Missouri Federal Contract Cases 2013 (Part 01): Regulation B and Economic Loss Doctrine

Missouri Contract Cases

Arvest Bank v. Uppalapati

The United States District Court for the Western District of Missouri held that the spouse of a debtor was liable under a personal guarantee that she signed. The spouse argued that she was protected by the Equal Credit Opportunity Act (ECOA), which prohibits a creditor from discriminating against any applicant for credit on the basis of race, color, religion, national origin, sex or marital status, age, or because the applicant is on public assistance.

Regulation B, which was promulgated under the ECOA, limits when a creditor can require the signature of persons other than the applicant on the credit documents. The regulations provide:

Except as provided in this paragraph, a creditor shall not require the signature of an applicant’s spouse or other person, other than a joint applicant, on any credit instrument if the applicant qualifies under the creditor’s standards of creditworthiness for the amount and terms of the credit requested. A creditor shall not deem the submission of a joint financial statement or other evidence of jointly held assets as an application for joint credit. [12 C.F.R. § 202.7(d)(1)]

The regulations also expanded the definition of “applicant” to include guarantors, although the ECOA’s definition of “applicant” doesn’t include guarantors. The Eighth Circuit hasn’t yet addressed the issue of whether Regulation B is an impermissible expansion of the statute, but the district court followed the Seventh Circuit’s decision in Moran Foods, Inc. v. Mid-Atlantic Market Development Co., LLC, 476 F.3d 436, 441 (7th Cir. 2007), which held that Regulation B’s definition of “applicant” was an impermissible expansion of the statute. Thus, the debtor’s spouse wasn’t an “applicant” covered by the ECOA’s non-discrimination provision and the personal guarantee she signed was enforceable against her. The district court further held that, even if the debtor’s spouse were an “applicant” under the ECOA, she couldn’t prove discrimination or that she was forced to sign the personal guarantee, so her defense would still fail.

Flynn v. CTB, Inc., 2013 U.S. Dist. LEXIS 169 (E.D. Mo. Jan. 2, 2013)

The United States District Court for the Eastern District of Missouri held that a choice of law provision that read, “This Agreement shall be governed by the laws of the State of Indiana,” did not encompass non-contractual claims of unjust enrichment and fraud, because the clause addressed only the agreement and not the entirety of the parties’ relationship. Citing cases from the Second, Fifth, and Seventh Circuits, and discussing an Eighth Circuit case, the district court stated that “a choice of law provision will not be construed to govern tort as well as contract disputes unless it is clear that this is what the parties intended.”

The district court dismissed the unjust enrichment claim based on the economic loss doctrine and because the parties’ relationship is governed by their contract. Quoting Missouri appellate cases, the court stated:

“If 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 plaintiffs rights are limited to the express terms of the contract.” Howard v. Turnbull, 316 S.W.3d 431, 436 (Mo. Ct. App. 2010). “Under Missouri law, remedies for economic loss sustained by reason of damage to or defects in products sold are limited to those under the warranty provisions of the UCC.” Renaissance Leasing, LLC v. Vermeer Mfg. Co., 322 S.W.3d 112, 130-31 (Mo. banc 2010).

The district court also dismissed the fraud claim, stating, “Moreover, plaintiffs have not cited — and this Court has not found — any case in which a manufacturer that had no pre-sale relationship with the buyer was found to have a duty to speak. Here, plaintiffs have not alleged a duty to speak on behalf of the manufacturer defendant, and, as a result, the plaintiffs have failed to state a claim for common law fraud against defendant.”

Daughhtee v. State Farm Mutual Automobile Insurance Co.

The policy limits for underinsured motorist coverage in two automobile insurance policies precluded stacking in such a way as to allow recovery exceeding the policy limits.

Guzek v. Wells Fargo Bank, N.A.

Summary judgment was granted to a bank in a wrongful disclosure action where the plaintiffs’ argument that they were not in default because they had accepted a workout offer they knew to have been extended by the bank by mistake failed.

Mid-Century Insurance Co. v. Nichols, U.S. Dist. LEXIS 4516 (E.D. Mo., Jan. 11, 2013)

The United States District Court for the Eastern District of Missouri held that an unlicensed off-road vehicle was not covered under automobile insurance policies because it didn’t fit the policies’ definition of an insured vehicle.

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