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Parties Involved:
Chicago Bancorp
Appellant
CitiMortgage
Appellee

Document Text:

United States Court of Appeals

For the Eighth Circuit

___________________________

No. 15-1375

___________________________

CitiMortgage, Inc.

lllllllllllllllllllll Plaintiff - Appellee

v.

Chicago Bancorp, Inc.

lllllllllllllllllllll Defendant - Appellant

____________

Appeal from United States District Court 

for the Eastern District of Missouri - St. Louis

____________

 Submitted: September 21, 2015

 Filed: December 21, 2015

____________

Before WOLLMAN, COLLOTON, and KELLY, Circuit Judges.

____________

WOLLMAN, Circuit Judge.

CitiMortgage, Inc. (CMI) and Chicago Bancorp, Inc. (Bancorp) entered into

a contract under which CMI agreed to buy residential mortgage loans underwritten

or originated by Bancorp, and Bancorp agreed to cure or repurchase any such loan

that CMI, in its “sole and exclusive discretion,” determined did not conform with the

terms of the contract. After Bancorp refused to cure or repurchase eleven loans, CMI

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filed this breach-of-contract suit. The district court concluded that Bancorp had

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breached the contract by refusing to cure or repurchase eight of the eleven loans, and

it granted CMI’s motion for summary judgment with respect to those loans. Bancorp 2

appeals, and we affirm.

CMI purchases mortgages originated or underwritten by certain approved

lenders, including Bancorp, and resells most of those loans to the Federal National

Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation

(Freddie Mac), or other investors in the secondary mortgage market. In 2004, CMI

and Bancorp entered intoCMI’s standard “Correspondent Agreement Form200” (the

agreement), which set forth the terms and conditions governing Bancorp’s sale of

loans to CMI and incorporated CMI’s, as well as Fannie Mae’s, detailed guidelines

for analyzing borrower and property data (CMI Manual). The agreement required

Bancorp to cure or repurchase any loan it sold to CMI if CMI, in its “sole and

exclusive discretion,” determined (1) that the loan had been “underwritten and/or

originated in violation of any term, condition, requirement or procedure contained in”

the agreement or the CMI Manual; (2) that the loan had been “underwritten and/or

originated based on any materially inaccurate information or material

misrepresentation” by a borrower or by Bancorp; or (3) that the loan had to “be

repurchased [by CMI] from any secondary market investor” as a result of Bancorp’s

failure to comply with any requirement set forth in the agreement or the CMI Manual. 

Add. of Appellant 64. 

The Honorable Catherine D. Perry, Chief Judge, United States District Court

1

for the Eastern District of Missouri.

The district court denied summary judgment on three of the loans originally 2

identified by CMI, and it later granted CMI’s motion to dismiss with prejudice the

claims related to those loans. 

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From 2004 to 2009, Bancorp sold more than 4,700 loans to CMI under the

agreement. Based on internal reviews or third-party reports, CMI determined that

eleven of those loans were defective under the terms of the agreement. CMI

forwarded notice of its determination to Bancorp, demanding that Bancorp cure or

repurchase the defective loans. When Bancorp refused, CMI filed suit to recover the

repurchase price, as set forth in the agreement. As stated above, the district court

granted summary judgment to CMI on eight of the eleven loans (the Bennett, Brown,

Curtis, Hansen, Maggio, Miller, Perez, and Villares loans). Applying Missouri law

and considering the plain language ofthe agreement and the undisputed evidence, the

district court concluded that Bancorp had breached the agreement by failing to cure

or repurchase the eight loans at issue. The court further concluded that Bancorp

failed to establish that CMI acted in bad faith, either in its determination that those

loans were defective under the agreement orin its subsequent treatment or disposition

of the underlying properties. CMI voluntarily dismissed its claims on the remaining

three loans (the Gelatka, McDonald, and Wade loans) with prejudice, and the court

entered final judgment, awarding CMI $1,283,068.07 under the agreement’s

repurchase price formula. 

Bancorp argues on appeal that summary judgment was inappropriate because

there were genuine issues of material fact regarding CMI’s good faith in determining

the materiality of the alleged misrepresentations or inaccuracies in the Brown,

Hansen, Maggio, and Perez loan applications and in the calculation of the amount of

damages due on the Bennett and Brown loans. Bancorp also argues that the district

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court erred in concluding that it was obligated to cure or repurchase the Curtis,

Maggio, and Villaresloans, because CMI wasthe underwriter of those loans and was

thus responsible for any misrepresentations or inaccuracies in those loans.

Bancorp does not appeal the district court’s order with respect to the Miller 3

loan.

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We review a grant ofsummary judgment de novo, viewing the facts in the light

most favorable to the nonmoving party, and affirming if there is no genuine issue of

material fact and the movant is entitled to judgment as a matter of law. Residential

Funding Co. v. Terrace Mortg. Co., 725 F.3d 910, 915 (8th Cir. 2013). To establish

a genuine issue of material fact, a party must provide sufficient probative evidence

to permit a finding in its favor. Id.

Bancorp first asserts that there were genuine issues of material fact regarding

whether CMI made a good-faith determination that the misrepresentations or

inaccuracies included in the loan applications of borrowers Brown (misrepresented

income and impermissible debt-to-income ratio), Hansen (misrepresented employer),

Maggio (misrepresented income and impermissible debt-to-income ratio), and Perez

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(undisclosed second mortgage on undisclosed additional property) were “material”

under the terms of the agreement. CMI responds that Bancorp’s arguments are

foreclosed by our decision in Residential Funding, in which a buyer of residential

mortgage loans brought a breach-of-contract claim when the seller refused to

repurchase loans deemed defective by the buyer. The parties’ agreement granted the

buyer sole discretion to determine whether a loan was defective and required the

seller to repurchase if the buyer made such a determination. The seller had the right

to appeal the buyer’s defectiveness determination, but the buyer also retained the sole

discretion to determine the validity of any such appeal. We first noted that under

Minnesota law, a court interpreting a contract must “attempt to determine the intent

CMI sold the Perez loan to Fannie Mae, which later discovered the

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misrepresentation and demanded that CMI repurchase the loan. CMI argued against

its own obligation to repurchase from Fannie Mae, but that fact alone is insufficient

to establish CMI’s bad faith. See, e.g., BJC Health Sys. v. Columbia Cas. Co., 478

F.3d 908, 914 (8th Cir. 2007) (concluding under Missouri law that proof of “flawed

or unreasonable” discretionary decision is insufficient; bad faith requires proof that

discretionary decision was intended “to evade the spirit of the transaction or . . . to

deny [the other party] the expected benefit of the contract” (citation omitted)). 

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of the parties . . . from the language of the contract.” Id. at 916 (citations omitted). 

And when the language in a contract is unambiguous, “courts should not rewrite,

modify, or limit its effect.” Id. (citation omitted). 

We went on to hold that because the operative language of the agreement was

clear and unambiguous, we were not entitled to look beyond the agreement’s terms. 

We noted that the agreement was “freely negotiated . . . between two sophisticated

parties” and that the seller “willingly agreed to place itself in this situation[,] . . . had

the opportunity to obtain advice from able counsel, and made its own decision to

enter into the contract.” Id. at 917. We reasoned that the seller could not “contract

away judicial review by granting [the buyer] the exclusive right to determine”

whether a loan was defective, “only to later ask a court to independently review [the

buyer’s] determination.” Id. at 915-16. 

In reaching this conclusion, we acknowledged that Minnesota courts imply a

covenant of good faith in every contract, which prevents a party from “unjustifiably

hinder[ing] the performance of another party” or from refusing to fulfill a contractual

obligation “based on an ulterior motive.” Id. at 917-18. But we rejected the seller’s

allegations that the buyer acted in bad faith in determining that specific loans were

defective, because “[a] party to a contract does not act in bad faith by asserting or

enforcing its legal and contractual rights.” Id. at 918 (citation and quotation marks

omitted). In other words, the buyer “did exactly what the contract allowed it to do,”

namely, determine that a loan was defective and demand repurchase. Id. We refused

to consider the seller’s arguments of bad faith related to specific loans, because it was

undisputed that the buyer determined that those loans were defective under the

agreement, a determination left to its sole and absolute discretion. We concluded that

for the court “[t]o inquire further by reviewing the validity of” that determination

would “contradict unambiguous contract language” in violation of Minnesota law. 

Id. at 920. 

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We conclude that Residential Funding controls our analysis here. Like

Minnesota courts, Missouri courts interpret a contract to give effect to the parties’

intent and, when a contract is unambiguous, intent “is discerned solely from the

contract’s language.” The Arbors at Sugar Creek Homeowners Ass’n v. Jefferson

Bank & Tr. Co., 464 S.W.3d 177, 183 (Mo. 2015). Under Missouri law, as under

Minnesota law, a covenant of good faith and fair dealing isimplied in every contract,

but “there can be no breach of the implied . . . covenant . . . where the contract

expressly permits the actions being challenged, and the defendant acts in accordance

with the express terms of the contract.” Id. at 185 (citations omitted). Similarly,

under both Missouri and Minnesota law, the implied covenant is breached only if a

party “exercises a judgment conferred by the express terms of the agreement in a

manner that evades the spirit of the agreement and denies the [other party] the

expected benefit of the agreement.” Glenn v. HealthLink HMO, Inc., 360 S.W.3d

866, 877 (Mo. Ct. App. 2012); see Minnwest Bank Cent. v. Flagship Props. LLC, 689

N.W.2d 295, 303 (Minn. Ct. App. 2004) (noting that the implied covenant “bars a

party from unjustifiably hindering the other party’s performance”). Likewise, when

there has been “no subterfuge,” and the contract’s “express terms” allowed for the

challenged action, there is no bad faith and thus no breach of the implied covenant.

The Arbors, 464 S.W.3d at 185; see Minnwest Bank Cent., 689 N.W.2d at 303

(noting that to prove a violation of the implied covenant, “a party must establish bad

faith by demonstrating that the adverse party has an ulterior motive for its refusal to

perform a contractual duty”). 

Like the buyer in Residential Funding, CMI had “sole and exclusive discretion

[to] determine” whether a loan was defective, including whether it was “based on any

materially inaccurate information or material misrepresentation.” Add. of Appellant

64. CMI and Bancorp, two sophisticated business entities, voluntarily negotiated and

entered into the agreement, and there is nothing ambiguous about the language used

therein. Like the seller in Residential Funding, Bancorp challenges the accuracy,

materiality, and good faith ofCMI’s loan-defectiveness determinations. Although the

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district court engaged in a loan-by-loan analysis to decide that CMI exercised its

discretion in good faith, we conclude that Residential Funding precludes such a

consideration. Our holding in Residential Funding is fatal to Bancorp’s allegations

that CMI exercised its unfettered discretion under the agreement in bad faith, because,

like the buyer in that case, CMI “did exactly what the contract allowed it to do” in

determining whether Bancorp’s loans were defective, and CMI did “not act in bad

faith by asserting or enforcing its legal and contractual rights.” Residential Funding,

725 F.3d at 918 (citation omitted). “To inquire further by reviewing the validity of

[CMI’s defectiveness] determination [would be to] contradict unambiguous contract

language,” something Missouri law does not allow us to do. Id. at 920. 

And even if CMI erroneously exercised its “sole and exclusive discretion”

under the contract, Bancorp has not provided evidence to establish that CMI acted in

bad faith. It is not enough “to show that a party invested with discretion made an

erroneous decision.” BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 914 (8th

Cir. 2007) (interpreting Missouri law). Rather, Bancorp was required to provide

evidence that CMI exercised its discretion in a way intended “to evade the spirit of

the transaction or . . . to deny [Bancorp] the expected benefit of the contract.” Id.

(noting that it is insufficient to provide evidence that a discretionary determination

“was flawed or unreasonable”) (citation omitted); see also Armour & Co. v. Inver

Grove Heights, 2 F.3d 276, 279 (8th Cir. 1993) (noting that “[c]onclusory affidavits

do not provide a basis upon which to deny motions for summary judgment”). 

Bancorp has presented no evidence that CMI exercised its discretion under the

agreement in a manner intended to sabotage or evade the spirit of the agreement or

to deny Bancorp the expected benefit of its bargain. See BJC Health Sys., 478 F.3d

at 914 (noting that the burden of proof is on the party asserting a bad-faith exercise

of discretion). Accordingly, we conclude that the district court did not err in granting

summary judgment on the Brown, Hansen, Maggio, and Perez loans. CMI exercised

its sole and absolute discretion under the unambiguous language of the agreement to

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determine that each of these loans was based on a material misrepresentation or

inaccuracy and was thus defective. Bancorp has provided no evidence that CMI

exercised its discretion in a manner that was intended to “evade[] the spirit of the

agreement and den[y] [Bancorp] the expected benefit of the agreement.” Glenn, 360

S.W.3d at 877. Bancorp “willingly agreed to place itself in thissituation” by granting

CMI sole and exclusive discretion to determine the defectiveness of any loan

purchased from Bancorp—the very determinations that it now seeks to challenge. 

See Residential Funding, 725 F.3d at 917. 

Bancorp next argues that the district court erred in granting summary judgment

in favor of CMI on the Bennett and Brown loans because genuine issues of material

fact exist with respect to the appropriate calculation of the repurchase price under the

agreement. Bancorp contends that CMI unreasonably delayed in disposing of these

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properties by specifically refusing to approve a deed in lieu of foreclosure or a short

sale that would have limited the decline in the properties’ value and the resulting

repurchase price. Bancorp argues that CMI’s conduct and the resulting increase in

the repurchase price was not reasonably foreseeable to Bancorp and was a violation

of CMI’s duty to mitigate damages. 

The “Cure or Repurchase” section of the agreement states that if Bancorp is

unable to cure a defective loan, Bancorp must repurchase that loan at the “Repurchase

Price,” which is defined as the sum of:

To the extent Bancorp argues that a genuine issue of material fact exists 5

regarding whether CMI unreasonably failed to mitigate damages on the Brown loan

because CMI ceded title to the underlying property to the City of Chicago after fire

and vandalism damage to the dwelling prompted the City to raze it, Bancorp failed

to raise this argument before the district court, and we will not consider it for the first

time on appeal. See Dubinsky v. Mermart, LLC, 595 F.3d 812, 819 (8th Cir. 2010). 

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(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 [CMI] 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.

Suppl. App’x of Appellee 84. Bancorp does not argue that this language is

ambiguous or thatCMI’s calculations under thisformula were erroneous with respect

to the Bennett and Brown loans. Instead, it contends that the legal doctrines of

foreseeability, mitigation, and good faith apply to modify this language; that CMI

failed to mitigate the amount of the repurchase price due on these loans in violation

of the implied covenant of good faith and fair dealing; and that Bancorp is not liable

for the full repurchase price because the amount of the repurchase price on these

loans was not reasonably foreseeable when the parties entered into the agreement. 

The district court rejected this argument. It observed that “CMI’s feet-dragging” in

disposing of the underlying properties “may have led to increased damages” but

nevertheless concluded that the repurchase price provision was “the measure the

parties agreed to. The damagesincurred . . . were not unforeseeable; rather, they were

explicitly bargained for.” Add. of Appellant 45. We agree. 

The agreement was the result of an arm’s length negotiation between two

sophisticated commercial entities. By entering into it, Bancorp knowingly accepted

the risk set forth by the plain language therein, namely, that the amount of the

repurchase price on a defective loan could increase if Bancorp refused to cure or

repurchase the loan in accordance with the terms of the agreement. Had Bancorp

repurchased these loans at the time of CMI’s initial demand, the questions of

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foreseeability and mitigation would not have arisen. See Resolution Tr. Corp. v. Key

Fin. Servs., Inc., 280 F.3d 12, 18 & n.14 (1st Cir. 2002) (applying New York law to

a similar provision, declining to apply damage-limiting legal doctrines and noting that

the provision was “designed to shift the risk to the selling party in the event that a

dispute arises,” making it “irrelevant that the loans may have suffered a loss in value

because of changing market conditions rather than” deficiencies in the loans

themselves); see also S. Fin. Grp., LLC v. McFarland State Bank, 763 F.3d 735, 742

(7th Cir. 2014) (noting that when the seller in Key Financial failed to repurchase on

demand, the buyer was left “holding the bag as the value of the mortgages declined,

thus pinning the risk of losses on the buyer when the parties had agreed that those

losses would fall on the seller”). 

The agreement obligated Bancorp to repurchase defective loans on demand,

thus “from the moment a proper repurchase demand was made, [Bancorp]—not

[CMI]—should have borne the risk of anymarketfluctuations.” Key Fin. Servs., Inc.,

280 F.3d at 18 n.14. As the district court noted, the parties explicitly bargained for

and agreed to the formula set forth in the repurchase price provision, and the amounts

calculated thereunder were not unforeseeable. See Add. of Appellant at 45; see also

CitiMortgage, Inc. v. Allied Mortg. Grp., Inc., 4:10CV1863, 2012 WL 5258745, at

*13 (E.D. Mo. Oct. 24, 2012) (“By entering into the [loan-repurchase] Agreement,

Allied consented to this method of calculating CMI’s damages based upon

application of the Repurchase Price formula set forth in . . . the Agreement”);

CitiMortgage, Inc. v. Reunion Mortg., Inc., 4:10CV1632, 2012 WL 5471165, at *13

(E.D. Mo. Nov. 9, 2012). “The kind of ‘reasonableness’ argument[s] for which [the

defendant] grasps [are] not present in the language of the contract. . . . [T]he district

court correctly relied on the language of the contract that these partiesfreely signed.” 

Residential Funding, 725 F.3d at 922. The damage-limiting doctrines cited by

Bancorp do not trump the plain, unambiguous, and bargained-for language of the

agreement. Bancorp’s “cries of injustice fall on deaf ears, as[it] freely contracted for

the obligations by which it now finds itself bound.” Key Fin. Servs., Inc., 280 F.3d

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at 18. The district court properly awarded CMI the repurchase price for the Brown

and Bennett loans, as calculated using the formula set forth in the agreement. 

Finally, Bancorp argues that summary judgment was improper on the Curtis,

Maggio, and Villaresloans because there is a genuine issue of material fact regarding

which party’s negligent underwriting caused the loans to be defective. Bancorp, the

originator of these loans, argues that because CMI was the underwriter, CMI was

responsible for verifying employment and income information on these loans. Here

again, the language ofthe agreement is clear and unequivocal—Bancorp wasrequired

to cure or repurchase a loan if CMI, in its sole and exclusive discretion, determined

that any loan was “underwritten and/or originated” based on any materially

inaccurate information ormisrepresentation. Add. of Appellant 64 (emphasis added). 

Bancorp originated these loans, and CMI exercised its discretion in determining that

they were originated based on material misrepresentations. The district court thus did

not err in granting summary judgment on these loans. 

The judgment is affirmed.

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