Kellie Ballard v. Bank of America, N.A.

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-1418
KELLIE M. BALLARD,
Plaintiff - Appellant,
v.
BANK OF AMERICA, N.A.,
Defendant - Appellee.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Roger W. Titus, District Judge. (8:12-
cv-03737-RWT)
Argued: September 20, 2013 Decided: October 30, 2013
Before MOTZ, SHEDD, and THACKER, Circuit Judges.
Affirmed by published opinion. Judge Motz wrote the opinion, in
which Judge Thacker joined. Judge Shedd wrote a separate
opinion concurring in the judgment.
ARGUED: Roger Charles Simmons, GORDON & SIMMONS, LLC,
Frederick, Maryland, for Appellant. E. John Steren, OBER,
KALER, GRIMES & SHRIVER, PC, Washington, D.C., for Appellee. ON
BRIEF: Jodi Lynn Foss, GORDON & SIMMONS, LLC, Frederick,
Maryland, for Appellant. Amy E. Garber, OBER, KALER, GRIMES &
SHRIVER, PC, Washington, D.C., for Appellee.
DIANA GRIBBON MOTZ, Circuit Judge:
Kellie Ballard appeals from the judgment of the district
court dismissing her federal and state Equal Credit Opportunity
Act (“ECOA”) claims, and her claims for unjust enrichment and a
declaratory judgment. We affirm.
I.
Kellie Ballard’s husband, Michael Ballard, owns and
operates FoodSwing, a food-packing company. In March 2008, he
entered into an agreement with Bank of America (“the Bank”) to
obtain a loan for FoodSwing in the amount of $4,100,000.
Although Mrs. Ballard assertedly plays no role in the ownership
or operation of FoodSwing, Bank of America required her to sign
the loan agreement as a guarantor. She guaranteed “full and
complete payment” of the loan and waived “[a]ll rights of
redemption” with respect to the property securing the loan.
In 2009, FoodSwing defaulted on the loan. Michael Ballard
then entered into a modified loan agreement with Bank of America
to restructure the debt. FoodSwing defaulted two more times --
once in 2010 and once in 2011. More debt restructuring
agreements followed these defaults. As with the initial loan,
Bank of America required that Mrs. Ballard guarantee each new
agreement. These restructuring agreements contained a
comprehensive waiver requiring Mr. and Mrs. Ballard to waive
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“any and all” claims -- past, present, or future -- against Bank
of America. In each agreement, Mr. and Mrs. Ballard
acknowledged that they “actively and with full understanding”
participated in negotiating the agreement “after consultation
and review with their counsel.”
Although counsel represented Mrs. Ballard at the time she
signed all of the loan documents, she contends that her counsel
operated under impermissible conflicts of interest. She alleges
that she signed the loan agreements only at the insistence of
her conflicted attorneys. (At oral argument, Mrs. Ballard’s
counsel also claimed that her husband misinformed her about the
nature of the documents she signed.)
Among other assets, a home in Maryland and a winery in
California secured the loans to FoodSwing. Mrs. Ballard co-
owned these two properties with her husband. After the 2011
default, Bank of America recorded consensual liens on both
properties.
In November 2012, Mrs. Ballard filed this action against
Bank of America. She alleges that the Bank violated the federal
and state ECOA by requiring her to serve as her husband’s
guarantor. She seeks equitable and injunctive relief for these
asserted ECOA violations, asserts a claim for unjust enrichment,
and seeks a declaratory judgment. The district court dismissed
her complaint with prejudice, reasoning that she failed to state
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a claim upon which relief can be granted and that, in any event,
waiver and limitations barred her claims.
II.
We review dismissals for failure to state a claim de novo.
United States ex rel. Nathan v. Takeda Pharm. N. America, Inc.,
707 F.3d 451, 455 (4th Cir. 2013). To survive a motion to
dismiss, “a complaint must contain sufficient factual matter,
accepted as true, to state a claim to relief that is plausible
on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quotation marks omitted). We draw “reasonable inference[s]” in
favor of the plaintiff. Id.
The Equal Credit Opportunity Act makes it unlawful for “any
creditor to discriminate against any applicant, with respect to
any aspect of a credit transaction on the basis of . . . marital
status.” 15 U.S.C. § 1691(a)(1) (2006). Specifically, ECOA
regulations prohibit lenders from requiring a spouse’s signature
on a loan agreement when the applicant individually qualifies
for the requested credit. 12 C.F.R. § 202.7(d)(1) (2013)
(lenders may not “require the signature of an applicant’s spouse
or other person, other than a joint applicant, on any credit
instrument if the applicant qualifies under the creditor’s
standards of creditworthiness”). Congress enacted this
prohibition to eradicate credit discrimination against married
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women, whom many creditors traditionally had refused to consider
for individual credit.
Not every signature required of a borrower’s spouse,
however, constitutes credit discrimination under ECOA. Rather,
the statutory scheme provides for several exceptions permitting
lenders to obtain the signature of a borrower’s spouse on a loan
agreement.
First, and most obviously, ECOA regulations expressly
authorize lenders to obtain the signature of a borrower’s spouse
if the borrower does not independently qualify for the loan.
But lenders may obtain the spouse’s signature only after
determining that the borrower does not qualify “under the
creditor’s standards of creditworthiness for the amount and
terms of the credit requested.” Id.
Second, ECOA permits lenders to obtain the signature of a
borrower’s spouse who owns or co-owns the entity benefitting
from the loan. Even if the spouse does not technically apply
for the loan herself, she qualifies as a “de facto” joint
applicant because she possesses an ownership stake in the
business for which the loan is sought. Given that ECOA
regulations expressly permit a lender to require a signature
from a joint applicant spouse, see id., courts have found no
ECOA violation where a lender requires a signature from a de
facto joint applicant spouse. See Midlantic Nat’l Bank v.
5
Hansen, 48 F.3d 693, 700 (3d Cir. 1995) (because loans financed
a company co-owned by the spouses, the wife “at the very least”
was a de facto joint applicant who could be required to
guarantee the loans); Riggs Nat’l Bank of D.C. v. Webster, 832
F. Supp. 147, 151 (D. Md. 1993) (because the loan was obtained
to renovate a property owned by the borrower’s wife, she was “de
facto a joint applicant” who could be required to guarantee the
loan). Thus, banks may treat the co-owner of a business as a
joint applicant for a loan to that business -- even if the co-
owner happens to be the primary applicant’s spouse.
Third, when two spouses co-own property designated as
collateral for a loan (as opposed to co-owning the entity
seeking a loan), ECOA permits a lender to require the non-
applicant spouse to sign the loan “for the purpose of creating a
valid lien, passing clear title, waiving inchoate rights to
property, or assigning earnings.” 15 U.S.C. § 1691d(a) (2006).
ECOA regulations clarify that, in an application for secured
credit, “a creditor may require the signature of the applicant’s
spouse . . . on any instrument necessary, or reasonably believed
by the creditor to be necessary, under applicable state law to
make the property being offered as security available to satisfy
the debt in the event of default.” 12 C.F.R. § 202.7(d)(4).
These provisions ensure that a lender can acquire collateral co-
6
owned by the borrower’s spouse in the event that the borrower
defaults.
III.
The parties primarily contest -- and the district court
primarily addressed -- whether Bank of America violated ECOA.
We therefore consider this question first.
A.
Mrs. Ballard contends that Bank of America violated ECOA by
forcing her to guarantee the loan agreement without first
evaluating her husband’s independent creditworthiness. 1 She
apparently concedes that it would have been permissible to
require her signature for the limited purpose of relinquishing
her rights “to property she co-owns with her husband” -- the
Maryland home and the California winery. Appellant’s Br. 19.
1
Although Federal Reserve Board regulations (recently re-
adopted by the Consumer Financial Protection Bureau) include
guarantors within the definition of “applicants” with standing
to bring an ECOA claim, 12 C.F.R. §§ 202.2(e) & 1002.2(e), Judge
Posner has expressed doubt that “the statute can be stretched
far enough to allow this interpretation.” Moran Foods, Inc. v.
Mid-Atl. Mkt. Dev. Co., LLC, 476 F.3d 436, 441 (7th Cir. 2007).
But no court has so held and, indeed, other courts have treated
guarantors as applicants as the regulations provide. See
Silverman v. Eastrich Multiple Investor Fund, L.P., 51 F.3d 28,
31 (3d Cir. 1995); Anderson v. United Fin. Co., 666 F.2d 1274,
1276 (9th Cir. 1982). Because resolution of this issue is not
determinative given our disposition of this case, we will
assume, without deciding, that guarantors do qualify as
applicants for purposes of ECOA.
7
But she claims that ECOA prohibited Bank of America from
requiring her to assume unlimited liability on the debt.
ECOA’s text lends support to Mrs. Ballard’s claim that Bank
of America violated ECOA by requiring her to guarantee the
FoodSwing loan. It is undisputed that Bank of America required
Mrs. Ballard to execute an unlimited guarantee of the loan.
This guarantee was therefore permissible only if it was subject
to an exception to ECOA’s general rule barring lenders from
requiring a spousal signature. No such exception is apparent
here.
First, the guarantee apparently cannot be justified on the
ground that the Bank had concluded that Mr. Ballard was not
creditworthy. This is so because Mrs. Ballard alleges in her
complaint that Bank of America did not assess her husband’s
creditworthiness before requiring her to sign on the loan. In
reviewing a grant of a motion to dismiss, we must assume the
truth of this allegation.
Second, obtaining Mrs. Ballard’s signature apparently
cannot be justified on the ground that she co-owns the business
benefitting from the loan. Mrs. Ballard alleges in her
complaint that she is neither an owner nor a shareholder of
FoodSwing. And so, again, we must assume the truth of this
allegation at this stage of the litigation. Because spouses are
“de facto joint applicants” only when they co-own the entity
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benefitting from the loan, the Bank apparently could not require
Mrs. Ballard to sign as a guarantor on the theory that she was a
de facto joint applicant.
Finally, it does not appear that the unlimited guarantee
can be justified on the ground that Mrs. Ballard co-owned two
properties securing the loan. Although ECOA permits lenders to
seek the signature of a spouse who co-owns collateral securing
the loan, the plain language of the statute limits the effect of
the spouse’s signature in these circumstances to “creating a
valid lien [or] passing clear title” to co-owned property. 15
U.S.C. § 1691d(a). ECOA’s implementing regulations further
reinforce that a co-owner spouse’s obligation must be limited to
“mak[ing] the property being offered as security available to
satisfy the debt in the event of default.” 12 C.F.R.
§ 202.7(d)(4). In other words, although ECOA permits lenders to
require a borrower’s spouse to relinquish her interest in co-
owned collateral, it appears to prohibit lenders from demanding
that a spouse guarantee the full loan without first appraising
the borrower’s creditworthiness. Any other reading would ignore
the statute’s clear limits on the permissible scope of a
spouse’s guarantee. Our case law supports this conclusion. See
Riggs Nat’l Bank of D.C. v. Linch, 36 F.3d 370, 374 (4th Cir.
1994) (wife who co-owned collateral could be required to execute
9
an unlimited personal guarantee, but only because the lender
first determined that her husband was not creditworthy).
B.
Bank of America maintains, of course, that it did not
violate ECOA by requiring Mrs. Ballard’s guarantee. The Bank
contends that a borrower’s spouse becomes a de facto joint
applicant merely by virtue of co-owning any of the collateral
securing the loan. The Bank claims that Moran, 476 F.3d at 442,
Hansen, 48 F.3d at 700, and Webster, 832 F. Supp. at 151, all
hold that a spouse who co-owns any collateral can be required to
provide an unlimited guarantee as a condition for the loan.
Those cases, however, do not sweep so broadly. In Hansen,
48 F.3d at 700, and Webster, 832 F. Supp. at 151, the courts
grounded their conclusion that the plaintiff was a de facto
joint applicant on the fact that she owned part or all of the
entity for which the loan was sought. Although the reasoning in
Moran was less clear, no ECOA violation occurred in that case
because the plaintiff also co-owned one of the entities
benefitting from the loan. See Appellant’s Br. at 49, Moran,
476 F.3d 436 (Nos. 05-3656 & 05-3735). Accordingly, the lenders
in all three cases complied with ECOA not because the guarantor
spouse co-owned some property with the borrower, but because she
owned or co-owned the property directly benefitting from the
loan.
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Treating the co-owner of a property as a joint applicant
for a loan benefitting that property makes sense; repayment of
the loan will often depend on business decisions made by the co-
owners jointly. It makes less sense to treat a spouse as a
joint applicant merely because she happens to co-own some assets
with her applicant husband. Under the theory espoused by Bank
of America, any time a borrower’s spouse co-owns any property
designated as collateral, no matter how minimal, the spouse
could be required to assume unlimited liability on the
borrower’s debt. Such a construction would permit an unlimited
spousal guarantee in almost every instance, and would seem to
contravene the plain language and purpose of ECOA.
Accordingly, Bank of America well may have violated ECOA by
requiring Mrs. Ballard to sign as an unlimited guarantor without
first determining that her husband was not creditworthy. We
need not, however, definitively resolve that question because
Mrs. Ballard’s claim fails for another reason -- she waived it.
IV.
The initial loan guarantee that Mrs. Ballard executed in
March 2008 included a waiver of any claims against Bank of
America for “punitive, exemplary or other non-compensatory
damages.” That waiver did not constitute a release of Mrs.
Ballard’s ECOA claims, for it did not forfeit her right to sue
11
Bank of America for actual damages or attorneys’ fees. See 15
U.S.C. § 1691e(a), (d) (authorizing ECOA suits for actual
damages and attorneys’ fees). After FoodSwing’s first default
in 2009, however, Mrs. Ballard executed a series of four loan
restructuring agreements. Each of these restructuring
agreements expressly waived “any and all” claims by Mrs. Ballard
against Bank of America in exchange for the Bank’s waiver of
FoodSwing’s defaults.
A valid waiver can prevent a borrower from recovering under
a federal statute. 2 A court will enforce a waiver unless it was
obtained through intentional misconduct, Wartsila NSD N.
America, Inc. v. Hill Int’l, Inc., 530 F.3d 269, 274 (3d Cir.
2008); Eaglehead Corp. v. Cambridge Capital Grp., Inc., 170 F.
Supp. 2d 552, 559 n.7 (D. Md. 2001); was not knowing and
voluntary, Alexander v. Gardner-Denver Co., 415 U.S. 36, 52 n.15
(1974); or would “thwart the legislative policy which [the
statute] was designed to effectuate,” Brooklyn Sav. Bank v.
O’Neil, 324 U.S. 697, 704 (1945).
2
Depending on the statute at issue, a court will apply
either federal or state law to determine the validity of a
waiver of federal statutory rights. See Kendall v. City of
Chesapeake, 174 F.3d 437, 441 n.1 (4th Cir. 1999). We have not
yet determined whether we evaluate ECOA waivers under the
federal totality-of-the-circumstances approach or the state
contract-law approach. We need not here resolve that question
because the waiver of “any and all” claims is valid under both
approaches.
12
Mrs. Ballard contends that enforcing sweeping waivers like
the ones she signed as part of the restructuring would fatally
undermine the purpose of ECOA. She maintains that if lenders
could, by obtaining a single signature, commit an ECOA violation
and simultaneously induce borrowers to waive their ECOA rights,
lenders could engage in credit discrimination with impunity.
For this reason, she argues that the waivers she signed at Bank
of America’s insistence are unenforceable.
Her argument might well have merit if the Bank in fact had
required her to waive her ECOA rights as a precondition for
obtaining the loan. In the analogous context of Title VII,
federal law prohibits employers from conditioning an offer of
employment upon an applicant’s waiver of nondiscrimination
rights. See Gardner-Denver, 415 U.S. at 51 (“[W]e think it
clear that there can be no prospective waiver of an employee’s
rights under Title VII.ˮ). When enacting ECOA, it seems unlikely
that Congress intended to permit lenders to predicate the
extension of credit upon a borrower’s initial willingness to
endure discriminatory treatment.
But Bank of America did not require Mrs. Ballard to execute
a prospective waiver of her ECOA rights. Instead, the Bank
obtained Mrs. Ballard’s waiver only in exchange for its
agreement to restructure the loan after FoodSwing defaulted.
Thus, Bank of America agreed to work with the Ballards to
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resolve FoodSwing’s defaults, but only if the Ballards consented
to forfeit all past, present, and future claims against the
Bank.
Conditioning a favorable loan restructuring upon a waiver
of ECOA rights seems to us analogous to the common employment
practice of conditioning a favorable severance agreement upon a
waiver of Title VII rights. See, e.g., Gardner-Denver, 415 U.S.
at 52 (“presumably an employee may waive his cause of action
under Title VII as part of a voluntary settlement”); Cassiday v.
Greenhorne & O’Mara, Inc., 220 F. Supp. 2d 488, 494 (D. Md.
2002) (upholding Title VII release agreement made in exchange
for ten weeks of severance pay). An ECOA waiver obtained in
exchange for a loan restructuring differs significantly from one
required as a precondition for a loan. The latter would permit
a bank to circumvent ECOA’s clear dictates. The former merely
affords both parties a negotiated benefit: a means of escaping
default for the borrower, and protection against future claims
for the lender. In fact, refusing to enforce waivers attendant
to refinancing could well harm borrowers like the Ballards,
since a lender would be reluctant to work with a borrower to
restructure a loan after a default if the lender knew that a
waiver would not be enforced.
In exchange for Bank of America’s restructuring of the
loan, Mrs. Ballard executed waivers of all claims against the
14
Bank on four separate occasions over a period of more than two
years. Further, she confirmed that she “actively and with full
understanding” participated in negotiating each agreement “after
consultation and review with [her] counsel.” 3 In doing so, Mrs.
Ballard waived her right to bring an action against Bank of
America, and thus her state and federal ECOA claims must fail.
We similarly conclude that Mrs. Ballard waived her claims
for unjust enrichment and for declaratory relief. Because we
deem her claims waived, we need not address whether these claims
were also time-barred.
V.
For the foregoing reasons, the judgment of the district
court is
AFFIRMED.
3
Mrs. Ballard alleges that her attorneys’ asserted
conflicts of interest rendered her waivers involuntary. But she
fails to plead facts giving rise to a plausible inference that
any such conflicts prompted her repeated decisions to waive her
ECOA rights. See Iqbal, 556 U.S. at 678.
15
SHEDD, Circuit Judge, concurring in the judgment:
Because I agree that Kellie Ballard waived any claim she
had under the Equal Credit Opportunity Act (“ECOA”), I concur in
the judgment reached by the court.
I do not join Part III of the majority opinion, which—as
even the majority concedes—is unnecessary to deciding the
appeal. See Leiba v. Holder, 699 F.3d 346, 352 (4th Cir. 2012)
(noting dicta is “non-binding”). In fact, contrary to the
majority’s suggestion, I believe that ECOA does not cover a
“guarantor” under the circumstances presented here, where Bank
of America is not discriminating against Ballard on account of
her marital status; rather, the Bank is requiring more of
Ballard on account of her joint-ownership of property and her
wealth. Therefore, the Bank’s actions are “sound commercial
practice unrelated to any stereotypical view of a wife’s role”
and do not violate ECOA. Moran Foods, Inc. v. Mid-Atl. Mkt.
Dev. Co., LLC, 476 F.3d 436, 442 (7th Cir. 2007).
16