August 19, 2014
Link to the Supreme Court of Missouri Opinion
Davis Conway and Sheri Conway (collectively, Homeowners) challenged the Circuit County of St. Charles County’s dismissal of their homeowner’s suit under the Missouri Merchandising Practice Act (MMPA). The Homeowners, on appeal, argued that although Fannie Mae and CitiMortgage were not parties to the original loan transaction, they were still liable for misconduct that occurred in connection with the loan transaction. The Supreme Court of Missouri agreed with the homeowners and reversed the Circuit Court’s dismissal. In so holding, the Court emphasized that the MMPA prohibits the use of certain deceptive practices if there is a relationship between the sale and the alleged unlawful action. It further stated that the unlawful action may occur by any person at any time before, during or after the sale.
I. Facts & Holding
In 2007, Davis Conway and Sheri Conway (collectively, Homeowners) purchased a home in Wentzville (“the Wentzville property”). The purchase was financed by a mortgage loan from Pulaski Bank. Pulaski assigned the loan to Fannie Mae and CitiMortgage serviced the loan. After purchasing the Wentzville property, the Homeowners decided to do renovations on the property and thus continued to reside in their St. Peter’s home (“the St. Peter’s home”) during renovations.
During renovations, the Wentzville property was damaged in a fire and had to be completely demolished. The Homeowners settled a claim with their insurance company for $150,000 and thereafter informed CitiMortgage. While the Wentzville property was being rebuilt, the insurance company made their checks payable to both the Homeowners and CitiMortgage. After the Homeowners endorsed the checks, CitiMortgage held them in escrow. As the Homeowners submitted bills, CitiMortgage sent payments to the St. Peters home address. During the course of rebuilding, the Homeowners realized that the insurance proceeds would not cover the entire cost of reconstruction. After the Homeowners communicated this to CitiMortgage, CitiMortgage informed the Homeowners that the last $15,000 in insurance proceeds would not be released until the construction was complete.
The Homeowners thereafter fell behind on their mortgage payments by approximately $9,000. CitiMortgage, however, refused to apply the $15,000 it held in escrow to the balance owed on the loan. Instead, CitiMortgage sent a notice of foreclosure to the Homeowners. After CitiMortgage foreclosed on the Wentzville property, Fannie Mae acquired title to the property.
The Homeowners filed an action against Fannie Mae and CitiMortgage (the “Defendants”) under the Missouri Merchandising Practice Act (MMPA). They claimed the defendants’ wrongful foreclosure was “in connection with” the 2007 loan and thus, in violation of the MMPA. The trial court granted the Defendant’s motion to dismiss. It held that the MMPA did not apply because the Defendants were not parties to the original loan transaction. It further stated that the MMPA “does not apply to post-sale . . . activity wholly unrelated to claims or representations made before or at the time of the transaction.” The Homeowners appealed and the Missouri Supreme Court granted transfer. 
The Missouri Supreme Court ultimately reversed the trial court’s holding. It emphasized that the MMPA covers any unlawful act committed “in connection with” the sale. The Court stated that the phrase “in connection with” should be understood as meaning “to have a relationship with.” Consequently the MMPA should be read as prohibiting deceptive practices “if there is a relationship between the sale . . . and the alleged unlawful action.” It further stated “the unlawful action may occur at any time before, during or after the sale and by any person.” After stating these principles, the Missouri Supreme Court held that the Homeowners claims had sufficiently alleged a relationship between the foreclosure actions and the 2007 to survive a motion to dismiss. It thus reversed the trial courts decisions and remanded the action.
II. Legal Background
The MMPA was first adopted by the Missouri legislature in 1967. It was created to “supplement the common law action for fraud, create a distinct statutory fraud action, and provide consumers with a means to seek relief for deceptive and unfair practices.” The Act prohibits “the act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment, suppression, or omission of any material fact in connection with the sale or advertisement of any merchandise in trade or commerce . . .” For the purposes of the MMPA, courts consider a loan to be “an agreed upon bundle of services [that is] ‘sold’ by the lender to the borrower.” The “sale” of the loan, further, “lasts until the last service is performed or the loan is repaid.”
In 2007, the Missouri Supreme Court, en banc, considered whether privity with the consumer is necessary for the MMPA to apply. In that case, Plaintiff purchased a car from a dealership that had, in turn, purchased the car from a wholesaler. Plaintiff sued both the dealership and the wholesaler under the MMPA, alleging that both parties had violated the Act by failing to disclose that the car had previously been involved in an accident. The wholesaler filed a motion to dismiss for lack of privity, and the trial court promptly granted it. The Missouri Supreme Court, on appeal, reversed the dismissal stating, “[t]he statute’s plain language does not contemplate a direct contractual relationship between plaintiff and defendant, and Missouri courts have not imposed such a requirement through statutory construction.”
Two cases considering the MMPA in connection with loan servicing are State ex rel. Koster v. Professional Debt Management, LLC and State ex rel. Koster v. Portfolio Recovery Associates, LLC. These cases, both decided on April 5, 2011, considered whether a third-party debt collector could be in violation of the MMPA violations for allegedly deceptive and unfair debt collection practices. In both cases, the defendants filed motions to dismiss, arguing that because they were not parties to the original transactions, their actions could not have been “in connection with” the original sales transactions. The Missouri Court of Appeals agreed stating, “actions occurring after the initial sales transaction, which do not relate to any claims or representations made before or at the time of the initial sales transaction, and which are taken by a person who is not a party to the initial sales transactions, are not made ‘in connection with’ the sale.”
III. Instant Decision
In Conway v. CitiMortgage, Inc., the Missouri Supreme Court considered whether a plaintiff could state a claim under the MMPA against a loan servicer who was not a party to the original loan transaction for alleged wrongful foreclosure on a deed of trust. The court, in reaching its decision, acknowledged that two separate issues needed to be addressed. First, the court considered whether the enforcement of a loan’s terms is “in connection with” the sale of the loan. The court noted that a loan creates a “long-term relationship in which the borrower and the lender continue to perform various duties . . . over an extended period of time.” As a result, the “sale” is not complete when the lender extends the credit, but, rather, continues for the life of the loan. Because the sale continues for the life of the loan, the court held that enforcement of the loan’s terms is “in connection with” the sale of the loan. 
The Missouri Supreme Court next considered whether a loan servicer who was not a party to the original transaction could be in violation of MMPA. The court acknowledged that the issue had previously been addressed by the Missouri Court of Appeals in State ex rel. Koster v. Professional Debt Management, LLC and State ex rel. Koster v. Portfolio Recovery Associates, LLC. In those cases, the court held that because a third party loan servicer is not a party to the original transactions, its actions cannot be “in connection with” the original sales transactions. The instant court, however, found those holdings to be contrary to the purpose of the MMPA. “Given that the MMPA was enacted to supplement the common law definition of fraud, there is no compelling reason to interpret ‘in connection with’ to apply only when the entity engaged in the misconduct was a party to the transaction at the time the transaction was initiated.”  It reiterated that enforcing the terms of the loan is in connection with the ongoing sale of the loan and that whom does the enforcing should be of no matter.  The court, thus, reversed the trial courts holding, stating “allegations of fraud and deception in the course of [loan] services are ‘in connection with’ the ‘sale,’ . . . even where, as here, the party committing the alleged fraud or deception is not the seller.”
The Supreme Court of Missouri, in handing down this decision, sent a message to entities engaged in the loan servicing: a person not actually a part of the original loan transaction can nevertheless be subject to the Missouri Merchandising Practice Act. Consequently, a party engaged in loan servicing that never partakes in the origination of the loan must still treat consumers with “fundamental honesty, fair play and right dealings in public transaction.” This holding will prove beneficial to Missouri. The business world continues to become more specialized; however consumer needs remain the same. Consumers still require honesty and accountability in their transactions. This holding ensures that a person who interacts with a loan servicer will not be less protected because that loan servicer was not a party to the original loan transaction. Who signs the original loan documents will no longer determine who is subject to the MMPA; now the relevant inquiry will be whether the entity has engaged in an unlawful action in connection with the ongoing sale of the loan.
- Kelly Gorman
 Conway v. CitiMortgage, Inc., 438 S.W.3d 410, 413 (Mo. 2014) (en banc).
 Id. The MMPA prohibits “the act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment, suppression, or omission of any material fact in connection with the sale or advertisement of any merchandise in trade or commerce . . .” Mo. Rev. Stat. § 407.020 (Supp.2013). “For the purposes of the MMPA, a loan is an agreed upon bundle of services being ‘sold’ by the lender to the borrower, and the ‘sale’ of a loan lasts until the last service is performed or the loan is repaid.” Conway, 438 S.W.3d at 412.
 Id. at 412-413.
 Id at 413.
 Id. at 414.
 Douglass F. Noland & Jennifer N. Wettstein, The Missouri Merchandising Practices Act: Remedies for Consumers, 69 J. Mo. B. 210 (2013) (citing State ex rel. Danforth v. Independence, Inc., 494 S.W.2d 362, 368 (Mo. App. W.D. 1973)).
 Mo. Rev. Stat. § 407.020 (Supp.2013).
 Conway, 438 S.W.3d at 412.
 Gibbons v. J. Nuckolls, Inc., 216 S.W.3d 667, 668 (Mo. 2007).
 Id. at 669.
 351 S.W.3d 668 (Mo.App.2011).
 351 S.W.3d 661 (Mo.App.2011).
 Professional Debt, 351 S.W.3d at 670; Portfolio Recovery Associates, 351 S.W.3d at 663.
 Professional Debt, 351 S.W.3d at 674; Portfolio Recovery Associates, 351 S.W.3d at 667.
 Conway, 438 S.W.3d at 412.
 Id. at 415.
 Id. at 415-416.
 Id. at 416.
 Id. at 415-416.
 Id. at 412.
 State ex rel. Danforth v. Independence, Inc., 494 S.W.2d 362, 368 (Mo. App. W.D. 1973).