Fifth Third Mortgage Company v. Kaufman et al

Filing 422

MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 5/14/2016: For the reasons stated in the accompanying decision, the Court denies both parties' motions for summary judgment [dkt. nos. 381, 397]. The case is set for a status hearing on May 31, 2016 at 9:30 a.m. (mk)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

FIFTH THIRD MORTGAGE COMPANY,

)
)
Plaintiff,
)
)
vs.
)
)
IRA KAUFMAN, CHICAGO TITLE
)
INSURANCE COMPANY, TRADITIONAL
)
TITLE COMPANY, LLC, ELIOT HIGUEROS )
d/b/a ENH SERVICES, INC., d/b/a E&H
)
DISTRIBUTORS, INC., and d/b/a ENH
)
SERVICES LLC, ZEAL MANAGEMENT, LLC, )
JOHN KELLY, RAZZAK KHADER, KRK
)
FINANCIAL SERVICES, INC., d/b/a KRK
)
MORTGAGES BANCORP and d/b/a KRK
)
INSURANCE SOLUTIONS, THEODORE
)
THEODOSIADIS, 4725 S. MICHIGAN LLC,
)
JEFFREY TOWNSEND, ATINUKE OKOYE, )
KEVIN BURNS, MICHAEL COYLE, and
)
DANIEL G. BERRY,
)
)
Defendants.
)

Case No. 12 C 4693

MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
Fifth Third Mortgage Company has sued a number of individuals and entities for
claims arising from their alleged involvement in a mortgage fraud scheme. In particular,
Fifth Third asserts three breach of contract claims against Chicago Title Insurance
Company (CTIC). Fifth Third has moved for summary judgment on counts 1 and 2 of its
second amended complaint, in which it asserts breach of contract claims against CTIC
regarding two particular mortgage loans. In those claims, Fifth Third primarily contends
that the closing agents failed to follow closing instructions required by Fifth Third when

they closed three particular mortgage loan transactions. CTIC has cross-moved for
summary judgment on these claims as well as on count 3 of Fifth Third's second
amended complaint, which likewise involves a particular mortgage loan. In other words,
CTIC seeks summary judgment on all of the claims Fifth Third has asserted; it argues
that Fifth Third cannot make out the elements of any of its breach of contract claims.
For the reasons stated below, the Court denies both parties' motions.
Background
1.

Introduction
The claims at issue on the present motions for summary judgment concern three

alleged straw purchases of real estate, which the Court will refer to as the Daugherty,
Taylor, and Cook transactions. A straw buyer scheme, as allegedly carried out in this
case, involves a real estate seller or developer who recruits fake buyers to purchase
residential property at an inflated price. The buyers obtain loans, typically based on
false pretenses about their finances, about whether they will occupy the property, or
both. The developer gets an inflated price for the property, and the purchasers
generally are paid some amount out of the sale proceeds. The purchasers then default
on their loans, leaving the lender—or whoever the lender sold the loans to—holding the
bag.
2.

The participants and the agreements at issue
In each transaction at issue in this case, Fifth Third loaned money to a person

purporting to be a condominium purchaser to enable that person to purchase the
property. Fifth Third sold the loans to the Federal Home Loan Mortgage Corporation
)Freddie Mac) or the Federal National Mortgage (Fannie Mae). Later, after determining

2

that that they had been obtained fraudulently, Freddie Mac and Fannie Mae demanded
that Fifth Third repurchase the loans.
CTIC issued title insurance in connection with each of the transactions through
an "issuing agent"—Traditional Title Company on two of the transactions, and Primary
Title Company on the other one. CTIC also issued "closing protection letters"
addressed to Fifth Third covering the transactions at issue. In the closing protection
letters, CTIC took on additional obligations beyond the terms of its title insurance
policies. See, e.g., FDIC v. Prop. Transfer Servs., Inc., No. 12-80533-CV, 2013 WL
5535561, at *10 (S.D. Fla. Oct. 7, 2013) ("[T]itle insurance policies and CPLs cover
entirely different categories of losses."); Fifth Third Mortg.-MI, LLC v. First Am. Title Ins.
Co., No. 318037, 2015 WL 106931, at *2 (Mich. App. Mar. 10, 2015) ("A closing
protection letter . . . is an indemnification agreement that provides protection for risks
other than that provided under a title insurance policy."). The closing protection letters
contemplated that a closing agent acting on CTIC's behalf (again, Traditional Title or
Primary Title) would conduct the closing of the particular real estate transaction. The
letters stated that CTIC would reimburse Fifth Third for certain actual losses that arose
from the failure of the closing agent to comply with Fifth Third's written closing
instructions or from the closing agent's fraud.
Specifically, the closing protection letter for each of the transactions at issue
stated that CTIC would become liable to Fifth Third
for actual loss incurred by [Fifth Third] . . . when such loss arises out of:
1.
Failure of the Issuing Agent or Approved Attorney to comply with
[the Lender's] written closing instructions to the extent that they relate to
(a) the status of the title to said interests in land or the validity,
enforceability and priority of the lien of said mortgage on said interest in
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land, including the obtaining of such title documents and the disbursement
of funds necessary to establish such status of title or lien, or (b) the
obtaining of any other document, specifically required by [the Lender] but
not to the extent that said Instructions require a determination of the
validity, enforceability, or effectiveness of such other document, or c) the
collection and payment of funds due you, or;
2.
Fraud of said Issuing Agent or Approved Attorney in handling your
funds or documents in connection with such closings to the extent such
fraud affects the status of the title to said interest in land, or the validity,
enforceability or priority of the lien of said mortgage on said interest in
land.
See, e.g., Pl.'s Ex. 1 (Jamison Affid.), Ex. D. In a previous ruling in this case, Judge
Zagel, to whom the case was then assigned, concluded that if compliance with the
closing instructions would have caused Fifth Third not to make a particular loan,
resulting losses would fall within the scope of the closing protection letter's trigger of
liability in paragraph 1(c) for noncompliance relating to "the collection and payment of
funds" due to Fifth Third. Fifth Third Mortg. Co. v. Kaufman, No. 12 C 4693, 2013 WL
474506, at *3 (N.D. Ill. Feb. 7, 2013). This Court agrees.
The loans were closed by personnel employed by the closing agents, Traditional
Title or Primary Title. As stated in the closing protection letter, the closing agents were
bound by closing instructions issued by Fifth Third. These instructions stated, in each
instance, that the purchase was "an owner occupied purchase," and they also stated
that "[t]he following measures must be taken to ensure the integrity of the closing":
Establish the identity of all parties executing closing documents . . . .
...
Notify the Lender immediately of any material fact that might influence [its]
decision to make this loan.
Notify the Lender immediately of any discovery that a party to the
transaction has made a misrepresentation.
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Suspend the transaction and immediately notify the Lender if the loan is
owner occupied and the closing agent has knowledge that the borrower
does not intend to occupy the property. Written authorization to proceed
must be obtained from the Lender after such discovery.
...
Suspend the transaction and immediately notify the Lender if the closing
agent has knowledge of any relationship between the parties to the
transaction or if any of the service providers have previously or currently
have any ownership in the subject property.
Verify that the seller is vested in title and is the same person as on the
closing documents, the vesting section of the title commitment binder, the
purchase contract, and the appraisal . . . .
See, e.g., Pl.'s Ex. 1 (Jamison Affid.), Ex. C at 3.
Fifth Third contends that the closing agents had knowledge that the purchasers
of the each of the condominium units were falsely representing that the unit would be
owner-occupied and that the transactions at issue were generally fraudulent. The
parties dispute whether Fifth Third can establish that the closing agents failed to comply
with the closing instructions.
3.

The Daugherty transaction
Kristin Daugherty testified that she met Eliot Higueros while working as a

bartender at a Chicago establishment called Red No. 5. Higueros allegedly approached
Daugherty and asked her to join his investment group. Daugherty testified that
Higueros told her he needed to "borrow her credit" to increase the number of properties
held by the investment group. He explained that she would purchase particular
properties in her name but that he would make the payments and eventually resell the
property. Daugherty testified that she agreed in an effort to improve her credit rating
and because she believed Higueros to be truthful. At his direction, she purchased a
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total of eight units at 4725 S. Michigan Avenue in Chicago over a five-week period
between April 30, 2007 and June 5, 2007. To finance purchase, Daugherty obtained a
loan by submitting an application that contained false information concerning her
income, profession, and intent to occupy the property. In particular, each of the eight
loan applications said that Daugherty was purchasing the particular property as her
primary residence. Daugherty testified that she never read the applications.
Michael Lee, a closer at Traditional Title, closed each of the Daugherty
transactions and several other purchases of units at 4725 S. Michigan. Of the eight
units Daugherty purchased, Fifth Third financed only one—Unit 1F, Daugherty's fourth
purchase, which was closed on May 7, 2007. Lee testified that his duties as a closer
required him to check the borrowers' personal identification and ensure that the
documents in the loan package were properly signed. Lee further testified that although
he did not know the true nature of the scheme, he developed a suspicion that the 4725
S. Michigan transactions were fraudulent, based at least in part on the number of
purchases Daugherty was making. Lee also testified that Kaufman, an attorney and
one-third owner of Traditional Title, oversaw every closing in which he was listed as the
seller's attorney, see Pl.'s Ex. 30 (Lee Dep.) at 12, which includes all of the Daugherty
purchases. Lee said that he raised his concern about Daugherty's multiple purchases
with Kaufman, because he thought it was a "red flag." Kaufman explained the situation
by saying that Daugherty was "an investor."
Lee testified that he tendered his resignation on March 21, 2007 after becoming
suspicious of the 4725 S. Michigan transactions but that he continued handling closings
for one week after resigning. When presented with the fact that he closed a purchase

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on April 30, 2007, however, Lee changed his testimony and said that he must have
stayed on for a month rather than a week. But he closed the sale of Unit 1F to
Daugherty—the sale in question—on May 7, 2007, more than forty-five days after he
said he had become concerned about the possibility of fraud. A reasonable fact finder
could conclude from this that at the time of the Daugherty transaction, Lee was aware of
material facts that might influence the making of the loan and also that Daugherty did
not actually intend to occupy the property.
4.

The Taylor transaction
Upon Lee's departure from Traditional, Julio Martinez began handling closings of

sales of properties at 4725 S. Michigan. Between June 7, 2007 and October 10, 2007,
Martinez closed nine purchases of units at the 4725 building—five of them for a single
buyer, Amanda Fanaro, over a period of just thirty-one days, each of the five
supposedly to be her primary residence. Martinez testified that he saw this as a red flag
and that he concluded that Fanaro was a straw buyer. Martinez also handled other
closings on units at the 4725 building where particular buyers purchased multiple units,
each supposedly as the buyer's primary residence. Martinez further stated that the
owners of the project "were known to do shady business."
On October 29, 2007, alleged straw buyer Pamela Taylor closed on Unit 4C at
4725 S. Michigan—the last of the building's twenty-seven units to be sold. The parties
dispute who closed this transaction. The loan application includes Melissa Clark's
signature and notary seal, but Clark denies closing the sale. Clark testified that
Martinez stole her notary stamp and that he closed this sale. Martinez testified that he
never used anyone else's stamp but added that if he did use someone else's stamp, he

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had that person's consent. 1
5.

The Cook transaction
On November 13, 2007, William Cook purchased a condominium at 6621 S.

Ingleside. He purchased another on January 25, 2008. In both transactions, Cook
represented that the particular property would be his primary residence. Both
transactions were closed by Primary Title. Fifth Third financed the second purchase.
The closer on that transaction testified that she knew Cook had previously purchased a
unit but said she did not know that either unit was designated as a primary residence.
(The loan applications and closing instructions both made this representation, however,
and as noted earlier the closing instructions called the closing agent's attention to the
significance of this statement.) During his deposition, Cook asserted his Fifth
Amendment privilege on nearly every question.
6.

Freddie Mac and Fannie Mae
The properties involved in the Daugherty and Taylor transactions were

foreclosed in 2009. In 2009-10, Freddie Mac demanded that Fifth Third repurchase
both of these loans once it became aware that they did not meet its standards and had
been purchased fraudulently. Fifth Third says that it paid Freddie Mac $126,748 on the
Daugherty transaction and that it received net proceeds of $1,852 from the later resale
of the property. Fifth Third says that it paid Freddie Mac $182,610 on the Taylor
transaction and later received net proceeds of $1,894 from the property's resale.
The property involved in the Cook transaction defaulted in June 2009. Fannie
1

In its complaint, Fifth Third alleged that Taylor purchased multiple units at 6621-23 S.
Ingleside, another property allegedly associated with the overall scheme, that were
closed by the same closing agent. However, Fifth Third has not pursued this in its
present motion as a basis for entry of summary judgment.
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Mae likewise demanded that Fifth Third repurchase the Cook loan, for similar reasons.
Fifth Third paid Fannie Mae $290,815 on this transaction.
Discussion
Fifth Third has moved for summary judgment on its breach of contract claims
against CTIC on the Daugherty and Taylor transactions. It contends, among other
things, that Traditional Title was aware these transactions were fraudulent and
nonetheless allowed the closings to proceed and made no disclosure to Fifth Third of
what it knew. CTIC has cross-moved for summary judgment, arguing that Fifth Third
cannot establish the elements of a breach of contract claim with regard to the
Daugherty, Taylor, and Cook transactions.
Summary judgment is proper "if the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any
material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P.
56(c). A genuine issue of material fact exists when "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 (1986). The Court views the evidence and draws reasonable
inferences from it in the light most favorable to the non-movant. See Williamson v. Ind.
Univ., 345 F.3d 459, 462 (7th Cir. 2003). On cross-motions for summary judgment, the
Court considers each motion separately and views the evidence in the light most
favorable to the party against whom each motion is under consideration. Metro. Life
Ins. Co. v. Johnson, 297 F.3d 558, 561 (7th Cir. 2002).
To prevail on a breach of contract claim, a plaintiff must show: 1) the existence of
a contract; 2) performance of all conditions to be performed by plaintiff; 3) breach by the

9

defendant; 4) damages to the plaintiff as a consequence of the breach. Schubert v.
Federal Exp. Corp., 306 Ill. App. 3d 1056, 1059, 715 N.E.2d 659 (1999). The parties do
not dispute that a contract existed or that Fifth Third performed any conditions it was
required to perform. The issues in dispute are CTIC's alleged breach, causation, and
damages. The Court examines each in turn.
1.

Breach
The parties have spilled a good deal of ink addressing whether and the extent to

which a closing agent owes a duty outside of its contractual obligations. But Fifth
Third's only claims against CTIC arising from the closing agents' actions or inactions are
claims for breach of contract. The Court therefore confines its consideration to the
contract's terms and whether the closing agents breached them. See Pl.'s Reply at 11
("The closing instruction[s] set forth what was required, Fifth Third did not impose any
alleged extra-contractual duties.").
"Under Illinois law, the interpretation of a contract is a question of law that is
decided by the Court." Rickher v. Home Depot, Inc., 535 F.3d 661, 664 (7th Cir. 2008).
When interpreting a contract, "a court will first look to the language of the contract itself
to determine the parties' intent." Thompson v. Gordon, 214 Ill. 2d 428, 441, 948 N.E.2d
39, 47 (2011). A contract must be construed as a whole, viewing each provision in light
of the other provisions. Id. If the words in the contract are clear and unambiguous, they
must be given their plain, ordinary, and popular meaning. Id.
Fifth Third contends that the closing agents (Traditional and Primary): (1) failed
to comply with Fifth Third's closing instructions by not suspending the transactions and
notifying Fifth Third despite having knowledge that the borrowers did not intend to

10

occupy the units being purchased; (2) along the same lines, failed to notify Fifth Third
upon realizing that the ostensible purchasers had made misrepresentations; and (3)
more generally, failed to notify Fifth Third of material facts, including the indicia of fraud
surrounding the transactions. Fifth Third argues that these breaches affected the
collection and payment of funds due to Fifth Third and thus are within the scope of the
coverage provided by paragraph 1(c) of the closing protection letters, quoted earlier.
Fifth Third also contends, or at least appears to contend, that the closing agents were
involved in fraud in handling documents and funds in connection with the closings and
that this affected the status of its title or the enforceability of the mortgages that it
obtained in the transactions. This, Fifth Third contends, should result in a determination
that there is coverage for its losses under paragraph 2 of the closing protection letters.
See generally Fifth Third Mortg.-MI, 2015 WL 1069341, at *7.
The provision of the closing instructions most directly at issue for at least two of
the three loans is the term that requires the closing agent to suspend the transaction
and notify Fifth Third if the loan requires the property to be owner-occupied and the
closing agent has knowledge that the buyer does not intend to occupy the property.
The term "closing agent" is not defined in the closing instructions. The parties have not
directly addressed, or at least have not adequately addressed, whether this term refers
just to the particular individual conducting the closing or instead to the entity conducting
the closing, that is, either Traditional Title or Primary Title. (The distinction likely does
not matter in terms of whether the three claims at issue survive the summary judgment
motions, but it may matter at trial.) It appears to the Court to be more likely, given the
way this term is used in the closing instructions, that it refers to the entity and not just to

11

the individual closer: the instructions require the "closing agent" to perform certain
tasks not just at the closing itself, but also before, and the term is also roughly parallel to
the term "issuing agent" used in the closing protection letter, which quite clearly refers to
the entity as a whole.
Another question concerns the meaning of the term knowledge. Knowledge is
commonly defined as including not just actual knowledge but also willful blindness, that
is, a person's awareness of a high probability that a particular fact exists and his taking
of deliberate actions to avoid learning of the fact's existence. See generally GlobalTech Appliances, S.A. v. SEB S.A., 563 U.S. 754, 766-59 (2011). As a matter of
agency law, the knowledge of an agent is imputed to the agent's principal. See, e.g.,
McRaith v. BDO Seidman, LLP, 391 Ill. App. 3d 565, 589, 909 N.E.2d 310, 331 (2009).
There are exceptions, but none of them apply here. See id. at 589-90, 909 N.E.2d at
332. The first exception is when the agent does not have a duty to disclose, but that is
not the case here. The second exception applies when the agent is acting adversely to
the principal's interests, and the third applies when the agent is engaged in fraud for his
own benefit. There is likewise no basis to apply either of these exceptions here. CTIC
contends that an agent's knowledge is imputed to the principal only when the agent is
obligated to speak to his principal about the particular type of knowledge. See Def.'s
Combined Resp. to Pl.'s Mot. for Summ. J. and Cross-Mot. for Summ. J. at 14. Even if
this were the case, it would not get CTIC off the hook. The closers were working for
Traditional and Primary in carrying out closing instructions from Fifth Third that
specifically required Traditional and Primary to advise Fifth Third if certain facts existed.
If the very points that the closing instructions required Traditional and Primary to

12

disclose were outside the closers' duty to report to their principal, the closing
instructions would amount to a dead letter.
Also as a matter of agency law, a principal is presumed to have the collective
knowledge of all of its employees and agents. See, e.g., Camacho v. Bowling, 562 F.
Supp. 1012, 1025 (N.D. Ill. 1983). CTIC may be able to rebut this presumption at trial,
but the Court applies it for purposes of the present motions. In addition, the knowledge
of even lower-level employees is imputed to the entity of which they are agents. See,
e.g., Bryant v. Livigni, 250 Ill. App. 3d 303, 309, 619 N.E.2d 550, 556 (1993).
a.

The Daugherty transaction

On the Daugherty transaction, Fifth Third relies primarily on the testimony of loan
closer Lee, who testified that he became suspicious regarding the sales of units at 4725
S. Michigan based on Daugherty's repeated purchases of units in the building. Lee also
testified that Kaufman told him that Daugherty was buying properties for investment
purposes, which would seem to be the antithesis of an owner-occupied purchase. The
loan application for the Daugherty transaction stated that she was buying Unit 1F as her
principal residence, and the closing instructions specifically required Traditional Title to,
among other things, "[s]uspend the transaction and immediately notify [Fifth Third] if the
loan is owner occupied and the closing agent has knowledge that the borrower does not
intend to occupy the property." Pl.'s Ex. 1 (Jamison Affid.), Ex. C at 3. A reasonable
fact finder could determine that Traditional Title had the requisite knowledge and yet
failed to act as the closing instructions required, thus triggering liability under section
1(c) of the closing protection letter. Fifth Third offers other bases for liability—including
knowledge of the fraudulent nature of purchase at the 4725 S. Michigan building

13

generally, as well as imputation of knowledge held by defendant Ira Kaufman, who
besides being a principal of Traditional Title also is claimed to have participated in the
Daugherty transaction as an attorney—but the Court need not address these at present
given the sufficiency of Lee's testimony as evidence of a breach.
But although CTIC is not entitled to summary judgment on this claim, that does
not mean that summary judgment should or may be entered in Fifth Third's favor. It is
less than crystal clear when Kaufman told Lee that Daugherty was an investment buyer
or when Lee came to the realization that something was amiss regarding Daugherty's
repeated purchases—as indicated, in part, by the conflicting testimony from Lee himself
regarding when he stopped closing sales for Traditional Title.
In sum, there are genuine factual disputes precluding the entry of summary
judgment in either party's favor on Count 1 of Fifth Third's complaint.
b.

The Cook transaction

Fifth Third has not moved for summary judgment on its claim regarding the Cook
transaction, but CTIC has. It argues that Cook's purchase did not take place under the
sort of suspicious circumstances that Fifth Third contends existed on the 4725 S.
Michigan transactions. Among other things, CTIC points to the fact that Cook's loan
financed a purchase of property at a location other than 4725 S. Michigan. It also notes
that none of the criminal defendants had any involvement in the Cook transaction.
Though Fifth Third has less direct evidence on this transaction than it does on
the Daugherty transaction, that does not mean that its claim is infirm. As discussed
earlier, there is evidence that not too long before Cook purchased the unit at issue in
this case, saying it would be his primary residence, he purchased another unit at the

14

same building making the same representation. There is also evidence from which a
reasonable fact finder could determine that the closing agent, and perhaps even the
individual closer, had knowledge of this fact when Cook entered into the deal at issue in
this case. If so, that would be sufficient to trigger the closing agent's obligation to
suspend the closing and call the matter to Fifth Third's attention. CTIC is not entitled to
summary judgment on the issue of breach for this transaction.
c.

The Taylor transaction

Though the identity of the closer on the Taylor transaction is disputed, the
evidence would permit a reasonable fact finder to conclude that it was Martinez. Fifth
Third contends that Martinez in particular, and Traditional Title generally, knew of
material facts that might influence Fifth Third's decision to make the loan, specifically
that the Taylor transaction, like other purchases at the 4725 building, was fraudulent. A
reasonable fact finder could determine that Traditional and indeed Martinez itself, via
participation in a series of questionable transactions involving units at the building over
a relatively short period of time, had facts (including several sets of multiple purchases
by particular buyers, purportedly as the buyer's principal residence) that would have
enabled Fifth Third to conclude the deals were fraudulent. Indeed, Martinez himself
appears to have drawn just this conclusion. But neither he nor Traditional Title, the
contracting party, brought these facts to Fifth Third's attention. For these reasons, CTIC
is not entitled to summary judgment, and thus the Court need not address the other
bases for liability argued by Fifth Third.
Fifth Third similarly is not entitled to summary judgment. First, as the Court has
indicated, there is a genuine dispute over whether Martinez closed the transaction.

15

More generally, a reasonable fact finder could determine that the matters known to him
or to Traditional generally did not add up to material facts within Traditional's contractual
duty to disclose, at least not as of the time of the Taylor transaction (or the others at
issue in this case).
2.

Causation and damages
In its cross motion for summary judgment, CTIC argues that Fifth Third has failed

to offer evidence from which a reasonable fact finder could find the requisite causation
or damages. In particular, CTIC argues that Fifth Third cannot establish that its losses
arose from the alleged breaches by Traditional and Primary.
Fifth Third's main argument it is not required to prove causation or damages,
because breach of contract is a form of strict liability. For this premise, Fifth Third cites
Moran Foods, Inc. v. Mid-Atlantic Market Development Co., LLC, 476 F.3d 436, 439
(7th Cir. 2007), in which the Seventh Circuit stated that "because liability for breach of
contract is a form of strict liability, a promisor is in effect a guarantor of performance
even if he is unable and not merely unwilling to perform him contractual obligations." Id.
Strict liability, however, does not excuse a plaintiff from proving causation or damages;
rather it excuses a plaintiff from proving intent or negligence. That is what the Seventh
Circuit essentially said in Moran: the defendant is on the hook irrespective of his
willingness or ability to comply. The fact that contract liability is a form of strict liability
does not mean that the plaintiff need not connect the breach to his injury. Indeed, the
primary case cited by Fifth Third on contract liability in its opening brief says that the
plaintiff on a breach of contract claim must show a breach by the defendant and
"damages to plaintiff as a consequence thereof." Shubert v. Fed. Express Corp., 306 Ill.

16

App. 3d 1056, 1059, 715 N.E.2d 659, 662 (1999) (emphasis added).
The closing protection letter requires Fifth Third to show that its losses "arise[ ]
out of" a breach of the closing instructions. This requires, for each claim, a showing of a
causal connection or relationship between the closing agent's conduct and the injury.
See Prop. Transfer Servs., 2013 WL 5535561, at *14. The record includes sufficient
evidence that the alleged failures by the closing agents by abide by the closing
instructions resulted in Fifth Third funding loans to straw buyers who defaulted. See id.
In addition, Fifth Third's evidence is sufficient to permit a reasonable fact finder to find
that the alleged breaches of the closing instructions caused it to close on loans that it
would not have made absent the breaches. In particular, Fifth Third has submitted an
affidavit from a bank vice president, Faye Jamison, who says that "Fifth Third ensured
that its loans complied with the guidelines set forth in the [Fannie Mae] and [Freddie
Mac] Seller Guides." Pl.'s Ex. 1 (Jamison Affid.) ¶ 18. Although Fifth Third did not
submit the Seller Guides as an exhibit, Freddie Mac's repurchase letter for the
Daugherty loan makes it clear that to be eligible for purchase by the agency, a
mortgage loan has to be for an owner-occupied residence. See id., Ex. E. One
reasonably can infer from this that had Fifth Third been made aware that the Daugherty
and Cook properties were not actually owner-occupied, it would not have closed on the
loans, because they would not have been eligible for purchase by Freddie Mac or
Fannie Mae. More generally, a reasonable fact finder could infer that if the closing
agents had brought to Fifth Third's attention material facts indicating the transactions
were fraudulent or involved straw buyers, Fifth Third would have put on the brakes and
would not have made the loans. In sum, there is sufficient evidence of causation to

17

survive summary judgment.
CTIC also contends that Fifth Third has not offered evidence that it suffered
damages resulting from the alleged breaches. Jamison's affidavits also address this
point. She states that once Freddie Mac discovered that the Daugherty and Taylor
loans were non-compliant and asserted a claim against Fifth Third, the bank had to pay
out $126,748.70 to satisfy Freddie Mac's claim on the Daugherty loan and $182,610.23
to satisfy its claim on the Taylor loan. Jamison makes similar representations regarding
the Cook loan. Her affidavits are sufficient to preclude entry of summary judgment for
CTIC on this basis.
CTIC says that any losses by Fifth Third resulted from other factors; it asks the
Court to take judicial notice of the economic recession that took place from 2007
through 2009 and argues that general economic conditions and other factors caused
Fifth Third's losses. CTIC may be able to assert this contention at trial, but it is not a
basis for entry of summary judgment in CTIC's favor. Freddie Mac and Fannie Mae did
not seek indemnity from Fifth Third based on poor market conditions or vandalism;
rather their claims were based on the loans' nonconformity to their guidelines for
purchasing loans. CTIC is not entitled to summary judgment on this basis.
Conclusion
For the foregoing reasons, the Court denies both parties' motions for summary
judgment [dkt. nos. 381, 397]. The case is set for a status hearing on May 31, 2016 at
9:30 a.m.
________________________________
MATTHEW F. KENNELLY
United States District Judge
Date: May 14, 2016
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