Schneider et al v. CitiMortgage, Inc. et al, No. 5:2013cv04094 - Document 20 (D. Kan. 2014)
Court Description: MEMORANDUM AND ORDER granting in part and denying in part 7 Motion to Dismiss; denying 19 Motion for Oral Argument. See order for details. Signed by U.S. District Senior Judge Sam A. Crow on 1/21/2014. (mb)
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Schneider et al v. CitiMortgage, Inc. et al Doc. 20 I N THE UNI TED STATES DI STRI CT COURT FOR THE DI STRI CT OF KANSAS RANDALL A. SCHNEI DER and AMY L. SCHNEI DER Plaint iffs, v. No. 13- 4094- SAC CI TI BANK, NA, CI TI GROUP, I NC., and PRI MERI CA FI NANCI AL SERVI CES HOME MORTGAGES, I NC. Defendant s. MEMORANDUM AND ORDER This case, rem oved from st at e court on t he basis of diversit y and federal quest ion j urisdict ion, com es before t he court on Defendant s’ m ot ion t o dism iss for failure t o st at e a claim pursuant t o Fed. R. Civ. Pro. 12( b) ( 6) . I n response t o t he m ot ion, Plaint iffs have “ wit hdrawn” t he only t wo count s t hat facially provided federal quest ion j urisdict ion: Count I I , t he Equal Credit Opport unit y Act ; and Count I I I , t he Real Est at e Set t lem ent Procedures Act , 12 USC § 2601 et seq. Dk. 13, p. 30. The following st at e law claim s rem ain: breach of cont ract , conversion, fraud, and violat ion of t he Kansas Consum er Prot ect ion Act , K.S.A. 50- 623 et seq. ( decept ive and unconscionable act s) . Because t he com plaint assert s over $75,000 in dam ages by t he in- st at e part y, and t he not ice of rem oval st at es t he underlying fact s support ing t he assert ions t hat t he am ount in cont roversy exceeds t hat j urisdict ional am ount Dockets.Justia.com and t hat t he part ies are diverse, t he court exercises diversit y j urisdict ion over t hese claim s. See McPhail v. Deere & Co., 529 F.3d 947 ( 10t h Cir. 2008) . I . St a n da r d for M ot ion t o D ism iss To survive a m ot ion t o dism iss, a com plaint m ust have facial plausibilit y. To survive a m ot ion t o dism iss, a com plaint m ust cont ain sufficient fact ual m at t er, accept ed as t rue, t o “ st at e a claim for relief t hat is plausible on it s face.” I d. [ Bell At l. Corp. v. Twom bly, 550 U.S. 544, 570, 127 S.Ct . 1955, 167 L.Ed.2d 929 ( 2007) ) at 570. A claim has facial plausibilit y when t he plaint iff pleads fact ual cont ent t hat allows t he court t o draw t he reasonable inference t hat t he Defendant is liable for t he m isconduct alleged. I d. at 556. The plausibilit y st andard is not akin t o a “ probabilit y requirem ent ,” but it asks for m ore t han a sheer possibilit y t hat a Defendant has act ed unlawfully. I d. Where a com plaint pleads fact s t hat are “ m erely consist ent wit h” a Defendant 's liabilit y, it “ st ops short of t he line bet ween possibilit y and plausibilit y of ‘ent it lem ent t o relief.’ “ I d. at 557. Ashcroft v. I qbal, 556 U.S. 662, 129 S.Ct . 1937, 1949, 173 L.Ed.2d 868, 884 ( 2009) . “ Threadbare recit als of t he elem ent s of a cause of act ion, support ed by m ere conclusory st at em ent s, do not suffice.” I d. “ [ C] ourt s should look t o t he specific allegat ions in t he com plaint t o det erm ine whet her t hey plausibly support a legal claim for relief.” Alvarado v. KOB–TV, L.L.C., 493 F.3d 1210, 1215 n. 2 ( 10t h Cir. 2007) . “ While t he 12( b) ( 6) st andard does not require t hat Plaint iff est ablish a prim a facie case in [ his] com plaint , t he elem ent s of each alleged cause of act ion help t o det erm ine whet her Plaint iff has set fort h 2 a plausible claim .” Khalik v. Unit ed Air Lines, 671 F.3d 1188, 2012 WL 364058, at * 3 ( 10t h Cir. Feb. 6, 2012) . “ The court 's funct ion on a Rule 12( b) ( 6) m ot ion is not t o w eigh pot ent ial evidence t hat t he part ies m ight present at t rial, but t o assess whet her t he plaint iff's ... com plaint alone is legally sufficient t o st at e a claim for which relief m ay be grant ed.” Miller v. Glanz, 948 F.2d 1562, 1565 ( 10t h Cir. 1991) . The court accept s all well- pled fact ual allegat ions as t rue and views t hese allegat ions in t he light m ost favorable t o t he nonm oving part y. Unit ed St at es v. Sm it h, 561 F.3d 1090, 1098 ( 10t h Cir. 2009) , cert . denied, 558 U.S. 1148 ( 2010) . The court , however, is not under a dut y t o accept legal conclusions as t rue. I qbal, 556 U.S. 662. “ Thus, m ere ‘labels and conclusions' and ‘form ulaic recit at ion of t he elem ent s of a cause of act ion’ will not suffice.” Khalik, 2012 WL 364058, at * 2 ( 10t h Cir. Feb.6, 2012) ( quot ing Twom bly, 550 U.S. at 555) . I n evaluat ing a Rule 12( b) ( 6) m ot ion t o dism iss, t he court is lim it ed t o assessing t he legal sufficiency of t he allegat ions cont ained wit hin t he four corners of t he com plaint . Archulet a v. Wagner, 523 F.3d 1278, 1281 ( 10t h Cir. 2008) . But in considering t he com plaint in it s ent iret y, t he Court also exam ines any docum ent s “ incorporat ed int o t he com plaint by reference,” Tellabs, I nc. v. Makor I ssues & Right s, Lt d., 551 U.S. 308, 322, 127 S.Ct . 2499, 168 L.Ed.2d 179 ( 2007) , and docum ent s at t ached t o t he com plaint , 3 Rosenfield v. HSBC Bank, USA, 681 F.3d 1172, 1189 ( 10t h Cir. 2012) ( quot at ions and cit at ions om it t ed) .. I I . Fa ct s I n 2007, Plaint iffs t ook a resident ial m ort gage loan originat ed by Defendant Cit icorp Trust Bank, fsb, now known as Cit ibank, N.A. ( “ Cit icorp” ) . Cit icorp originat ed t he loan t hrough com m unicat ions Plaint iffs had wit h a represent at ive of Defendant Prim erica Financial Services Hom e Mort gages, I nc. ( “ Prim erica” ) . Plaint iffs also chose t o part icipat e in a Paym ent Waiver Prot ect ion Program and an Equit y Builder I nt erest Rat e Discount Program . Plaint iffs allege t hat Cit icorp failed t o properly adm inist er t he loan, including overcharging t hem int erest on t he loan in violat ion of t he Equit y Builder I nt erest Rat e Discount Program , not properly processing t heir request t o use t he Paym ent Waiver Prot ect ion Program , and overcharging t hem . Plaint iffs allege t hey applied in 2010 t o Cit icorp for refinancing of t he loan, but were denied despit e t heir good credit and qualificat ions. But on August 2, 2010, Plaint iffs obt ained refinancing from Hom eQuest . I n connect ion wit h t hat closing, Plaint iffs allege Cit icorp required t hem t o pay a prepaym ent penalt y of $829.42 in breach of t he t erm s of t he Not e, and t hat Cit icorp ot herwise m isrepresent ed t he t rue am ount needed t o sat isfy t he loan, and overcharged t hem $6.76 as a payoff am ount as a condit ion of 4 releasing it s lien on t he m ort gage. Ot her fact s will be discussed below as relevant t o t he issues. I I I . H OLA Pr e e m pt ion Defendant s cont end t hat Plaint iffs’ claim s concerning t he originat ion, processing and payoff of t heir 2007 loan and Plaint iffs’ request for refinancing are preem pt ed by t he Hom e Owners’ Loan Act , 12 USC § 1461 et seq. ( HOLA) . Defendant s assert t hat t hese claim s purport t o im pose on Cit icorp, a federal savings bank ( or it s successors,) requirem ent s regarding t he “ processing, originat ion, servicing, sale or purchase of, or invest m ent or part icipat ion in, m ort gages.” 12 CFR § 560.2( b) ( 10) . Defendant s cont end t hat t he OTS regulat ions occupy t he field of lending regulat ion for federal savings associat ions. But Defendant s show no precedent const ruing HOLA preem pt ion as broadly as t hey do. I nst ead, precedent consist ent ly illust rat es t hat at m ost , HOLA preem pt s t he field of regulat ory cont rol over federal savings associat ions. See e.g., Fidelit y Federal Sav. and Loan Ass'n v. de la Cuest a, 458 U.S. 141, 151, 102 S.Ct . 3014, 3021 ( 1982) ( finding FHLB regulat ions have t he force and effect of st at ut e and preem pt all conflict ing st at e laws) ; Hom e Mort g. Bank v. Ryan, 986 F.2d 372 ( 10t h Cir. 1993) ( finding Office of Thrift Supervision ( OTS) regulat ion requiring approval for t hrift t o bank conversion preem pt ed st at e law) ; Federal Hom e Loan Bank Bd., Washingt on, 5 D.C. v. Em pie, 778 F.2d 1447, 1448 ( 10t h Cir. 1985) ( finding st at e st at ut e prohibit ing ent it ies not conduct ing a banking business under t he st at e banking laws t o use various form s of t he word “ bank” in advert ising was preem pt ed by federal law) . Plaint iffs’ com plaint prim arily seeks dam ages, fees and cost s arising from alleged m isrepresent at ions, and does not seek an inj unct ion or at t em pt t o im pose any regulat ion upon any Defendant or t o effect any ongoing change in Defendant s’ m anner of doing business regarding m ort gages. I n such cases, preem pt ion is not t he norm . See e.g., Wat kins v. Wells Fargo Hom e Mort g., 631 F.Supp.2d 776, 787- 88 ( S.D.W.Va. 2008) ( finding no HOLA preem pt ion of fraud claim but finding preem pt ion of claim at t acking t he appraisal m et hodology used by t he bank) ; DeLeon v. Wells Fargo Bank, N.A., 2011 WL 311376, * 7 ( N.D.Cal. Jan. 28, 2011) ( finding plaint iffs' int ent ional m isrepresent at ion claim not preem pt ed by HOLA because it “ d[ id] not at t em pt t o im pose subst ant ive requirem ent s regarding loan t erm s, disclosures, or servicing or processing procedures” ) ; Becker v. Wells Fargo Bank, N.A., 2011 WL 1103439 ( E.D.Cal. Mar. 22, 2011) ( finding no HOLA preem pt ion where t he plaint iff “ allege[ d] t hat he was prom ised a m odificat ion even t hough [ t he lender] never int ended t o m odify his loan or seriously consider his applicat ion,” because t he “ plaint iff's fraud claim 6 appears t o arise from a m ore ‘general dut y not t o m isrepresent m at erial fact s,’ and t herefore it does not necessarily regulat e lending act ivit y.” ) Plaint iffs’ claim s relat e t o Defendant s’ issuance, servicing, and refusing t o refinance t he loan, “ [ b] ut t he st andard for express preem pt ion is m ore t han “ relat es t o.” See Coffm an v. Bank of Am erica, NA, 2010 WL 3069905, at * 6 ( S.D.W.Va. 2010) ( cit ing I n re Ocwen Loan Servicing, 491 F.3d at 643–44) . The claim m ust “ purport [ ] t o im pose requirem ent s” regarding loan servicing for express preem pt ion t o apply. 12 C.F.R. § 560.2( b) .” Dixon v. Wells Fargo Bank, N.A., 798 F.Supp.2d 336, 357 ( D.Mass. 2011) ( finding no HOLA preem pt ion where t he borrower did not at t ack t he lender’s underlying loan servicing policies and pract ices, but rat her sought t o hold t he lender t o it s word, not ing “ requiring a bank t o perform t he obligat ions of it s cont ract in good fait h im plicat es none of t he concerns em bodied in HOLA.” ) quot ing Bishop v. Ocwen Loan Servicing, LLC., 2010 WL 4115463 at * 5 ( S.D.W.Va. 2010) . I m port ant ly, t he plain language of t he regulat ion Defendant s cit e st at es t hat t he t ypes of claim brought by Plaint iffs ( cont ract and t ort claim s) are not preem pt ed by HOLA: … OTS hereby occupies t he ent ire field of lending regulat ion for federal savings associat ions. OTS int ends t o give federal savings associat ions m axim um flexibilit y t o exercise t heir lending powers in accordance wit h a uniform federal schem e of regulat ion. Accordingly, federal savings associat ions m ay ext end credit as aut horized under federal law, including t his part , wit hout regard t o st at e laws purport ing t o 7 regulat e or ot herwise affect t heir credit act ivit ies, except t o t he ext ent provided in paragraph ( c) of t his sect ion or § 560.110 of t his part . For purposes of t his sect ion, “ st at e law” includes any st at e st at ut e, regulat ion, ruling, order or j udicial decision. 12 CFR § 560.2( b) ( 10) . The except ed paragraph ( c) encom passes t he t ypes of claim s Plaint iffs bring here: ( c) St at e laws t hat are not preem pt ed. St at e laws of t he following t ypes are not preem pt ed t o t he ext ent t hat t hey only incident ally affect t he lending operat ions of Federal savings associat ions or are ot herwise consist ent wit h t he purposes of paragraph ( a) of t his sect ion: ( 1) Cont ract and com m ercial law; ( 2) Real propert y law; … ( 4) Tort law; I d. Thus t he “ OTS's assert ion of plenary regulat ory aut horit y does not deprive persons harm ed by t he wrongful act s of savings and loan associat ions of t heir basic st at e com m on- law- t ype rem edies.” I n re Ocwen Loan Servicing, 491 F.3d at 643- 44 ( giving t he illust rat ions of nonpreem pt ed claim s of fraud and breach of cont ract relat ed t o m ort gage servicing) . The Court has looked beyond t he labels given t o Plaint iffs’ claim s t o t he subst ance of each claim and det erm ined t hat enforcem ent of Plaint iffs’ causes of act ion will not int erfere wit h or cont ravene lending, t he regulat ion of which Congress has com m it t ed exclusively t o a federal agency. See I n re 8 Ocwen Loan Servicing, 491 F.3d at 643; Wat kins, 631 F.Supp.2d at 782–83. Accordingly, t he Court is not persuaded t hat HOLA preem pt s any of Plaint iffs’ rem aining claim s. Cf Wat kins, at * 26 ( finding no conflict preem pt ion on fraud claim because “ [ n] o federal law perm it s a nat ional bank t o m isrepresent t o borrowers t he nat ure of it s charges.” ) . I V. Br e a ch of Con t r a ct Defendant s assert several reasons why Count I , breach of cont ract , fails t o st at e a claim for relief. A. N o Con t r a ct First , Defendant s cont end t hat t he not e which was allegedly breached is not a valid cont ract bet ween Plaint iffs and Cit icorp because Cit icorp never signed t hat docum ent , cit ing Dem aras v. Sm it h, 176 Kan. 416 ( 1954) . But Dem aras, in addressing t he effect of t he lender’s failure t o sign t he not e on t he applicat ion of t he st at ut e of frauds, st at ed t he court ’s view t hat t he lender’s “ accept ance of t hat inst rum ent m ade it a cont ract in writ ing upon which suit could be inst it ut ed and t he sam e right s m aint ained as t hough it had been signed by him .” 176 Kan. at 421 ( cit ing ot her Kansas decisions in support and not ing t hat “ t he only signat ures necessary t o t he validit y of a prom issory not e are t he m akers t hereof …” ) . Here, t he not e specifically references “ a Mort gage, Deed of Trust , or Securit y Deed [ t he “ Securit y I nst rum ent ” ] , dat ed t he sam e dat e as t his Not e,” which relat es t o t he 9 prom ises m ade by t he borrower in t he Not e. Under Kansas law, when t wo or m ore inst rum ent s are execut ed by t he sam e part ies at or near t he sam e t im e in t he course of t he sam e t ransact ion and concern t he sam e subj ect m at t er, t hey will be read and const rued t oget her t o det erm ine t he int ent , right s and int erest s of t he part ies. I n re Villa West Associat es, 146 F.3d 798, 803 ( 10t h Cir. 1998) . Defendant s t reat ed t he prom issory not e and it s relat ed docum ent s as a valid cont ract in seeking t o collect m ort gage paym ent s from Plaint iffs. See Dk. 1, Exh. E. This Court shall do no less. B. N o Br e a ch of Good Fa it h a nd Fa ir D e a ling Defendant s also assert t hat Plaint iffs’ claim s for breach of good fait h and fair dealing cannot be brought in t he absence of a valid cont ract bet ween t he part ies. See Mount ain Highlands, LLC v. Hendricks, 616 F.3d 1167, 1171 ( 10t h Cir. 2010) . Because Defendant s have not shown, as a m at t er of law, t hat Plaint iffs’ act ion is not based on a valid cont ract bet ween t he part ies, t his argum ent fails. C. M e r ge r D oct r in e Defendant s cont end t hat t he m erger doct rine applies, so t hat prior com m unicat ions or agreem ent s are m erged int o t he final cont ract execut ed by t he part ies, and evidence of conflict ing oral com m unicat ions is barred. Dk. 8, p. 16. But Defendant s do not show t hat t he not e cont ains a m erger or int egrat ion clause, which gives rise t o t he presum pt ion t hat t he writ ing is 10 fully int egrat ed. See Raj ala v. Allied Corp, 66 B.R. 582, 594 ( Dk. Kan. 1986) , cit ing J. Whit e & R. Sum m er s, Uniform Com m ercial Code, § 2- 13 ( 1972) . I nst ead, t he not e reflect s t he part ies’ int ent t o t he cont rary by specifically referencing t he Mort gage, Deed of Trust , and Securit y Deed, dat ed t he sam e dat e as t he Not e, which concern t he sam e subj ect m at t er, which are read and const rued t oget her t o det erm ine t he int ent , right s and int erest s of t he part ies. I n re Villa West Associat es, 146 F.3d 798. Accordingly, Defendant s have not shown t hat t he Kansas doct rine of m erger applies t o t hese docum ent s. See Avien Corp v. First Nat ’l Oil, I nc., 32 Kan. App.2d 106, 111 ( 2003) ( not ing t he im port ance of t he part ies’ int ent t o t he doct rine of m erger) . D . Ka n sa s Cr e dit Agr e e m e n t St a t u t e Defendant s also cont end t hat K.S.A. 16- 118( c) bars adm ission of oral agreem ent s out side t he writ t en cont ract . That st at ut e, which subj ect s “ credit agreem ent s” t o a rule analogous t o t he st at ut e of frauds, prohibit s act ions on a credit agreem ent unless t he agreem ent is in writ ing and is signed by bot h t he debt or and credit or. See Wells v. St at e Bank of Kingm an, 24 Kan.App.2d 394 ( 1997) . I t also requires credit agreem ent s t o “ cont ain a clear, conspicuous and print ed not ice t o t he debt or” inform ing t he debt or t hat t he credit agreem ent overrides all prior and cont em poraneous oral agreem ent s. 11 But t he definit ion of “ credit agreem ent ” expressly excludes prom issory not es, m ort gages, securit y agreem ent s and ot her specified agreem ent s which are usually signed only by t he debt or. See K.S.A. 16- 117( a) . The allegat ions in t his case involve a prom issory not e and real est at e m ort gage, m aking t his st at ut e inapplicable. See I n re Bryant Manor, LLC, 434 B.R. 629 ( 2010) . E. Un t im e ly Cla im r e : I n t e r e st Defendant s addit ionally cont end t hat even if t he Not e const it ut es a cont ract , Plaint iffs’ claim alleging t hat Defendant ( s) overcharged int erest is t im e- barred by t he five- year st at ut e of lim it at ions. Defendant s show t hat a cause of act ion for breach of cont ract accrues w hen t he cont ract is breached, t hat Cit icorp allegedly failed t o apply t he correct int erest rat e on t he loan beginning on Sept em ber 17, 2007, when t he loan was first consum m at ed, and t hat Plaint iffs’ suit was not filed unt il over five years and six m ont hs t hereaft er. Plaint iffs agree t hat Kansas’ five- year st at ut e of lim it at ions for act ions based on breach of a writ t en cont ract applies t o t his claim . Dk. 13, p. 17. See K.S.A. 60–511( 1) . But Plaint iffs cont end t hat t heir breach of cont ract claim accrues not on t he dat e t hey ent ered t he loan agreem ent , but each t im e t hey m ade a recurring m ont hly paym ent which included t he overcharged int erest . 12 Kansas law est ablishes t he general rule t hat a cause of act ion for a breach of cont ract accrues at t he t im e t he cont ract is breached. Holder v. Kansas St eel Built , I nc., 224 Kan. 406, 410 ( 1978) ; Beckm an v. Kansas Dept . of Hum an Resources, 30 Kan.App.2d 606 ( 2002) . “ A cause of act ion for breach of cont ract accrues when a cont ract is breached by t he failure t o do t he t hing agreed t o, irrespect ive of any knowledge on t he part of t he plaint iff or of any act ual inj ury it causes.” Pizel v. Zuspann, 247 Kan. 54 ( 1990) . But Kansas recognizes an except ion for cont inuing cont ract s, t hus a breach of an obligat ion t o m ake paym ent s under a cont inuing cont ract generally accrues at t he t im e each paym ent becom es due. As st at ed previously, t he law in Kansas is well- set t led t hat breach of cont ract accrues at t he t im e of t he alleged breach regardless of t he knowledge of t he breach by t he plaint iff at t he t im e. Nevert heless, a cont inuing cont ract concept does exist in Kansas where a part y is required t o m ake paym ent s pursuant t o a cont ract . “ Under Kansas law, a cause of act ion, t hus giving rise t o a separat e cause of act ion for each failure t o m ake paym ent when due.” G.N. Rupe v. Trit on Oil & Gas Corp., 806 F.Supp. 1485, 1498 ( D.Kan.1992) . This t heory has only been applied where cont inuing paym ent s are required. See, e.g., Oakview Treat m ent Cent ers of Kansas, I nc. v. Garret t , 53 F.Supp.2d 1184, 1190 ( D.Kan.1999) ; Belt z, 6 P.3d at 429; I n re Est at e of Moe, 240 Kan. 242, 729 P.2d 447, 449 ( 1986) . Bagby v. Merrill Lynch, Pierce, Fenner & Sm it h, I nc., 174 F.Supp.2d 1199, 1203 ( D.Kan.2001) . See Beckm an, 30 Kan.App.2d 606 ( finding cause of act ion for unpaid wages accrued m ont hly when em ployer failed t o pay earned wages on t he regularly m ont hly payday) ; Belt z v. Dings, 27 13 Kan.App.2d 507, 512 ( 2000) ( finding “ [ a] cause of act ion for usury accrues wit h each paym ent m ade on a cont inuing cont ract .” ) . Thus under Kansas law, Plaint iffs’ claim s for breach of t he cont ract ually- agreed rat e of int erest accrued each t im e Plaint iffs paid t he overcharged int erest , not solely at t he t im e t he not e was execut ed. Accordingly, t he challenged paym ent s m ade wit hin t he five years im m ediat ely preceding t he filing of t his act ion are t im ely, while t hose m ade earlier are t im e- barred. V. Con ve r sion Count I V of t he Com plaint alleges t hat Defendant s convert ed Plaint iffs’ m oney by charging and failing t o ret urn unearned fees. Under Kansas law, conversion is an unaut horized assum pt ion and exercise of t he right of ownership over goods or personal chat t els belonging t o anot her. Bom hoff v. Nelnet Loan Servs., 279 Kan. 415, 421 ( 2005) ) . Thus an act ion will not lie for conversion of a m ere debt or chose in act ion. Tem m en v. Kent –Brown Chev. Co., 227 Kan. 45, 50 ( 1980) . Where t here is no obligat ion t o ret urn ident ical m oney, but only a relat ionship of debt or and credit or, an act ion for conversion of t he funds represent ing t he indebt edness will not lie against t he debt or. I d. Com pare Clayt or v. Com put er Associat es I nt ern., I nc., 262 F.Supp.2d 1188 ( D.Kan. 2003) ( finding t hat a disput e over wages owed does not st at e a claim for conversion under Kansas law) ; wit h 14 Carm ichael v. Halst ead Nursing Cent er, Lt d., 237 Kan. 495, 501 ( 1985) ( holding t hat a check was specific propert y t hat could be convert ed) . The Kansas Suprem e Court has held t hat where a debt or- credit or relat ionship exist s bet ween a bank and a deposit or, t he proper act ion t o challenge a set off of funds by t he bank is one in cont ract , rat her t han conversion. Moore v. St at e Bank of Burden, 240 Kan. 382, 387- 388 ( 1986) . ( finding no conversion where t he bank unilat erally applied t o t he plaint iff’s out st anding balance on a car loan funds t hat Social Securit y had direct ly deposit ed int o plaint iff’s account ) . There m ay, however, be a conversion of funds in a deposit or's account if t he bank knows t he funds are t he propert y of a t hird part y, I ola St at e Bank v. Bolan, 235 Kan. 175, Syl. ¶ 8, 679 P.2d 720 ( 1984) ) . Here, no showing has been m ade t hat t he Defendant s m ay have convert ed com m ercial paper or t hat t he challenged funds belonged t o a t hird part y. I nst ead, Plaint iffs’ claim alleges solely t hat Defendant s overcharged her. This fails t o st at e a claim for conversion under Kansas law. VI . Fr a u d The com plaint alleges fraud in connect ion wit h Cit icorp’s requiring Plaint iffs t o pay a prepaym ent penalt y of $829.42 in August 2010 w hen Plaint iffs refinanced t heir loan wit h an unrelat ed credit or. The alleged false st at em ent is t hat “ $84,496.36 was due t o clear t he t it le t o t heir real propert y.” Also, fraud is alleged in Defendant s’ overcharging Plaint iffs $6.76 15 as a payoff am ount as a condit ion of releasing it s lien on t he m ort gage in August of 2010, as was necessary for refinancing. Defendant s’ sole challenge t o Plaint iffs’ fraud claim is t im eliness. 1 Defendant s assert t hat a fraud claim in Kansas m ust be brought wit hin t wo years of discovery of t he alleged fraud, see K.S.A. § 60- 513( a) ( 3) , t hat Plaint iffs are deem ed t o have discovered such fraud in August of 2010 when Defendant s m ade t he allegedly false st at em ent , and t hat Plaint iffs allegedly paid t he prepaym ent penalt y and overcharge, rendering Plaint iffs’ act ion unt im ely because it was not filed unt il over t wo years lat er, on May 24, 2013. Plaint iffs respond t hat t he cause of act ion for fraud did not accrue unt il 2011 when t he Plaint iffs discovered various overcharges and Defendant s refused t o rem it paym ent , revealing Defendant s’ “ int ent for t he schem e at failure t o ret urn t he funds.” Dk. 13, p. 21. Plaint iffs’ counsel sent Defendant s a cert ified let t er dat ed May 26, 2011, t hreat ening lit igat ion about how t he 2007 loan was adm inist ered, about loan refinance issues surrounding broken prom ises, and about t he pre- paym ent penalt y, and request ing refunds. Plaint iffs cont end t hat “ it was not unt il t here was no response t o t he May 2011 let t er t hat Defendant s displayed any act ual int ent which cont inues in 1 The Court does not t ake any posit ion on whet her Plaint iffs’ fraud claim cont ains t he elem ent s necessary t o st at e a claim for relief, since Defendant s have not raised t his issue. 16 t heir failure t o ret urn m oney which is known or should be known by t hem t o be t he right ful propert y of Schneiders.” Dk. 13, p. 19. See Dk. 1, p. 73; Dk. 13, p. 20. K.S.A. 60–513( a) ( 3) provides t hat an act ion for relief on t he ground of fraud shall be brought wit hin t wo years, “ but t he cause of act ion shall not be deem ed t o have accrued unt il t he fraud is discovered.” The Kansas Suprem e Court has int erpret ed “ discovered” t o m ean a cause of act ion for fraud accrues when t he defrauded part y possesses act ual or const ruct ive not ice of t he fraud or when, wit h reasonable diligence, t he fraud could have been discovered. Miller v. Foulst on, Siefkin, Powers & Eberhardt , 246 Kan. 450, 465 ( 1990) . See Gat es v. Kansas Farm ers' Union Royalt y Co., 153 Kan. 459 ( 1941) ( finding “ discovery of t he fraud” m eans discovery by person defrauded of such fact s indicat ing he had been defrauded as would cause a reasonably prudent person t o invest igat e, and which if invest igat ed wit h reasonable diligence would lead t o knowledge of t he fraud) . Here, by exercising reasonable diligence, t he Plaint iffs could have read t heir not e and discovered in 2007 t hat it st at ed, “ I m ay m ake a full Prepaym ent or part ial Prepaym ent s wit hout paying a Prepaym ent charge.” Dk. 1, Exh. A. Plaint iffs knew or should have known in 2010 when Defendant s required t hem t o m ake t he prepaym ent charge and ot her alleged overpaym ent s t hat t hey were dam aged by t he alleged m isrepresent at ions. 17 Plaint iffs’ purport ed fraud claim , brought m ore t han t wo years t hereaft er, is t hus barred by t he t wo- year st at ut e of lim it at ions. VI I . KCPA Cla im Defendant s cont end t hat t he act s alleged t o support a violat ion of t he Kansas Consum er Prot ect ion Act ( KCPA) are out side t he scope of t hat Act . A. N o Con su m e r Tr a n sa ct ion The KCPA prohibit s decept ive or unconscionable act s in connect ion wit h a “ consum er t ransact ion.” Defendant s cont end t hat no “ consum er t ransact ion” occurred regarding t he 2010 refinance because Plaint iffs did not obt ain t heir desired refinancing wit h any Defendant . " ’Consum er t ransact ion’" m eans a sale, lease, assignm ent or ot her disposit ion for value of propert y or services wit hin t his st at e ( except insurance cont ract s regulat ed under st at e law) t o a consum er; or a solicit at ion by a supplier wit h respect t o any of t hese disposit ions.” K.S.A. 50- 624( c) . The Court declines t o read t he Act so rest rict ively. See Via Christ i Regional Medical Cent er, I nc. v. Reed, __ Kan. __, 2013 WL 6714017, 16 ( 2013) ( “ t he KCPA prohibit s unconscionable act s and pract ices—not sim ply unconscionable out com es. K.S.A. 50–627( b) specifically st at es t hat an unconscionable act or pract ice violat es t he KCPA “ whet her it occurs before, during or aft er a t ransact ion.” ) . “ [ T] he guiding principle t o be applied in int erpret ing t he KCPA is t hat t he act is t o be liberally const rued in favor of 18 t he consum er.” St at e ex rel. St ephan v. Brot herhood Bank & Trust Co., 8 Kan.App.2d 57 ( 1982) ( cit ing K.S.A. § 50–623) . Even t hough Plaint iffs did not obt ain refinancing from Defendant s in 2010, Defendant s’ grant of a hom e loan m ort gage t o Plaint iffs from 20072010 is a consum er t ransact ion, and is t he subj ect of Plaint iffs’ claim s. The Kansas Court of Appeals ( KCOA) has held t hat t he grant of a hom e loan m ort gage by a bank t o an individual is a “ consum er t ransact ion,” Brot herhood Bank and Trust Co., 8 Kan.App.2d 57, and t he Court believes t he Kansas Suprem e Court would do t he sam e. B. On e - Tim e Eve n t s Defendant s also cont end t hat t he KCPA covers only one- t im e, singleoccurrence event s, not t he servicing of a loan t aken out m ont hs or even years earlier, cit ing Queen v. Lynch Jewelers, LLC, 30 Kan. App.2d 1026 ( 2002) ( sale of diam ond ring) , Porras v. Bell, 18 Kan. App.2d 569 ( 1993) ( sale of hom e) , and Haag v. Dry Basem ent , I nc., 11 Kan. App.2d 649 ( 1987) ( fault y repair of basem ent ) . But t hese cases, w hile exam ining single event s, do not est ablish t hat only one- t im e t ransact ions qualify as consum er t ransact ions under t his Act . C. M or t ga ge Loa n Se r vicin g Defendant s next cont end t hat t he KCPA is inapplicable t o com plaint s about t he servicing of a m ort gage loan aft er it s originat ion, so Plaint iffs’ 19 allegat ions concerning issuance of allegedly inaccurat e billing st at em ent s, inaccurat e use of t he equit y builder program , and charging a prepaym ent penalt y fail t o st at e a claim . Defendant s rely on a st at em ent by t he KCOA t hat “ t he provisions of K.S.A. 50- 626( b) ( 8) … m ake no m ent ion of debt collect ion pract ices or t he m anner in which a seller m ight exercise it s rem edies.” Cornerst one Hom es, LLC v. Skinner, 44 Kan. App.2d 88, 100 ( 2010) . But t he specific subsect ion cit ed in t hat case was t o only one exam ple of a decept ive pract ice, and provides no support for t he cont ent ion t hat t he KCPA is inapplicable t o all debt collect ion pract ices. Defendant s’ assert ion is refut ed by t he Kansas com m ent t o K.S.A. 50627( b) , which st at es t hat t his subsect ion “ forbids unconscionable advert ising t echniques, unconscionable cont ract t erm s, and unconscionable debt collect ion pract ices.” K.S.A. 50–627, com m ent 1 ( em phasis added) . See St at e ex rel. Miller v. Midwest Service Bureau of Topeka, I nc., 229 Kan. 322 ( 1981) ( st at ing, “ I t is clear t hat t he act does apply t o debt collect ion act ivit ies when engaged in by a credit or or his agent .” ; finding independent debt collect ion agency falls wit hin definit ion of a “ supplier” so as t o be subj ect t o provisions of Consum er Prot ect ion where various circum st ances are m et ) ; Cf, I n re Kinderknecht , 470 B.R. 149 ( D. Kan. 2012) ( finding fact quest ions precluded sum m ary j udgm ent where Plaint iff alleged t hat a 20 consum er debt set t lem ent service engaged in unconscionable act s violat ive of t he KCPA) . Sim ilarly, t he KCOA has found t hat t he grant of a hom e loan m ort gage by a bank t o an individual is a “ consum er t ransact ion” wit hin t he m eaning of t he KCPA. KSA 50- 624( c) . Brot herhood Bank and Trust Co., 8 Kan.App.2d 57 ( relying on t he plain language of t he KCPA sect ion defining “ consum er t ransact ion,” coupled wit h preference for liberal const ruct ion of KCPA) . And t he Kansas Suprem e Court , alt hough not squarely addressing t he issue, has resolved KCPA lender cases on t heir m erit s, rat her t han by finding t he KCPA inapplicable. See e.g., Gonzales v. Associat es Financial Service Co. of Kansas, I nc., 266 Kan. 141 ( 1998) ( finding insufficient fact s t o est ablish t hat a lender purposefully wit hheld relevant inform at ion or m isst at ed fact s wit h t he int ent ion t o deceive t he borrower in connect ion wit h originat ion fees charged on m ult iple loan refinancings) . See also Mort gage Elect ronic Regist rat ion Syst em s, I nc. v. Graham , 247 P.3d 223, 231 ( 2010) ( KCOA finding insufficient fact s t o show any unconscionable act s by m ort gage lender under KCPA) . Federal court s, t oo, have recent ly applied t he KCOA t o m ort gage t ransact ions, finding t hat refinancing of a m ort gage loan is a “ consum er t ransact ion” subj ect t o t he KCPA. See Shane v. Cit iMort gage, I nc., 2012 WL 3111730 ( D.Kan. 2012) ( rej ect ing t he cont ent ion t hat t he KCPA does not 21 apply t o loan refinancing or ot her act ivit y done during t he servicing of a loan) . But see Bowers v. Mort . Elec. Regist rat ion Sys., I nc., No. 10- 4141, 2012 WL 4747162, at * 16 ( D. Kan. Oct . 4, 2012) ( finding “ financial com m unicat ions relat ing t o a m ort gage obligat ion… do not fall wit hin t he scope of t he KCPA.” ) . Having reviewed t he Kansas cases cit ed in Bowers, t he Court finds t he rat ionale in Shane t o be bet t er reasoned and m ore persuasive t han t he rat ionale in Bowers. Accordingly, t he Court is not persuaded t hat t he KCPA is inapplicable t o t he fact s in t his case. D . Un t im e ly Cla im Defendant s next assert t hat t he KCPA claim is unt im ely. They assert t hat a t hree year- st at ut e of lim it at ions applies t o t his claim , t hat t he claim accrued when Plaint iffs t ook out t he loan and ent ered t he equit y builder and paym ent waiver prot ect ion program s in Sept em ber of 2007, and t hat t he t im e expired before Plaint iffs filed t his case in 2013. Plaint iffs agree t hat t heir KCPA claim s are governed by a t hree- year st at ut e of lim it at ions, but cont end t hese claim s did not accrue unt il Defendant s engaged in t heir prohibit ed pract ices of dem anding prepaym ent and collect ing unearned m oney in t he sum m er of 2010, and of refusing t o ret urn unearned funds. The court agrees wit h Plaint iffs. Act ions under t he KCPA are subj ect t o t he t hree–year st at ut e of lim it at ions found in K.S.A. 60–512( 2) . Alexander v. Cert ified Mast er Builders 22 Corp., 268 Kan. 812 ( 2000) . Unlike Kan. St at . Ann. § 60–513, t he t hreeyear st at ut e does not include a period t o discover t he claim or t o assess t he dam ages before t he lim it at ions period begins t o run. Four Seasons Apart m ent s, Lt d. v. AAA Glass Service, I nc., 37 Kan.App.2d 248 ( 2007) . Nor does t he cont inuing cont ract except ion apply t o non- cont ract ual disput es, such as t hose brought under t he KCPA. I n re Long, 2010 WL 2178547, * 3 ( Bkrt cy. D. Kan. 2010) . “ A KCPA claim accrues when t he KCPA violat ion occurs.” I d., p. 4. Plaint iffs’ com plaint alleges m ult iple m isleading st at em ent s upon which t heir KCPA claim is based, occurring aft er t hey t ook out t he loan and ent ered t he equit y builder and paym ent waiver prot ect ion program s. Alt hough t he com plaint does not always specify t he dat e on which such st at em ent s or ot her act s alleged t o violat e t he KCPA occurred, t he cont ext is in conj unct ion wit h Plaint iffs’ refinancing of t heir loan, which occurred in August of 2010. Plaint iffs’ KCPA claim s accrued on or about t hat dat e and Plaint iffs’ suit was t im ely brought wit hin t hree years t hereaft er. E. I n su fficie n t Alle ga t ion s Defendant s also cont end t hat Plaint iffs’ allegat ions fail t o raise a t riable claim t hat Defendant s engaged in any decept ive or unconscionable act s concerning t he payoff am ount , t he prepaym ent penalt y, t he equit y builder and paym ent waiver program s, or t he int erest rat es. Defendant s prim arily 23 cont end t hat even t he allegedly fraudulent act s do not reach t he level of unconscionabilit y because t he act s are not alleged t o be so out rageous or unfair as t o shock t he conscience or offend t he sensibilit ies of t he court . I n support of t his proposit ion Defendant s cit e Adam s v. John Deere Co., 13 Kan. App.2d 489, 492 ( 1989) . But t hat case was not a KCPA case, and not hing in t he KCPA requires t hat conduct shock t he conscience t o be unconscionable. See Shane, 2012 WL 3111730, 6 ( finding plaint iff had sufficient ly alleged unconscionable act s by pleading t hat Defendant m ade m isleading st at em ent s upon which she was likely t o rely t o her det rim ent ) . Whet her an act ion is unconscionable under t he KCPA is a legal quest ion for t he court . Via Christ i, 2013 WL 6714017, 16. That det erm inat ion rest s upon t he fact s, weighed in t he sound discret ion of t he court . The det erm inat ion of unconscionabilit y, however, ult im at ely depends upon t he fact s in a given case, St at e ex rel. St ovall v. DVM Ent erprises, I nc., 275 Kan. 243, 249, 62 P.3d 653 ( 2003) . And, t o a great ext ent , t he det erm inat ion is left t o t he sound discret ion of t he t rial court . 275 Kan. at 249, 62 P.3d 653. Via Christ i, at 16. Here, Plaint iffs have sufficient ly pleaded unequal bargaining power, and t hat Defendant willfully m isrepresent ed m at erial fact s regarding paym ent s during t he refinance process, and t hat t hose m isrepresent at ions were likely t o m islead consum ers. The m ot ion t o dism iss t hese claim s at t his early st age shall t herefore be denied. 24 VI I I . M ot ion for Or a l Ar gum e n t Plaint iffs have m oved for oral argum ent , but t he court finds t hat oral argum ent would not subst ant ially assist in it s det erm inat ion of t hese m at t ers, so denies t his m ot ion. I T I S THEREFORE ORDERED t hat Defendant s’ m ot ion t o dism iss ( Dk. 7) is grant ed in part and denied in part in accordance wit h t he t erm s of t his m em orandum and order. I T I S FURTHER ORDERED t hat Plaint iffs’ m ot ion for oral argum ent ( Dk. 19) is denied. Dat ed t his 21st day of January 2014, at Topeka, Kansas. s/ Sam A. Crow Sam A. Crow, U.S. Dist rict Senior Judge 25
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