Thursday, May 12, 2016

Harris v. Mortgage Professionals

Opinion handed down March 23, 2015
        The U.S. District Court for the Western District of Missouri granted summary judgment to Hartford Insurance and Mortgage Professionals, Inc. (“MPI”), rejecting a ten-year statute of limitations in favor of a three-year statute of limitations in a suit to collect on mortgage broker bonds.  The U.S. Court of Appeals for the Eighth Circuit reversed the district court’s decision and remanded.

I.  Facts and Holding 
        In 2004, Sherrita Harris closed on a home with a mortgage from MPI.[1]  MPI, as obligor and principal, bought two “Missouri Residential Mortgage Brokers Bonds” from Hartford Fire Insurance Company, its surety, as required by Missouri statute.[2]  These surety bonds stated that both MPI and Hartford  were “jointly and severally” liable to any person “who may have a claim against” MPI.[3]
        In early 2012, Harris sued MPI for violating the Missouri Merchandising Practices Act.[4]  Harris’s claim was successful, and she obtained a judgment for compensatory damages, punitive damages, and attorney’s fees.[5]  With notice of the suit against MPI, Hartford chose not to intervene in the suit and failed to pay the judgment amount due on the bonds.[6]  Therefore, later that year, Harris sued Hartford for breach of contract, vexatious refusal to pay, and equitable garnishment.[7] 
The district court granted Hartford summary judgment, rejecting the ten-year statute of limitations in Section 516.110(1) in favor of the three-year statute in Section 516.130(2).[8]  The U. S. Court of Appeals for the Eighth Circuit reversed and remanded.[9]
II.  Legal Background
        Statutes of limitation are procedural in Missouri.[10]  No Missouri statute of limitations specifically provides for actions on mortgage-broker bonds.  However, the Supreme Court of Missouri has held that an action on a statutorily-required bond is upon a writing for the payment of money, thus subject to a ten-year statute of limitations.[11]
III.  Instant Decision
The Eighth Circuit framed the issue as whether Harris’s suit to collect on the statutorily-required bonds was an action upon a writing for the payment of money or upon a penalty statute.[12]  Harris argued the ten-year statute of limitations, for “[a]n action upon any writing . . . for the payment of money or property,” applied.[13]  Hartford, on the other hand, argued the three-year statute for “[a]n action upon a statute for a penalty or forfeiture,” applied.[14]
The district court rejected the ten-year statute of limitations, citing State ex rel. Griffin v. R.L. Persons Construction, Inc. as support.[15]  Griffin held that “when a statute provides for a penal remedy beyond simple restitution, the more ‘specific’ three-year statute of limitations for ‘actions on a statute for a penalty’ applies.”[16]  The Eighth Circuit took note of the fact that Griffindid not cite Martin v. Knapp or any other Supreme Court of Missouri decisions that applied the ten-year statute to bonds for “penal sums.”[17]
        The Eighth Circuit also took issue with the district court ignoring State v. Virgilito.[18]  In Virgilito, the surety argued “the bond was for a ‘penal sum’ and the action was subject to the three-year statute ‘for a penalty.’”[19]  Nevertheless, the Supreme Court of Missouri held the ten-year statute applied to civil judgments on bonds, even when such a bond “grows out of a criminal proceedings.”[20] 
Ultimately, the Eighth Circuit reversed the district court because it erroneously relied on Griffin and because the Eighth Circuit was not bound by the intermediate court’s decision inGriffin.  The Eighth Circuit held that Harris’s claim against Hartford sought the amount due on the bonds and was an action upon a writing for the payment of money.  Because Harris sued Hartford within ten years after her claim accrued on March 11, 2004, her suit was not barred.
Because Hartford had notice of Harris’s suit against MPI, it had an opportunity to defend.  The Eighth Circuit noted a surety is liable for contract damages coextensively with those of the principal, unless otherwise agreed.[21]  Because the ten-year statute governs, the Eighth Circuit held Hartford is liable for the judgment amount due on the bond.
IV.  Comment 
        Given the district court’s ignorance of Griffin andVirgilito, and given the standard of review for the grant of summary judgment is de novo, the outcome of the case turned out as expected.  The applicable statute of limitations comports with common sense: “an action upon any writing for the payment of money or property.”
  • Nick Griebel

[1] Harris v. Mortg. Prof’ls, Inc., 781 F.3d 946, 947 (8th Cir. 2015).
[2] Id. (citing Mᴏ. Rᴇᴠ. Sᴛᴀᴛ. § 443.849 (Cum. Supp. 2013). 
[3] Id.
[4] Id.
[5] Id. at 948.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Renfroe v. Eli Lilly & Co., 686 F.2d 642, 646 (8th Cir. 1982).
[11] Harris, 781 F.3d at 948 (citing Martin v. Knapp, 45 Mo. 48, 50-51 (1869))).  See also State ex rel. Enter. Milling Co. v. Brown, 106 S.W. 630, 632 (Mo. 1907) (following Martin and uniformly applying the ten-year statute to an attachment bond); Missouri, K. & T. Ry. Co. v. Am. Sur. Co. of N.Y., 236 S.W. 657, 663-64 (Mo. banc 1921) (applying the ten-year statute to an indemnity bond).See generally Johnson v. State Mut. Life Assur. Co. of Am., 942 F.2d 1260, 1263 (8th Cir. 1991) (en banc) (acknowledging broad interpretation of Missouri’s ten-year statute for bonds); Hughes Dev. Co. v. Omega Realty Co., 951 S.W.2d 615, 616-17 (Mo. banc 1997) (recounting the history of § 516.110(1) since 1835.
[12] Harris, 781 F.3d at 948
[13] Mᴏ. Rᴇᴠ. Sᴛᴀᴛ. § 516.110(1) (Cum. Supp. 2013)..
[14] Mᴏ. Rᴇᴠ. Sᴛᴀᴛ. § 516.130(2) (Cum. Supp. 2013).
[15] Harris, 781 F.3d at 948-49 (citing State ex rel. Griffin v. R.L. Persons Construction, Inc., 193 S.W.3d 424, 429 (Mo. App. 2006)).
[16] Id. (quoting Griffin, 193 S.W.3d at 429.)
[17] Id. (citing Missouri, K. & T. Ry. Co. v. Am. Sur. Co. of N.Y., 236 S.W. 657, 659 (Mo. banc 1921))
[18] Id. (citing State v. Virgilito, 377 S.W.2d 361 (Mo. 1964)).
[19] Id. (quoting Virgilito, 377 S.W.2d at 364).
[20] Virgilito, 377 S.W.2d at 365 (finding that although the bond “provided for the payment of a penalty or penal sum by the surety upon a breach of the conditions of the bond and subsequent forfeiture thereof, . . . that fact is not decisive of the question whether the three or 10-year statute applies”).
[21] Harris, 781 F.3d at 949 (citing City of Independence ex rel. Briggs v. Kerr Constr. Paving Co., 957 S.W.2d 315, 319 (Mo. App. 1997); Howard Constr. Co. v. Teddy Woods Constr. Co., 817 S.W.2d 556, 562-63 (Mo. App. 1991) (noting that under payment and performance bonds, “the entry of a judgment against the principal is determinative of the extent of liability of the surety”).