Quicken Loans, Inc. v. Garcon, Case No. 17-11349

QUICKEN LOANS, INC., Plaintiff, v. FRED GARCON; REACH THE AMERICAN DREAM, INC.; and NERLANDE FENELUS, Defendants.

Case No. 17-11349

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

September 4, 2018

Paul D. Borman United States District Judge

Anthony P. Patti United States Magistrate Judge

OPINION AND ORDER: (1) GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT (ECF NO. 34); AND (2) DENYING DEFENDANTS' MOTION TO COMPEL (ECF NO. 42)

In this diversity-jurisdiction action for breach of contract and fraud, Plaintiff Quicken Loans, Inc. ("Quicken Loans") alleges that Defendant Reach the American Dream, Inc. ("RAD") and two of its owners made misrepresentations to Plaintiff in applications for mortgage loans. Plaintiff then alleges that when it reported those misrepresentations to third-party investors to whom it had sold four of those loans, Plaintiff was legally obligated to repurchase the loans, resulting in damages.

Plaintiff has moved for summary judgment, and Defendant Garcon has filed a Motion to Compel seeking an order requiring Plaintiff to disclose certain specified documents. For the reasons stated below, Plaintiff's Motion for Summary Judgment will be granted, and Defendant Garcon's Motion to Compel will be denied.

I. BACKGROUND

A. Factual Background

1. The parties

Quicken Loans is a Michigan mortgage lender with its principal place of business in Detroit, Michigan. (ECF No. 21, Am. Compl. ¶ 2.) Defendant Reach the American Dream, Inc. is a Florida corporation with its principal place of business in Lake Worth, Florida. (Am. Compl. ¶ 3; ECF No. 22, Answer ¶ 3.) Defendant Nerlande Fenelus is an owner of RAD. (Am. Compl. ¶ 10; Answer ¶ 10.) Defendant Fred Garcon is an owner, officer, and resident agent of RAD. (Am. Compl. ¶ 11; Answer ¶ 11.) Both Fenelus and Garcon are citizens of Florida. (Am. Compl. ¶¶ 4-5; Answer ¶¶ 4-5.)

2. The Broker Agreement

In or around May 2014, Quicken Loans and RAD entered into a Broker Agreement. (ECF No. 34, Pl.'s Mot. Ex. A, Broker Agreement.) Through the Broker Agreement, the parties intended "to establish a non-exclusive relationship whereby Broker [i.e., RAD] will perform origination services and submit loan application packages . . . for first and second lien 1-4 family residential mortgage financing on behalf of Broker's customers . . . to Lender [i.e., Quicken Loans] for loan approval determination and possible funding by Lender." (Id. at 1, Pg ID 199.) Among the services that RAD agreed to perform for each loan was "collecting financialinformation (e.g., tax returns, bank statements) and other related documents that are part of the application process." (Id. at 2, Pg ID 200.)

Section 4.7 of the Broker Agreement provides in relevant part:

FRAUD. Broker shall not submit any Application or related documents containing false or misrepresented information. Broker shall be responsible for all actions taken in the course of its performance of its obligations under this Agreement, whether performed by Broker, its employees or licensees, or the Applicant, or any other third party involved in the origination of the mortgage loan.

(Id. at 8, Pg ID 206 (emphasis in original).)

Additionally, Section 4.8 of the Broker Agreement provides:

NO UNTRUE OR MISLEADING STATEMENTS. No representation, warranty or written statement made by Broker to Lender in this Agreement or in any schedule, written statement or document furnished to Lender in connection with the transactions contemplated hereby contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading.

(Id. (emphasis in original).)

Section 6 of the Broker Agreement sets forth Plaintiff's remedies in the event of breach. (See id. at 10-11, Pg ID 208-09.) Specifically, Section 6 provides that from the time at which RAD discovers or is notified of any breach of the Broker Agreement, RAD shall have 30 days to cure such breach "to the reasonable satisfaction of Lender." (Id. at 11, Pg ID 209.) For any breach that Plaintiff determines cannot be cured, however, Section 6 provides that "Lender may demandand Broker shall be required to repurchase in all material respects said loan from Lender or the investor to whom Lender sold the loan for the 'Repurchase Price.'" (Id.) Section 6 then defines "Repurchase Price" as follows:

The Repurchase Price shall be an amount equal to the sum of (i) the current unpaid principal balance of the loan at the time of repurchase (or at the time of the foreclosure sale date if the related loan has been foreclosed), (ii) accrued but unpaid interest on such principal balance at the Note rate from the paid-to date of the loan through and including the last day of the month in which the Repurchase Price is paid, (iii) all costs and expenses, including without limitation, reasonable attorneys' fees and expenses, incurred by Lender as a result of Broker's breach of this Agreement or enforcing the terms of this Agreement or Broker's obligation to repurchase the loan, (iv) any premium paid by Lender in excess of the principal balance of the loan at the time of purchase if Lender has not sold the loan at the time of Broker's repurchase or if Lender has sold the loan and it is required to reimburse the purchaser, the premium that the purchaser paid to Lender, (v) any unreimbursed advances made by Lender, including without limitation taxes or insurance or payments authorized by the Note or the mortgage or applicable law to protect Lender's interest in the loan or related property and (vi) any other fees, costs or amounts relating thereto.

(Id.)

Finally, Section 10.12 of the Broker Agreement contains choice-of-law and venue provisions:

GOVERNING LAW; JURISDICTION. This Agreement shall be governed by, and construed and enforced in accordance with, applicable federal law and the laws of the State of Michigan. Any action arising out of this Agreement or the transactions contemplated hereby may be instituted in any state or federal court located in the State ofMichigan. Further, each party expressly waives any objection which such party may have to the laying of venue of any such action, and irrevocably submits to the jurisdiction of any such court and agrees to be fully bound by any final unappealed decision of those courts.

(Id. at 16, Pg ID 214 (emphasis in original).)

3. Three loans funded by Plaintiff based on "6912 Account" statement

In July 2014, RAD submitted a residential mortgage loan application to Plaintiff on behalf of a borrower identified as "Fenel Simon." Defendants admit that as part of the underwriting process for that loan, RAD "submitted a bank statement allegedly from Wells Fargo for a customer named Fenel Simon with account number ending in 6912 ('the 6912 Account')." (Am. Compl. ¶ 13; Answer ¶ 13.) Plaintiff alleges that because the bank statement "on its face looked altered, [Plaintiff] sent a verification of deposit to Wells Fargo regarding the 6912 Account." (Am. Compl. ¶ 14.) Wells Fargo responded on September 19, 2014 that it could not in fact complete Plaintiff's "Verification of Deposit request," and stated the following reason: "ACCOUNT NUMBER PROVIDED AND CUSTOMER NAME PROVIDED DO NOT MATCH. CUSTOMER IS NOT AN AUTHORIZED SIGNER ON THE ACCOUNT PROVIDED." (Pl.'s Mot. Ex. D, Wells Fargo Response.) Plaintiff alleges that after investigating the matter, it determined that "[t]he names listed on page 2 of the Fenel Simon bank statement are Nerlande Rodney, an alias for Nerlande Fenelus, . . . and, upon information and belief, Nerlande's mother, SilenneRodney." (Am. Compl. ¶ 16a.)

Defendants admit that "RAD submitted the altered 6912 Account statement that was false and was not the statement of an account owned by the borrower for the prospective mortgage loans." (Am. Compl. ¶ 39; Answer ¶ 39.) Defendants also admit that Defendant Garcon "was personally involved in the submission of the Applications and other documents to Quicken Loans for these loans including the submission of the 6912 Account statement." (Am. Compl. ¶ 41; Answer ¶ 41.) In their September 15, 2017 response to Plaintiff's first set of discovery requests, Defendants indicated both that Defendant Garcon altered the 6912 Account statement, and that he submitted it to Plaintiff as part of the underwriting process for ten separate loan applications—including the three loans that Plaintiff had already funded before discovering the misrepresentation, which are further discussed below. (See Pl.'s Mot. Ex. E, Discovery Responses at Pg ID 271-75.)

Plaintiff alleges that after it discovered RAD's use of the altered bank statement, it denied funding for the loan application filed on behalf of "Fenel Simon," and that it also denied funding for six other loan applications for which RAD had used the same altered bank statement, but that it had already funded three other loans based on the altered statement. Those three loans were to individuals named Evans, Francois, and Monestime respectively. (Am. Compl. ¶¶ 17-19.)

4. Loan funded by Plaintiff for "Maggy Leroy"

In addition to the three loans funded on the basis of the altered bank statement, Plaintiff's claims also arise from a fourth loan funded on the basis of an entirely different misrepresentation. Sometime in 2014, Plaintiff funded a loan in an unspecified amount to a "Maggy Leroy." That loan was funded in part based on representations by Fenelus that Leroy was her sibling, and that she had made a gift to Leroy of $17,500. These representations were made in a "Gift Letter" apparently signed by Fenelus. (Pl.'s Mot. Ex. F, Gift Letter.)

In a letter to Fenelus and RAD dated October 31, 2014, Kristen Broadley, Plaintiff's Director of Loss Mitigation, stated:

In a post-close audit, we recently discovered the following issue wilh this loan file:

• An investigation revealed that the donor on the gift letter was from the owner of Reach the American Dream, Inc. and

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