Westbrooks v. FNB United Corp. (In Re Westbrooks)
440 B.R. 677
Bankr. M.D.N.C.2010Background
- Westbrooks (husband and wife) are guarantors of loans to Keck Acquisition/Keck Co. with Alamance National Bank and later First National Bank via CommunityOne/FNB; wives signed guaranties and deeds of trust.
- Bank required spousal guaranties without evaluating independent creditworthiness of Keck Acquisition or the principal borrowers; no adequate explanation given for spousal signing.
- Modification and additional notes executed in 2004-2005/2006; repeated guaranties and deeds of trust signed by Mrs. Westbrooks without independent creditworthiness determinations.
- Keck Acquisition and Keck Co. later filed Chapter 7 bankruptcy; CommunityOne asserted an interest and later took control of collateral; limited disbursements occurred to CommunityOne from lien sales.
- Westbrooks filed an adversary proceeding in bankruptcy alleging ECOA violations; Bank Defendants moved to dismiss; Westbrooks argued standing as ECOA applicants and defensive timing/continuing violation theories.
- The court denied the Bank Defendants’ Rule 12(b)(6) motion, finding the ECOA claims pled sufficiently to state a claim, and held the claims not time-barred for defensive use.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Westbrooks 'applicants' under ECOA despite guaranty status? | Westbrooks qualify as ECOA applicants as guarantors of a closely-held business loan. | Guarantors do not count as applicants; loan extended to Keck Acquisition, not Westbrooks personally. | Westbrooks are ECOA applicants; standing established. |
| Are ECOA claims time-barred by statute of limitations? | Claims raised defensively, not time-barred; modification practice could be ongoing violation. | Claims are time-barred if not defense-based and outside allowed period. | ECOA claims not time-barred because brought defensively in response to creditor actions. |
| May the court void the guaranty and deed of trust under ECOA relief? | Court could cancel or recoup damages for ECOA violations, potentially voiding guaranty. | Cancellation of guaranty not explicit ECOA remedy; relief questionable at dismissal stage. | Remedies under ECOA may include relief; at dismissal stage, court need not decide full remedy scope. |
| Is the motion to dismiss appropriate under Rule 12(b)(6) given pleadings? | Complaint plausibly states ECOA claim and entitlement to relief. | ECOA claims lack standing/limitations defenses and remedies are improper at dismissal. | Bank Defendants' motion to dismiss denied; pleadings sufficient to state ECOA claim. |
Key Cases Cited
- Silverman v. Eastrich Multiple Investor Fund, L.P., 51 F.3d 28 (3d Cir. 1995) (defensive ECOA claims may avoid limitations bar)
- Eure v. Jefferson Nat. Bank, 448 S.E.2d 417 (Va. 1994) (spousal signature rules under Regulation B)
- Douglas County Nat. Bank v. Pfeiff, 809 P.2d 1100 (Colo.App. 1991) (definition of applicant included guarantors after 1985 amendment)
- Bank of the West v. Kline, 782 N.W.2d 453 (Iowa 2010) (state recognition of ECOA applicability to business credit)
- In re Bernstein, 259 B.R. 555 (Bankr. D.N.J. 2001) (pleading standards in Rule 12(b)(6) context in bankruptcy)