Court Opinion

ID: 2620368
Source: CourtListenerOpinion
Date Created: 2013-10-30 19:00:12.912698+00
Date Added: 2024-06-11T08:26:57.595342
License: Public Domain

PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                               No. 13-1418

KELLIE M. BALLARD,

                Plaintiff - Appellant,

           v.

BANK OF AMERICA, N.A.,

                Defendant - Appellee.

Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Roger W. Titus, District Judge. (8:12-
cv-03737-RWT)

Argued:   September 20, 2013                Decided:   October 30, 2013

Before MOTZ, SHEDD, and THACKER, Circuit Judges.

Affirmed by published opinion. Judge Motz wrote the opinion, in
which Judge Thacker joined.      Judge Shedd wrote a separate
opinion concurring in the judgment.

ARGUED:     Roger Charles Simmons, GORDON & SIMMONS, LLC,
Frederick, Maryland, for Appellant.      E. John Steren, OBER,
KALER, GRIMES & SHRIVER, PC, Washington, D.C., for Appellee. ON
BRIEF:    Jodi Lynn Foss, GORDON & SIMMONS, LLC, Frederick,
Maryland, for Appellant.   Amy E. Garber, OBER, KALER, GRIMES &
SHRIVER, PC, Washington, D.C., for Appellee.
DIANA GRIBBON MOTZ, Circuit Judge:

       Kellie Ballard appeals from the judgment of the district

court dismissing her federal and state Equal Credit Opportunity

Act (“ECOA”) claims, and her claims for unjust enrichment and a

declaratory judgment.             We affirm.

                                              I.

       Kellie     Ballard’s         husband,          Michael       Ballard,     owns     and

operates FoodSwing, a food-packing company.                           In March 2008, he

entered into an agreement with Bank of America (“the Bank”) to

obtain    a     loan    for       FoodSwing      in    the    amount     of    $4,100,000.

Although Mrs. Ballard assertedly plays no role in the ownership

or operation of FoodSwing, Bank of America required her to sign

the loan agreement as a guarantor.                        She guaranteed “full and

complete      payment”       of    the    loan     and   waived       “[a]ll     rights    of

redemption” with respect to the property securing the loan.

       In 2009, FoodSwing defaulted on the loan.                        Michael Ballard

then entered into a modified loan agreement with Bank of America

to restructure the debt.                 FoodSwing defaulted two more times --

once     in   2010     and     once      in   2011.          More    debt     restructuring

agreements followed these defaults.                      As with the initial loan,

Bank of America required that Mrs. Ballard guarantee each new

agreement.             These       restructuring         agreements           contained     a

comprehensive waiver requiring Mr. and Mrs. Ballard to waive

                                              2
“any and all” claims -- past, present, or future -- against Bank

of    America.         In     each    agreement,      Mr.     and    Mrs.     Ballard

acknowledged that they “actively and with full understanding”

participated     in    negotiating     the   agreement      “after    consultation

and review with their counsel.”

      Although counsel represented Mrs. Ballard at the time she

signed all of the loan documents, she contends that her counsel

operated under impermissible conflicts of interest.                    She alleges

that she signed the loan agreements only at the insistence of

her conflicted attorneys.              (At oral argument, Mrs. Ballard’s

counsel also claimed that her husband misinformed her about the

nature of the documents she signed.)

      Among other assets, a home in Maryland and a winery in

California secured the loans to FoodSwing.                     Mrs. Ballard co-

owned these two properties with her husband.                        After the 2011

default,      Bank    of    America   recorded     consensual       liens    on   both

properties.

      In November 2012, Mrs. Ballard filed this action against

Bank of America.           She alleges that the Bank violated the federal

and   state    ECOA    by    requiring   her     to   serve    as    her    husband’s

guarantor.      She seeks equitable and injunctive relief for these

asserted ECOA violations, asserts a claim for unjust enrichment,

and seeks a declaratory judgment.              The district court dismissed

her complaint with prejudice, reasoning that she failed to state

                                         3
a claim upon which relief can be granted and that, in any event,

waiver and limitations barred her claims.

                                     II.

      We review dismissals for failure to state a claim de novo.

United States ex rel. Nathan v. Takeda Pharm. N. America, Inc.,

707 F.3d 451, 455 (4th Cir. 2013).             To survive a motion to

dismiss, “a complaint must contain sufficient factual matter,

accepted as true, to state a claim to relief that is plausible

on its face.”       Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(quotation marks omitted).         We draw “reasonable inference[s]” in

favor of the plaintiff.      Id.

      The Equal Credit Opportunity Act makes it unlawful for “any

creditor to discriminate against any applicant, with respect to

any aspect of a credit transaction on the basis of . . . marital

status.”     15 U.S.C. § 1691(a)(1) (2006).            Specifically, ECOA

regulations prohibit lenders from requiring a spouse’s signature

on a loan agreement when the applicant individually qualifies

for   the   requested    credit.      12   C.F.R.   § 202.7(d)(1)      (2013)

(lenders may 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”).         Congress      enacted    this

prohibition to eradicate credit discrimination against married

                                      4
women, whom many creditors traditionally had refused to consider

for individual credit.

        Not   every        signature          required       of    a        borrower’s       spouse,

however, constitutes credit discrimination under ECOA.                                       Rather,

the statutory scheme provides for several exceptions permitting

lenders to obtain the signature of a borrower’s spouse on a loan

agreement.

      First,        and     most    obviously,           ECOA          regulations         expressly

authorize lenders to obtain the signature of a borrower’s spouse

if the borrower does not independently qualify for the loan.

But     lenders      may     obtain       the     spouse’s         signature          only     after

determining       that      the     borrower         does     not        qualify      “under       the

creditor’s       standards         of    creditworthiness               for    the    amount       and

terms of the credit requested.”                   Id.

      Second, ECOA permits lenders to obtain the signature of a

borrower’s spouse who owns or co-owns the entity benefitting

from the loan.             Even if the spouse does not technically apply

for   the     loan    herself,          she    qualifies          as    a    “de    facto”     joint

applicant      because       she        possesses       an    ownership            stake     in    the

business      for    which        the     loan    is     sought.              Given    that       ECOA

regulations expressly permit a lender to require a signature

from a joint applicant spouse, see id., courts have found no

ECOA violation where a lender requires a signature from a de

facto    joint      applicant       spouse.          See      Midlantic            Nat’l    Bank    v.

                                                 5
Hansen, 48 F.3d 693, 700 (3d Cir. 1995) (because loans financed

a company co-owned by the spouses, the wife “at the very least”

was   a    de     facto     joint    applicant        who     could    be   required     to

guarantee the loans); Riggs Nat’l Bank of D.C. v. Webster, 832
F. Supp. 147, 151 (D. Md. 1993) (because the loan was obtained

to renovate a property owned by the borrower’s wife, she was “de

facto a joint applicant” who could be required to guarantee the

loan).     Thus, banks may treat the co-owner of a business as a

joint applicant for a loan to that business -- even if the co-

owner happens to be the primary applicant’s spouse.

      Third,       when     two     spouses    co-own       property     designated      as

collateral        for   a   loan     (as    opposed      to    co-owning     the   entity

seeking    a    loan),      ECOA    permits       a   lender    to    require    the   non-

applicant spouse to sign the loan “for the purpose of creating a

valid     lien,    passing        clear    title,     waiving    inchoate       rights   to

property, or assigning earnings.”                     15 U.S.C. § 1691d(a) (2006).

ECOA regulations clarify that, in an application for secured

credit, “a creditor may require the signature of the applicant’s

spouse . . . on any instrument necessary, or reasonably believed

by the creditor to be necessary, under applicable state law to

make the property being offered as security available to satisfy

the debt in the event of default.”                       12 C.F.R. § 202.7(d)(4).

These provisions ensure that a lender can acquire collateral co-

                                              6
owned by the borrower’s spouse in the event that the borrower

defaults.

                                       III.

     The parties primarily contest -- and the district court

primarily addressed -- whether Bank of America violated ECOA.

We therefore consider this question first.

                                       A.

     Mrs. Ballard contends that Bank of America violated ECOA by

forcing   her   to    guarantee    the       loan    agreement    without   first

evaluating   her     husband’s    independent         creditworthiness. 1       She

apparently   concedes     that    it   would        have   been   permissible   to

require her signature for the limited purpose of relinquishing

her rights “to property she co-owns with her husband” -- the

Maryland home and the California winery.                   Appellant’s Br. 19.

     1
       Although Federal Reserve Board regulations (recently re-
adopted by the Consumer Financial Protection Bureau) include
guarantors within the definition of “applicants” with standing
to bring an ECOA claim, 12 C.F.R. §§ 202.2(e) & 1002.2(e), Judge
Posner has expressed doubt that “the statute can be stretched
far enough to allow this interpretation.” Moran Foods, Inc. v.
Mid-Atl. Mkt. Dev. Co., LLC, 476 F.3d 436, 441 (7th Cir. 2007).
But no court has so held and, indeed, other courts have treated
guarantors as applicants as the regulations provide.         See
Silverman v. Eastrich Multiple Investor Fund, L.P., 51 F.3d 28,
31 (3d Cir. 1995); Anderson v. United Fin. Co., 666 F.2d 1274,
1276 (9th Cir. 1982).   Because resolution of this issue is not
determinative given our disposition of this case, we will
assume, without deciding, that guarantors do qualify as
applicants for purposes of ECOA.

                                         7
But    she   claims      that       ECOA    prohibited         Bank        of   America      from

requiring her to assume unlimited liability on the debt.

       ECOA’s text lends support to Mrs. Ballard’s claim that Bank

of    America     violated      ECOA       by    requiring         her    to    guarantee      the

FoodSwing loan.          It is undisputed that Bank of America required

Mrs.    Ballard    to    execute       an       unlimited      guarantee        of    the    loan.

This guarantee was therefore permissible only if it was subject

to    an   exception     to    ECOA’s       general         rule   barring       lenders     from

requiring a spousal signature.                       No such exception is apparent

here.

       First, the guarantee apparently cannot be justified on the

ground that the Bank had concluded that Mr. Ballard was not

creditworthy.        This is so because Mrs. Ballard alleges in her

complaint     that      Bank   of    America         did     not    assess      her   husband’s

creditworthiness before requiring her to sign on the loan.                                     In

reviewing a grant of a motion to dismiss, we must assume the

truth of this allegation.

        Second,    obtaining         Mrs.        Ballard’s         signature          apparently

cannot be justified on the ground that she co-owns the business

benefitting       from    the       loan.            Mrs.    Ballard       alleges      in     her

complaint that she is neither an owner nor a shareholder of

FoodSwing.        And so, again, we must assume the truth of this

allegation at this stage of the litigation.                              Because spouses are

“de facto joint applicants” only when they co-own the entity

                                                 8
benefitting from the loan, the Bank apparently could not require

Mrs. Ballard to sign as a guarantor on the theory that she was a

de facto joint applicant.

      Finally, it does not appear that the unlimited guarantee

can be justified on the ground that Mrs. Ballard co-owned two

properties securing the loan.            Although ECOA permits lenders to

seek the signature of a spouse who co-owns collateral securing

the loan, the plain language of the statute limits the effect of

the spouse’s signature in these circumstances to “creating a

valid lien [or] passing clear title” to co-owned property.                      15

U.S.C.    § 1691d(a).         ECOA’s    implementing     regulations    further

reinforce that a co-owner spouse’s obligation must be limited to

“mak[ing] the property being offered as security available to

satisfy    the    debt   in    the     event   of    default.”     12     C.F.R.

§ 202.7(d)(4).     In other words, although ECOA permits lenders to

require a borrower’s spouse to relinquish her interest in co-

owned collateral, it appears to prohibit lenders from demanding

that a spouse guarantee the full loan without first appraising

the borrower’s creditworthiness.             Any other reading would ignore

the   statute’s    clear      limits    on   the    permissible   scope   of    a

spouse’s guarantee.        Our case law supports this conclusion.              See

Riggs Nat’l Bank of D.C. v. Linch, 36 F.3d 370, 374 (4th Cir.

1994) (wife who co-owned collateral could be required to execute

                                         9
an unlimited personal guarantee, but only because the lender

first determined that her husband was not creditworthy).

                                       B.

     Bank    of    America   maintains,      of   course,       that    it     did   not

violate ECOA by requiring Mrs. Ballard’s guarantee.                           The Bank

contends    that    a   borrower’s    spouse      becomes   a    de     facto      joint

applicant merely by virtue of co-owning any of the collateral

securing the loan.        The Bank claims that Moran, 476 F.3d at 442,

Hansen, 48 F.3d at 700, and Webster, 832 F. Supp. at 151, all

hold that a spouse who co-owns any collateral can be required to

provide an unlimited guarantee as a condition for the loan.

     Those cases, however, do not sweep so broadly.                          In Hansen,
48 F.3d at 700, and Webster, 832 F. Supp. at 151, the courts

grounded    their   conclusion   that       the   plaintiff      was    a     de   facto

joint applicant on the fact that she owned part or all of the

entity for which the loan was sought.              Although the reasoning in

Moran was less clear, no ECOA violation occurred in that case

because     the    plaintiff   also     co-owned      one     of       the     entities

benefitting from the loan.            See Appellant’s Br. at 49, Moran,

476 F.3d 436 (Nos. 05-3656 & 05-3735).              Accordingly, the lenders

in all three cases complied with ECOA not because the guarantor

spouse co-owned some property with the borrower, but because she

owned or co-owned the property directly benefitting from the

loan.

                                       10
     Treating the co-owner of a property as a joint applicant

for a loan benefitting that property makes sense; repayment of

the loan will often depend on business decisions made by the co-

owners jointly.          It makes less sense to treat a spouse as a

joint applicant merely because she happens to co-own some assets

with her applicant husband.               Under the theory espoused by Bank

of America, any time a borrower’s spouse co-owns any property

designated      as    collateral,    no    matter       how   minimal,   the    spouse

could     be    required     to    assume        unlimited     liability       on     the

borrower’s debt.         Such a construction would permit an unlimited

spousal guarantee in almost every instance, and would seem to

contravene the plain language and purpose of ECOA.

     Accordingly, Bank of America well may have violated ECOA by

requiring Mrs. Ballard to sign as an unlimited guarantor without

first determining that her husband was not creditworthy.                               We

need not, however, definitively resolve that question because

Mrs. Ballard’s claim fails for another reason -- she waived it.

                                           IV.

        The initial loan guarantee that Mrs. Ballard executed in

March    2008     included   a    waiver    of    any    claims   against      Bank    of

America     for      “punitive,     exemplary      or     other   non-compensatory

damages.”         That waiver did not constitute a release of Mrs.

Ballard’s ECOA claims, for it did not forfeit her right to sue

                                           11
Bank of America for actual damages or attorneys’ fees.                              See 15

U.S.C.    §        1691e(a),    (d)     (authorizing     ECOA       suits    for    actual

damages and attorneys’ fees).                   After FoodSwing’s first default

in 2009, however, Mrs. Ballard executed a series of four loan

restructuring          agreements.             Each    of      these       restructuring

agreements expressly waived “any and all” claims by Mrs. Ballard

against Bank of America in exchange for the Bank’s waiver of

FoodSwing’s defaults.

     A valid waiver can prevent a borrower from recovering under

a federal statute. 2           A court will enforce a waiver unless it was

obtained       through        intentional       misconduct,         Wartsila       NSD     N.

America, Inc. v. Hill Int’l, Inc., 530 F.3d 269, 274 (3d Cir.

2008); Eaglehead Corp. v. Cambridge Capital Grp., Inc., 170 F.

Supp.    2d    552,     559    n.7    (D.   Md.     2001);    was    not    knowing       and

voluntary, Alexander v. Gardner-Denver Co., 415 U.S. 36, 52 n.15

(1974);       or    would     “thwart    the    legislative      policy      which       [the

statute]      was     designed    to    effectuate,”         Brooklyn      Sav.    Bank    v.

O’Neil, 324 U.S. 697, 704 (1945).

     2
       Depending on the statute at issue, a court will apply
either federal or state law to determine the validity of a
waiver of federal statutory rights.    See Kendall v. City of
Chesapeake, 174 F.3d 437, 441 n.1 (4th Cir. 1999). We have not
yet determined whether we evaluate ECOA waivers under the
federal totality-of-the-circumstances approach or the state
contract-law approach.  We need not here resolve that question
because the waiver of “any and all” claims is valid under both
approaches.

                                               12
        Mrs. Ballard contends that enforcing sweeping waivers like

the ones she signed as part of the restructuring would fatally

undermine the purpose of ECOA.                   She maintains that if lenders

could, by obtaining a single signature, commit an ECOA violation

and simultaneously induce borrowers to waive their ECOA rights,

lenders    could     engage   in    credit       discrimination         with    impunity.

For this reason, she argues that the waivers she signed at Bank

of America’s insistence are unenforceable.

       Her argument might well have merit if the Bank in fact had

required her to waive her ECOA rights as a precondition for

obtaining the loan.           In the analogous context of Title VII,

federal law prohibits employers from conditioning an offer of

employment      upon    an    applicant’s         waiver     of     nondiscrimination

rights.      See Gardner-Denver, 415 U.S. at 51 (“[W]e think it

clear that there can be no prospective waiver of an employee’s

rights under Title VII.ˮ). When enacting ECOA, it seems unlikely

that    Congress     intended      to   permit       lenders       to   predicate     the

extension of credit upon a borrower’s initial willingness to

endure discriminatory treatment.

       But Bank of America did not require Mrs. Ballard to execute

a prospective waiver of her ECOA rights.                           Instead, the Bank

obtained     Mrs.      Ballard’s     waiver        only    in     exchange      for   its

agreement    to     restructure     the     loan    after       FoodSwing      defaulted.

Thus,    Bank   of     America     agreed    to    work     with    the   Ballards    to

                                            13
resolve FoodSwing’s defaults, but only if the Ballards consented

to   forfeit   all    past,   present,      and   future   claims   against    the

Bank.

      Conditioning a favorable loan restructuring upon a waiver

of ECOA rights seems to us analogous to the common employment

practice of conditioning a favorable severance agreement upon a

waiver of Title VII rights.          See, e.g., Gardner-Denver, 415 U.S.

at 52 (“presumably an employee may waive his cause of action

under Title VII as part of a voluntary settlement”); Cassiday v.

Greenhorne & O’Mara, Inc., 220 F. Supp. 2d 488, 494 (D. Md.

2002) (upholding Title VII release agreement made in exchange

for ten weeks of severance pay).                  An ECOA waiver obtained in

exchange for a loan restructuring differs significantly from one

required as a precondition for a loan.                The latter would permit

a bank to circumvent ECOA’s clear dictates.                 The former merely

affords both parties a negotiated benefit:                 a means of escaping

default for the borrower, and protection against future claims

for the lender.       In fact, refusing to enforce waivers attendant

to   refinancing     could    well   harm      borrowers   like   the   Ballards,

since a lender would be reluctant to work with a borrower to

restructure a loan after a default if the lender knew that a

waiver would not be enforced.

      In   exchange    for    Bank   of    America’s   restructuring      of   the

loan, Mrs. Ballard executed waivers of all claims against the

                                          14
Bank on four separate occasions over a period of more than two

years.     Further, she confirmed that she “actively and with full

understanding” participated in negotiating each agreement “after

consultation and review with [her] counsel.” 3   In doing so, Mrs.

Ballard waived her right to bring an action against Bank of

America, and thus her state and federal ECOA claims must fail.

     We similarly conclude that Mrs. Ballard waived her claims

for unjust enrichment and for declaratory relief.      Because we

deem her claims waived, we need not address whether these claims

were also time-barred.

                                 V.

     For the foregoing reasons, the judgment of the district

court is

                                                         AFFIRMED.

     3
        Mrs. Ballard alleges that her attorneys’ asserted
conflicts of interest rendered her waivers involuntary. But she
fails to plead facts giving rise to a plausible inference that
any such conflicts prompted her repeated decisions to waive her
ECOA rights. See Iqbal, 556 U.S. at 678.

                                 15
SHEDD, Circuit Judge, concurring in the judgment:

       Because I agree that Kellie Ballard waived any claim she

had under the Equal Credit Opportunity Act (“ECOA”), I concur in

the judgment reached by the court.

       I do not join Part III of the majority opinion, which—as

even    the    majority     concedes—is       unnecessary     to     deciding     the

appeal.       See Leiba v. Holder, 699 F.3d 346, 352 (4th Cir. 2012)

(noting   dicta     is    “non-binding”).        In   fact,    contrary     to    the

majority’s      suggestion,    I   believe     that   ECOA    does   not   cover    a

“guarantor” under the circumstances presented here, where Bank

of America is not discriminating against Ballard on account of

her    marital    status;     rather,   the    Bank    is    requiring     more    of

Ballard on account of her joint-ownership of property and her

wealth.       Therefore, the Bank’s actions are “sound commercial

practice unrelated to any stereotypical view of a wife’s role”

and do not violate ECOA.            Moran Foods, Inc. v. Mid-Atl. Mkt.

Dev. Co., LLC, 476 F.3d 436, 442 (7th Cir. 2007).

                                        16