THE COMPLAINT STATES A CLAIM FOR BREACH OF A FIDUCIARY DUTY ON WHICH THIS COURT MAY GRANT RELIEF.
In Count Four of the Complaint, plaintiffs allege that defendant owed them a fiduciary duty by virtue of their loan application, processing fees, and defendant's promises to plaintiffs. Complaint at para. 26. Plaintiffs allege that defendant owed them a duty to process their application promptly and properly, to "accurately appraise" [sic] plaintiffs of the status of their loan application, to inform them if the lending decision was to be made by others, and to advise plaintiffs promptly if there were difficulties in connection with their application. Complaint at para. 26. Pursuant to FEd. R. Civ. P. 12(b)(6), defendant moves that this Count be dismissed because District of Columbia law does not recognize a fiduciary duty between lender and loan applicant.
The Court is not convinced by defendant's argument that a fiduciary duty can never exist between a lender and a loan applicant. Most obviously, if a loan applicant has deposited escrow or other monies with the potential lender, his or her acts have given rise to a fiduciary duty on the lender's part. See, e.g., Wagman v. Lee, 457 A.2d 401 (D.C.), cert. denied, 464 U.S. 849, 78 L. Ed. 2d 145, 104 S. Ct. 158 (1983). While the Complaint does not allege facts such as these, which would clearly create a fiduciary relationship, it does support an inference that defendant owed plaintiffs a fiduciary duty.
District of Columbia law has deliberately left the definition of "fiduciary relationship" flexible, so that the relationship may change to fit new circumstances in which a special relationship of trust may properly be implied. Urban Investments, Inc. v. Branham, 464 A.2d 93, 105 (D.C. 1983) (Mack, J., dissenting). One characteristic that District of Columbia courts have traditionally looked for is a "special confidential relationship" that transcends an ordinary business transaction and requires each party to act with the interests of the other in mind. Id., see also, Vicki Bagley Realty v. Laufer, 482 A.2d 359 (D.C. 1984); Wagman v. Lee, 457 A.2d 401. It may be that the facts of this case will demonstrate that the loan agreement required plaintiffs to disclose information that defendant was to keep confidential and it may be that defendant failed to keep that express or implied promise of confidentiality. If so, plaintiff will have made out a claim for breach of fiduciary duty. See, e.g., Vassiliades v. Garfinckel's, 492 A.2d 580 (D.C. 1985).
The Court has an additional reason for denying defendant's motion to dismiss. Plaintiffs maintain that defendant here acted not merely as a lender but, as a result of its actions, became a broker for or an agent of plaintiffs and thereby acquired a fiduciary duty to them. Plaintiffs' Opposition at 9. As the law is well settled that a broker or agent owes its principal a fiduciary duty, see, e.g., Vicki Bagley Realty v. Laufer, 482 A.2d 359, 364 (D.C. 1984); Urban Investments, Inc. v. Branham, 464 A.2d 93 (D.C. 1983), plaintiffs have stated a claim on which the Court may grant relief if the Complaint supports their agency argument.
The language of the Complaint supports an inference that plaintiffs and defendant were engaged in an arms-length business transaction in which plaintiffs merely applied for a loan and defendant, along with AmeriWest, processed that application. It also supports an inference that defendant was acting as an independent contractor that, without explicit or implicit authorization or control by plaintiffs, attempted to place plaintiffs' loan with a secondary institution. If either of these descriptions properly characterizes plaintiffs' relationship with defendant, defendant had no fiduciary duty toward plaintiffs and the Court would have to dismiss this Count of the Complaint. See, e.g., Urban Investments, Inc. v. Branham, 464 A.2d 93, 96 (D.C. 1983) (arms-length business transaction not give rise to agency relationship or fiduciary duty); Rose v. Silver, 394 A.2d 1368 (D.C. 1978), reh'g. denied, 398 A.2d 787 (D.C. 1979) (independent contractor not a fiduciary absent special circumstances).
But the language of the Complaint equally supports a different reading. While the Complaint does not allege that defendant became plaintiffs' agent, see Johnson v. Bechtel Associates Professional Corp., 230 U.S. App. D.C. 297, 717 F.2d 574 (D.C. Cir. 1983) (control necessary element for agency), rev'd on other grounds sub nom. Washington Metropolitan Area Transit Authority v. Johnson, 467 U.S. 925, 81 L. Ed. 2d 768, 104 S. Ct. 2827 (1984), the Complaint may plausibly be read to allege that defendant acted as a broker between plaintiffs and AmeriWest and acted on behalf of both parties when it attempted to place plaintiffs' loan with AmeriWest.
In such circumstances, defendant owed plaintiffs at the least a duty of good faith and fair dealing, see Urban Investments v. Branham, 464 A.2d at 96, and may have owed plaintiffs a duty to act with plaintiffs' interests in mind. If so, this would rise to the level of a fiduciary duty. Id.; Bloomgarden v. Coyer, 156 U.S. App. D.C. 109, 479 F.2d 201 (D.C. Cir. 1973).
In sum, the Complaint alleges two plausible grounds on which plaintiffs may prove that defendant had and breached a fiduciary duty owed to plaintiffs. Because the Court is obliged to read the Complaint liberally on a motion to dismiss, and to dismiss a claim only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief," Conley v. Gibson, 355 U.S. at 45-46, the Court cannot grant defendant's motion to dismiss this Count of the Complaint.
THE COMPLAINT STATES A CAUSE OF ACTION FOR NEGLIGENCE ON WHICH THIS COURT MAY GRANT RELIEF.
In Count Five of the Complaint, plaintiffs charge defendant with negligence, and they specifically allege that defendant negligently processed and reviewed plaintiffs' loan application and negligently failed to inform defendant that another institution would decide whether to grant plaintiffs' loan. Defendant has moved to dismiss this count for failure to state a claim on which the Court may grant relief, pursuant to Fed. R. Civ. P. 12(b)(6). Defendant argues first that the Equal Credit Opportunity Act (ECOA) preempts the common law negligence action. Defendant also argues that, even if the action is not preempted, the claim is not cognizable under District of Columbia law. Neither argument is convincing.
It is difficult for the Court to discern the basis for defendant's preemption argument, as defendant provides no authority for its point and both the statute's language and its legislative history undercut defendant's argument. First, the language of the ECOA does not support the preemption claim. The ECOA does not create an all-encompassing scheme to regulate all relations between lenders and their potential customers. Instead, it is an effort to ensure that credit is available on a non-discriminatory basis. See 15 U.S.C. § 1691a. Moreover, both the statute and its legislative history explicitly state that the ECOA was not designed to preempt complementary state laws or causes of action. See 15 U.S.C. § 1691d; Sen. Rep. 94-589, 1976 U.S. Code Cong. & Admin. News 409-15; H. Conf. Rep. 94-873, 1976 U.S. Code Cong. & Admin. News 429. Thus, the Court must conclude that the statute does not preempt the common law negligence action.
To establish a cause of action in negligence, plaintiffs must prove that defendant owed them a duty of care, breached that duty, actually and proximately harmed them by breaching that duty, and damages. E.g., District of Columbia v. Fowler, 497 A.2d 456 (D.C. 1985). Absent a duty of care, there can be no liability in negligence. Westinghouse Electric Corp. v. Nutt, 407 A.2d 606 (D.C. 1979); W. Prosser and W. P. Keeton, The Law of Torts, § 53, at 357 (1984).
No District of Columbia Court has been confronted with an action for negligence arising out of a bank's failure to process a loan application with due care, and, consequently, District of Columbia law is silent on whether a bank owes a duty of care in this situation. If the District of Columbia allowed certification of state law questions from federal to state courts, certification would obviously be proper here. See e.g., Lehman Brothers v. Schein, 416 U.S. 386, 40 L. Ed. 2d 215, 94 S. Ct. 1741 (1974). Unfortunately, there is no procedure for certification to the District of Columbia courts, and, as such, this Court has no option but to decide a question of first impression of local law. See id. at 390-91.
The Court is not without guidance in this task. The District of Columbia has traditionally looked to the State of Maryland for its common law, e.g., Watkins v. Rives, 75 U.S. App. D.C. 109, 125 F.2d 33, 35 (D.C. Cir. 1941); Duvallon v. District of Columbia, 515 A.2d 724, 726 (1986), and the Maryland Court of Appeals has recently found that a bank may, in certain circumstances, owe a duty to process a loan application with reasonable care. Jacques v. First National Bank of Maryland, 307 Md. 527, 515 A.2d 756, 763-65 (1986). The Maryland Court found that, where only economic loss was at issue and the parties were in privity or other close relation, and where the defendant held itself out as the possessor of some skill in a public calling and the plaintiff relied on that skill when agreeing to the transaction, the defendant owed a duty of care to the plaintiff. Accordingly, the Court found that the defendant Bank owed a duty to process a loan application with reasonable care when it had guaranteed the interest rate and the applicant had paid a loan processing fee.
The complaint in the instant case alleges analogous circumstances. Plaintiffs claim that defendant guaranteed them an interest rate of 10-1/4 per cent, Complaint at para. 9, and they claim (although not in Count Five) to have paid "processing fees." These circumstances are, as the Maryland Court found, enough to create a duty of care between the parties. See id; see also 63 C.J.S. Negligence §§ 4(6) - 4(7); Ultramares Corp. v. Touche, 255 N.Y. 170, 174 N.E. 441 (1931); Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275 (1922).
Moreover, by alleging that the Bank accepted the processing fees, plaintiffs allege that the Bank implicitly agreed to process the loan application. And a logical corrollary to this implied promise to process the application is an implied promise to do so with reasonable care, else the promise and the fee payment are meaningless. See Jacques v. First National Bank of Maryland, 515 A.2d at 762.
Defendant's own alleged behavior supports this conclusion. The Complaint alleges that defendant extended assurances that there were "no problems" with plaintiffs' application; this alleged statement implies that defendant actually examined whether problems existed. The Court believes that defendant incurred an obligation to process the application with reasonable care when it accepted the application, but it also finds that defendant's alleged acknowledgement of the application, and alleged attention to the application, show that defendant understood itself to have a duty to plaintiffs. This ostensible acknowledgement of a duty to plaintiff might not matter if defendant had been a Good Samaritan extending a helping hand to a stranger, but defendant is a business with a public calling that must process the applications potential customers have paid them to process. In the face of defendant's alleged acceptance of a duty toward plaintiffs, whose application and fee it alleged accepted, the Court cannot find that no duty existed.
The Complaint alleges that defendant breached this duty of care and that the breach of duty was the actual and proximate cause of plaintiffs' failure to secure a mortgage loan for the same amount of money and with the same interest rate. Accordingly, the Complaint states a cause of action for negligence, and defendant's motion to dismiss must be denied.
In sum, the Court will grant defendant's motion to dismiss the breach of contract claim, but it will deny defendant's motion to dismiss the claims for violation of the Equal Credit Opportunity Act, fraud, breach of fiduciary duty, and negligence. The Court will enter an Order, of even date herewith, memorializing these decisions.
In accordance with the Opinion in the above-captioned case, and for the reasons set forth therein, it is this 18th day of May, 1987,
ORDERED that defendant's motion to dismiss Count One of the Complaint (Breach of the Equal Credit Opportunity Act) shall be, and hereby is, denied; and it is
FURTHER ORDERED that defendant's motion to dismiss Count Two of the Complaint (Breach of Contract) shall be, and hereby is, granted, and Count Two shall be, and hereby is, dismissed, without prejudice; and it is
FURTHER ORDERED that defendant's motion to dismiss Count Three of the Complaint (Breach of Fiduciary Duty) shall be, and hereby is, denied; and it is
FURTHER ORDERED that defendant's motion to dismiss Count Five of the Complaint (Negligence) shall be, and hereby is, denied.