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Allenspach-Boller v. United Community Bank

United States District Court, W.D. Missouri, St. Joseph Division

October 21, 2019

UNITED COMMUNITY BANK, et al., Defendants.



         This lawsuit arises from Plaintiffs Eric Allenspach and Marianne Allenspach-Boller's allegations that Defendant United Community Bank (“UCB”), and its employees, Defendants Marla Kephart and Janet Foster (the “Individual Defendants”), failed to perform the necessary underwriting requirements for an SBA loan and to timely report fraud once it was uncovered, despite assuring Plaintiffs it would do so.

         Now before the Court are Defendants' Motions to Dismiss for Failure to State a Claim (Docs. 5, 7, 9), and the Individual Defendants' Motions to Dismiss for Lack of Personal Jurisdiction (Docs. 7, 9).[1] For the reasons below, the motions to dismiss for failure to state a claim are denied in part and granted in part, and the motions to dismiss for lack of personal jurisdiction are denied. Plaintiff shall have twenty-one days to file an amended complaint.


         Plaintiffs, who are citizens of Missouri, own Reliable Machine & Engineering, Inc. (“Reliable”), which is also a named Plaintiff in this case. Reliable is incorporated in Missouri and has its principal place of business in Polo, Missouri. Defendant UCB is a state-chartered Georgia bank registered with and regulated by the Georgia Department of Banking and Finance. Its home office is in Blairsville, Georgia. Defendant Foster is a citizen of Louisiana, and Defendant Kephart is a citizen of North Carolina. Plaintiffs filed this lawsuit in the Circuit Court of Caldwell County, Missouri, and Defendants removed the case to federal court by invoking the Court's diversity jurisdiction.

         The Petition contains eleven claims. Counts I, II, and III assert claims of fraudulent and negligent misrepresentation, as well as negligence. These counts arise from UCB's failure to comply with SBA underwriting guidelines after informing Plaintiffs that it would do so. All other counts stem from Defendant's failure to report a non-party's fraud to the SBA after assuring Plaintiffs they would report it. Counts IV, V, VII, VIII allege all Defendants engaged in fraudulent and negligent misrepresentations, as well as negligence and breach of fiduciary duty. Counts VI, IX, and X, respectively, allege UCB negligently hired the Individual Defendants, breached the covenant of good faith and fair dealing, and negligently inflicted emotional distress upon Plaintiffs. Finally, Count XI seeks a declaratory judgment that Plaintiffs are released of their debt to UCB.

         The Petition alleges that in mid-2015, after “purposeful and deliberate” due diligence, Plaintiffs decided to purchase Rood Machine & Engineering, Inc. (“Rood Machine”) from Todd Rood. Pet. at ¶¶12-16. Plaintiffs went to UCB to obtain funds to purchase the business, and UCB informed Plaintiffs they would need a Small Business Administration (“SBA”) loan. Plaintiffs then took out an SBA loan in the amount of $1, 744, 000.00 to fund the purchase of Rood Machine.

         Although UCB had ensured Plaintiffs that it had appropriately underwritten[2] the SBA loan, Plaintiffs discovered after they took over the business that Rood had falsified financial records related to Rood Machine. Plaintiffs contacted Defendants about Rood's misrepresentations and received assurances from them that they would report his fraud to the SBA. Defendants, however, failed to report the misconduct. Because of their failure, “Rood's assets were not frozen and available for set-off of the Loan, ” so Plaintiffs “had to continue making payments on a debt that would have been satisfied.” Id. at ¶40.

         Rood later pled guilty to loan application fraud in federal court and was ordered to pay restitution to UCB in the amount of $1, 085, 608.49. Despite this judgment, Plaintiffs were required to continue making monthly payments on the loan. Because of Defendants' conduct, however, Plaintiffs' “ability to make monthly payments due under the terms of the Loan was advers[e]ly affected.” Id. at ¶103. UCB therefore threatened foreclosure.

         Plaintiffs claim Defendants' misconduct has cost them $1, 200, 000 plus interest, as well as $14, 000, 000 in lost profits.


         I. Defendants' motion to dismiss is denied in part and granted in part.

         A complaint may be dismissed if it fails “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). To avoid dismissal, a complaint must include “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). In reviewing the complaint, the court construes it liberally and draws all reasonable inferences from the facts in the plaintiff's favor. Monson v. Drug Enforcement Admin., 589 F.3d 952, 961 (8th Cir. 2009).

         A. Missouri law applies to the tort claims, and a mix of Georgia and Missouri law apply to the contract claims.

         Because the Court is hearing these claims pursuant to its diversity jurisdiction, Missouri choice-of-law rules apply to this case. Stricker v. Union Planters Bank, 436 F.3d 875, 877 (8th Cir. 2006). Thus, Plaintiffs' tort claims are subject to Missouri's “most significant relationship test, ” Dorman v. Emerson Elec. Co., 23 F.3d 1354, 1358 (8th Cir. 1994), which “essentially establishes a presumption that the state with the most significant relationship is the state where the injury occurred, absent an overriding interest of another state based on the factors articulated in [Restatement (Second) of Conflict of Laws § 6].” Wolfley v. Solectron USA, Inc., 541 F.3d 819, 823 (8th Cir. 2008). Defendants do not dispute that any injury occurred in Missouri, so Missouri law governs Plaintiffs' tort claims.

         Count IX, however, is a contract claim. Under Missouri law, a court must enforce a choice-of-law clause that specifically identifies the jurisdiction's law that governs. Hope's Windows, Inc. v. McClain, 394 S.W.3d 4778, 483 (Mo.Ct.App. 2013). The Loan Agreement provides that it is governed by Georgia law, while the related documents (Note, Deed of Trust, and Guarantees) explicitly state they are governed by Missouri law. Thus, the Court applies Missouri and Georgia law, where appropriate, in analyzing Count IX.

         B. Plaintiffs have not sufficiently pled fraud.

         Counts I and IV allege two misstatements as actionable fraud: 1) that UCB would perform the appropriate underwriting and 2) that Defendants would report Rood's fraud to the SBA. Having examined the pleading requirements for fraud in conjunction with the elements of a claim for fraudulent misrepresentation in Missouri, the Court ...

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