CitiMortgage, Inc. v. Royal Pacific Funding Corp.

Filing 80

MEMORANDUM AND ORDER (See Full Order) IT IS HEREBY ORDERED that Royal Pacific's motion to strike CMI's supplemental affidavit submitted with its reply in support of its motion for summary judgment (ECF No. 68 ) is DENIED. IT IS FURTHER O RDERED that CMI's motion for summary judgment (ECF No. 46 ) is GRANTED as to liability and DENIED as to damages. IT IS FINALLY ORDERED that the Court shall hold a final pretrial conference at 10:00 a.m. on October 19, 2017. The parties are re minded that this matter is set for a jury trial at 9:00 a.m. on October 23, 2017. (ECF No. 79 ). All terms and provisions of the case management order (ECF No. 22 ) regarding the trial remain in full force and effect. Signed by Magistrate Judge Patricia L. Cohen on 7/21/17. (EAB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
CITIMORTGAGE, INC.,
Plaintiff,
vs.
ROYAL PACIFIC FUNDING CORP.,
Defendant.

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Case No. 4:16cv00210 PLC

MEMORANDUM AND ORDER
This matter is before the Court on the motion for summary judgment filed by Plaintiff
CitiMortgage, Inc. (“CMI”) (ECF No. 46) and the motion to strike CMI’s supplemental affidavit
filed by Defendant Royal Pacific Funding Corp.1 (ECF No. 68). Plaintiff’s motion for summary
judgment is granted as to liability and denied as to the amount of damages. Royal Pacific’s
motion to strike is denied.
I.

Factual Background
CMI purchases closed mortgage loans from approved lenders, including lenders known

as “correspondents,”2 under its Loan Purchasing Program. CMI functions as an investor in the
secondary mortgage market and resells some of the purchased loans to Fannie Mae, Freddie
Mac, and other investors in the secondary mortgage market.
CMI used a standard contract, entitled “Correspondent Agreement Form 200,” to
purchase residential mortgage loans from loan originators and correspondents. The Form 200
expressly incorporated a longer document titled the CMI Correspondent Manual, which
1

The parties consented to the jurisdiction of the undersigned pursuant to 28 U.S.C. § 636(c).
The glossary contained in the CMI Correspondent Manual defines “correspondent” as: “An
individual institution or organization who originates mortgages on behalf of or for purchase by
seller.” (ECF No. 49-7 at 2301-3).
2

contained more detailed terms and conditions. (ECF No. 49-3, Pl.’s Ex. B, § 1 (incorporating the
Manual); ECF Nos. 49-4 – 49-7), Pl.’s Exs. C-1 – C-4 (the Manual)).
CMI and Royal Pacific entered into a Correspondent Agreement Form 200, DBA
Addendum, and Delegated Underwriting Addendum on March 12, 2007, and a second, nearly
identical Correspondent Agreement Form 200 on February 5, 2008 (collectively, “the
Agreement”). The Agreement required Royal Pacific to deliver certain loan documentation to
CMI for each loan it sold to CMI, and it gave CMI the right to require Royal Pacific to cure or
repurchase any loan that CMI deemed defective. (ECF No. 49-3).
In regard to Royal Pacific’s obligation to cure or repurchase defective loans, Section 11,
entitled “Cure or Repurchase,” provided, in relevant part:
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 on any materially inaccurate
information or material misrepresentation made by the Loan
borrower(s), [Royal Pacific], [Royal Pacific’s] directors, officers,
employees, agents, independent contractors and/or affiliates, or any
other party providing information relating to said Loan.
….
(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 [Royal
Pacific] of any representation, warranty or covenant contained in this
Agreement or the CMI Manual or a failure by [Royal Pacific] to
comply in all material respects with the applicable CMI Manual terms,
conditions, requirements and procedures;
….
[Royal Pacific] 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, [Royal Pacific] is unable to
correct or cure such defect within the prescribed time, [Royal Pacific] 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

2

remedies (including but not limited to additional indemnification and/or refund
of a portion of the Loan purchase price) as CMI may deem appropriate.
(ECF No. 49-3, Agreement § 11). The CMI Correspondent Manual defined “Repurchase Price”
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.
(ECF No. 49-7, Manual at 2301-6).
The Agreement made clear that Royal Pacific bore the risk of defective loans, as Section
1 stated:
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 right to demand repurchase
of a Loan or any other CMI right or remedy provided by the Agreement.
(ECF No. 49-3, Agreement § 1).

In addition, the Agreement contained an indemnification

provision, which provided:
[Royal Pacific] agrees to indemnify and hold CMI harmless from any and all
claims, actions and costs, including reasonable attorneys’ fees and costs,
arising from (i) [Royal Pacific’s] performance or failure to perform under the
terms, conditions or obligations of this Agreement or the CMI Manual . . .;
[and/or] (ii) any fraud, misrepresentation or breach of any representation,
warranty or covenant contained in this Agreement or the CMI Manual . . . .
(ECF No. 49-3, Agreement § 10).
Since 2007, Royal Pacific has sold to CMI under the Agreement over 1,480 loans, “the
combined funded amount of which total[ed] over $382,185,000.00.” (ECF No. 49, ¶ 24). CMI

3

determined that eight of the loans (“Loans”) it purchased from Royal Pacific contained material
misrepresentations and misstatements or were otherwise defective.3 (ECF No. 49, ¶ 43-70).
CMI sent “Citing Notification Letters” to Royal Pacific identifying the defects in each of
the eight Loans and providing Royal Pacific “the opportunity to investigate the loan
discrepancies.” (ECF No. 49, ¶¶ 83-84, Exs. F-3, G-3, H-3, I-3, J-3, K-3, L-3, M-3). The letters
further advised that Royal Pacific had thirty days to “investigate the loan discrepancies” and
“provide a satisfactory resolution to the issues cited[,]” after which time “repurchase of this loan
may be required per Section 11 of the [Agreement][.]” (Id.).
CMI subsequently sent Royal Pacific “Initial Repurchase Letters,” providing another
notice of the loan defects, demanding repurchase of the Loans pursuant to Section 11 of the
Agreement, and requesting that Royal Pacific “confirm the repurchase date” on or before thirty
days from the date of the letter. (ECF No. 49, ¶¶ 81-82, Exs. F-4, G-4, H-4, I-4, J-4, K-4, L-4,
M-4). Royal Pacific failed to correct or cure the Loans, and CMI issued Final Repurchase
Letters. (ECF No. 49, ¶¶ 87-88, Ex. F-5, G-5, J-5, I-5, J-5, K-5, L-5, M-5). Royal Pacific did
not repurchase the Loans. (ECF No. 49, ¶ 90).
II.

Procedural Background
A. CMI’s motion for summary judgment
On February 16, 2016, CMI filed an action for breach of contract. (ECF No. 1). In its

complaint, CMI alleged that: Royal Pacific sold CMI the eight defective Loans in violation of
the Agreement; CMI determined that the Loans were defective, notified Royal Pacific of the
alleged defects, and demanded Royal Pacific either cure the defects or repurchase the Loans; and
Royal Pacific failed to either cure or repurchase. (Id.). CMI further asserted that it was required
3

The parties refer to the loans in question as the Barragan, Elghazawi, Gonzalez, Lee, Lopez,
Perez, Ramirez, and Reyes loans. (ECF No. 44 at ¶¶ 32-39).
4

to repurchase the Loans from Fannie Mae and Freddie Mac. (Id. at ¶¶ 31-39). In its first
amended complaint, CMI claimed that Royal Pacific’s “breaches of the Agreement pertaining to
the … [Loans] have resulted in total amounts due to CMI in excess of $1,350,000.00, excluding
interest and other amounts [Royal Pacific] owes CMI.” (ECF No. 44 at ¶ 29). Royal Pacific
filed an answer and affirmative defenses to CMI’s first amended complaint. (ECF No. 53).
Following the close of discovery, CMI filed a motion for summary judgment, along with
a memorandum in support of the motion for summary judgment and statement of uncontroverted
material facts. (ECF Nos. 46, 48, 49). CMI asserts that it is “entitled to summary judgment on
its claim against Royal Pacific because the material facts are not at issue, and the facts
demonstrate that Royal Pacific breached its Agreement with CMI regarding the Loans.” (ECF
No. 46 at 3). CMI also states that “each of Royal Pacific’s purported affirmative defenses fails
as a matter of law.” (Id.).
In support of its motion for summary judgment, CMI submitted, among other documents,
copies of the Agreement and Manual as well as the purchase advice, citing notification letter,
initial repurchase letter, final repurchase letter, and repurchase authorization for each of the
Loans. (ECF Nos. 49-3 – 49-9). In addition, CMI provided the affidavit of Rebecca Hancock,
one of its repurchase coordinators. (ECF No. 49-2). Ms. Hancock averred that: CMI purchases
loans from approved lenders, such as Royal Pacific, and resells them to Fannie Mae, Freddie
Mac, and other investors in the secondary mortgage market; the Agreement required Royal
Pacific to underwrite each loan it submitted to CMI for purchase; Royal Pacific originated and
underwrote the Loans; CMI later learned that Royal Pacific submitted application packages for
the Loans that contained materially inaccurate information, material misrepresentations, and/or
other defects; CMI repurchased the Loans from its secondary mortgage market investors; CMI

5

employees conducted post-purchase reviews of the Loans and sent citing notification letters to
Royal Pacific; and after determining that each of the Loans contained one or more defects
requiring repurchase from the investor, CMI issued internal repurchase authorizations detailing
the reasons for the repurchase. (Id. at ¶¶ 6, 23, 26, 27, 28, 31-38).
In regard to CMI’s obligation to repurchase defective loans from its secondary mortgage
market investors, Ms. Hancock explained:
When CMI is required to repurchase a loan from an investor, CMI will remit
the repurchase price required by the investor so as to indemnify, reimburse, or
make whole the investor for its loss on the loan. In cases where CMI is
required to repurchase an active loan from an investor (where the collateral
securing the loan has not been sold), CMI assumes the investor’s rights on the
loan and services the loan in accordance with its ordinary business.
(Id. at ¶ 29).

Ms. Hancock set forth the defects identified in each of the Loans and concluded:

the Loans were underwritten or originated based on inaccurate or misrepresented information or
were otherwise defective requiring correction, cure or repurchase under Section 11 of the
Agreement.” (Id. at ¶¶ 31-39). Ms. Hancock further stated that CMI notified Royal Pacific of
the loan defects in initial and final repurchase letters, and Royal Pacific failed to correct or cure
the defects or repurchase the Loans. (Id. at ¶¶ 44, 51, 56).
In response, Royal Pacific filed a memorandum in opposition to CMI’s motion for
summary judgment. (ECF No. 59). Royal Pacific does not challenge CMI’s allegations that
Royal Pacific breached the Agreement. Rather, Royal Pacific asserts that questions of material
fact exist as to: (1) whether CMI repurchased the Loans from Fannie Mae or Freddie Mac; and
(2) the amount of CMI’s damages. (ECF No. 59). More specifically, Royal Pacific argued that
CMI presented no evidence, beyond the Hancock affidavit, demonstrating that CMI actually
repurchased any of the Loans. (Id. at 4-5). Royal Pacific also argues that, because seven of the
eight Loans were foreclosed upon before Royal Pacific received CMI’s initial repurchase letters,
6

there was nothing for Royal Pacific to correct, cure, or repurchase pursuant to Section 11 and the
only available remedy to CMI as to those seven loans was the indemnification provision of
Section 10. (Id. at 6-8). Finally, Royal Pacific asserts as affirmative defenses that: (1) CMI’s
failure to mitigate damages justified “a significant reduction in the damages alleged by CMI”; (2)
the statute of limitations precluded CMI’s claim based on the Barragan loan; and (3) Royal
Pacific was not liable for the alleged defect in the Elghazawi loan. (Id. at 9-5).
CMI filed a reply in support of motion for summary judgment. (ECF No. 65). CMI
asserts that “[t]he fact that an investor foreclosed on or liquidated a mortgage before CMI
demanded repurchase of that mortgage from Royal Pacific does not absolve Royal Pacific of its
obligation to repurchase the mortgage [from CMI] or preclude a breach of contract claim [by
CMI against Royal Pacific] under Section 11 of [the Agreement].” (Id. at 2). In support of its
position, CMI points to the language of Section 11, which, it argues, accounts for the possibility
that CMI might not own the mortgage at the time of repurchase, and this Court’s earlier rejection
of a similar argument in CitiMortgage, Inc. v. Mason Dixon Funding, Inc., No. 4:09CV1997
TCM, Doc. #226 at 44 (E.D. Mo. Oct. 30, 2012). (Id.). Additionally, CMI argues that the
repurchase letters and repurchase authorizations that it submitted with the motion for summary
judgment constituted “sufficient evidence that it was required to repurchase the seven
[foreclosed] loans from Fannie Mae and Freddie Mac and that it paid the amounts to these
investors.” (Id. at 6). As further evidence that it repurchased the seven foreclosed loans from its
secondary market investors, CMI submitted with its reply a supplemental affidavit of Rebecca
Hancock and, along with other exhibits, three wire confirmations that were not previously
produced – namely, Exhibits A, B, and C, wire confirmations for CMI’s repurchase of the Lee,
Gonzalez, and Ramirez loans. (Id. at 65-1).

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B. Royal Pacific’s motion to strike supplemental affidavit
Royal Pacific filed a motion to strike the supplemental affidavit that CMI submitted with
its reply in support of its motion for summary judgment on the ground that the supplemental
affidavit and accompanying documents were “improper and untimely.” (ECF No. 68 at 2). In its
memorandum in support of the motion to strike, Royal Pacific argues that: (1) Rule 6(c) of the
Federal Rules of Civil Procedure provides that “[a]ny affidavit supporting a motion must be
served with the motion”; (2) CMI did not produce Exhibits A, B, and C in discovery and
therefore they “are not admissible evidence which may properly support a motion for Summary
Judgment under Rule 56”; and (3) CMI should not be permitted to use a “reply affidavit” to
negate the existence of genuine issues of material fact. (ECF No. 69 at 3). In regard to the other
exhibits submitted with CMI’s reply in support of its motion for summary judgment, Royal
Pacific argues that Exhibits D through H were “previously produced in discovery” and “are not
wire confirmations or proof of payment at all, but only purported approvals or authorizations for
a payment to be made.” (Id. at 2) (emphasis in original).
In response, CMI filed a memorandum in opposition to Royal Pacific’s motion to strike
the supplemental affidavit. (ECF No. 71). As an initial matter, CMI asserts that its “repurchase
rights under § 11 of the parties’ Agreement are not contingent on CMI repurchasing a loan from
an investor or making a payment to an investor.” (Id. at 1). Nevertheless, CMI contends that:
(1) the internal repurchase authorizations that it submitted with its motion for summary judgment
were sufficient proof of payment in similar cases that CMI won on summary judgment;4 (2) there
is no general prohibition of supplemental affidavits filed with reply briefs; and (3) the documents
4

Ms. Hancock explained that “finding wire transfer confirmations or documentation of 702A
deposits for these repurchase payments . . . requires a labor-intensive manual search of the
electronic records by one of the few individuals at CMI who has the technical expertise
required.” (Id. at ¶ 5).
8

to which Royal Pacific objects were not “new evidence” and related directly to matters raised by
Royal Pacific in its opposition to summary judgment. (Id. at 1-3). With its memorandum in
opposition to Royal Pacific’s motion to strike, CMI produced a second supplemental affidavit of
Rebecca Hancock and a “record of a wire transfer payment [by CMI] for the Lopez loan.” (ECF
No. 72, Ex. A).
Royal Pacific filed a reply to CMI’s memorandum in opposition to Royal Pacific’s
motion to strike. (ECF No. 74). Royal Pacific reasserts its position that it could neither cure the
Loans (as the properties had already been foreclosed upon) nor repurchase from CMI loans that
CMI did not own.

(Id.).

As to CMI’s “eleventh hour” production of the three wire

confirmations, Royal Pacific argues: (1) the fact that CMI used these types of documents in
other cases to prove payment for the repurchase loans is irrelevant to the instant case; (2) the
servicing notes previously produced by CMI did not contain the same information as the three
recently disclosed documents; and (3) it was “unfair for those documents not to have been
produced” prior to Royal Pacific attending mediation and responding to CMI’s motion for
summary judgment, “thereby depriving Royal [Pacific] of the opportunity to examine and
consider them in relation to not only future discovery but also potential settlement.” (Id. at 2-4).
Similarly, Royal Pacific opposes CMI’s production of another only recently disclosed document
(the wire transfer payment record for the Lopez loan) with its opposition to Royal Pacific’s
motion to strike and asserts that it is “mostly unreadable[.]” (Id. at 5). Finally, Royal Pacific
maintains: “CMI has still not shown that they are the owners of these [L]oans. There is no
assignment or any other document evidencing that CMI has the right to seek damages related to
any of the [L]oans.” (Id.).

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III.

Motion to Strike
As a preliminary matter, the Court will address Royal Pacific’s motion to strike CMI’s

supplemental affidavit submitted with its reply in support of its motion for summary judgment.
(ECF No. 68). District courts enjoy considerable discretion when ruling on a motion to strike.
See Jain v. CVS Pharmacy, Inc., 779 F.3d 753, 758 (8th Cir. 2015). A court may strike an
affidavit or declaration that does not comply with Rule 56(c)(4). Id.
A party may present affidavits or declarations to support or oppose a motion for summary
judgment. See Fed. R. Civ. P. 56(c)(4). Rule 56(c)(4) provides: “An affidavit or declaration
used to support or oppose a motion must be made on personal knowledge, set out facts that
would be admissible in evidence, and show that the affiant or declarant is competent to testify on
the matters stated.” Id.
Royal Pacific does not argue that the supplemental affidavit and supporting exhibits do
not comport with Rule 56(c)(4). Rather, Royal Pacific seeks to exclude CMI’s supplemental
affidavit and its exhibits A, B, and C, as well as the fourth previously undisclosed document that
CMI submitted with its memorandum in opposition to the motion to strike, because CMI did not
disclose these documents during discovery. While the Court does not endorse a failure to
disclose relevant material during discovery, nothing in Rule 56(c)(4) requires disclosure during
discovery as a prerequisite to a court’s consideration of an affidavit relating to a summary
judgment motion. Nor does the rule foreclose the possibility of a party filing an affidavit with a
reply.
Although Royal Pacific asserts that CMI deprived it of an opportunity to respond to the
supporting documentation by appending it to their reply brief, Royal Pacific did not seek leave to
file a sur-reply to address any new facts or evidence offered with the reply memorandum. See,

10

e.g., Infinity Fulfillment Group, LLC v. Cenveo Corp., No. 4:14CV966 SNLJ, 2015 WL
CMI’s reply memorandum and supporting

3823166, at *2 (E.D.Mo. June 19, 2015).

documentation were a direct response to Royal Pacific’s briefing on the issues, and Royal Pacific
cites no relevant authority that would preclude the Court’s consideration of supporting
documentation or require the Court to disregard it. Accordingly, the motion to strike (ECF No.
68) is denied.
IV.

Motion for Summary Judgment
CMI argues that it is entitled to summary judgment on its breach of contract claim

because Royal Pacific failed to repurchase the Loans as required by the Agreement and, as a
result, CMI suffered damages. Royal Pacific challenges neither the validity of the Agreement
nor its obligation to repurchase the Loans. Rather, Royal Pacific counters that CMI is not
entitled to summary judgment because there is a genuine dispute of material fact as to whether
and in what amount CMI sustained damages. Additionally, Royal Pacific contends that, because
seven of the eight Loans were foreclosed upon before CMI demanded repurchase from Royal
Pacific, those loans no longer existed for Royal Pacific to repurchase.
A. Summary judgment standard
Federal Rule of Civil Procedure 56(a) provides that the Court “shall grant summary
judgment if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The substantive law
determines which facts are critical and which are irrelevant. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). Only disputes over facts that might affect the outcome will properly
preclude summary judgment. Id. Summary judgment is not proper if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party. Id.

11

“The movant ‘bears the initial responsibility of informing the district court of the basis
for its motion,’ and must identify ‘those portions of [the record] . . . which it believes
demonstrate the absence of a genuine issue of material fact.’” Torgerson v. City of Rochester,
643 F.3d 1031, 1042 (8th Cir. 2011) (en banc) (quoting Celotex Corp. v. Catrett, 477 U.S. 317,
323 (1986)). Once the moving party discharges this burden, the nonmoving party must set forth
specific facts demonstrating that there is a dispute as to a genuine issue of material fact, not the
“mere existence of some alleged factual dispute.” Anderson, 477 U.S. at 247-48. Courts must
view the facts in the light most favorable to the non-moving party and resolve all doubts against
the moving party. Scott v. Harris, 550 U.S. 372, 378 (2007).
B. Breach of contract
CMI contends that it is entitled to summary judgment on its action for breach of contract
because Royal Pacific breached the Agreement by refusing to repurchase the Loans from CMI.
(ECF No. 46). Royal Pacific argues that CMI is not entitled to summary judgment on its claim
for breach of contract because CMI failed to prove that it repurchased the Loans from its
secondary mortgage market investors and therefore sustained actual damages. (ECF No. 59).
“Federal courts sitting in diversity apply the choice-of-law rules of the forum state.”
Cicle v. Chase Bank USA, 583 F.3d 549, 553 (8th Cir. 2009). “Under Missouri law, a choice-oflaw clause in a contract generally is enforceable unless application of the agreed-to law is
‘contrary to a fundamental policy of Missouri.’” H & R Block Tax Servs. LLC v. Franklin, 691
F.3d 941, 944 (8th Cir. 2012) (quoting Cicle, 583 F.3d at 553). It is undisputed that the
Agreement included a choice-of-law clause selecting Missouri law to govern the construction of
the contract. See ECF No. 49-3 at ¶ 12. Therefore, the Court will apply Missouri substantive
law to the contract claim.

12

To prevail on a motion for summary judgment for a breach of contract claim under
Missouri law, CMI must demonstrate that there was no genuine dispute as to the material facts
establishing: “(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.App.Ct. 2010) (citation omitted). The fourth
element, requiring proof of damages, “does not refer to proof of actual damages; in Missouri a
party may recover nominal damages if a breach is established and no actual damages are
proven.” Monarch Fire Prot. Dist. v. St. Louis County, 678 F.Supp.2d 927, 935 (E.D.Mo. 2009)
(citing Carter v. St. John’s Reg’l Med. Ctr., 88 S.W.3d 1, 12 (Mo.Ct.App.2002)). See also
Power Soak Sys., Inc. v. Emco Holdings, Inc., 482 F.Supp.2d 1125, 1132 (W.D.Mo. 2007)
(citing Dierkes v. Blue Cross & Blue Shield of Mo., 991 S.W.2d 662, 669 (Mo. banc 1999))
(“[E]ven if a party fails to prove actual damages, proof of the existence of a contract and its
breach will give rise to nominal damages.”).
Importantly, Royal Pacific states that there is “no[] dispute that [Royal Pacific] entered
into [the Agreement] with [CMI] with regard to all eight (8) loans that are the subject of this
action[.]” (ECF No. 59 at 1). Royal Pacific also admits that: “under the Agreement, CMI can
require Royal Pacific to repurchase any loan that CMI, in its sole and exclusive discretion,
determines is defective . . . .”;5 “CMI determined that the Loans were underwritten and/or
originated based on materially inaccurate information or material misrepresentations or were
otherwise defective”; CMI sent letters to Royal Pacific providing notice of the Loans’ defects
and requiring Royal Pacific to correct or cure the defects; Royal Pacific failed to correct or cure
5

While Royal Pacific acknowledges that the Agreement authorized CMI to demand repurchase
of any loans it deemed defective, Royal Pacific argues that “such loan must be owned by CMI
for them to be able to sell said loan.” (ECF No. 57-4 at ¶ 13). The Court will address this
argument in the next section. See supra subsection C.
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the Loan defects; CMI sent Royal Pacific letters demanding it honor its repurchase obligations
under the Agreement; and Royal Pacific did not repurchase the Loans. (ECF No. 57-4 at ¶¶ 13,
80, 81, 85, 87, 90).
Royal Pacific opposes CMI’s motion for summary judgment on the ground that CMI
provided no evidence that it repurchased the Loans, sustained damages, or “reacquired any rights
associated with the Loans after they previously sold them[.]” (ECF No. 59 at 2). In support of
its allegations that it repurchased the Loans from investors Fannie Mae and Freddie Mac, CMI
presented: Ms. Hancock’s affidavit, in which she averred that CMI “was required to and did”
repurchase the loans from its investors; the investors’ citations of the Loans, identifying the Loan
defects and demanding repurchase by CMI; and CMI’s Repurchase Authorizations, internal
documents authorizing CMI’s repurchase of the Loans from its investors.6 (Hancock Aff. at ¶¶
31-41, Exs. F-9, F-10, G-9, G-10, H-9, H-10, I-9, I-10, J-9, J-10, K-9. K-10, L-9, L-10, M-9, M10).
This Court need not determine whether CMI demonstrated the absence of a genuine issue
of material fact as to damages, because a dispute as to damages does not preclude summary
judgment for CMI. See, e.g., HALO Branded Sols., Inc. v. Goldman, 784 F.Supp.2d 966, 970
(N.D.Ill. 2011) (applying Missouri law). “In Missouri, it is a fundamental precept of contract
6

Similar evidence was sufficient to support summary judgment for CMI in nearly identical
breach of contract actions arising from other correspondents’ refusals to repurchase defective
loans in violation of the Agreement. See, e.g., CitiMortgage, Inc. v. Chicago Bancorp, Inc., Case
No. 4:12CV246 CDP (E.D.Mo. Mar. 31, 2014), Doc. #203, affirmed, 808 F.3d 747 (8th Cir.
2015), rehearing en banc denied (8th Cir. 2016); CitiMortgage, Inc. v. Axiom Mortg. Bankers
Corp., Case No. 4:11CV2240 TIA, 2013 WL 2156269, at *3 (E.D.Mo. May 17, 2013);
CitiMortgage, Inc. v. Just Mortg. Inc., Case No. 4:09CV1909 DDN, 2012 WL 3156575, at *10
(E.D.Mo. Aug. 3, 2012). With its reply in support of the motion for summary judgment, CMI
also presented what it described as “notation[s] in CMI’s electronic records of a CMI repurchase
payment” relating to the Lee, Gonzalez, and Ramirez loans and, with its opposition to Royal
Pacific’s motion to strike, CMI submitted evidence of CMI’s wire transfer payment for the
Lopez loan. (ECF Nos. 65-1 at ¶¶ 4-6, Exs. A-C; No. 72, Ex. A).
14

law that nominal damages are available where a contract and its breach are established.” Hanna
v. Darr, 154 S.W.2d 2, 5 n.2 (Mo.Ct.App. 2004). See also G&J Holdings, LLC v. SM Props.,
LP, 391 S.W.3d 895, 903 (Mo.Ct.App. 2013).

Accordingly, CMI is entitled to summary

judgment on the question of Royal Pacific’s liability for breach of the Agreement.
C. Effect of foreclosures
Royal Pacific urges the Court to deny CMI’s motion for summary judgment as to the
seven Loans foreclosed upon prior to CMI’s repurchase demand. Royal Pacific argues that,
because seven of the Loans were already foreclosed upon when CMI sent its initial repurchase
letters, Section 11 of the Agreement imposed no obligation on Royal Pacific because there was
nothing to repurchase. (ECF No. 59). In reply, CMI asserts that Royal Pacific misreads the term
“repurchase,” as the Agreement “obviously contemplates an alternative situation in which the
defective Loan is not owned by CMI at the time of repurchase by Royal Pacific.” (ECF No. 65
at 3) (emphasis in original).
As previously discussed, Section 11, entitled “Cure or Repurchase,” provides CMI the
“sole and exclusive discretion” to determine that any loan purchased from Royal Pacific was
defective. (ECF No. 49-3, Agreement § 11). Upon notification by CMI, Section 11 required
Royal Pacific to “correct or cure such defect within the time prescribed by CMI[.]” (Id.). In the
event that Royal Pacific failed to correct or cure the defective loan, the Agreement provided that
Royal Pacific “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. . . as CMI
may deem appropriate.” (Id.).
The Manual defines “Repurchase Price” as the sum of, among other amounts: “the
current principal balance on the loan as of the paid-to date” and “all unreimbursed advances

15

(including but not limited to tax and insurance advances, and/or foreclosure expenses, etc.)
incurred in connection with the servicing of the mortgage loan[.]” (ECF No. 49-7, Manual at
2301-6) (emphasis added).

Given that the definition of “Repurchase Price” referenced in

Section 11 of the Agreement expressly contemplates inclusion of the expenses related to
foreclosure on the collateral securing a loan, the Court rejects Royal Pacific’s claim that
foreclosure precluded repurchase, as that term was used by the parties.7
The Court notes that our court rejected a similar argument in Citimortgage, Inc. v. Mason
Dixon Funding, Inc., Case No. 4:09CV1997 TCM at 44-45 (E.D.Mo. Oct. 30, 2012). In that
case, CMI filed an action for breach of contract after Mason Dixon refused its demand to
repurchase twenty defective loans.

Id. at 1.

In response to CMI’s motion for summary

judgment, Mason Dixon alleged that CMI failed to state a claim because “CMI has failed to
allege it can return the loans at issue or the underlying security interests to Mason.” Id. at 44.
The court summarily rejected Mason Dixon’s defense, stating: “Insofar as it goes to CMI’s
breach of contract claims, it is without merit.” Id. The court granted CMI’s motion for summary
judgment as to liability but denied summary judgment as to “whether damages are due and, if so,
what and how much they are.” (Id. at 45, 46).
In CitiMortgage, Inc. v. Chicago Bancorp, Inc., Case No. 4:12CV246 CDP, ECF No.
203, (E.D. Mo. March 31, 2014) (affirmed by 808 F.3d 747 (8th Cir. 2015)), our court granted
CMI summary judgment on its action for breach of contract as to nine defective loans that
Chicago Bancorp refused to cure or repurchase. Id. at 1-2. The court held that CMI was entitled
to summary judgment in the amount of the Repurchase Price for the nine loans. Id. at 44. With
7

Royal Pacific also argues that the Repurchase Price formula does not apply to a foreclosed loan
because it includes “the current principal balance” and, once a loan is foreclosed, the “loan is
extinguished” and “there can be no ‘current principal balance.’” (ECF No. 59 at 7-8) (quoting
Manual at § 2301). However, it appears that, where a loan property was foreclosed, the “current
principal balance” equaled the balance owed at the time of foreclosure.
16

respect to two of those loans, the court noted that CMI “still owns two of the properties securing
the mortgage loans,” and therefore directed CMI “in accordance with Section 11 of the
Agreement, . . . to release to Chicago Bancorp its interest in those properties upon receipt of the
Repurchase Price.”8 Id. at 45. In the court’s final judgment, it ordered CMI to release its interest
in the secured property, “if that property has not been sold as of the date of the judgment, or . . .
credit against the judgment the amount of any proceeds from the sale of the property, if it has
been sold.” CitiMortgage v. Chicago Bancorp, Inc., Case No. 4:12CV 246 CDP, ECF No. 238
(January 23, 2015). See also CitiMortgage v. Chicago Bancorp, Inc., Case No. 4:14CV1278
AGF, 2016 WL 3958594, at *4 (E.D.Mo. July 22, 2016). Foreclosure upon the defective loans
did not preclude the Court from enforcing Chicago Bancorp’s obligation to “repurchase” the
loans.
Given that the formula to calculate the Repurchase Price of a defective loan referenced in
Section 11 of the Agreement included any unreimbursed foreclosure expenses, the Court rejects
Royal Pacific’s claim that foreclosure precludes CMI’s recovery on the loans in an action for
breach of Section 11. As the Eighth Circuit previously stated in a factually similar case: “The
[A]greement was the result of an arm’s length negotiation between two sophisticated commercial
entities. By entering into it, [Defendant] knowingly accepted the risk set forth by the plain
language therein[.]” CitiMortgage, Inc., 808 F.3d at 754. In this case, Royal Pacific accepted
the risk that it would be contractually obligated to “repurchase” defective loans despite a
foreclosure sale of the collateral. The Court therefore finds that the foreclosures related to the

8

Upon motion for reconsideration, the Court found that one of the two loans was not defective
and vacated the portion of its order granting CMI summary judgment as to that loan.
CitiMortgage, Inc. v. Chicago Bancorp, Inc., Case No. 4:12CV 246 CDP, ECF No. 219
(E.D.Mo. Sept. 8, 2014).
17

seven loans do not preclude summary judgment for CMI on its breach of contract claim with
regard to those loans.9
D. Affirmative Defenses
In its memorandum in opposition to CMI’s motion for summary judgment, Royal Pacific
alleges that CMI failed to mitigate its damages in that CMI’s damages with respect to six of the
eight Loans were not reasonably incurred.10 (ECF No. 59 at 9). Essentially, Royal Pacific seeks
to diminish the amount of any recovery based upon actions or inaction taken by CMI. In
response, CMI asserts that the “Eighth Circuit has rejected affirmative defenses based on a
purported obligation of CMI to mitigate its damages, and Royal Pacific is not entitled to the
same defense it claims here.” (ECF No. 65 at 10).
Under Missouri law, “one damaged by breach of contract must make reasonable efforts to
minimize resulting damages.” Graham Constr. Servs. v. Hammer & Steel Inc., 755 F.3d 611,
619 (8th Cir. 2014) (quoting Richardson v. Collier Bldg. Corp., 793 S.W.2d 366, 375
(Mo.Ct.App. 1990)). However, a duty to mitigate does not override a contract term requiring or
promising payment. See Bancorp, Inc., 808 F.3d at 754. See also 22 Am. Jur. 2d Damages §
362 (May 2016) (“An obligation to minimize avoidable consequences does not exist if the
plaintiff has a vested contract right to recover the amount sought.”).
In Bancorp, Inc., defendant Bancorp appealed the district court’s grant of summary
judgment for CMI as to eight defective loans. 808 F.3d at 750. Bancorp argued, among other
9

Having found that CMI may enforce its rights under Section 11, the Court declines to address
Royal Pacific’s argument that CMI’s only recourse with regard to the seven foreclosed loans was
found in Section 10 of the Agreement, entitled “Indemnification.” (ECF No. 59 at 8).
10
Federal Rule of Civil Procedure 8(c) requires that a party “must affirmatively state any
avoidance or affirmative defense . . . .” Fed. R. Civ. P. 8(c)(1). Although failure to mitigate
damages is not among the affirmative defenses listed in Rule 8(c), federal courts have construed
it as an affirmative defense that a party must plead at risk of waiver. Sayre v. Musicland Group,
Inc. v. a Subsidiary of Am. Can Co., 850 F.2d 350, 354 (8th Cir. 1988).
18

things, that the district court erred in granting summary judgment in favor of CMI on two of the
loans because “genuine issues of material fact exist with respect to the appropriate calculation of
the repurchase price under the agreement.” Id. at 753. Specifically, Bancorp argued that CMI’s
unreasonable delay in disposing of the properties increased the repurchase price. Id. The Eighth
Circuit rejected Bancorp’s argument because the Agreement required Bancorp to repurchase
defective loans on demand and for the amount determined by application of the Repurchase Price
formula. Id. at 753-54. The Court concluded: “The damage-limiting doctrines cited by Bancorp
do not trump the plain, unambiguous, and bargained-for language of the agreement.” Id. at 754.
In light of the Eighth Circuit’s holding in Bancorp, Inc., Royal Pacific’s affirmative defense
based on CMI’s duty to mitigate damages fails.
Royal Pacific also argues that Missouri’s five-year statute of limitations on actions
arising from breach of contract precluded CMI’s claim based upon Royal Pacific’s refusal to
repurchase the Barragan loan. (ECF No. 59 at 13). CMI counters that the applicable statute of
limitations was ten years11 and, in any event, CMI filed the lawsuit within five years “of the
breach triggering the running of that statute.” (ECF No. 65 at 16).
Missouri law requires a party to file an action upon a contract within five years “after the
cause[] of action shall have accrued[.]” Mo. Rev. Stat. §§ 516.100, 516.120(1). Section 516.100
provides that a cause of action accrues not “when the wrong is done or the technical breach of
contract or duty occurs, but when the damage resulting therefrom is sustained and is capable of
ascertainment.”

Mo. Rev. Stat. § 516.100.

“[D]amages are ‘sustained and capable of

ascertainment’ when the fact of damage can be discovered or made known.’” Great Plains Trust
11

Under Section 516.110(1), “[a]n action upon any writing, whether sealed or unsealed, for the
payment of money or property” shall be filed within ten years after the cause of action accrued.
Mo. Rev. Stat. § 516.110(1). Because the instant action was filed within five-years of the date
that the cause of action accrued, the Court need not determine whether the five- or ten-year
statute of limitation applied.
19

Co. v. Union Pac. R. Co., 492 F.3d 986, 992 (8th Cir. 2007) (quoting Jordan v. Willens, 937
S.W.2d 291, 294 (Mo.Ct.App. 1996) (emphasis omitted)). “[I]n a breach-of-contract suit, the
cause of action ‘accrues upon a defendant’s failure to do the thing at the time and in the manner
contracted.’” Id. (quoting Davis v. Laclede Gas Co., 603 S.W.2d 554, 555 (Mo. banc 1980)
(citation and quotations omitted)).
Here, CMI’s Initial Repurchase Letter notifying Royal Pacific of the defects in the
Barragan loan and demanding its repurchase, was dated August 8, 2011. Royal Pacific’s failure
to repurchase the Barragan loan within thirty days of the date of that letter triggered the running
of the statute of limitations. See Chicago Bancorp, Inc., Case No. 4:14CV1278 AGF, Doc. No.
323 at 15 (E.D. Mo. June 16, 2016) (“A claim for breach of that [Section 11] contractual
obligation does not accrue until Chicago Bancorp, after receiving notice and an opportunity to
cure, fails to cure or repurchase the defective loan.”).

CMI filed its complaint on February 16,

2016, within five years of the date upon which the action accrued. (ECF No. 1). Accordingly,
the statute of limitations does not preclude CMI’s action for breach of the agreement to
repurchase the Barragan loan.
Finally, Royal Pacific contends that CMI is not entitled to summary judgment on the
Elghazawi loan because Section 2 of the Agreement relieves Royal Pacific of the obligation to
repurchase that loan. (ECF No. 59 at 15). Section 2 of the Agreement contains Royal Pacific’s
representations and warranties. (ECF No. 49-3, Agreement § 2). In subsection 2(i), Royal
Pacific represents and warrants 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.
20

(Id.).

However, Section 2(i) exempts from this representation and warranty “information

obtained from (i) appraisers, escrow agents, title companies, closers, credit reporting agencies or
any other entity approved by CMI . . . .” (Id.).
According to Royal Pacific, the Elghazawi Loan was a home loan, but there was no home
on the lot securing it. (Id. at 14; ECF No. 59-2, ¶ 21). Royal Pacific maintains that the failure to
discover the absence of a house on the lot securing the Elghazawi Loan was the fault of the title
company, appraiser, and/or seller and, as a result, Royal Pacific had no obligation to repurchase
that Loan.
This court previously held that “Section 11 sets forth an independent obligation that is not
dependent upon or derivative of, for instance, Section 2’s representations and warranties.”
Chicago Bancorp, Inc., Case No. 4:14CV1278 AGF, Doc. No. 323 at 17 (E.D.Mo. June 16,
2016). Section 2(i) is “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.” CitiMortgage v. Just Mortg. Inc., Case No. 4:09CV1909
DDN, Doc. No. 187 at 22, (E.D.Mo. March 29, 2012). Section 11 sets forth the circumstances
under which CMI can demand repurchase of a loan and “is breached when a correspondent fails
to cure or repurchase the loan, and applies regardless of the correspondent’s knowledge.” Id.
See also CitiMortgage, Inc. v. Reunion Mortg., Inc., Case No. 4:10CV1632 RWS, 2012 WL
5471165, at *7 (E.D.Mo. Nov. 9, 2012).
The present action arose from Royal Pacific’s breach of Section 11, pursuant to which
Royal Pacific agreed to cure or repurchase a loan upon CMI’s determination that the loan was
underwritten or originated based on a misstatement, misrepresentation, or omission. The

21

exemptions in Section 2(i), relating to warranties and representations, do not apply to an action
arising under Section 11’s obligation to cure or repurchase.
E. Calculation of damages
CMI claimed that its losses resulting from Royal Pacific’s failure to repurchase the Loans
totaled $1,356,141.30. (ECF No. 49, CMI’s Statement of Uncontroverted Facts at ¶ 105; ECF
No. 49-2, Hancock aff. at ¶126). Royal Pacific challenged CMI’s calculation of damages,
arguing that CMI included costs and fees to which it was not entitled. (ECF No. 59). In support
of its argument and its statement of additional facts concerning the damages calculation, Royal
Pacific submitted the declaration of Linda Melville, Royal Pacific’s compliance/quality control
manager. (ECF No. 59-2, Melville dec.). For example, in her declaration, Ms. Melville averred
that, with regard to the Elghazawi Loan, CMI improperly included a “cash for keys” fee and
cleaning fee, even though the property was a dirt lot, and a charge for trash removal, which was
not performed. (ECF No. 59-2, Melville dec. at ¶ 21). Ms. Melville also stated, in regard to the
Lee Loan, that “payments were being made for mortgage insurance even after the mortgage
insurance had been cancelled.” (ECF No. 59-2, Melville dec. at ¶ 29).
The Court finds that Royal Pacific has, by Ms. Melville’s declaration, set forth specific
facts showing that a genuine issue of material fact exists with regard to the amount of damages.
Because a genuine issue of material fact remains as to the amount of CMI’s damages, the Court
denies summary judgment on that issue.
V.

Conclusion

For the reasons stated above,

22

IT IS HEREBY ORDERED that Royal Pacific’s motion to strike CMI’s supplemental
affidavit submitted with its reply in support of its motion for summary judgment (ECF No. 68) is
DENIED.
IT IS FURTHER ORDERED that CMI’s motion for summary judgment (ECF No. 46) is
GRANTED as to liability and DENIED as to damages.
IT IS FINALLY ORDERED that the Court shall hold a final pretrial conference at 10:00
a.m. on October 19, 2017. The parties are reminded that this matter is set for a jury trial at 9:00
a.m. on October 23, 2017. (ECF No. 79). All terms and provisions of the case management
order (ECF No. 22) regarding the trial remain in full force and effect.

PATRICIA L. COHEN
UNITED STATES MAGISTRATE JUDGE
Dated this 21st day of July, 2017

23