910 F.3d 270 | 6th Cir. | 2018
Lead Opinion
Franklin American Mortgage Company (FAMC) purchased two loans from the University National Bank of Lawrence (UNB) and promptly resold them to Wells Fargo. Years later, Wells Fargo discovered defects in UNB's underwriting and demanded that FAMC repurchase the loans or indemnify Wells Fargo for its losses. FAMC similarly demanded that UNB indemnify FAMC for its payments to Wells Fargo in accordance with their agreement. UNB refused. The district court granted summary judgment to FAMC on its breach of contract claims against UNB. We now AFFIRM that judgment.
I.
FAMC and UNB entered into a Correspondent Loan Purchase Agreement (Agreement) in 2005, by which FAMC agreed to purchase mortgage loans from UNB. In exchange, UNB made certain representations and warranties about the loans it would sell, including that "[t]here [would be] no fact or circumstance with respect to the Mortgage Loan that would entitle" a subsequent purchaser "to demand repurchase of a Mortgage Loan" from FAMC. UNB also agreed to repurchase any mortgage loans if one of its representations or warranties turned out to be false or if a subsequent buyer required that FAMC repurchase the mortgage loan. Additionally, UNB promised to indemnify FAMC for "any and all losses" that FAMC incurred due to "[a]ny misrepresentation" or breach "of any of the ... representations, warranties, or obligations under this Agreement" by UNB.
The parties agreed that Tennessee law would govern the Agreement. FAMC and UNB later modified the original Agreement *275with a Delegated Underwriting Agreement (Modification) in which UNB agreed to perform the underwriting for loans it sold to FAMC.
At issue here are two loans UNB sold to FAMC-one sold in 2006 (the "Salvino Loan") and one sold in 2007 (the "Turner Loan"). Per the parties' arrangement, UNB underwrote both loans. FAMC promptly resold both to Wells Fargo. In February and March 2010, Wells Fargo notified FAMC that it had identified defects in the underwriting for both loans, including missing documents and income miscalculations. After internal appeals in which FAMC disputed some of the defects and tried to resolve others, Wells Fargo demanded that FAMC repurchase the Salvino Loan and indemnify Wells Fargo for its losses arising from the Turner Loan.
After satisfying its repurchase and indemnification obligations to Wells Fargo, FAMC invoked the Agreement to demand repurchase and indemnification from UNB. UNB refused to repurchase the Salvino Loan or indemnify FAMC for either. To cut its losses, FAMC resold the Salvino Loan to a third party for $42,278.48.
In 2013, FAMC filed a complaint alleging that UNB's refusal to repurchase or indemnify had breached their Agreement. FAMC moved for summary judgment on its claims; UNB made a cross-motion for summary judgment on several affirmative defenses, including its claim that the statute of limitations had run. The district court granted summary judgment to FAMC, denied it to UNB, and awarded FAMC $188,858.71 in damages. UNB timely appealed.
II.
The primary issue in this appeal is whether the district court properly denied summary judgment to UNB on its statute of limitations defense (and, relatedly, whether the district court properly granted summary judgment to FAMC despite that defense). We review a district court's summary judgment decision de novo, applying the same standards the district court used. Villegas v. Metro. Gov't of Nashville ,
UNB argues that FAMC's breach of contract claims are time-barred because they accrued in 2006 and 2007, when FAMC purchased the loans from UNB. The claims accrued at this time, says UNB, because UNB made the allegedly false representations and warranties at the time of purchase. UNB further argues that the Agreement's repurchase and indemnification provisions did not create any independent obligations accruing after the purchase date; these provisions instead simply provided alternative remedies for any breach of warranty. In support of its view, UNB points to a body of cases addressing this precise issue-mortgage repurchase provisions-under New York law. See, e.g. , *276ACE Sec. Corp. v. DB Structured Prods., Inc. ,
FAMC argues in response that the causes of action accrued in 2010 and 2011, rather than in 2006 and 2007. FAMC reminds us that the New York cases are inapplicable to contracts governed by Tennessee law, and points to cases resolving related issues differently under Delaware, Missouri, and Minnesota law. See, e.g. , Bank of N.Y. Mellon v. WMC Mortg., LLC ,
We are not convinced that Tennessee law would treat repurchase provisions any differently than New York law. FAMC has not identified any substantive differences between Tennessee and New York contract law that would lead to the conclusion that ACE Securities ' reasoning should not apply to the repurchase provisions of the contract. But we affirm the result below nonetheless because FAMC also alleged breaches of the Agreement's indemnification provision, which falls squarely into ACE Securities ' exception for contractual agreements that "undertake a separate obligation, the breach of which does not arise until some future date."
In ACE Securities , the buyer of numerous mortgage loans demanded that the seller repurchase defective loans, as they had agreed.
The repurchase provision in this Agreement is similar in all material respects to the one analyzed in ACE Securities . Therefore, FAMC cannot assert a claim for breach of the repurchase protocol separate from the alleged breaches of the representations and warranties, and any such claim would have accrued on the date those representations and warranties were made-at purchase, in 2006 and 2007.
The common law of indemnification lends support to our determination that the indemnification provision here created "a separate obligation, the breach of which does not arise until some future date." ACE Sec. ,
UNB argues that even if we characterize the claims as indemnification claims, the claims still would have accrued on the date FAMC purchased the loans. But that takes ACE Securities too far. Even under New York law, ACE Securities ' accrual rule would not apply to indemnification provisions. The New York cases themselves do not discuss indemnification claims; the plaintiffs there had not asserted any. Nor could they have done so. The New York plaintiffs were trusts that had purchased and then pooled thousands of mortgage loans in order to sell residential mortgage-backed securities. When the mortgage borrowers defaulted or the trusts themselves discovered defects, the trusts sought repurchase to cut their losses. But since the trusts had not re-sold the actual loans to any third parties, there would have been no viable indemnification claims-just claims for breaches of the mortgages' warranties and representations. See, e.g. , ACE Sec. ,
For example, in Hometrust Mortgage Company v. Lehman Brothers Holdings, Inc. , the federal court distinguished ACE Securities, stating that "[i]t is black letter law in New York that indemnification claims do not accrue until the liability to a third-party is fixed, or payment is made-in *279this case when LBHI settled with Fannie Mae and Freddie Mac in 2014." Nos. 15-CV-4060, 15-CV-4061,
UNB also contends that we cannot apply the indemnification accrual rule because FAMC pleaded breach of contract claims, not indemnification claims. UNB is right that FAMC's complaint titles its causes of action "Count One - Breach of Contract - Salvino Loan" and "Count Two - Breach of Contract - Turner Loan." But FAMC's amended complaint also alleges that the Agreement included a contractual indemnification obligation; that Wells Fargo demanded payment from FAMC as a result of UNB's errors; and that FAMC suffered losses when it made those payments to Wells Fargo. The causes of action themselves plainly state that "UNB has breached its contractual obligations to indemnify FAMC for its losses " arising from the two loans. And "[i]n Tennessee, the applicable statute of limitations is determined by the gravamen of the complaint rather than a plaintiff's designation of a claim." Nissan N. Am., Inc. v. Schrader Elecs., Ltd. , No. 3:13-CV-0180,
The Tenth Circuit's opinion in Lehman Brothers Holdings, Inc. v. Universal American Mortgage Company, LLC does not change our conclusion. There, the court declined to characterize causes of action labeled "breach of contract" as indemnification claims. Lehman Bros. ,
As its last line of defense, UNB asserts that FAMC has no indemnification claims because the Modification executed by the parties (in which UNB agreed to underwrite loans it sold to FAMC) limited the remedies available to FAMC. UNB points to language in the Modification stating that "[UNB] shall repurchase any loan purchased by [FAMC] hereunder, subject to the terms of" the Agreement's repurchase provision. UNB would have us believe that this language amended the original Agreement to eliminate all remedies except repurchase because otherwise the language would merely restate a preexisting obligation and would be superfluous.
We disagree. For one thing, we concluded above that the indemnification provision is not a mere remedial provision; it creates a separate, distinct obligation. Even so, the Modification did not abrogate the Agreement's indemnification provision. The Modification stated that it would "supplement and[,] to the extent inconsistent, modify" the original Agreement. It made clear that the original Agreement "shall remain in full force and effect as supplemented and modified hereby." Nothing in the Modification, including the provision highlighted by UNB, indicates any intention to limit FAMC's remedies to repurchase alone. And the "shall repurchase" language is not inconsistent with the Agreement's indemnification obligations, which were explicitly "[i]n addition to the repurchase obligation ... and any and all other rights and remedies available." We acknowledge that this Modification language thus merely restates UNB's preexisting repurchase obligation. But there is no general prohibition against redundant contract language. See *281TMW Enters., Inc. v. Fed. Ins. Co. ,
The district court correctly concluded that FAMC's claims as to the Salvino and Turner Loans accrued in 2010 and 2011, respectively. The 2013 complaint was, therefore, filed well within the limitations period, regardless of whether Kansas's five-year or Tennessee's six-year limitations period applies. Accordingly, we need not address UNB's arguments regarding repurchase provisions or decide whether Tennessee law recognizes a discovery rule that would toll the limitations period for breach of contract actions.
III.
Having resolved UNB's most compelling argument in FAMC's favor, we can now easily resolve the rest.
A.
UNB first asserts that FAMC produced insufficient evidence of breach and causation for summary judgment. We disagree. In Tennessee, a "plaintiff alleging breach of contract must prove: (1) the existence of an enforceable contract, (2) non-performance amounting to a breach of the contract, and (3) damages caused by the breached contract." Nw. Tenn. Motorsports Park, LLC v. Tenn. Asphalt Co. ,
Both sides admitted the existence of an enforceable contract. FAMC pointed to evidence in the record sufficient to show it suffered losses as a result of misrepresentations and miscalculations made by UNB in its underwriting. FAMC's evidence demonstrated that based on these defects, Wells Fargo demanded and received payment from FAMC. Finally, FAMC showed that UNB breached the Agreement by failing to indemnify FAMC for its losses and presented evidence of the exact amount of the damages caused.
With this evidence, FAMC "met its burden of raising sufficient facts to entitle its motion to be granted as a matter of law under Rule 56(c)." Chi. Title Ins. Corp. v. Magnuson ,
*282UNB next argues that there was a genuine issue of material fact regarding whether there actually were "material misrepresentations" in the loan documents, saying that "the parties dispute whether the Salvinos and the Turners made material misrepresentations on their loan applications." UNB speculates that both loans might have been approved by the loan underwriting program anyway, even if there were no misrepresentations, so any breach was not material. According to UNB, to prove the misrepresentations, FAMC needed to "present ... evidence to contradict the borrowers' certifications under penalty of perjury that the information in their loan applications were true and correct." But this argument misses the mark entirely.
The relevant issue is not whether the Salvinos and Turners committed fraud, but whether the underwriting measured up to the standard required by the parties' agreements. FAMC presented more than enough evidence to show that the underwriting performed by UNB was deficient; the incomes had been miscalculated, and documents required to verify the homeowners' incomes were missing. This evidence directly contradicts UNB's contractual representation that "no fact or circumstance with respect to the Mortgage Loan" existed "that would entitle" a subsequent purchaser "to demand repurchase of a Mortgage Loan." And whether or not the loans at issue "would still ... have qualified for approval" absent these defects is beside the point. There were defects, and those defects entitled Wells Fargo to demand payment from FAMC. Pursuant to the Agreement, UNB had an obligation to indemnify FAMC for these payments. Furthermore, FAMC presented evidence (never addressed by UNB) to show that the Turner Loan's mortgage insurance had been rescinded, in breach of UNB's warranty that it had (and would continue to have) such insurance.
Calling the alleged defects "insignificant technicalities," UNB asserts that the Agreement "does not impose strict liability on UNB," but "rather a defect must be material to rise to the level of triggering an actionable claim." But we search in vain for any contractual language that would support UNB's position. In some portions of the Agreement, the parties did use the word "material" to qualify their obligations. For example, the Agreement required repurchase if "[a] post-closing quality control review" revealed "any material fraud or misrepresentation." There was no such limitation in the indemnification provision. Rather, UNB broadly agreed to indemnify FAMC for "any and all losses ... arising out of ... [a]ny misrepresentation" by UNB or "[a]ny breach" of UNB's "representations, warranties, or obligations under this Agreement." We cannot infer a materiality requirement at odds with the indemnification provision's text. See Dick Broad. Co., Inc. of Tenn. v. Oak Ridge FM, Inc. ,
Finally, UNB failed to present evidence creating a genuine issue of material fact about whether Wells Fargo demanded repurchase because of the defects. UNB pointed to testimony from FAMC's corporate representative, for example, that because of the economic climate of the time, "not every instance of a default or delinquency with regard to these loans necessarily flowed from some poor quality underwriting." But that evidence does not show that something besides the loan defects caused Wells Fargo's repurchase and indemnification demands, and is insufficient to create a genuine issue of material fact. See, e.g. , Wilson v. Cleveland Clinic Found. ,
B.
Next, UNB argues that there is a genuine issue of material fact over whether FAMC properly mitigated its damages when, following UNB's refusal to repurchase the Salvino Loan, FAMC resold the loan at a significant discount.
*284Rather, in both its response to FAMC's summary judgment motion and its brief on appeal, UNB merely described FAMC's resale process and then asked a series of questions about that process. For example, UNB asked why FAMC did not get an appraisal of the Salvino Loan; whether the amount of FAMC's payment to Wells Fargo was reasonable; whether FAMC requested supporting documents or clarification of vague or non-descriptive line items in Wells Fargo's expense statement; and why FAMC never "pursued the borrowers for deficiency judgments." UNB points to deposition testimony where FAMC's representative stated that FAMC had not taken such steps. But that, without more, is simply insufficient to create a genuine issue of material fact.
To avoid summary judgment, UNB needed to do more than suggest possible problems with FAMC's mitigation. UNB needed to present and point to evidence that affirmatively demonstrated FAMC's mitigation efforts were not reasonable. For example, expert testimony on what the appraisal value of the property would have been might have been sufficient to create a genuine issue of material fact; simply asking why no appraisal was done is certainly not enough. Expert testimony that industry custom dictates certain mitigation steps perhaps could create a genuine issue of material fact; simply pointing out that FAMC had not taken certain steps cannot. Under Rule 56(e), UNB needed to "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp. ,
C.
Finally, UNB contends that summary judgment for FAMC was improper because FAMC's original motion for summary judgment failed to directly address the twenty-four affirmative defenses that UNB raised in its answer. We find no merit to this argument. Rather, as the party asserting the affirmative defenses, UNB bore the burden of proof on all twenty-four. Beck-Wilson v. Principi ,
* * *
For the above reasons, we AFFIRM the district court's order granting summary judgment to FAMC and denying summary judgment to UNB.
CONCURRENCE
Wells Fargo demanded indemnity, rather than repurchase, because the Turner Loan had already been foreclosed or sold short by the time the demand was made.
Although Tennessee law applies to the Agreement generally and has a longer six-year statute of limitations, see
UNB supports its argument that any indemnification claims accrued immediately at purchase by pointing to deposition testimony from FAMC's corporate representative, admitting that the loans were defective at the time of purchase. Therefore, UNB says, FAMC could have immediately sought indemnification from UNB and any cause of action must have accrued at that time. But that is not true. Tennessee law dictates that a right to contractual indemnification would arise only when FAMC "actually sustained or suffered loss; either through payment, settlement, or through the injured party's obtaining an enforceable judgment."Stiver ,
The Tenth Circuit also based its conclusion in part on what seems to us to be a mistaken reading of New York law. Lehman Brothers quotes a New York Appellate Division case, City of New York v. Lead Industries Association, Inc. ,
Lead Industries Association discussed duties to third parties in the context of deciding whether the court should imply an equitable indemnification obligation-specifically, whether lead manufacturers should reimburse New York City for the costs incurred in removing lead paint from public buildings. The reasoning in Yemen on which Lehman Brothers relies is inapplicable to contractual indemnification for the same reasons; Yemen discussed whether an implied right to indemnification was appropriate where "there is no express agreement creating a right to indemnification."
UNB also argues that it cannot be required to indemnify FAMC for Salvino Loan losses because Wells Fargo, after purchasing the Salvino Loan from FAMC, executed a "Loan Modification Agreement" with the borrowers. According to UNB, this created a new loan not subject to the original Agreement between UNB and FAMC. Not so. The document calls itself a "Loan Modification Agreement," and explicitly states that "except as otherwise specifically stated in this Agreement, the original Note and Mortgage"-the Salvino Loan-"will remain unchanged." UNB points out that FAMC's corporate representative called the as-modified Salvino Loan a "new, different loan," but that is irrelevant to our analysis. Where the contract language "is clear and unambiguous, the literal meaning controls the outcome of the dispute" because it is the best indicator of the parties' intent. Maggart v. Almany Realtors, Inc. ,
On the issue of damages, UNB makes a preliminary assertion that the district court should not even have considered FAMC's damages argument because its memorandum exceeded the page limit established by previous order. We review denials of motions to strike under an abuse of discretion standard. Cf. Operating Eng'rs Local 324 Health Care Plan v. G&W Const. Co. ,
Concurrence Opinion
I concur in the panel's approach to the indemnity aspect of this case. We conclude that "[t]he 2013 complaint was, therefore, filed well within the limitations period, regardless of whether Kansas's five-year or Tennessee's six-year limitations period applies." But we do not address whether Tennessee law recognizes a discovery rule that would toll the statute of limitations for breach of contract. The discovery rule is another basis for the same result - the one used by the District Court.
The District Court concluded that plaintiff Franklin American's claims accrued in *285Tennessee and that Tennessee's statute of limitations applied. Franklin Am. Mortg. Co. v. Univ. Nat'l Bank of Lawrence , No. 3:13-CV-01109,