED that defendant's motion to dismiss 8 is GRANTED as to Counts III and IV of plaintiff's complaint and DENIED as to Counts I and II of plaintiffs complaint. Signed by District Judge Catherine D. Perry on 3/4/2015. (EAB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
CYNTHIA K. DAVIS,
Plaintiff,
vs.
CITIBANK, N.A.,
Defendant.

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Case No. 4:14 CV 1129 CDP

MEMORANDUM AND ORDER
Plaintiff Cynthia K. Davis claims that defendant Citibank, N.A., with whom
she had a Home Equity Line of Credit, wrongfully charged her a lien subordination
fee when she refinanced her underlying home mortgage. The lender with whom
she sought to refinance, Chase Mortgage, required her to provide documents
showing that Citibank’s Deed of Trust had been subordinated to the new Chase
security interest. When Davis requested subordination from Citi, it told her it
would charge a “$200 subordination fee.” She paid the fee, Citi provided the
subordination, and Davis was therefore able to complete the Chase refinancing as
she desired.
Davis has now sued Citibank, seeking to represent a class of persons
similarly situated. She alleges that Citibank was unjustly enriched when it charged
her the $200 fee, because the home equity loan documents did not specifically say

such a fee would be required. She alleges that Citibank’s requiring her to pay the
$200 was a deceptive practice barred by the Missouri Merchandising Practices Act
and constituted common law fraud. Finally, she alleges that the charge violated
Missouri’s second mortgage loan act.
After careful consideration, I will deny the motion to dismiss as to Counts I
and II, as the allegations are sufficient to state a claim for unjust enrichment and
violation of the Missouri Merchandising Practices Act. I conclude that Davis has
failed to allege the proper elements of a claim under Missouri’s second mortgage
law, an MSMLA claim, and she has not contested Citi’s motion to dismiss her
fraud claim, so I will grant Citi’s motion as to Counts III and IV of Davis’s
complaint.
I.

Motion to Dismiss Standard

The purpose of a motion to dismiss under Rule 12(b)(6) is to test the legal
sufficiency of the complaint. When considering a 12(b)(6) motion, the court
assumes the factual allegations of a complaint are true and construes them in favor
of the plaintiff. Neitzke v. Williams, 490 U.S. 319, 326–27 (1989). The court may
consider all materials attached to the complaint as if they were part of the
pleadings. See Quinn v. Ocwen Federal Bank FSB, 470 F.3d 1240, 1244 (8th Cir.
2006). In this case plaintiff attached, among other things, the Home Equity Line of

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Credit Agreement and Disclosure and the letter Citi sent her regarding the $200
fee, so I have considered those documents.
Rule 8(a)(2), Fed. R. Civ. P., provides that a complaint must contain “a short
and plain statement of the claim showing that the pleader is entitled to relief.” In
Bell Atlantic Corp. v. Twombly, the Supreme Court clarified that Rule 8(a)(2)
requires complaints to contain “more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action.” 550 U.S. 544, 555 (2007); accord
Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009). Specifically, to survive a motion
to dismiss, a complaint must contain enough factual allegations, accepted as true,
to state a claim for relief “that is plausible on its face.” Twombly, 550 U.S. at 570.
II.

Background

Davis and her husband own a property located in St. Louis, Missouri that is
subject to a first mortgage held by J.P. Morgan Chase N.A. and a second mortgage,
in the form of a home equity line of credit (HELOC), which is secured by a Deed
of Trust and held by Citi. In the fall of 2011, Davis began working with Chase to
refinance her mortgage and was informed that she would need a subordination
agreement from Citi stating that the HELOC was subordinated to the refinanced
Chase mortgage. Upon requesting subordination from Citi, Davis was notified that
Citi charged a $200 subordination fee. Davis paid the fee, and Citi provided the
subordination agreement. Davis now claims the subordination fee was wrongful
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because it was not provided for in the written terms of her HELOC agreement and
was not otherwise disclosed to her until just before it was charged. Citi has moved
to dismiss all four of Davis’ claims against it.
III.

Discussion
A.

Count I – Unjust Enrichment

Count I of Davis’s complaint asserts that because the HELOC agreement
contains no provision regarding subordination fees, Citi had no right to charge such
a fee and was unjustly enriched by doing so. Citi argues that this cannot be the
basis for a claim of unjust enrichment because it arises out of their written contract.
Davis responds that the claim does not arise out of the contract, but instead was
unjust because Citi charged something that was not in the contract. Whether this
can state a claim for unjust enrichment is a very close case, but I conclude that
Davis may be able to prove the claim, and so I will deny the motion to dismiss.
1.

Governing Law

A federal court sitting in diversity applies the substantive law of the state in
which the district court sits. Urban Hotel Dev. Co. v. President Dev. Co., L.C.,
535 F.3d 874, 877 (8th Cir. 2008). The obligation to apply state law extends to the
forum state’s choice-of-law principles. Klaxon Co. v. Stentor Elec. Mfg. Co., 313
U.S. 487, 496 (1941); Winter v. Novartis Pharm. Corp., 739 F.3d 405, 410 (8th
Cir. 2014).
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Citibank argues that Nevada law applies under the choice of law provision
contained in the HELOC:
“The Agreement will be governed by United States federal law, and
to the extent the United States federal law is inapplicable, then by the
laws of the State of Nevada; except that, with regard to the perfection
and enforcement of Citibank’s security interest in the Property, the
Agreement will be governed by the law of the state where the
Property is located.”
Missouri generally recognizes and enforces contractual choice-of-law
provisions. Stone v. Crown Diversified Indus. Corp., 9 S.W.3d 659, 666 (Mo. Ct.
App. 1999). In Missouri, whether a choice-of-law provision that, by its terms,
applies to contract actions also reaches non-contract claims depends on whether
resolution of the claim relates to interpretation of the contract. See Pissed Away
N6VC v. Stricker, No. 2:11-cv-0427 NKL, 2012 WL 393418, at *2 (W.D. Mo. Feb.
6, 2012) (the parties’ choice-of-law provision applied to plaintiff’s fraud and
misrepresentation claims because to resolve the tort claims, the court “necessarily
must construe [the] contract”) citing Major v. McCallister, 302 S.W.3d 227, 231
(Mo. Ct. App. 2009) (whether a contract clause applies to reach the action in
question depends on whether resolution of the claims relates to interpretation of the
contract); see also Northwest Airlines, Inc. v. Astraea Aviation Services, Inc., 111
F.3d 1386, 1392 (8th Cir. 1997) (applying similar Minnesota choice-of-law rule to
hold that unjust enrichment claim fell under choice-of-law provision); Bradbury v.

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Network Enterprises, Inc., No. 4:12-cv-575 CEJ, 2013 WL 587884 (E.D. Mo. Feb.
13, 2013) (applying choice-of-law provision to unjust enrichment claim).
Davis herself alleges that the unjust enrichment claim depends on what is
contained (or not contained) in the contract. The parties’ choice-of-law provision
applies because resolution of the unjust enrichment claim is integrally related to
interpretation of the contract. As a result, I will review the unjust enrichment
claim under Nevada law.1
2.

Substantive Analysis

Under Nevada law, “unjust enrichment occurs whenever a person has and
retains a benefit which in equity and good conscience belongs to another.”
Leasepartners Corp. v. Robert L. Brooks Trust Dated Nov. 12, 1975, 113 Nev. 747,
755 (1997)(internal quotation marks and citation omitted). “An action based on a
theory of unjust enrichment is not available when there is an express, written
contract, because no agreement can be implied when there is an express
agreement.” Id.
Citi argues that Davis and Citi are parties to an express written contract, and
Davis’s unjust enrichment claim arises out of an alleged violation of the terms of
In any event, Missouri’s law of unjust enrichment is essentially the same as Nevada’s. See, e.g.,
Howard v. Turnbull, 316 S.W.3d 431, 436 (Mo. Ct. App. 2010)(“[i]f the plaintiff has entered into
an express contract for the very subject matter for which he seeks recovery, unjust enrichment
does not apply, for the plaintiff's rights are limited to the express terms of the contract”);
Affordable Communities of Missouri v. Fed. Nat. Mortgage Ass'n, 714 F.3d 1069, 1077 (8th Cir.
2013)(same).
1

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that contract, therefore her claim must fail. To support its point Citi has relied
primarily on Goodwin v. Exec. Trustee Servs., LLC, 680 F. Supp. 2d 1244, 1255
(D. Nev. 2010).2 In Goodwin, the court determined that the basic premise of the
plaintiffs' claim for unjust enrichment was that plaintiffs were “‘targeted for and
lured’ into their mortgages.” Id. The Goodwin plaintiffs’ pointed to no extrinsic
agreement or arrangement outside the mortgages, and their claims failed because
the mortgages themselves were express, written contracts.3 Here, however, Davis
alleges unjust enrichment based on a fee she claims fell outside of the parties’
express, written contract. This could be viewed as analogous to the unjust
enrichment claim of an employee who has not been paid for work hours not
contemplated by the parties’ express agreement. See, e.g., Risinger v. SOC LLC,
936 F. Supp. 2d 1235, 1244 (D. Nev. 2013) (denying motion to dismiss plaintiff’s

2

Plaintiff has also cited Leasepartners, 113 Nev. at 755, and Williams v. JPMorgan Chase Bank,
452 Fed. App’x 799, 800 (9th Cir. 2011), but the facts of these cases do not support dismissal of
an unjust enrichment claim under the facts of this case. Leasepartners reverses the dismissal of
an unjust enrichment claim where there was no written contract between the parties. 626 P.2d at
755-56. Williams provides essentially no facts regarding the plaintiffs’ claim other than to note
that the “allegations indicate [plaintiffs’] claim is premised on express written agreements.” 452
Fed. App’x at 801.
3

Other cases dismissing unjust enrichment claims in the context of mortgage loans have also
addressed situations where the claim appears to be based on charges specifically governed by the
contract between the parties. See, e.g., Josephson v. EMC Mortgage Corp., No. 2:10-CV-336
JCM PAL, 2010 WL 4810715, at *3 (D. Nev. Nov. 19, 2010)(dismissing unjust enrichment
claim that was based on defendants’ failure to properly calculate the interest and credit payments
made by the plaintiffs); Duncan v. Countrywide Home Loans, Inc., No. 3:09-CV-00632, 2010
WL 5463863, at *6 (D. Nev. Dec. 28, 2010) (“[p]laintiffs do not allege any benefit bestowed
upon any Defendant that is not subject to a contract”).

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unjust enrichment claim that was based on unpaid work hours not covered by the
parties’ express agreement). Although it is a close question, I will deny the motion
to dismiss, as it appears Davis’s unjust enrichment claim is not based on terms
contained within the parties’ explicit written agreement.
Citi alternatively argues that the parties’ agreement explicitly allowed it to
charge the subordination fee. It cites to two provisions, one contained in the
HELOC agreement and one contained in the Deed of Trust. I do not agree that
these provisions authorize the fee.
Section 3 of the Deed of Trust states Davis “shall not enter into any
agreement with the holder of a Prior Deed of Trust whereby such Prior Deed of
Trust, or the indebtedness secured thereby is modified, amended, extended or
renewed, without [Citi’s] prior written consent.” According to the clear language
of Section 3, consent is required for the modification, amendment, extension or
renewal of a prior deed of trust. But here, the complaint plainly avers the fee was
charged in exchange for Citi’s agreement to subordinate its lien, not in exchange
for its consent to the refinancing.
Next, Citi cites to paragraph 5(i) of the HELOC agreement. This section is
entitled “Other Charges” and states that Davis “may have to pay a fee to release a
prior lien or security interest in the Property.” Again, this refers to fees to release

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prior security interests – not to a request that Citi’s existing security interest be
subordinated to the new Chase security interest.
Nothing in the language of either of these paragraphs indicates that it would
apply to the fee Davis claims she was charged. See S. Trust Mortgage Co. v. K &
B Door Co., 104 Nev. 564, 568 (1988) (where a contract is “clear and
unambiguous on its face, the court must construe it from the language therein”).
Citi’s motion to dismiss Count I is therefore denied.
B.

Count II – Missouri Merchandising Practices Act Claim

Missouri’s Merchandising Practices Act makes it an unlawful practice to
conceal or omit any material fact in connection with the sale of any merchandise.4
Mo. Rev. Stat. § 407.020(1). Count II of Davis’s complaint asserts that Citi’s
failure to include a provision in the HELOC agreement regarding the subordination
fee, and its failure to otherwise disclose the fee to Davis, constitute concealment or
omission of a material fact in violation of the MPA. Specifically, Davis alleges
that there was no provision in the HELOC allowing Citi to charge a subordination
fee and that Citi nevertheless charged this fee and failed to disclose it until shortly
before it was charged.5

4

The MPA defines Merchandise to include real estate and services.

5

This count is confusingly pled in that plaintiff also cites Missouri’s Uniform Commercial Code,
Article 9, Section 9-103(2), and alleges that “Defendant’s requirement that Plaintiff subordinate
the HELOC to the 1st DOT is a misrepresentation of the law, represented to Plaintiff as fact, and
which Plaintiff relied upon in agreeing to pay the subordination fee.” But the other allegations of

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A plaintiff states a prima facie MPA claim by alleging that she 1) purchased
or leased merchandise; 2) primarily for personal family or household purposes; 3)
suffered an ascertainable loss of money or property; 4) as a result of the
defendant’s use of one of the methods or practices declared unlawful by §
407.020(1). Reitz v. Nationstar Mortg., LLC, 954 F. Supp. 2d 870, 893 (E.D. Mo.
2013); Mo. Rev. Stat. § 407.025. The Missouri Supreme Court has recently held
that a loan agreement such as the HELOC “creates a long-term relationship in
which the borrower and the lender continue to perform various duties, such as
making and collecting payments over an extended period of time.” Conway v.
CitiMortgage, Inc., 438 S.W.3d 410 (Mo. 2014).
Citi again relies on the two contract provisions discussed in its unjust
enrichment argument, but as stated above, according to the allegations of the
complaint, Citi charged Davis a fee in exchange for the subordination agreement,
and the contract provisions at issue did not, by their clear terms, authorize such a
fee. Therefore, I will deny Citi’s motion to dismiss as to Count II.6

the complaint and its attachments make it clear that it was Chase, not Citi, who required the
subordination. Because the other allegations are sufficient, and because UCC Article 9 does not
apply to Chase’s security interest in the property, I will disregard this allegation. See Mo. Rev.
Stat. 400.9-109(d) (Article 9 does not apply to the “creation or transfer of an interest in or lien on
real property”).

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C.

Count III – Fraud Claim

Count III purports to be a claim for common-law fraud, but in response to
the motion to dismiss, Davis did not oppose the motion but instead conceded that
there were “oversights” in pleading the claim. I agree that the count fails to state a
claim for fraud and so will dismiss Count III
D.

Count IV – Missouri Second Mortgage Loan Act Claim

Missouri’s Second Mortgage Loan Act, Mo. Rev. Stat. §§ 408.231-241,
“places limits on the type and amount of [costs] and fees a lender can charge on
residential second mortgage loans secured by Missouri real estate.” Thomas v.
U.S. Bank Nat. Ass’n ND, 575 F.3d 794, 796 (8th Cir. 2009). Citi argues that
Davis’s SMLA claim fails as a matter of law both because it is completely
preempted by the National Bank Act and because it does not properly state a
violation of the SMLA. Based on the face of the complaint, I conclude that
although preemption does not apply here, Davis has failed to properly allege the
elements of an SMLA claim, and this count must be dismissed.
1.

Preemption

The NBA, 12 U.S.C. §§ 85-86, provides “an exclusive federal cause of
action for usury against national banks” and therefore completely preempts state
actions challenging the lawfulness of interest charged by a national bank.
Beneficial Nat. Bank v. Anderson, 539 U.S. 1, 10 (2003). “[T]here is, in short, no
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such thing as a state law claim of usury against a national bank.” Phipps v.
F.D.I.C., 417 F.3d 1006, 1011 (2005). For purposes of Section 85 of the NBA,
interest is defined as “any payment compensating a creditor or prospective creditor
for an extension of credit, making available for a line of credit or any default or
breach by a borrower of a condition upon which credit was extended.” 12 C.F.R.
§ 4.4001(a) (emphasis added); Phipps, 417 F.3d at 1011. Citi claims that Davis’s
alleged agreement with Chase, without Citi’s consent, was a breach of Section 3 of
the Deed of Trust,7 and the subordination fee was charged to compensate Citi for
Davis’s breach. As a result, Citi argues, the subordination fee qualifies as interest
under the NBA, and Davis’s claim that the fee violated the MSMLA is preempted.
Citi’s preemption argument fails because, based on the face of the
complaint, there is no indication that the subordination fee was charged as
“compensation” for Davis’s alleged breach of the Deed of Trust. Even assuming
Davis breached the Deed of Trust terms, the complaint does not describe the
subordination fee as a consequence of her breach. In fact, Citi’s letter to Davis
regarding the charge (Complaint, Ex. 3) states only: “We have received your
request for the subordination of your Home Equity Account. Please note that Citi
charges a $200.00 subordination fee. This fee will be assessed to your account and
7

As noted, Section 3 of the Deed of Trust states in part that Davis “shall not enter into any
agreement with the holder of a Prior Deed of Trust whereby such Prior deed of Trust, or the
indebtedness secured thereby, is modified, amended, extended or renewed, without [Citibank’s]
prior written consent.”

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will appear as a fee on your monthly account statement.” The letter seems to
characterize the fee as a standard charge for subordination, not a fine or penalty for
Davis’s default. As a result, I conclude that the subordination fee does not qualify
as interest under the NBA, and Davis’s SMLA claim is not preempted.
2.

Failure to State a Claim

The SMLA permits second mortgage loan lenders to charge any interest rate
agreed to by the parties, but it limits (and delineates) the fees that may be charged.
See Mo. Rev. Stat. §§ 408.232.1 and 408.233. However, Section 408.232.4 states
that the act does not apply “to any loans on which the rate of interest and fees
charged are lawful under Missouri law without regard to the rates…and fees
permitted in [the SMLA].” In her complaint, Davis alleges nothing regarding
Citi’s interest rate. She claims that Citi’s subordination fee violates the SMLA
because it is not an authorized charge under Section 408.233. She does not claim
Citi’s interest rate or fees violate any Missouri law other than the SMLA.
Section 408.232.4, requiring the defendant’s interest rate or fees to be
unlawful under some other Missouri law in order for the SMLA to apply, was last
amended in 2004. Before 2004, this subsection contemplated the lawfulness of
only the interest rate and stated: “[The SMLA] shall not apply to any loans on
which the rate of interest charged is lawful without regard to the rates permitted in

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subsection 1 of this section.”8 See Mitchell v. Residential Funding Corp., 334
S.W.3d 477, 494 (Mo. Ct. App. 2010). Therefore, before the 2004 amendments, a
plaintiff stated a prima facie case for violation of the SMLA by pleading that: (1)
she obtained a secondary mortgage loan; (2) an unlawful rate of interest was
charged on the loan; and (3) the fees charged in connection with the loan were not
authorized by Section 408.233. See Avila v. Commty. Bank of Virginia, 143
S.W.3d 1, 4-5 (Mo. Ct. App. 2003); Phipps v. F.D.I.C., 417 F.3d 1006, 1014 (8th
Cir. 2005).
Neither party in the instant case disputes that the post-2004 SMLA language
applies in this case. However, neither party has cited, and this Court has been
unable to find, a Missouri state or federal opinion analyzing the effect of the 2004
amendments on the pleading requirements for SMLA claims. In its motion to
dismiss, Citi argues that Davis’s claim fails because she has not alleged, in
accordance with the plain language of Section 408.232.4, that the HELOC interest
rate or fees were unlawful under some law other than the SMLA. In her response,
Davis cites two cases in support of her argument that she does not have to show the
interest rate or fees were unlawful under another law. She asserts that under the
“current statutory language, the Eighth and Missouri Court of Appeals both have

8

The changes made to this section by the 2004 amendments appeared as follows:
Sections 408.231 to 408.241 shall not apply to any loans on which the rate of interest and fees charged is are lawful
under Missouri law without regard to the rates permitted in subsection 1 of this section and the fees permitted in
section 408.233. BANKS AND BANKING, 2004 Mo. Legis. Serv. H.B. 959 (VERNON'S)

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upheld causes of action based on the charging of fees that the SMLA does not
expressly permit, and regardless of the interest rate.”
Neither of the cases cited by Davis supports her argument. The court in
Mitchell v. Residential Funding Corp., applied a pre-2004 version of the SMLA,
holding that the statute’s fee limitations were “only applicable to second mortgage
loans on which an unlawful rate of interest is charged.” 334 S.W.3d at 494.
(internal quotation marks and citation omitted). Similarly, in Washington v.
Countrywide Home Loans, Inc., 655 F.3d 869, 873 (8th Cir. 2011), although the
court did not explicitly address the elements of a prima facie case, it did note that
“[i]n exchange for allowing lenders to offer interest rates that exceed the statutory
usury rate, the MSMLA limits the closing costs and fees that lenders may charge.”
Furthermore, the plaintiffs in Washington claimed the defendant had charged
“unauthorized interest and fees in violation of section 408.233.1.” Id. at 871
(emphasis added). And the loan at issue was payable at 12 percent interest, id.,
which is higher than Missouri’s standard statutory usury rate. See Mo. Rev. Stat. §
408.030. 1; see also Phipps v. F.D.I.C., 417 F.3d 1006, 1009 (8th Cir. 2005)
(Missouri’s usury law caps interest rates at 10% or market rate).
In the time period since the 2004 amendments, to the limited extent that
courts have addressed the elements of an SMLA claim, they have either, like
Mitchell, applied a pre-2004 version of the statute or they have not clearly stated
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which version of the statute they are applying. See, e.g., Phipps v. F.D.I.C., 417
F.3d 1006, 1013-14 (8th Cir. 2005) (applying earlier version of statute); Wong v.
Bann-Cor Mortg., 878 F. Supp. 2d 989, 1006-08 (2012) (not clearly stated); Mayo
v. UBS Real Estate Securities, Inc., No. 08-00568-CV-W-DGK, 2011 WL
1136438, at *5 (W.D. Mo. Mar. 25, 2011) (not clearly stated). In any event, no
court has directly addressed the question of how to state a claim for an SMLA
violation under the existing statutory language. Therefore, it seems that the
question before me is one of first impression.
Generally, a federal court is bound by the interpretation of a state's statutes
by the state's highest court. Missouri v. Hunter, 459 U.S. 359, 366–68 (1983). In
the absence of such an interpretation, however, the federal court has the
“responsibility to predict, as best [it] can, how that court would decide the issue.”
Brandenburg v. Allstate Ins. Co., 23 F.3d 1438, 1440 (8th Cir.1994). The Missouri
Supreme Court’s “primary rule of statutory interpretation is to give effect to
legislative intent as reflected in the plain language of the statute at issue.”
Parktown Imports, Inc. v. Audi of Am., Inc., 278 S.W.3d 670, 672 (Mo. 2009).
Here, the plain language of the statute is clear and, in form, relatively unchanged
from its earlier version. Therefore, I conclude that in order to properly plead a
violation of the SMLA, Section 408.232.4 requires a plaintiff to allege: 1) she
obtained a secondary mortgage loan; 2) the interest rate or fees charged by a
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defendant were unlawful under some extrinsic Missouri law; and 3) the fees
charged in connection with the loan were not authorized by Section 400.233.9 In
light of this, Davis’s bare allegation that the subordination fee is not contained in
the exclusive list of allowable fees under the SMLA is insufficient, and she has
failed to state a claim under the Missouri Second Mortgage Loan Act.
Accordingly,
IT IS HEREBY ORDERED that defendant’s motion to dismiss [#8] is
GRANTED as to Counts III and IV of plaintiff’s complaint and DENIED as to
Counts I and II of plaintiff’s complaint.

CATHERINE D. PERRY
UNITED STATES DISTRICT JUDGE
Dated this 4th day of March, 2015.

9

This interpretation also comports with how Missouri courts interpreted the statute before the
2004 amendments. Namely, the extrinsic unlawfulness of the interest rate (and now the fees),
must be affirmatively pled as part of the plaintiff’s prima facie case. See Avila, 143 S.W.3d at 45; Adkison v. First Plus Bank, 143 S.W.3d 29, 34-35 (8th Cir. 2011).

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