Davis v. Citibank, N.A., Case No. 4:14 CV 1129 CDP

Decision Date04 March 2015
Docket NumberCase No. 4:14 CV 1129 CDP
PartiesCYNTHIA K. DAVIS, Plaintiff, v. CITIBANK, N.A., Defendant.
CourtU.S. District Court — Eastern District of Missouri
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 saysuch 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 ofCredit 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 wrongfulbecause 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).

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.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 ofthat 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'sunjust 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...

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