25 March 2024

Tenth Circuit Affirms ECOA's Regulatory Decision To Limit Creditors' Exposure

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In a recent credit discrimination case, the Tenth Circuit affirmed the Western District of Oklahoma's finding that appellant guarantors lacked standing to assert an Equal Credit Opportunity Act...
United States Litigation, Mediation & Arbitration
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In a recent credit discrimination case, the Tenth Circuit affirmed the Western District of Oklahoma's finding that appellant guarantors lacked standing to assert an Equal Credit Opportunity Act claim because the plain language of the statute considers guarantors to be applicants only for the limited purpose of the signature rules. Miller v. First United Bank & Tr. Co., No. 23-6050, 2024 U.S. App. LEXIS 3820 (10th Cir. Feb. 20, 2024).


The Appellants Marquise Miller, Dekoven Riggins, Richard Osei, and Chad Tyler (collectively "Individuals") initiated a pro se complaint against First United Bank and Trust Co. ("First United") for credit discrimination claims under the Equal Credit Opportunity Act ("ECOA"), the Fair Housing Act ("FHA"), and 42 U.S.C. § 1981 ("§ 1981"). In their initial pro se complaint, the Individuals alleged that First United denied their application for financing because they are Black. In response, First United filed a motion to dismiss the Individuals' FHA claim. The district court granted First United's motion but provided the Individuals with leave to amend their complaint.

The Individuals then employed an attorney and filed a motion for leave to add CDMR, LLC ("CDMR") "as a necessary party-plaintiff because 'the loan application guaranteed by the four individual Plaintiffs [was] directed to and made by . . . CDMR . . . which is owned by the four individual Plaintiffs.'" The Individuals also moved to file a First Amended Complaint (the "FAC"). The district court granted the motion and CDMR was added as a party with the Individuals (collectivity the "Plaintiffs").

Subsequently, First United filed a 12(b)(6) motion to dismiss Plaintiffs' FHA and ECOA claims and the Individuals' § 1981 claim. The district court dismissed Plaintiffs' FHA claims, dismissed the Individuals' ECOA claim, and dismissed the Individuals' § 1981 claim. Accordingly, only CDMR's ECOA and § 1981 claims remained.

Plaintiff's counsel then filed a motion to withdraw from the case. The district court granted the motion and gave CDMR a month to find new counsel. The Individuals "then filed a pro se 'Motion to Add Necessary Party,' seeking to add themselves back into the case as to the ECOA claim" and filed a motion for leave to file a second amended complaint ("SAC").

The district court denied the motion to add necessary parties because it "found no reason to reconsider its earlier ruling." As to the motion to amend, the district court denied the motion because the Individuals could not seek an amendment as "they were no longer parties to the case" and "the proposed SAC appeared to be offered in bad faith given the irreconcilable factual contradiction between the FAC and the SAC." Finally, the district court dismissed CDMR's FAC without prejudice because CDMR failed to obtain an attorney pursuant to the court's deadline. The Individuals then filed a motion to alter the judgment under Federal Rule of Civil Procedure 59(e). The district court "concluded that the Individuals had not demonstrated clear error." The Individuals appealed.


On appeal, the Court reviewed the district court's denial of the Individuals' motion to add necessary parties, motion for leave to file the SAC, and Rule 59(e) motion pursuant to the abuse of discretion standard. The Circuit Court reviewed the Individuals' arguments regarding the district court's 12(b)(6) dismissal of the Individuals' ECOA and § 1981 claim de novo.

ECOA Claim

On appeal, the Individuals argued that "as guarantors of the loan to CDMR they had statutory standing to bring their ECOA claim." The Court rejected the Individuals' argument and determined that "[t]he plain language of the statute does not include guarantors." The Court reasoned that even though ECOA regulation 12 C.F.R. § 1002.2(e) includes "guarantor" in its definition of "applicant," "a guarantor is to be considered an applicant for one limited purpose—violation of the signature rules." The signature rules provide that if an applicant individually qualifies for a loan a creditor is prohibited from requiring a spouse's signature on the note. The Court specifically rejected the Individuals' reliance on RL BB Acquisitions, LLC v. Bridgemill Commons Development Group, 754 F.3d 380 (6th Cir. 2014) and found that the Sixth Circuit actually "observed that treating guarantors as applicants for the limited purpose of the signature rules was 'a result that the regulators reached with caution.'" The Court noted that the Sixth Circuit reviewed the history of the regulation and found that "the final version limited the definition of applicant so it would only apply to the spouse-guarantor rule[]" and the Federal Reserve made this decision due to "the concerns of industry commenters who believed that the unlimited inclusion of guarantors and similar parties . . . might subject creditors to a risk of liability for technical violations of various provision of the regulation."

In furtherance of their claim, the Individuals argued that the language of 12 C.F.R. § 1002.2(e) "includes guarantors because a guarantor may become contractually liable for repayment of a loan[.]" The Court rejected this argument and noted that the Individuals' reading of the regulation "would render the next sentence of the definition superfluous" because under their interpretation "there would have been no need to specify that guarantors are applicants for purposes of the signature rules." In sum, the Court determined that a guarantor falls under the definition of applicant only within the context of the signature rule.

Principal Borrower and Co-borrower Theory

The Individuals then attempted to argue that "they were the principal borrowers for ECOA purposes because CDMR has no credit or financial history[.]" In support, they relied on a Tenth Circuit bank fraud case recognizing that banks should consider the character of the borrower and guarantor. The Court discarded the Individuals' argument regarding the Tenth Circuit case and surmised that the case "only heightens the distinction between a borrower (applicant) and a guarantor."

As to their co-borrower theory, the Individuals proclaimed that "although a guarantor does not become the principal borrower, he can act in the principal borrower's place 'vicariously in his individual capacity'" and that "renders them co-borrowers." This line of argument primarily concerned "state or common law principles and causes of action." The Court acknowledged that state and common law principles must be considered when a question regarding a federal claim cannot be resolved through a statutory interpretation. However, the Court did not need to analyze such principles because it had already determined "that the ECOA and its implementing regulations adequately answer[ed] the question[.]" Further, the Individuals reliance on Durdin v. Cheyenne Mountain Bank, 98 P.3d 899 (Colo. App. 2004) was inapposite because there the plaintiff "was both a guarantor and a co-borrower" because he submitted an application to the subject bank as a co-borrower. The Court affirmed the district court's finding that the Individuals failed to show that they submitted the loan application as co-borrowers nor demonstrated that they asked First United to consider "the loan a personal one secured by their assets."

§ 1981 Claim

To sustain a § 1981 claim, a plaintiff must "identify injuries flowing from a racially motivated breach of their own contractual relationship, not of someone else's." In support of their claim, the Individuals asserted the following: "a guarantor can (1) be sued individually, (2) act in place of the principal borrower, and (3) sue a creditor directly." The Court rejected the Individuals' arguments because a guarantor is prohibited from asserting an individual § 1981 claim when the harm that the individual alleges is derivative of the harm suffered by the corporation. The Court held that "the Individuals have not shown that any harm they experienced is not derivative of any harm CDMR may have sustained[.]"

Denial of Leave to File the SAC

Finally, the Court held that the FAC was the operative complaint and superseded the pro se complaint for purposes of comparing the allegations. However, the Court noted that any statute of limitations arguments could still rely on the pro se complaint. The Court agreed with the district court that the "contrary allegations in the FAC and the SAC were indicative of bad-faith, because the Individuals would have been aware, when the FAC was filed, whether they were co-borrowers."


This case sets forth with precision the limitations on guarantor statutory claims against creditors for alleged harm. Critically, it affirms the ECOA's regulatory decision to limit creditors' exposure to potential liability for technical violations of various provisions of the regulation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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