Residential Funding Company v. Terrace Mortgage Company
2013 U.S. App. LEXIS 16288
| 8th Cir. | 2013Background
- Terrace originated residential mortgage loans and sold them to Residential under a 1994 contract that incorporated the Client Guide; the Client Guide made Terrace fully liable for misrepresentations and warranted that each loan complied with its terms.
- The Client Guide granted Residential sole discretion to determine an Event of Default and required Terrace to repurchase a defaulted loan within 30 days, with a right to appeal by forwarding information for Residential’s determination.
- Residential and Terrace normally resolved issues informally, but the real estate market downturn led to increased repurchase demands and a breakdown in negotiation.
- In 2008 Residential demanded repurchase of thirteen loans; Terrace refused, and Residential sued in state court, which was removed to federal court.
- The district court granted summary judgment for Residential, holding the Client Guide allocated the repurchase obligation and indemnification to Terrace, and awarded Residential attorneys’ fees and costs; Terrace appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Residential controls the default determinations under the Client Guide | Residential has sole discretion to declare an Event of Default | The contract language is ambiguous and subject to judicial review | Unambiguous; Residential controls and court reviews only notification and refusal to repurchase |
| Whether Residential waived its repurchase rights by conduct | Residential’s conduct did not indicate waiver and the nonwaiver clause governs | Residential’s history of informal resolutions and litigation conduct imply waiver | No waiver; conduct failed to show clear intent to relinquish rights |
| Whether Residential’s damages evidence is admissible and supports damages | Damages records are admissible business records used to prove loss | Evidence is hearsay or improperly authenticated | Records satisfy Rule 803(6); admissible to prove damages |
| Whether Residential is entitled to attorneys’ fees and costs under the Client Guide | Contract allows indemnification for all losses and fees | Fees should be limited to reasonably incurred costs under Minnesota law | Contract unambiguously provides fees without limitation; awarded |
Key Cases Cited
- Travertine Corp. v. Lexington-Silverwood, 683 N.W.2d 267 (Minn. 2004) (contract interpretation; ambiguous terms; deference to language)
- In re Hennepin Cnty. Recycling Bond Litig., 540 N.W.2d 494 (Minn. 1995) (implied covenant of good faith in contracts)
- Metro. Sports Facilities Comm'n v. Gen. Mills, Inc., 470 N.W.2d 118 (Minn. 1991) (sophisticated parties liberty of contract; enforceability of negotiated terms)
- Westendorp v. Indep. Sch. Dist. No. 273, 131 F. Supp. 2d 1121 (D. Minn. 2000) (reasonableness not required; contract language governs attorney-fee entitlement)
- Brawner v. Allstate Indem. Co., 591 F.3d 984 (8th Cir. 2010) (business records admissibility through Rule 803(6))