Source: https://caselaw.findlaw.com/us-8th-circuit/1671002.html
Timestamp: 2019-04-25 09:03:02+00:00

Document:
Kenneth D. WIVELL; Tina M. Wivell, Plaintiffs–Appellants v. WELLS FARGO BANK, N.A., doing business as Wells Fargo Home Mortgage; Kozeny & McCubbin, L.C., Defendants–Appellees.
Before SMITH, COLLOTON, and GRUENDER, Circuit Judges. John E. Campbell, Saint Louis, MO (Erich Vieth, Alicia Anne Campbell, on the brief), for Plaintiffs–Appellants. Eric D. Martin, Saint Louis, MO (Garry McCubbin, on the brief), for Defendants–Appellees.
Kenneth and Tina Wivell (“the Wivells”) appeal from the district court's1 denial of their motion to remand and its dismissal on the merits of their claims against Wells Fargo Bank, N.A. (“Wells Fargo”) and Kozeny & McCubbin, L.C. (“Kozeny”). For the following reasons, we affirm.
The Wivells allege that the following events occurred after the loan was in place. In January 2009, the Wivells called Wells Fargo to discuss the possibility of a loan modification. A Wells Fargo representative explained that a loan moratorium, distinct from a loan modification, was possible in the event of a default. The Wivells called back in March 2009 regarding the moratorium program and were informed that they must be ninety days past due to obtain a moratorium. A Wells Fargo representative instructed them to stop making payments, and the Wivells followed this advice. After missing payments, the Wivells called Wells Fargo again. A representative now explained that a moratorium program did not exist and suggested that the Wivells should seek a loan modification instead. From April 2009 until June 2010, the Wivells attempted unsuccessfully to reach a loan modification agreement with Wells Fargo, during which time the Wivells rejected two modification proposals offered by Wells Fargo—one to pay $1,500 per month until the past-due amount was paid in-full and another to pay a one-time $14,000 payment.
The Wivells, citizens of Missouri for purposes of federal diversity jurisdiction, filed suit in Missouri state court against both Wells Fargo of South Dakota and Kozeny of Missouri. Wells Fargo removed the lawsuit to federal court, arguing that Kozeny—the only nondiverse defendant—was fraudulently joined to defeat federal diversity jurisdiction. The Wivells filed a motion to remand the case to Missouri state court, which the federal district court denied—concluding that Kozeny had been fraudulently joined. After abandoning several of their original claims, the Wivells maintained the following claims at the motion-to-dismiss stage: wrongful foreclosure, fraudulent misrepresentation, violation of the Missouri Merchandising Practices Act (“MMPA”), negligence, and negligent misrepresentation against Wells Fargo; and negligence and breach of fiduciary duty against Kozeny. Both Wells Fargo and Kozeny filed motions to dismiss these remaining claims under Federal Rule of Civil Procedure 12(b)(6), which the district court granted. This appeal followed.
The Wivells first challenge the district court's denial of their motion to remand.2 Although the Wivells are not diverse from Kozeny, Wells Fargo removed this case to federal court based on the allegedly fraudulent joinder of Kozeny. “The doctrine of fraudulent joinder allows a district court to assume jurisdiction over a facially nondiverse case temporarily and, if there is no reasonable basis for the imposition of liability under state law, dismiss the nondiverse party from the case and retain subject matter jurisdiction over the remaining claims.” Murphy v. Aurora Loan Servs., LLC, 699 F.3d 1027, 1031 (8th Cir.2012). “Whether a plaintiff has fraudulently joined a party to defeat diversity jurisdiction is a question of subject matter jurisdiction we review de novo.” Wilkinson v. Shackelford, 478 F.3d 957, 963 (8th Cir.2007). “A party has been fraudulently joined if there is ‘no reasonable basis in fact and law’ for the claim brought against it.” Murphy, 699 F.3d at 1031 (quoting Filla v. Norfolk S. Ry. Co., 336 F.3d 806, 810 (8th Cir.2003)). “Where applicable state precedent precludes the existence of a cause of action against a defendant, joinder is fraudulent.” Filla, 336 F.3d at 810. The parties agree that Missouri law applies. The Wivells maintain that two of their original claims against Kozeny—namely, negligence and breach of fiduciary duty—are supported by a reasonable basis in fact and law. We disagree.
Under Missouri law, “the first essential element of a claim of negligence” is “the existence of a duty.” Leeper v. Asmus, ––– S.W.3d ––––, 2014 WL 2190966, at *3 (Mo.Ct.App. May 27, 2014). The Wivells allege that “Kozeny, acting as trustee, had assumed a duty and responsibility for overseeing the servicing of [the Wivells'] loan.” However, this particular duty is not enumerated in the deed of trust, which fixes the duties owed by Kozeny as a trustee under Missouri law. See Spires v. Edgar, 513 S.W.2d 372, 378 (Mo. banc 1974) (“The duties and powers of a trustee are fixed by the terms of the contract, namely, the deed of trust.”). The Wivells argue for the first time on appeal that Kozeny also was negligent because it breached its fiduciary duty of neutrality. However, in their complaint, the Wivells' negligence count does not allege that Kozeny owed a duty of neutrality. See Campbell v. Davol, Inc., 620 F.3d 887, 891 (8th Cir.2010) (holding that issues not raised in trial court cannot be considered by appellate court as basis for reversal). Because the Wivells do not allege that Kozeny owed a tort duty enumerated in the deed of trust, no reasonable basis in fact and law supports the Wivells' negligence claim against Kozeny.
Finally, the Wivells argue that Kozeny breached its fiduciary duty to investigate the circumstances surrounding the foreclosure proceedings before selling their property at foreclosure. However, “when requested by the creditor to foreclose, the trustee may proceed without making any affirmative investigation unless the trustee has actual knowledge ‘of anything which should legally prevent the foreclosure.’ “ Killion, 987 S.W.2d at 813 (emphasis omitted) (quoting Spires, 513 S.W.2d at 378). Here, the Wivells only allege that at “various points between April 2010 and June 30, 2010,” they contacted Kozeny and reported “their frustrations and concerns relating to Wells Fargo.” Even assuming that the Wivells related to Kozeny all of their communications with Wells Fargo, this information would have been insufficient to give Kozeny “actual knowledge ‘of anything which should legally prevent the foreclosure.’ “ Id. (emphasis omitted). The information allegedly provided by the Wivells to Kozeny is nearly indistinguishable from that which the plaintiffs provided the trustee in Sparks v. PNC Bank, 400 S.W.3d 454 (Mo.Ct.App.2013). In Sparks, the Missouri Court of Appeals held that the plaintiffs failed to allege that the trustee had been placed on actual notice of a legal reason preventing foreclosure, despite the plaintiffs' allegation that they provided the trustee actual knowledge of the bank's actions. Id. at 459. These actions included the bank's “decision to dishonor a promised mortgage modification ․, the fact that [h]omeowners were in active modification review, and the fact that [the bank] repeatedly suggested that [h] omeowners should continue to check back into the status of the loan modification and foreclosure proceeding.” Id. Moreover, none of the Wivells' alleged communications with Wells Fargo regarding the forbearing effect of a modification request was ever reduced to a written agreement. Yet, the deed of trust expressly provides that “[o]ral agreements or commitments ․ to forebear from enforcing repayment of debt ․ are not enforceable.” The alleged communications with Wells Fargo therefore were not enforceable and could not legally prevent the foreclosure. See Reliance Bank v. Paramont Props., LLC, 425 S.W .3d 202, 206–09 (Mo.Ct.App.2014) (holding that no-oral-modifications clauses in lending agreements are enforceable). Thus, no reasonable basis in fact and law supports the Wivells' breach-of-fiduciary-duty claim against Kozeny.
Because there was no reasonable basis in fact and law for either of the Wivells' claims, it follows that Kozeny was fraudulently joined and that the district court properly denied the Wivells' motion to remand.
After denying the Wivells' motion to remand, the district court proceeded to dismiss with prejudice, under Rule 12(b)(6), the Wivells' negligence and breach-of-fiduciary-duty claims against Kozeny. The claims against Kozeny, however, should have been dismissed without prejudice for lack of subject matter jurisdiction. As mentioned above, the doctrine of fraudulent joinder allowed the district court only temporary jurisdiction to determine whether Kozeny, a facially nondiverse defendant, was fraudulently joined. Murphy, 699 F.3d at 1031. The district court's subject matter jurisdiction under 28 U.S.C. § 1332 did not arise until after Kozeny was dismissed as fraudulently joined. See Hogan v. Raymond Corp., 536 F. App'x 207, 211 (3d Cir.2013) ( “The fraudulent joinder inquiry is a jurisdictional one and not a merits determination. Thus, instead of dismissing [the plaintiff's] claims against [the nondiverse defendant] with prejudice under Rule 12(b)(6), the District Court should have dismissed them for lack of subject matter jurisdiction under Rule 12(b)(1).” (internal citation omitted)); Albert v. Smith's Food & Drug Centers, Inc., 356 F.3d 1242, 1249 (10th Cir.2004) (“On the motion for remand, the district court was confronted with a question of subject matter jurisdiction because it could only retain jurisdiction if the claims against [the nondiverse defendants] were dismissed. Once it determined that [the nondiverse defendants] were fraudulently joined, the district court had no jurisdiction to resolve the merits of the claims against them. In cases where the district court has determined that it lacks jurisdiction, dismissal of a claim must be without prejudice.” (internal citation omitted)); see also Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 101–02 (1998) (rejecting the ability of a federal court to rule on the merits of claims over which it lacks jurisdiction). Accordingly, we modify the district court's dismissal of the claims against Kozeny to be without prejudice for lack of subject matter jurisdiction. See Hart v. United States, 630 F.3d 1085, 1091 (8th Cir.2011).
The district court dismissed the Wivells' fraudulent misrepresentation claim for failure to comply with the heightened pleading requirements of Rule 9(b), which provides that “a party must state with particularity the circumstances constituting fraud or mistake.” “To satisfy the particularity requirement of Rule 9(b), the complaint must plead such facts as the time, place, and content of the defendant's false representations, as well as the details of the defendant's fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result.” United States ex rel. Joshi v. St. Luke's Hosp., Inc., 441 F.3d 552, 556 (8th Cir.2006). “Put another way, the complaint must identify the ‘who, what, where, when, and how’ of the alleged fraud.” Id. (quoting United States ex rel. Costner v. URS Consultants, Inc., 317 F.3d 883, 888 (8th Cir.2003)). Here, the Wivells' complaint is devoid of this heightened particularity. They do not identify the Wells Fargo representatives who engaged in the alleged misrepresentations. See id. at 556–57 (holding that plaintiff failed to meet Rule 9(b)'s particularity requirement because he neglected to allege the names of involved individuals).
Even if we were to ignore the Wivells' failure to comply with Rule 9(b), their reliance on Wells Fargo's alleged oral representations was unreasonable in light of the deed of trust's no-oral-modifications clause. See Coverdell v. Countrywide Home Loans, Inc., 375 S.W.3d 874, 884–85 (Mo.Ct.App.2012) (providing that an element of fraudulent misrepresentation under Missouri law is “the hearer's reasonable reliance on its truth”). As discussed above, in light of the no-oral-modifications clause, “no contractual expectancy ever existed that [the bank's] oral promises ․ would be valid, binding, enforceable or otherwise create a contractual benefit.” Reliance Bank, 425 S.W.3d at 207. The Wivells counter that Wells Fargo waived the no-oral-modifications clause by discussing the moratorium and modification programs with them and by suggesting that pending modification requests could prevent foreclosure. However, in JAS Apartments, Inc. v. Naji, 230 S.W.3d 354 (Mo.Ct.App.2007), the Missouri Court of Appeals rejected a similar argument, concluding that the parties had not “engaged in any practices that evidenced that they had altered the contract's terms.” Id. at 359. “For conduct to rise to the level of waiver, ․ [it] ‘must be so manifestly consistent with and indicative of an intention to renounce a particular right or benefit that no other reasonable explanation of the conduct is possible.’ “ Id. (alterations in original) (quoting Thompson v. Chase Manhattan Mortg. Corp., 90 S.W.3d 194, 207–08(Mo.Ct.App.2002)). Here, the Wivells do not allege that Wells Fargo engaged in conduct manifestly consistent with and indicative of an intention to waive the deed of trust's no-oral-modifications clause. Throughout its discussions with the Wivells concerning the possibility of a modification, Wells Fargo made clear that payment of the amount in default was required, offering two proposals that were rejected by the Wivells. Wells Fargo also made clear that they were being placed in foreclosure because of their default. We therefore conclude that Wells Fargo did not waive the deed of trust's no-oral-modifications clause and that the Wivells' reliance was unreasonable. Accordingly, the Wivells fail to state a plausible claim for fraudulent misrepresentation.
The MMPA makes unlawful “[t]he act, use or employment ․ of any deception, fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment, suppression or omission of any material fact in connection with the sale or advertisement of any merchandise.” Mo.Rev.Stat. § 407.020.1. The MMPA “does not apply to actions that occur after the initial sales transaction that do not relate to any representations or claims made before or at the time of the initial sales transaction.” Conway v. CitiMortgage, Inc., ––– S.W.3d ––––, 2013 WL 6235864, at *5 (Mo.Ct.App. Dec. 3, 2013) (holding that mortgage holder and loan servicer could not be liable under the MMPA for conduct that occurred after the loan origination and that did “not relate to any representations or claims made before or at the time” of the loan origination). Here, the Wivells allege that Wells Fargo engaged in misleading practices by promising a modification and then foreclosing while processing their request for a modification. However, neither of these allegations relates to any representations or claims made before or at the time of the loan origination. Indeed, the complaint makes no allegations suggesting that Wells Fargo made, before or at the time of the loan origination, any representations or claims concerning future loan moratoria or modifications or the effect of a future moratorium or modification request on the foreclosure process. Accordingly, the Wivells also fail to state a plausible claim under the MMPA.
To prove negligent misrepresentation under Missouri law, the Wivells must show, among other elements, that they “justifiably relied on the information” provided to them by Wells Fargo. See Renaissance Leasing, LLC v. Vermeer Mfg. Co., 322 S.W.3d 112, 134 (Mo. banc 2010). As discussed above, the Wivells' reliance on the information provided by Wells Fargo was unreasonable and unjustified due to the deed of trust's no-oral-modifications clause. See Reliance Bank, 425 S.W.3d at 207. Therefore, the Wivells fail to state a plausible negligent-misrepresentation claim against Wells Fargo.
Because the Wivells fail to state a claim of wrongful foreclosure, fraudulent misrepresentation, violation of the MMPA, negligence, or negligent misrepresentation, the district court properly granted Wells Fargo's motion to dismiss.
For the foregoing reasons, we affirm the district court's denial of the Wivells' motion to remand and its grant of Wells Fargo's motion to dismiss on the merits. We also affirm the district court's dismissal of the claims against Kozeny, modifying the dismissal to be without prejudice for lack of subject matter jurisdiction.
2. Wells Fargo argues that the Wivells' motion to remand is not properly before us because the Wivells did not designate the order denying remand in their notice of appeal. However, because this challenge implicates the district court's subject matter jurisdiction, we will consider the merits of the claim. See Murphy v. Aurora Loan Servs., LLC, 699 F.3d 1027, 1031 (8th Cir.2012).

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