CitiMortgage, Inc. v. Just Mortgage, Inc.

Filing 187

MEMORANDUM AND ORDER IT IS HEREBY ORDERED that the motion of plaintiff CitiMortgage, Inc. to exclude the expert opinions of Thomas A. Myers (Doc. 167) is sustained. IT IS FURTHER ORDERED that the motion of plaintiff CitiMortgage, Inc. for summary judgment as to the Group 1 Loans (Doc. 75) is sustained. Signed by Magistrate Judge David D. Noce on 3/29/12. (KXS)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
CITIMORTGAGE, INC.,

)
)
)
)
)
)
)
)
)

Plaintiff,
v.
JUST MORTGAGE, INC.,
Defendant.

No. 4:09 CV 1909 DDN

MEMORANDUM AND ORDER
This action is before the court on the motions of plaintiff
CitiMortgage, Inc. for summary judgment as to the Group 1 Loans1 (Doc. 75)
and to exclude the opinions of defendant’s expert (Doc. 167).

The

parties have consented to the exercise of plenary authority by the
undersigned United States Magistrate Judge pursuant to 28 U.S.C. §
636(c).

(Doc. 10.)

Oral arguments were heard on January 24, 2012.
I.

BACKGROUND

On November 20, 2009, plaintiff CitiMortgage, Inc. commenced this
breach of contract action against defendant Just Mortgage, Inc.
1.)

(Doc.

On August 2, 2010, CitiMortgage filed its first amended complaint.

(Doc. 29.)

In its first amended complaint, CitiMortgage alleges that

Just Mortgage delivered twenty-seven loans that failed to conform to the
terms of the contract and subsequently refused to cure or repurchase
these loans, thereby breaching the contract.

(Id.)

CitiMortgage seeks

damages, costs, attorney’s fees, pre-judgment interest, post-judgment
interest,

and

an

order

compelling

Just

Mortgage

to

perform

its

obligations under the contract, namely, repurchasing the twenty-seven
loans at issue.

1

(Id.)

Pursuant to the court’s December 21, 2010 Second Amended Case
Management Order, the twenty-seven loans identified in CitiMortgage’s
amended complaint were divided into three groups.
(Doc. 45.)
CitiMortgage’s motion for summary judgment concerns those loans
identified as the Group 1 Loans. (Doc. 75.)

II.

MOTION TO EXCLUDE EXPERT OPINIONS

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

(Docs. 167, 168.)

Just Mortgage responds that Myers has sufficient personal experience
to offer an opinion from an industry perspective.

Just Mortgage also

argues that Myers’ opinion is relevant to whether the contract is
ambiguous and to whether CitiMortgage exercised its discretion in good
faith.

Just Mortgage further argues that admission of Myers’ testimony

and report would not cause unfair prejudice.

(Doc. 171.)

CitiMortgage replies that the contract is not ambiguous, that it did
not act in bad faith, and that Myers’ opinion to the contrary is an
inadmissible legal conclusion.
opinion

is

foundation.

otherwise

CitiMortgage also replies that Myers’

irrelevant

and

not

supported

by

a

reliable

(Doc. 172.)

In his reports and deposition testimony, Myers opines that § 2(i)
and § 11(ii) of the parties’ contract are inconsistent and that their
inconsistency creates an ambiguity regarding when CitiMortgage could
demand that Just Mortgage cure or repurchase the loans.

Myers opines

that, as a result, Just Mortgage was unaware that CitiMortgage could
demand

cure

or

repurchase

of

the

loans

even

though

Just

Mortgage

originated the loans in compliance with CitiMortgage’s guidelines and was
unaware of any defects.

Myers also opines as to the reasonableness of

§ 2(i) and § 11(ii) and whether CitiMortgage acted in good faith in
demanding that Just Mortgage cure or repurchase the loans.

(Docs. 151-

11, 168-1, 168-2, 168-3.)
In

diversity

cases

such

as

this,

federal

law

governs

the

admissibility of expert testimony.

US Salt, Inc. v. Broken Arrow, Inc.,

563 F.3d 687, 691 (8th Cir. 2009).

Under Federal Rule of Evidence 702,

“[i]f scientific, technical, or other specialized knowledge will assist
the trier of fact to understand the evidence or to determine a fact in
- 2 -

issue,” an expert opinion is admissible so long as “(1) the testimony is
based upon sufficient facts or data, (2) the testimony is the product of
reliable principles and methods, and (3) the witness has applied the
principles and methods reliably to the facts of the case.” Fed. R. Evid.
702; accord Vasquez v. Colores, 648 F.3d 648, 653 (8th Cir. 2011).
The proponent of expert testimony must prove by a preponderance of
the evidence that the expert is qualified and that the testimony is
relevant and reliable.

Khoury v. Philips Med. Sys., 614 F.3d 888, 892

(8th Cir. 2010); Fed. R. Evid. 702 advisory committee’s note.

An expert

must explain how he arrived at his conclusions; the court may not simply
take his word for it.

Fed. R. Evid. 702 advisory committee’s note;

Thomas v. City of Chattanooga, 398 F.3d 426, 432 (6th Cir.), cert.
denied, 546 U.S. 814 (2005).
Rule 702 incorporates the rulings of the Supreme Court’s decisions
in Kumho Tire and Daubert.
In

those

cases,

the

Fed. R. Evid. 702 advisory committee’s note.

Supreme

Court

charged

trial

judges

with

the

responsibility of acting as gatekeepers to exclude unreliable expert
testimony. Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 141 (1999);
Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 597 (1993).
The court should not apply the Daubert factors rigidly, as they
cannot be applied to every expert in every case.
at 141-42.

Kumho Tire, 526 U.S.

Moreover, Rule 702 reflects an attempt to liberalize the

rules governing the admission of expert testimony, and the rule remains
one of admissibility rather than exclusion.

Shuck v. CNH Am., LLC, 498

F.3d 868, 874 (8th Cir. 2007).
Assuming that Mr. Myers qualifies as an expert and that his opinion
was drawn from a reliable basis,2 his opinion is nonetheless inadmissible.
“[E]xpert testimony on legal matters is not admissible.”

S. Pine

Helicopters, Inc. v. Phoenix Aviation Managers, Inc., 320 F.3d 838, 841
(8th Cir. 2003); accord Lakeside Feeders, Inc. v. Producers Livestock
Mktg. Ass’n, 666 F.3d 1099, 1111 (8th Cir. 2012).

2

“Unless a contract is

As noted above, CitiMortgage also challenges the foundation
supporting Myers’ conclusions. See (Doc. 168 at 7; Doc. 172 at 8, 9.)
Because Myers’ opinion draws impermissible legal conclusions and is
otherwise irrelevant, the court need not address this argument. See n.3.
- 3 -

deemed ambiguous or there is a term of the contract that requires an
expert’s explanation, it is improper for an expert to interpret or
construe a contract in his opinion.”

Wells Fargo Bank N.A. v. LaSalle

Bank Nat’l Ass’n, No. 2:08-CV-1448 JCM (RJJ), 2011 WL 743748, at *3 (D.
Nev. Feb. 23, 2011); accord DP Concrete Prods., LLC v. Am. Spring Wire
Corp., No. 2:08 CV 571, 2010 WL 322738, at *1 (W.D. La. Jan. 25, 2010)
(“Federal courts have consistently held that expert testimony on issues
of contractual interpretation is inappropriate and that such issues are
reserved for the judge and jury.”).
Myers’ deposition testimony and

report purport to make legal

conclusions concerning whether CitiMortgage acted in good faith and
whether the terms of the contract are inconsistent, ambiguous, and
unreasonable. For example, after analyzing and interpreting the contract
terms and evaluating whether the terms are reasonable, Myers’ report
concludes:
The Agreement governing the relationship between Just Mortgage
and CitiMortgage is clearly ambiguous and contradictory in its
terms.
In my opinion, from an industry perspective, Just
Mortgage cannot be reasonably bound to a promise or guarantee
that no fraud or misrepresentations have been made by an
external party over which Just Mortgage had no control. The
fact that [Citimortgage] seeks to bind Just Mortgage by such
a promise or guarantee, from an industry perspective, implies
the existence of an insurance agreement to which Just Mortgage
never acquiesced and, regarding which, Just Mortgage was never
remunerated. . . .
(Doc. 168-1 at 23.)
Because his opinions draw legal conclusions, Myers’ opinion is not
an admissible expert opinion. See, e.g., Emps. Reinsurance Corp. v. MidContinent Cas. Co., 202 F. Supp. 2d 1212, 1219 (D. Kan. 2002) (excluding
the portion of an expert’s opinion which concluded that “[t]he conduct
of [the plaintiff] ha[d] been unreasonable and unfair and constitute[d]
bad faith” because the opinion “constitute[d] an impermissible attempt
to apply the law to the facts of the case to form a legal conclusion”);
Shelter Mut. Ins. Co. v. Culbertson’s Ltd., Inc., No. CIV. A. 97-1609,
CIV. A. 97-1969, 1999 WL 135297, at *2-3 (E.D. La. Mar. 11, 1999)
(excluding an expert opinion which concluded that the parties’ contract

- 4 -

was ambiguous).

Beyond these legal conclusions, Myers’ opinion is not

relevant to this action.3
Therefore, Thomas A. Myers’ opinions are excluded.

III.

MOTION FOR SUMMARY JUDGMENT

CitiMortgage moves for summary judgment, arguing that the Group 1
Loans contained inaccuracies, misrepresentations, and related defects,
and as such it was entitled to demand that Just Mortgage cure or
repurchase them pursuant to § 11 of the contract.

CitiMortgage also

argues that Just Mortgage’s subsequent failure to cure or repurchase the
Group 1 Loans was a breach of the contract. (Docs. 75, 76, 100, 139.)
Just Mortgage responds that § 2(i) and § 11(ii) of Form 200 and
§ 2202 of the CMI Manual4 are ambiguous and conflicting regarding its
liability for inaccuracies, misrepresentations, and omissions by loan
applicants, appraisers, escrow agents, title companies, closers, and
credit reporting agencies.

Just Mortgage also argues that CitiMortgage

violated its implied duty of good faith and fair dealing and that the
terms of the contract are unconscionable.

Just Mortgage further argues

that it made a unilateral mistake of fact when interpreting § 2(i).
(Doc. 150.)
CitiMortgage replies that there is no ambiguity concerning § 11(i),
(iv), or (v), and that it is undisputed that it had the right to demand
repurchase of the Group 1 Loans under these provisions independent of
§ 11(ii).

CitiMortgage also argues that § 2(i) and § 11(ii) of Form 200

and § 2202 of the CMI Manual are not ambiguous or conflicting because
they serve different functions in the contract.

CitiMortgage further

argues that its repurchase demands were made in good faith, that the

3

To the extent Myers opines regarding the national economy and
national mortgage practices, his opinion is not relevant to this breach
of contract action and thus is excluded. See Citimortgage, Inc. v. OCM
Bancorp, Inc., No. 4:10 CV 467 CDP, 2011 WL 1594950, at *4 n.3 (“I
disagree, however, that any evidence of the general state of the real
estate economy in California is probative of Citimortgage’s bad faith;
none of this evidence is specific to Citimortgage’s state of mind.”).
4

As discussed below, both of these documents were incorporated in
the parties’ contract. (Doc. 77 at ¶ 10.)
- 5 -

contract is not unconscionable, and that Just Mortgage should not be
excused by any alleged unilateral mistake of fact.

IV.

(Doc. 161.)

STATEMENT OF UNDISPUTED FACTS

CitiMortgage’s Loan Purchasing Program
CitiMortgage is in the business of purchasing closed mortgage loans
from certain approved lenders, known as “correspondents,” across the
United States under its Loan Purchasing Program (Program).5
¶ 1.)

(Doc. 77 at

Through the Program, CitiMortgage functions as an investor in the

secondary mortgage market.

(Id. at ¶ 2.)

CitiMortgage resells some of

the loans it purchases to the Federal National Mortgage Association
(Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac),
and other investors in the secondary mortgage market.

(Id. at ¶ 3.)

In 2007, CitiMortgage purchased more than 400,000 loans from many
correspondents.

(Id. at ¶ 4.)

When CitiMortgage purchases mortgage loans from correspondents, it
does so pursuant to contracts entitled “Correspondent Agreement Form 200”
(Form).

(Id. at ¶ 5.)

The Program and the Form are structured to

account for the large number of loans CitiMortgage purchases from
correspondents each year.

(Id. at ¶ 6.)

Generally, correspondents have

more direct knowledge relating to the loans than CitiMortgage because the
correspondents often originated the loans.

(Id. at ¶ 7.)

Agreement between CitiMortgage and Just Mortgage
On August 4, 2005, CitiMortgage and Just Mortgage entered into a
Form, as well as a DBA Addendum.

(Id. at ¶ 8; Doc. 77-3 at 1-7, 8.)

On

March 17, 2006, CitiMortgage and Just Mortgage agreed to a Delegated

5

To the extent Just Mortgage states that it “lacks sufficient
information or knowledge to adequately respond to the alleged
uncontroverted fact and therefore asserts that it is in dispute,” this
response is insufficient to dispute a fact for summary judgment purposes.
E.D. Mo. L.R. 7-401(E); Chavers v. Shinseki, 667 F. Supp. 2d 116, 121 n.2
(D.D.C. 2009). Similarly, Just Mortgage’s bare assertions that a fact
is “immaterial” do not dispute the asserted fact. Portis v. City of
Chicago, 510 F. Supp. 2d 461, 464-65 (N.D. Ill. 2007); Menasha Corp. v.
News Am. Mktg. In-Store, Inc., 238 F. Supp. 2d 1024, 1029 (N.D. Ill.
2003).
- 6 -

Underwriting Addendum.

(Doc. 77 at ¶ 8; Doc. 77-3 at 9, 10.)

The Form,

the DBA Addendum, and the Delegated Underwriting Addendum (collectively
“Agreement”) set forth the terms and conditions governing the sale of
mortgage loans by Just Mortgage to CitiMortgage under the Program. (Doc.
77 at ¶ 10.)
The Agreement states, in relevant part:
1.

PURCHASE AND SALE OF MORTGAGE LOANS

From time to time, Correspondent may sell to CMI and CMI may
purchase from Correspondent one or more residential mortgage,
home equity or other loans (“Loan(s)”) in accordance with the
terms, conditions, requirements, procedures, representations
and warranties set forth in the “CitiMortgage, Inc.
Correspondent Manual” and all amendments, bulletins, program
requirements and supplements to such Manual (collectively
hereinafter referred to as the “CMI Manual”), and this
Agreement. CMI and Correspondent agree that the CMI Manual is
incorporated by reference herein and is part of this
Agreement.
Further, CMI and Correspondent agree that
Citibank, FSB; Citibank (West), FSB; and Citibank, N.A. are
intended third party beneficiaries of this Agreement.
For each Loan offered for sale by Correspondent to CMI,
Correspondent will deliver Loan documentation to CMI in
accordance
with
the
applicable
terms,
conditions,
requirements, procedures, representations and warranties set
forth in the CMI Manual.
CMI may purchase Loans with or
without
conducting
a
complete
review
of
the
Loan
documentation. CMI’s review of, or failure to review, all or
any portion of the Loan documentation shall not affect CMI’s
rights to demand repurchase of a Loan or any other CMI right
or remedy provided by this Agreement.
For each Loan CMI agrees to Purchase, CMI shall pay the amount
agreed upon by CMI and Correspondent (“Purchase Price”) in
accordance with the applicable provisions of the CMI Manual.
CMI may offset against the Purchase Price any outstanding fees
or other amounts owing from Correspondent to CMI in connection
with the particular purchase or other transactions.
As of the date CMI purchases each Loan, Correspondent will
(i) transfer to CMI all of its right, title and interest in
and to each Loan, including without limitation all documents
held or subsequently acquired by Correspondent relating to
each Loan and (ii) execute all documents necessary to transfer
such right, title and interest to CMI.

- 7 -

2.

REPRESENTATIONS AND WARRANTIES

Correspondent represents, warrants and covenants throughout
the term of this Agreement as follows:
* * *
(i) That neither this Agreement nor any statement, report or
other information provided or to be provided pursuant to this
Agreement (including but not limited to the statements and
information contained in the documentation for each Loan
purchased
by
CMI)
contains
or
will
contain
any
misrepresentation or untrue statement of fact or omits or will
omit to state a fact necessary to make the information not
misleading.
The provisions of this sub-section shall not
apply to information obtained from (i) appraisers, escrow
agents, title companies, closers, credit reporting agencies or
any other entity approved by CMI (“Approved Entity”) unless
Correspondent knows or has reason to believe that any
information provided by such Approved Entity is not true,
correct or valid in any material respect and (ii) the Loan
applicant(s) unless Correspondent knows, has reason to believe
or, after performing its normal due diligence and quality
control review, should have known that any information
provided by the Loan applicant(s) is not true, correct or
valid in any material respect.
* * *
11.

CURE OR REPURCHASE

If CMI, in its sole and exclusive discretion, determines any
Loan purchased pursuant to this Agreement:
(i) was underwritten and/or originated in violation of any
term, condition, requirement or procedure contained in this
Agreement or the CMI Manual in effect as of the date CMI
purchased such Loan;
(ii) was underwritten and/or originated based on any
materially
inaccurate
information
or
material
misrepresentation made by the Loan borrower(s), Correspondent,
Correspondent’s directors, officers, employees, agents,
independent contractors and/or affiliates, or any other party
providing information relating to said Loans;
* * *
(iv) must be repurchased from any secondary market investor
(including but not limited to the Fannie Mae, Freddie Mac,
FHA, VA, HUD or Government National Mortgage Association) due
to a breach by Correspondent of any representation, warranty
- 8 -

or covenant contained in this Agreement or the CMI Manual or
a failure by Correspondent to comply in all material respects
with the applicable CMI Manual terms, conditions, requirements
and procedures; and/or
(v) was
the CMI
Manual)
the CMI

subject to an Early Payment Default6 (as defined in
Manual), an Early Payoff7 (as defined in the CMI
or any other payment related defect8 (as defined in
Manual)

Correspondent will, upon notification by CMI, correct or cure
such defect within the time prescribed by CMI to the full and
complete satisfaction of CMI. If, after receiving such notice
from CMI, Correspondent is unable to correct or cure such
defect within the prescribed time, Correspondent shall, at
CMI’s sole discretion, either (i) repurchase such defective
Loan from CMI at the price required by CMI (“Repurchase
Price”) or (ii) agree to such other remedies (including but
not limited to additional indemnification and/or refund of a
portion of the Loan purchase price) as CMI may deem
appropriate.
If CMI requests a repurchase of a defective
Loan, Correspondent shall, within ten (10) business days of
Correspondent’s receipt of such repurchase request, pay to CMI
the Repurchase Price by cashier’s check or wire transfer of
immediately available federal funds. If such defective Loan
is owned by CMI at the time of repurchase by Correspondent,
CMI shall, upon receipt of the Repurchase Price, release to
Correspondent the related mortgage file and shall execute and

6

The CMI Manual defines “Early Payment Default” as: “CitiMortgage
Correspondent Lending imposes an Early Payment Default Obligation on all
Correspondents pursuant to the terms and conditions contained within the
Representations and Warrants.”
(Doc. 81-1 at 70, § 2301.)
In the
Representations and Warranties section of the CMI Manual, the Manual
states that a Conventional Loan is in “Early Payment Default” if “any of
the first four (4) payments due to CitiMortgage, or its assigns, becomes
ninety (90) days or more delinquent.” In the event of an Early Payment
Default, the correspondent bears an obligation to repurchase the loan or
indemnify CitiMortgage. (Doc. 81-1 at 59-61, § 2202.)
7

The CMI Manual defines “Early Payoff” as: “A conventional nonconforming, conventional conforming[,] or an FHA/VA loan purchased by
CitiMortgage paid-in-full within and including 90 days after the date
CitiMortgage purchased the loan.
CitiMortgage Correspondent Lending
imposes an Early Payoff Obligation on all Correspondents pursuant to the
terms and conditions contained under the Representations and Warrants.”
(Doc. 81-1 at 70, § 2301.)
8

This term is not expressly defined in the CMI Manual, but appears
to refer generally to “other payment related defect[s]” which themselves
are defined in the CMI Manual. See (Doc. 81-1 at 68-73, § 2301.)
- 9 -

deliver such instruments of transfer or assignment, in each
case without recourse or warranty, as shall be necessary to
vest in Correspondent or its designee title to the repurchased
Loan.
Correspondent agrees and acknowledges that the provisions of
this Sec. 11 do not, in any way, eliminate, diminish or impair
Correspondent’s indemnification obligations contained in Sec.
10.
(Doc. 77 at ¶¶ 11-13; Doc. 77-3 at §§ 1, 2(i), 11.)

Section 2202 of the

Correspondent Manual (Manual) states:
REPRESENTATIONS AND WARRANTIES 2202
FRAUD OR MISREPRESENTATION
As of the date each Loan was originated, except as qualified
in section 2(i) of the Correspondent Loan Purchase Agreement,
the Correspondent represents and warrants that all information
relating to the Loan was complete and accurate, and contained
no fraud or misrepresentation, whether the information was
obtained, derived or requested by a third party or an
affiliate of the Correspondent or otherwise, or by the
Correspondent.
(Doc. 155-33 at 1, 2.)
The Manual is expressly incorporated into the Agreement.
at ¶ 14.)

(Doc. 77

Just Mortgage represented and warranted in the Agreement that

it had obtained and reviewed the Manual and would comply with the terms,
conditions, requirements, and procedures therein.

(Id. at ¶ 16.)

Group 1 Loans
In 2006, Just Mortgage began selling loans to CitiMortgage under the
Agreement.

(Id. at ¶ 18.)

Since 2006, Just Mortgage has sold 3,587

mortgage loans to CitiMortgage, the principal balances of which totaled
approximately $938,776,000.00.
Ten of these loans are

(Id. at ¶ 19.)
the Group 1 Loans: (1) Beevers Loan

#XXXXX4387; (2) Collins Loan #XXXXX1455; (3) Ghazarian Loan #XXXXX3095;
(4) Molier Loan #XXXXX1011; (5) Mollah Loan #XXXXX0608; (6) Mohammed Loan
#XXXXX7348; (7) Mohammad Loan #XXXXX1904; (8) Tirona Loan #XXXXX5975;
(9) Tavares Loan #XXXXX7470; and (10) Turbeville Loan #XXXXX4160.
at ¶ 20.)
- 10 -

(Id.

Purchases
On January 17, 2008, CitiMortgage purchased from Just Mortgage the
Mohammed Loan #XXXXX7348 (Mohammed Loan 2), for residential property
located at 3025 Greystone Loop Building 7, U 203, Kissimmee FL 35741.
(Id. at ¶ 25.)
On January 18, 2008, CitiMortgage purchased from Just Mortgage the
Mohammed Loan #XXXXX1904 (Mohammed Loan 1), for residential property
located at 3301 Whitestone Circle, #204, Kissimmee, FL 34731.9

(Id. at

¶ 24; Doc. 151 at ¶ 24.)
On February 29, 2008, CitiMortgage purchased from Just Mortgage the
Ghazarian Loan #XXXXX3095, for residential property located at 420
Willimet Avenue, Los Angeles, CA 90039.

(Doc. 77 at ¶ 23.)

On February 29, 2008, CitiMortgage purchased from Just Mortgage the
Beevers

Loan

#XXXXX4387,

for

residential

Northwest 7th Street 703, Miami, FL 33126.

property

located

at

5085

(Id. at ¶ 21.)

On March 24, 2008, CitiMortgage purchased from Just Mortgage the
Mollah

Loan

#XXXXX0608,

for

residential

Foothill Avenue, Holliswood, NY 11423.

property

located

at

19858

(Id. at ¶ 27.)

On March 25, 2008, CitiMortgage purchased from Just Mortgage the
Molier

Loan

#XXXXX1011,

for

residential

Southwest 32 Street, Miami, FL 33175.

property

located

at

13763

(Id. at ¶ 26.)

On April 3, 2008, CitiMortgage purchased from Just Mortgage the
Turbeville Loan #XXXXX4160, for residential property located at 659
Broadway Street, Venice, CA 90291.

(Id. at ¶ 30.)

On April 10, 2008, CitiMortgage purchased from Just Mortgage the
Tirona Loan #XXXXX5975, for residential property located at 45 Maleener
Mesa Street, Building 1, Unit 111, Henderson, NV 89074.

(Id. at ¶ 29.)

On May 23, 2008, CitiMortgage purchased from Just Mortgage the
Collins Loan #XXXXX1455, for residential property located at 815 N.
Avalon Street, Memphis, TN 38107.

(Id. at ¶ 22.)

9

The parties dispute whether the address is “3301 Whitestone Circle,
#204, Kissimmee, FL 34741,” or “3301 Whitestone Circle, Kissimmee, FL
34741.”
(Doc. 77 at ¶ 24; Doc. 151 at ¶ 24.)
This dispute is not
material for purposes of the instant motion for summary judgment. For
sake of clarity, the court lists the address as “3301 Whitestone Circle,
#204, Kissimmee, FL 34741.”
- 11 -

On June 27, 2008, CitiMortgage purchased from Just Mortgage the
Tavares Loan #XXXXX7470, for residential property located at 8701 Wiles
Road, Unit 302, Building 16, Coral Springs, FL 33067.

(Id. at ¶ 28.)

Defects10
After purchasing the Group 1 Loans from Just Mortgage, CitiMortgage
became

aware

borrowers’

of

facts

incomes

and

indicating
employment

that

information

histories

in

the

related
Group

to
1

the
Loan

application packages was misrepresented or materially inaccurate, or that
the Group 1 Loans were otherwise defective under the terms of the
Agreement.

(Id. at ¶ 32.)

Beevers Loan #XXXXX4387
After purchasing the Beevers Loan from Just Mortgage, CitiMortgage
discovered that the Beevers Loan application package misrepresented the
borrower’s income.

(Id. at ¶ 33.)

After inputting the correct income,

the debt-to-income ratio for the Beevers Loan exceeded the applicable
underwriting guidelines.

(Id. at ¶ 34.)

CitiMortgage also discovered that the mortgage insurance on the
Beevers Loan had been rescinded.

(Id. at ¶ 35.)

CitiMortgage was required to repurchase the Beevers Loan from Fannie
Mae.

(Id. at ¶ 36.)

10

Just Mortgage attempts to dispute various assertions regarding Loan
defects on the basis that it was unaware of the defects, that it complied
with CitiMortgage’s underwriting and origination guidelines, and that
CitiMortgage acted in bad faith.
See (Doc. 150 at 13-19.)
These
arguments do not create issues of material fact concerning the existence
of Loan defects.
Therefore, these facts regarding Loan defects are
treated as undisputed for purposes of the instant motion for summary
judgment.
- 12 -

Collins Loan #XXXXX1455
After purchasing the Collins Loan from Just Mortgage, CitiMortgage
discovered that there was alleged identity fraud11 in connection with the
Collins Loan application package.12

(Id. at ¶ 38.)

CitiMortgage was required to repurchase the Collins Loan from
Freddie Mac.

(Id. at ¶ 39.)

Ghazarian Loan #XXXXX3095
After purchasing the Ghazarian Loan from Just Mortgage, CitiMortgage
discovered that the Ghazarian Loan was subject to an Early Payment
Default.13

(Id. at ¶ 40.)

Mohammed Loan 1 #XXXXX1904
After

purchasing

the

Mohammed

Loan

1

from

Just

Mortgage,

CitiMortgage discovered that the Mohammed Loan 1 mortgage insurance had
been rescinded.

(Id. at ¶ 42.)

CitiMortgage also discovered that the Mohammed Loan 1 application
package misrepresented the borrower’s income.

(Id. at ¶ 43.)

After

11

In its repurchase Demand Letter to Just Mortgage regarding the
Collins Loan #XXXXX1455, CitiMortgage stated that “in researching the
[Collins Loan #XXXXX1455], [CitiMortgage] discovered that the borrower
has filed an identity theft claim with both [CitiMortgage] and the
Memphis Police Department.
The borrower indicates that the closing
documents for the subject property were forged with her name.”
CitiMortgage enclosed a copy of the police report and the borrower’s
forgery and identity theft claims with the letter. (Doc. 82-3 at 12.)
12

CitiMortgage also asserts that it discovered that the Collins Loan
application package did not contain the required documentation of a final
title insurance policy. (Doc. 77 at ¶ 37.) Just Mortgage disputes this
assertion, arguing that all required documentation was provided. (Doc.
150 at 15.) Therefore, this fact is treated as disputed.
13

CitiMortgage also asserts that it discovered that the Ghazarian
Loan application package did not contain the necessary asset verification
documentation.
(Doc. 77 at ¶ 41.)
Just Mortgage disputes this
assertion, arguing that it submitted all necessary documents. (Doc. 150
at 16.) Therefore, this fact is treated as disputed.
- 13 -

inputting the correct income, the debt-to-income ratio for the Mohammed
Loan 1 exceeded the applicable underwriting guidelines.14

(Id. at ¶ 44.)

CitiMortgage was required to repurchase the Mohammed Loan 1 from
Freddie Mac.

(Id. at ¶ 45.)

Mohammed Loan 2 #XXXXX7348
After

purchasing

the

Mohammed

Loan

2

from

Just

Mortgage,

CitiMortgage discovered that the Mohammed Loan 2 application package
misrepresented the borrower’s income.

(Id. at ¶ 46.)

After inputting

the correct income, the debt-to-income ratio for the Mohammed Loan 2
exceeded the applicable underwriting guidelines.

(Id. at ¶ 47.)

CitiMortgage also discovered that the mortgage insurance for the
Mohammed Loan 2 had been rescinded.

(Id. at ¶ 48.)

Molier Loan #XXXXX1011
After purchasing the Molier Loan from Just Mortgage, CitiMortgage
discovered that the loan was subject to an Early Payment Default.

(Id.

at ¶ 49.)
CitiMortgage also discovered that the Molier Loan application
package did not include the required asset verification documentation.
(Id. at ¶ 50.)
Mollah Loan #XXXXX0608
After purchasing the Mollah Loan from Just Mortgage, CitiMortgage
discovered that the Mollah Loan application package failed to disclose
two other borrower mortgages.

(Id. at ¶ 51.)

After inputting the

correct debt, the debt-to-income ratio for the Mollah Loan exceeded the
applicable underwriting guidelines.

(Id. at ¶ 52.)

CitiMortgage also discovered that the Mollah Loan was subject to an
Early Payment Default.

(Id. at ¶ 53.)

14

Just Mortgage disputes the existence of a second undisclosed loan
that contributed an excessive debt-to-income ratio. (Doc. 150 at 16,
17.) Just Mortgage has not indicated whether the non-existence of the
second undisclosed loan would create a permissive debt-to-income ratio.
under the applicable underwriting and origination guidelines.
- 14 -

Tavares Loan #XXXXX7470
After purchasing the Tavares Loan from Just Mortgage, CitiMortgage
discovered that the Tavares Loan application package failed to disclose
at least one other borrower mortgage.

(Id. at ¶ 54.)

After inputting

the correct debt, the debt-to-income ratio for the Tavares Loan exceeded
the applicable underwriting guidelines.

(Id. at ¶ 55.)

CitiMortgage was required to repurchase the Tavares Loan from
Freddie Mac.

(Id. at ¶ 56.)

Tirona Loan #XXXXX5975
After purchasing the Tirona Loan from Just Mortgage, CitiMortgage
was required to repurchase the loan from Fannie Mae.15

(Id. at ¶ 58.)

Turbeville Loan #XXXXX4160
After

purchasing

the

Turbeville

Loan

from

Just

Mortgage,

CitiMortgage discovered that the Turbeville Loan application package
failed to disclose at least one other borrower mortgage.

(Id. at ¶ 59.)

CitiMortgage also discovered that the Turbeville Loan application
package misrepresented the borrower’s income.

(Id. at ¶ 60.)

After

including the correct income and debt, the debt-to-income ratio for the
Turbeville Loan exceeded the applicable underwriting guidelines.

(Id.

at ¶ 61.)
Form 1003
A borrower, or someone on behalf of the borrower, must complete a
Form 1003 when applying for a residential mortgage loan.

(Id. at ¶ 66.)

Form 1003 expressly warns that any misrepresentation related to the
information provided therein will expose the borrower to civil and
criminal penalties:

15

CitiMortgage also argues that it discovered that the valuation of
the subject property failed to comply with the applicable guidelines.
(Doc. 77 at ¶ 57.)
Just Mortgage disputes this, arguing that the
appraisal was sufficient. (Doc. 150 at 20.) Thus, this fact is treated
as disputed.
- 15 -

IX.

ACKNOWLEDGMENT AND AGREEMENT

Each of the undersigned specifically represents to Lender and
to Lender’s actual or potential agents, brokers, processors,
attorneys, insurers, servicers, successors and assigns and
agrees and acknowledges that: (1) the information provided in
this application is true and correct as of the date set forth
opposite my signature and that any intentional or negligent
misrepresentation of this information contained in this
application may result in civil liability, including monetary
damages, to any person who may suffer any loss due to reliance
upon any misrepresentation that I have made on this
application, and/or in criminal penalties including, but not
limited to, fine or imprisonment or both under the provisions
of Title 18, United States Code, Sec. 1001, et seq.; . . . .
(Id. at ¶ 67; Doc. 82-2 at 4.)
corresponding Form 1003.

Each of the Group 1 Loans had a

(Doc. 77 at ¶ 68; Doc. 82-2.)

CitiMortgage’s Demands for Cure or Repurchase
CitiMortgage found that the inaccuracies, misrepresentations, and
other

defects

in

the

Group

1

Loans

were

defects

material

to

the

origination and underwriting decisions for each of the Group 1 Loans.
(Doc. 77 at ¶ 62.)

Failure to disclose the borrower’s liabilities and

to ensure that the borrower’s loan complies with the Agreement renders
the

borrower’s

CitiMortgage.

debt-to-income

ratio

(Id. at ¶¶ 63, 64.)

inaccurate

and

misleading

to

This impairs CitiMortgage’s ability

to assess accurately the risks associated with loans, including the
ability to collect payments from the borrower.

(Id.)

Just Mortgage’s

promises and warranties under the Agreement that these defects were not
present and its promise to cure or repurchase any loan where such defects
were present were material to CitiMortgage’s decision to purchase the
Group 1 Loans from Just Mortgage.

(Id. at ¶ 65.)

Based on the information obtained by CitiMortgage concerning the
inaccuracies, misrepresentations, and other defects in the Group 1 Loans,
CitiMortgage, in its sole and exclusive discretion, determinated that the
Group 1 Loans were underwritten and/or originated based on materially
inaccurate information, material misrepresentations, or were otherwise
in violation of the Agreement.

(Doc. 77 at ¶ 69.)

- 16 -

CitiMortgage sent written notices to Just Mortgage advising of the
Group 1 Loans’ defects and demanding that Just Mortgage cure the defects
or repurchase the Group 1 Loans pursuant to the Agreement (Demand
Letters).

(Doc. 77 at ¶ 70; Doc. 82-3.)

Just Mortgage failed to cure

the defects in the Group 1 Loans or to repurchase the Group 1 Loans in
response to CitiMortgage’s Demand Letters.

(Doc. 77 at ¶ 72.)

As a result, CitiMortgage issued final notices to Just Mortgage
demanding that Just Mortgage repurchase the Group 1 Loans (Repurchase
Letters).

(Id. at ¶ 73; Doc. 83-1.)

repurchased any of the Group 1 Loans.

To date, Just Mortgage has not
(Doc. 77 at ¶ 75.)

Repurchase Prices
The CMI Manual defines the Repurchase Price as:
REPURCHASE PRICE: The Repurchase Price is defined as the sum
of: (i) the current principal balance on the loan as of the
paid-to date; (ii) the accrued interest calculated at the
mortgage loan Note rate from the mortgage loan paid-to date up
to and including the repurchase date; (iii) all unreimbursed
advances (including but not limited to tax and insurance
advances, delinquency and/or foreclosure expenses, etc.)
incurred in connection with the servicing of the mortgage
loan; (iv) any price paid in excess of par by CitiMortgage on
the funding date[;] and (v) any other fees, costs, or expenses
charged by or paid to another investor in connection with the
repurchase of the mortgage loan from such investor but only to
the extent such fees, costs and expenses exceed the total of
items (i) through (iv) above.
(Doc. 77 at ¶ 77; Doc. 81-1 at 73, § 2301.)
Based on the application of this Repurchase Price formula, the
amounts due to CitiMortgage from Just Mortgage, if Just Mortgage was
obligated to repurchase the Group 1 Loans,16 would be:
Beevers Loan:
Collins Loan:
Ghazarian Loan:
Mohammed Loan 1:
Mohammed Loan 2:
Molier Loan:
Mollah Loan:

$335,360.96
$148,785.72
$351,544.46
$258,607.77
$188,467.10
$760,876.63
$823,653.42

16

Just Mortgage disputes only that it is not required to repurchase
the Group 1 Loans; Just Mortgage does not challenge the amounts of the
Repurchase Prices derived from CitiMortgage’s application of the
Repurchase Price formula to the Group 1 Loans. (Doc. 151 at ¶¶ 78-88.)
- 17 -

Tavares Loan:
Tirona Loan:
Turbeville Loan:
Total:
(Doc. 77 at ¶¶ 78-88.)
10.

$237,948.05
$168,399.17
$320,078.34
$3,593,721.62
In addition, § 10 of the Agreement states:

INDEMNIFICATION

Correspondent agrees to indemnify and hold CMI harmless from
any and all claims, actions and costs, including reasonable
attorneys’ fees and costs, arising from (i) Correspondent’s
performance or failure to perform under the terms, conditions
or obligations of this Agreement or the CMI Manual (including
but not limited to Correspondent’s failure to timely deliver
all documents and records associated with or related to all
Loans purchased by CMI pursuant to this Agreement), (ii) any
fraud, misrepresentation or breach of any misrepresentation,
warranty or covenant contained [in] this Agreement or the CMI
Manual and/or (iii) Correspondent’s advertisements, promotions
or other activities. This indemnification shall extend to any
action or inaction by the directors, officers, employees,
agents, independent contractors or other representatives of
Correspondent and shall survive the expiration and termination
of this Agreement.
(Id. at ¶ 89; Doc. 77-3 at § 10.)

CitiMortgage either is the current

holder of the Group 1 Loans or was the holder at the time it demanded
repurchase of the Group 1 Loans and exercised its rights under § 11 of
the Agreement.

(Doc. 77 at ¶ 31.)

V.

MOTION FOR SUMMARY JUDGMENT STANDARD

Summary judgment must be granted when the pleadings and proffer of
evidence demonstrate that no genuine issue of material fact exists and
that the moving party is entitled to judgment as a matter of law.

Fed.

R. Civ. P. 56(c); Celotex Corp. v. Citrate, 477 U.S. 317, 322 (1986);
Ashanti v. City of Golden Valley, 666 F.3d 1148, 1150 (8th Cir. 2012).
The court must view the evidence in the light most favorable to the
nonmoving party and accord it the benefit of all reasonable inferences.
Ashanti, 666 F.3d at 1150.

A fact is “material” if it could affect the

ultimate disposition of the case, and a factual dispute is “genuine” if
there is substantial evidence to support a reasonable jury verdict in

- 18 -

favor of the nonmoving party.

Die-Cutting Diversified, Inc. v. United

Nat’l Ins. Co., 353 F. Supp. 2d 1053, 1054-55 (E.D. Mo. 2004).
Initially, the moving party must demonstrate the absence of an issue
for trial.

Celotex, 477 U.S. at 323.

Once a motion is properly made and

supported, the nonmoving party may not rest upon the allegations in its
pleadings or general denials of the movant’s assertions, but must instead
proffer admissible evidence that demonstrates a genuine issue of material
fact.

Fed. R. Civ. P. 56(e); Howard v. Columbia Pub. Sch. Dist., 363

F.3d 797, 800 (8th Cir.), cert. denied, 543 U.S. 956 (2004); Krein v. DBA
Corp., 327 F.3d 723, 726 (8th Cir. 2003); Essex Ins. Co. v. Stone, No.
1:09 CV 1 SNLJ, 2010 WL 330328, at *2 (E.D. Mo. Jan. 21, 2010).

VI.
A.

DISCUSSION

Breach of Contract
The Agreement states it is governed by Missouri and applicable

federal law.

(Doc. 77-3 at § 12.)

Under Missouri law, a plaintiff must

establish four elements to prevail on a breach of contract claim: (1) the
existence of a valid contract; (2) the defendant’s obligation under the
contract;

(3)

a

breach

by

the

defendant

of

that

obligation;

and

(4) resulting damages. C-H Bldg. Assocs., LLC v. Duffey, 309 S.W.3d 897,
899 (Mo. Ct. App. 2010).
Just Mortgage does not dispute the existence of a valid contract
with CitiMortgage, namely, the Agreement. Nor does Just Mortgage contest
that the Agreement sets forth the terms and conditions governing the sale
of mortgage loans by Just Mortgage to CitiMortgage under the Program.
Just Mortgage does not dispute that under the Agreement, CitiMortgage has
the ability to “exercise its sole and exclusive discretion” to determine
whether the Group 1 Loans are defective, nor does Just Mortgage dispute

- 19 -

that, for one reason or another,17 each of the loans was defective.18 Just
Mortgage does not contest CitiMortgage’s damages calculations.
Instead, Just Mortgage argues that certain affirmative defenses
shield it from liability.
B.

Affirmative Defenses
Just Mortgage argues that the Agreement should not be enforced

because the Agreement contains ambiguous and conflicting terms.

Just

Mortgage also argues that CitiMortgage violated the implied covenant of
good faith and fair dealing and that the Agreement is unconscionable.
Just Mortgage further argues that it made a unilateral mistake of fact.

1.

Ambiguity

A contract is ambiguous where reasonable people could fairly and
honestly differ in the reading of the terms because the terms are
susceptible of more than one interpretation.

Yerington v. La-Z-Boy,

Inc., 124 S.W.3d 517, 520 (Mo. Ct. App. 2004); accord Kastendieck v.
Millers Mut. Ins. Co., 946 S.W.2d 35, 39 (Mo. Ct. App. 1997) (“An

17

As noted in the facts above and discussed in greater detail below,
while Just Mortgage contests certain allegations of the existence Loan
defects, it does not argue that any of the loans were entirely free of
defects.
18

Just Mortgage’s argument that it followed CitiMortgage’s guidelines
and the guidelines incorporated therein from Fannie Mae and Freddie Mac
is not determinative of whether CitiMortgage properly demanded that Just
Mortgage cure or repurchase the loans because § 11(i), (ii), and (v) are
not based on Just Mortgage’s noncompliance with guidelines or knowledge
of defects; CitiMortgage can demand that Just Mortgage cure or repurchase
the loans under § 11(i), (ii), and (v) irrespective of whether Just
Mortgage complied with the guidelines in originating the loans and
regardless of whether Just Mortgage had no knowledge of any loan defects.
See Citimortgage, Inc. v. OCM Bancorp, Inc., No. 4:10 CV 467 CDP, 2011
WL 1594950, at *5 (E.D. Mo. Apr. 27, 2011) (recognizing that “there is
no qualifying language indicating . . . that Citimortgage can only demand
repurchase if it determines that [the correspondent] knew of the
borrower’s misrepresentation” and that “[t]he Cure or Repurchase clause
by its plain terms allows Citimortgage to demand repurchase at any time
if it discovers a borrower’s material misrepresentation, even if [the
correspondent] complied with Citimortgage’s guidelines when originating
the loan”).
- 20 -

ambiguity exists where there is duplicity, uncertainty or indistinctness
in the meaning of the words used.”).

In addition, “if language which

appears plain considered alone conflicts with other language in the
contract, or if giving effect to it would render other parts of the
contract a nullity, then [the court should] find the contract to be
ambiguous.”
2006).

Zeiser v. Tajkarimi, 184 S.W.3d 128, 133 (Mo. Ct. App.

Similarly, “language which promises something in one point and

takes it away in another is ambiguous.”

Kastendieck, 946 S.W.2d at 39.

In construing a contract, the court should “attribut[e] a reasonable
meaning to each phrase and clause, and harmoniz[e] all provisions of the
agreement” rather than “leave[] some of the provisions without function
or sense.”

Teets v. Am. Fam. Mut. Ins. Co., 272 S.W.3d 455, 467 (Mo. Ct.

App. 2008) (citation omitted).

Whether or not a contract is ambiguous

is a question of law for the court to decide.

Id. at 462.

Just Mortgage argues that § 2(i) and § 11(ii) of the Form and § 2202
of the Manual, all of which are incorporated into the Agreement,19 are
ambiguous

and

conflicting

regarding

Just

Mortgage’s

liability

for

misrepresentations, misstatements, and omissions made by loan applicants,
appraisers, escrow agents, title companies, closers, and credit reporting
agencies.

Specifically, Just Mortgage argues that § 2(i) and § 2202

state that Just Mortgage, after conducting its normal due diligence, is
not liable for any such misrepresentations, misstatements, or omissions,
so long as it had no reason to believe that such a misrepresentation,
misstatement, or omission existed.

Just Mortgage argues that § 11(ii)

is conflicting in that it states that Just Mortgage is liable to
repurchase

loans

originated

or

underwritten

based

on

such

a

misrepresentation, misstatement, or omission upon CitiMortgage deciding
that a misrepresentation, misstatement, or omission was made, regardless
of Just Mortgage’s lack of any prior knowledge of the misrepresentation,
misstatement, or omission.

More succinctly, Just Mortgage argues that

§ 2(i) and § 2202 state that Just Mortgage is not liable so long as it

19

“In Missouri, matters incorporated into a contract by reference are
as much a part of the contract as if they had been set out in the
contract in haec verba.” Livers Bronze, Inc. v. Turner Constr. Co., 264
S.W.3d 638, 643 (Mo. Ct. App. 2008) (citation omitted).
- 21 -

did not have reason to believe a misrepresentation existed, while
§

11(ii)

states

that

Just

Mortgage

is

liable

regardless

of

Just

Mortgage’s lack of any prior knowledge of a misrepresentation.
Just Mortgage misconstrues the Agreement.

Section 2(i) and § 2202

are representation and warranty sections, the terms of which are limited
to each subsection.

Section 2(i) and § 2202 are breached when a

correspondent knows or should have known that loan documents contain
misstatements, misrepresentations, or omissions but nonetheless submits
the defective documents to CitiMortgage.

Section 11(ii) sets forth one

set of circumstances in which CitiMortgage can demand a correspondent
cure or repurchase a loan, specifically, upon CitiMortgage determining
that the loan was underwritten or originated based on a misstatement,
misrepresentation, or omission.

Section 11(ii) is breached when a

correspondent

repurchase

fails

to

cure

or

the

loan,

and

applies

20

regardless of the correspondent’s knowledge.

That § 2(i) and § 2202 are limited to those instances where the
correspondent

knows

or

should

have

known

of

the

misstatement,

misrepresentation, or omission does not conflict or create an ambiguity
when read with § 11(ii).

Citimortgage, Inc. v. OCM Bancorp, Inc., No.

4:10 CV 467 CDP, 2011 WL 1594950, at *5 (E.D. Mo. Apr. 27, 2011)
(discussed below); cf. Roy A. Elam Masonry, Inc. v. Fru-Con Constr.
Corp., 922 S.W.2d 783, 790 (Mo. Ct. App. 1996) (finding no conflict or
ambiguity among various contract sections).
Recently, in Citimortgage v. OCM Bancorp, the court rejected an
argument

that

§

11(ii)

was

unenforceable

because

Citimortgage’s

guidelines did not require the correspondent to verify the borrower’s
income and because the correspondent was unaware of any defects in the
loans when it sold them to Citimortgage:
OCM responds with evidence suggesting that it complied
with all of Citimortgage’s underwriting requirements at the

20

The remedies available for breach of § 2(i) also differ from those
available for a breach of § 11(ii). Remedies for a breach of § 2(i) are
set forth in § 10, while the available remedies for a breach of § 11(ii)
are CitiMortgage’s ability to demand that the correspondent cure or
repurchase the defective loan and any other such remedies as CitiMortgage
deems appropriate. (Doc. 77-3 at §§ 2, 10, 11.)
- 22 -

time the loan was originated, including the requirement that
borrower income not be verified for this type of loan. With
this evidence, OCM seems to argue . . . that it could not have
detected any buyer misrepresentations at the time of loan
origination,
because
it
complied
with
Citimortgage’s
guidelines, which did not require income verification. In
other words, OCM argues that it did not breach the parties’
agreement by selling this loan to Citimortgage, because, even
if the borrower significantly misstated his
income,
Citimortgage’s applicable loan guidelines did not require OCM
to verify the borrower’s income, and so it could not have been
aware of any defect when it sold Citimortgage the loan.
This is not a proper interpretation of the parties’
agreement.
OCM confuses the situations under which
Citimortgage could demand repurchase.
Rather than only
allowing Citimortgage to demand repurchase if OCM originated
the loan in violation of the parties’ agreement, the
agreement’s Cure or Repurchase provision also allowed
Citimortgage to demand repurchase if the loan contained
material
misrepresentations
by
the
borrower
and/or
underwriter. . . . Thus, the parties’ agreement allowed
Citimortgage to demand repurchase in several situations,
including
if
it
discovered
a
borrower’s
material
misrepresentation, or if it determined OCM or its agent
originated
the
loan
in
violation
of
Citimortgage’s
requirements.
Moreover,
with
respect
to
the
clause
allowing
Citimortgage to demand repurchase based on a borrower’s
material misrepresentations, there is no qualifying language
indicating, for example, that Citimortgage can only demand
repurchase if it determines that OCM knew of the borrower’s
misrepresentation. The Cure or Repurchase clause by its plain
terms allows Citimortgage to demand repurchase at any time if
it discovers a borrower’s material misrepresentation, even if
OCM complied with Citimortgage’s guidelines when originating
the loan.
2011 WL 1594950, at *5 (E.D. Mo. Apr. 27, 2011) (emphasis added); see
also Residential Funding Corp. v. Gen. Mortg. Corp., No. CIV 00-824 DSD
FLN, 2001 WL 228415, at *4 (D. Minn. Mar. 2, 2001) (holding that similar
contract language “unambiguously reflect[ed] that defendant expressly
agreed to repurchase the . . . loan upon plaintiff’s request”).
Moreover, even if §§ 2(i), 2202, and 11(ii) were ambiguous when read
together, CitiMortgage was entitled to demand cure or repurchase under
other subsections of § 11.

- 23 -

CitiMortgage was required to repurchase the Beevers, Collins,
Mohammed 1, Tavares, and Tirona Loans from Fannie Mae and Freddie Mac.
(Doc. 77 at ¶¶ 36, 39, 45, 56, 58.)

Thus, CitiMortgage was entitled to

demand Just Mortgage cure or repurchase these loans under § 11(iv).
Regarding the Ghazarian, Molier, and Mollah Loans, each of these
loans was subject to an Early Payment Default.

(Id. at ¶¶ 40, 49, 53.)

Thus, CitiMortgage was entitled to demand Just Mortgage to cure or
repurchase these loans under § 11(v).
As to the Mohammed Loan 2, the mortgage insurance, which was
required

to

rescinded.

be

maintained

under

(Id. at ¶ 48.)

the

terms

of

the

Agreement,

was

Thus, CitiMortgage’s demand that Just

Mortgage cure or repurchase this loan was proper under § 11(i).
Regarding

the

Turbeville

Loan,

the

misrepresentations

made

concerning the borrower’s income and the failure to disclose at least one
additional mortgage caused the debt-to-income ratio on the loan to exceed
applicable

underwriting

guidelines.

(Id.

at

¶¶

59-61.)

Thus,

CitiMortgage was permitted to demand Just Mortgage cure or repurchase
this loan pursuant to § 11(i).
In sum, § 2(i) and § 220221 of the Form do not conflict with § 11(ii)
of the Manual.

Moreover, as discussed above, any conflict or ambiguity

in these sections would not alter the propriety of CitiMortgage’s
repurchase demands because CitiMortgage was entitled to demand cure or
repurchase under other subsections of § 11.

2.

Implied Covenant of Good Faith and Fair Dealing

Just Mortgage also argues that CitiMortgage failed to act in good
faith in exercising its sole and exclusive discretion to demand cure or
repurchase of the Group 1 Loans, thus violating the implied covenant of
good faith and fair dealing. Just Mortgage argues that CitiMortgage knew
that its guidelines, which Just Mortgage was required to comply with

21

Despite citing § 2202 as a source of conflict and ambiguity, Just
Mortgage makes no arguments specific as to this section, instead focusing
on § 2(i) and § 11(ii). (Doc. 150 at 7-21.)
- 24 -

under the Agreement, would result in defective loans, yet CitiMortgage
did not notify Just Mortgage of this problem.22
“Missouri law implies a covenant of good faith and fair dealing in
every contract.”

Farmers’ Elec. Coop., Inc. v. Mo. Dep’t of Corr., 977

S.W.2d 266, 271 (Mo. 1998) (en banc).

This includes “where a contract

confers on one party a discretionary power affecting the rights of the
other.” City of St. Joseph v. Lake Contrary Sewer Dist., 251 S.W.3d 362,
369 (Mo. Ct. App. 2008).

Where one party has discretionary power, the

covenant precludes exercise of that power “to deprive the other party of
the benefit of the contractual relationship or evade the spirit of the
bargain.”

Id. at 370; accord BJC Health Sys. v. Columbia Cas. Co., 478

F.3d 908, 914 (8th Cir. 2007).

Consequently, “the question is not

whether the party made an erroneous decision” but rather “whether the
decision was made in bad faith or was arbitrary or capricious so as to
amount to an abuse of discretion.” Mo. Consol. Health Care Plan v. Cmty.
Health Plan, 81 S.W.3d 34, 48 (Mo. Ct. App. 2002).
CitiMortgage’s

knowledge

concerning

market

conditions

and

the

efficacy of its guidelines does not implicate whether it exercised its
discretion to demand cure or repurchase of the Group 1 Loans in good
faith.

“To establish a breach of the covenant of good faith and fair

dealing, [Just Mortgage]’s burden is to establish that CitiMortgage
exercised a judgment conferred by the express terms of the agreement in
such a manner as to evade the spirit of the transaction or so as to deny
[Just Mortgage] the expected benefit of the contract.”

CitiMortgage,

Inc. v. First Cal. Mortg. Co., No. 4:10 CV 1498 RWS (E.D. Mo. Nov. 29,
2011) (Doc. 70 at 3, 4) (emphasis in original); see also Cordry v.
Vanderbilt Mortg. & Fin., Inc., 370 F. Supp. 2d 923, 930 (W.D. Mo. 2005)
(noting that under Missouri law, the implied covenant of good faith and
fair dealing “does not impose a limitless duty or obligation and cannot

22

Just Mortgage does not argue that CitiMortgage acted in bad faith
because the loans were not defective, nor does the record suggest that
such argument would have merit. See Citimortgage, Inc. v. OCM Bancorp,
Inc., No. 4:10 CV 467 CDP, 2011 WL 1594950, at *1 (E.D. Mo. Apr. 27,
2011) (noting that the correspondent could establish bad faith “by
presenting sufficient evidence of no defects at all in the six loans”).
- 25 -

override the express terms of the agreement”) (citation omitted).
Mortgage

could

satisfy

its

burden

by

showing

that

Just

CitiMortgage

erroneously determined that the Group 1 Loans contained defects, as this
could indicate, for example, that CitiMortgage sought to terminate its
contract with Just Mortgage or to push costs of the Group 1 Loans onto
Just Mortgage.23

OCM Bancorp, 2011 WL 1594950, at *4.

However, “there

can be no bad faith if [CitiMortgage] simply performed the actions
expressly granted it by the parties’ agreement, including determining
that loans were defective and needed to be repurchased.”

Id.; see also

id. at *4, n.3 (rejecting the argument that “evidence of the real estate
economy . . . is probative of [CitiMortgage]’s bad faith); accord First
Cal., No. 4:10 CV 1498 RWS (Doc. 70 at 2-4).

Just Mortgage’s argument

does not concern the validity of or motivation behind CitiMortgage’s
exercise of discretion in demanding cure or repurchase.
Therefore, Just Mortgage has not raised a colorable defense of
breach of implied covenant of good faith and fair dealing.

3.

Unconscionability

Just Mortgage also argues that the terms of the Agreement are
unconscionable

and

should

not

be

enforced.

In

support

of

its

unconscionability argument, Just Mortgage asserts that CitiMortgage had
superior bargaining power; that Just Mortgage was not aware of all of the
situations in which CitiMortgage could demand that Just Mortgage cure or
repurchase loans; that Just Mortgage was forced to accept the terms of
the Agreement as-is; and that the terms of the Agreement are one-sided.
Just Mortgage did not plead unconscionability as an affirmative
defense in its answer.24

(Doc. 30.)

Thus, Just Mortgage has waived this

defense. Fed. R. Civ. P. 8(c); e.g., Med. Shoppe Int’l, Inc. v. Plunkett
Drug, Inc., No. 4:04 CV 699 DJS, 2005 WL 23333894, at *2 (E.D. Mo. Sept.

23

Just Mortgage does not argue that the Group 1 Loans contained no
defects at all, such that CitiMortgage’s demands to cure or repurchase
the loans were erroneous.
24

Just Mortgage did, however, raise thirty-five other affirmative
defenses in its answer. (Doc. 30.)
- 26 -

22, 2005).

Just Mortgage’s unconscionability defense also fails on its

merits.
Missouri courts have adopted the doctrine of unconscionability “to
guard against one-sided contracts, oppression, and unfair surprise.”
Cowbell, LLC v. Borc Bldg. & Leasing Corp., 328 S.W.3d 399, 405 (Mo. Ct.
App. 2010).

Unconscionability can be procedural, substantive, or a

combination of both. Id. Unconscionability is evaluated “in view of the
circumstances in which the contract was made.”
Just

Id.

Mortgage asserts that CitiMortgage “bullied a much less

sophisticated company into accepting a patently one-sided contract.”
(Doc. 150 at 30.)

Since 2006, however, Just Mortgage has sold 3,587

mortgage loans to CitiMortgage, the principal balances of which totaled
nearly one billion dollars (approximately $938,776,000.00).
¶ 19.)

(Doc. 77 at

Just Mortgage’s own sophistication belies its argument that it

was forced to enter into an unfavorable contract.

See Pro Tech Indus.,

Inc. v. URS Corp., 377 F.3d 868, 873 (8th Cir. 2004) (rejecting an
unconscionability argument under Texas law where the parties “were both
businesses holding themselves out as sophisticated enough to negotiate
a $471,071 government construction contract”); In re Am. Eagle Coatings,
Inc., 353 B.R. 656, 663 (Bankr. W.D. Mo. 2006) (noting that Missouri
courts are reluctant to find unequal bargaining power in a contract
between sophisticated commercial parties).
Moreover, while the Agreement permits CitiMortgage to demand that
Just

Mortgage

cure

or

repurchase

loans

for

a

variety

of

reasons,

“[s]ophisticated parties have freedom of contract—even to make a bad
bargain, or to relinquish fundamental rights.”

Purcell Tire & Rubber

Co., Inc. v. Exec. Beechcraft, Inc., 59 S.W.3d 505, 508 (Mo. 2001) (en
banc); cf. Union Elec. Co. v. Sw. Bell Tel. L.P., 378 F.3d 781, 789 (8th
Cir. 2004) (rejecting an unclean hands argument because “[w]here two
sophisticated commercial enterprises allocate their risk of loss by
contract as between them, no public policy is violated”).

That Just

Mortgage was ultimately required to repurchase the Group 1 Loans does not
make the Agreement unconscionable. See Kleinheider v. Phillips Pipe Line
Co., 528 F.2d 837, 842 (8th Cir. 1975) (explaining that a court will not

- 27 -

set aside a contract simply because, in hindsight, it has become a bad
bargain).
Therefore, Just Mortgage’s unconscionability defense fails both
because it was not pleaded as an affirmative defense and on its merits.

4.

Unilateral Mistake of Fact

Just Mortgage also argues that it mistakenly believed that if it
complied solely with § 2(i), then CitiMortgage would not be able to
demand cure or repurchase of the Group 1 Loans based on loan applicants’
misrepresentations. Just Mortgage asserts that it would not have entered
into the Agreement had it known otherwise.
To establish a unilateral mistake of fact defense, a party must show
that the mistake was either known to the other party, the mistake was so
obvious that it must have been known, or that the effect of the mistake
is such that enforcement would be unconscionable.

Landers v. Sgouros,

224 S.W.3d 651, 664 (Mo. Ct. App. 2007); Boston v. Sec. Fed. Sav. & Loan
Ass’n, 877 F.2d 696, 697 (8th Cir. 1989). Missouri courts “are extremely
reluctant to permit one party to avoid an agreement because of a mistake
not shared by the other party to the contract.”

Harris v. A.G. Edwards

& Sons, Inc., 273 S.W.3d 540, 543 n.3 (Mo. Ct. App. 2008).
Just Mortgage has not presented evidence that CitiMortgage knew that
Just Mortgage misinterpreted the Agreement,25 or that Just Mortgage’s
misinterpretation was so obvious that CitiMortgage must have known. Nor,
as discussed above, is enforcement of the Agreement unconscionable.
Therefore, Just Mortgage’s unilateral mistake of fact defense also
fails.

VII.

CONCLUSION

For the reasons stated above,
IT IS HEREBY ORDERED that the motion of plaintiff CitiMortgage, Inc.
to

exclude

the

expert

opinions

of

Thomas

A.

Myers

(Doc.

167)

is

sustained.

25

This assumes, arguendo, that Just Mortgage misinterpreted the
Agreement.
- 28 -

IT IS FURTHER ORDERED that the motion of plaintiff CitiMortgage,
Inc. for summary judgment as to the Group 1 Loans (Doc. 75) is sustained.

/S/
David D. Noce
UNITED STATES MAGISTRATE JUDGE
Signed on March 29, 2012.

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