TCF National Bank v. Market Intelligence, Inc.
2016 U.S. App. LEXIS 1853
| 8th Cir. | 2016Background
- TCF contracted with Market Intelligence (Market) beginning in 2002 to buy Field Asset Verifications (FAVs), a drive-by valuation product, to support mortgage lending. Marketing materials promised a 100% quality review by qualified real estate appraisers.
- In August 2002 TCF’s lending director Meyer questioned a specific high FAV value; he sent a letter and spoke by phone with Market’s rep, who reassured him. TCF continued using FAVs.
- By 2004 TCF’s internal review showed widespread discrepancies: many FAVs were significantly higher than full appraisals. A July 2004 memorandum noted FAVs ‘‘had a majority of values in excess of 100%’’ of independent appraisals.
- TCF lost confidence in FAVs, stopped ordering them by February 2005, and terminated the contract effective June 11, 2005. TCF later alleged Market habitually inflated values and failed to use appraisers in quality review.
- TCF sued in September 2011 asserting fraud (fraudulent inducement and fraud), negligent appraisal, breach of contract, breach of covenant, and consumer fraud. The district court granted summary judgment for Market, holding all claims time-barred under Minnesota’s six-year statute of limitations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether TCF exercised reasonable diligence (fraud discovery rule) | Meyer’s 2002 letter and phone call with Market + reliance on Market materials show reasonable diligence | 2004 internal data put TCF on notice; 2002 contact was insufficient given later discrepancies | No reasonable jury could find TCF exercised due diligence; limitations ran before suit |
| Whether a reasonably diligent investigation could have discovered the fraud | Even with diligence, Market’s marketing and prior reassurances would have concealed the fraud | TCF could have discovered the fraud by investigating after 2004 discrepancies | TCF failed to show facts could not have been discovered with reasonable diligence; tolling denied |
| When contract claims accrued (breach & covenant) | Breaches discovered later; limitations should run from later discovery or be tolled | Breach occurred while contract was in force (before June 2005) so limitations began then | Claims accrued while contract existed; limitations expired before suit |
| When negligence claims accrued ("some" damage rule) | Damages occurred only upon borrower default/foreclosure, so accrual later | ‘‘Some’’ damage occurred when TCF relied on negligent FAVs and made undersecured loans | Accrual occurred when negligent valuations were received and loans made; limitations expired before suit |
Key Cases Cited
- United States Commodity Futures Trading Comm’n v. Kratville, 796 F.3d 873 (8th Cir. 2015) (summary judgment review standard and view of facts for nonmoving party)
- Hope v. Klabal, 457 F.3d 784 (8th Cir. 2006) (Minnesota fraud discovery rule; plaintiff’s burden on due diligence)
- Toombs v. Daniels, 361 N.W.2d 801 (Minn. 1985) (adoption of discovery rule for fraud claims)
- Bustad v. Bustad, 116 N.W.2d 552 (Minn. 1962) (failure to discover fraud due to negligence inconsistent with reasonable diligence)
- Klehr v. A.O. Smith Corp., 87 F.3d 231 (8th Cir. 1996) (depth of investigation required depends on known facts; discovery rule analysis)
- Veldhuizen v. A.O. Smith Harvestore Prods., Inc., 839 F. Supp. 669 (D. Minn. 1993) (notice that product is not working creates duty to investigate)
- Herrmann v. McMenomy & Severson, 590 N.W.2d 641 (Minn. 1999) (negligence accrual—limitations run once some damage occurs)
- Antone v. Mirviss, 720 N.W.2d 331 (Minn. 2006) (rejecting open-ended discovery accrual for damages; favoring accrual when some damage occurs)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (summary judgment standards and materiality)