Davis v. G.N. Mortgage Corp.Davis v. G.N. Mortgage Corp.
- Reporters:
- ,
- Before:
- Coffey, Kanne, Evans
I. BACKGROUND
On September 9, 1999, Thomas and Cathy Davis (the “Davises“), husband and wife and citizens of the State of Illinois, closed on a $288,000 adjustable rate mortgage loan (the “loan“) with an initial interest rate of 10.9% from the GN Mortgage Corporation in order to refinance personal debt. Aside from the
At the closing, which took place at TICOR‘s offices in Joliet, Illinois, Bogdanovich presented the Davises with two stacks of paper, each purportedly consisting of 24 documents and totaling 43 pages. Included in the stacks were duplicate copies of the proposed adjustable rate note, mortgage, adjustable rate rider to the mortgage, and accompanying documents entitled “Prepayment Penalty Note Addendum,”
Early in 2000, GN sold the Davises’ mortgage, including all its rights and obligations emanating from the loan agreement, to Countrywide Home Loans, Inc. Thereafter, in the summer of 2001, the Davises requested that Countrywide apprise them of the amount required to satisfy the remaining balance on their loan as of its two-year anniversary; September 9, 2001. Countrywide responded by informing the Davises that a prepayment penalty of approximately $12,000 (six months’ worth of interest on the loan) would apply if the loan was paid off prior to the expiration of the five-year prepayment penalty period, according to the signed prepayment penalty addendum in their loan file. This came as a surprise to the Davises, who had no knowledge that they had agreed to a five-year prepayment penalty rider and instead believed that they had signed, and were only subject to, a two-year prepayment penalty clause based on alleged representations by Bogdanovich as well as their own broker.3
Upon reviewing the unsigned copy of the mortgage contract that they retained from the closing, the Davises discovered two documents which they had not previously read entitled “Prepayment Penalty Note Addendum,” both of which had been
On August 23, 2001, the Davises filed a diversity action against GN and Countrywide in the United States District Court for the Northern District of Illinois. In their original complaint, the Davises sought a declaration that their loan was subject to either a two-year prepayment penalty period or no prepayment penalty period whatsoever. They also claimed that they were entitled to relief under the Illinois Interest Act,
The plaintiffs filed their amended complaint on May 23, 2002, whereupon the trial judge addressed their failure to properly plead diversity jurisdiction and granted them ten days’ leave to file a second amended complaint to cure the deficiency, which they accomplished. The second amended complaint,5 filed on May 30, 2002,
At the time that the Davises filed their amended complaint, they also sought discovery from the defendants. However, due in part to settlement negotiations and two separate stays issued by the trial judge—one giving the Davises leave to file a second amended complaint and the other allowing GN to file a motion for summary judgment—GN failed to reply to any of the Davises’ discovery requests.6 However, both of the mortgage company defendants had previously complied with initial discovery requirements in accordance with
On July 24 and July 26, 2002, GN and Countrywide, respectively, filed motions for summary judgment. At this time, the plaintiffs filed an emergency motion to reconsider and vacate the district court‘s July 12 order staying discovery pending defendants’ motions for summary judgment and to obtain discovery pursuant to
II. ANALYSIS
At the outset, we note that in a case where subject matter jurisdiction in federal court is premised on diversity jurisdiction under
A. The District Court‘s Grant of Summary Judgment in Favor of the Mortgage Companies
Summary judgment is proper if the “pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”
The Davises assert that the district court erred in granting summary judgment to the defendants because a genuine issue of material fact exists concerning whether or not they signed a two-year prepayment penalty addendum to their loan at the closing. Premised primarily on Thomas Davis‘s two-page personal declaration, the Davises allege that: (1) their loan application originally reflected a proposed, three-year prepayment penalty period; (2) their own loan broker, Boatman, had informed them prior to closing that GN had agreed to a two-year prepayment penalty period; (3) at the closing, the Davises were presented with two stacks of documents by Bogdanovich and instructed to sign one copy which would be returned to GN, while the other should be retained for their (the Davises‘) records; (4) while they failed to read and compare these two stacks line-by-line, Bogdanovich, the closing agent, told them that the stacks were identical and represented their agreement with GN in all material aspects, including the agreed-upon two-year prepayment penalty rider; and (5) upon later review, the Davises found that their stack of loan documents contained both an unsigned two-year prepayment penalty addendum as well as an unsigned five-year addendum.
Based on these alleged facts,7 the Davises argue that a reasonable trier of fact could infer that at the closing they signed a two-year addendum in addition to
1. Breach of Contract Claim
The Davises claim Countrywide breached the September 9, 1999, loan contract by enforcing a five-year prepayment penalty rather than honoring an allegedly agreed-upon two-year prepayment penalty. However, the only evidence of any agreement to a two-year prepayment penalty period, beyond the statements the Davises claim Bogdanovich made at the closing, is an unsigned copy of a two-year prepayment penalty addendum that they (the Davises) received and retained from the closing for their records.
Illinois adheres to a “four corners rule” of contract interpretation, which provides that ” ‘[a]n agreement, when reduced to writing, must be presumed to speak the intention of the parties who signed it. It speaks for itself, and the intention with which it was executed must be determined from the language used. It is not to be changed by extrinsic evidence.’ ” Air Safety, Inc. v. Teachers Realty Corp., 706 N.E.2d 882, 884 (Ill. 1999) (quoting Western Ill. Oil Co. v. Thompson, 186 N.E.2d 285, 287 (Ill. 1962)). This approach is consonant with the general rule under Illinois contract law that “if the contract imports on its face to be a complete expression of the whole agreement, it is presumed that the parties introduced into it every material item, and parole evidence cannot be admitted to add another item to the agreement.” Sunstream Jet Express, Inc. v. Int‘l Air Service Co., Ltd., 734 F.2d 1258, 1265 (7th Cir. 1984) (quoting Pecora v. Szabo, 418 N.E.2d 431, 735-36 (1981); see J & B Steel Contractors, Inc. v. C. Iber & Sons, Inc., 642 N.E.2d 1215, 1217 (Ill. 1994). In other words, “[u]nder the parol evidence rule, extrinsic or parol evidence concerning a prior or contemporaneous agreement is not admissible to vary or contradict a fully integrated writing.” Id. (emphasis in original) (internal quotations omitted). However, “even when a contract is integrated on its face, if the contract is ambiguous, as a matter of law, then extrinsic and parole evidence is admissible to explain the terms of the ambiguous contract.” Sunstream, 734 F.2d at 1266 (quoting Storybrook Homes, Inc. v. Carlson, 312 N.E.2d 27, 29 (Ill. App. Ct. 1974) (internal quotations omitted); see Pappas v. Waldron, 751 N.E.2d 1276, 1282 (Ill. App. Ct. 2001) (citing Air Safety, 706 N.E.2d at 884).
Accordingly, our task is to determine whether the loan agreement is fully integrated, clear and unambiguous, Krautsack v. Anderson, 768 N.E.2d 133, 146 (Ill. App. Ct. 2002). The threshold question for us to examine is whether the contract in question, here the mortgage loan note, is a fully integrated document, despite the lack of a specific integration clause. See J & B Steel Contractors, Inc., 642 N.E.2d at 1217. The determination of whether a contract is integrated is a question of law for the trial judge to decide. See Id. An integrated writing is one “intended by the parties to be a final and
The loan agreement entered into between GN and the Davises is fully integrated, final in nature, and creates a completed legal obligation between the parties. When viewing the loan agreement in its entirety, we find an uncomplicated set of documents that, when read together, clearly and specifically state that the loan is subject to a prepayment penalty period of five years duration, as provided for in a separately executed addendum. The Davises, in their attempt to establish non-integration, cite to the underlying promissory note, which provides that the borrower has the right to repay the loan at any time without penalty. However, other documents in the agreement, i.e., the one-page prepayment penalty note addendum itself, plainly states that “notwithstanding and provision to the contrary [to language] contained in said Promissory Note or Deed of Trust . . . [t]he first sixty months of the loan term is called the ‘penalty period.’ ” GN Mortgage Corporation‘s Memorandum in Support of Its Motion for Summary Judgment, Exh. D. The inherent purpose of the addendum to the contract is to alter the terms of the underlying agreement (here the promissory note) and the existence of such a document can not reasonably be construed as establishing non-integration. Also, the documents comprising the loan agreement were all executed on the same day, contemporaneous with each other and, after reviewing each, we hold them to be internally coherent and fully integrated. In addition, the Davises have failed to present us with any case law to even suggest that the lack of a specific integration clause in the loan agreement, in and of itself, would render the agreement incomplete or unintegrated. See Eichengreen, 757 N.E.2d at 957-58 (discussing J & B Steel, 642 N.E.2d 1215 (Ill. 1994)).
Notwithstanding the clear, comprehensive and integrated nature and language of the loan contract, the Davises also argue that the agreement is facially ambiguous because of the existence of an unsigned two-year penalty addendum document in their stack of the closing papers. This reasoning is unpersuasive; for the Davises cannot cite their unsigned copy of a two-year prepayment penalty rider, the very extrinsic evidence they seek to introduce, to establish that the contract is facially ambiguous thereby requiring the consideration of extrinsic evidence. The introduction of parole evidence to establish ambiguity in a facially unambiguous, signed, dated and fully integrated contract is a practice which the Illinois Supreme Court has, to this date, neither condoned nor sanctioned, and accordingly we refuse to do so today. Air Safety, Inc., 706 N.E.2d at 884-85; Commonwealth Ins. Co. v. Titan Tire Corp., 2004 WL 2439727, *4 n.4 (7th Cir. 2004); see also See PPM Finance, Inc. v. Norlandal USA, Inc., No. 04-1401, slip op. at 6 (7th Cir. Dec. 16, 2004) (stating that Illinois courts will “look to extrinsic evidence
The Davises argue that we should employ the “provisional admission approach” and consider extrinsic evidence concerning even facially unambiguous agreements. However, in Air Safety, the Illinois Supreme Court reiterated the state of contract law and the four-corners rule in Illinois when it stated: “If the language of the contract is facially unambiguous, then the contract is interpreted by the trial court as a matter of law without the use of parole evidence. Air Safety, Inc., 706 N.E.2d at 884. In that same case, the Supreme Court made clear that Illinois has “never officially adopted the provisional admission approach.” Air Safety, Inc., 706 N.E.2d at 885 n.1. In addition, the Court “expressly decline[d] to rule on whether the provisional admission approach may be applied to interpret a contract which does not contain an integration clause until such a case is squarely before [it].” Id.; but cf. AM Int‘l, Inc. v. Graphic Mgmt. Assocs., 44 F.3d 572, 574 (7th Cir. 1995). It is true that, although never definitively adopted either by the legislature of Illinois or the highest court of that State, this court as well as a number of the Illinois appellate courts have entertained the theory that under Illinois law “objective evidence supplied by disinterested third parties may establish an extrinsic ambiguity” in an otherwise unambiguous contract under certain limited circumstances.8 Commonwealth Ins.
Co., 2004 WL 2439727, *4 (quoting Ocean Atl. Dev. Corp. v. Aurora Christian Schs., Inc., 322 F.3d 983, 1003-04 (7th Cir. 2003)); see also Air Safety, Inc., 706 N.E.2d at 885 (listing Illinois appellate court decisions). However, because the Davises do not proffer objective third-party evidence,9 this suggested rule is inapplicable and, therefore, it is unnecessary for us to predict whether the Illinois Supreme Court would adopt this new rule of law. See Commonwealth Ins. Co., 2004 WL 2439727, *4 n.4.10
2. Common Law Fraud
The Davises, in a separate count of their complaint, go on to allege that GN perpetrated a common law fraud during the execution of the contract, which occurs “where there is a surreptitious substitution of one paper for another, or where by some other trick or device a party is made to sign an instrument which he did not intend to execute.” Belleville Nat‘l Bank v. Rose, 456 N.E.2d 281, 283 (Ill. App. Ct. 1983) (citing Turzynski v. Libert, 259 N.E.2d 295, 298 (Ill. App. Ct. 1970)). The Davises claim that GN, along with its purported agent (Bogdanovich), mislead them by misrepresenting the terms of the mortgage loan at the closing. The Davises allege GN did so by presenting them with different versions of the prepayment penalty addendum, one of which (the five-year version) was different from what they bargained for and expected.
Under applicable Illinois law, an allegation of fraud must be established by clear and convincing evidence. Cwikla v. Sheir, 801 N.E.2d 1103, 1110 (Ill. App. Ct. 2003). However, unlike the plaintiffs’ breach of contract claim, Illinois substantive law instructs that we are free to consider parole evidence to assist us in determining the true intent of the parties when a common law fraud has been alleged.11 See O‘Brien v. Cacciatore, 591 N.E.2d 1384, 1390 (Ill. App. Ct. 1992); McMahon Food Corp. v. Burger Dairy Co., 103 F.3d 1307, 1314 (7th Cir. 1996). Under Illinois law, the elements the plaintiffs need to satisfy in order to establish common law fraud are: “(1) a false statement of a material fact; (2) defendant‘s knowledge that the statement was false; (3) defendant‘s intent that the statement induce plaintiff to act; (4) plaintiff‘s reliance upon
statement.” Capiccioni v. Brennan Naperville, Inc., 791 N.E.2d 553, 558 (Ill. App. Ct. 2003).
In order to satisfy the reliance element of their claim, the Davises must demonstrate not only that they relied on the GN‘s representations regarding a two-year prepayment rider, but that they were justified in doing so. See Soules v. Gen. Motors Corp., 402 N.E.2d 599, 601 (Ill. 1980). When addressing the issue of justified reliance, Illinois courts have long recognized that “a party is not justified in relying on representations made when he has ample opportunity to ascertain the truth of the representations before he acts. When he is afforded the opportunity of knowing the truth . . . he cannot be heard to say he was deceived by misrepresentations.” Elipas Enterprises, Inc. v. Silverstein, 612 N.E.2d 9, 13 (Ill. App. Ct. 1993) (quoting Schmidt v. Landfield, 169 N.E.2d 229, 232 (Ill. 1960)); see also Leon v. Max E. Miller & Son, Inc., 320 N.E.2d 256, 260 (Ill. App. Ct. 1974); Miller v. William Chevrolet/GEO, Inc., 762 N.E.2d 1, 9 (Ill. App. Ct. 2001). This rule applies with equal force in instances where fraud is alleged with respect to the execution of a written contract. See Belleville, 456 N.E.2d at 284; see also N. Trust Co. v. VIII S. Mich. Assoc., 657 N.E.2d 1095, 1103 (Ill. App. Ct. 1995) (“A party cannot close his eyes to the contents of a document and then claim that the other party committed fraud merely because it followed this contract.“). This is the so-called “due diligence rule,” Kolson v. Vembu, 869 F. Supp. 1315, 1322 (N.D. Ill. 1994), which defeats the Davises’ common law fraud claim.
Assuming arguendo that were we to conclude that the Davises satisfy the other elements of a common law fraud claim (e.g., a knowingly false statement as to a material fact which was proffered to induce reliance), which they do not, the evidence in the record would be deemed to be insufficient to establish that any reliance on their part was justified. The Davises’ claim is premised on oral statements allegedly made by the closing agent, Bogdanovich, explaining at the time of the execution of the contract that the mortgage included a two-year prepayment penalty period. However, notwithstanding the alleged statements by Bogdanovich, the Davises had an opportunity and obvious obligation to read the documents before they signed them (as well as up to three days after signing to review and cancel the contract under federal law if they believed the agreement to be flawed). Due to the significance of the mortgage transaction (a $288,000 loan) and the Davises’ preoccupation with the prepayment penalty agreement in particular, they were not justified in relying on the alleged verbal statements alone. The fact is that the Davises certainly had an incentive to independently read and understand the contract in order to confirm that the terms they were agreeing to, especially the addendum regarding the prepayment penalty period, were correctly set forth in the final version of the contract. Their failure to read the prepayment addendum document which they signed is even less justified in light of the fact that, in addition to the ample two-hour closing meeting, the Davises also were made aware that they had a full three-day period in which to review the entire agreement and rescind it if they so decided.12 Indeed, considering
selves] of the means of knowledge open to [them, they] cannot be heard to say [they were] deceived by misrepresentations.” Elipas Enterprises, Inc., 612 N.E.2d at 13 (quoting Schmidt, 169 N.E.2d at 232). Thus, on the facts set forth here and in the record, we hold that the reliance element of the Davises’ common law fraud claim cannot be met as a matter of law.
3. Illinois Consumer Fraud Act
The plaintiffs also claim that GN‘s actions during and surrounding the closing on the loan violated the Illinois Consumer Fraud Act (“ICFA“). In order to be held liable for a violation of the ICFA the Davises must establish that: (1) the defendant undertook a deceptive act or practice; (2) the defendant intended that the plaintiff rely on the deception; (3) the deception occurred in the course of trade and commerce; (4) actual damage to the plaintiff occured; and (5) the damage complained of was proximately caused by the deception. Capiccioni, 791 N.E.2d at 558 (citing Connick v. Suzuki Motor Co., Ltd., 675 N.E.2d 584, 593 (Ill. 1996));
The Davises contend that GN deceived them by enclosing both a two-year and a five-year prepayment penalty agreement in the closing documents and representing to them, through their agent Bogdanovich, that the unsigned and undated documents reflected the Davises’ agreement with GN for a two-year prepayment penalty period. They maintain that this resulted in their signing two inconsistent penalty riders, one for five years and the other for two (there is no evidence that a two-year rider was ever signed, i.e., they never produced a signed two-year addendum and their assumption that they did sign one is completely unsupported in the record). While it is suspicious, and at the very least suggests poor business practices at GN, for the Davises to be given a copy of both a two-year and a five-year prepayment penalty addendum at the closing, the fact remains that they actually signed only
Moreover, when analyzing a claim under the ICFA, the allegedly deceptive act must be looked upon in light of the totality of the information made available to the plaintiff. See Tudor v. Jewel Food Stores, Inc., 681 N.E.2d 6, 8 (Ill. App. Ct. 1997); Saunders v. Michigan Ave. Nat‘l Bank, 662 N.E.2d 602, 608 (Ill. App. Ct. 1996); see also Bober v. Glaxo Wellcome PLC, 246 F.3d 934, 938-39 (7th Cir. 2001) (apply-ing the Illinois ICFA). In this case, GN alerted the Davises, in a number of ways, to the fact that they were agreeing to a five-year penalty period. First, the one-page, five-year penalty addendum that the Davises were asked to read and that they did sign contained a disclaimer in bold at the top, warning the Davises: ”Do not sign this loan agreement before you read it. This loan agreement provides for the payment of a penalty if you wish to repay the loan prior to the date provided for repayment in the loan agreement.” (Emphasis in original.) Second, the addendum that they signed contains three separate references to a sixty-month/five-year penalty period. Third, GN required that the Davises execute this addendum to the mortgage separately from the remainder of the document, apparently in an attempt to denote its significance. Finally, though less telling, GN provided the Davises with an Alternative Mortgage Transaction Parity Act Disclosure form at the closing (which the plaintiffs signed) informing them that a prepayment penalty would be charged and that they should refer to the accompanying loan documents for the details of the provision. Even if there was some confusion on the Davises’ part during the closing (and there may well have been), at no time during the closing nor at anytime within the three day grace period did the Davises ever question, much less challenge the documents they had signed. In sum, there is no evidence to establish by clear and convincing evidence that GN engaged in a deceptive act in the course of obtaining the loan agreement from the plaintiffs.13
B. Plaintiffs’ Request to Conduct Additional Discovery
Finally, the Davises claim that it was an abuse of discretion on the part of
“A trial judge‘s decision to consider a defendant‘s motion for summary judgment before allowing the plaintiff to depose certain witnesses is a discovery matter, which we review under the abuse of discretion standard.” Grayson v. O‘Neill, 308 F.3d 808, 815-16 (7th Cir. 2002). We are very troubled with the substance of the plaintiffs’ Rule 56(f) motion, which leads us to conclude that the district court did not abuse its discretion in denying additional discovery. Initially, we note that the Davises’ assertion that no discovery occurred prior to the district court‘s summary judgment ruling is inaccurate. To the contrary, by late November 2001, both of the defendants had complied with their initial discovery obligations under
Nonetheless, the Davises argued before the district court that, because “a question of fact exists with regard to the location of a two-year prepayment penalty rider signed by the plaintiffs . . . , [they] must be allowed to depose all employees, agents, or representatives of defendants . . . who had any physical contact with plaintiffs’ loan file.” Edelman Dec. at 2. However, the plaintiffs fail to set forth any specific evidence which they might have obtained from these depositions that would create a genuine issue as to this material fact. The only reason to believe that additional, relevant evidence would materialize from deposing the defendants’ employees is the Davises’ apparent hope of finding a proverbial “smoking gun“—that is, someone who will testify that he or she knows that a signed, two-year prepayment penalty provision did actually exist at some time and that the defendants have either hidden, destroyed, or otherwise disposed of this document. This, however, is based on nothing more than mere speculation and would amount to a fishing expedition, which is an entirely improper basis for reversing a district court‘s decision to deny a Rule 56(f) motion. Grayson, 308 F.3d at 817; United States v. On Leong Chinese Merch. Assoc. Bldg., 918 F.2d 1289, 1294-95 (7th Cir. 1990). Likewise, the Davises’ desire to now depose the GN and Countrywide officials that had authority over their loan (Brian Brandt and Patrice McPherson, respectively) is also an insufficient reason for this court to hold that the district court abused its discretion. Both Brandt and McPherson stated via affidavit that the Davises’ loan file did not contain either a signed or unsigned two-year prepayment penalty addendum and the depositions sought would be solely for purposes of casting doubt on the affiants’ credibility
The Davises have failed to adequately explain, either in their briefs before this court or in the declaration of their counsel, Daniel Edelman, attached to their Rule 56(f) motion, and it remains a mystery why they failed to acquire an affidavit or deposition testimony from Boatman and Bogdanovich—the two third-party witnesses whose alleged statements are necessary to support the plaintiffs’ belief that they signed a two-year prepayment penalty agreement. According to the Davises, Boatman would testify that she informed them prior to the closing that GN agreed to a two-year prepayment penalty period, while Bogdanovich would state that she watched the Davises sign each document after having told them that the two stacks of documents were identical and conformed to the terms of their agreement with GN.
Assuming that both of these witnesses would need to be subpoenaed before testifying, the plaintiffs had ample time (a total of 74 days of open discovery) to attempt to secure their testimony as well as approach the trial court and de-mand compliance to their discovery requests if needed.14 Indeed, neither Boatman (who was the Davises’ own broker for the loan), nor Bogdanovich (who worked for the title company that facilitated the closing and delivered the signed copies to GN), is a GN employee. The plaintiffs’ only explanation for their inability to acquire statements from these third-party sources is a conclusory and self-serving statement alleging that because their mortgage broker and the title agent have existing relationships with GN, they wish not to sour that bond by commenting on the Davises’ closing. However, this speculative explanation for the Davises’ inability to gather evidence from Boatman and Bogdanovich is feeble at best and, as such, is both inadequate and insufficient to avoid circuit precedent holding that “[w]hen a party fails to secure discoverable evidence due to his own lack of diligence, it is not an abuse of discretion for the trial court to refuse to grant a continuance to obtain such information.” Pfeil v. Rogers, 757 F.2d 850, 857 (7th Cir. 1985).
Also, we are of the opinion and thus hold that the district court did not commit a reversible error by denying the Davises’ Rule 56(f) motion due to the fact that they have failed to establish they suffered any actual or substantial harm as a result of the denial of their discovery request.Balderston v. Fairbanks Morse Engine Div. of Coltec Indus., 328 F.3d 309, 319 (7th Cir. 2003). Regardless of what their
III. CONCLUSION
Because the Davises have failed to establish the existence of a genuine issue of material fact as to any of their claims, and because the defendants are entitled to a judgment as a matter of law on each of those counts, summary judgment is proper.
A true Copy:
Teste:
Clerk of the United States Court of Appeals for the Seventh Circuit
USCA-02-C-0072—1-31-05