Franklin Am. Mortg. Co. v. Chi. Fin. Servs., Inc.

145 F.Supp.3d 725

FRANKLIN AMERICAN MORTGAGE COMPANY, Plaintiff,

v.CHICAGO FINANCIAL SERVICES, INC., Defendant.

No. 14–00753.

United States District Court, M.D. Tennessee, Nashville Division.

Filed Nov. 10, 2015.

Charles M. Cain, II, Cain Law Firm, Franklin, TN, for Plaintiff.

Nancy A. Temple, Scott N. Gilbert, Katten & Temple LLP, Chicago, IL, Steven C. Douse, King & Ballow, Nashville, TN, for Defendant.

MEMORANDUM

KEVIN H. SHARP, District Judge.

Pending before the Court is the fully-briefed Motion for Summary Judgment (Docket No. 39), filed by Franklin American Mortgage Company (“FAMC”). For the reasons that follow, the Court finds in favor of FAMC on its breach of contract claim against Defendant Chicago Financial Services, Inc. (“CFS”), and will hold a jury trial on damages on the date already scheduled for trial.

I. FACTUAL BACKGROUND

FAMC is a mortgage company; CFS originates, underwrites and funds mortgage loans and then sells them. In 2007, FAMC and CFS entered into a Correspondent Loan Purchase Agreement (“CLPA”) and a Delegated Underwriting Agreement (“DUA”) under which FAMC purchased residential mortgage loans originated by CFS.

On April 4, 2008, CFS originated a mortgage loan to borrower Coleman Newell that was underwritten in accordance with an agreement CFS then had with JP Morgan Chase Bank (“Chase”). CFS took a security interest in the property (a 3 bedroom/2 bath condominium) located at 4020 South Ellis Avenue Unit G, in Chicago, Illinois. That loan was sold to FAMC on August 14, 2008, under the terms of the CLPA, and it is that loan which serves as the basis for this lawsuit.

In applying for the loan, Newell repeatedly indicated that he would occupy the condominium. He did so by (1) completing an application which stated it would be his primary residence; (2) signing an Occupancy and Financial Status Affidavit under oath which indicated that he either occupied the property, or would do so within sixty days after signing the security instrument for the loan, and would continue to reside in the property for at least one year; and (3) signed a Borrower's Certification that stated he would occupy the property within a reasonable time after the closing of the loan. CFS relied on those documents in approving the loan.

When the loan was sold to FAMC, the Lock–In Confirmation Sheet stated that the property was owner occupied. However, Newell did not occupy the residence as promised. In fact, a signed lease agreement in the loan file suggest Newell rented the property to Curtis Harrison and Doris Banks on May 1, 2008, which was less than thirty days after the closing on the loan.

After purchasing the loan from CFS, FAMC sold it to Wells Fargo Funding, Inc. (“Wells Fargo”). On May 16, 2011, Wells Fargo sent FAMC an email regarding “misrepresentation of occupancy” in relation to the loan that stated a third party records check indicated that Newell “did not occupy the subject property following origination of the subject loan,” and that a signed lease agreement showed the property being rented from Newell on May 1, 2008. The following day FAMC notified CFS of the issue identified by Wells Fargo and requested an explanation.

In a June 13, 2011 email response, Philip Brilliant, CFS's President, wrote that “[t]he closed loan documents include a lease for the subject unit dated within 30 days of the April 4, 2008 closing,” but that he did “not have a reason why this lease was included with the application” because “[i]t contradicts the borrower's statement that he intended to live in the property as an owner occupied borrower.” (Docket No. 40–2 at 5). Mr. Brilliant also wrote that because CFS does “not service loans after a closing” it “was not given any indication as to [Newell's] actions over the course of the 12 month following his closing.” (Id. at 6). A few days later, Mr. Brilliant sent another email in which he stated that CFS did not “knowingly write an owner occupied loan to Coleman Newell while knowing that [Newell] did not intend to move into the property”; that the loan was “re-engineered to be delivered to Franklin American” after Chase announced that it was cancelling its correspondence agreement with CFS; that “Newell had several rental properties at the time ... and submitted 7 leases to [the] post closing department”; that the “post closing department did not study the leases or match them to the properties,” but merely forwarded to FAMC “what the borrower sent in”; and that CFS was “innocen[t] in this situation.” (Docket No. 40–1 at 25–26).

On July 20, 2011, Wells Fargo demanded that FAMC repurchase the Newell loan pursuant to the agreement between the parties. In turn, FAMC demanded that CFS either repurchase the loan outright, or pay a settlement amount lower than the repurchase price. CFS refused. Ultimately, FAMC entered into a settlement agreement with Well Fargo in which it repurchased the loan for a payment of $153,754.77.

CFS has not paid anything to indemnify FAMC for losses on the Newell loan, prompting this lawsuit for breach of contract.

II. Standard of Review

The standard of review for motions for summary judgment is well known. A party may obtain summary judgment if the evidence establishes there are no genuine issues of material fact for trial and the moving party is entitled to judgment as a matter of law. See FED. R. CIV. P. 56(c) ; Covington v. Knox Cnty. Sch. Sys., 205 F.3d 912, 914 (6th Cir.2000). A genuine issue exists “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In ruling on a motion for summary judgment, the Court must construe the evidence in the light most favorable to the nonmoving party, drawing all justifiable inferences in his or her favor. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

III. Application of Law

FAMC's breach of contract claim is based upon an alleged breach by CFS of a portion of Section 6 of the CLPA which in relevant part provides:

Section 6: Seller's Representations as to Mortgage Loans

At all times the Seller makes the following representations and warranties

* * *

6.2 There is no fact or circumstance with respect to the Mortgage Loan that would entitle: a) an Agency to demand repurchase of a Mortgage Loan; b) an Agency or insurer to deny or reduce benefits under an insurance policy or guarantee; c) a third party, including but not limited to, an Agency and/or insurer, to claim indemnification or damages; or d) an Agency or other party deem a Mortgage Loan to be ineligible for a Pool. Each Mortgage Loan complies with the Agency Guide. The Seller is not now and has not within the last 24 months been subject to any administrative sanction imposed by an Agency.

(Docket No. 1–1 at 13). FAMC's claim also alleges certain breaches of Section 8 of the CLPA, which provides in pertinent part:

Section 8: Mortgage Loan Repurchases

Seller agrees to repurchase one or more Mortgage Loans from Buyer, upon terms and conditions hereinafter set forth in the event that

a) Any representation or warranty of Seller with respect to the Mortgage Loan is determined by Buyer to have been false or any other Event of Default with respect to the Mortgage Loan shall have occurred.

b) Buyer is required to repurchase the Mortgage Loan after it has been sold to an Agency or a Private Investor due to a deficiency in or omission with respect to any documents, instrument, or agreement pertaining to the Mortgage Loan or because of any other defect which existed on or before purchase of the Mortgage Loan by Buyer or which arose after purchase as a result of an occurrence or omission on or before the purchase.

* * *

f) A post-closing quality control review by Buyer, Agency or Private Investor discloses any material fraud or misrepresentation.

(Id. at 15).

Those same provisions were the subject of an opinion by Judge Nixon of this Court in Franklin Am. Mortg. Corp. v. Direct Mortg. Corp., No. 3–11–00695 (M.D.Tenn. Aug. 20, 2013) (“Slip op.”) where he found no ambiguity as to their terms. Prior to discussing that decision, however, the Court addresses some evidentiary issues raised by Defendant.

In support of its Motion for Summary Judgment, FAMC relies upon various documents, including the lease between Newell, Curtis Harrison and Doris Banks, a Credit Report, and a Lexis Report. CFS argues that all of those documents are inadmissible because FAMC has not authenticated them and they are hearsay.

With regard to authenticity, CFS argues FAMC has not authenticated the lease, noting that neither FAMC nor CFS was present when the lease was signed and neither party has knowledge of whether the lease is what it purports to be. Likewise, CFS argues that the Credit Report and Lexis Report have not been authenticated because the parties in this case did not prepare the document and there is no testimony in the record from anyone with personal knowledge from either Equifax or LexisNexis.

“Federal Rule of Civil Procedure 56 requires the plaintiff to present evidence of evidentiary quality[.]” Perry v. Jaguar of Troy,

353 F.3d 510, 516 (6th Cir.2003). “The proffered evidence need not be in admissible form, but its content must be admissible.” Id. Therefore, “[a] party may object that the cited material to support or dispute a fact cannot be presented in a form that would be admissible in evidence.” Fed.R.Civ.P. 56(c)(2).

Here, CFS's argument is mis-focused. The question is not whether the lease and reports have already been authenticated. Rather, the issue is whether they can be presented in a form that is admissible at trial. See, Foreword Magazine, Inc. v. OverDrive, Inc., 2011 WL 5169384, at *2 (W.D.Mich. Oct. 31, 2011) (“the 2010 amendments to Rule 56 ... eliminated the unequivocal requirement that documents submitted in support of a summary judgment motion must be authenticated,” and thus, “the objection...