CitiMortgage, Inc. v. Just Mortg., Inc.

CITIMORTGAGE, INC., Plaintiff,

v.JUST MORTGAGE, INC., Defendant.

No. 4:09 CV 1909 DDN

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MISSOURI EASTERN DIVISION

Date: March 29, 2012

MEMORANDUM AND ORDER

This action is before the court on the motions of plaintiff CitiMortgage, Inc. for summary judgment as to the Group 1 Loans¹ (Doc. 75) and to exclude the opinions of defendant's expert (Doc. 167). The parties have consented to the exercise of plenary authority by the undersigned United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). (Doc. 10.) Oral arguments were heard on January 24, 2012.

I. BACKGROUND

On November 20, 2009, plaintiff CitiMortgage, Inc. commenced this breach of contract action against defendant Just Mortgage, Inc. (Doc. 1.) On August 2, 2010, CitiMortgage filed its first amended complaint. (Doc. 29.) In its first amended complaint, CitiMortgage alleges that Just Mortgage delivered twenty-seven loans that failed to conform to the terms of the contract and subsequently refused to cure or repurchase these loans, thereby breaching the contract. (Id.) CitiMortgage seeks damages, costs, attorney's fees, pre-judgment interest, post-judgment interest, and an order compelling Just Mortgage to perform its obligations under the contract, namely, repurchasing the twenty-seven loans at issue. (Id.)

II. MOTION TO EXCLUDE EXPERT OPINIONS

CitiMortgage moves to exclude the reports and deposition testimony of Just Mortgage's expert witness, Thomas A. Myers, from consideration. CitiMortgage argues that Myers' reports and deposition testimony are legal conclusions, irrelevant, and not based upon a reliable methodology. CitiMortgage also argues that any probative value of Myers' reports or deposition testimony would be outweighed by the significant prejudice resulting from their admission. (Docs. 167, 168.)

Just Mortgage responds that Myers has sufficient personal experience to offer an opinion from an industry perspective. Just Mortgage also argues that Myers' opinion is relevant to whether the contract is ambiguous and to whether CitiMortgage exercised its discretion in good faith. Just Mortgage further argues that admission of Myers' testimony and report would not cause unfair prejudice. (Doc. 171.)

CitiMortgage replies that the contract is not ambiguous, that it did not act in bad faith, and that Myers' opinion to the contrary is an inadmissible legal conclusion. CitiMortgage also replies that Myers' opinion is otherwise irrelevant and not supported by a reliable foundation. (Doc. 172.)

In his reports and deposition testimony, Myers opines that § 2(i) and § 11(ii) of the parties' contract are inconsistent and that their inconsistency creates an ambiguity regarding when CitiMortgage could demand that Just Mortgage cure or repurchase the loans. Myers opines that, as a result, Just Mortgage was unaware that CitiMortgage could demand cure or repurchase of the loans even though Just Mortgage originated the loans in compliance with CitiMortgage's guidelines and was unaware of any defects. Myers also opines as to the reasonableness of § 2(i) and § 11(ii) and whether CitiMortgage acted in good faith in demanding that Just Mortgage cure or repurchase the loans. (Docs. 151-11, 168-1, 168-2, 168-3.)

In diversity cases such as this, federal law governs the admissibility of expert testimony. US Salt, Inc. v. Broken Arrow, Inc., 563 F.3d 687, 691 (8th Cir. 2009). Under Federal Rule of Evidence 702, "[i]f scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact inissue," an expert opinion is admissible so long as "(1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case." Fed. R. Evid. 702; accord Vasquez v. Colores, 648 F.3d 648, 653 (8th Cir. 2011).

The proponent of expert testimony must prove by a preponderance of the evidence that the expert is qualified and that the testimony is relevant and reliable. Khoury v. Philips Med. Sys., 614 F.3d 888, 892 (8th Cir. 2010); Fed. R. Evid. 702 advisory committee's note. An expert must explain how he arrived at his conclusions; the court may not simply take his word for it. Fed. R. Evid. 702 advisory committee's note; Thomas v. City of Chattanooga, 398 F.3d 426, 432 (6th Cir.), cert. denied, 546 U.S. 814 (2005).

Rule 702 incorporates the rulings of the Supreme Court's decisions in Kumho Tire and Daubert. Fed. R. Evid. 702 advisory committee's note. In those cases, the Supreme Court charged trial judges with the responsibility of acting as gatekeepers to exclude unreliable expert testimony. Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 141 (1999); Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 597 (1993).

The court should not apply the Daubert factors rigidly, as they cannot be applied to every expert in every case. Kumho Tire, 526 U.S. at 141-42. Moreover, Rule 702 reflects an attempt to liberalize the rules governing the admission of expert testimony, and the rule remains one of admissibility rather than exclusion. Shuck v. CNH Am., LLC, 498 F.3d 868, 874 (8th Cir. 2007).

Assuming that Mr. Myers qualifies as an expert and that his opinion was drawn from a reliable basis,² his opinion is nonetheless inadmissible.

"[E]xpert testimony on legal matters is not admissible." S. Pine Helicopters, Inc. v. Phoenix Aviation Managers, Inc., 320 F.3d 838, 841 (8th Cir. 2003); accord Lakeside Feeders, Inc. v. Producers Livestock Mktg. Ass'n, 666 F.3d 1099, 1111 (8th Cir. 2012). "Unless a contract isdeemed ambiguous or there is a term of the contract that requires an expert's explanation, it is improper for an expert to interpret or construe a contract in his opinion." Wells Fargo Bank N.A. v. LaSalle Bank Nat'l Ass'n, No. 2:08-CV-1448 JCM (RJJ), 2011 WL 743748, at *3 (D. Nev. Feb. 23, 2011); accord DP Concrete Prods., LLC v. Am. Spring Wire Corp., No. 2:08 CV 571, 2010 WL 322738, at *1 (W.D. La. Jan. 25, 2010) ("Federal courts have consistently held that expert testimony on issues of contractual interpretation is inappropriate and that such issues are reserved for the judge and jury.").

Myers' deposition testimony and report purport to make legal conclusions concerning whether CitiMortgage acted in good faith and whether the terms of the contract are inconsistent, ambiguous, and unreasonable. For example, after analyzing and interpreting the contract terms and evaluating whether the terms are reasonable, Myers' report concludes:

The Agreement governing the relationship between Just Mortgage and CitiMortgage is clearly ambiguous and contradictory in its terms. In my opinion, from an industry perspective, Just Mortgage cannot be reasonably bound to a promise or guarantee that no fraud or misrepresentations have been made by an external party over which Just Mortgage had no control. The fact that [Citimortgage] seeks to bind Just Mortgage by such a promise or guarantee, from an industry perspective, implies the existence of an insurance agreement to which Just Mortgage never acquiesced and, regarding which, Just Mortgage was never remunerated. . . .

(Doc. 168-1 at 23.)

Because his opinions draw legal conclusions, Myers' opinion is not an admissible expert opinion. See, e.g., Emps. Reinsurance Corp. v. Mid-Continent Cas. Co., 202 F. Supp. 2d 1212, 1219 (D. Kan. 2002) (excluding the portion of an expert's opinion which concluded that "[t]he conduct of [the plaintiff] ha[d] been unreasonable and unfair and constitute[d] bad faith" because the opinion "constitute[d] an impermissible attempt to apply the law to the facts of the case to form a legal conclusion"); Shelter Mut. Ins. Co. v. Culbertson's Ltd., Inc., No. CIV. A. 97-1609, CIV. A. 97-1969, 1999 WL 135297, at *2-3 (E.D. La. Mar. 11, 1999) (excluding an expert opinion which concluded that the parties' contractwas ambiguous). Beyond these legal conclusions, Myers' opinion is not relevant to this action.³

Therefore, Thomas A. Myers' opinions are excluded.

III. MOTION FOR SUMMARY JUDGMENT

CitiMortgage moves for summary judgment, arguing that the Group 1 Loans contained inaccuracies, misrepresentations, and related defects, and as such it was entitled to demand that Just Mortgage cure or repurchase them pursuant to § 11 of the contract. CitiMortgage also argues that Just Mortgage's subsequent failure to cure or repurchase the Group 1 Loans was a breach of the contract. (Docs. 75, 76, 100, 139.)

Just Mortgage responds that § 2(i) and § 11(ii) of Form 200 and § 2202 of the CMI Manual⁴ are ambiguous and conflicting regarding its liability for inaccuracies, misrepresentations, and omissions by loan applicants, appraisers, escrow agents, title companies, closers, and credit reporting agencies. Just Mortgage also argues that CitiMortgage violated its implied duty of good faith and fair dealing and that the terms of the contract are unconscionable. Just Mortgage further argues that it made a unilateral mistake of fact when interpreting § 2(i). (Doc. 150.)

CitiMortgage replies that there is no ambiguity concerning § 11(i), (iv), or (v), and that it is undisputed that it had the right to demand repurchase of the Group 1 Loans under these provisions independent of § 11(ii). CitiMortgage also argues that § 2(i) and § 11(ii) of Form 200 and § 2202 of the CMI Manual are not ambiguous or conflicting because they serve different functions in the contract. CitiMortgage further argues that its repurchase demands were made in good faith, that thecontract is not unconscionable, and that Just Mortgage should not be excused by any alleged unilateral mistake of fact. (Doc. 161.)

IV. STATEMENT OF UNDISPUTED FACTSCitiMortgage's Loan Purchasing Program

CitiMortgage is in the business of purchasing closed mortgage loans from certain approved lenders, known as "correspondents," across the United States under its Loan...