Lonergan et al v. Bank of America, N.A. et al
ORDER entered by Judge Nanette Laughrey. The Bank's motion to dismiss for failure to state a claim [Docs. ## 4, 38], is DENIED. (Kanies, Renea)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
THOMAS T. LONERGAN and CYNTHIA )
BANK OF AMERICA, N.A., et al.,
Defendant Bank of America, N.A. (“the Bank”), for itself individually and as
successor by merger to Countrywide Bank, FSB (“Countrywide”), moves to dismiss the
Amended Complaint of Plaintiffs Thomas and Cynthia Lonergan for failure to state a
claim [Docs. ## 4, 38]. For the reasons set forth below, the Bank’s motion to dismiss is
Background and Factual Allegations
In the spring of 2007, the Lonergans engaged Jason Thomas, then a mortgage
broker for First Ohio Banc and Lending, Inc. (“First Ohio”), in order to refinance two
mortgages on their home. On April 30, 2007, the Lonergans closed on a refinancing deal
with Countrywide, for which First Ohio received a commission. At the closing, the
Lonergans signed two promissory notes in favor of Countrywide in the amounts of
$2,000,000 and $246,000, respectively. The notes were secured by two deeds of trust.
The first note had a fixed interest rate of 7.75 percent for the first sixty months.
After sixty months, on May 1, 2012, the interest rate would change to an adjustable
interest rate. This date, and any subsequent date on which the adjustable interest rate
could change, was referred to as the Interest Rate Change Date. The note required
monthly payments of $8,164.82 until the first Interest Rate Change Date.
The Lonergans allege that the terms of this note were concealed from them at the
closing and differed significantly from what was previously promised to them.
According to the Lonergans, Thomas repeatedly told them during discussions leading up
to the closing that their approximate monthly payment for the first mortgage would be
$4,6000.00 for the first sixty months. In addition, First Ohio sent the Lonergans a “Good
Faith Estimate” dated February 24, 2007, which indicated that the monthly payment
would be $4,166.67 for the first sixty months. This was less than the monthly payment
the Lonergans were required to make under their original mortgage and the sole reason
the Lonergans entered into the refinancing arrangement.
On the morning of the closing, the Lonergans spoke with Thomas on the phone
and Thomas told them that he had reviewed the closing documents and everything was in
order. Thomas informed them that the amount of the monthly payment would be
$4,583.00 for the first sixty months. That afternoon, a settlement agent from American
Title Solutions went to the Lonergans’ home to complete the closing. The agent was very
late and told the Lonergans that she had another closing to complete after finishing with
them. The documents for both the first and second mortgages had to be signed.
As a result, the papers were signed as expeditiously as possible and the agent did
not review the terms of the closing documents with the Lonergans at the signing. The
Lonergans, relying on the representations Thomas made to them earlier that day, believed
the documents conformed to the prior promises made during the refinancing process.
The Lonergans were not able to review the documents at the closing and consequently
did not see that the note they signed required monthly payments of $8,164.82 for the first
sixty months. In addition, the Lonergans did not see the references to the Maximum
Principal Balance, also referred to as the Maximum Negative Amortization Cap, which
had never before been mentioned.
The Lonergans did not become aware of the higher monthly payment until they
received their first billing statement from Countrywide, on or about May 25, 2007. The
Lonergans contacted Thomas to address the issue and Thomas told them that
Countrywide had misled First Ohio into believing that the minimum payment would be
lower. Thomas also told the Lonergans that Countrywide said nothing could be done
about the much larger minimum payment because the papers were all signed. Over the
next several months, the Lonergans tried to raise the issue with Countrywide, but
Countrywide did not respond to their complaints. Ultimately, the Lonergans resigned
themselves to making the larger payment.
The Lonergans did not become aware of the significance of the Maximum
Negative Amortization Cap until several years later. In June 2011, the Lonergans
received notice that the servicing of their home loan was going to transfer to the Bank on
July 1, 2011. In August 2011, the Lonergans received a notice from the Bank indicating
that their monthly payment was going to increase to $14,848.87 on November 1, 2011.
This surprised the Lonergans, as the promissory note provided that their monthly
payment would be $8,164.82 until May 1, 2012, the first Interest Rate Change Date, with
the first adjusted payment accordingly due on June 1, 2012. The Lonergans called the
Bank at the number provided in the notice and were told to disregard the notice and
continue making monthly payments of $8,164.82. The Lonergans subsequently received
multiple statements from the Bank that listed varying amounts due on November 1, 2011.
The Lonergans called the Bank for clarification, and they were again told that a different
payment was not due until June 1, 2012, and to continue making monthly payments of
On December 24, 2011, the Lonergans received a Notice of Intent to Accelerate,
which indicated that their loan was in serious default and could only be cured if the
Lonergans remitted $22,167.27 on or before January 18, 2012. A closer review of the
closing documents revealed a reference to the Maximum Principal Balance, which was
115 percent of the amount of the mortgage, or $2,300,000. Under the terms of the note, if
at any point during repayment the unpaid principal reached this amount, the monthly
payment would be adjusted to the amount necessary to pay the interest portion of their
loan payment. This explained the unexpected increase in payment. With an interest rate
of 7.75 percent and a monthly payment of $8,164.82, the balance on the loan would
necessarily reach the Maximum Principal Balance prior to the expiration of the sixty
month fixed-rate period.
Based on the foregoing, the Lonergans claim that they were the victims of a “bait
and switch” conspiracy. In particular, the Lonergans allege that the actual amount of the
monthly payment was concealed from them at the closing in order to induce them to sign
the note under the belief that its terms were in accord with the prior, fraudulent
representations made by Countrywide and First Ohio. In addition, the Lonergans claim
that the confusing and inconsistent language in the promissory note and the Defendants’
collective silence regarding the Maximum Principal Balance fraudulently led them to
believe that their monthly payment would not change for the first sixty-months.
On May 17, 2012, the Lonergans filed a pro se Complaint, which initially
contained seven counts: (1) breach of the implied covenant of good faith and fair
dealing; (2) breach of contract; (3) unjust enrichment; (4) fraud/misrepresentation; (5)
negligence; (6) aiding and abetting; and (7) conspiracy. After the Bank’s motion to
dismiss was fully briefed, the Lonergans moved to file an Amended Complaint [Doc. #
32], and the Court granted the request [Doc. # 33]. The Amended Complaint adds a
claim under the Missouri Merchandising Practices Act (“MMPA”), but is otherwise
identical to the Lonergans’ initial Complaint. Compare [Doc. # 1-1], with [Doc. # 35].
On December 11, 2012, the Bank moved to dismiss the Amended Complaint in its
entirety. [Doc. # 38]. The Bank incorporated the arguments from its first motion to
dismiss and added argument regarding the newly added eighth count of the Amended
Complaint. Because this argument is substantively identical to the arguments advanced
in the Bank’s first motion to dismiss, as made clear in the discussion that follows, both
motions are fit for resolution in this Order.
Pursuant to Federal Rule of Civil Procedure (“FRCP”) 12(b)(6), the Bank moves
to dismiss the Lonergans’ Amended Complaint for failure to state a claim. Under FRCP
8(a)(2), a complaint must contain “a short and plain statement of the claim showing that
the pleader is entitled to relief.” The complaint does not have to present “detailed factual
allegations,” but it “must contain sufficient factual matter, accepted as true, to state a
claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quotation omitted). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. When considering a motion to dismiss, the Court must
accept as true the factual allegations contained in the complaint, and draw all reasonable
inferences from those allegations in favor of the plaintiff. See Gomez v. Wells Fargo
Bank, N.A., 676 F.3d 655, 660 (8th Cir. 2012). In addition, a pro se complaint must be
liberally construed, Smith v. St. Bernards Reg’l Med. Ctr., 19 F.3d 1254, 1255 (8th Cir.
1994), and is held to a less stringent standard than one drafted by an attorney, Walker v.
Reed, 104 F.3d 156, 157 (8th Cir. 1997).
The Statute of Limitations
The Bank argues that the statute of limitations bars Counts One, Two, Four,
Seven, and Eight1 of the Lonergans’ Amended Complaint. When the affirmative defense
of the statute of limitations is asserted in a motion to dismiss, the complaint “may not be
The substantive claims are: (1) breach of the implied covenant of good faith and fair dealing;
(2) breach of contract; (4) fraud/misrepresentation; (7) conspiracy; and (8) violation of the
dismissed unless it clearly establishes ‘on its face and without exception’ that it is
barred.” Kixmiller v. Bd. of Curators of Lincoln Univ., 341 S.W.3d 711, 714 (Mo. Ct.
App. 2011) (quoting Sheehan v. Sheehan, 901 S.W.2d 57, 59 (Mo. 1995) (en banc)). The
Bank contends that the claims in these five counts are all subject to a five-year statute of
limitations, which began to run on April 30, 2007, the date the Lonergans signed their
promissory note. Since the Lonergans did not file their Complaint until May 17, 2012,
the Bank maintains that these claims are barred by the statute of limitations. The
Lonergans respond that their claims in Counts One and Two, breach of the implied
covenant of good faith and fair dealing and breach of contract, are governed by a ten-year
statute of limitations. Alternatively, and with respect to the other three claims,2 the
Lonergans argue that the statute of limitations did not begin to run, at the earliest, until
they received their first loan statement, on or about May 25, 2007.
Which Statute of Limitations Applies
Missouri law provides, in relevant part, that a five-year statute of limitations
applies to “[a]ll actions upon contracts, obligations or liabilities, express or implied,
except those mentioned in section 516.110, . . . .” Mo. Rev. Stat. § 516.120(1). Section
516.110(1) establishes a ten-year statute of limitations for “[a]n action upon any writing,
whether sealed or unsealed, for the payment of money or property.” This includes
promissory notes. Sabine v. Leonard, 322 S.W.2d 831, 837 (Mo. 1959) (en banc). In
interpreting § 516.110(1), the Missouri Supreme Court concluded:
The Lonergans do not, and cannot, dispute that the five-year statute of limitations applies to
their claims of fraud/misrepresentation, conspiracy, and violation of the MMPA. See Mo. Rev.
Stat. § 516.120.
Taken at its plain meaning, section 516.110(1), the ten-year statute of
limitations applies to every breach of contract action in which the plaintiff
seeks a judgment from the defendant for payment of money the defendant
agreed to pay in a written contract. . . . This is the application of section
516.010(1) [sic], admittedly quite broad, that we adopt.
Hughes Dev. Co. v. Omega Realty Co., 951 S.W.2d 615, 617 (Mo. 1997) (en banc)
(emphasis added). Accordingly, § 516.110(1) “applies only in instances in which an
express written obligation provides for the payment of money or the delivery of property
and that the money or property sued for is that money or property promised by the
language of the writing.” Lackawanna Chapter of Ry. & Locomotive Historical Soc’y,
Inc. v. St. Louis Cnty., Mo., 606 F.3d 886, 890 (8th Cir. 2010) (emphasis added) (quoting
Lato v. Concord Homes, Inc., 659 S.W. 2d 593, 594 (Mo. Ct. App. 1983)); see also
Superintendent of Ins. of State of N.Y. v. Livestock Mkt. Ins. Agency, Inc., 709 S.W.2d
897, 901-02 (Mo. Ct. App. 1986) (“[T]o constitute a promise for the payment of money,
‘the money sued for’ must be that money promised by the language of the writing . . . .”).
The Lonergans cannot and do not seek a judgment for payment of money the Bank
agreed to pay in a written contract, because the Bank never agreed to pay the Lonergans
money in a written contract. Citing Sabine, the Lonergans suggest that a promissory note
is a written contract for the payment of money and thus any and all claims related to a
promissory note fall within § 516.110(1). But this reading of § 516.110(1) is contrary to
the interpretation of this statute adopted in Hughes. See Hughes, 951 S.W.2d at 617.
Furthermore, Sabine held only that the ten-year statute of limitations applied where the
plaintiff was suing for payments the defendant allegedly owed under a promissory note.
See Sabine, 322 S.W.2d at 832, 837. This is consistent with the rule, as stated above, that
the ten-year statute of limitations applies when there is an express written agreement
providing for the payment of money and the plaintiff is suing for the very payments
required by the language of that agreement. The Lonergans seek damages resulting from
the execution of their promissory note and modification of the terms of that note, but they
do not seek a payment the Bank was required to make under the note. Consequently, the
five-year statute of limitations applies.
When the Statute of Limitations Began to Run
Generally, an action accrues, and thus the statute of limitations begins to run:
[N]ot . . . when the wrong is done or the technical breach of contract or
duty occurs, but when the damage resulting therefrom is sustained and is
capable of ascertainment, and, if more than one item of damage, then the
last item, so that all resulting damage may be recovered, and full and
complete relief obtained.
Mo. Rev. Stat. § 516.100. “Damage is ascertainable when the fact of damage can be
discovered or made known, not when a plaintiff actually discovers injury or wrongful
conduct.” Sheehan v. Sheehan, 901 S.W.2d 57, 58-59 (Mo. 1995) (en banc) (quotation
omitted). This is an objective test, which depends on whether “the evidence was such to
place a reasonably prudent person on notice of a potentially actionable injury.” Powel v.
Chaminade Coll. Preparatory, Inc., 197 S.W.3d 576, 582 (Mo. 2006) (en banc)
(quotation omitted); see also Ball v. Friese Const. Co., 348 S.W.3d 172, 177 (Mo. Ct.
App. 2011) (“The test to be applied is when a reasonable person would have been put on
notice that an injury and substantial damages may have occurred and would have
undertaken to ascertain the extent of the damages.” (quotation omitted)).
An action premised on fraud accrues when the injured party discovers the facts
constituting the fraud. Mo. Rev. Stat. § 516.120(5). Discovery, as used in this section, is
defined to include actual or constructive knowledge of the fraud. Gilmore v. Chicago
Title Ins. Co., 926 S.W.2d 695, 698 (Mo. Ct. App. 1996). Thus, the statute of limitations
begins to run when the plaintiff “discovered or in the exercise of due diligence, should
have discovered the fraud.” Id. (quotation omitted). Put differently, “[t]he cause of
action accrues when a plaintiff has sufficient facts to inform a reasonable person that a
fraud has been committed.” Misischia v. St. John’s Mercy Med. Ctr., 30 S.W.3d 848, 867
(Mo. Ct. App. 2000).
All of the claims the Bank argues are barred by the statute of limitations are
premised on the allegation that the terms of the closing documents differed from what the
Lonergans were previously promised. The Bank contends that the statute of limitations
began to run for these claims on the date the Lonergans signed the closing documents,
April 30, 2007. Since parties are presumed to read the documents they sign, Warren v.
Paragon Techs. Grp., Inc., 950 S.W.2d 844, 846 (Mo. 1997) (en banc), the Bank
maintains that the Lonergans had constructive knowledge of any problems related to the
terms of the promissory note as of the date of the closing.
But this presumption only applies in the absence of fraud. See, e.g., Horseshoe
Entm’t, L.P. v. Gen. Elec. Capital Corp., 990 F. Supp. 737, 742 (E.D. Mo. 1997);
Farmland Indus., Inc. v. Bittner, 920 S.W.2d 581, 584 (Mo. Ct. App. 1996). Thus, for
the purpose of tolling the statute of limitations, parties are not charged with knowledge of
the contents of a contract they signed when they allege that the relevant terms of that
contract were concealed from them. Cmty. Title Co. v. U.S. Title Guar. Co., Inc., 965
S.W.2d 245, 254 (Mo. Ct. App. 1998). The Lonergans claim that the terms of the closing
documents were concealed from them through the rushed closing and the closing agent’s
decision not to review the closing documents with them. [Doc. # 35 at 8-9]. The Bank
responds that this allegation is implausible because the Lonergans “are not typical home
loan borrowers.” As the Lonergans portray themselves as sophisticated businesspersons
experienced in real estate transactions, see [Doc. #35 at 6], the Bank maintains that the
Lonergans should have known how important it was to carefully review the closing
documents. But this argument goes only to the credibility of the Lonergans’ allegations.
At this stage, the Court must give the pro se portion of the Lonergans’ Amended
Complaint a liberal construction, accept as true the factual allegations contained therein,
and draw all reasonable inferences in favor of the Lonergans. In light of these conditions,
it does not appear from the face of the Amended Complaint that the statute of limitations
began to run, without exception, on the date of the closing. The Lonergans allege that the
closing agent concealed the terms of the closing documents from them at the closing.
While the fact of concealment remains to be proven, it is not certain from the face of the
Amended Complaint that the closing agent did not prevent the Lonergans from reviewing
these documents. Consequently, dismissal on the basis of the statute of limitations is not
appropriate at this stage. See Cmty. Title Co., 965 S.W.2d at 255 (“[T]here may be facts
which establish that U.S. Title's claims are barred by the statute of limitations, but these
facts are not borne out by the face of the counterclaim and third party petition. If such
facts should be developed, the limitations defense may be raised at trial or by a motion
for summary judgment.”).
Furthermore, other allegations in the Amended Complaint suggest that even if the
Lonergans were presumed to have read the closing documents on the date of the closing,
the full extent of the alleged damage would not have been ascertainable on that date.
While the minimum monthly payment was clearly ascertainable from the promissory
note, the significance of the Maximum Negative Amortization Cap was not. In one
section, the note stated that the minimum monthly payment would be calculated in three
ways. [Doc. # 5-1 at 2]. The second of these three methods provided that if the principal
balance reached the Maximum Negative Amortization Cap, the minimum payment would
be adjusted to an amount sufficient to pay the interest portion of the monthly payment.
[Doc. # 5-1 at 2]. The Maximum Negative Amortization Cap was elsewhere defined as
115 percent of the original principal. [Doc. # 5-1 at 1]. Immediately after the section
describing how the minimum payment would be calculated, a section titled “Initial
Monthly Minimum Payment” provided, “Each of my initial monthly Minimum Payments
until the first Interest Rate Change Date will be in the amount of U.S. $8,164.82.” [Doc.
# 5-1 at 2]. This section did not include any qualifying language suggesting that this
seemingly fixed payment might change before May 1, 2012, the first Interest Rate
Change Date. [Doc. # 5-1 at 1].
But the minimum monthly payment was necessarily going to go up prior to the
expiration of the sixty-month fixed-rate period because under the terms of the note the
principal was bound to reach the Maximum Negative Amortization Cap in a shorter time.
For this to be ascertainable at the closing, the Lonergans would have had to do the math
themselves. They would have needed to calculate the amount of unpaid interest that
would be added to the principal balance based on the interest rate and minimum monthly
payment set out in the note. Then, seeing that this would reach 115 percent of the
original principal in less than sixty months, they could have calculated when the fixed
payment period was actually going to expire and what their new payment would be at
that time. But “a party to contractual negotiations is entitled to rely on a positive
representation of fact by the other party.” Misischia, 30 S.W.3d at 867. The Lonergans
claim that First Ohio and the Bank never mentioned the Maximum Negative
Amortization Cap, or Maximum Principal Balance, and repeatedly promised that the
monthly payment would be fixed for the first sixty months. [Doc. # 35 at 8, 16-17, 24].
As such, the Lonergans would have had to have the presence of mind to disregard
these representations as well as the unqualified language elsewhere in the note that
seemingly fixed the minimum monthly payment at $8,164.82 for the first sixty months,
and then perform the above calculations sua sponte. This exceeds what is expected from
the reasonably prudent mortgagee. In fact, according to the Lonergans, the Bank’s own
employees did not understand the effect of the Maximum Negative Amortization Cap.
Even after this provision took effect, the Bank’s representatives repeatedly instructed the
Lonergans to continue making a monthly payment of $8,164.82, in accord with the clear
language of the promissory note. [Doc. # 35 at 12-13].
Damage is ascertainable when “the evidence was such to place a reasonably
prudent person on notice of a potentially actionable injury,” Powel, 197 S.W.3d at 582,
and fraud is discoverable “when a plaintiff has sufficient facts to inform a reasonable
person that a fraud has been committed,” Misischia, 30 S.W.3d at 867. The Lonergans
allege that they were promised a fixed monthly payment for the first sixty months and a
reasonably prudent person in their position would not have realized on the date of the
closing that they were actually agreeing to a shorter period. The full extent of the alleged
damage and fraud was thus not ascertainable on this date and the statute of limitations did
not begin to run at this time. See Mo. Rev. Stat. § 516.100 (providing that an action
accrues “when the damage resulting therefrom is sustained and is capable of
ascertainment, and, if more than one item of damage, then the last item”). Consequently,
the Bank has not shown that Counts One, Two, Four, Seven, and Eight are untimely.
The Bank argues that the Lonergans’ Amended Complaint fails to allege the
required elements of an unjust enrichment claim. “The elements of unjust enrichment
are: a benefit conferred by a plaintiff on a defendant; the defendant’s appreciation of the
fact of the benefit; and the acceptance and retention of the benefit by the defendant in
circumstances that would render that retention inequitable.” Bauer Dev. LLC v. BOK
Fin. Corp., 290 S.W.3d 96, 100 (Mo. Ct. App. 2009) (quotation omitted). “As an
equitable remedy, unjust enrichment is also discretionary and highly factual.” Asbury
Carbons, Inc. v. Sw. Bank, No. 4:10-CV-878 (CEJ), 2011 WL 1086067, at *4 (E.D. Mo.
Mar. 22, 2011). Regarding the third element in particular, the Court must “consider
whether any wrongful conduct by the defendant contributed to the plaintiff’s
disadvantage.” S & J, Inc. v. McLoud & Co., LLC, 108 S.W.3d 765, 768 (Mo. Ct. App.
2003). This element requires “something more than passive acquiescence, such as fault
or undue advantage on the part of the defendant.” Id.
The Lonergans maintain that, given the fraud at the closing, it was inequitable for
the Bank to retain the difference between the monthly payment the Lonergans were
promised and the monthly payment required by the promissory note. The Bank responds
that this cannot be inequitable, and therefore the Lonergans have not pleaded the third
element of unjust enrichment, because the Lonergans were contractually obligated to
make these payments. The Bank’s argument thus presumes that no fraud was committed
at the closing. But the Lonergans allege that: they were repeatedly promised a
significantly lower monthly payment; they were told on the day of the closing that the
closing documents contained the lower payment; the closing agent concealed the actual
monthly payment; these acts were done intentionally, in order to deceive the Lonergans
into signing a document that contained less favorable terms than they were promised; and
the Bank later ignored the Lonergans’ repeated complaints about this discrepancy. These
allegations set forth sufficient wrongful conduct on the part of the Bank to satisfy the
third element of an unjust enrichment claim and dismissal of this claim is not warranted.
Whether a Lender Owes a Duty to a Borrower
The Bank argues that the Lonergans’ negligence claim fails as a matter of law
because a lender owes no duty to a borrower.3 A series of recent decisions in the Western
“To state a claim for negligence, a plaintiff must plead facts that support each of the following
elements: (1) the defendant had a duty to protect the plaintiff from injury; (2) the defendant
and Eastern Districts of Missouri have held that, under Missouri law, a lender does not
owe a duty to a borrower. See, e.g., Pace v. Wells Fargo Bank, N.A., No. 4:11-CV-489
CAS, 2012 WL 3705088, at *15 (E.D. Mo. Aug. 27, 2012) (“Under Missouri law,
however, the relationship between a lender and a borrower is one of contractual
obligation, not of duty.” (citing Wood & Huston Bank v. Malan, 815 S.W.2d 454, 458
(Mo. Ct. App. 1991))); Sultan v. BAC Home Loans Servicing L.P., No. 2:10-CV-04271NKL, 2011 WL 1557933, at *3 (W.D. Mo. Apr. 25, 2011) (“Missouri law provides that a
lender owes no duty to a borrower.” (citing UT Commc’ns Credit Corp. v. Resort Dev.,
Inc., 861 S.W.2d 699, 710 (Mo. Ct. App. 1993))); White v. BAC Home Loans Servicing,
L.P., No. 4:10-CV-2137 CAS, 2011 WL 1483919, at *11 (Apr. 19, 2011) (“Under
Missouri law, the relationship between a lender and a borrower is one of contractual
obligation, not one of duty.” (citing Wood & Huston Bank, 815 S.W.2d at 458)).
The Lonergans contend, however, that the Missouri cases cited in these decisions
do not support such a broad holding and that no such bright-line rule actually exists in
Missouri. The two Missouri cases cited in the above district court decisions each
concerned claims of breach of a fiduciary duty. See UT Commc’ns Credit Corp., 861
S.W.2d at 709-10; Wood & Huston Bank, 815 S.W.2d at 458. In UT Communications,
the court held that “absent other evidence of a fiduciary relationship, there is no such
relationship between a bank as lender and its customer as borrower.” UT Commc’ns
Credit Corp., 861 S.W.2d at 710. Because the claimant-borrowers failed to prove the
breached that duty; and (3) the breach was the proximate cause of the plaintiff’s injury.”
Whipple v. Allen, 324 S.W.3d 447, 451 (Mo. Ct. App. 2010).
existence of a fiduciary duty, the court found in favor of the mortgagor on the claim of
breach of fiduciary duty. Id. Similarly, the Wood & Huston court held, “Generally, the
relationship between a bank and its depositor involves a contractual relationship between
a debtor and a creditor.” Wood & Huston Bank, 861 S.W.2d at 458. Because the
claimant-depositors “failed to show the existence of a fiduciary relationship,” the court
found in favor of the bank on the claim of breach of fiduciary duty. Id.
The Lonergans maintain that it is not appropriate to extrapolate from these
decisions an absolute rule that a lender never owes a duty to a borrower. In support, the
Lonergans cite the Missouri Court of Appeals’ holding in Business Men’s Assurance Co.
of America v. Graham, 891 S.W.2d 438 (Mo. Ct. App. 1994):
In Missouri, a mere breach of contract does not provide a basis for tort
liability, but the negligent act or omission which breaches the contract may
serve as the basis for an action in tort. If the duty arises solely from the
contract, the action is contractual. The action may be in tort, however, if the
party sues for breach of a duty recognized by the law as arising from the
relationship or status the parties have created by their agreement.
Bus. Men’s Assurance Co. of Am., 891 S.W.2d at 453 (emphasis added) (citations
omitted); see also Autry Morlan Chevrolet Cadillac, Inc. v. RJF Agencies, Inc., 332
S.W.3d 184, 193 (Mo. Ct. App. 2010) (“ ‘The courts of our state have never recognized
the mere breach of a contract as providing a basis for tort liability. In contract, however,
the complained of act or omission which breaches a contract may also be a negligent act
which would give rise to a liability in tort. In this latter instance, it is the act and not the
breach of the contract which serves as the basis for the tort claim.’ ” (quoting Am. Mortg.
Inv. Co. v. Hardin-Stockton Corp., 671 S.W.2d 283, 293 (Mo. Ct. App. 1984))). To
determine whether an action lies in contract or tort, the Court must first ascertain the
origin of the alleged duty. See First S. Ins. Co. v. Jim Lynch Enters., Inc., 932 F.2d 717,
719-20 (8th Cir. 1991).
[I]f the duty claimed is one arising solely from or imposed only by the
contract, then the action lies in contract. On the other hand, if a party sues
for breach of duty prescribed by law as an incident of the relation or status
which the parties have created by their agreement, the action may be one in
tort, . . . .
Id. (quoting Am. Mortg. Inv. Co., 671 S.W.2d at 293)).
The deficiency in the Lonergans’ position is that they have not alleged that the
Bank, as lender, breached any duty recognized by Missouri law that arises from the
borrower-lender relationship created by the execution of a mortgage contract. The
Lonergans claim that the Bank was negligent for: failing to make sure that the closing
agent reviewed the terms of the closing documents herself and with the Lonergans;
allowing the mortgage broker to make material misrepresentations to the Lonergans; and
failing to correct the amount of the initial minimum monthly payment required by the
promissory note. But the Lonergans have not cited any Missouri statute or case
suggesting that a lender, as an incident of the relationship created by the execution of a
mortgage contract, has a duty to avoid these omissions. Rather, it appears that if the
Bank had any duty at all in these circumstances, it arose entirely from the fraud
prevention clauses contained in the closing documents. Consequently, “the duty claimed
is one arising solely from or imposed only by the contract,” and the Lonergans’
negligence claim fails because it does not allege that the Bank, as lender, owed them a
legally recognized duty. See First S. Ins. Co., 932 F.2d at 719-20.
Whether a Loan Servicer Owes a Duty to a Borrower
The Lonergans alternatively argue that the Bank, as loan servicer, had a legally
recognized duty to disclose accurate information regarding the Loergans’ repayment of
their loan. The Bank does not respond to this claim, other than to point out that the
Lonergans describe the Bank as a lender in their Amended Complaint. But the
Lonergans’ Amended Complaint describes the Bank as both a lender [Doc. # 35 at 6] and
a loan servicer [Doc. # 35 at 12] (“In June 2011, the Lonergans received a notice from
Bank of America Home Loans ‘that effective July 1, 2011, the servicing of home loans
by our subsidiary . . . will transfer to our parent company – Bank of America, N.A.’”).
As loan servicer, the Lonergans maintain that the Bank negligently provided inconsistent
and inaccurate information when the Lonergans called about the notice that their monthly
payment was going to increase on November 11, 2011. According to the Lonergans, the
number they called was listed in the Bank’s notice regarding the increase in payment,
which instructed the Lonergans to call that number if they were concerned about the new
monthly payment. [Doc. # 35 at 12].
Under these circumstances, the notion that a bank as loan servicer could owe a
duty to a borrower is consistent with Missouri law.
When a person possesses knowledge or skill superior to that of an ordinary
person, the law requires of that person conduct consistent with such
knowledge or skill. . . . A professional person owes a client a duty of care
commensurate with the degree of care, skill and proficiency commonly
exercised by ordinarily skillful, careful and prudent professionals.
Bus. Men’s Assurance Co. of Am., 891 S.W.2d at 453 (quotation and citation omitted).
Based on this rule, the court in Pace “[a]ssum[ed], without deciding, that Missouri courts
would recognize a duty of care on the part of a loan servicer to a borrower.” Pace, 2012
WL 3705088, at *16. In addition:
Where the parties have entered into a contract, [Missouri’s] common law
has imposed the duty to perform with skill, care, and reasonable expedience
and faithfulness in regard to the thing to be done or accomplished within
the contract. The negligent failure to observe and perform any portion of
that duty gives rise to an action in tort as well as an action for breach of
Autry Morlan Chevrolet Cadillac, Inc., 332 S.W.3d at 193 (quoting Am. Mortg. Inv. Co.,
671 S.W.2d at 293). In this case, the thing to be accomplished by the contract was the
Lonergans’ repayment of their loan. The promissory note provided that the Bank would
deliver or mail to the Lonergans notice of any change in the amount of their monthly
payment. [Doc. # 5-1 at 3]. The note also stated that this notice would “include . . . the
title and telephone number of a person who will answer any question [the lender] may
have regarding the notice.” [Doc. # 5-1 at 3].
The existence of a duty is a question of law decided by the Court. Lopez v. Three
Rivers Elec. Coop., Inc., 26 S.W.3d 151, 155-56 (Mo. 2000) (en banc). In this case, the
Bank, incidental to the relationship created by the promissory note, had a duty to exercise
reasonable care in providing the Lonergans with information about the notice when they
called the number attached to the notice. The duty’s origin is the combination of that
owed by a professional with superior knowledge or skill and that owed by a party to a
contract to exercise reasonable care with respect to the thing to be accomplished by the
contract. In the promissory note, the Bank held itself out as possessing superior
knowledge or skill by providing an assurance that the person reached at the number
attached to the notice could answer the Lonergans’ questions about the notice, and
thereby ensure proper repayment of the loan. Yet the Lonergans allege that they called
this number twice, and during each call they were erroneously instructed to disregard the
notice they received and continue making payments of $8,164.82. [Doc. # 35 at 12-13].
The Lonergans claim that this breached the duty the Bank had as loan servicer, incidental
to the relationship created by the promissory note.
Thus, the Lonergans have alleged the existence of a duty the Bank, as loan
servicer, owed them as a result of the relationship created by the execution of the
mortgage contract. The parties have presented no argument regarding the other essential
elements of a negligence claim and so the Court need not address them. The sole issue
presented was whether a bank as loan servicer could ever owe a duty to a borrower
because of the relationship created by the execution of a mortgage contract. Having
found that the Lonergans plausibly alleged the existence of such a duty, the Bank’s
motion to dismiss the Lonergnas’ negligence claim for failing to plead a cognizable duty
must be denied.
Aiding and Abetting
The Bank argues that the Lonergans’ claim for aiding and abetting must be
dismissed because Missouri does not recognize aiding and abetting liability in the
commission of a tort. In Bradley v. Ray, 904 S.W.2d 302, 315 (Mo. Ct. App. 1995), the
Missouri Court of Appeals cited the Restatement (Second) of Torts § 876(b) as the basis
for “[t]he tort of aiding and abetting.” Section 876(b) provides:
For harm resulting to a third person from the tortuous conduct of another,
one is subject to liability if he . . . knows that the other’s conduct constitutes
a breach of duty and gives substantial assistance or encouragement to the
other so to conduct himself.
Restatement (Second) of Torts § 876(b) (1979). After further discussing the elements of
aiding and abetting, the court noted, “Plaintiff has not cited any Missouri case which
recognizes a claim for aiding and abetting in the commission of a tort, and none were
located through the Court’s own research.” Bradley, 904 S.W.2d at 315. Nonetheless,
the Bradley court ultimately dismissed the plaintiff’s aiding and abetting claim for failure
to plead facts that would support such a claim even if aiding and abetting liability were
recognized in this context. Id. at 315 (“Even were this cause of action recognized,
however, plaintiff did not plead facts which support a claim of aiding and abetting against
The Lonergans claim that the Bradley court erred because Missouri cases have
recognized aiding and abetting in the commission of a tort. In McMannus v. Lee, 43 Mo.
206 (Mo. 1869), the Missouri Supreme Court held:
The law is well laid down that any person who is present at the commission
of a trespass, encouraging or exciting the same by words, gestures, looks, or
signs, or who in any way or by any means countenances or approves the
same, is in law deemed to be an aider and abettor, and liable as a principal.
McMannus, 43 Mo. at 208; see also Brown v. Barr, 171 S.W. 4, 6 (Mo. Ct. App. 1914)
(“The rule is well settled that one who is present, aiding, and abetting another who
commits an assault, is as much a principal as he who strikes the blow or fires the shot.”).
In Knight v. W. Auto Supply Co., 193 S.W.2d 771 (Mo. Ct. App. 1946), the court
approved the submission of an assault case to a jury based “solely upon the theory of
aiding and abetting.” Knight, 193 S.W.2d at 776. In a more recent decision, Phelps v.
Bross, 73 S.W.3d 651 (Mo. Ct. App. 2002), the Missouri Court of Appeals implicitly
recognized the existence of aiding and abetting liability in the commission of a battery.
In Phelps, the court affirmed summary judgment for the defendant on the plaintiff’s
battery claim because the plaintiff had “no recollection that [the defendant] in fact ever
touched her in any offensive manner or that he encouraged or aided Church in doing so.”
Phelps, 73 S.W.3d at 656 (emphasis added). The court further noted that in all of the
cases cited by the plaintiff, “evidence existed that the individual held jointly and severally
liable encouraged, incited, or participated in the battery.” Id. (emphasis added).
The Bank attempts to distinguish these cases on the ground that they recognized
aiding and abetting only in the context of trespass, assault, or battery. But the Bank
offers no principled reason why aiding and abetting would exist for these torts, but not for
at least other intentional torts, like fraud and misrepresentation. Citing Bradley, the Bank
maintains that the Lonergans’ claim fails because they have not presented any case
recognizing aiding and abetting in the commission of fraud, misrepresentation, or
negligence. But the Bradley court ultimately dismissed the plaintiff’s aiding and abetting
claim on the merits, assuming arguendo that such liability existed. Bradley, 904 S.W.2d
at 315 (“Even were this cause of action recognized, however, plaintiff did not plead facts
which support a claim of aiding and abetting against defendants.”). Consequently, the
Bank has not shown that, as a matter of law, aiding and abetting liability does not exist
for torts in Missouri. As this is the only argument the Bank makes regarding the
Lonergans’ claim of aiding and abetting, dismissal of the Lonergans’ claim on this
ground is not proper.
For the reasons set forth above, the Bank’s motion to dismiss for failure to state a
claim [Docs. ## 4, 38], is DENIED.
s/ NANETTE K. LAUGHREY
NANETTE K. LAUGHREY
United States District Judge
Dated: January 16, 2013
Jefferson City, Missouri
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