Opinion ID: 158728
Heading Depth: 2
Heading Rank: 3

Heading: BOMC's State Law Claims

Text: 47 BOMC contends Oklahoma law governs its state law claims. The Title Companies argue Missouri law governs. A federal court sitting in diversity applies the substantive law, including choice of law rules, of the forum state. Barrett v. Tallon, 30 F.3d 1296, 1300 (10th Cir. 1994). This rule also applies when a federal court exercises supplemental jurisdiction over state law claims in a federal question lawsuit. See Glennon v. Dean Witter Reynolds, Inc., 83 F.3d 132, 136 (6th Cir. 1996). Because Oklahoma is the forum state, its choice of law rules determine whether Oklahoma or Missouri law governs BOMC's fraud and breach of fiduciary duty claims. 48 Oklahoma choice of law rules require the court to apply the tort law of the state with the most significant relationship to the occurrence and to the parties. Childs v. Oklahoma ex rel. Oklahoma State Univ., 848 P.2d 571, 578 n.41 (Okla. 1993). The court considers the following four factors in determining which state's law to apply: (1) the place where the injury occurred, (2) the place where the conduct causing the injury occurred, (3) the domicile, residence, nationality, place of incorporation and place of business of the parties, and (4) the place where the relationship, if any, between the parties occurred. Brickner v. Gooden, 525 P.2d 632, 637 (Okla. 1974). 49 Applying the above factors, we find that Missouri law governs BOMC's state law claims. Although BOMC's place of business is in Oklahoma and the injury arguably occurred in Oklahoma, Missouri has the most significant relationship to the occurrence and the parties. Missouri is where the alleged fraudulent conduct occurred. The Title Companies' places of business are located in Missouri. Further, the loan transactions giving rise to the Title Companies' alleged relationship with BOMC occurred in Missouri and the principal parties to the underlying purchase mortgage and refinancing mortgages are or were Missouri residents. 50
51 As previously noted in Part II.B, a party alleging fraud in Missouri must establish the following nine elements: (1) a representation; (2) that is false; (3) that is material; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) the speaker's intent it be acted on; (6) the hearer's ignorance of the falsity of the representation; (7) the hearer's reliance; (8) the hearer's right to rely on it; and (9) injury. Voorhees, 891 S.W.2d at 128; Emerick, 756 S.W.2d at 519. BOMC, as the party alleging fraud, must prove each of the nine elements by clear and convincing evidence. Citizens Bank of Appleton City, Mo. v. Schapeler, 869 S.W.2d 120, 127 (Mo. Ct. App. 1993). BOMC's failure to establish any one of the essential elements is fatal to its recovery. Emerick, 756 S.W.2d at 519. Fraud may not be presumed, but it may be inferred and established by circumstantial evidence. Citizens Bank, 869 S.W.2d at 127. 52 BOMC has failed to establish the first element of its fraud claim--that the Title Companies made a representation. BOMC attempts to establish this element in two ways. First, it points to the representation on the HUD-1 forms that the Title Companies were acting as settlement agent. Second, it relies on the Title Companies' failure to inform BOMC that LMS was closing the loans and disbursing the loan proceeds. 53 In analyzing BOMC's fraud claim, we first bear in mind that LMS employees, not the Title Companies, made the false representations on the HUD-1 forms. In order to hold the Title Companies liable for LMS's representations, the facts must establish that LMS was the Title Companies' agent. 54 Agency is characterized by three elements: (1) an agent's power to alter legal relationships between the principal and third parties and between the principal and agent; (2) a fiduciary relationship with respect to matters within the scope of the agency; and (3) the principal's right to control the conduct of the agent. Karr-Bick Kitchens & Bath, Inc. v. Gemini Coatings, Inc., 932 S.W.2d 877, 879 (Mo. Ct. App. 1996). BOMC, as the party alleging an agency relationship existed between the Title Companies and LMS, has the burden of proof on that issue. Eyberg v. Shah, 773 S.W.2d 887, 890 (Mo. Ct. App. 1989); Henry v. Cervantes-Diversified & Assocs., 700 S.W.2d 89, 92 (Mo. Ct. App. 1985). For the reasons set forth below, we find BOMC has failed in its burden. 55 Agency may be express, implied or inferred, or apparent. Shelby v. Slepekis, 687 S.W.2d 231, 234 (Mo. Ct. App. 1985). The relationship of principal and agent and resultant liability of the principal for the acts of the agent may be created by the express grant of authority by the principal or, absent express agency, the relation may be one of implied or inferred agency or apparent agency. Id. An implied or inferred agency exists by reason of actual authority granted implicitly by the principal to the agent and is often inferred from a prior course of dealing between the alleged principal and the agent. Id. at 235. Implied authority derives from the actual relationship between the principal and the agent, not what third parties may have been told or believe as to the nature of the relationship. Id. The court will not infer agency simply because a third party assumed it existed. Id. Finally, an apparent agency may be created when the conduct of a principal creates an appearance of agency. Id. When the principal's acts lead others to believe the agent possesses authority to act on the principal's behalf, the principal is bound by the agent's acts that are within the scope of the agent's apparent authority. Id. To find an apparent agency, the principal must have created the appearance of the agent's authority. Id. Persons dealing with a supposed agent have a duty to ascertain for themselves the fact and scope of the agency. Eyberg, 773 S.W.2d at 891. 56 The first element of an agency--the agent's power to alter legal relationships between the principal and others--is lacking in the relationship between LMS and the Title Companies. A person privileged, or subject to a duty, to perform an act or accomplish a result can properly appoint an agent to perform the act or accomplish the result. Restatement (Second) of Agency 17. As we noted previously, given the nature of BOMC's claims, BOMC would have to establish that LMS was acting as the agent of the Title Companies. There is no evidence whatsoever to support such a claim. Here, the Title Companies were not subject to a duty to act as settlement agent for the loans at issue. In the first instance, the BOMC/LMS contract places that duty squarely on LMS. No other written agreement modifies that LMS duty. As we have already discussed, the HUD-1s were prepared solely by PBCS. The Title Companies themselves made no representations and delegated no responsibilities to LMS through the HUD-1s, or any other closing documents, nor could they have as the Title Companies had no powers or duties with respect to closing to delegate. See, e.g., United States v. Clark, 29 F. Supp. 138, 141 (W.D. Mo. 1939) (agent's authority cannot extend beyond his principal's authority). Finally, the conduct of the Title Companies could not have been the source of any agency relationship, as neither the homeowners nor BOMC had any contact with the Title Companies which could have led either to reasonably conclude the Title Companies were the principals in these transactions. 57 There is no claim, nor is there any evidence to support a claim that the Title Companies were acting as LMS's agents. Such a position would be inconsistent with BOMC's attempt to hold the Title Companies liable in any event. 58 BOMC next claims the Title Companies' failure to inform it that they were not acting as settlement agent, closing loans and dispersing the proceeds amounts to a misrepresentation. Silence or nondisclosure equals misrepresentation only where there is a duty to speak. Voorhees, 891 S.W.2d at 129. This duty to disclose arises only when a confidential relationship exists between the parties, i.e., a fiduciary relationship, or when one party has superior information not reasonably available to the other. Id. When fraud is based on a party's silence, there must be a deliberate suppression of truth and an intention to deceive. Dobbins v. Kramer, 780 S.W.2d 717, 718-19 (Mo. Ct. App. 1989). 59 A fiduciary relationship among parties creates a duty to speak. Therefore, we first must determine whether a fiduciary relationship existed between BOMC and the Title Companies in order to determine whether silence or nondisclosure equals a misrepresentation. If a fiduciary relationship did not exist between the Title Companies and BOMC, BOMC's breach of fiduciary duty claim will fail. 60 Missouri law requires the following elements to establish a fiduciary relationship: 61 (1) as between the parties, one must be subservient to the dominant mind and will of the other as a result of age, state of health, illiteracy, mental disability, or ignorance; (2) things of value such as land, monies, a business, or other things of value which are the property of the subservient person must be possessed or managed by the dominant party; (3) there must be a surrender of independence by the subservient party to the dominant party; (4) there must be an automatic or habitual manipulation of the actions of the subservient party by the dominant party; and (5) there must be a showing that the subservient party places a trust and confidence in the dominant party. 62 Emerick, 756 S.W.2d at 526-27. 63 We find no such relationship existed between BOMC and the Title Companies. 12 There is no dominance or subservience as contemplated by Missouri law. The Title Companies did not possess or manage any property owned by BOMC. Furthermore, there is no evidence that BOMC surrendered its independence to the Title Companies. BOMC had no contact with the Title Companies until after LMS went bankrupt and it discovered the prior mortgages had not been paid. In addition, the record fails to show that the Title Companies manipulated BOMC's actions in any manner. Finally, BOMC may have trusted that the Title Companies were closing its loans, but this trust was based on representations made by LMS, not the Title Companies. 64 Because no fiduciary relationship existed between BOMC and the Title Companies, the Title Companies were under no obligation to inform BOMC they were not acting as settlement agent, closing loans, and dispersing the proceeds. Since there was no fiduciary relationship, BOMC's breach of fiduciary duty claim is without merit. 65 A duty to speak may also arise when one party has superior information not reasonably available to the other. Voorhees, 891 S.W.2d at 129. BOMC, as the party alleging nondisclosure, must show that the nondisclosed information was beyond [its] reasonable reach and not discoverable by [BOMC] in the exercise of reasonable diligence. Fairmont Foods Co. v. Skelly Oil Co., 616 S.W.2d 548, 550 (Mo. Ct. App. 1981). In other words, BOMC has the burden of establishing that in the exercise of reasonable diligence it could not have and would not have discovered that the Title Companies were not closing its loans, as represented by LMS. Id. A party must exercise reasonable care in view of his situation to ascertain the truth before he can say he was misled, unless inquiry was prevented by the fraudfeasor. Id. at 552. In this case, whether the Title Companies were in fact acting as settlement agents on the loans at issue was information that was reasonably ascertainable by BOMC. Furthermore, there is no evidence suggesting the Title Companies or any other person or entity prevented BOMC from inquiring into whether they were closing its loans. Instead, the record indicates BOMC's only contacts with the Title Companies occurred after it discovered the prior mortgages on the loans had not been paid. 66 The Title Companies are entitled to summary judgment on BOMC's fraud claim because BOMC has not established the first element of fraud--a representation by the Title Companies. The Title Companies neither made affirmative representations to BOMC, nor failed to disclose information. Because BOMC's failure to establish the first element of fraud is fatal to its claim, it is unnecessary for us to analyze the remaining eight elements. Emerick, 756 S.W.2d at 519. 67