Franklin American Mortgage Corporation v. First Educators Credit Union
Filing
133
MEMORANDUM AND ORDER: granting in part and denying in part 67 Motion in Limine. Signed by Magistrate Judge John S. Bryant on 10/15/13. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(dt)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
FRANKLIN AMERICAN
MORTGAGE CORPORATION,
)
)
)
)
)
)
)
)
)
)
Plaintiff
v.
FIRST EDUCATORS CREDIT UNION,
Defendant
No. 3:11-0749
Judge Campbell/Bryant
Jury Demand
MEMORANDUM AND ORDER
Defendant
First
Educators
Credit
Union
(“First
Educators”) has filed its motion in limine to exclude Plaintiff’s
new
undisclosed
testimony
theory
(Docket
and
related
Entry
No.
67).
argument,
Plaintiff
evidence,
Franklin
and
American
Mortgage Corporation (“Franklin American”) has filed a response in
opposition (Docket Entry No. 2), and First Educators has filed a
reply (Docket Entry No. 77).
First
Educators’
motion
has
been
referred
to
the
undersigned Magistrate Judge for decision (Docket Entry No. 78).
For the reasons stated below, the undersigned GRANTS in part and
DENIES in part this motion.
STATEMENT OF THE CASE
In this diversity action, Plaintiff Franklin American
asserts that Defendant First Educators has breached the terms of a
Correspondent Loan Purchase Agreement (“Loan Purchase Agreement”)
between these parties. Specifically, Franklin American alleges that
the Loan Purchase Agreement obligated First Educators to repurchase
mortgage loans sold to Franklin American and to indemnify Franklin
American for all losses associated with mortgage loans in the event
of the breach of any representation or warranty made with respect
to such mortgage loans. The amended complaint identifies five
mortgage loans (the Wolf, Cole, Crandle, Rodriguez and Shields
loans) that were sold by First Educators to Franklin American under
the terms of the Loan Purchase Agreement. Franklin American claims
that certain material information about these five loans, the
accuracy of which was represented and warranted by First Educators,
was later determined to be inaccurate or incorrect. As a result,
Franklin
American
alleges
that
it
has
become
obligated
to
repurchase these mortgage loans from subsequent investors and/or
has suffered financial losses because of material deficiencies in
the underwriting of these loans. Franklin American asserts that it
has called upon First Educators to repurchase the subject loans
and/or indemnify Franklin American for resulting losses, but that
First Educators has refused to do so.
First Educators has filed an answer denying liability and
asserting affirmative defenses (Docket Entry No. 17).
SUMMARY OF PERTINENT FACTS
During discovery, First Educators served its first set of
interrogatories and requests for production of documents, to which
Franklin American responded on September 7, 2012 (Docket Entry No.
69-1). Interrogatory No. 19 reads as follows:
Identify and describe in detail each and every breach of
a
contractual
obligation
(including
breaches
of
representations and warranties) that you claim First
Educators committed, as alleged in the Amended Complaint.
First Educators responded as follows:
The Plaintiff would state that, pursuant to Fed. R. Civ.
2
P. 33, all Facts upon which the Plaintiff relies in
alleging a breach of Defendant’s contractual obligations
to the Plaintiff are available to the Defendant through
a review of the Plaintiff’s business records attached
hereto as Exhibit A, Exhibit B and Exhibit C.
Later, on January 22, 2013, First Educators deposed
Jacqueline L. Volpe, designated to testify as a Rule 30(b)(6)
witness on behalf of Franklin American. During the course of this
deposition, Ms. Volpe was asked to identify the “defects” in each
of the subject mortgage loans for which Franklin American is
seeking monetary damages. With respect to each loan, Ms. Volpe
testified to certain underwriting defects or inaccuracies allegedly
found to exist in each of the loans that rendered them ineligible
for purchase by subsequent investors, and allegedly triggered an
obligation
by
First
Educators
to
repurchase
the
loan
and/or
reimburse Franklin American for resulting financial losses (Docket
Entry No. 77-2).
On March 1, 2013, Franklin American filed its motion for
partial summary judgment (Docket Entry No. 34). In its memorandum
in support (Docket Entry No. 36), in addition to describing the
alleged underwriting defects in the five subject mortgage loans at
issue, Franklin American alleges an additional claimed breach – the
fact that First Educators had used a third party, BrokerSouth Net
Systems, Inc. (“BrokerSouth”) to perform all loan origination and
underwriting investigations without disclosing that relationship to
Franklin American (Docket Entry No. 36 at 10-25). Franklin American
claims that this failure to disclose the role of BrokerSouth
employees in the origination and underwriting investigation of the
3
subject loans constitutes a breach of the correspondent lender
application between the parties and, by reference, a breach of the
Loan Purchase Agreement.
ANALYSIS
First Educators seeks a ruling pursuant to Rule 37(c)(1)
of the Federal Rules of Civil Procedure prohibiting Franklin
American from asserting at trial that failure to disclose the role
of BrokerSouth employees in originating and underwriting
these
loans is, in itself, a breach of the Loan Purchase Agreement. As
grounds,
First
disclosed
this
Educators
claimed
argues
breach
that
until
Franklin
after
American
the
never
deadline
for
completion of discovery and until filing its memorandum in support
of its motion for partial summary judgment. Specifically, First
Educators states that it attempted in good faith to discover the
acts and omissions that Franklin American relied upon as claimed
breaches of contract, both in its contention interrogatory quoted
above
and
in
the
designee.
However,
particular
claim
Rule
30(b)(6)
Franklin
in
its
deposition
American
failed
interrogatory
of
its
to
disclose
response
corporate
and
this
in
the
deposition testimony of its designee. First Educators argues that
it would be materially prejudiced if Franklin American now were
allowed to make this new claim after the close of discovery.
In response, Franklin American makes three arguments.
First, Franklin American insists that the alleged “new theory” to
which First Educators objects is not a new theory at all, because
Franklin
American’s
claim
has
always
been
one
of
breach
of
contract. Specifically, Franklin American asserts that all of the
4
subject
mortgage
loan
files
contain
representations
by
First
Educators that its own employees were taking loan applications
and/or underwriting the loans when in fact BrokerSouth employees
were performing these duties. Nevertheless, Franklin American does
at least impliedly concede that this claim is new, when it states:
“The only thing that could remotely be considered ‘new’ would be
the facts supporting Franklin’s breach of contract theory” (Docket
Entry No. 72 at 3). Second, Franklin American maintains that this
alleged new theory was made known to First Educators following the
deposition of John Wheeler, Vice President of First Educators, when
counsel for Franklin American told counsel for First Educators in
the hallway outside the deposition room that he believed that First
Educators had breached the Loan Purchase Agreement by failing to
make disclosures of the BrokerSouth relationship. Third, Franklin
American insists that the scope of evidence that First Educators
seeks to exclude by its motion is excessive, and that if these
facts were excluded from evidence it would materially prejudice
Franklin American in the presentation of its case (Docket Entry No.
72 at 11-12).
Rule 37(c)(1) of the Federal Rules of Civil Procedure
provides that if a party fails to provide information as required
by Rule 26(a) or (e), the party is not allowed to use that
information
justified
at
or
a
is
trial
unless
harmless.
the
failure
“Contention”
was
substantially
interrogatories
are
interrogatories that seek to clarify the basis for or scope of an
adversary’s legal claims. The general view is that contention
interrogatories are a perfectly permissible form of discovery, to
5
which
a
response
ordinarily
would
be
required.
Starcher
v.
Correctional Medical Systems, Inc., 144 F.3d 418, 421 (6th Cir.
1998). First Educators’ Interrogatory No. 19, quoted above, was a
contention
interrogatory
that
required
Franklin
American
to
identify and describe each breach of a contractual obligation that
it alleged First Educators committed, as alleged in the Amended
Complaint. Franklin American’s response, which merely referred
First
Educators
to
First
American’s
business
records,
was
nonresponsive because the records themselves failed to indicate the
nature of Franklin American’s contentions in this case. Similarly,
Ms. Volpe, when testifying as a designated Rule 30(b)(6) witness on
behalf
of
Franklin
American,
failed
to
reveal
that
Franklin
American intended to assert the role of BrokerSouth employees as an
independent breach of contract by First Educators.
Since this claim by Franklin American was not disclosed
until
after
the
deadlines
for
completion
of
discovery,
the
undersigned Magistrate Judge finds that to allow Franklin American
to assert this claimed breach of contract at trial would materially
prejudice First Educators. Therefore, the undersigned Magistrate
Judge GRANTS First Educators’ motion in limine and finds that
Franklin American shall not be allowed at trial to assert the
alleged role of BrokerSouth employees in originating, underwriting
or processing the subject mortgage loans as an independent breach
of contract by First Educators.1 However, to the extent that First
1
The undersigned observes, but does not find, that the Loan Purchase
Agreement imposes a near strict liability standard, in that Section 6
provides that First Educators, as seller, warrants that “there is no fact
or circumstance” that would entitle a subsequent purchaser to demand
6
Educators would exclude all evidence of the acts of BrokerSouth
employees, the motion is DENIED. Franklin American may prove such
facts to the extent they may be relevant and material to its other
allegations of breaches of contract by First Educators.
It is so ORDERED.
/s/ John S. Bryant
JOHN S. BRYANT
United States Magistrate Judge
repurchase or indemnification because of underwriting defects of the type
alleged by Franklin American. Therefore, if these defects are proven to
have existed, it would be immaterial whether the loans were originated
and underwritten by First Educators employees or by BrokerSouth
personnel.
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