Johnson Bank v. Haster
Filing
36
ORDER signed by Judge Rudolph T. Randa on 2/23/2016. 17 Plaintiff's MOTION for Summary Judgment GRANTED as to breach of contract and liability for damages and DENIED as to amount of damages. 5/2/2016 jury trial CANCELLED. 4/18/2016 Final Pretrial Conference converted to Scheduling Conference at 2:00 PM by telephone before Judge Rudolph T. Randa, the Court will initiate the call. (cc: all counsel, via mail to Jean Haster)(cb)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
JOHNSON BANK,
Plaintiff-Counter-Claim Defendant,
-vs-
Case No. 14-C-403
JEAN M. HASTER,
Defendant-Counter-Claimant.
DECISION AND ORDER
This action, arising from a home equity loan between the Plaintiff
Johnson Bank and pro se Defendant Jean M. Haster, is before the Court on
Johnson Bank’s summary judgment motion on its breach of contract claim.1
(ECF No. 17.) Haster has a number of counterclaims which are not addressed
herein.2 After two stays/extensions of time to respond (ECF Nos. 25, 31), the
summary judgment motion is briefed and ready for resolution.
Summary Judgment Standard
Summary judgment is appropriate “if the movant shows that there is
no genuine dispute as to any material fact and the movant is entitled to
1 Johnson Bank’s Complaint consists of a breach of contract claim (first cause of
action) and a promissory estoppel claim (second cause of action). (ECF No. 1-1.)
Haster counterclaims for declaratory judgment that Johnson Bank breached
the Mortgage Agreement by filing this action after filing a satisfaction of mortgage (first
counterclaim), breach of contract (second counterclaim), breach of the covenant of good
faith and fair dealing (third counterclaim), and equitable estoppel (fourth counterclaim).
(Ans. & Countercl.) (ECF No. 5.)
2
judgment as a matter of law.” Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986). Summary judgment should be granted when a party
that has had ample time for discovery fails to “make a showing sufficient to
establish the existence of an element essential to that party's case, and on
which that party will bear the burden of proof at trial.” Id. If the moving
party establishes the absence of a genuine issue of material fact, the nonmoving party must demonstrate that there is a genuine dispute over the
material facts of the case. Id. at 323-24. The Court must accept as true the
evidence of the nonmovant and draw all justifiable inferences in his favor.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Summary judgment
is appropriate only “where the factual record taken as a whole could not lead a
rational trier of fact to find for the non-moving party.” See Bunn v. Khoury
Enters., Inc., 753 F.3d 676, 681 (7th Cir. 2014) (citing Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
Johnson Bank followed the procedure outlined in Civil Local Rule 56(a)
(E.D. Wis.), applicable when a party is moving for summary judgment and the
opposing party proceeds pro se, and included the text of rules 56(c),(d), and (e)
of the Federal Rules of Civil Procedure Civil L. R. 56(a) and (b) and Civil L. R.
7 as a part of the motion.
Haster responded to Johnson Bank’s proposed findings of fact and
presented further statements of material facts. (ECF No. 34.) In her response,
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Haster relies on her declaration, exhibit J (ECF No. 34-1), which she had
previously filed on April 16, 2015 as ECF No. 23. In reply, Johnson Bank
relies on its response (ECF No. 27) to that declaration. Haster declares “. . . I
have personal knowledge of the facts set forth herein, except as to those stated
on information and belief, and to those, I am informed and believe them to be
true.” (Haster Decl., 2.)
However, Fed. R. Civ. P. 56(c)(4) states “[a]n 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.” Luster v. Ill. Dep’t. of
Corr., 652 F.3d 726, 731 n.2 (7th Cir. 2011).
Under Rule 56(c)(4), any
statement of purported fact not made on personal knowledge may not be used
to support or oppose summary judgment and, therefore, unless agreed to by
Johnson Bank, such statement or fact by Haster has been
excluded.
Specifically, the Court has excluded paragraphs 12, 13, 15, 16, 17, 18, 25, 32,
35, 36, 67, 81 of the Haster declaration.
Civil L.R. 56(b)(2)(B) and (C) provide that:
[e]ach party opposing a motion for summary judgment must file .
..
a concise response to the moving party’s statement of facts that
must contain:
(i) a reproduction of each numbered paragraph in the moving
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party’s statement of facts followed by a response to each
paragraph, including, in the case of any disagreement, specific
references to the affidavits, declarations, parts of the record, and
other supporting materials relied upon, and
(ii) a statement, consisting of short numbered paragraphs, of any
additional facts that require the denial of summary judgment,
including references to the affidavits, declarations, parts of the
record, and other supporting materials relied upon to support the
facts described in that paragraph. A non-moving party may not
file more than 100 separately-numbered statements of additional
facts.
(Emphasis added.) However, in opposing the specific facts, Haster has cited
“Defendant[’]s Declaration attached hereto & Exhibit J—Defendant[’]s Other
Declaration.” (See ECF No. 34, ¶¶ 7, 8, 18, 19, 21, 24, 25, 29.) Citation to an
entire declaration is not a specific reference and does not comply with the
requirements of Civil L.R. 56(b)(2)(B). Thus, such responses do not create a
factual dispute.
RELEVANT FACTS3
Johnson Bank, a state-chartered bank, filed this action in the Circuit
Court for Waukesha County, Wisconsin.
Haster removed the case to this
3 The relevant facts are based on the Bank’s proposed findings of fact (ECF No.
19) and Haster’s further statement of material facts to the extent that they are factual
and undisputed. Arguments and contentions are not facts.
Paragraphs 16 through 29 of Haster’s responses to the Johnson Bank’s proposed
findings are misnumbered by one; for example, her paragraph 16 response is to
paragraph 15 of Johnson Bank’s proposed findings. The Court has considered Haster’s
responses as if they were properly numbered.
Citations to all quoted documents are included, even those that are undisputed.
-4-
Court, invoking diversity jurisdiction as provided by 28 U.S.C. § 1332.4
In October 2008, Haster entered into a Home Equity Total Line of
Credit Agreement (“Home Equity Agreement”) with Johnson Bank.
(Vela
Aff.5 ¶ 5, Ex. 1.) (ECF Nos. 20, 20-1.) The transaction involved the execution
of two main documents: the Home Equity Agreement and the Mortgage
Agreement. Both documents were drafted by Johnson Bank.
The Home Equity Agreement provided $250,000 worth of credit to
Haster.6 As to its term, the Agreement states:
The term of your Credit Line will begin as of the date of this
Agreement (“Opening Date”) and will continue until termination
of your Credit Line Account. All indebtedness under this
Agreement, if not already paid pursuant to the payment
provisions below, will be due and payable upon termination. The
draw period of your Credit Line will begin on a date, after the
Opening Date, when the Agreement is accepted by us . . . and the
meeting of all of our other conditions and will continue as
follows: One year from the date of this agreement; automatically
extended from year to year after this date, unless the Lender
gives [Haster] notice to the contrary at least 30 days prior to the
annual anniversary date. You may obtain credit advances during
this period (“Draw Period”).
4 This Court has subject matter jurisdiction pursuant to 28 U.S.C. §1332(a) and
venue is proper under 28 U.S.C. § 1391(b)(2).
In referring to affidavits filed by Lydia Vela, the parties use Vela’s given name;
the Court has used her surname.
5
There is a factual dispute between the parties regarding the loan to value ratio
of the October 2008 Home Equity Agreement. Haster avers that at the time the Home
Equity Agreement and Mortgage were executed they were for 160% of her appraised
home value. (Haster Decl. ¶ 64.) Johnson Bank contends that at the time of origination
the loan to value ratio was 84.345%. (Resp. Haster Decl. ¶ 64, relying on Vela’s
supplemental affidavit and citing “exhibit 10” at page 13 (P208)). (ECF Nos. 27, 28-1.)
6
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(Id. “Term”, 1.)7 The Home Equity Agreement obligated Haster to pay the
“Credit Line Account . . . in full upon termination in a single balloon
payment,” stating that “[she] must pay the entire outstanding principal,
interest and any other charges then due.” (Id., “Balloon Payment,” 1.)
The Home Equity Agreement states:
You promise to pay JOHNSON BANK, or order, the total of all
credit advances and FINANCE CHARGES, together with all
costs and expenses for which you are responsible under this
agreement or under the “Mortgage” which secures your Credit
Line. You will pay your Credit Line according to the payment
terms set forth below. If there is more than one Borrower, each is
jointly and severally liable on this Agreement. . . . We can release
any Borrower from responsibility under this Agreement, and the
others will remain responsible.
(Id., “Promise to Pay,” 1.)
The Agreement also states: “You acknowledge this Agreement is
secured by the following collateral described the security instrument listed
herein: a Mortgage dated October 6, 2008, to us on real property located in
Waukesha County, State of Wisconsin.” (Id., “Collateral,” 2.) The Agreement
also states: “During the Draw Period we will honor your request for credit
advances subject to the section below on Lender’s Rights. . . . Any credit
advances in excess of your Credit Limit will not be secured by the Mortgage
7 The Agreement states: “Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define the provisions of
this Agreement.” (Id. Ex. 1, “Caption Headings,” 4.) The Court has used them solely to
assist in locating quoted excerpts.
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covering your principal dwelling.” (Id., “Credit Limit,” 1.)
With respect to termination by Johnson Bank, the Agreement provides:
We can terminate your Credit Line Account and require you to
pay us the entire outstanding balance in one payment, and
charge you certain fees, if any of the following happen:
(1) You commit fraud or make a material misrepresentation at
any time in connection with this Credit Agreement. This can
include, for example, a false statement about your income,
assets, liabilities, or any other aspects of your financial
condition.
(2) You do not meet the repayment terms of the Credit
Agreement.
(3) Your action or inaction adversely affects the collateral for the
plan or our rights in the collateral. This can include, for example,
failure to maintain required insurance, waste or destructive use
of the dwelling, failure to pay taxes, death of all persons liable on
the account, transfer of title or sale of the dwelling, creation of a
senior lien on the dwelling without our permission, foreclosure
by the holder of another lien, or the use of funds or the dwelling
for prohibited purposes.
(Id., “Termination and Acceleration,” 3.)
The Agreement also includes a
provision stating
[i]n addition to any other rights we may have, we can suspend
additional extensions of credit or reduce your Credit Limit
during any period in which any of the following are in effect: . . .
(3) You are in default under any material obligation of this
Credit Line Account. We consider all of your obligations to be
material. . . . No default will occur until we mail or deliver a
notice of default to you, so you can restore your right to credit
advances.
(Id., “Suspension or Reduction,” 3.)
-7-
With respect to changes in the terms, the Agreement states:
We may make changes to the terms of this Agreement if you
agree to the change in writing at that time, if the change will
unequivocally benefit you throughout the remainder of your
Credit Line Account, or if the change is insignificant (such as
changes relating to our data processing systems). . . .
(Id., “Change in Terms,” 3.) It also states “[y]ou agree that you will provide
us with a current financial statement, a new credit application, or both,
annually, on forms provided by us.
Based upon this information we will
conduct an annual review of your Credit Line Account.”
(Id., “Annual
Review,” 4.)
Haster granted Johnson Bank a Mortgage on her residence at 2135
Underwood Parkway, Elm Grove, Wisconsin. At the time it was her primary
residence.
The Mortgage secured the Home Equity Agreement and any
monies advanced under that Agreement to the property. (Id., Ex. 2.) (ECF No.
20-2.) The Mortgage was recorded with the Waukesha County, Wisconsin
Register of Deeds.
The Mortgage states:
If [Haster] pays all the indebtedness when due, terminates the
credit line account, and otherwise performs all the obligations
imposed upon [Haster] under this Mortgage, Lender shall
execute and deliver to [Haster] a suitable satisfaction of this
Mortgage and suitable statements of termination of any
financing statement on file evidencing Lender’s security
interest in the Rents and the Personal Property. [Haster] will
pay, if permitted by applicable law, any reasonable termination
fee as determined by Lender from time to time.
-8-
(Id., “Full Performance,” 3-4.)
The Mortgage defines “Indebtedness” as:
. . . all principal, interest, and other amounts, costs and expenses
payable under the Credit Agreement or Related Documents,
together with all renewals of, extensions of, modifications of,
consolidations of and substitutions for the Credit Agreement or
Related Documents and, to the extent not prohibited by law any
amounts expended or advanced by Lender to discharge [Haster’s]
obligations or expenses incurred by Lender to enforce [Haster’s]
obligations under this Mortgage, together with interest on such
amounts as provided in this Mortgage. Specifically, without
limitation, Indebtedness includes all amounts that may be
indirectly secured by the Cross Collateralization provision of this
Mortgage.
(Id., “Definitions,” 6.)
The Mortgage also states:
[t]his Mortgage secures the Indebtedness including, without
limitation, a revolving line of credit, which obligates Lender to
make advances to [Haster] so long as [Haster] complies with all
the terms of the Credit Agreement. . . .
It is the intention of [Haster] and Lender that this Mortgage
secures the balance outstanding under the Credit Agreement
from time to time from zero up to the Credit Limit as provided in
the Credit Agreement and any intermediate balance.
(Id., “Revolving Line of Credit,” 1.)
With respect to amendments, the
Mortgage states: “To be effective, any change or amendment to the Mortgage
must be in writing and must be signed by whoever will be bound or obligated
by the change or amendment.” (Id., “Amendments,” 4.)
In August 2009, Haster refinanced the property with Johnson Bank. As
-9-
a part of the refinance, the Home Equity Agreement was to be paid down and
closed. However, this did not happen.8
In October 2009, the Bank sent Haster a Change in Terms Agreement,
primarily modifying certain fees and charges terms in the Home Equity
Agreement. It states “[e]xcept as expressly changed by this Agreement, the
terms of the original obligation or obligations, including all agreements
evidenced or securing the obligation(s), remain unchanged and in full force
and effect.” (Id., Ex. 4, “Continued Validity,” 1.) (ECF No. 20-4.)
In December 2010, Haster made a $247,832.00 draw on the Line of
Credit under the Home Equity Agreement. In March 2011, Haster made a
$2,068.50 draw.9
In March 2011, Johnson Bank executed and recorded a satisfaction of
mortgage on Haster’s property. (ECF No. 20-5.)
In March 2012, Haster refinanced the property with Badger Bank for
about $233,000. No part of the Badger Bank refinance was paid toward the
Johnson Bank maintains that there was an outstanding balance of $99.50 on
the loan. Haster has not been consistent in her position. Compare Haster Resp. ¶ 13
(ECF No. 34), “Defendant is without sufficient information to admit or deny; however, to
the extent a $99.50 balance existed it was likely an annual fee assessed by Johnson
Bank” to Haster Declaration, ¶ 6, “the . . . Mortgage Loan, which I had never utilized,
and which had, or should have had, an outstanding balance of ZERO.” However,
construed in the light most favorable to Haster, there is a factual dispute regarding
whether any funds were due and owing.
8
Johnson Bank maintains that the total amount drawn under the Home Equity
Agreement is $250,000. Haster has not been consistent in her position. (Compare
Haster Resp. ¶ 17 “Defendant admits this statement.” to Haster Declaration, ¶ 14, “on
March 10, 2011, the subject HELOC Mortgage Loan had an outstanding balance, in
good standing, in the amount of $249,900.50.”)
9
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amount due under the Johnson Bank Home Equity Agreement.
In July 2013, Johnson Bank sent Haster a letter and forms for her to
complete requesting information in order to conduct an annual review of the
Home Equity Agreement. The letter states:
We do understand that your situation may have changed and
you choose to not renew the line of credit at this time. If you
decide to close the line or we are unable to renew the line, you
will be required to pay the outstanding balance and interest due
by the scheduled maturity date of the HELOC 10/06/2013. There
is no prepayment penalty for paying off and closing the line of
credit.
Please note that if you are past due on payments, delinquent or
in default under the terms of the HELOC Agreement or you no
longer qualify for the line of credit, we may determine that we
are unable to renew your line of credit.
(Vela Aff., Ex. 6.) (ECF No. 20-6.) This was the first time Johnson Bank
provided financial forms for Haster to complete and submit for an annual
review.
Between July and mid-October 2013, numerous conversations took
place between Haster and Johnson Bank concerning the Home Equity Loan.
Records regarding the various loans were scattered between Haster’s
residence in Florida and her “home” in Wisconsin; as a result she did not have
full access to all the facts during the ongoing communications.
In August 2013, Johnson Bank completed an annual review of the
Home Equity Agreement and informed Haster that it was unable to renew the
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terms of the Home Equity Agreement due to insufficient collateral. Johnson
Bank indicated that the Home Equity Agreement would be terminated and
the entire balance due if Haster did not agree to convert it to a Home Equity
Term Loan. Haster did not agree (Vela Aff. ¶ 23) and, as a result, Johnson
Bank terminated the Home Equity Agreement and accelerated all amounts
due and owing.
An October 2013, email from Johnson Bank Senior Mortgage Loan
Officer Jeff Cummisford states in relevant part;
In summary, [w]hen you refinanced with Johnson Bank on
August 9, 2009, your Johnson Bank HELOC [Home Equity Line
of Credit] should have been “closed out.” This means that this
account should have been closed out and you would no longer be
able to withdraw any funds. With a permanent [f]ixed loan
amount loan amount of $240,000 and a value of some $300,000,
you no longer would have enough “equity” to continue a HELOC.
This HELOC was not closed out and you withdrew additional
funds ($250,000) for some purchases.
As a result, we have a second mortgage on your Elm Grove home
that does not have sufficient collateral.
We would like for you to either pay off the second mortgage loan
HELOC in full or place a mortgage loan on other real estate
property that you own to have sufficient equity/collateral.
(Haster Ans. and Countercl., Ex. G.) (ECF No. 5-7.)
By October 2013, Haster had consolidated her records, and she mailed
a certified letter to Cummisford stating her position that the HELOC account
was extinguished as of March 23, 2011, when the satisfaction of mortgage
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was recorded. The final paragraph of her one-page letter states:
I do not expect to hear from you again regarding this matter and
will consider it fully resolved following 30 days from the date of
this letter. However, should you need to contact me further
within the timeframe allotted, please do so by email or mail to
my address(s) of record.
(Haster Decl. ¶ 78, citing Ans. and Countercl., Ex. C, ECF No. 5-4.)
Cummisford did not contact Haster within 30 days.10
Prior to November 2013, Haster had been making interest only
payments under the Home Equity Agreement; she has not made any
payments toward the line of credit under the Home Equity Agreement since
November 12, 2013.
After Haster’s October letter, the next communication she received
from Johnson Bank was a letter from Katie Ramiriz informing her that
Johnson Bank had not received a payment for November 2013. No mention or
acknowledgment of Haster’s letter to Cummisford was included with the
communication.
In December 2013, Haster sent Ramiriz a letter advising her that the
HELOC in question was extinguished, that Cummisford had personally been
handling the account, and that the matter had since resolved itself.
In response to ¶ 79 of Haster’s declaration, Johnson Bank states that it
retained Attorney English regarding the matter, citing “English Aff. p. 2 of pdf.”
However, review of the English affidavit (ECF No. 29) and its attachments does not
disclose what Johnson Bank is referring to or provide support for the factual
proposition.
10
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Johnson Bank sent Haster a right to cure letter dated January 23,
2014, indicating that Haster had until February 7, 2014, to cure her default.
On February 26, 2014, after Johnson Bank filed this action against her,
Haster received a “Notice of Right to Cure Default Letter,” stating “You may
cure the default(s) on or before March 13, 2014.” (Haster Decl. ¶ 85, citing
Ans. and Countercl., Ex. I, ECF No. 5-9.)
At no time has Johnson Bank offered to rescind its termination and
demand for a balloon payment.
ANALYSIS
Johnson Bank seeks summary judgment (1) declaring that Haster
breached their contract by failing to make required payments under the
Home Equity Agreement and is in default under that Agreement and (2)
finding that as of March 11, 2015, Johnson Bank is entitled to judgment
against Haster in the amount of $279,552.55 together with interest, costs,
disbursements, and actual attorney fees. Johnson Bank also maintains that
even if Haster is deemed to have cancelled the loan, she would still be liable
based on the provision in the Home Equity Agreement that states: “[d]espite
cancellation, your obligations under this Agreement will remain in full force
and effect until you have paid us all the amounts due under this Agreement.”
(Vela Aff., Ex. 1, “Cancellation by You,” 4.)
Johnson Bank makes no
argument with respect to its promissory estoppel claim.
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Liberally construed, Haster opposes summary judgment, contending
that Johnson Bank breached the Home Equity Agreement, that the
Agreement is ambiguous, and that Johnson Bank has breached the duty to
act in good faith which is inherent in any contract. She also relies upon the
defenses that the mortgage was extinguished, excused performance based on
Johnson Bank’s breach of contract, unclean hands, and equitable estoppel.
She contends that Johnson Bank released her from any obligation under the
Home Equity Agreement in August 2009 by transferring the loan to Freddie
Mac, that paperwork from the loan shows no mortgage lien, and that Johnson
Bank recorded the Satisfaction of Mortgage for the property.11 (ECF Nos. 33,
34-2, 34-7.)
Under the Erie doctrine, a federal court exercising diversity
jurisdiction must follow the law of the state in which the action is brought.
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).
Therefore, this Court
applies Wisconsin choice of law principles to determine which state’s
substantive law applies. See Sybron Transition Corp. v. Sec. Ins. Co., 107
F.3d 1250, 1255 (7th Cir. 1997). Here, the parties are in apparent agreement
that Wisconsin substantive law applies, and this Court concurs.12 Although
11 Haster also asserts that Johnson Bank cannot establish she was unjustly
enriched and this action is controlled by contract.
12
In contract cases, Wisconsin choice of law principles point toward the law of
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not cited by either party, the Home Equity Agreement also provides that it is
governed by federal law and, to the extent not preempted by federal law, by
the laws of the state of Wisconsin without regard to its conflict of law
provisions. (Vela Aff., Ex. 1, “Governing Law,” 4.)
Contract interpretation presents a question of law. Estate of Kriefall v.
Sizzler USA Franchise, Inc., 342 Wis. 2d 29, 47-48, 816 N.W.2d 853, 862 (Wis.
2012). Wisconsin courts construe contracts to determine and give effect to the
intentions of the parties. Id. Parties are presumed to express their intentions
in the language of the contract. Id. “Where the language of a contract is
unambiguous and the parties’ intentions can be ascertained from the face of
the contract, [the courts] give effect to the language they employed.” Id. If
the terms of a contract are unambiguous, a court is barred from considering
any extrinsic evidence such as prior or contemporaneous understanding or
agreements between the parties. Tufail v. Midwest Hosp., LLC, 348 Wis. 2d
631, 644, 833 N.W.2d 586, 593 (Wis. 2013). Unambiguous contract language
the state with which the contract has the most significant relationship, also known as
the “grouping-of-contacts” rule. State Farm Mut. Auto. Ins. Co. v. Gillette, 251 Wis. 2d
561, 577, 641 N.W.2d 662, 670 (Wis. 2002). The law of the forum is presumed to apply
unless it is clear that the non-forum contacts are of “greater significance.” Drinkwater v.
Am. Family Mut. Ins. Co., 290 Wis. 2d 642, 658, 714 N.W.2d 568, 576 (Wis. 2006). The
relevant contacts include: (1) the place of contracting; (2) the place of negotiation of the
contract; (3) the place of performance; (4) the location of the subject matter of the
contract; and (5) the domiciles, places of incorporation and places of business of the
parties. In re Jafari, 569 F.3d 644, 650 (7th Cir. 2009). Those factors establish a
significant relationship with Wisconsin in this case; that is, the parties entered into the
agreements in Wisconsin, the agreements were to be performed in Wisconsin, Johnson
Bank is a Wisconsin entity and Haster was domiciled in Wisconsin at the time of the
agreements.
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is given its plain and ordinary meaning, as it is written.
Id. at 592.
A
contract is ambiguous if the language contained therein, when given its plain
and ordinary meaning, is susceptible to more than one reasonable
interpretation. Town Bank v. City Real Estate Dev., LLC, 330 Wis. 2d 340,
356, 793 N.W.2d 476, 484 (Wis. 2010). See also Seitzinger v. Comm. Health
Network, 270 Wis. 2d 1, 15, 676 N.W.2d 426, 433 (Wis. 2004) (noting that
language in a contract should be “interpreted consistent with what a
reasonable person would understand the words to mean under the
circumstances”).
A material breach by one party may excuse subsequent performance by
the other. Mgmt. Computer Servs., Inc. v. Hawkins, Ash, Baptie & Co., 206
Wis. 2d 158, 183, 557 N.W.2d 67, 77 (Wis. 1996). However, a party is not
automatically excused from future performance of contract obligations every
time the other party breaches. Id. “If the breach is relatively minor and not
‘of the essence’, the [party] is himself still bound by the contract; he can not
[sic] abandon performance and get damages for a ‘total’ breach by the [other
party].” Id. (Citations omitted.) In other words, “there must be so serious a
breach of the contract by the other party as to destroy the essential objects of
the contract.” Id. at 77-78. (Citation omitted.)
Haster’s brief cites Wisconsin cases regarding contract ambiguity,
although it does not identify any specific contract provision as being
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ambiguous. However, paragraphs 21 and 22 of Haster’s declaration contend
that the mortgage’s “full performance” clause makes full performance the only
unambiguously agreed upon event that permits the filing of a satisfaction of
mortgage and, in the alternative, that the clause is ambiguous with respect to
Johnson Bank’s filing the satisfaction of mortgage without Haster’s written
permission and in the absence of payment to the lender’s full satisfaction of all
indebtedness due under the mortgage and subsequent discharge.
In relevant part, the mortgage “full performance” clause states:
If [Haster] pays all the indebtedness when due, terminates the
credit line account, and otherwise performs all the obligations
imposed upon [Haster] under this Mortgage, Lender shall
execute and deliver to [Haster] a suitable satisfaction of this
Mortgage and suitable statements of termination of any
financing statement on file evidencing Lender’s security interest
in the Rents and the personal property.
(Vela Aff., Ex. 2, “Full Performance,” 3-4.) As pertinent to this case, the
clause imposes an obligation upon the lender to file a satisfaction of mortgage
when the borrower repays of all of the monies borrowed from the lender and
terminates the credit line account. The clause is clear and unambiguous.
Estate of Kriefall, 816 N.W.2d at 862. It is not susceptible to more than one
reasonable interpretation. Town Bank, 793 N.W.2d at 484. The clause is
intended to obligate the lender to file a mortgage satisfaction upon the
borrower’s fulfillment of his or her contractual obligations under the
mortgage. However, it does not contain any language restricting a lender to
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filing a satisfaction of mortgage only in that situation. Thus, Haster has not
established that Johnson Bank committed a material breach by filing the
satisfaction of mortgage.
She has also not established that the full
performance clause is ambiguous.
In paragraph 26 of her declaration, Haster contends that the Home
Equity Agreement contains a mandatory collateral provision demonstrating
the parties’ intention that the lien last as long as debt. She relies upon the
following statement “You acknowledge this Agreement is secured by the
following collateral described the security instrument listed herein: a
Mortgage dated October 6, 2008, to us on real property located in Waukesha
County, State of Wisconsin.” (Vela Aff., Ex. 1, “Collateral,” 2.) This provision
simply means that Haster recognizes the mortgage on her home secures the
line of credit. No mandatory words such as “shall” or “must” appear in the
provision. Riley v. Extendicare Health Facilities, Inc., 345 Wis. 2d 804, 825,
826 N.W. 2d 398, 409 (Wis. Ct. App. 2012) (regarding “shall”).
The Home Equity Agreement also states “[y]ou agree that you will
provide us with a current financial statement, a new credit application, or
both, annually on forms provided by us. Based upon this information, we will
conduct an annual review of your Credit Line Account.” (Vela Aff., Ex. 1,
“Annual Review,” 4.) The foregoing provision entitles Johnson Bank to make
annual requests for Haster’s current financial statement and/or a new credit
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application and to annually review Haster’s credit line account. Contrary to
Haster’s contention, the provision, lacking mandatory language, does not
require Johnson Bank to conduct annual reviews of her credit line account.
See Riley, 826 N.W. 2d at 409.
Haster asserts that Johnson Bank breached its duty of good faith,
citing its answers to interrogatories numbers seven and nine and stating that
her contentions are set forth in her declaration. The Wisconsin Supreme
Court has held that “every contract implies good faith and fair dealing
between the parties to it. . . .” Runzheimer Int’l, Ltd. v. Friedlen, 362 Wis. 2d
100, 126, 862 N.W.2d 879, 891 (Wis. 2015) (Citations omitted). Wisconsin
disfavors “following the letter but not the spirit of an agreement, and . . . it
[is] deemed a violation of the covenant of good faith and fair dealing to do so.”
Id. at 891-92 (Citation omitted). As an example, Runzhemier states “[w]hen
an employer promises not to fire an existing at-will employee if the employee
agrees to sign a restrictive covenant, the employer violates the spirit of the
agreement when the employer fires the employee moments after the
employee signs the covenant.” Id. at 892.
Johnson Bank responded “by failing to make the required payments
since November 2013 and refusing to cooperate in the conversion of the
HELOC to a different type of loan product” to Haster’s interrogatory seven,
which requests the bank’s factual and legal basis for contending that Haster
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breached the contract. (Haster Resp., Ex. Q, 4.) (ECF No. 34-8.) Johnson
Bank’s answer to interrogatory number nine regarding its factual and legal
basis for asserting it acted in good faith and fairly dealt with Haster during
their contractual relationship, states in relevant part “upon learning the
collateral was insufficient to support the HELOC, Johnson Bank reached out
to Defendant in order to transition her to a different loan product better
suited for the circumstances.” (Id. at 5.) Haster’s basis for relying upon the
two foregoing responses as evidence of Johnson Bank’s breach of the implied
duty of good faith and fair dealing is neither stated nor apparent.
Equitable estoppel is a bar to the assertion of what would otherwise be
a right; it does not of itself create a right. Murray v. City of Milwaukee, 252
Wis. 2d 613, 625, 642 N.W.2d 541, 547 (Wis. Ct. App. 2002) (citing Utschig v.
McClone, 16 Wis. 2d 506, 509, 114 N.W.2d 854 (Wis. 1962)).
The
requirements of equitable estoppel are: (1) action or inaction, (2) on the part
of one against whom estoppel is asserted, (3) which induces reasonable
reliance thereon by the other, either in action or non-action, and (4) which is
to his or her detriment. Id. at 547 n.9 (citing Milas v. Labor Ass’n of Wis.,
Inc., 214 Wis. 2d 1, 11-12, 571 N.W.2d 656 (Wis. 1997)). In this regard,
Haster relies upon Johnson Bank’s failure to respond to her October letter.
However, given the multiple prior contacts between the parties during which
Johnson Bank maintained that Haster was obligated to repay the amounts
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due under the Home Equity Agreement, no reasonable jury would find that
Haster’s reliance on Johnson Bank’s failure to respond to her letter was
reasonable.
A plaintiff who seeks affirmative equitable relief must have “clean
hands” before the court will entertain the plea. S & M Rotogravure Serv.,
Inc. v. Baer, 77 Wis. 2d 454, 466, 252 N.W.2d 913, 918-19 (Wis. 1977).
Johnson Bank’s breach of contract claim is an action at law for damages, see
Bischoff v. Hustisford State Bank, 195 Wis. 312, 218 N.W. 353, 355 (Wis.
1928). Since Johnson Bank’s summary judgment motion does not involve a
request for affirmative equitable relief, the clean hands doctrine is not
applicable.
Haster also contends that Johnson Bank’s filing of the mortgage
satisfaction extinguished her obligations under the Home Equity Agreement.
However, a mortgage and a promissory note are two separate and distinct
legal documents. Thorpe v. Mindeman, 123 Wis. 149, 101 N.W. 417, 419 (Wis.
1904).
While the documents may be construed together for purposes of
interpretation, a mortgage and a promissory note form two separate contracts.
Id. at 420.
Further, “[t]he holder of the note may discard the mortgage
entirely, and sue and recover on his note. . . .” Id. A promissory note compels
one party to loan money to another party, normally upon set repayment
terms, with an applicable interest rate. See Id. at 419. A mortgage, on the
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other hand, generally grants the individual or entity making the loan an
interest in real property owned by the borrower. See Id. Not all promissory
notes require a mortgage. A promissory note can survive without a mortgage,
and even after satisfaction of the mortgage. In other words, the discharge of a
mortgage does not necessarily establish payment and release of the
underlying indebtedness. See Latton v. McCarty, 142 Wis. 190, 125 N.W. 430,
432 (Wis. 1910); Kellogg Bros. Lumber Co. v. Mularkey, 214 Wis. 537, 252
N.W. 596, 597 (Wis. 1934).
In this case, nothing in the Satisfaction of Mortgage states that Haster
is released from any liability or obligations under the Home Equity
Agreement.
The only reference to the Home Equity Agreement in the
Satisfaction of Mortgage is the dollar amount secured by the Mortgage.
Therefore, the Satisfaction of Mortgage has no effect on Haster’s liabilities
and obligations under the Home Equity Agreement.
Even accepting Haster’s position that the Satisfaction of Mortgage
cancelled the Home Equity Agreement, the amount she borrowed with
interest is still due and owing.
Construing the facts in the light most
favorable to Haster, she admits she drew $249,900.50 under the Home Equity
Agreement.
A defendant must affirmatively allege making the required
payments under a note and mortgage to raise an issue when a plaintiff alleges
non-payment. Virkshus v. Virkshus, 250 Wis. 90, 95, 26 N.W. 2d 156, 158-59
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(Wis. 1947). Here, it is undisputed that Haster has not made any payments
on the Home Equity Agreement since November 2013, making her in default
under the terms of the Agreement. Having given her notice of the default,
Johnson Bank is entitled to recover the outstanding principle and interest due
under the Agreement.
Moreover, neither Haster’s evidence nor her arguments excuse nonpayment.
The July 2009 refinance papers state that Johnson Bank will
continue to service her mortgage – i.e., collect payments and handle other
matters.
This is supported by Johnson Bank documents post-dating July
2009, including two signed by Haster – the Change in Terms Agreement (Vela
Aff., Ex. 4) and the Automatic Payment Option Authorization (Haster Resp.,
Ex. O) (ECF No. 34-6). Haster has not presented any evidence indicating that
she made payments on the Home Equity Agreement which might otherwise
release the mortgage.
Viewing the facts in the light most favorable to Haster, she borrowed
nearly a quarter of a million dollars from Johnson Bank. Having conducted
an annual review of Haster’s loan, Johnson Bank gave notice to Haster and
terminated the Home Equity Agreement due to insufficient collateral. It also
gave Haster the option of converting the Home Equity Agreement into a Home
Equity Term Loan — Haster declined. Although Haster disputes Johnson
Bank’s conclusion that the collateral was insufficient, contending that at the
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time the Home Equity Agreement and Mortgage were signed the loan to
equity value was 160% percent of the appraised value of her home, it is
undisputed that Haster has made no payments on the line of credit since
November 2013. As a result, Johnson Bank sent her a Notice of Right to Cure
letter. Haster failed to make the necessary payments to cure her default.
And, Johnson Bank responded by initiating this action.
Johnson Bank is
entitled to judgment finding that Haster breached their contract because
Haster has not made the required payments and is in default under the Home
Equity Agreement. Failure to meet the repayment terms entitled Johnson
Bank to terminate the Agreement and require the entire outstanding balance
due in one payment. (See Vela Aff., Ex. 1, “Termination and Acceleration,” 3.)
Despite Haster’s legal and factual arguments, she has not presented
any evidence to justify non-payment, nor has she overcome Johnson Bank’s
showing that it is entitled to summary judgment finding that, as a matter of
law, she breached the terms of the Home Equity Agreement and is liable for
the damages Johnson Bank sustained as a result of that breach.
However, given the factual dispute between the parties regarding the
amount Haster drew from the Home Equity Line of Credit, further
proceedings will be required to ascertain the amount of Johnson Bank’s
damages. Haster’s counterclaims also remain pending.
This matter is currently scheduled for a May 2, 2016, jury trial.
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However, the Court will not be available on that date. Therefore, the May 2,
2016, trial date is cancelled, and the April 18, 2016, final pretrial conference is
converted to a scheduling conference to set new final pretrial conference and
trial dates.
NOW, THEREFORE, BASED ON THE FOREGOING, IT IS
HEREBY ORDERED THAT:
Johnson Bank’s motion for summary judgment (ECF No. 17) on its
breach of contract claim is GRANTED as to breach and liability for damages;
and DENIED with respect to the amount of its damages; and
The May 2, 2016, trial date is cancelled, and the April 18, 2016, final
pretrial conference is converted to a telephone scheduling conference to set
new final pretrial conference and trial dates. The Court will initiate the call.
Dated at Milwaukee, Wisconsin, this 23rd day of February, 2016.
BY THE COURT:
__________________________
HON. RUDOLPH T. RANDA
U.S. District Judge
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