Kuhl v. U.S. Bank Trust National Association

Background

Jonathan Kuhl, proceeding without a lawyer, sued U.S. Bank Trust National Association, acting as owner trustee for Legacy Mortgage Asset Trust 2018GS-1, and Rushmore Loan Management Services LLC. The lawsuit arose from the defendants’ handling of insurance proceeds after a January 2019 fire destroyed a detached garage and workshop on property securing Kuhl’s mortgage loan.

Kuhl asserted a claim under the Truth in Lending Act against U.S. Bank and state-law claims for breach of fiduciary duty and breach of contract against Rushmore. The parties filed cross-motions for summary judgment. The court granted a summary-judgment motion if the evidence showed no genuine dispute about a fact that could affect the outcome and the moving party was entitled to judgment under the law.

The mortgage stated that insurance proceeds would be used to repair or restore the property unless repairs were not economically feasible, would reduce the lender’s protection, or the parties agreed otherwise. In those circumstances, the proceeds could be used to reduce the borrower’s debt, with any remaining money paid to the borrower after the debt was fully paid.

The insurance company issued $151,877.02. Rushmore distributed the proceeds in several payments, including $25,407.50 in June 2019, $12,030.19 in September 2019, $40,000 in October 2019, and $20,000 in May 2020. Kuhl and the defendants also discussed using remaining proceeds toward mortgage arrears or a possible loan modification. The court noted that the current status of the loan was unclear from the record, although defendants contended that the repairs had been completed, the repair costs had been fully paid, and the remaining proceeds had been applied to the mortgage balance.

Truth in Lending Act claim

The Truth in Lending Act requires a new owner or assignee of a mortgage loan to notify the borrower of the transfer within 30 days. A claim for violating that requirement must be brought within one year of the violation. The court found that Rushmore’s June 11, 2018 notice told Kuhl that the loan had been transferred to U.S. Bank on May 14, 2018. The limitations period therefore expired on June 13, 2019, but Kuhl filed this lawsuit on September 10, 2019.

The court also found no basis for extending the deadline. Kuhl argued that defendants had concealed information during discovery about when the Note’s endorsement was signed, but conduct during this lawsuit could not have prevented him from filing on time. The court concluded that Kuhl had not provided evidence of fraudulent concealment and did not meaningfully dispute receiving the notice. It therefore dismissed the Truth in Lending Act claim against U.S. Bank.

Breach of fiduciary duty claim

The court held that Rushmore was entitled to judgment on Kuhl’s fiduciary-duty claim. A fiduciary relationship generally requires one party to act for another’s benefit within the scope of their relationship. The court explained that the usual relationship between a borrower and a bank is contractual, not fiduciary.

Rushmore was the loan servicer acting for U.S. Bank and therefore had duties under the loan documents to U.S. Bank, not fiduciary duties to Kuhl. The court also found that neither the mortgage nor Rushmore’s Process Guidelines created a fiduciary relationship. The Process Guidelines contemplated an escrow account, but the court found that the account protected U.S. Bank’s and Rushmore’s interests rather than Kuhl’s.

The court added that, even if Rushmore owed Kuhl a fiduciary duty, Kuhl had not shown misconduct. The undisputed evidence showed that Rushmore distributed insurance proceeds in stages as repairs were completed and eventually distributed enough to cover the repairs. The court concluded that Rushmore acted consistently with the mortgage and Process Guidelines and dismissed the fiduciary-duty claim.

Breach of contract claim

The court also granted judgment to Rushmore on Kuhl’s contract claim. Kuhl argued that Rushmore breached the Process Guidelines by initially paying only $25,407 rather than approximately one-third of the full insurance proceeds and by distributing the remaining funds too slowly.

The court found it difficult to treat the Process Guidelines as a contract because Kuhl disputed receiving them and disputed that they applied to his loan. The Guidelines also described Rushmore’s policy and were intended to explain processing expectations, which the court found showed they were an internal policy rather than a contract. In any event, the court held that Kuhl had not shown a material breach: the Guidelines allowed staged payments based on inspections and warned that delinquent loans could require additional approval and processing time.

Kuhl also argued that the parties had reached an agreement during settlement discussions in the foreclosure case to use the remaining insurance proceeds as a down payment for a loan modification. The court stated that, even if it could consider that theory, the submitted emails showed that the parties had not reached a final agreement. It dismissed the breach-of-contract claim.

Request for equitable relief

Kuhl asked the court to order Rushmore to pay him the remaining insurance proceeds. The court dismissed that request because Kuhl had been paid for the full cost of the repairs and, under the mortgage, U.S. Bank was entitled to apply remaining proceeds to the mortgage arrears while the loan was delinquent. The court concluded that no unpaid proceeds remained to which Kuhl was entitled, so the request was moot.

Disposition

The court granted defendants’ motion for summary judgment and denied Kuhl’s motion for summary judgment. It dismissed the Truth in Lending Act claim, the fiduciary-duty claim, the breach-of-contract claim, and the request for equitable relief, and directed the Clerk to terminate the motions and close the case.