CitiMortgage, Inc. v. Just Mortgage, Inc.

Filing 92

MEMORANDUM AND ORDER; IT IS HEREBY ORDERED that the motion of defendant Just Mortgage, Inc. for an extension of time (Doc. 47 ) is sustained. Defendant has 30 days from issuance of this Memorandum and Order to disclose its experts in compliance with Fed. R. Civ. P. 26(a)(2). All deadlines associated with the disclosure of defendant's experts are extended 30 days. IT IS FURTHER ORDERED that the motion of defendant to compel (Doc. 48 ) is denied without prejudice. IT IS FURTHER ORDERED that the motion of plaintiff for a protective order (Doc. 50 ) is denied as without prejudice. IT IS FURTHER ORDERED that the amended motion of plaintiff for a protective order (Doc. 59 ) denied without prejudice. IT IS FURTHER ORDERED that the motion of plaintiff to compel (Doc. 64 ) is denied without prejudice. IT IS FURTHER ORDERED that the motion of defendant to compel (Doc. 67 ) is denied without prejudice. IT IS FURTHER ORDERED that the parties may within 20 days reissue their requests for discovery consistent with this Order and Memorandum. The parties shall have 20 days to respond to said requests for discovery. IT IS FURTHER ORDERED that defendant shall have until close of business on August 22, 2011 to respond to the pending motio n for summary judgment. Plaintiff shall have ten days thereafter to file a reply. IT IS FURTHER ORDERED that a hearing on the pending motion for summary judgment is set for September 15, 2011 at 10:00 a.m.; Signed by Magistrate Judge David D. Noce on 04/28/2011. (DJO)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
CITIMORTGAGE, INC.,
Plaintiff,
v.
JUST MORTGAGE, INC.,
Defendant.

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No. 4:09 CV 1909 DDN

MEMORANDUM AND ORDER
This action is before the court on the motions of defendant Just
Mortgage, Inc. for an extension of time (Doc. 47) and to compel (Docs.
48, 67), and the motions of plaintiff CitiMortgage, Inc. for a protective
order (Docs. 50, 59), and to compel (Doc. 64).

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).

Oral arguments

were heard on April 21, 2011.
The parties dispute the scope and breadth of discovery.

Defendant

argues that the information sought in its discovery requests is relevant
to its possible affirmative defense of breach of implied covenant of good
faith and fair dealing, as well as to the viability of plaintiff’s breach
of contract claim and plaintiff’s mitigation of damages.

Plaintiff

argues that the discovery requests are overly broad, that compliance
would

be

overly

burdensome,

and

that

the

information

sought

is

irrelevant, given that plaintiff had exclusive discretion under the
parties’ contract.
Given the volume of discovery requests that are at issue in the
parties’ motions to compel and motions for protective orders,1 and the
statements of counsel that certain disputes have been resolved, the court
will provide guidance regarding the permissible scope of discovery as it

1

In their filings, the parties seek to compel compliance with and/or
protection from over 100 different interrogatories, requests for
production, notice of deposition topics, and requests for admission.
(Docs. 48, 50, 59, 64, 67.)

pertains to the disputed discovery requests, but abstain from resolving
individual disputes.

The parties will then be permitted to re-file any

discovery disputes that remain unresolved by the court’s direction.
Scope of Discovery
Because only relevant information is discoverable, the court must
first look to whether the information sought in the disputed discovery
requests is relevant. Fed. R. Civ. P. 26(b)(1) advisory committee’s note
(2006).

In doing so, the court must examine the pleadings and determine

whether the disputed discovery “encompass[es] any matter that could bear
on, or that reasonably could lead to other matter that could bear on, any
issue that is or may be in the case.”

Murphy v. Kmart Corp., No. CIV 07-

5080-KES, 2008 WL 5429643, at *4 (D.S.D. Dec. 27, 2008); see also Fed.
R. Civ. P. 26(b)(1) advisory committee’s note (2006).

“Relevancy is

broadly construed, and a request for discovery should be considered
relevant if there is any possibility that the information sought may be
relevant to the claim or defense of any party.”

Cardenas v. Dorel

Juvenile Group, Inc., 232 F.R.D. 377, 382 (D. Kan. 2005) (internal
quotation omitted).
Plaintiff’s Complaint
In its first amended complaint, plaintiff alleges that it engages
in business of purchasing, re-selling, and servicing residential mortgage
loans on the secondary mortgage market, while defendant engages in
business of originating, sourcing, and reselling residential mortgage
loans.

(Doc. 29 at ¶ 1.)

Plaintiff has purchased loans from defendant since 2005.
¶ 2.)

(Id. at

As of August 4, 2005, the parties’ relationship has been governed

by a contract entitled “Correspondent Agreement Form 200" (“Agreement”)
and

the

amendments

thereto,

including

the

Delegated

Underwriting

Addendum, the CMI Select Addendum, and the Bulk Purchase Amendment. (Id.
at ¶¶ 2, 15.)

The parties’ Agreement also incorporated the terms of

plaintiff’s Correspondent Manual.
Under

the

Agreement,

(Id. at ¶¶ 3, 25; Doc. 29-1.)

defendant

represented,

warranted,

and

covenanted that it had or would promptly review the Correspondent Manual
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and fully comply with the terms, conditions, requirements, and procedures
contained therein:
2.

REPRESENTATIONS AND WARRANTIES

[Defendant] represents, warrants and covenants through the
term of this Agreement as follows:
(g) That it has obtained and reviewed or will, upon execution
of this Agreement, promptly obtain and review the CMI Manual
and
will
fully
comply
with
its
terms,
conditions,
requirements, and procedures.
(Id. at ¶ 20; Doc. 29-1.)
The Agreement also contained an indemnification provision:
10.

INDEMNIFICATION

[Defendant] agrees to indemnify and hold [plaintiff] harmless
from any and all claims, actions and costs, including
reasonable attorneys’ fees and costs, arising from (i)
[defendant’s] performance or failure to perform under the
terms, conditions or obligations of this Agreement or the CMI
Manual (including but not limited to [defendant’s] failure to
timely deliver all documents and records associated with or
related to all Loans purchased by [plaintiff] pursuant to this
Agreement), [or] (ii) any fraud, misrepresentation or breach
of any representation, warranty or covenant contained [in]
this Agreement or the CMI Manual . . . .”
(Doc. 29 at ¶¶ 21; Doc. 29-1.)
The

Agreement

also

granted

plaintiff

the

sole

and

exclusive

discretion to determine whether defendant had improperly underwritten or
originated a loan which defendant subsequently sold to plaintiff:
11.

CURE OR REPURCHASE

If [plaintiff], 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,
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Correspondent’s directors, officers, employees, agents,
independent contractors and/or affiliates, or any other party
providing information relating to said Loan;
. . .
(v) was subject to an Early Payment Default (as defined
in the CMI Manual), an Early Payoff (as defined in the CMI
Manual) or any other payment related to defect (as defined in
the CMI Manual).
(Doc. 29 at ¶¶ 22, 23; Doc. 29-1.)

If plaintiff determined defendant had

improperly underwritten or originated a loan sold to plaintiff, then
defendant was obligated to cure those deficiencies or repurchase the
loan:
[Defendant] will, upon notification by [plaintiff], correct or
cure such defect within the time prescribed by [plaintiff] to
the full and complete satisfaction of [plaintiff]. If, after
receiving such notice from [plaintiff], [defendant] is unable
to correct or cure such defect within the prescribed time,
[defendant] shall, at [plaintiff’s] sole discretion, either
(i) repurchase such defective Loan from [plaintiff] at the
price required by [plaintiff] (“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 [plaintiff] may deem appropriate. . .
.
(Doc. 29 at ¶¶ 22, 23; Doc. 29-1.)
During the course of their dealings, defendant sold plaintiff at
least 27 loans (“Loans”) that were underwritten or originated based upon
inaccurate

information

or

material

misrepresentations

borrower or defendant.

(Doc. 29 at ¶ 26.)

discrepancies

loans

in

representations,

the
prior

regarding

undisclosed

made

by

the

These loans (a) contained

property

mortgages

or

ownership,
other

income

debts,

and

occupancy, (b) were subject to early payment defaults, and/or (c) did not
follow

applicable

Fannie

Mae,

Freddie

Mac,

Federal

Housing

Administration, VA, and/or HUD requirements and industry standards were
not followed.

(Id.)

Plaintiff notified defendant of the defects in the Loans and
demanded defendant cure the defects or repurchase the Loans.
5, 27, 28, 60.)

(Id. at ¶¶

Defendant failed to cure the Loan defects and refused
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to repurchase the Loans. (Id.) Plaintiff alleges defendant breached the
Agreement by refusing to repurchase the Loans after failing to cure the
Loan defects.

(Id. at ¶¶

60, 61.)

Plaintiff alleges that it suffered

damages in excess of $9,000,000.00 as a result of defendant’s breach.
(Id. at ¶¶ 7, 61.)
Implied Covenant of Good Faith and Fair Dealing
“Missouri law implies a covenant of good faith and fair dealing in
every contract.”

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

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

This covenant is implied even

“where a contract confers on one party a discretionary power affecting
the rights of the other.” City of St. Joseph, Mo. v. Lake Contrary Sewer
Dist.,

251

S.W.3d

circumstances,

the

362,

370

covenant

(Mo.

Ct.

precludes

App.

2002).

exercise

of

Under
the

those

party’s

discretionary power “to deprive the other party of the benefit of the
contractual relationship or evade the spirit of the bargain.”

Id.; see

also BJC Health System 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).
Application
The court will now examine the relative bounds of discovery.

In

doing so, the court is mindful to avoid ruling on the validity of either
party’s claims or defenses when tailoring the scope of discovery.

See

Unlimited Resources, Inc. v. Deployed Resources, LLC, No. 3:07-cv-961-J12MCR, 2009 WL 212188, at *3 (M.D. Fla. Jan. 29, 2009); Central Georgia
Anesthesia Services, P.C. v. Equitable Life Assur. Soc., No. 5:06-CV-25
(CAR), 2007 WL 2128184, at *2 (M.D. Ga. July 25, 2007).

In making its

determinations, the court has considered the permissible boundaries of
discovery established by Judge Frederick R. Buckles of this court when
faced with similar discovery disputes in CitiMortgage, Inc. v. NL, Inc.,
et al., 4:09 CV 2104 FRB.

See Docs. 63-1, 67, 70, 77 therein.
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Plaintiff’s Exercise of Discretion Regarding the Loans at Issue
Defendant is entitled to seek information regarding plaintiff’s
determination that the Loans at issue were defective. While an erroneous
determination that a defect existed would not breach of the covenant, an
arbitrary or capricious determination would.
Plan, 81 S.W.3d at 48.

Mo. Consol. Health Care

Thus, defendant has broad permission to seek

information concerning plaintiff’s exercise of discretion as it relates
to the Loans at issue, including plaintiff’s determination that defendant
did not comply with the terms of the Agreement, the particular policies
guiding

that

determination,

any

appeals

by

defendant

regarding

plaintiff’s determination.
Blanket Requests for Third Party Loan Information
That said, defendant’s blanket requests for documents and memoranda
regarding loan transactions between plaintiff and third parties and
information presented to third parties regarding classes of loans are not
sufficiently relevant to demand the resulting burdensome production.

A

party cannot, by virtue of raising a defense of bad faith, seek limitless
discovery through which it hopes to unearth supporting evidence.

Cf.

Logan v. Comm. Union Ins. Co., 96 F.3d 971, 977 (7th Cir. 1996) (“[A]
naked claim of bad faith cannot, without more, authorize a fishing
expedition into privileged communications.”).

Such requests must be

tailored within the confines of reasonableness and likelihood to result
in the discovery of relevant evidence.
Knowledge of Defective Guidelines in the Parties’ Agreement
But, defendant may seek information regarding plaintiff’s prior
knowledge of defective guidelines in the parties’ Agreement, as it
directly relates to the Loans at issue.

Environmental Protection,

Inspection, and Consulting, Inc. v. City of Kansas City, Mo., 37 S.W.3d
360, 367-68 (Mo. Ct. App. 2000).

The covenant of good faith and fair

dealing demands each party “comport[] with the reasonable expectations
of the parties . . . in light of their purposes in contracting.”

Schell

v. LifeMark Hospitals of Mo., 92 S.W.3d 222, 231 (Mo. Ct. App. 2002)
(internal quotations and emphasis omitted).
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To that end, defendant may

seek information regarding plaintiff’s understanding of the profitability
of the Loans at issue, plaintiff’s understanding of the efficacy of its
underwriting

and

origination

guidelines

contained

in

the

parties’

Agreement for the Loans at issue, and plaintiff’s determination that
defects

were

present

in

the

Loans

at

issue.

But,

as

previously

discussed, defendant may not pursue blanket requests for information
regarding plaintiff’s internal standards and guidelines for issuing
classes of loans, the profitability of loans not at issue, or defects
found in loans not at issue.
Resale of the Loans at Issue
Further, defendant may seek information regarding the resale of the
Loans at issue and third party demands for repurchase, insofar as such
information is relevant to plaintiff’s exercise of discretion and damages
calculation.

Defendant is not permitted to seek general discovery

regarding plaintiff’s sale and/or securitization of other loans, nor may
defendant seek information regarding plaintiff’s financial agreements
with and disclosures to third parties as such information is not relevant
to damages arising from the Loans at issue.

III.

MOTION FOR EXTENSION OF TIME

Defendant seeks a 60-day extension of time to disclose its experts,
as required by Fed. R. Civ. P. 26(a)(2).

(Doc. 47.)

Defendant argues

the extension is necessary because of the discovery disputes between the
parties, the complexity of the case, and the absence of prejudice to
plaintiff.

Plaintiff argues that defendant seeks the extension in bad

faith, only hoping to delay the process of the action.
Given the complexity of the case, the disputes between the parties
concerning

the

scope

of

discovery,

and

the

potential

comparative

prejudice to the parties, the court will grant defendant additional time
to disclose its experts. To avoid further delays in the progress of this
action, defendant will have 30 days from the issuance of this Memorandum
and Order to disclose its experts.

All deadlines associated therewith,

including plaintiff’s disclosure of rebuttal experts, will also be
extended 30 days.
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VI.

CONCLUSION

For the reasons and to the extent discussed above,
IT IS HEREBY ORDERED that the motion of defendant Just Mortgage,
Inc. for an extension of time (Doc. 47) is sustained.

Defendant has 30

days from issuance of this Memorandum and Order to disclose its experts
in compliance with Fed. R. Civ. P. 26(a)(2).

All deadlines associated

with the disclosure of defendant’s experts are extended 30 days.
IT IS FURTHER ORDERED that the motion of defendant to compel (Doc.
48) is denied without prejudice.
IT IS FURTHER ORDERED that the motion of plaintiff for a protective
order (Doc. 50) is denied as without prejudice.
IT IS FURTHER ORDERED that the amended motion of plaintiff for a
protective order (Doc. 59) denied without prejudice.
IT IS FURTHER ORDERED that the motion of plaintiff to compel (Doc.
64) is denied without prejudice.
IT IS FURTHER ORDERED that the motion of defendant to compel (Doc.
67) is denied without prejudice.
IT IS FURTHER ORDERED that the parties may within 20 days reissue
their requests for discovery consistent with this Order and Memorandum.
The parties shall have 20 days to respond to said requests for discovery.
IT IS FURTHER ORDERED that defendant shall have until close of
business on August 22, 2011 to respond to the pending motion for summary
judgment.

Plaintiff shall have ten days thereafter to file a reply.

IT IS FURTHER ORDERED that a hearing on the pending motion for
summary judgment is set for September 15, 2011 at 10:00 a.m.

/S/
David D. Noce
UNITED STATES MAGISTRATE JUDGE

Signed on April 28, 2011.

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