Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_09-cv-02282/USCOURTS-azd-2_09-cv-02282-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

M & I Bank, FSB, 

Plaintiff, 

vs. 

Ty Coughlin et al., 

Defendants. 

No. CV 09-02282-PHX-NVW

ORDER 

Before the Court is Plaintiff M&I Bank’s motion for partial summary judgment 

(Doc. 152), as addressed to Defendant Blue Brick Financial, LLC. The Court previously 

resolved M&I’s motion as to other defendants, but called for further briefing from M&I 

and Blue Brick. (Doc. 163.) Having received and considered the further briefing, and 

having heard oral argument, the Court will grant summary judgment in favor of Blue 

Brick on M&I’s contractual causes of action. 

Also before the Court are “Plaintiff’s Motion in Limine to Exclude All 

Information, Statements, Purported Evidence of Any Kind That: (1) Plaintiff’s 

Origination, Including Underwriting and its Lending Processes Was the Cause of the 

Loss; (2) Any Derogatory Comments Concerning the Loan Type or Product; and (3) the 

Defense of Contributory And/or Comparative Fault” (Doc. 105) and “Plaintiff’s Motion 

in Limine to Exclude the Report and Testimony of Michael Yancey” (Doc. 106). These 

motions will be denied without prejudice. 

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I. BACKGROUND 

A. Jarnagin’s Land 

The following facts are undisputed unless attributed to a party. Defendant James 

Jarnagin, wanted to sell a parcel of vacant land he owned in Mesa, Arizona. In early 

2008, Defendant Coughlin saw a “for sale” sign on Jarnagin’s lot and contacted Jarnagin 

to express interest. Jarnagin told Coughlin that the asking price was $285,000, but there 

was also an annexation fee associated with the lot of between $30,000 and $35,000. 

Jarnagin said he would sell for $317,000 and cover the annexation fee or he would sell 

for $285,000 and leave the annexation fee to Coughlin. Coughlin chose the $317,000 

option. Jarnagin then referred Coughlin to Defendant Blue Brick Financial, a mortgage 

brokerage where Jarnagin worked. 

B. Blue Brick’s Contract with M&I 

Blue Brick would eventually take Coughlin’s information and submit an 

application on his behalf to M&I. Blue Brick had a relationship with M&I through a 

“Mortgage Broker Settlement Services Agreement,” a contract governed by Nevada law. 

(Doc. 154 at 44, 48.) 

Through the settlement services agreement, Blue Brick agreed to “take 

information from [loan applicants], complete their application[s], and perform, at M&I’s 

request, in connection with each approved Mortgage Loan, at least five additional 

settlement services.” (Id. at 44.) “Settlement services” included the following: 

1. Take information from Applicants and fill out M&I’s 

Mortgage Loan application;[1]

2. Upon Applicants’ authorization, obtain Applicants’ credit 

report, analyze the Applicants’ income and debt and 

prequalify Applicants to determine the maximum mortgage 

that any Applicant can afford; 

 1

 This appears to duplicate the obligation, existing apart from “settlement services” 

clause, to complete applications on applicants’ behalf. No explanation is given. 

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* * * 

4. Collect financial information and other related documents 

in connection with the Mortgage Loan application process; 

5. Initiate or order requests for verifications of employment, 

deposits and other necessary Mortgage Loan verifications 

. . . . 

(Id. at 49.) 

The settlement services agreement also contained the following “warranty” clause: 

Broker represents and warrants that all information provided 

to M&I in connection with the submission of an application 

for a Mortgage Loan, including without limitation the 

contents of each application, is true, correct and complete and 

fairly presents the financial condition of the Applicant and 

does not contain any false or misleading information. 

(Id. at 45.) The agreement then went on to describe remedies available to M&I for Blue 

Brick’s breach, including a cure and repurchase provision: 

Upon discovery . . . of a breach of any of the representations 

and warranties set forth [above], the party discovering such 

breach shall give prompt written notice to the other party. [¶] 

Within thirty (30) days of . . . notice by M&I the Broker shall 

cure, in all material respects, any such breach or defect; or [¶] 

[i]f Broker is unable to cure the breach or defect within the 

cure period, it shall repurchase the Mortgage Loan(s) as 

selected and identified by M&I . . . . 

(Id. at 46 (section headings omitted).) The repurchase price was specified as the unpaid 

principal balance of the loan, along with unpaid interest, and any costs or fees incurred by 

M&I in enforcing its rights. (Id. at 47.) 

The contract also contained an indemnification clause: 

In addition to the cure and repurchase obligations [above], 

Broker shall indemnify and hold harmless M&I . . . against 

any loss, claim, liability, expense, penalty or other damage of 

any kind . . . incurred by reason of or arising out of or in 

connection with . . . Broker’s breach of any representation, 

warranty or covenant contained in this Agreement [or] 

Broker’s breach of any provision of this Agreement or failure 

to perform any obligation required hereunder . . . . 

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(Id.) 

C. Coughlin’s Application 

On March 8, 2008, Blue Brick submitted to M&I a mortgage application on behalf 

of Coughlin. The application listed the purchase price at $317,000 and requested a loan 

for $285,300. Coughlin stated on his application that he would provide “cash from 

borrower” — i.e., a down payment — of $40,833.70. 

Coughlin admitted at a later deposition that much of what he said on the 

application was not true, including his income, rent information, personal property 

information, bank balances, and tax returns. Coughlin also submitted an IRS form 4506-

T, which gave M&I permission to request his tax information directly from the IRS. 

M&I approved Coughlin’s application and funded and closed the transaction in 

mid-March 2008. On April 3, 2008, M&I submitted Coughlin’s form 4506-T to the IRS 

and quickly discovered that Coughlin had falsified his tax information on the loan 

application. But M&I took no immediate action against Coughlin, who made his 

monthly payments in May, June, July, and August. M&I accepted these payments. 

Meanwhile, M&I was 

[i]nvestigat[ing] the loan file to confirm the 

misrepresentations, determin[ing], if it could, additional 

misrepresentations, and investigat[ing] all of the loans 

submitted by Blue Brick to M&I. These tasks were 

performed to determine the extent of the risks M&I was 

facing concerning Coughlin and Blue Brick, in order to make 

an informed decision as to how to proceed. Ultimately, M&I 

ceased doing business with Blue Brick and in August 2008, 

the Coughlin matter was referred to its outside counsel, Smith 

Dollar PC. 

(Doc. 170 at 3.)2

 2

 This description is based on a declaration from an M&I manager familiar with 

the situation. The declaration was attached to M&I’s supplemental response. (Doc. 170.) 

In supplemental briefing, the parties did not engage in another round of statements of 

fact, admissions and denials, and so forth. Nonetheless, in Blue Brick’s supplemental 

reply brief, it characterizes M&I’s declaration as “uncontested.” (Doc. 175 at 4.) The 

Court therefore treats M&I’s description of what it did from April through August 2008 

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Outside counsel began communicating with Coughlin and Blue Brick about the 

matter in September 2008. Coughlin made, and M&I accepted, his monthly payments in 

September and October. During this time and through the end of the year, the parties 

considered various options to remedy the situation, none of which succeeded. M&I then 

began trustee’s sale proceedings On May 13, 2009, M&I acquired the property through a 

trustee’s sale credit bid. 

II. M&I’S BREACH OF CONTRACT AND WARRANTY CLAIMS AGAINST 

BLUE BRICK3

Blue Brick conveyed Coughlin’s false tax information (as well as other false 

information) to M&I. It is disputed whether Blue Brick knew that the information was 

false. However, M&I argues that Blue Brick can be contractually liable whether or not it 

knew the information was false. Specifically, M&I claims that Blue Brick breached the 

settlement services agreement’s warranty clause: 

Broker represents and warrants that all information provided 

to M&I in connection with the submission of an application 

for a Mortgage Loan, including without limitation the 

contents of each application, is true, correct and complete and 

fairly presents the financial condition of the Applicant and 

does not contain any false or misleading information. 

(Doc. 154 at 45.) M&I interprets this language as establishing something like strict 

liability against the broker for the borrower’s dishonesty. Blue Brick disputes this 

interpretation. 

A. Waiver 

In reviewing the parties’ positions on this dispute, the Court raised — and called 

for further briefing and argument on — the possibility of whether M&I waived any claim 

based on the warranty clause by accepting payments from Coughlin after discovering that 

 

as an undisputed fact. 

3

 As noted in the Court’s previous order, M&I’s breach of warranty claim is really 

a subset of its breach of contract claim, and both claims stand or fall together. (Doc. 163 

at 12.) The Court therefore analyzes them together. 

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he had falsified his tax information. The Court analogized to the principle of law that one 

who learns of a fraud and goes forward anyway loses any claim based on dishonesty. 

See, e.g., Edward Greenband Enters. of Ariz. v. Pepper, 112 Ariz. 115, 117, 538 P.2d 

389, 391 (1975) (“an action for fraud is lost if the injured party, after acquiring 

knowledge of the fraud, manifests to the other party an intention to affirm the contract”). 

Having received further briefing and oral argument, the waiver defense (and 

whether waiver as to Coughlin insulates Blue Brick) need not be addressed as such. The 

parties’ additional briefs raise a more direct argument regarding whether M&I satisfied 

its own obligations under the settlement services agreement. The answer to that question, 

discussed next, sufficiently resolves M&I’s motion. The Court therefore will not address 

waiver.4

B. M&I’s Performance Under the Settlement Services Agreement 

1. General Contract Principles Under Nevada Law 

Nevada law governs the settlement services agreement.5

 (Doc. 154 at 48.) In 

Nevada, breach of contract requires the plaintiff to prove four elements: “(1) formation of 

a valid contract; (2) performance or excuse of performance by the plaintiff; (3) material 

breach by the defendant; and (4) damages.” Laguerre v. Nev. Sys. of Higher Educ., ___ 

F. Supp. 2d ___, ___, 2011 WL 3444202, at *3 (D. Nev. Aug. 5, 2011) (citing Bernard v. 

Rockhill Dev. Co., 103 Nev. 132, 135, 734 P.2d 1238, 1240 (1987)). 

To the extent a contract needs interpretation, such interpretation is a question of 

law. May v. Anderson, 121 Nev. 668, 672, 119 P.3d 1254, 1257 (2005). The Court’s 

task is to interpret the contract to give effect to the intent of the parties. Sheehan & 

Sheehan v. Nelson Malley & Co., 121 Nev. 481, 488, 117 P.3d 219, 224 (2005). “When a 

contract is clear on its face, it will be construed from the written language and enforced 4

 This disposition moots M&I’s argument that Blue Brick should not be permitted 

to pursue this waiver theory because it allegedly failed to disclose it until the Court called 

for supplemental briefing. 

5

 Both sides’ briefs overlooked this point, citing Arizona law instead. 

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as written.” Canfora v. Coast Hotels & Casinos, Inc., 121 Nev. 771, 776, 121 P.3d 599, 

603 (2005) (internal quotation marks omitted). The contract should be construed as a 

whole, so that all of the provisions are considered together and, to the extent practicable, 

reconciled and harmonized. Eversole v. Sunrise Villas Homeowners, 112 Nev. 1255, 

1260, 925 P.2d 505, 509 (1996). 

2. M&I’s Failure to Demonstrate Performance Under the Cure & 

Repurchase Provision 

As noted, M&I interprets the warranty clause as applying to Blue Brick for any 

dishonesty it conveyed to M&I, knowingly or otherwise. But assuming this interpretation 

to be correct, M&I’s cause of action fails because it has not demonstrated its own 

“performance or excuse of performance.” Laguerre, ___ F. Supp. 2d at ___, 2011 WL 

3444202, at *3. The settlement services agreement specifies that “[u]pon discovery . . . 

of a breach of any of the representations and warranties set forth” — including the 

warranty clause — “the party discovering such breach shall give prompt written notice to 

the other party,” giving the other party thirty days to “cure, in all material respects, any 

such breach or defect.” (Doc. 154 at 46.) Under these terms, M&I’s performance 

depended on “prompt written notice” before it could sue Blue Brick for breach of the 

warranty (or, more precisely, for breach of the agreement to repurchase, which becomes 

effective upon breach of the warranty clause and failure to timely cure). M&I has not 

demonstrated such prompt notice. 

On April 3, 2008, M&I learned that Coughlin falsified his tax information. Under 

M&I’s own interpretation of the warranty clause, it therefore knew by April 3, 2008 that 

Blue Brick had breached its warranty. But M&I did not notify Blue Brick until 

September 2008 — about five months later. As a matter of law, five months is not 

“prompt written notice.” “Prompt” is commonly defined as “ready and quick to act as 

occasion demands: responding instantly . . . given without delay or hesitation.” 

Webster’s Third New International Dictionary 1816 (Philip Babcock Gove ed., 1971). 

Nothing in the agreement suggests that M&I’s five-month investigation of Coughlin and 

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of the other loans brokered by Blue Brick somehow changes the definition of “prompt” or 

otherwise excuses performance. The agreement simply says “prompt written notice,” 

and M&I did not perform. 

The parties have disputed whether the five-month delay prejudiced Blue Brick. 

Blue Brick claims that its chances of curing were much higher in April 2008 than in 

September 2008 or later (given the deterioration of the real estate market over that 

summer) and M&I protests that such a theory had never been raised until now, after 

discovery has closed. However, in Nevada, M&I has the burden of proving its 

performance, Laguerre, ___ F. Supp. 2d at ___, 2011 WL 3444202, at *3 — it is not 

Blue Brick’s burden to establish lack of performance and some sort of prejudice. 

3. The Inseparability of the Cure and Repurchase Provision and 

the Warranty Clause 

Even if Blue Brick had some sort of burden to establish prejudice, the failure of 

prompt written notice alone is such prejudice — at least under the interpretation that M&I 

insists upon. M&I claims that the warranty clause effectively makes Blue Brick an 

unconditional guarantor of the borrower, strictly liable for the outstanding amount of the 

loan if a single falsehood passes through it to M&I, even a falsehood Blue Brick could 

not have discovered. In exchange for giving M&I such a powerful remedy, Blue Brick 

received the cure and repurchase provision — an allocation of the right to attempt to fix 

the problem without having to pay off the loan. Given the momentous consequences of 

breaching the warranty clause, the benefit of Blue Brick’s bargain can only be achieved 

through M&I’s strict compliance with the “prompt written notice” requirement. Blue 

Brick need not prove what might have happened had notice been given earlier. 

M&I nonetheless contends that the only relevant portion of the contract is the 

warranty clause — or, more specifically, that breach of the warranty clause is sufficient 

in itself to give rise to a claim for damages, regardless of the cure and repurchase 

provision. This interpretation is untenable because it makes the cure and repurchase 

provision meaningless. “It is a well established principle of contract law . . . that where 

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two interpretations of a contract provision are possible, a court will prefer the 

interpretation which gives meaning to both provisions rather than an interpretation which 

renders one of the provisions meaningless.” Quirrion v. Sherman, 109 Nev. 62, 65, 846 

P.2d 1051, 1053 (1993). The cure and repurchase provision explicitly announces itself as 

the procedure to follow if the warranty clause has been breached, and as noted, it is an 

imperative procedure because it gives the broker an opportunity to resolve the situation 

before becoming obligated to repurchase the loan. If M&I could disregard it and sue 

solely for breach of the warranty clause, it is tantamount to saying that the cure and 

repurchase provision is optional, and therefore meaningless, depriving the broker of an 

important part of its bargain. Nevada law does not permit such an interpretation. 

The indemnification clause likewise cannot give M&I an independent right to sue 

for breach of the warranty clause without complying with the cure and repurchase 

provision. The indemnification clause says that the broker must indemnify M&I for any 

losses resulting from “Broker’s breach of any representation, warranty or covenant 

contained in this Agreement” and provides that the indemnification obligation is “[i]n 

addition to the cure and repurchase obligations.” (Id. at 47.) But the “in addition” 

language cannot be interpreted to make the cure and repurchase provision optional. The 

contract would then become illusory, holding the broker to its obligations whether or not 

M&I fulfilled its obligations. Accordingly, the contract does not permit M&I to seek 

damages for breach of the warranty clause without fulfilling the “prompt written notice” 

requirement in the cure and repurchase provision. 

M&I’s failure to provide prompt written notice was a failure to perform, thus 

negating an essential element of its breach of contract and warranty causes of action. 

Blue Brick did not move for summary judgment, but through further briefing and oral 

argument, this Court provided M&I and Blue Brick “notice and a reasonable time to 

respond” to the arguments forming the basis of this disposition. Fed. R. Civ. P. 56(f). 

Thus, summary judgment in Blue Brick’s favor will be granted on those causes of action. 

See id. 

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III. OUTSTANDING MOTIONS IN LIMINE 

M&I’s two outstanding motions in limine both seek to exclude any sort of 

evidence that M&I might have caused its own injuries through loose underwriting 

practices or irresponsible lending generally. Such evidence may be relevant at least to 

pure negligence causes of action. M&I has asserted negligence against Blue Brick and 

Lawyers Title, and those causes of action remain unresolved. If M&I drops those causes 

of action, the Court may revisit this issue. Accordingly, M&I’s motions in limine will be 

denied without prejudice. 

IT IS THEREFORE ORDERED that Plaintiff M&I Bank’s motion for partial 

summary judgment (Doc. 152) is DENIED with respect to its third and fourth causes of 

action. 

IT IS FURTHER ORDERED that summary judgment is GRANTED in favor of 

Defendant Blue Brick Financial and against Plaintiff M&I Bank with respect to M&I 

Bank’s third and fourth causes of action. 

IT IS FURTHER ORDERED that “Plaintiff’s Motion in Limine to Exclude All 

Information, Statements, Purported Evidence of Any Kind That: (1) Plaintiff’s 

Origination, Including Underwriting and its Lending Processes Was the Cause of the 

Loss; (2) Any Derogatory Comments Concerning the Loan Type or Product; and (3) the 

Defense of Contributory And/or Comparative Fault” (Doc. 105) and “Plaintiff’s Motion 

in Limine to Exclude the Report and Testimony of Michael Yancey” (Doc. 106) are 

DENIED without prejudice. 

Dated this 24th day of February, 2012. 

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