Barry v. Mortgage Servicing Acquisition Corp.

• Decision Date: 28 November 1995
• Docket Number: Civ.A.No. 94-0470ML.
• Citation: 909 F. Supp. 65
• Parties: Stephen M. BARRY, on behalf of himself and all others similarly situated v. MORTGAGE SERVICING ACQUISITION CORPORATION, doing business as National Mortgage Company, Texas Bank of Commerce and B First Residential Corporation.
• Court: U.S. District Court — District of Rhode Island

909 F. Supp. 65

Stephen M. BARRY, on behalf of himself and all others similarly situated v. MORTGAGE SERVICING ACQUISITION CORPORATION, doing business as National Mortgage Company, Texas Bank of Commerce and B First Residential Corporation.

Civ.A.No. 94-0470ML.

United States District Court, D. Rhode Island.

November 28, 1995.

COPYRIGHT MATERIAL OMITTED

Boyajian, Harrington & Richardson, Alden C. Harrington, Providence, RI, for Plaintiff.

Partridge, Snow & Hahn, Steven E. Snow, Providence, RI, for Defendants.

ORDER

LISI, District Judge.

The Findings and Recommendation of United States Magistrate Judge Robert W. Lovegreen filed on July 14, 1995 in the above-captioned matter is accepted pursuant to Title 28 United States Code § 636(b)(1).

REPORT AND RECOMMENDATION

LOVEGREEN, United States Magistrate Judge.

Before me is defendant's, Texas Bank of Commerce ("TBC"), motion to dismiss for lack of in personam jurisdiction and failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(2) and (6) respectively. Plaintiff, Stephen M. Barry ("Barry") brought this suit seeking to maintain it as a class action and making claims alleging the defendants violated the Truth in Lending Act, 15 U.S.C. § 1601 et seq., and various state consumer protection laws and for restitution. The class has yet to be certified.

This matter has been referred to me for preliminary review, findings and recommended disposition. 28 U.S.C. § 636(b)(1)(B); Local Rule of Court 32(c). For the following reasons, I recommend defendant's motion to dismiss pursuant to Fed. R.Civ.P. 12(b)(2) be granted, as this Court lacks in personam jurisdiction over Texas Bank of Commerce. Consequently, I recommend that the defendant's motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) be denied without prejudice to being raised again, as it is moot under the circumstances.

Facts

On December 22, 1993, Barry, a resident of Massachusetts, entered into a mortgage agreement with B First Residential Corporation ("B First"), a Rhode Island corporation, for the refinancing of his Massachusetts residence. The mortgage was closed in Massachusetts. In conjunction with this transaction, B First issued Barry a Truth in Lending Act ("TILA") disclosure statement and a HUD-1 settlement statement. Barry alleges that the TILA disclosure statement improperly excluded from the "finance charge" and included in the "amount financed" a $45 courier fee for transportation of documents in violation of TILA, 15 U.S.C. § 1601 et seq., and various state consumer protection laws. Barry claims that TBC, a national banking association organized and headquartered in Texas, is liable for these violations as an assignee of his mortgage loan. The nature of TBC's status is not entirely clear, but the bank was involved at some level in a number of highly complex mortgage purchase agreements with a number of other entities.

On March 9, 1993, B First entered into an agreement with Kidder Peabody Mortgage Capital Corporation ("KPMCC") to which TBC was not a party and under which KPMCC agreed to purchase mortgages originated by B First on an on-going basis and then sell the assembled mortgages back to B First or its designee at a specified premium (the "KPMCC Repo Transaction No. 1"). TBC then entered into a separate custodial agreement (the "KPMCC Custodial Agreement") with B First and KPMCC under which TBC agreed to have the mortgages covered by the KPMCC Repo Transaction No. 1 assigned to it as "custodian or trustee". The mortgage loan made to Barry on December 22, 1993 was among the mortgages assigned to TBC in connection with KPMCC Repo Transaction No. 1.

The KPMCC Custodial Agreement required TBC to take custody of certain specified mortgage documents, not including the TILA disclosure and HUD-1 statements, at its Houston, Texas headquarters. It also required TBC to take legal title to the mortgage loans for the benefit of KPMCC as an agent and bailee and custodian of KPMCC. One of the purposes of TBC taking such legal title was to perfect a security interest in the mortgage loans for KPMCC to the extent B First was deemed to have pledged the mortgage loans in connection with the repurchase agreement.

On March 10, 1994, KPMCC sold certain of the mortgage loans purchased from B First, including the Barry loan, back to B First which, on the same day, sold certain mortgage loans, including Barry's, to CC Mortgage Company, L.P. ("CC Mortgage"). Pursuant to an agreement dated March 1, 1994, among KPMCC Mortgage Servicing Acquisition Corporation d/b/a National Mortgage Corporation ("National") and CC Mortgage, to which TBC was not a party, KPMCC agreed to purchase mortgages owned by CC Mortgage on an ongoing basis and then sell the assembled mortgages back to CC Mortgage or its designee at a specified premium (the "KPMCC Repo Transaction No. 2").

As with KPMCC Repo Transaction No. 1, TBC entered into a custodial agreement with the seller and purchaser of the mortgages that similarly required TBC to take assignment of mortgages governed by the KPMCC Repo Transaction No. 2 as an agent and bailee and custodian of KPMCC, including for the purpose of perfecting a security interest for KPMCC (the "Second Custodial Agreement"). TBC also took custody of the certain mortgage documents, not including the TILA disclosure and HUD-1 statements, at its Houston headquarters. The Barry mortgage then remained with TBC under the Second Custodial Agreement.

In July, 1994 KPMCC sold back to CC Mortgage certain mortgages, including the Barry mortgage. On the same day, CC Mortgage sold these mortgages to Fund America Investors Corporation II ("Fund America") which, on the same day, sold them to a trust, the trustee of which was State Street Bank and Trust Co. ("State Street"). The trust offered for purchase securities backed by the mortgages it had acquired. TBC entered into a new custodial agreement with CC Mortgage, State Street and National, under which it again took assignment as agent and bailee of State Street from Fund America and retained custody of the mortgage documents at its Houston headquarters (the "Fund America Custodial Agreement").

Barry claims that the assignments to TBC under the custodial agreements subject the bank to liability for the alleged misrepresentations in the TILA disclosure statements. TBC has moved to dismiss these claims on the grounds that this Court lacks in personam jurisdiction over it (Fed.R.Civ.P. 12(b)(2)) and alternatively, that Barry has failed to state claims upon which relief can be granted (Fed.R.Civ.P. 12(b)(6)).

Discussion

I. Fed.R.Civ.P. 12(b)(2) Standards and Methods of Adjudication

Generally, due process dictates that in order for a party, absent from the territory of the forum, to be subject to the forum court's in personam jurisdiction, he must have certain minimum contacts with the forum "such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 343, 85 L.Ed. 278 (1940), reh'g denied, 312 U.S. 712, 61 S.Ct. 548, 85 L.Ed. 1143 (1941)). The United States Court of Appeals for the First Circuit has delineated three standards by which courts may determine motions to dismiss for lack of in personam jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2). Boit v. Gar-Tec Products, Inc., 967 F.2d 671, 675-77 (1st Cir.1992). Under each of these standards, "the plaintiff has the burden of showing that jurisdiction exists," regardless of the nature of the proceedings or the form of the proffers. Id. (quoting Ealing Corp. v. Harrods Ltd., 790 F.2d 978, 979 (1st Cir.1986)).

The prima facie standard permits the court "to consider only whether the plaintiff has proffered evidence that, if credited, is enough to support findings of all facts essential to personal jurisdiction." Boit, 967 F.2d at 675. To make this showing, the plaintiff cannot simply rest upon the pleadings but must make affirmative proof of specific facts supportive of the court's jurisdiction. Id. In employing this analysis, the court acts not as a factfinder, but instead, as it would in the summary judgment context. Foster-Miller, Inc. v. Babcock & Wilcox Canada, 46 F.3d 138, 145 (1st Cir.1995). Thus, the court must accept plaintiff's (properly documented) evidentiary proffers as true in determining the adequacy of the prima facie jurisdictional showing. Id. A denial of a defendant's motion to dismiss for lack of personal jurisdiction based on the prima facie standard is in effect a reservation of the ultimate determination of the jurisdictional issue until trial. Boit, 967 F.2d at 676.

In the alternative, the court may employ a preponderance of the evidence standard when it

determines that in the circumstances of a particular case it is unfair to force an out-of-state defendant to incur the expense and burden of a trial on the merits in the local forum without first requiring more of the plaintiff than a prima facie showing of facts essential to in personam jurisdiction. A court may so determine, for example, when the proffered evidence is conflicting and the record is rife with contradiction or when a plaintiff's affidavits are "patently incredible" ...

Id. In doing so, the court "hears and determines the motion to dismiss before trial," Fed.R.Civ.P. 12(d), considers all relevant evidence submitted by the parties and makes all factual findings necessary to disposition of the motion. Id. This method must be used with care however, for if a court makes pretrial findings by a preponderance of the evidence standard, troubling issues may arise as to whether "issue preclusion" or "law of the case" will later preclude a party from asserting facts contrary to what was previously found by the court. Id. at 677.

In some cases, where the assertion of jurisdiction contains...