Citimortgage, Inc. v. Chicago Bancorp, Inc.
2015 U.S. App. LEXIS 22192
8th Cir.2015Background
- CMI and Bancorp entered a Correspondent Agreement (2004) under which CMI purchased mortgage loans from Bancorp and Bancorp agreed to cure or repurchase loans CMI, in its “sole and exclusive discretion,” determined were defective (including for material misrepresentations or inaccuracies).
- From 2004–2009 Bancorp sold >4,700 loans to CMI. CMI identified 11 loans as defective and demanded cure/repurchase; Bancorp refused on 11 loans.
- CMI sued for breach of contract; the district court granted summary judgment for CMI on 8 loans (Bennett, Brown, Curtis, Hansen, Maggio, Miller, Perez, Villares), dismissed 3 others with prejudice, and awarded $1,283,068.07 under the contract’s repurchase formula.
- Bancorp appealed, arguing disputes of fact on CMI’s good faith/materiality determinations for several loans, on repurchase-price calculation/mitigation for Bennett and Brown, and that CMI (as underwriter) bore responsibility for defects on Curtis, Maggio, and Villares.
- The Eighth Circuit applied Missouri contract principles and followed Residential Funding Co. v. Terrace Mortgage Co., holding that where an unambiguous contract grants one party sole discretion to determine defectiveness, courts will not second-guess that determination absent evidence of bad faith or evasion of the contract’s spirit.
Issues
| Issue | Plaintiff's Argument (CMI) | Defendant's Argument (Bancorp) | Held |
|---|---|---|---|
| Whether CMI’s determinations that loans were defective are judicially reviewable or subject to good-faith challenge | CMI: agreement grants CMI sole and exclusive discretion to determine defectiveness; its determinations are controlling | Bancorp: CMI’s determinations were not in good faith for certain loans and thus should be subject to fact-based review | Court: CMI’s unambiguous contractual discretion precludes reviewing the substance of its defect determinations absent evidence of bad faith; affirmed for contested loans |
| Whether CMI acted in bad faith (implied covenant) in declaring Brown, Hansen, Maggio, Perez defective | CMI: it acted within contract rights; no evidence of intent to evade contract or deny Bancorp expected benefit | Bancorp: CMI’s decisions were erroneous, inconsistent, or motivated by ulterior motives | Court: mere error or unreasonableness is insufficient; Bancorp produced no evidence of bad faith or subterfuge; grant for CMI |
| Whether repurchase-price formula should be limited by mitigation/foreseeability for Bennett and Brown | CMI: repurchase price is governed by contract formula; parties bargained for risk allocation | Bancorp: CMI unreasonably delayed disposition, failed to mitigate, and damages were not foreseeable | Court: parties bargained for the formula; mitigation/foreseeability doctrines do not override unambiguous contractual allocation of risk; award stands |
| Whether CMI (as underwriter) bears responsibility for defects in loans it underwrote (Curtis, Maggio, Villares) | CMI: agreement covers loans "underwritten and/or originated" by seller; CMI may still determine originator-based defects | Bancorp: as underwriter CMI was responsible to verify and thus cannot demand repurchase from originator | Court: agreement language covers loans "underwritten and/or originated" based on material misrepresentations; CMI’s determinations control; summary judgment for CMI |
Key Cases Cited
- Residential Funding Co. v. Terrace Mortg. Co., 725 F.3d 910 (8th Cir. 2013) (contract granting buyer sole discretion to deem loans defective is enforced; courts cannot reexamine those determinations absent bad faith)
- BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908 (8th Cir. 2007) (under Missouri law, discretionary errors or unreasonable decisions do not alone prove bad faith; bad faith requires intent to evade contract spirit or deny expected benefit)
- The Arbors at Sugar Creek Homeowners Ass’n v. Jefferson Bank & Tr. Co., 464 S.W.3d 177 (Mo. 2015) (Missouri law: implied covenant of good faith cannot override express contract terms; no breach where action is permitted by contract)
- Resolution Tr. Corp. v. Key Fin. Servs., Inc., 280 F.3d 12 (1st Cir. 2002) (similar repurchase provision enforces contractual allocation of market-risk to seller; mitigation/foreseeability doctrines do not supplant bargained-for formula)