CitiMortgage, Inc. v. Chicago Bancorp, Inc. et al

Filing 139

MEMORANDUM AND ORDER... IT IS HEREBY ORDERED that Defendant Chicago Bancorp, Inc.'s motion to compel is DENIED. (Doc. No. 114 .) Signed by District Judge Audrey G. Fleissig on 11/4/2015. (NEB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

CITIMORTGAGE, INC.,
Plaintiff,
v.
CHICAGO BANCORP, INC., et al.,
Defendants.

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Case No. 4:14CV01278 AGF

MEMORANDUM AND ORDER
This matter is before the Court on the motion (Doc. No. 114) of Defendant
Chicago Bancorp, Inc. (“Chicago Bancorp”) to compel discovery from Plaintiff
CitiMortgage, Inc. (“CMI”). For the following reasons, the motion to compel shall be
denied.
BACKGROUND
The lawsuit arises out of a contract between CMI and Chicago Bancorp, under
which CMI purchased residential mortgage loans from Chicago Bancorp and required
Chicago Bancorp to repurchase any loans that CMI determined were improper. CMI
claims that Chicago Bancorp breached this contract by refusing to repurchase certain
loans.
CMI seeks to require Chicago Bancorp to repurchase 47 home mortgage loans.
The parties’ contract allows CMI to require Chicago Bancorp to repurchase any loan that
CMI, in its sole discretion, determines was “underwritten and/or originated based on any

materially inaccurate information or material misrepresentation made by the Loan
borrower(s).” (Doc. No. 112 at 34.) CMI claims that Chicago Bancorp must repurchase
a number of loans because the borrowers misstated his or her income. But Chicago
Bancorp contends that these loans were originated pursuant to one of CMI’s stated
income loan programs, under which Chicago Bancorp was not required to verify
borrower income.
In connection with these claims, Chicago Bancorp has filed a motion to compel
seeking documents and interrogatory responses regarding CMI’s development of its
stated income loan programs.1 Specifically, Chicago Bancorp seeks discovery regarding
a study purportedly conducted by CMI that investigated the relationship between
borrower income and loan performance, and that resulted in the proposal to implement
CMI’s stated income loan programs. Chicago Bancorp also asks that CMI produce the
proposal for the stated income loan programs and any document approving that proposal.
CMI has objected to this discovery as irrelevant to the claims in this litigation.
CMI points to several cases in this District, involving nearly identical loan repurchase
claims brought by CMI, in which motions to compel similar discovery were denied.
CMI further contends that the discovery is irrelevant because borrowers’ income
misrepresentations are material as a matter of law, and because Chicago Bancorp is
precluded from asserting otherwise. CMI asserts that in a prior lawsuit between the

1

In its motion, Chicago Bancorp also contended that CMI had failed to timely produce
documents in response to other discovery requests to which CMI had not objected.
However, in an amended reply filed on October 10, 2015, Chicago Bancorp stated that
this argument is now moot, as CMI has completed its production of unobjectionable
documents.
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parties over the same contract, Chief Judge Catherine D. Perry found that “a borrower’s
substantially misrepresented income constitutes a material misrepresentation as a matter
of law.” (Doc. No. 123 at 5.)2
DISCUSSION
Chicago Bancorp, as the moving party, bears the burden of showing that the
requested documents are discoverable within the meaning of Federal Rule of Civil
Procedure 26. Cent. States, Se. & Sw. Areas Pension Fund v. King Dodge, Inc., No.
4:11MC00233 AGF, 2011 WL 2784118, at *2 (E.D. Mo. July 15, 2011). “[A]fter the
proponent of discovery makes a threshold showing of relevance, the party opposing a
motion to compel has the burden of showing its objections are valid by providing specific
explanations or factual support as to how each discovery request is improper.”
Cincinnati Ins. Co. v. Fine Home Managers, Inc., No. 4:09CV234-DJS, 2010 WL
2990118, at *1 (E.D. Mo. July 27, 2010).
Chicago Bancorp asserts that the disputed discovery is relevant to CMI’s breach of
contract claim. Under Missouri law, where a contract gives one party discretion to
determine issues arising under the contract, that party is required to exercise its discretion
in good faith, consistent with the covenant of good faith and fair dealing implied in every
contract. CitiMortgage, Inc. v. Chicago Bancorp, Case No. 4:12-cv-246 CDP, Doc. No.
203 at 8 (E.D. Mo. March 31, 2014) (vacated in part on other grounds). The duty of good

2

Although CMI contends that Judge Perry’s decision in the prior litigation precludes the
issue of materiality from being re-litigated in this case, CMI previously argued
(successfully) to the Court that Judge Perry’s decision did not warrant a finding of claim
preclusion in this case.
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faith encompasses “an obligation imposed by law to prevent opportunistic behavior.” Id.
at 9 (citing Schell v. Lifemark Hosps. of Mo., 92 S.W.3d 222, 230 (Mo. Ct. App. 2002)).
However, it is not enough to show that a party invested with discretion made an
erroneous decision. Id. (citing BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 914
(8th Cir. 2007) (interpreting Missouri law)). To establish a breach of the covenant of
good faith and fair dealing, evidence must show that a party “exercised its discretion in
such a way so as to evade the spirit of the transaction or deny the other party the expected
benefit of the contract.” Id.
Thus, under Missouri law, Chicago Bancorp’s burden is to establish that CMI
“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 [Chicago Bancorp] the expected
benefit of the contract.” CitiMortgage, Inc. v. First Calif. Mortg. Co., No. 4:10CV01498
RWS, Doc. No. 70 at 3-4 (E.D. Mo. Nov. 29, 2011).
In light of this burden, several judges within this District have held that the scope
of discovery with respect to nearly identical CMI loan repurchase claims must be limited
to the loans at issue and how CMI exercised its right under the contract to demand
repurchase of those loans. Id. And in these cases, motions to compel discovery
regarding the development and implementation of CMI’s stated income loan program
have been consistently denied as beyond the scope of discovery. See, e.g., Allied Mortg.
Grp., Inc., No. 4:10CV01863 JAR, 2012 WL 1554908, at *4-5 (finding that discovery
regarding the drafting and development of stated income loan program guidelines was

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irrelevant in a similar breach of contract case); First Clif. Mortg. Co., No. 4:10CV01498
RWS, Doc. No. 70 at 3-4 (same).
After review of the disputed discovery requests and for the reasons discussed in
the cases above, the Court concludes that requests seek information that is beyond the
scope of discovery.3 Therefore, the Court will deny Chicago Bancorp’s motion to
compel.
CONCLUSION
For the reasons set forth above, the Court will deny Chicago Bancorp’s motion to
compel. As it has stated previously, the Court also strongly urges the parties to use the
remaining time for discovery to focus on the issues necessary to resolve this litigation,
rather than expending any additional resources on motion practice.
Accordingly,
IT IS HEREBY ORDERED that Defendant Chicago Bancorp, Inc.’s motion to
compel is DENIED. (Doc. No. 114.)

_______________________________
AUDREY G. FLEISSIG
UNITED STATES DISTRICT JUDGE
Dated this 4th day of November, 2015.

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In light of this conclusion, the Court need not and does not reach CMI’s additional
argument that misstatements of borrower income are material misrepresentations as a
matter of law. That issue has not yet been decided in this case, and should not be decided
in the context of a motion to compel.
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