Athey v. Consumers National Bank

PEARSON, J.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

JEREMY L. ATHEY, ) CASE NO. 4:19-CV-2686

)

Plaintiff, )

) JUDGE BENITA Y. PEARSON

v. )

)

CONSUMERS NATIONAL BANK, ) MEMORANDUM OF OPINION AND

) ORDER

Defendant. ) [Resolving ECF No. 4]

Pending is Defendant Consumer National Bank (““CNB”)’s Motion to Dismiss (ECF No.

4). Plaintiff Jeremy L. Athey filed a Response (ECF No. 9) and Defendant Replied (ECF No.

10). Having been advised by a review of the parties’ filings and the applicable law, the Court

grants Defendant’s motion.

I. Background

On August 28, 2018, Plaintiff's spouse, Christine Athey, initiated divorce proceedings.

ECF No. | at PageID #: 3. While Plaintiff and Christine were still married in early 2019, he

sought to purchase real property located at 3248 S. Newton Falls Road, Diamond, Ohio 44412

(“Newton Falls Property”). /d. To obtain the funding required to purchase the Newton Falls

Property, Plaintiff sought a mortgage loan from Defendant CNB. Plaintiff and CNB began the

pre-qualification process on February 8, 2019. /d. On February 11, 2019, Plaintiff entered into a

formal purchase agreement with the seller to purchase the Newton Falls Property for $130,000.00

with the transaction to close on or about March 15, 2019. /d. at PageID #: 4. On a number of

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occasions throughout the underwriting process, Defendant requested that Plaintiff submit either

Christine’s signature releasing her interest in the Newton Falls Property, or a final divorce

decree.’ /d. at PageID #: 3-7. Plaintiff had to make this submission before the underwriter

would give a final approval on the mortgage loan. /d. at PageID #: 5.

On March 1, 2019, Defendant informed Plaintiff that he was “conditionally approved” for

the mortgage and stated that a few items needed to be submitted for final approval and closing,

Id, at PageID #: 5. One of those items included the submission of Christine’s signature given

that the divorce proceedings were being “pushed back.” Jd. at PageID #: 4-5.

On March 8, 2019, Defendant provided Plaintiff with the mortgage loan agreement

(“Commitment”) which required as a precondition that “the mortgage or deed of trust, must also

be signed by any non-applicant spouses if their signature is required under state law to create a

valid lien, pass clear title, or waive inchoate rights to property.” Jd. at PageID #: 6; ECF No. 1-6

at PageID #: 38. The Commitment further provided in the cancellation subsection that: “[CNB]

reserve[s] the right to cancel this commitment for any of the following reasons” including

Plaintiff's “fail[ure] to comply with any of the conditions contained in this commitment.” ECF

No. 1-6 at PageID #: 39.

On March 18, 2019, a Mahoning County Domestic Relations Court Judge issued an order

requiring Christine to sign a release of dower so that Plaintiff could purchase a separate home.

ECF No. | at PageID #: 7. Plaintiff forwarded a copy of the court’s order to Defendant. Jd.

' Defendant communicated with Plaintiff through its employee, mortgage loan

officer, Rebecca Sims. See ECF No. | at PageID #: 3-7.

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On the day the mortgage loan was scheduled to close’, Defendant withdrew from the

Commitment, stating that Plaintiff was not approved for the mortgage. /d. at PageID #: 7-8. At

the time of closing, Plaintiff had not provided Defendant with either a final divorce decree or the

submission of Christine’s signature releasing her rights to the Newton Falls Property. Jd. at

PagelD #: 7-8.

Plaintiff subsequently sought alternative sources of funding and purchased the Newton

Falls Property on April 11, 2019. /d. at Page ID #: 8-9. He alleges that the “replacement loans”

--which he obtained through his parents--have “less favorable terms” than what he would have

achieved through his Commitment with CNB. Jd. at PageID #: 8-9. On August 7, 2019, Plaintiff

and Christine’s divorce was ultimately finalized. /d. at PageID #: 8.

Plaintiff filed the instant action in federal court on November 15, 2019 alleging violations

of the Equal Credit Opportunity Act as well as common law claims for breach of contract,

promissory estoppel, and unjust enrichment. He is seeking actual damages, punitive damages,

and attorneys’ fees and costs. Jd. at PageID #: 15. On December 16, 2019, Defendant filed the

instant Motion to Dismiss the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil

Procedure for failure to state a claim upon which relief can be granted. ECF No. 4.

II. Standard of Review

To survive a Fed. R. Civ. P. 12(b)(6) motion to dismiss, Plaintiff's Complaint must allege

* Neither party specifies in their filings the actual date of closing.

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enough facts to “raise a right to relief above the speculative level.” Ass ’n of Cleveland Fire

Fighters vy. City of Cleveland, Ohio, 502 F.3d 545, 548 (6th Cir. 2007) (quoting Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 555 (2007)). Fed. R. Civ. P. 8(a)(2) requires only that a pleading

contain “a short and plain statement of the claim showing that the pleader is entitled to relief.”

However, “a plaintiff's obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires

more than labels and conclusions, and a formulaic recitation of the elements of a cause of action

will not do.” Twombly, 550 U.S. at 555 (citing Papasan vy. Allain, 478 U.S. 265, 286 (1986)). A

complaint requires “further factual enhancement,” which “state[s] a claim to relief that is

plausible on its face.” Jd. at 557,570. A claim has facial plausibility when there is enough

factual content present to allow “the court to draw the reasonable inference that the defendant is

liable for the misconduct alleged.” Ashcroft v. Igbal, 556 U.S. 662, 678 (2009). When a claim

lacks “plausibility in th[e] complaint,” that cause of action fails to state a claim upon which relief

can be granted. Zwombly, U.S. 550 at 564.

III. Analysis

A. ECOA Claim (Count 1)

1.

The Equal Credit Opportunity Act (“ECOA”) prohibits creditors from discriminating

against any credit applicant “with respect to any aspect of a credit transaction . . . on the basis of

race, color, religion, national origin, sex, or marital status.” 15 U.S.C. § 1691(a)(1); see also 12

C.F.R. § 202.1(b). As an entity granting members the ability “to defer payment of a debt or to

incur debts and defer its payment or to purchase property or services and defer payment

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therefor,” Defendant CNB is a “creditor” within the meaning of the ECOA. 15 U.S.C. §

1691a(d); Barney v. Holzer Clinic, Ltd., 110 F.3d 1207, 1209 (6th Cir. 1997) (quoting statutory

definition of a creditor). With regard to marital status, the ECOA prohibits a creditor from

requiring 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 credit-worthiness

for the amount and terms of the credit requested. 12 C.F.R. § 202.7(d)(1). See Miller v.

American EXPCO, 688 F.2d 1235, 1239 (9th Cir. 1982) (the ECOA was meant to protect

women, among others, from arbitrary denial or termination of credit); see also Anderson vy.

United Finance Co., 666 F.2d 1274, 1277 (9th Cir. 1982).

To establish a prima facie case of credit discrimination under the ECOA, Plaintiff must

establish the following four elements: “(1) he is a member of a protected class; (2) he applied for

and was qualified for a loan; (3) the loan application was rejected despite his [ ] qualifications;

and (4) the lender continued to approve loans for applicants with qualifications similar to those

of the plaintiff.” Hood v. Midwest Sav. Bank, 95 F. App’x 768, 778 (6th Cir. 2004). In its

defense, a creditor may then point to one of several exceptions to this rule, including 12 C.F.R. §

202.7(d)(4) which allows a creditor to obtain the “signature of the applicant’s spouse... on any

instrument necessary, or reasonably believed by the creditor to be necessary, under applicable

law to make the property being offered as security available to satisfy the debt in event of

default.” 12 C.F.R. § 202.7(d)(4); see RE BB Acquisition, LLC v. Bridgemill Commons Dev.

Grp., LLC, 754 F.3d 380, 389 (6th Cir. 2014) (“If the creditor seeks refuge in one of the

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regulatory exceptions, see 12 C.F.R. § 202.7(d)(2)-(4), 12 C.F.R. § 1002.7(d)(2)-(4), the creditor

bears the burden of proving that the exception applies.”).

Plaintiff alleges Defendant violated the ECOA when it withdrew from the parties’

Commitment on the day of closing. He claims that Defendant’s decision to withdraw from the

Commitment was on the basis of his marital status. ECF No. | at PageID #: 2. Defendant,

however, asserts that Plaintiffs discrimination claim should be dismissed because it has

demonstrated a complete defense under the ECOA. ECF No. 4-1 at PageID #: 71. Specifically,

Defendant argues that it had a legitimate, non-discriminatory basis for withdrawing from the

Commitment given that Plaintiff failed to provide a final divorce decree or signed waiver of

dower rights prior to closing. Jd.

The Federal Reserve Board, pursuant to the ECOA, 15 U.S.C. § 1691b(a), promulgated

12 C.F.R. § 202.1 et seg. Under the exception contained in 12 C.F.R. § 202.7(d)(4), a creditor is

entitled to require the signature of a debtor and spouse “on any instrument necessary, or

reasonably believed by the creditor to be necessary, under applicable state law to make the

[residence] available to satisfy the debt in the event of default[.]” 12 C.F.R. § 202.7(d)(4). The

ECOA’s exception regarding the signature of an applicant’s spouse is clear: “A request for the

signature of both parties to a marriage for the purpose of creating a valid lien, passing clear title,

waiving inchoate rights to property,

or assigning earnings shall not constitute discrimination under the EOCA.” 15 U.S.C. §

1691d(a) (emphasis added). Defendant was thus entitled to obtain its reasonable request prior to

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the closing of the mortgage loan: either the submission of a final divorce decree or a signed

waiver of dower rights.

When the Complaint is construed in the light most favorable to Plaintiff, he is unable to

succeed on a discrimination claim under the ECOA. Plaintiff has failed to plead factual content

regarding the fourth element as articulated by the Sixth Circuit in Hood: that “the lender

continued to approve loans for applicants with qualifications similar to those of the plaintiff.”

Hood, 95 F. App’x at 778. In his Response in Opposition, Plaintiff requests that the Court grant

him leave to amend his Complaint to plead factual information sufficient to meet the fourth

element of his ECOA claim.’ ECF No. 9 at PageID #: 121. The Court finds that even if Plaintiff

were to allege plausible facts showing disparate treatment, his ECOA claim would still fail

because CNB’s decision to withdraw from the Commitment was not discriminatory as a matter

of law. Finding any amendment to be futile, Plaintiff's request is hereby denied. See DeBolt v.

Cassens Transport Co., 2012 WL 3497659, at *1 (N.D. Ohio Aug. 15, 2012) (Pearson, J.)

(finding a motion to amend to be deemed futile if the proposed amendment “could not withstand

a Rule 12(b)(6) motion to dismiss”) (quoting Rose v. Hartford Underwriters Ins. Co., 203 F.3d

417, 420 (6th Cir. 2000)).

* Plaintiff notes in his Response in Opposition, that he did not plead all four

elements required by the Sixth Circuit in Hood because he relied on Mays v. Buckeye

Rural Elec. Coop., Inc., 277 F.3d 873 (6th Cir. 2002), an earlier Sixth Circuit case which

set out a less burdensome standard for ECOA claims. ECF No. 9 at PageID #: 120. The

Court declines to adopt Plaintiff's characterization of the prima facie case and instead

relies on the test articulated and instructed by the Sixth Circuit’s more recent decision in

Hood. See Hood, at 95 F. App’x at 778 no.7.

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2.

Secured creditors, like CNB, may decline to extend mortgage loans when they maintain

reasonable concerns in securing the loan given an applicant’s pending divorce proceedings. See

Evans v. Centralfed Mortg. Co., 815 F.2d 348, 351-52 (5th Cir. 1987) (“What is significant is

that [the bank] reasonably believed that its policy was necessary to perfect its security interest.”);

see also McKenzie v. U.S. Home Corp., 704 F.2d 778, 779 (5th Cir. 1983) (finding that when

plaintiff was denied a mortgage, the bank reasonably required either a joint signature or divorce

decree to ensure valid lien).

Ohio state law defines “marital property” to include “[a]ll interest that either or both of

the spouses currently has in any real or personal property, including but not limited to, the

retirement benefits of the spouses, and that was acquired by either or both of the spouses during

the marriage.” O.R.C. § 3105.171(A)(3)(a)(ii); see also Williams v. Williams, 106 N.E.3d 317,

319 (Ohio Ct. App. 2018) (citing O.R.C. § 3105.171(A)(3)(a)). At the time the mortgage loan

was scheduled to close, Plaintiff and Christine were still lawfully married--and would remain so

for five months after closing. At that time, any real property that Plaintiff would have acquired

with the CNB loan proceeds would have been subject to division upon Plaintiff’s eventual

divorce. CNB thus had a legitimate basis, under Ohio law, for requiring Plaintiff to produce a

signed release of his spouse’s interest in the Newton Falls Property.

Plaintiff submits that pursuant to the Domestic Relations Court’s order, “Christine was

obligated to sign a release of her dower rights to the Newton Falls [ ] Property” and therefore,

Defendant should have allowed Plaintiff to close. ECF No. 1 at PageID #: 12. Nevertheless, it

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remains that on the day of closing, and after numerous requests from CNB during the

underwriting process, Plaintiff had sti// not met the Commitment’s precondition. On □□□□□□□□□□□

asserted facts, the Court finds that Defendant would have maintained a “reasonable concern” in

securing the mortgage loan. See McKenzie, 704 F.2d at 779. This reasonable concern amounts

to a non-discriminatory basis for withdrawing from the parties’ Commitment.

Accordingly, Plaintiffs ECOA claim fails as a matter of law.

B. Breach of Contract Claim (Count 2)

Under Ohio law, the elements of a breach of contract claim include: (1) the existence of a

contract; (2) performance by the plaintiff; (3) breach by the defendant; and (4) damage or loss to

the plaintiff as a result of the breach. Thomas v. Publishers Clearing House, Inc., 29 F. App’x

319, 322 (6th Cir. 2002) (citing Doner v. Snapp, 649 N.E.2d 42, 44 (Ohio Ct. App. 1994). To

prove the existence of a valid contract, Plaintiff must prove all the essential elements of a

contract, including an offer, acceptance, the manifestation of mutual assent, and “consideration

(the bargained for legal benefit and/or detriment).” Koste/nik v. Helper, 770 N.E.2d 58, 61 (Ohio

2002). Plaintiff must also show that there was a “meeting of the minds” and that the contract

was definite as to its essential terms. Episcopal Retirement Homes, Inc. vy. Ohio Dept. of Indus.

Relations, 575 N.E.2d 134, 136 (Ohio 1991).

Defendant argues that Plaintiff's breach of contract claim should fail because no

enforceable contract was formed. ECF No. 4-1 at PageID #: 74. The Court agrees. Plaintiff did

not satisfy a condition precedent in the Commitment, namely by having his spouse sign a release

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of her interest or by producing a final divorce decree. A “condition precedent” is an occurrence

that must take place before

a contractual obligation becomes effective. Polek v. Tillimon, 2002 WL 313401, *3 (Ohio Ct.

App. 2002); Troha v. Troha, 663 N.E.2d 1319, 1323 (Ohio Ct. App. 1995). Ifa condition

precedent is not met, a party is excused from performing the duty promised under the contract.

Troha, 663 N.E.2d at 1323. Plaintiff concedes that prior to closing he had not yet provided CNB

with a signed release of his spouse’s interest in the Newton Falls Property. ECF No. 1 at PageID

#: 7-8. He also concedes that he was still married at the time of closing and therefore, unable to

produce a divorce decree. /d. The Court therefore finds that Plaintiff did not fulfill a condition

precedent to obtaining creditworthiness for the CNB mortgage loan.

Because no binding contract was formed between the parties, Plaintiff's breach of

contract claim fails as a matter of law.

C. Promissory Estoppel Claim (Count 3)

In his Response to Defendant’s Motion to Dismiss, Plaintiff voluntarily withdrew his

Promissory Estoppel claim. ECF No. 9 at PageID #: 125. Therefore, Defendant’s Motion to

Dismiss is granted as to this claim.

D. Unjust Enrichment Claim (Count 4)

Unjust enrichment is an equitable doctrine that allows a party to pursue the reasonable

value of services rendered upon another party when a benefit is conferred without an exchange of

just compensation. Cheers Sports Bar & Grill vy. DIRECTV, 563 F. Supp. 2d 812, 819 (N.D.

Ohio 2008) (quotations omitted). Under Ohio law, to recover for unjust enrichment, Plaintiff

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must prove that: (1) Plaintiff conferred a benefit upon Defendant; (2) Defendant knew of such

benefit; and (3) Defendant retained the benefit “under circumstances where it would be unjust to

do so without payment.” Andersons, Inc. v. Consol, Inc., 348 F.3d 496, 502 (6th Cir. 2003)

(citing Brown Graves Co. v. Obert, 648 N.E.2d 1379, 1383 (Ohio Ct. App. 1994)).

Plaintiff states that he conferred a $400.00 benefit on Defendant, which he “remitted in

consideration of the Application and Commitment.” ECF No. 1 at PageID #: 15. He further

avers that it would be unjust for Defendant to retain the $400.00 benefit, since Defendant

ultimately refused to provide the mortgage loan. ECF No. 9 at PageID #: 125. Defendant argues,

however, that it would not be unjust for Defendant to keep the $400.00 because Plaintiff received

his bargained for exchange. ECF No. 4-1 at PageID #: 76.

The Court finds that Plaintiff indeed received his bargained for exchange: a mutual

undertaking that if he met the preconditions to qualifying for a mortgage, Defendant would

provide the mortgage loan. Plaintiff failed to meet all of the preconditions. He has also failed to

demonstrate circumstances where it would be unjust for Defendant to retain the $400.00.

Accordingly, Plaintiff’s unjust enrichment claim fails as a matter of law.

IV. Conclusion

For the foregoing reasons, the Court grants Defendant’s Motion to Dismiss the Complaint

in its entirety pursuant to Fed. R. Civ. P. 12(b)(6). ECF No. 4. The Telephonic Case

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Management Conference set for February 19, 2020 at 11:30 a.m. is cancelled.

IT IS SO ORDERED.

February 18, 2020 /s/ Benita Y. Pearson

Date Benita Y. Pearson

United States District Judge

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