Yale Mortgage Corporation v. Wells Fargo Bank N. A.
Filing
84
ORDER denying 77 Motion for Judgment as a Matter of Law; granting in part and denying in part 79 Motion for Judgment as a Matter of Law Signed by Judge Jose E. Martinez on 8/20/2012. (ajs)
UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF FLORIDA
Miami Division
Case Number: 11-22605-CIV-MARTINEZ-MCALILEY
YALE MORTGAGE CORPORATION,
Plaintiff,
vs.
WELLS FARGO BANK, N.A.,
Defendant.
_____________________________________/
ORDER ON POST-TRIAL MOTIONS
THIS CAUSE came before the Court upon Plaintiff's Consolidated Post-Trial Motion
(D.E. No. 79) and Defendant Wells Fargo's Renewed Motion for Judgment as a Matter of Law
or, in the Alternative, Motion for New Trial (D.E. No. 77). After careful consideration and for
the reasons set forth below, Plaintiff’s motion is granted in part and denied in part and
Defendant’s motion is denied.
I. Relevant Factual and Procedural Background1
Plaintiff Yale Mortgage Corporation ("Plaintiff") filed suit against Defendant Wells Fargo
Bank, N.A. (“Defendant") for breach of contract relating to a Pooling and Servicing Agreement
("PSA") between the two parties. This agreement "pertained to the pooling and securitization of
approximately $100 million of individual home mortgages and certificates entitling investors to
receive principal and interest payments made by mortgage loan borrowers." (D.E. No. 43, Joint
Pretrial Stipulation at 3). The parties agreed with regard to the basic facts of this case before
1
The facts are discussed in more detail in the Analysis section of this order.
trial. Specifically, the parties stipulated as follows:
Plaintiff was the original Servicer for the transaction, tasked with
collecting payments from borrowers in the loan pool, forwarding funds received to
appropriate trust accounts, and making scheduled advances on behalf of defaulting
borrowers, if necessary. Plaintiff was required to make “servicing advances” on
behalf of borrowers who failed to make payments and to pay for certain
maintenance of mortgaged properties which were foreclosed. Under the terms of
the PSA, Plaintiff was entitled to be reimbursed for these “servicing advances”
when they were recovered by payment or foreclosure. The PSA set the Servicer’s
compensation at one-half of one percent of the total outstanding principal balance
of the loans, which was paid to Plaintiff on a monthly basis as its fees. Defendant
was the Master Servicer under the PSA.
In August and September 2008, Plaintiff notified Defendant that it could
not make further Servicing Advances. Defendant sent Plaintiff formal notice of
default and then termination, dated September 15, 2009 and October 8, 2011 . . .
the result of which was that Plaintiff was terminated as Servicer due to its breach
of the PSA. There is no dispute as to . . . [Plaintiff’s] default or the propriety of
its termination for default.
Following Plaintiff’s termination, Defendant assumed the duties of
replacement Servicer under the PSA. Defendant had taken over these duties by
December 1, 2008.
The PSA required that Plaintiff cooperate in the transition process, and
Plaintiff did so; there is no issue of breach of Plaintiff’s duties in that regard.
As of Plaintiff’s termination, Plaintiff had made $4,208,434 in prior
“servicing advances” for which it was entitled to reimbursement upon recovery as
stated above (subject to any valid defenses raised by Wells Fargo). As of January
31, 2012, $3,435,515 of these advances have been repaid to Plaintiff.
Defendant has invoiced Plaintiff, and set off against reimbursement of
advances due to Plaintiff, an “additional servicing fee” or “servicing delta” of
$20,000 to $30,000 per month (one-half percent of the total outstanding loan
balances), in addition to receiving as an administrative fee of the same one-half
percent servicing fee previously received by Plaintiff. The total amount of
“additional servicing fee” or “servicing delta” set off against reimbursement of
advances due to Plaintiff as of January 31, 2012 is $935,812.37.
In addition, Defendant has set off against Plaintiff’s reimbursements of
advances an additional amount of $140,000 . . . as reimbursement for legal fees
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and other costs of transfer.
Id. at 4-5.
Plaintiff filed a motion for summary judgment relying on three specific provisions of the
PSA asking the Court to find as a matter of law that Defendant is not entitled to the additional
servicing fee and that Defendant is not entitled to costs for transfer of servicing for any period of
time exceeding the maximum ninety-day transition period. (D.E. No. 20). The Court denied this
motion. (D.E. No. 44).
A jury trial was held in this case and the jury entered a verdict in Plaintiff's favor,
awarding it $954,812.37 in damages for breach of contract. (D.E. No. 71). The jury, however,
also found that Plaintiff waived its right to be reimbursed for a portion of the servicing advances
by accepting payments from Defendant from which the additional fee had been deducted,
reducing Plaintiff's award by $526,777.06 for a sum total recovery in Plaintiff's favor of
$428,035.31. Id. Both parties have now filed post-trial motions.
II. Legal Standard2
Plaintiff has filed its motion pursuant to Rules 50(b), 54(c), 54(d) and 59(e) of the Federal
Rules of Civil Procedure and Defendant has filed its motion pursuant to Rule 50(b) or in the
alternative Rule 59 of the Federal Rules of Civil Procedure. Rule 50 provides that
If a party has been fully heard on an issue during a jury trial and the court finds
that a reasonable jury would not have a legally sufficient evidentiary basis to find
for the party on that issue, the court may . . . grant a motion for judgment as a
matter of law against the party on a claim or defense that under the controlling
law, can be maintained or defeated only with a favorable finding on that issue.
Fed. R. Civ. P. 50(a)(1)(B). Rule 50(b) provides that after the entry of a judgment a movant
2
These standards are discussed in more detail in the Analysis section of this order.
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"may file a renewed motion for judgment as a matter of law and may include an alternative or
joint request for a new trial under Rule 59."
"While Rule 59(e) does not set forth any specific criteria, the courts have delineated three
major grounds justifying reconsideration: (1) an intervening change in controlling law; (2) the
availability of new evidence; and (3) the need to correct clear error or prevent manifest injustice."
Williams v. Cruise Ships Catering & Serv. Int’l, 320 F. Supp. 2d 1347, 1357-58 (S.D. Fla. 2004).
Rule 54(c) provides in relevant part that every final judgment other than a default
judgment "should grant the relief to which each party is entitled, even if the party has not
demanded that relief in its pleadings." Rule 54(d) provides that unless otherwise prohibited by
federal statute or these rules costs other than an attorney's fee should be awarded to a prevailing
party.
III. Analysis
As stated above, both parties in this action have filed post-trial motions. The Court
addresses each party's motion in turn.
A.
Plaintiff's Consolidated Post-Trial Motion
Plaintiff "(1) renews its motion for directed verdict on the defense of "waiver" and asks
the Court to alter and amend its judgment . . . accordingly; (2) asks the Court to grant Yale
declaratory relief as necessary to fully resolve the dispute as pled; . . . (3) moves the Court to alter
or amend the judgment to add prejudgment interest;" and (4) moves the Court to alter or amend
its judgment and award costs to Yale. After careful consideration and for the reasons set forth
below, the Court grants Plaintiff’s motion in that it awards Plaintiff certain costs it requests but
denies Plaintiff’s motion in all other respects.
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1.
Renewed Motion for Judgment as a Matter of Law on Affirmative
Defense of Waiver
First, Plaintiff argues that the Court should have granted judgment as a matter of law on
Defendant's affirmative defense of waiver because "there was no evidence supporting a finding
of waiver." (D.E. No. 79). In ruling on Plaintiff's Rule 50 renewed motion for judgment as a
matter of law, this Court draws "all inferences in favor of the non-moving party" and "affirms the
jury verdict unless there is no legal basis upon which the jury could have found" waiver.
Telecom Technical Servs., Inc. v. Rolm Co., 388 F.3d 820, 830 (11th Cir. 2004). In order to
survive the motion for judgment as a matter of law with regard to its affirmative defense,
Defendant must have presented enough evidence to permit a jury to find in Defendant's favor on
each and every element of the defense. Bogle v. Orange County Bd. of County Comm'rs, 162
F.3d 653, 659 (11th Cir. 1998). Here, the Court finds that Defendant presented sufficient
evidence to sustain the jury’s finding.
"Waiver is the voluntary and intentional relinquishment of a known right." Chicago Ins.
Co. v. Kreitzer & Vogelman, 265 F. Supp. 2d 335, 343 (S.D.N.Y. 2003).3 It "requires evidence
of a clear manifestation of intent . . . and cannot be lightly inferred." Id. (internal quotations
omitted). At issue in this case was whether Plaintiff "waived its right to be reimbursed for a
portion of the servicing advances by accepting payments from Defendant from which the
additional servicing fee had been deducted." (D.E. No. 71 at 2). The Court finds that there was
sufficient evidence for a reasonable jury to find waiver.
Specifically, evidence was presented that Plaintiff originally disputed the deduction of the
3
The parties agreed that substantive New York law applies to this case.
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servicing fee amounts from the amounts owed to Plaintiff, having counsel send a letter to
Defendant on their behalf threatening litigation if the deductions did not cease. (D.E. No. 72-19,
Pl.' s Exh. 25). Defense counsel responded to this letter explaining Defendant’s basis for
deducting the additional servicing fee and rejecting Plaintiff's demand that they cease deducting
the additional servicing fee. (D.E. No. 72-20, Pl.'s Exh. 26). Plaintiff's Chief Financial Officer,
Steven Chaby, testified at trial that he is unaware of any response to this letter or any further
communication from Plaintiff objecting to the additional servicing fee. (D.E. No. 78-2, Trial
Trans. at 88-90).
In fact, after this letter from Defense counsel was sent, Defendant continued to send
reimbursements less this additional servicing fee on a monthly basis for almost two years to
Plaintiff. Id. at 88-91. Plaintiff accepted these servicing fees and the deduction of the additional
servicing fee without comment. Id. Most importantly, Defendant introduced emails that the jury
could interpret as Plaintiff’s explicit acceptance of these fees. Specifically, in emails with regard
to specific reimbursements minus the servicing fees Chaby states "I agree with your total
recoupment figure" and "[w]e agree with your figures." (D.E. No. 72-26, Def. Exh. Q); (D.E.
No. 72-27, Def. Exh. R); see also (D.E. No. 78-2, Trial Trans. at 93, 96-97). Furthermore,
Chaby testified that he sent a confirming email such as the ones introduced into evidence every
month. (D.E. No. 78-2, Trial Trans. at 93). The Court acknowledges that Chaby testified that his
statements in these emails meant only that he agreed with the calculation (D.E. No. 78-2, Trial
Trans. at 91); however, the jury was free to interpret the emails otherwise. The emails
themselves do not contain any qualifying language. See (D.E. No. 72-26, Def. Exh. Q); (D.E.
No. 72-27, Def. Exh. R). Accordingly, the Court finds that there was sufficient evidence in the
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record for the jury to find a voluntary and intentional relinquishment of a known right.
2.
Request that Judgment be Amended to Award Declaratory Relief
Next, Plaintiff argues that pursuant to Federal Rule of Civil Procedure 54(c), which
provides that a “final judgment should grant the relief to which each party is entitled,” the Court
should amend the judgment and award Plaintiff declaratory relief. Specifically, Plaintiff argues
that the Court should enter declaratory relief stating that the additional servicing fee charged by
Defendant is not allowed by the PSA and further setoffs for this fee are not permitted. For the
reasons set forth below, the Court declines at this time to enter the requested declaratory relief.
The parties stipulated as follows in their Joint Pretrial Stipulation:
The parties have agreed to stop the computation of damages for purposes of trial
as of January 31, 2012. Depending on the Court’s ruling on the propriety of the
‘additional servicing fee’ or ‘servicing delta’ under the parties’ contract,
Defendant will (if the ruling is in its favor) or will not (if the ruling is in Plaintiff’s
favor) continue to set off in the future such fees against future reimbursements due
to Plaintiff, and will not or will repay Plaintiff any additional servicing fees or
servicing delta it has set off against advances in the interim.
(D.E. No. 43 at 6-7). The parties, however, have never asked the Court to rule on this issue
despite their stipulation. Plaintiff asked to add a question to the verdict form asking the jury to
decide this issue pursuant to the parties’ stipulation, and Defendant responded, stating that it was
unnecessary. Specifically, the following exchange took place.
MR. JOHNSON: Yeah, your Honor, there is no different [sic] from any other
case where parties find liable for a breach of contract or tort. The understanding
is always, it’s learned its lesson and it’s not going to repeat. But courts aren’t in
my experience in the business of then in the future saying, okay, and don’t do it
again. I did mean that’s essentially what Yale’s asking for here. I don’t think
that’s, your Honor,’s [sic] -THE COURT: No that’s not my inclination.
-7-
MR. CROCKETT: Okay, but then, so, if I understand the Court’s ruling there will
not be a forward looking finding.
THE COURT: Right.
(D.E. No. 78-3, Trial Trans. 102-103). However, as stated above, neither party has ever asked
the Court to decide this issue. The parties specifically agreed, however, that they would be
bound by the Court’s decision on this issue, and moreover, Defendant appears to have indicated
at trial that it would be bound by whatever the jury decided on the breach of contract issue.
Accordingly, as the jury found for the Plaintiff on the breach of contract issue, Defendant appears
to have indicated at trial on the record that it would not continue to set off the additional
servicing fee. The Court orders the parties to confer as professionals regarding this matter.
Plaintiff may file a motion for contempt, which this Court shall give due consideration if Plaintiff
believes Defendant’s statements at trial and its actions since trial warrant such a motion.4 The
parties may also choose to each file a joint motion to have this Court adjudicate this issue
pursuant to the parties’ stipulation. If such a joint motion is filed, within five days of filing such
a motion, each party shall also submit proposed findings of fact and conclusions of law citing to
the trial transcript and the trial exhibits.
3.
Prejudgment Interest
Plaintiff also moves to amend the judgment and have the Court award it prejudgment
interest. Under Florida law,5 “[w]hen a verdict liquidates damages on a plaintiff’s out-of-pocket,
4
The Court acknowledges that Defendant has argued that it has not tried to collect any
future setoff amounts.
5
The parties agree that this is a procedural issue to which Florida law applies as both
parties rely on Florida law in making their arguments relating to prejudgment interest. See (D.E.
Nos. 79, 81, & 82).
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pecuniary losses, plaintiff is entitled, as a matter of law, to prejudgment interest at the statutory
rate from the date of that loss.” Argonaut Ins. Co. v. May Plumbing, Co., 474 So. 2d 212, 215
(Fla. 1985). Here, however, the verdict did not liquidate damages as of a date certain.6 See (D.E.
No. 71). It is not purely a ministerial act for the Court to calculate prejudgment interest and
would require this Court to make certain findings. Even Plaintiff appears to acknowledge this,
stating in that it has provided a spreadsheet to show how it calculated the prejudgment interest
due and that its “calculation is based on conservative assumptions as to the basis for the jury’s
verdict under the record.” (D.E. No. 79 at 11); see also (D.E. No. 82 at 9). Accordingly,
Plaintiff’s request for prejudgment interest is denied.
4.
Costs
Finally, Plaintiff seeks $7,136.60 in costs as the prevailing party pursuant to Federal Rule
of Civil Procedure 54(d) and 28 U.S.C. § 1920. Defendant disputes only the costs Plaintiff
requests for its expenses incurred in hiring Champion Legal Graphics and Video (“Champion”).
Plaintiff states that Champion provided “technology services in running the exhibit and transcript
presentation equipment used by both parties during trial.” (D.E. No. 79 at 12). Defendant argues
that technological trial support such as this is not a recoverable cost under 28 U.S.C. § 1920.
This Court agrees.
Section 1920 allows for the recovery of certain specific costs. “[A]bsent explicit
statutory authorization federal courts are limited to those costs specifically enumerated in 28
U.S.C. § 1920.” State Contracting & Eng’g Corp. v. Condotte Am., Inc., No. 97-7014-CIV,
2002 WL 34365828, at *1 (S.D. Fla. Aug. 28, 2002); see also Crawford Fitting Co. v. J.T.
6
The Court also notes that neither party asked that the jury to determine this issue.
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Gibbons, Inc., 482 U.S. 437, 441-42 (1987) (finding that while Federal Rule of Civil Procedure
54(d) “grants courts discretion to tax whatever costs may seem appropriate” it does not give a
court the discretion to tax costs that are not specified in section 1920). Technological support
expenses are not included within these listed costs. Accordingly, while the Court will allow
Plaintiff to recover the other costs it seeks, it will not allow Plaintiff to recover its expenses
relating to Champion. A final judgment as to costs will be entered separately in Plaintiff’s favor
in the amount of $2,587.10.
B.
Defendant's Renewed Motion for Judgment as a Matter of Law or, in the
Alternative, Motion for New Trial
Defendant has also filed a post-trial motion. Defendant argues that judgment as a matter
of law should be entered in its favor or in the alternative this Court should grant a new trial
because there was no basis for the jury to find that Defendant breached the PSA, because
Plaintiff's breach of the PSA is a complete defense, because the Court erred in permitting
Plaintiff's Chief Executive Officer, Gilbert Kahn, to testify as to his interpretation of section 6.14
of the PSA and because the Court erred in permitting David Piotrowski to testify. After careful
consideration and for the reasons set forth below, the Court denies Defendant's motion.
1.
Defendant's breach of the PSA
Defendant argues that it should be granted judgment as a matter of law or in the
alternative a new trial because the “terms of the PSA unambiguously permitted” Defendant to
recover the additional servicing fee and thus Defendant argues “there was no basis upon which
the jury could have concluded that . . . [Defendant] breached the contract.” (D.E. No. 77 at 12).
In ruling on Defendant’s Rule 50 renewed motion for judgment as a matter of law, this Court
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draws "all inferences in favor of the non-moving party" and "affirms the jury verdict unless there
is no legal basis upon which the jury could have found" breach of contract. Telecom Technical
Servs., Inc., 388 F. 3d at 830. In order to survive the motion for judgment as a matter of law with
regard to its breach of contract claim, there must have been sufficient evidence to permit a jury to
find in Plaintiff’s favor on each and every element of this claim. Bogle, 162 F.3d at 659. Here,
the Court finds there was sufficient evidence to support the jury’s verdict.
First, to the extent that Defendant is arguing that the jury’s verdict, finding that Defendant
breached the PSA, is inappropriate as a matter of law based on this Court’s ruling in the Order
Denying Plaintiff’s Motion for Partial Summary Judgment, the Court finds this argument is
without merit. In the order on the motion for partial summary judgment, the Court issued the
following specific rulings based on specific arguments made by Plaintiff.
First, the Court found that the plain language of section 6.14(b) of the PSA7 did not
prohibit Defendant from seeking the additional servicing fee from Plaintiff. (D.E. No. 44 at 5).
The Court found this provision simply did not address the issue, providing simply that Defendant
could receive the same compensation that Plaintiff could receive but not prohibiting or allowing
additional compensation. Id. Second, the Court found that the plain language of section 6.14(d)
of the PSA8 also did not prohibit Defendant from seeking the additional servicing fee from
7
Section 6.14(b) provides that “[a]s compensation therefor, the Master Servicer shall be
entitled to receive all compensation payable to the Servicer under this Agreement, including the
Servicing Fee.” (D.E. No. 72-2, Pl.’s Exh. 2 at 90).
8
Section 6.14(d) provides:
Notwithstanding the foregoing, the Master Servicer may, if it shall be unwilling
to continue to so act, or shall, if it is unable to so act, request the Trustee to
appoint, petition a court of competent jurisdiction to appoint, or appoint on its
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Plaintiff. Id. at 5-6. This provision prohibited a successor servicer from seeking additional
compensation out of payments on mortgage loans and simply did not address the factual situation
at issue in this case. Id. Finally, the Court also ruled that section 6.14(a)9 of the PSA did not
own behalf any housing and home finance institution, bank or mortgage servicing
institution having equity of not less than $25,000,000 and meeting such other
standards for a successor master servicer as are set forth in this Agreement, as the
successor to such Servicer in the assumption of all of the responsibilities, duties or
liabilities of the Servicer hereunder. Any entity designated by the Trustee or the
Master Servicer as a successor servicer may be an Affiliate of the Trustee or the
Master Servicer; provided, however, that, unless such Affiliate meets the net
worth requirements and other standards set forth herein for a successor servicer,
the Trustee or the Master Servicer, in its individual capacity shall agree, at the
time of such designation, to be and remain liable to the Trust Fund for such
Affiliate's actions and omissions in performing its duties hereunder. In connection
with such appointment and assumption, the Trustee or the Master Servicer may
make such arrangements for the compensation of such successor out of payments
on Mortgage Loans as it and such successor shall agree; provided, however, that
no such compensation shall be in excess of that permitted to the Servicer
hereunder.
(D.E. No. 72-2, Pl.’s Exh. 2 at 90). The Court found that this provision “provides that if the
Master Servicer, in this case the Defendant, has a successor servicer appointed that this successor
servicer cannot seek compensation in excess of what the Servicer, in this case the Plaintiff,
sought out of payments on Mortgage Loans.” (D.E. No. 44 at 5-6). The Court also found that “it
is undisputed in this case that Defendant’s successor, its own Home Mortgage division, does not
seek the additional service fee out of payments on Mortgage Loans” but instead the Home
Mortgage division “invoices to Wells Fargo’s Corporate Trust Services Division, which in turn
invoices Plaintiff for the additional fee.” Id. at 6.
9
Section 6.14(a) provides in relevant part:
On or after the receipt by the Servicer of any such written notice of termination,
all authority and power of the Servicer, and only in its capacity as Servicer under
this Agreement, whether with respect to the Mortgage Loans or otherwise, shall
pass to and be vested in the Master Servicer; provided, however, the parties
acknowledge that notwithstanding the preceding sentence there may be a
transition period, not to exceed 90 days, in order to effect the transfer of the
Servicing obligations to the Master Servicer.
***
The Servicer being terminated (or the Trust Fund, if the Servicer is unable to
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limit Defendant from recovering costs only from the transfer of servicing during the 90-day
period and that costs associated with the transfer of servicing were not limited to specific items
listed in section 6.14(a) as examples of transfer costs pursuant to the ejusdem generis rule. Id. at
6-7. The jury was instructed as to these rulings. See (D.E. No. 69 at 10). The Court, however,
did not discuss or determine whether the additional servicing fees charged by Defendant were
appropriate transfer of servicing costs under section 6.14(a) of the PSA.
Evidence was presented at trial that Defendant argued from the beginning that its
additional servicing fees were properly characterized as a cost “associated with the transfer of
servicing” under section 6.14(a) of the PSA. See (D.E. No. 72-20, Pl.’s Exh. 26). At trial,
Plaintiff argued that Defendant breached the contract because by charging the additional
servicing fee it was not charging an actual transfer of servicing cost under the PSA but was
instead attempting to charge Plaintiff an arbitrary number and make a profit. (D.E. No. 78-4,
Trial Trans. at 10). The Court finds that the phrase in section 6.14(a) of the PSA providing that
the servicer (Plaintiff) must reimburse the master servicer (Defendant) “for all costs associated
fulfill its obligations hereunder) as a result of a Servicing Termination Trigger
Event shall bear all costs of a servicing transfer, including but not limited to those
of the Master Servicer reasonably allocable to specific employees and overhead,
legal fees and expenses, accounting and financial consulting fees and expenses,
and costs of amending this Agreement, if necessary. The Master Servicer shall be
entitled to be reimbursed by the Servicer (or by the Trust Fund, if the Servicer is
unable to fulfill its obligations hereunder) for all costs associated with the transfer
of servicing from the predecessor Servicer, including without limitation any costs
or expenses associated with the complete transfer of all servicing data and
the completion, correction, remodeling or manipulation of such servicing data as
may be required by the Master Servicer to correct any errors or insufficiencies in
the servicing data or otherwise to enable the Master Servicer to service the
Mortgage Loans properly and effectively.
(D.E. No. 72-2, Pl.’s Exh. 2 at 88- 89).
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with the transfer of servicing from the predecessor [s]ervicer” is ambiguous, its meaning was
properly submitted to the jury, and that there was sufficient evidence in the record for the jury to
find that the term did not encompass the additional servicing fee charged by Defendant.
The Court finds that the phrase at issue in section 6.14(a) is ambiguous because it is
subject to more than one reasonable interpretation. See Seiden Assoc., Inc. v. ANC Holdings,
Inc., 959 F.2d 425, 429 (2d Cir. 1992) (applying New York law and stating that in determining
ambiguity the Court must decided whether a “contract is susceptible to more than one reasonable
reading.”). The phrase at issue provides in its entirety as follows:
The Master Servicer shall be entitled to be reimbursed by the Servicer (or by the
Trust Fund, if the Servicer is unable to fulfill its obligations hereunder) for all
costs associated with the transfer of servicing from the predecessor Servicer,
including without limitation any costs or expenses associated with the complete
transfer of all servicing data and the completion, correction, remodeling or
manipulation of such servicing data as may be required by the Master Servicer to
correct any errors or insufficiencies in the servicing data or otherwise to enable
the Master Servicer to service the Mortgage Loans properly and effectively.
(D.E. No. 72-2, Pl.’s Exh. 2 at 89). The beginning part of the phrase is broad stating that
Plaintiff is responsible for “all costs associated with the transfer of servicing.” This phrase,
however, in and of itself is ambiguous as it is unclear what is meant by the term “transfer of
servicing.” Does “transfer of servicing” mean simply the actual physical conveyance of
information, data, or files, or does it encompass the less tangible transference of the title and
responsibility of acting as the servicer? Accordingly, are the costs associated with the “transfer
of service” only those more tangible costs such as moving the data as set forth in more detail in
the second part of the phrase which describes data completion and correction or is it any cost that
the master servicer (Defendant) has had to incur because the title of servicer was transferred to it,
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including the cost of servicing sub prime mortgage loans in a mortgage crisis. The Court finds
both interpretations are reasonable, and thus, this portion of the PSA is ambiguous.
Accordingly, it was proper for the Court to admit, and the jury to consider the meaning of
these terms in the usage of trade. See Seiden Associates, Inc., 959 F.2d at 429 (stating that where
the language of a contract is ambiguous “extrinsic evidence may properly be considered in the
search for the contracting parties’ intent.”). Plaintiff offered testimony from Mr. David
Piotrowski (“Piotrowski”) who routinely works in the field of banking and who helped Plaintiff
and their counsel put together the PSA at issue in this case. (D.E. No. 78-1, Trial Trans. at 114117). Piotrowski testified that the PSA is “a fairly standard document used in the industry and
governs all of these transactions.” Id. at 117. The following exchange took place on direct
between Piotrowski and Plaintiff’s counsel.
Q.
Are you familiar with the term “standard” – is there a common
understanding relating to the term “transfer of servicing,” as used in the
field of mortgage securitizations?
A.
Yes. The transfer servicing is very standard.
Q.
What is the term – how is the term commonly understood in your field?
A.
* * *10
Repeat the question again? Sorry.
Q.
How is the term “transfer of servicing,” what does “transfer of servicing”
mean in your field?
***
10
This question was objected to by defense, and the objection was overruled. Defendant’s
argument that Piotrowski should not have been permitted to testify at all are discussed in detail
below.
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A.
The transfer of servicing is simply the act of moving the servicing of the
mortgage loans from one party to the other.
In other words, the predecessor servicer, Yale, was collecting payments,
making collection calls, initiating foreclosures. They need to then transfer
or move that duty from Yale to Wells Fargo. And so – and that entails
transferring all of the loan data, sending over the actual servicing files, the
collector notes, giving them updates on where people are in their
bankruptcies and in foreclosures, and basically just giving the data from
one servicer to the other.
***
Q.
All right. Let me ask you, then, sir, is there a commonly understood
meaning of the term “cost of transfer of servicing” or “cost associated with
transfer of servicing” in your field?
A.
It’s the cost to move the servicing. I mean, it’s –the transfer of servicing is
a one-time event. I move the servicing from me to you, it’s done. It’s the
event. And so whatever it costs for me to move the servicing from me to
you, that’s, that’s the cost. And the transfer’s that one-time event.
Id. at 143-148. Piotrowski also testified that “the expected cost of transferring the servicing
would be between 50 and a hundred thousand dollars.” Id. at 149. Piotrowski further testified
that the expenses charged by Defendant for actual transfer were consistent with the common
understanding of the term “cost of transfer of servicing” but that the charges for the additional
servicing fee were not consistent. Id. at 156.
Accordingly, the phrase “all costs associated with the transfer of servicing” in section
6.14(a) did not have a plain meaning in the contract as it was unclear what costs of transfer of
servicing were and accordingly, it was appropriate for the jury to consider evidence regarding
how such a term is used in trade. The usage of trade evidence offered by Piotrowski properly
supports a finding that the additional servicing fee being charged by Defendant was not an
appropriate transfer of servicing cost under the PSA as contended by Defendant. Accordingly,
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the Court finds Defendant’s argument is without merit, and that the jury’s finding is properly
supported by the evidence.
2.
Plaintiff's breach of the PSA
Next, Defendant argues that judgment as a matter of law should be entered in Defendant’s
favor or in the alternative a new trial should be granted because Plaintiff’s breach of the PSA is a
complete defense to its breach of the PSA. At trial, the jury checked “YES” to the question “Do
you find that Defendant has proved by a preponderance of the evidence that Plaintiff breached
the contract between Plaintiff and that Defendant has incurred damages from this breach?” (D.E.
No. 71 at 2). The jury next was instructed to “please specify the amount of damages that
Defendant has shown by a preponderance of the evidence resulted from Plaintiff’s breach of the
contract between Plaintiff and Defendant.” Id. The jury wrote “Ø” in the blank provided with a
dollar sign. Defendant argues that the jury essentially found that Plaintiff breached the contract
and then refused to specify damages. Defendant also argues that the “record evidence
indisputably establishes . . . [its] damages resulting from . . . [Plaintiff’s] breach” and Plaintiff
failed to rebut this evidence. (D.E. No. 77 at 14-15). Defendant argues that their damages
should be “equal to the amounts that the jury awarded to . . . [Plaintiff] as damages for . . .
[Defendant’s] supposed breach” because even if the additional servicing fee and costs were not
properly deducted by Defendant “as costs of transferring servicing, these amounts constitute the
damages that . . . [Defendant] incurred due to . . . [Plaintiff’s] breach.” Id. at 15. This Court
disagrees.
It was undisputed that Plaintiff breached the PSA because it could not make further
servicing advances, resulting in Plaintiff being terminated as servicer and Defendant assuming
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the duties of replacement servicer. (D.E. No. 43, Joint Pretrial Stipulation at 4-5). Accordingly,
the jury found that Plaintiff beached the PSA. The jury also found that “Defendant incurred
damages from this breach” but then found that Defendant did not show by a preponderance of the
evidence that any damages “resulted from Plaintiff’s breach of contract.” See (D.E. No. 71 at 2).
The jury was certainly entitled to conclude that despite Defendant’s arguments to the contrary the
additional servicing fee charged by Defendant and the default and restructuring account manager
fees were not recoverable damages from Plaintiff based on its breach of the contract.
Defendant charged Plaintiff an additional servicing fee for the increase in costs to service
the existing loans under the PSA “taking into account current market conditions and the subprime nature of such mortgage loans.” (D.E. No. 72-20, Pl’s Exh. 26). Under New York law, a
nonbreaching party “may recover ‘general’ consequential contract damages which are the natural
and probable consequence of the breach.” Reads Co., LLC v. Katz, 900 N.Y.S.2d 131, 133 (N.Y.
App. Div. 2010). “In order to recover ‘special’ or extraordinary contract damages that do not
flow directly from the breach, however, a plaintiff is required to plead [or prove] that the
damages were foreseeable and within the contemplation of the parties at the time the contract
was made.” Id. at 134. Here, there was sufficient evidence in the record for the jury to find that
the additional servicing fee and related expenses were not general damages flowing naturally
from the breach of the contract but instead that such damages were special damages that were not
foreseeable by the parties when the contract was made. See (D.E. No. 78-1, Trans. at 146-155 )
(where Piotrowski testified that these fees were not contemplated by the parties at the inception
of the contract); (D.E. No. 78-1 at 202, 216-227) (where Gilbert Kahn, president of Yale
Mortgage Corporation, testified that the additional servicing fees were not contemplated by the
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parties at the time the contract was signed); see also (D.E. No. 78-2, Trans. at 52-63) (where
Steven Chaby, the Chief Financial Officer of Yale Mortgage Corporation, testified that he was
amazed that Defendant was charging these additional servicing fees).
In short, evidence was presented at trial that an unprecedented mortgage crisis took place
in 2008 after the PSA was signed in 2007. (D.E. No. 72-2, Pl.’s Exh. 2); (D.E. No. 78-1, Trans.
at 135-137, 204-205). Plaintiff defaulted on the PSA causing Defendant to take over servicing
the mortgage loans as master servicer as provided for in the agreement. Defendant then
attempted to pass on the costs that it was incurring as master servicer now that the landscape had
changed and the mortgage crisis was a reality. Plaintiff argued at trial, however, and presented
evidence to the effect that the additional costs that Defendant attempted to charge Plaintiff were
not damages contemplated by the parties when the contract was formed. Accordingly, the Court
finds Defendant’s arguments are without merit and that there was sufficient evidence to sustain
the jury’s verdict.
3.
Testimony of Gilbert Kahn and David Piotrowski
Finally, Defendant argues that the Court erred in permitting Kahn to testify as to the
meaning of the PSA and erred in permitting Piotrowski to testify at all. The Court finds these
arguments are without merit.
First, Defendant argues that the Court erred in permitting Kahn to testify as follows on
direct:
Q.
The second item, did you ever learn how Wells Fargo was computing the
servicing delta?
A.
After many months, we were [sic]. It was pretty much was [sic] apparent
what they were doing.
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Q.
And what was that? How – and that’s what we see here, the item two,
correct, the $62,000?
A.
Yeah. It was apparent that they were adding another 50 basis points to the
servicing fee and charging Yale for that on an ongoing basis.
Q.
Okay. And your understanding, was that consistent with the PSA?
A.
No.
MR. NADER:11
Objection. Objection, your Honor.
THE COURT:
What is the objection?
MR. NADER:
That your Honor made this the subject of a ruling on
summary judgment.
THE COURT:
Well, honestly, I make a lot of rulings. I don’t remember
that. Do you concur that this has been covered by that?
MR. CROCKETT:12 No.
THE COURT:
Then let’s discuss it.
* * *13
THE COURT:
Okay. What is it that you’re trying to elicit from this
witness at this point? Because it does sound like he’s
getting into something that we talked about. What is your
objection?
MR. NADER:
My objection is we moved for summary judgment,14 your
Honor issued a ruling saying that the 50 basis points on the
limitation that they were arguing doesn’t apply. Because
11
Mr. Nader is counsel for Defendant.
12
Mr. Crockett is counsel for Plaintiff.
13
The Court then went sidebar outside the presence of the jury to discuss the matter.
14
The Court clarifies that Defendant actually never moved for summary judgment.
Plaintiff filed a motion for partial summary judgment.
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these basis points were for protection of payments on the
mortgage loans and that this additional 50 basis points
isn’t–
THE COURT:
Okay. Can you still hear, Francine? You all right with
that?
THE COURT REPORTER: No, Judge, I can’t hear.
THE COURT:
Yes, speak up.
LAW CLERK:
This is a summary of exactly what you ruled. Your ruling
was on specific provisions in the contract.
THE COURT:
Um-hum. All right. I’ll permit the question, because I
think it is admissible. I did not rule–my ruling was not that
limited, so I’ll permit it.
(The foregoing was at the bench out of the hearing of the jury.)
THE COURT:
You may proceed, sir.
BY MR. CROCKETT:
Q.
Mr. Kahn, you were telling us that you learned that Wells Fargo was
charging a half percent a month as a servicing delta. The question was,
was that consistent with your understanding of the PSA?
A.
No.
Q.
Why not?
A.
Because the PSA clearly stated that the servicing fee was 50 basis points.
(D.E. No. 78-1, Trans. at 223-225). Defendant is arguing as it did at trial that the Court ruled on
the issue that Kahn testified to in its order on summary judgment and that it was error for the
Court to permit Kahn to testify.
As previously explained, the Court issued an order on Plaintiff’s partial motion for
summary judgment considering specific arguments relating to specific provisions of the PSA.
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See supra section III(B)(1). As stated above, the Court ruled based on Plaintiff’s specific
arguments that the plain language of sections 6.14(b) and 6.14(d) of the PSA did not address the
factual situation at issue in this case and did prohibit Defendant’s collection of an additional
servicing fee. (D.E. No. 44 at 5-6). Finally, the Court also ruled that section 6.14(a) of the PSA
did not limit Defendant from recovering costs only from the transfer of servicing during the 90day period and that costs associated with the transfer of servicing were not limited to specific
items listed in section 6.14(a) as examples of transfer costs pursuant to the ejusdem generis rule.
Id. at 6-7. The Court, however, did not rule on any other provisions of the contract nor did it, as
discussed above, determine whether the additional fees charged by Defendant were appropriate
transfer of servicing costs under the PSA.
Kahn did not reference a specific provision of the PSA in his testimony. He stated only
that he believed that Defendant’s servicing fee was limited to “50 basis points.” This testimony
does not directly conflict with this Court’s ruling and to the extent it did conflict, the Court
specifically instructed the jury as to its prior rulings on the motion for summary judgment and
instructed the jury that it had to consider these rulings as a matter of law in their deliberations.
(D.E. No. 69 at 10). Accordingly, the Court finds Defendant’s arguments that Kahn’s testimony
warrants a new trial or judgment as a matter of law are without merit.
Next, Defendant argues that this Court erred in permitting the entirety of Piotrowski’s
testimony. Specifically, Defendant argues that Piotrowski should not have been permitted to
testify as to his understanding of the meaning of certain portions of the PSA because he was not a
party to the PSA, nor was he an employee of either party, and he was not qualified as an expert.
Defendant specifically objects to Piotrowski’s testimony regarding the usage in trade of the term
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“cost of transfer of servicing.” This Court disagrees that it erred in permitting Piotrowski to
testify.
Before trial, Defendant moved to preclude Piotrowski from testifying. (D.E. No. 52). At
trial, the Court ruled that based on Rule 701 of the Federal Rules of Evidence Piotrowski could
testify as a lay witness and state what is common in the custom and trade. (D.E. No. 78-1, Trial
Trans. at 111-112). The Court finds this ruling was not in error.
Rule 701 of the Federal Rules of Evidence provides:
If a witness is not testifying as an expert, testimony in the form of an opinion is
limited to one that is:
(a)
rationally based on the witness’s perception;
(b)
helpful to clearly understanding the witness’s testimony or to determining
a fact in issue; and
(c)
not based on scientific, technical, or other specialized knowledge within
the scope of Rule 702.
Here, Piotrowski testified that he “worked with Yale Mortgage’s legal counsel to basically help .
. . put together the terms of . . . [the PSA]. (D.E. No. 78-1, Trans. at 117); see also (D.E. No. 781, Trans. at 158-159) (where Piotrowski clarifies that he provided advice to Plaintiff regarding
the PSA before it was finalized). Accordingly, Piotrowski was working with Plaintiff providing
it advice with regard to the terms of the specific PSA at issue in this case before the PSA was
finalized.
Thus, Piotrowski’s testimony as to the usage in trade of certain terms used in the PSA is
not specialized knowledge within the scope of 702 and is appropriate lay opinion testimony as it
was rationally based on his own perception and helpful to determining a fact in issue i.e. the
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intent of the parties in using the term “costs of transfer of servicing.” See Dakota Minn. & E.
R.R. Corp. v. Wis. & S. R.R. Corp., 657 F.3d 615, 619 (7th Cir. 2011) (stating that “[w]e are not
suggesting that evidence of trade usage must take the form of expert evidence; any
management-level employee of a business engaged in a particular trade should be familiar with
the meaning of the words used in that trade, and thus fit the definition of a lay witness entitled to
give opinion evidence.”); Tampa Bay Shipbuilding & Repair Co. v. Cedar Shipping Co., Ltd.,
320 F.3d 1213, 1216, 1223 (11th Cir. 2003) (finding where witnesses testified as to “charges and
time required to complete . . . repairs” that “the testimony offered by Tampa Bay’s employees
and/or officers was of a type traditionally and properly considered lay witness testimony, as it
was not based on specialized knowledge subject to Rule 702.”); W. Indus. v. Newcor Canada,
Ltd., 739 F.2d 1198, 1203 (7th Cir. 1984) (finding that it was appropriate for “experienced
executives in the trade” to testify as to “the custom of the specialty welding machine trade not to
give disappointed buyers consequential damages”); see also Fed. R. Evid. 701 advisory
committee’s note, 2000 Amendments (stating that “most courts have permitted the owner or
officer of a business to testify to the value or projected profits of the business, without the
necessity of qualifying the witness as an accountant appraiser, or similar expert” and that “courts
have permitted lay witnesses to testify that a substance appeared to be a narcotic, so long as a
foundation of familiarity with the substance is established.”). Thus, the Court finds Defendant’s
arguments are without merit. It is hereby:
ORDERED AND ADJUDGED that
1.
Plaintiff's Consolidated Post-Trial Motion (D.E. No. 79) is GRANTED in part
and DENIED in part. The motion is granted in that the Court shall enter a final judgment as to
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costs in Plaintiff’s favor in the amount of $2587.10. The motion is denied in all other respects.
2.
Defendant Wells Fargo's Renewed Motion for Judgment as a Matter of Law or, in
the Alternative, Motion for New Trial (D.E. No. 77) is DENIED.
DONE AND ORDERED in Chambers at Miami, Florida, this 20 day of August, 2012.
____________________________________
JOSE E. MARTINEZ
UNITED STATES DISTRICT JUDGE
Copies provided to:
Magistrate Judge McAliley
All Counsel of Record
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