Court: District Court, D. South Carolina; February 24, 2013; Federal District Court
Plaintiff Midland Mortgage Company initiated a lawsuit against Defendant Wells Fargo Bank, N.A., asserting state law claims for negligence and negligent misrepresentation. The court is considering Defendant's motions to dismiss and for summary judgment regarding these claims. The key facts, viewed favorably for the Plaintiff, reveal that Midland Mortgage provided a residential mortgage loan to Borrowers Brian and Teri Sumsion, relying on a Verification of Deposit (VOD) from Wells Fargo. On February 14, 2008, Midland paid Wells Fargo $20 for a VOD that inaccurately reported the Borrowers' checking account balance as $1,578.51.
The loan closed on February 25, 2008. In July 2010, JP Morgan Chase Bank informed Midland that the mortgage insurer, Republic Mortgage Insurance Company (RMIC), had rescinded the Borrowers’ insurance coverage due to findings that the VOD was falsified, the Borrowers lacked sufficient funds, and their actual income was significantly lower than represented. Despite a subsequent request for a re-VOD, which Wells Fargo confirmed as correct, Midland faced demands from Chase to repurchase the loan due to RMIC's findings. Midland sought assistance from Wells Fargo to dispute the erroneous VOD but received no response. The court ultimately granted Wells Fargo's motion for summary judgment on the claims against it.
On October 21, 2011, the Defendant's Balance Confirmation Services Department issued a re-VOD confirming that the Borrowers’ checking account had a balance of $0 as of February 14, 2008. Subsequently, on October 31, 2011, the Plaintiff repurchased the Borrowers’ loan from Chase for approximately $99,256.00. On January 26, 2012, the Plaintiff filed a complaint against the Defendant in court, alleging state law claims for negligence and negligent misrepresentation. The Defendant responded on March 8, 2012, denying the allegations. After the Plaintiff sought to amend the complaint due to inaccuracies, the court granted this request on March 29, 2012, and the amended complaint was filed the same day. The Defendant again denied the claims on April 12, 2012, and subsequently filed a motion to dismiss on April 24, 2012, under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Plaintiff opposed this motion on May 11, 2012, with the Defendant replying on May 21, 2012. On September 19, 2012, the Defendant filed a motion for summary judgment, with the Plaintiff opposing it on October 16, 2012, followed by the Defendant’s reply on October 19, 2012.
The legal standards for summary judgment dictate that it should be granted if there is no genuine dispute over material facts and the movant is entitled to judgment as a matter of law, with the court viewing evidence in favor of the non-moving party. The non-moving party must present specific facts to demonstrate a genuine issue for trial, as mere speculation or unsupported assertions are insufficient. Regarding motions to dismiss under Rule 12(b)(6), such motions should only be granted if it is clear that the plaintiff cannot prove any facts that would support the claim. The court must accept well-pleaded allegations as true and assess whether the complaint states a plausible claim for relief.
In South Carolina, to establish a negligence claim, a plaintiff must prove that the defendants owed a duty of care, breached that duty through negligent actions or omissions, that the breach was the proximate cause of the injuries, and that the plaintiff suffered actual damages. The duty of care reflects the standard of conduct required to prevent foreseeable harm, with its recognition being a legal determination for the court.
To establish a claim for negligent misrepresentation, a plaintiff must demonstrate: (1) the defendant made a false representation; (2) the defendant had a financial interest in the representation; (3) the defendant owed a duty of care to provide truthful information; (4) the defendant breached this duty through a lack of due care; (5) the plaintiff reasonably relied on the representation; and (6) the plaintiff suffered a financial loss as a direct result of this reliance.
The economic loss rule limits a buyer's remedies to contractual law when a product fails to meet expectations, barring negligence claims that arise solely from contractual duties. However, if a special relationship exists outside of the contract, a duty of care may arise, supporting a tort claim.
The defendant seeks dismissal of the negligence and negligent misrepresentation claims, arguing that: (1) no duty of care was owed to the plaintiff; (2) there was no breach of duty concerning an inaccurate Verification of Deposit (VOD); (3) the breach was not the proximate cause of the plaintiff's injuries; and (4) the plaintiff did not reasonably rely on the VOD. The defendant contends that the VOD included a disclaimer stating that the information might not be complete or accurate and that a bank typically does not owe a duty of care to its customers. Furthermore, the defendant argues that the VOD, as part of a contract between sophisticated corporate entities, does not establish an extra-contractual duty.
Conversely, the plaintiff asserts that a duty of care existed because the defendant knew the VOD would be used to originate a mortgage loan and was aware that inaccuracies could lead to the plaintiff needing to repurchase or indemnify its investor, as required by the defendant.
Plaintiff contends that a duty of due care exists for Defendant regarding the Verification of Deposit (VOD) because Defendant knew or should have known that its reports would be relied upon significantly. Plaintiff asserts that this duty arose when Defendant voluntarily provided the VOD, as common law establishes that a duty to act exists when an actor voluntarily undertakes a task. Plaintiff highlights that Defendant had exclusive knowledge of the Borrowers' account balance, was aware that Plaintiff could not independently verify this amount, and understood the implications of providing an inaccurate VOD. Plaintiff argues that a boilerplate disclaimer does not exempt Defendant from liability for negligent misrepresentation or fraud.
In addressing breach of duty, Defendant maintains that Plaintiff has not demonstrated that it failed to act with due care in issuing the VOD, claiming adherence to internal policies and procedures. However, Plaintiff argues that the issuance of an erroneous VOD violated industry standards that require accurate reporting.
On the issue of proximate causation, Defendant claims that the VOD did not cause Plaintiff's injuries, asserting that the purpose of the VOD was to confirm the Borrowers' funds for closing costs and not their ability to make future loan payments. Defendant argues that any injury to Plaintiff resulted from the Borrowers' inability to pay, not the balance reported in the VOD, and that the only foreseeable loss from an erroneous VOD would be related to the loan not closing, which did not occur.
In response, Plaintiff clarifies that its damages stem from being contractually obligated to repurchase the Borrowers' loan after RMIC rescinded mortgage insurance coverage upon discovering the VOD defect. Plaintiff argues proximate cause is established because, without the inaccurate VOD, it would not have originated the loan, and it incurred losses due to the rescission of mortgage insurance, which led to Chase demanding the loan's repurchase.
Defendant contends that Plaintiff's reliance on the Verification of Deposit (VOD) was unjustifiable due to a disclaimer indicating that the information was not guaranteed to be complete or accurate. Defendant argues that Plaintiff should have used the VOD solely to verify previously provided account balances and could have confirmed those balances directly with the Borrowers. In contrast, Plaintiff asserts that it had no reasonable means to independently verify the account information as it was legally restricted from obtaining that information without the Borrowers' consent. Plaintiff claims that Defendant held a superior position regarding the accuracy of the account data, thus justifying its reliance on the VOD.
Regarding the economic loss rule, Defendant argues that Plaintiff's claims for purely economic losses, such as the costs of repurchasing the loan, are barred in tort and should be resolved under contract law. Defendant maintains that any duty owed to Plaintiff arises from the contractual relationship linked to the VOD. However, Plaintiff counters that South Carolina law permits tort claims for purely economic damages and that applying the economic loss rule here would blur the distinction between tort and contract recovery, which the rule aims to prevent.
To succeed in negligence and negligent misrepresentation claims, Plaintiff must demonstrate a duty of care from Defendant. Generally, banks owe no duty of care to customers or non-customers concerning financial information about others. Nonetheless, Plaintiff argues that Defendant owed a duty of care in this instance because it knew the VOD was critical for originating the Borrowers' mortgage loan and that inaccuracies could lead to Plaintiff having to repurchase the loan. Despite these assertions, the court finds that the knowledge attributed to Defendant does not establish a duty of care toward Plaintiff concerning the VOD transaction.
The record lacks sufficient evidence, such as affidavits or deposition testimony, to demonstrate that Defendant had the knowledge attributed to it by Plaintiff. Plaintiff's claims regarding Defendant's knowledge are primarily based on statements in a brief, which are inadequate to withstand summary judgment. Additionally, the cited authorities do not establish a duty of care for Defendant in the banking context presented. Consequently, the court concludes that Defendant did not owe a duty to Plaintiff, eliminating the possibility of a breach. As a result, Plaintiff's negligence and negligent misrepresentation claims fail due to the inability to prove a duty of care and breach. Furthermore, Plaintiff's negligent misrepresentation claim is undermined by the VOD, which explicitly stated that the information was provided without any warranties of completeness or accuracy, was subject to change, and should not be shared with third parties. There is no evidence that Defendant guaranteed any obligations Plaintiff assumed after receiving the VOD. The transaction between Plaintiff and Defendant was an arm's length agreement between two knowledgeable banking entities, and the terms of the VOD did not create a duty of care. In the absence of a confidential or fiduciary relationship, Plaintiff had no right to rely on the information in the VOD.
The court grants the Defendant's motion for summary judgment concerning the Plaintiffs' claims of negligence and negligent representation, while denying the Defendant's motion to dismiss as moot. The court refers to the Serino case, emphasizing that even without a direct contractual relationship, the Defendant had a duty to exercise due care in publishing information about the Plaintiff that could foreseeably cause financial harm. The court finds it unnecessary to address the Defendant's argument regarding the economic loss rule, noting that it has previously declined to apply this doctrine to service contracts. The court highlights the ambiguity in South Carolina law on whether the economic loss rule applies to services, referencing multiple precedents from other states that allow negligence claims in such contexts.
