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Financial Services Law Insights and Observations

Minnesota Federal Court Dismisses Putative Class Action Against Lender

State Issues

On March 31, the U.S. District Court for the District of Minnesota dismissed a putative state-wide class action involving claims of breach of contract, unlawful and deceptive trade practices, breach of fiduciary duties, and unjust enrichment against a residential mortgage lender. Weller v. Accredited Home Lenders, Inc., No. 08-2798 (D. Minn. March 31, 2009). In support of these claims, the plaintiffs alleged, among other things, that (i) the defendant failed to provide them with a statutory disclaimer indicating that they were not plaintiffs’ agent, (ii) the defendant failed to notify them that they qualified for a lower rate of interest than the rate they were charged, and (iii) the defendant was liable for the closing agent’s failure to provide certain disclosures. The court granted the defendant’s motion to dismiss. The court rejected the plaintiffs’ breach of fiduciary duty claim, holding that the failure to provide the “non-agency disclosure” required by Minnesota law “does not, on its own, make a residential mortgage originator a fiduciary as a matter of law.” The court also rejected the plaintiffs’ unlawful and deceptive trade practices (UDAP) claims, holding that the plaintiffs failed to plead alleged misrepresentations with the specificity required by F.R.C.P. Rule 9(b). Allowing plaintiffs 30 days to file an amended complaint to re-plead their UDAP claims, the court provided the plaintiffs with guidance on the types of allegations that would survive future dismissal. For example, to satisfy the Minnesota statute on which they relied, rather than merely allege that they were charged a higher rate of interest than they qualified for, the plaintiffs would have to allege that they were placed in a lower “investment grade,” and specify the grade in which they were placed and the grade they should have received. The court also reminded the plaintiffs that, if they were to successfully level claims against the defendant about the closing agent’s alleged failure to provide certain disclosures, they would have to allege with specificity how the closing agent was the defendant’s agent (such as by citing provisions of the Lender’s Instructions). BuckleySandler LLP represented defendant Accredited Home Lenders, Inc. in this action.