Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-15-03361/USCOURTS-ca7-15-03361-0/pdf.json

Parties Involved:
GSF Mortgage Corporation
Appellee
Nationwide Advantage Mortgage Company
Appellant

Document Text:

In the 

United States Court of Appeals 

For the Seventh Circuit ____________________

No. 15‐3361

NATIONWIDE ADVANTAGE MORTGAGE COMPANY,

Plaintiff‐Appellant,

v.

GSF MORTGAGE CORPORATION,

Defendant‐Appellee.

____________________

Appeal from the United States District Court for the

Eastern District of Wisconsin.

No. 2:13‐cv‐01420‐LA — Lynn Adelman, Judge.

____________________

ARGUED MAY 27, 2016 — DECIDED JUNE 27, 2016

____________________

Before POSNER and FLAUM, Circuit Judges, and ALONSO,

District Judge.

*

POSNER, Circuit Judge. Nationwide Advantage Mortgage

Company (we’ll call it NAMC for short) of Des Moines, Io‐

wa, a subsidiary of Nationwide Mutual Insurance Company

(itself affiliated with other insurance companies, many also

called Nationwide), buys, services, and sells residential

 

* Of the Northern District of Illinois, sitting by designation.

Case: 15-3361 Document: 27 Filed: 06/27/2016 Pages: 7
2 No. 15‐3361   

mortgages. GSF Mortgage Corporation is a residential‐

mortgage lender that also sells mortgages; its headquarters

are in Wisconsin. (The different states of the parties will fig‐

ure in our analysis.)

NAMC filed this diversity suit against GSF in a federal

district court in Wisconsin, charging breach of contract,

breach of fiduciary duty, fraud, and unjust enrichment. The

district judge granted summary judgment in favor of GSF on

all of NAMC’s claims, and so entered final judgment for

GSF, precipitating this appeal.

In 2006 the two companies had entered into a Corre‐

spondent Lender Purchase Agreement whereby GSF would

sell mortgage loans to NAMC. The agreement provided that

Iowa law would govern any disputes concerning it. GSF

wanted to use a computer program owned by Fannie Mae

(the name by which the Federal National Mortgage Associa‐

tion, which seeks to encourage mortgage lending, is general‐

ly known), called the Fannie Mae Desktop Originator Sys‐

tem (DO for short), which evaluates potential mortgagors to

determine whether they meet Fannie Mae’s eligibility stand‐

ards. To be allowed to obtain DO reports, however, GSF

needed to have at least one sponsoring lender. Any compa‐

ny that routinely sold mortgage loans to Fannie Mae was el‐

igible. GSF had several sponsors in the period relevant to

this case (2006 to 2011)—and one of them was NAMC.

Every time GSF downloaded a DO report it had to pay

Fannie Mae a $15 fee and the sponsoring lender had to pay

Fannie Mae between $20 and $28. GSF claims without con‐

tradiction that it didn’t know that the sponsoring lender as

well as the downloader had to pay a fee. Although in 2008

NAMC tried to terminate its Correspondent Lender Pur‐

Case: 15-3361 Document: 27 Filed: 06/27/2016 Pages: 7
No. 15‐3361 3

chase Agreement with GSF (and to simplify this opinion

we’ll assume it succeeded, though there is a dispute about

this), it failed to notify GSF to stop using it as a sponsoring

lender and GSF didn’t stop. Not until 2011 did NAMC re‐

scind its sponsorship of GSF—something it could have done

at any time simply by clicking a box on the DO website.

Between 2008, when NAMC had terminated or thought it

had terminated its lender purchase agreement with GSF, and

2011, when NAMC finally did terminate its sponsorship of

GSF on the DO system, NAMC was billed by Fannie Mae for

almost $278,000 in fees for GSF’s use of the system. It had

paid those fees, and now it seeks damages from GSF equal to

that amount, plus prejudgment interest.

The Correspondent Lender Purchase Agreement author‐

ized but did not require GSF to sell mortgages to NAMC

that NAMC would either service or resell. But GSF stopped

selling mortgages to NAMC in 2008, with the consequence

that NAMC no longer received any benefit from the spon‐

sorship costs that it was continuing to pay Fannie Mae; the

income flow that it had obtained from reselling or servicing

mortgages sold to it by GSF had dried up.

NAMC’s designation as a sponsoring lender of GSF was

not part of the Correspondent Lender Purchase Agreement,

and so NAMC did not cease to be a sponsoring lender when

the agreement expired, or indeed until three years later. And

in the meantime it had to and did pay a fee to Fannie Mae

every time GSF ordered a DO report from Fannie and in do‐

ing so designated NAMC as the sponsoring lender.

NAMC is a sophisticated enterprise, part of a huge con‐

glomerate; its failure to cancel its sponsorship of GSF when

Case: 15-3361 Document: 27 Filed: 06/27/2016 Pages: 7
4 No. 15‐3361   

it severed all its other relations to that company was an in‐

explicable blunder for which it has only itself to blame.

Its argument that GSF was “unjustly enriched” by

NAMC’s continued sponsorship after termination of the

Correspondent Lender Purchase Agreement with GSF also

fails. Remember that GSF claims to have been unaware (and

that NAMC does not dispute the claim) that Fannie Mae

charged a sponsoring lender a fee for GSF’s use of the DO.

NAMC—receiving monthly invoices from Fannie Mae that

identified GSF as a DO user sponsored by NAMC—had only

to inform Fannie Mae that it was not a sponsor of GSF, and

therefore should not be billed for GSF’s DO downloads, to

avoid the expenses that it is seeking to recover. What would

be unjust would be to force GSF to pay NAMC damages

based on fees that it had no reason to think its sponsor had

incurred and therefore no reason to expect to be liable for

them.

NAMC’s excuse for failing to learn from the Fannie Mae

invoices that GSF was a DO user sponsored by NAMC is

that the invoices used a number to identify GSF rather than

the company’s name. But of course NAMC knew the ID

numbers of all of the mortgage companies for which it was a

sponsoring lender, and so could readily have determined the

source of the DO charges that it was being assessed.

Its claim of unjust enrichment did however provoke a

dispute between the parties over choice of law that warrants

our brief attention. Remember that the Correspondent Lend‐

er Purchase Agreement provides that Iowa law is to govern

any disputes arising out of the agreement. But GSF points

out that NAMC’s claim of unjust enrichment stemming from

the dispute over liability for the fees charged it by Fannie

Case: 15-3361 Document: 27 Filed: 06/27/2016 Pages: 7
No. 15‐3361 5

Mae for DO downloads did not arise from the agreement.

The contract, executed before the downloads began and not

cancelled until much later, said nothing about downloads.

And the downloads thus being dehors the contract, the con‐

tract’s choice of law provision doesn’t apply to the parties’

dispute over unjust enrichment.

In any event, there’s no relevant difference between the

two states’ choice of law principles governing claims of un‐

just enrichment, a factor that under Wisconsin law renders a

conflicts of law analysis unnecessary and requires applying

the law of the forum state, which is Wisconsin. A.O. Smith

Corp. v. Allstate Insurance Companies, 588 N.W.2d 285, 294

(Wis. App. 1998). Iowa unjust‐enrichment law asks whether

“it is unjust to allow the defendant to retain the benefit un‐

der the circumstances,” Iowa Dept. of Human Services ex rel.

Palmer v. Unisys Corp., 637 N.W.2d 142, 155 (Ia. 2001), Wis‐

consin law whether the “acceptance or retention by the de‐

fendant of the benefit [takes place] under circumstances

making it inequitable for the defendant to retain the benefit

without payment of its value.” Puttkammer v. Minth, 266

N.W.2d 361, 363 (Wis. 1978). There is little if any substantive

difference between these formulas.

What is important to note, though this is not a choice of

law issue either, is that both states require, for a finding of

unjust enrichment, proof that the defendant is aware of the

benefit that he’s received and the plaintiff wants back. Credit

Bureau Enterprises, Inc. v. Pelo, 608 N.W.2d 20, 25 (Ia. 2000); S

& M Rotogravure Service, Inc. v. Baer, 252 N.W.2d 913, 915

(Wis. 1977). That is critical in this case. There is nothing un‐

just or inequitable (two words that in legal discourse mean

the same thing) about GSF’s refusing to reimburse NAMC

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6 No. 15‐3361   

for expenses that it had no reason to think that company had

incurred. Had it known it might have to pay such expenses

it might have adjusted its business arrangements to avoid

that liability.

In addition to arguing unjust enrichment, NAMC argues

that GSF violated the provision of the Correspondent Lender

Purchase Agreement that forbids disclosure, or inappropri‐

ate use, of proprietary information, which NAMC contends

includes its name and its sponsoring‐lender sponsorship

number. The fact of sponsorship is not proprietary infor‐

mation, however; NAMC’s name is known throughout the

industry. And all GSF did was select NAMC from a list of

sponsoring lenders on the DO system. We can assume that

the contents of the DO reports were proprietary, but the re‐

ports belonged to Fannie Mae rather than to NAMC.

In desperation it quotes, from paragraph 12 of the Corre‐

spondent Lender Purchase Agreement, a passage which

states that GSF agrees to indemnify NAMC, even after the

agreement is terminated, for “any and all claims, losses,

costs, and expenses, including reasonable attorneys’ fees,

which [NAMC] may incur.” But NAMC omits the rest of the

paragraph, which gives examples of covered acts and omis‐

sions. The examples make clear that a duty to indemnify can

arise only from wrongful acts or omissions by GSF that GSF

could reasonably have been expected to detect, such as

“origination of loans in violation of Applicable Law,”

“breach of any provision ... of [the Correspondent Lender

Purchase] Agreement,” “discrimination, malfeasance, negli‐

gence, failure to follow Participant Guidelines ... [or] Appli‐

cable Law,” or fraud in the origination of loans. There is no

evidence that GSF committed any of the specified misdeeds,

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No. 15‐3361 7

or even misdeeds similar to those specified in the Agree‐

ment. Remember that the Agreement does not address GSF’s

use of NAMC’s DO sponsorship, and so GSF did not violate

the Agreement in continuing to use NAMC as a sponsor af‐

ter their business relationship ended.

NAMC fires a scattershot of other arguments, all as weak

as or even weaker than the ones we’ve discussed, such as

that GSF was its agent and so had a fiduciary duty of care to

NAMC as principal—the Correspondent Lender Purchase

Agreement is explicit that the two companies are independ‐

ent contractors.

Enough said. The judgment of the district court is

AFFIRMED.

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