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Federal Deposit Insurance Corp. v. Frontier Financial, Inc.

United States District Court, Sixth Circuit

May 29, 2013

Federal Deposit Insurance Corporation, Plaintiff,
v.
Frontier Financial, Inc., et al., Defendant.

Memorandum of Opinion and Order

PATRICIA A. GAUGHAN, District Judge.

Introduction

This matter is before the Court upon Defendant St. Louis Title, LLC's Motion to Dismiss for Want of Personal Jurisdiction, Improper Venue, and Because the Complaint Fails to State a Claim Upon Which Relief Can Be Granted (Doc. 19). This is an action brought by the receiver of a failed bank to recover losses it incurred arising out of a defaulted mortgage loan. For the following reasons, the motion is granted as to lack of personal jurisdiction.

Facts

Plaintiff Federal Deposit Insurance Corporation (FDIC or plaintiff) as Receiver for AmTrust Bank filed its First Amended Complaint against defendants Frontier Financial, Inc., St. Louis Title, LLC, and Titan Mortgage, LLC. In general, the First Amended Complaint alleges the following.

FDIC is a corporation organized and existing under the laws of the United States, and it is authorized to be appointed as receiver for failed insured depository institutions under the Federal Deposit Insurance Act. In that capacity, it was appointed receiver for AmTrust Bank, a closed federally chartered savings bank, and succeeded to the latter's claims.

AmTrust, whose principal place of business is in Cleveland, Ohio, focused a core portion of its business on mortgage banking. In March 2007, AmTrust entered into a Master Correspondent Loan Purchase Agreement (the Loan Purchase Agreement) with Community Lending Services, Inc. (hereafter, CLS), not a party herein, that governed the sale and transfer of mortgage loans to AmTrust by CLS. The Loan Purchase Agreement incorporated the terms and conditions set forth in AmTrust's Seller's Guide (hereafter, the Guide). Together, these two documents provided the terms by which CLS agreed to submit mortgage loans to AmTrust, and CLS represented that all information contained in loan packages submitted by it to AmTrust was complete, true, and correct. Defendants Frontier Financial, Inc. and Titan Mortgage, LLC are the successors in interest to CLS.

The Loan Purchase Agreement states, "The parties hereby consent and submit themselves to the jurisdiction and venue in any State or Federal court located in the City of Cleveland, Ohio..." (Doc. 13 ΒΆ 9.13)

In 2007, CLS submitted to AmTrust a loan application for the purpose of securing financing from AmTrust for an Illinois borrower's purchase of property located in Missouri. Based upon the materials submitted by CLS, AmTrust financed the borrower's purchase of the property with a mortgage loan. The information submitted by CLS was not complete, true, and accurate. In particular, the true purchase price of the property was misrepresented, and AmTrust's loan was grossly inflated. Additionally, AmTrust was made to believe that the borrower would pay the property seller the remaining 25% of the purchase price (i.e., $200, 000) to close the transaction, but that amount was purportedly paid to a fictitious individual who was actually the borrower's husband (an employee of CLS). As a result of the misrepresentations, the Loan Purchase Agreement and Guide required CLS to repurchase the loan and indemnify AmTrust for losses which it failed to do. The borrower defaulted on the loan soon after funding, and AmTrust incurred a substantial loss as a result.

St. Louis Title, a Missouri company with its principal place of business in Missouri, performed closing and escrow services in connection with this mortgage loan transaction. St. Louis Title was required to forward the original closing package to AmTrust in Cleveland, and to send the final loan policy and recorded mortgage to AmTrust in Cleveland. It forwarded the documents as agreed.

AmTrust provided St. Louis Title with detailed written closing instructions and related documents for the subject transaction (the Closing Instructions). St. Louis Title had no authority to close the subject mortgage loan transaction or disburse AmTrust's funds unless St. Louis Title fully complied with all of the Closing Instructions. The Closing Instructions required St. Louis Title to certify that all closing conditions stipulated to in the Instructions were satisfied by St. Louis Title prior to disbursement of AmTrust's funds. Supplemental Closing Instructions were also provided, as discussed below.

St. Louis Title's closing file contains documents showing that the purchase price had been misrepresented to AmTrust. As such, the HUD-1 prepared by St. Louis Title, and forwarded by it to AmTrust, contained misrepresentations regarding the subject transaction. St. Louis Title's disbursement to the fictitious entity was not authorized under AmTrust's Closing Instructions.

St. Louis Title failed to comply with the Closing Instructions in closing the transaction without notifying AmTrust of matters outlined in the First Amended Complaint and, consequently, St. Louis Title was not authorized to close the loan.

As to St. Louis Title, the First Amended Complaint sets forth three claims: breach of contract, negligence, and negligent misrepresentation.

This matter is now before the Court upon Defendant St. Louis Title, LLC's Motion to Dismiss for Want of Personal Jurisdiction, Improper Venue, and Because the Complaint Fails to ...


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