McKinney v. Fulton Bank (Maryland U.S.D.C.)

Filed: June 21, 2010
Opinion by Judge Catherine C. Blake.

Held: A contract alone does not create a tort duty owed by a Bank to a Borrower in a loan transaction unless the Borrower is a vulnerable party or other special circumstances exist.

Facts: A borrower applied for a $930,000 loan to build a second home but entered into a $997,000 loan with a bank on April 27, 2006. The borrower claimed the bank "violated several federal and state laws by failing to make certain disclosures and issue documents on time" and the bank forced her to refinance a $67,000 second mortgage on her principal residence by unilaterally increasing the loan.

The borrower also claimed the deed of trust on her primary home granted her a three-day right to cancel the loan transaction and because she was not informed of this right she had an extended right to cancel. The borrower alleged this right was exercised by rescission letters sent on April 6, 2009 to the bank's counsel and president voiding any security interest of the bank. The bank foreclosed on the second home. The borrower claimed damages relating to costs of the loan and improvements made to the second home.

Analysis: The Court dismissed a majority of the claims alleging violations of the Truth in Lending Act, the Real Estate Settlement Procedures Act and the Maryland Consumer Protection Act due to expiration of the statute of limitations, the lack of a private cause of action under the statute and the borrower's failure to meet the heightened pleading standards.

The borrower also brought a negligence claim. While "the Maryland Court of Appeals has found that a bank did owe a consumer a duty of care in a loan transaction" in Jacques v. First Nat'l Bank of Md., 515 A.2d 756 (Md. 1986), the finding arose from more than just the contract. A contractual duty does not by itself become a tort duty. A duty must be imposed by law independent of the contract. "The Fourth Circuit has interpreted the holding of Jacques as limited to circumstances involving a vulnerable party." As the court neither found an independent duty nor considered the borrower to be vulnerable, the negligence claim was also dismissed.

The full opinion is available in pdf.