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Riddle v. Charterwest Bank

United States District Court, D. Nebraska

May 8, 2018

JUSTIN E. RIDDLE and ERIN M. RIDDLE, Plaintiffs,
v.
CHARTERWEST BANK, a Nebraska Corporation, and FEDERAL RESERVE BANK OF KANSAS CITY, Defendants.

          MEMORANDUM AND ORDER

          JOHN M. GERRARD UNITED STATES DISTRICT JUDGE.

         This case is based on the denial of a residential home loan for property in Omaha, Nebraska. Filing 1-1 at 2. The plaintiffs, Justin and Erin Riddle, were the prospective borrowers, and CharterWest Bank was the prospective lender. See filing 1-1 at 2. Generally, the Riddles allege they tried to withdraw their application to switch to another lender, and that CharterWest wrongfully retaliated against them by quickly denying their application and falsely reporting the denial to the Federal Housing Administration (FHA) as "denied due to unpaid child support." Filing 1-1 at 2, 8.

         Before the Court are motions to dismiss filed by CharterWest (filing 13) and the Federal Reserve Bank of Kansas City (filing 7). CharterWest's motion will be granted in part and denied in part, and the Federal Reserve's motion will be granted in its entirety.

         I. BACKGROUND

         As of April and May 2016, the Riddles and CharterWest were engaged in the process of gathering the documentation necessary for an FHA home loan. Seefiling 1-1 at 19, 21-22, 35-37. But an issue arose out of Justin's child support obligation. Filing 1-1 at 3. Pursuant to a child custody order, Justin's ex-wife legally had sole custody of their daughter. Filing 1-1 at 4. But due to circumstances that prevented Justin's ex-wife from exercising custody, the two had come to an informal arrangement whereby their daughter lived with Justin, and his ex-wife arranged every few months to clear his accrued child support arrearage. Filing 1-1 at 4.

         The Riddles' mortgage loan officer, Grant Whitehead, explained in a May 12, 2016 email to Justin that because child support liens have priority over new liens, including mortgages, "this needs to be addressed prior to closing or paid at closing." Filing 1-1 at 4, 24. Justin replied, explaining the situation and offering further evidence if required. Filing 1-1 at 4, 25; see filing 1-1 at 39. In an email the next day, Justin told Whitehead that his ex-wife would provide a notarized statement waiving his child support obligation, and clear his balance. Filing 1-1 at 4, 26.

         At the same time, Justin was generally frustrated with CharterWest, believing that Whitehead had been rude to him and that CharterWest was being deliberately difficult. Seefiling 1-1 at 4, 27. So, on May 12, he sent an email explaining his dissatisfaction and advising CharterWest that if they could get their deal closed by May 18, then the Riddles would work with CharterWest; otherwise, the Riddles would "take [their] approval to a different lender" and expect a refund of CharterWest's fees. Filing 1-1 at 4, 27. Later that day, Justin emailed asking for a copy of the Riddles' file. Filing 1-1 at 28. Whitehead promised to email the documents. Filing 1-1 at 29.

         On May 13, the Riddles contacted Whitehead's manager, Gary Walters, and said they no longer wanted to deal with Whitehead. Filing 1-1 at 5. The Riddles contacted another lender and provided their file. Filing 1-1 at 5. On May 16, at 4:13 p.m., Justin emailed CharterWest asking for his FHA case number so he could transfer to the other lender. Filing 1-1 at 31. At 4:17 p.m., Gary Walters at CharterWest sent Justin a letter informing him that CharterWest would "not be able to approve" the Riddles' loan. Filing 1-1 at 33-34. The letter advised that the loan was a "higher risk" according to the FHA underwriting system, and that

Child Support is not paid as agreed. The decree we have states you are to pay monthly $417. We noted the payment history but it does not match the decree and therefore translates into delinquent payments. We would need something from the court documenting the agreement you have to pay accordingly to the history. We CANNOT just take your word for it. It does not work that way on FHA loans. If we cannot get anything then we can submit it without it but it will hurt your chances for approval.

Filing 1-1 at 34. The letter further advised that the Riddles would need at least 2 months of house payments in reserve in their checking account, and that 2015 tax transcripts would be required. Filing 1-1 at 34. (These requirements appear to be contrary to earlier representations from Whitehead that only a 1 month reserve would be necessary. Filing 1-1 at 35.)

         The Riddles proceeded with their new lender, but were informed by the new lender that there was a problem: their loan could not be approved because on May 17, CharterWest had "put a credit reject code in the comments section in the system" indicating that their loan application had been denied because of unpaid child support. Filing 1-1 at 6. On June 16, the Riddles contacted Walters and asked that the credit reject code be removed because (1) CharterWest should not have denied their loan after they withdrew their application and (2) they had provided all the child support documentation CharterWest had asked for. Filing 1-1 at 7. They also provided Walters with documentation that child support had been waived and no support was owed. Filing 1-1 at 7, 38-41. Walters replied refusing the Riddles' request. Filing 1-1 at 7, 42. Justin asked Walters to explain how CharterWest's decision to deny the loan had been made without the information that had been requested, and Walters again stated that only a court order waiving Justin's child support obligation would have been satisfactory. Filing 1-1 at 7, 44. Justin asked Walters to show when a court order was requested of them. Filing 1-1 at 7, 45. Walters did not respond. Filing 1-1 at 7.

         The Riddles emailed Walters and the bank branch manager indicating their intent to appear at the branch in the morning with their documentation. Filing 1-1 at 8, 46. They were met by sheriff's deputies who said that CharterWest had reported a threat, and were directed to leave the property. Filing 1-1 at 8. The Riddles lodged complaints with the FHA and Consumer Financial Protection Bureau, which were referred to the Federal Reserve's consumer affairs department. Filing 1-1 at 10. The Federal Reserve rejected the Riddles' complaint. Seefiling 1-1 at 10-11.

         The Riddles sued CharterWest in Douglas County District Court, on September 13, 2017, asserting claims for breach of fiduciary duty, tortious interference with a business relationship, and fraud. Filing 15 at 3-5. CharterWest moved to dismiss pursuant to Neb. Ct. R. Pldg. § 6-1112(b)(6), and the district court entered an "Order of Dismissal Without Prejudice" on November 8, dismissing the Riddles' complaint without prejudice and granting leave to file an amended complaint within 14 days. Filing 15 at 6-8.

         The Riddles did not file an amended complaint within 14 days. Instead, on December 13, they filed a new complaint asserting the same claims and some new ones, including the Federal Reserve as a new defendant. Filing 1-1. On January 16, 2018, the Federal Reserve removed the complaint to this Court. Filing 1. On January 30, CharterWest filed its motion to dismiss (filing 14). On February 2, the Douglas County District Court entered a "Nunc Pro Tunc Order of Dismissal Without Prejudice" which again dismissed the complaint without prejudice, but omitted the language allowing leave to file an amended complaint. Filing 20-1.

         II. STANDARD OF REVIEW

         A complaint must set forth a short and plain statement of the claim showing that the pleader is entitled to relief. Fed.R.Civ.P. 8(a)(2). This standard does not require detailed factual allegations, but it demands more than an unadorned accusation. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The complaint need not contain detailed factual allegations, but must provide more than labels and conclusions; and a formulaic recitation of the elements of a cause of action will not suffice. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). For the purposes of a motion to dismiss a court must take all of the factual allegations in the complaint as true, but is not bound to accept as true a legal conclusion couched as a factual allegation. Id.

         And to survive a motion to dismiss under Fed.R.Civ.P. 12(b)(6), [1] a complaint must also contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. Iqbal, 556 U.S. at 678. 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. Where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but has not shown-that the pleader is entitled to relief. Id. at 679.

         Determining whether a complaint states a plausible claim for relief will require the reviewing court to draw on its judicial experience and common sense. Id. The facts alleged must raise a reasonable expectation that discovery will reveal evidence to substantiate the necessary elements of the plaintiff's claim. See Twombly, 550 U.S. at 545. The court must assume the truth of the plaintiff's factual allegations, and a well-pleaded complaint may proceed, even if it strikes a savvy judge that actual proof of those facts is improbable, and that recovery is very remote and unlikely. Id. at 556.

         When deciding a motion to dismiss under Rule 12(b)(6), the Court is normally limited to considering the facts alleged in the complaint. If the Court considers matters outside the pleadings, the motion to dismiss must be converted to one for summary judgment. Fed.R.Civ.P. 12(d). However, the Court may consider exhibits attached to the complaint and materials that are necessarily embraced by the pleadings without converting the motion. Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003). Documents necessarily embraced by the pleadings include those whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading. Ashanti v. City of Golden Valley, 666 F.3d 1148, 1151 (8th Cir. 2012). The Court may also take notice of public records. Levy v. Ohl, 477 F.3d 988, 991 (8th Cir. 2007).

         III. DISCUSSION

         The Riddles' complaint asserts six claims for relief: (1) breach of fiduciary duty; (2) tortious interference with a business relationship; (3) fraud; (4) violation of the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq.; (5) "willful noncompliance"; and (6) conspiracy. CharterWest and the Federal Reserve each move to dismiss the complaint. See filing 8 at 3-11; filing 14 at 10-18. The Court will consider their arguments separately.

         1. CharterWest

         As noted, CharterWest argues that the Riddles' claims are insufficiently pled. Filing 14 at 10-18. But initially, the Court must address CharterWest's argument that the Riddles' claims are barred by res judicata. Seefiling 14 at 3-7.

         (a) Res Judicata

         Res judicata, or claim preclusion, operates to preclude a party from relitigating the same cause of action. Lundquist v. Rice Mem'l Hosp., 238 F.3d 975, 977 ...


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