UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF OHIO 

WESTERN DIVISION AT DAYTON 

myCUmortgage, LLC, 

Plaintiff, 

vs. 

CENLAR FSB, 

Defendant. 

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Case No. 3:18-cv-00091 

District Judge Walter H. Rice 

Magistrate Judge Sharon L. Ovington 

REPORT AND RECOMMENDATIONS1

I. INTRODUCTION 

Plaintiff myCUmortgage, LLC (“myCU”) is an Ohio corporation transacting 

business in the Ohio mortgage industry. (Doc. #2, PageID #104). Defendant Cenlar FSB 

(“Cenlar”), a “wholesale bank specializing in mortgage sub-servicing nationwide,” 

agreed to sub-service residential mortgage loans for myCU through a mortgage 

subservicing agreement (“Agreement”). (Doc. #9, PageID #330). The Agreement was 

eventually terminated by myCU, who brought this suit against Cenlar for breach of 

contract and conversion. (Doc. 16, PageID #406). myCU seeks dismissal of Cenlar’s 

counterclaims for breach of contract, breach of implied covenant of good faith and fair 

dealing, and indemnification. (Doc. 16, PageID #407). 

 

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 Attached is a NOTICE to the parties regarding objections to this Report and Recommendations. 
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This case is before the Court upon Plaintiff’s Partial Motion to Dismiss and for 

Judgment on the Pleadings (Doc. #13), Defendant’s Memorandum in Opposition (Doc. 

#16), Plaintiff’s Reply in Support (Doc. #20), and the record as a whole. 

II. BACKGROUND 

Central to the dispute between Plaintiff myCU and Defendant Cenlar is the 

Agreement entered into by Cenlar on June 1, 2008 with Wright-Patt Financial Group, 

LTD, (“WPFG”). (Doc. #9, PageID #330). Plaintiff myCU is the successor in interest to 

WPFG and thus, a counterparty to the Agreement. (Doc. #9, PageID #331). The parties 

concur that the Agreement, under which Cenlar agreed to sub-service residential 

mortgage loans for Plaintiff myCU, must be construed in accordance with the laws of the 

State of New Jersey. (Doc. 9, PageID #330-31). 

The initial term of the Agreement was set to expire on May 31, 2013, but Cenlar 

and myCU extended the term of the Agreement twice. (Doc. 16, PageID #406). The 

First Amendment to the Subservicing Agreement (“First Amended Agreement”) 

extended the term until May 31, 2016 and the Second Amendment to the Subservicing 

Agreement (“Second Amended Agreement”) granted a further extension until May 31, 

2017. (Doc. #9, PageID #332). 

Of considerable importance is the fact that both amendments to the Agreement 

provided for the payment of Exit Fees to Cenlar. (Doc. 16, PageID #406). The 

Agreement connects the amount of an “Exit Fee” with Exhibit II of the Agreement. 

Exhibit II, in turn, sets the amounts of “Fees for Standard Services.” (Doc. 2, PageID

#122, § 1.9; see PageID #s 148-49). Cenlar asserts, “Pursuant to Sections 5.2 and 5.5 of 
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the Agreement, among others, Cenlar was entitled to pay the payment of Exit Fees from 

myCU.” (Doc. #9, PageID #352). 

Before the parties executed the Second Amended Agreement, myCU pointed out 

that, in its view, the Exit Fees provided in the Agreement constituted unenforceable 

penalties. (Doc. 9, PageID #354, ¶131). Nevertheless, myCU executed the Second 

Amended Agreement so that it had adequate time to build its own servicing platform. 

(Doc. 9, PageID #354; Doc. 2, PageID #106). 

The parties’ relationship began to languish in January 2017 when myCU notified 

Cenlar of its intent to allow the Agreement to expire on or around May 31, 2017. (Doc. 

9, PageID #337). myCU ultimately provided notice (on May 31, 2017) to Cenlar of 

termination of the Agreement without cause. (Doc. 16, PageID #406). Cenlar 

subsequently cooperated in transferring mortgage servicing to myCU. Additionally, 

Cenlar maintained that it was entitled to Exit Fees under the terms of Section 5.2 of the 

Agreement. Id. myCU refused to pay the Exit Fees upon demand by Cenlar. (Doc. 9, 

PageID #352). 

Due to this refusal, Cenlar deducted Exit Fees from the funds (apparently 

borrower escrow funds) it transferred to myCU. (Doc. 16, PageID #408). myCU 

alleges, and Cenlar denies, that Cenlar eventually retained $945,693.70. (Doc. #9, 

PageID #347, ¶89). Cenlar contends that it was entitled to withhold Exit Fees under 

Section 4.3—“Default and Right of Offset”—of the Agreement. 

Plaintiff commenced this action in the Court of Common Pleas, Greene County, 

seeking declaratory judgment and alleging breach of contract and conversion. (Doc. 16, 
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PageID #407; Doc. 2, PageID #114). Defendant removed the action to this Court and 

filed its Answer and Counterclaims, seeking declaratory judgment and alleging breach of 

contract, breach of implied covenant of good faith and fair dealing, and indemnification. 

(Doc. 16, PageID #407). myCU moved to dismiss Cenlar’s Counterclaims. (Doc. 16, 

PageID #407). 

III. STANDARD OF REVIEW 

A motion for judgment on the pleadings under Fed. R. Civ. P. 12(c) is evaluated 

under the same standards that apply to a motion to dismiss under Fed. R. Civ. P. 12(b)(6) 

for failure to state a claim upon which relief can be granted. Fritz v. Charter Tp. of 

Comstock, 592 F.3d 718, 722 (6th Cir. 2010). Two cases, Bell Atlantic Corp. v. 

Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) and Ashcroft v. Iqbal, 

556 U.S. 662, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009), guide the analysis for resolving 

a motion for judgment on the pleadings. See HDC, LLC v. City of Ann Arbor, 675 F.3d 

608, 611 (6th Cir. 2012); see also Fritz v. Charter Twp. of Comstock, 592 F.3d at 722. 

 Under Twombly and Iqbal, “all well-pleaded material allegations of the pleadings 

of the opposing party must be taken as true, and the motion may be granted only if the 

moving party is nevertheless clearly entitled to judgment.” Fritz, 592 F.3d at 722. See 

also Iqbal, 556 U.S. at 678; Tucker v. Middleburg-Legacy Place, 539 F.3d 545, 549 (6th 

Cir. 2008). A party is clearly entitled to judgment under Rule 12(c) “if there is an 

absence of law to support a claim of the type made or of facts sufficient to make a valid 

claim, or if on the face of the complaint there is an insurmountable bar to relief indicating 

that the plaintiff [here, Counterclaimant Cenlar] does not have a claim.” Mayrides v. 
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Delaware County Comm’rs, 666 F.Supp.2d 861, 866 (S.D. Ohio 2009) (Marbley, D.J.) 

(citation omitted). 

To survive a motion to dismiss or a motion for judgment on the pleadings, the 

moving party’s factual allegations must provide sufficient notice to the opposing party as 

to the claims alleged, and the moving party “must plead ‘sufficient factual matter’ to 

render the legal claim plausible, i.e., more than merely possible.” Fritz, 592 F.3d at 722 

(quoting, in part, Iqbal, 556 U.S. at 662). Facial plausibility is present if the moving 

party “pleads factual content that allows the court to draw the reasonable inference that 

the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. “‘[A] legal 

conclusion couched as a factual allegation’ need not be accepted as true..., nor are 

recitations of the elements of a cause of action sufficient.” Fritz, 592 F.3d at 722

(citations omitted). 

IV. DISCUSSION 

A. Choice of Law 

A federal court whose jurisdiction is based on diversity must apply the choice-oflaw rules of the state in which it sits. Miami Valley Mobile Health Servs. v. ExamOne 

Worldwide, 852 F. Supp. 2d 925, 931 (S.D. Ohio 2012) (Rice, D.J.) (citing Klaxon Co. v. 

Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941)). Thus, 

Ohio’s choice-of-law rules apply in this case. See Klaxon, 313 U.S. 496. Contractual 

choice-of-law provisions are valid and enforceable under Ohio law. Id. at 932 (citing 

Schulke Radio Prods., Ltd. v. Midwestern Broadcasting Co., 6 Ohio St.3d 436, 438-39, 6 
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Ohio B. 480, 453 N.E.2d 683, 686 (Ohio 1983)). For claims outside the scope of a 

contractual choice-of-law provision, Ohio’s conflict-of-law rules apply. Id. at 936. 

In applying conflict-of-law rules, the initial step is to classify the underlying 

claims in accordance with Ohio’s rules. In re Commercial Money Center, Inc., 

Equipment Lease Litigation, 603 F. Supp. 2d 1095, 1103 (N.D. Ohio 2009) (citing 

Restatement of the Law, 2D, Conflict of Laws § 7, Comment b). Contract and tort claims 

are treated differently under Ohio conflict-of-law rules. Hagberg v. Delphi Auto. Sys., 

268 F. Supp. 2d 855 (N.D. Ohio 2002) (citing Ohayon v. Safeco Ins. Co. of Illinois, 91 

Ohio St. 3d 474, 747 N.E.2d 206 (2001) (citations omitted)). When parties to a contract 

have chosen a state to govern their contractual rights and duties, section 187 of the 

Restatement (Second) of Conflicts applies. Id. at 861 (citing Restatement of the Law, 

2D, Conflict of Laws § 187). However, in accordance with Ohio law, “[t]he general rule 

for tort claims is a presumption toward applying the law of the state in which the injury 

occurred.” Safety Today, Inc. v. Roy, Case No. 2:12-cv-510, 2012 WL 2374984, at *6 

(S.D. Ohio, June 22, 2012) (citing In re Commercial Money Center, Inc., 603 F. Supp. 2d 

at 1105); see also Miami Valley Mobile Health Servs., 852 F. Supp. 2d at 937. 

Here, the parties do not dispute that at the very least, the breach of contract and 

indemnification claims are governed by New Jersey law in accordance with Section 9.7 

of the Agreement. (Doc. 13, PageID #374; Doc. 16, PageID #408). There is 

disagreement, however, as to whether New Jersey or Ohio law applies to the claim of 

breach of implied covenant of good faith and fair dealing. (Doc. 13, PageID #375; Doc. 

16, PageID #408). Under Ohio law, a claim for breach of implied covenant of good faith 
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and fair dealing is a tort claim even where the claim relates to “obligations arising from a 

contract.” Valente v. Univ. of Dayton, 689 F. Supp. 2d 910, 923-24 (S.D. Ohio 2010) 

(Merz, M.J.) (quoting In re Commercial Money Center, Inc., 603 F. Supp. 2d at 1107). 

Thus, because Cenlar’s claim for breach of implied covenant of good faith and fair 

dealing sounds in tort, the claim will be governed by the law of the place of injury. 

In this case, the place of injury is Ohio and the conduct causing the injury occurred 

in Ohio. Pursuant to the Agreement with Plaintiff my CU, an Ohio corporation, Cenlar 

conducted business in Ohio by providing residential mortgage loan servicing to Ohio 

consumers. (Doc. 9, PageID #330). Cenlar alleges that Plaintiff myCU entered into the 

Second Amended Agreement without intending to pay Exit Fees and with the purpose of 

denying Cenlar the benefit of the bargain under the Agreement. (Doc. 9, PageID #355). 

Cenlar contends that, as a result, when Plaintiff myCU refused to pay Exit Fees, Plaintiff 

myCU breached the implied covenant of good faith and fair dealing causing harm to 

Cenlar. (Doc. 9, PageID #355). Therefore, the place of injury and the law governing the 

counterclaim for breach of implied covenant of good faith and fair dealing is Ohio. 

B. Breach of Implied Covenant of Good Faith and Fair Dealing 

1. Ohio Law 

Plaintiff myCU seeks to dismiss Cenlar’s counterclaim for breach of implied 

covenant of good faith and fair dealing. Under Ohio law, there is an implied duty of 

good faith and fair dealing in every contract. Thomas & Marker Constr., Co. v. WalMart Stores, Inc., 2008 WL 4279860, at *23 (S.D. Ohio, Sept. 15, 2008) (Rose, D.J.) 

(citing Littlejohn v. Parrish, 163 Ohio App. 3d, 2005 Ohio 4850, 839 N.E.2d 49, 54 
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(Ohio Ct. App. 2005). However, there is not a separate cause of action for breach of such 

an implied duty when there is a contract governing the relationship between the parties. 

Id. (citing Littlejohn, 839 N.E.2d at 54; Lakota Local School District Board of Education 

v. Brickner, 108 Ohio App. 3d 637, 671 N.E.2d 578, 584 (Ohio Ct. App. 1996)). Here, 

Plaintiff myCU and Cenlar were acting pursuant to the Agreement and the Second 

Amended Agreement. (Doc. #9, PageID #332; Doc. 9, PageID #350-51). As a result, 

since Plaintiff myCU and Cenlar were acting pursuant to a contract, Cenlar’s 

counterclaim for breach of implied covenant of good faith and fair dealing fails as an 

independent cause of action under Ohio law. Thus, the counterclaim for breach of 

implied covenant of good faith and fair dealing fails as a matter of law. 

In the event that New Jersey, rather than Ohio law applies, the following analysis 

evaluates the viability of Cenlar’s counterclaim for breach of implied covenant of good 

faith and fair dealing under New Jersey law. 

2. New Jersey Law 

Plaintiff myCU contends that, even if New Jersey law was found to govern 

Cenlar’s counterclaim for breach of implied covenant of good faith and fair dealing, the 

counterclaim should still be dismissed. Under New Jersey law, a claim for breach of 

implied covenant of good faith and fair dealing “is not a tort claim, but rather contractual 

in nature.” Fregara v. Jet Aviation Business Jets, 764 F. Supp. 940 (D.N.J. 1991) (citing 

Noye v. Hoffman La Roche, Inc., 238 N.J. Super. 430, 437 (N.J. App. Div. 1990)). The 

purpose of the implied covenant “is to ensure that contracting parties refrain from doing 
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anything which will have the effect of destroying or injuring the right of the other party to 

receive the benefits of the contract.” T.J. McDermott Transp. Co. v. Cummins, Inc., No. 

14-04209, 2015 WL 1119475, at *13 (D.N.J., Mar. 11, 2015) (citation omitted). 

Plaintiff myCU contends that, even if Cenlar’s counterclaim for breach of implied 

covenant of good faith and fair dealing is governed by New Jersey law, it should be 

dismissed for four reasons. 

a. Cenlar’s Allegations Fit Within the Allowable Circumstances 

under New Jersey Law 

The implied covenant of good faith and fair dealing exists in every contract under 

New Jersey law, but “is to be interpreted narrowly, lest it ‘become an all-embracing 

statement of the parties’ obligations under contract law, imposing unintended obligations 

upon parties and destroying the mutual benefits created by legally binding agreements.” 

Cargill Global Trading v. Applied Dev. Co., 706 F. Supp. 2d 563 (D.N.J. 2010) (quoting 

Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assoc., 182 N.J. 210, 224, 

864 A.2d 387 (2005)). Thus, there are three specific instances where there is an 

independent cause of action for such a claim: 

(1) to allow the inclusion of additional terms and conditions not expressly 

set forth in the contract, but consistent with the parties’ contractual 

expectations; (2) to allow redress for a contracting party’s bad faith 

performance of an agreement, when it is pretext for the exercise of a 

contractual right to terminate, even where the defendant has not breached 

any express term; and (3) to rectify a party’s unfair exercise of discretion 

regarding its contract performance. 
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Barrows v. Chase Manhattan Mortg. Corp., 465 F. Supp. 2d 347, 365 (D.N.J. 2006) 

(citing Seidenberg v. Summit Bank, 348 N.J. Super. 243, 791 A.2d 1068, 1077 (N.J. 

Super. Ct. App. Div. 2002)). 

Plaintiff myCU first contends that Cenlar’s counterclaim for the breach of implied 

covenant of good faith and fair dealing does not fit within the limited instances allowable 

under New Jersey law. This contention lacks merit. Cenlar’s contentions fit squarely 

within the third allowable circumstance regarding rectifying a party’s unfair exercise of 

discretion of contract performance because Cenlar claims that Plaintiff myCU refused to 

pay the Exit Fees despite their agreement to do so under the Agreement and Second 

Amended Agreement. See Alin v. Am. Honda Motor Co., No. 08-4825, 2010 WL 

1372308, at *12 (D.N.J. Mar. 31, 2010) (finding that plaintiff’s allegations that defendant 

exercised discretion in not performing under a warranty fell within the limited 

circumstances of a claim for implied covenant of good faith and fair dealing under New 

Jersey law); (Doc. 9, PageID #355). Therefore, Cenlar properly pleads an independent 

cause of action for the breach of implied covenant of good faith and fair dealing within 

the circumstances permissible under New Jersey law. 

b. Cenlar Pleads the Elements of the Counterclaim 

To succeed on a claim for the breach of implied covenant of good faith and fair 

dealing, the moving party must prove that: “(1) a contract existed between the [parties]; 

(2) the [moving party] performed under the terms of the contract [unless excused]; (3) the 

[non-moving party] engaged in conduct, apart from its contractual obligations, without 

good faith and for the purpose of depriving the [moving party] of the rights and benefits 
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under the contract; and (4) the [non-moving party]’s conduct caused the [moving party] 

to suffer injury, damage, loss or harm.” Jatras v. Bank of America Corp., No. 09-3107, 

2010 WL 5418912, at *7 (D.N.J., Dec. 23, 2010) (citing Wade v. Kessler Inst., 343 N.J. 

Super. 338, 778 A.2d 580, 586 (N.J. Super. Ct. App. Div. 2001)). Although the moving 

party must demonstrate bad motive or intention, only an allegation of bad faith is 

required at the pleading stage. T.J. McDermott Transp. Co., 2015 WL 1119475, at *13 

(citing Wilson v. Amerada Hess Corp., 168 N.J. 236, 773 A.2d 1121, 1126 (N.J. 2001); 

Seidenberg, 791 A.2d at 1080). 

Cenlar properly pleads a counterclaim for breach of implied covenant of good 

faith and fair dealing under New Jersey law. As an initial matter, the Agreement between 

Plaintiff myCU and Cenlar constitutes a valid contact. (Doc. #9, PageID #332; Doc. 9, 

PageID #350-51). Cenlar pleads that it performed under the terms of the Agreement. 

(Doc. 9, PageID #353). 

Additionally, Cenlar alleges that Plaintiff myCU acted with the purpose of 

denying Cenlar the benefit of the bargain. (Doc. 9, PageID #354). Prior to entering into 

the Second Amended Agreement, Cenlar contends that Plaintiff myCU expressed a belief 

that the Exit Fees under the Agreement were unenforceable penalties. (Doc. 9, PageID 

#354). Cenlar further pleads that Plaintiff myCU entered into the Second Amended 

Agreement “knowing that it never intended to pay the Exit Fees as required by the 

Agreement and subsequent amendments” and that this was for the purpose of depriving 

Cenlar of the benefit of the bargain. (Doc. 9, PageID #354). Plaintiff myCU’s refusal to 

pay the Exit Fee obligation, Cenlar contends, resulted in a breach of the implied covenant 
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of good faith and fair dealing. (Doc. 9, PageID #355). Therefore, Cenlar properly pleads 

and alleges that Plaintiff myCU acted with bad faith and with the purpose of depriving 

Cenlar of the rights and benefits under the Agreement. 

Fourth and finally, Cenlar properly pleads that Plaintiff myCU’s conduct caused 

Cenlar harm. Cenlar specifically states that it incurred additional costs as a result of its 

reliance on Plaintiff myCU’s commitment to pay Exit Fees by entering into the Second 

Amended Agreement. (Doc. 9, PageID #355). Additionally, Cenlar alleges that Plaintiff 

myCU’s ultimate refusal to pay the Exit Fees constitutes a breach of the implied covenant 

of good faith and fair dealing that caused Cenlar additional harm. (Doc. 9, PageID 

#355). Hence, Cenlar properly pleads the fourth and final element of a counterclaim for 

breach of implied covenant of good faith and fair dealing under New Jersey law. 

c. Cenlar Properly Pleads Plaintiff myCU’s Conduct During 

Performance 

There can be no claim for breach of implied covenant of good faith and fair 

dealing prior to the creation of a contract. Galicki v. New Jersey, No. 14-169, 2016 WL 

4950995, at *30 (D.N.J., Sept. 15, 2016). Rather, the covenant “focuses on the 

performance and enforcement of a valid agreement more than it regulates contract 

formation.” Jubelt v. United Mortg. Bankers, Ltd., No. 13-7150, 2015 WL 3970227 

(D.N.J., June 30, 2015) (quoting In re Estate of Fischer, No. 107359, 2011 WL 2314353, 

at *4 (N.J. Super. Ct. App. Div., June 14, 2011)). 

Plaintiff myCU contends that Cenlar’s focus on alleged intentions and statements 

of Plaintiff myCU before entering into the Second Amended Agreement, rather than on 
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problems with myCU’s performance, constitutes an improper basis for a counterclaim of 

breach of implied covenant of good faith and fair dealing. (Doc. 13, PageID #381). This 

contention is not well-taken. Although Cenlar does allege that myCU expressed a belief 

prior to entering into the Second Amended Agreement with Cenlar that the Exit Fees 

were unenforceable penalties, Cenlar alleges that the breach of the covenant occurred 

during performance after the parties executed the Second Amended Agreement. (Doc. 9, 

PageID #354-55). Specifically, Cenlar contends that it relied on Plaintiff myCU’s 

commitment to pay Exit Fees when Plaintiff myCU entered into the Second Amended 

Agreement and thus, Plaintiff myCU “acted in bad faith during the period in which it 

induced Cenlar to perform all of its servicing transfer obligations.” (Doc. 9, PageID 

#355; Doc. 16, PageID #412). Therefore, Cenlar properly alleges that Plaintiff myCU 

breached the implied covenant of good faith and fair dealing during performance of the 

Agreement. 

d. Cenlar’s Counterclaim is Duplicative 

Under New Jersey law, the moving party “may not maintain a separate action for 

breach of implied covenant of good faith and fair dealing [where] it would be duplicative 

of [its] breach of contract claim.” T.J. McDermott Transp. Co., 2015 WL 1119475, at 

*13 (quoting Hahn v. OnBoard LLC, No. 09-3639, 2009 WL 4508580, at *6 (D.N.J., 

Nov. 16, 2009)). A party “cannot merely recite the same conduct it alleges for Plaintiff’s 

breach of contract and transform such conduct into a breach of the implied duty of good 

faith and fair dealing by appending a conclusory label that those actions breaching the 

contract were also done in bad faith.” Intervet, Inc. v. Mileutis, Ltd., No. 15-1371, 2016 
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WL 740267, at *5 (D.N.J. Feb. 24, 2016). Where a claim for breach of implied covenant 

of good faith and fair dealing is duplicative or redundant of a claim for breach of 

contract, then it must be dismissed. See id. 

Plaintiff myCU contends that Cenlar’s counterclaim for breach of implied 

covenant of good faith and fair dealing should be dismissed because it matches Cenlar’s 

allegation for breach of contract. This contention is well-taken. Cenlar alleges for its 

breach of contract counterclaim that Plaintiff myCU anticipatorily repudiated the 

Agreement by refusing to pay Exit Fees and that the repudiation “constituted a material 

breach of the Agreement.” (Doc. 9, PageID # 354). Similarly, Cenlar alleges that 

Plaintiff myCU’s “later repudiation of its obligation to pay Exit Fees to Cenlar breached 

the implied covenant of good faith and fair dealing contained within the Agreement.” 

(Doc. 9, PageID #355). Cenlar’s counterclaims for breach of contract and breach of 

implied covenant of good faith and fair dealing are both predicated on the same conduct, 

which is Plaintiff myCU’s repudiation of its Exit Fee obligation. Thus, Cenlar’s 

counterclaims for the breach of contract and breach of implied covenant of good faith and 

fair dealing are redundant. 

Cenlar argues that its counterclaim for breach of implied covenant of good faith 

and fair dealing is not duplicative because the claim is premised on Plaintiff myCU’s 

“knowledge and intent from the period when it negotiated the Second Amended 

Agreement until the point in time that it repudiated its obligation to pay fees.” (Doc. 16, 

PageID #413). Although, Cenlar does plead that Plaintiff myCU expressed reservations 

about the enforceability of the penalties, but entered into the Second Amended 
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Agreement anyway, the counterclaims for breach of implied covenant of good faith and 

fair dealing and breach of contract are nevertheless ultimately premised on Plaintiff 

myCU’s refusal to pay Exit Fees. (Doc. 9, PageID #354-55). Merely alleging that 

Plaintiff myCU’s repudiation of the Exit Fee obligation was done in bad faith is 

insufficient for Cenlar to maintain the counterclaim for the breach of implied covenant of 

good faith and fair dealing as a separate action. See Intervet, Inc., 2016 WL 740267, at 

*5. Therefore, Cenlar’s counterclaim for breach of implied covenant of good faith and 

fair dealing is duplicative of the breach of contract counterclaim under New Jersey law. 

As a result, even if Cenlar’s counterclaim for breach of implied covenant of good 

faith and fair dealing were governed by New Jersey law, the counterclaim would fail as a 

matter of law. 

C. Breach of Contract 

The parties agree that Cenlar’s counterclaim for breach of contract is governed by 

New Jersey law. Plaintiff myCU contends that Cenlar’s counterclaim for breach of 

contract should be dismissed for failing to plausibly plead it suffered actual damages. 

To satisfy the pleading requirement for a breach of contract claim under New 

Jersey law, the moving party must allege “(1) a contract, (2) a breach of that contract, (3) 

damages flowing therefrom; and (4) that the party performed its own contractual duties.” 

Video Pipeline, Inc. v. Buena Vista Home Entm’t, Inc., 210 F. Supp. 2d 552, 561 (D.N.J. 

2002) (citations omitted). 
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Setting damages aside for the moment, the parties do not dispute that the 

Agreement, including the Second Amended Agreement, constitutes a valid contract. 

(Doc. #9, PageID #332; Doc. 9, PageID #350-51). Cenlar alleges that Plaintiff breached 

the Agreement “by refusing to pay the Exit Fees as required by the Agreement.” (Doc. 9, 

PageID #354). Cenlar contends that “Sections 5.2 of the Agreement unequivocally set 

forth Cenlar’s right to receive Exit Fees regardless of whether the Agreement is 

terminated with or without cause.” (Doc. 9, PageID #354). Additionally, Cenlar claims 

that it performed its contractual obligations under the Agreement. (Doc. 9, PageID 

#353). These allegations suffice to satisfy three elements of a breach of contract 

counterclaim under New Jersey law, leaving the parties’ dispute over the adequacy of 

Cenlar’s actual-damages pleading. 

New Jersey law is somewhat forgiving when faced with the existence of actual 

damages purportedly stemming from a breach of contract. A claim for breach of contract 

may proceed under New Jersey law where a party lacks proof of actual damages. See

Zacks v. NetJets Inc., No. 11-2537, 2011 WL 4387147, at *3 (D.N.J. Sept. 20, 2011) 

(“Although it appears that Plaintiff has not suffered any actual damages as a result of the 

salary reduction, this is not fatal to his claim”). For “breach of contract, or an invasion of 

a legal right, the law ordinarily infers that damages ensued, and, in the absence of actual 

damages, the law vindicates the right by awarding nominal damages.” Nappe v. 

Anschelewitz, Barr, Ansesll & Bonello, 97 N.J. 37, 45-46 (N.J. 1984) (citing Spiegel v. 

Evergreen Cemetery Co., 117 N.J.L. 90, 93 (Sup. Ct. 1936)). Therefore, a mere “lack of 
17

damages is not a complete defense to a breach of contract claim.” Gray v. CIT Bank, 

N.A., No. 18-1520, 2018 WL 6804273, at *6 (D.N.J. 2018) (citing Nappe, 97 N.J. at 46). 

Cenlar pleads that, as a result of Plaintiff myCU’s alleged breach, it was unable to 

receive the benefits of the Agreement and suffered damages. (Doc. 9, PageID #354). 

Plaintiff myCU contends, however, that Cenlar “admits it suffered no damage from [the] 

alleged breach because it netted out the Exit Fees it claimed were owed under the 

Agreement from the amounts transferred to myCU.” (Doc. 13, PageID #377). Although 

Cenlar acknowledges that it retained Exit Fees, Cenlar does not admit that it suffered no 

damage. (Doc. 9, PageID #341; Doc. 9, PageID #354). Rather, Cenlar contends that, at 

minimum, it suffered some actual harm due to Plaintiff myCU’s alleged anticipatory 

repudiation of the Agreement. (Doc. 9, PageID #354; Doc. 16, PageID #409). 

Particularly, Cenlar states that “it incurred costs and expenses, including attorney’s fees, 

associated with myCU’s extensive efforts to avoid payment owed under the Agreement.” 

(Doc. 9, PageID #409). Thus, Cenlar has sufficently alleged damages and ultimately, a 

counterclaim for breach of contract under New Jersey law. See Video Pipeline, Inc., 210 

F. Supp. 2d at 561. 

D. Indemnification 

Cenlar alleges that it is entitled to indemnification for its losses, including but not 

limited to, attorney fees, as a result of Plaintiff myCU’s affirmative claims and Cenlar’s 

resulting counterclaims. Cenlar specifically claims that, pursuant to Section 8.3 of the 

Agreement, Plaintiff myCU “is required to indemnify and hold Cenlar harmless” from 
18

losses suffered or incurred by Cenlar arising from litigation to which Cenlar is made 

party as a result of its obligations under the Agreement. (Doc. 9, PageID #355). Plaintiff 

myCU disagrees and seeks to dismiss Cenlar’s counterclaim for indemnification. 

“Indemnification is available under New Jersey law in two situations: when a 

contract explicitly provides for indemnification or when a special legal relationship 

between the parties creates an implied right to indemnification.” Allied Corp. v. Frola, 

730 F. Supp. 626, 639 (D.N.J. 1990). A common purpose of an indemnification 

provision is “to allocate risk of loss stemming from the parties’ performance under the 

contract.” Hill v. Commerce Bank Corp., No. 09-3985, 2011 WL 2293324, at *5 (D.N.J. 

June 8, 2011). 

An indemnification provision should be interpreted according to its plain 

language. This includes “read[ing] the document as a whole in a fair and common sense 

manner.” Travelers Indemn. Co. v. Dammann & Co., 594 F.3d 238, 255 (3d Cir. 2010) 

(quoting Hardy ex rel. Dowdell v. Abdul-Matin, 198 N.J. 95, 965 A.2d 1165, 1169 (N.J. 

2009)). First-party claims—meaning direct claims between parties to a contract—have 

been rejected under an indemnification provision in accordance with New Jersey law. 

See Atlantic City Assocs., LLC v. Carter & Burgess Consultants, Inc., 453 F.App’x 174 

180-81 (3d Cir. 2011) (decisions from the Third Circuit and New Jersey Appellate 

Division have “foreclosed” that indemnification clauses do not apply to first-party 

disputes); Investors Savings Bank v. Waldo Jersey City, LLC, 418 N.J. Super. 149, 12 

A.3d 264, 271 (N.J. Super. Ct. App. Div. 2011) (“It is only when the indemnitee is found 

liable to a third party that the indemnification agreement may be triggered.”); but see 
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First Jersey Nat’l Bank v. Dome Petroleum Ltd., 723 F.2d 335 (3d Cir. 1983) (holding 

that the indemnification clause at issue included losses resulting from first-party breach 

of contract). The rejections, however, have been based “on the language of the particular 

indemnity provisions—not on any statutory or jurisprudential bar.” GMFS, LLC v. 

Cenlar FSB, No. 18-00582, 2019 WL 165711, at *5 (M.D. La. Jan. 9, 2019) (citing 

Travelers Indemn. Co., 594 F.3d at 255).2

 

In reading the plain language of the indemnification clause at issue in this case, it 

does not specifically carve out first-party claims, nor does it explicitly exclude them. 

(Doc. 1, PageID #43-44). Section 8.3 of the Agreement provides: 

Except as otherwise stated herein, Owner/Servicer [Plaintiff myCU] shall 

indemnify and hold Subservicer [Cenlar] harmless against any loss, liability, 

forfeiture or expense, including without limitation carrying costs, investigation 

costs, fines, penalties and attorneys’ fees and expenses, including, without 

limitation, the costs and expense of curing any breaches of Owner/Servicer’s 

representations and warranties relating to the Mortgage Loans (collectively, the 

“Liabilities”), suffered or incurred by Subservicer arising out of, directly or 

indirectly resulting from or relating to: 

a. Owner/Servicer’s willful misfeasance, bad faith, fraud, gross negligence, 

or reckless disregard of its obligations hereunder; 

b. any material misrepresentation made by Owner/Servicer in this 

Agreement; 

c. any material breach by Owner/Servicer of a representation, warranty or 

covenant of Owner/Servicer contained in this Agreement; 

 

2

 Although the Third Circuit Court of Appeals determined in Travelers Indemn. Co. that the indemnification 

provision in the contract at issue did not contemplate first-party claims, the Court of Appeals explained, “we cannot 

hold that first-party indemnification claims...are categorically barred as a matter of law in New Jersey absent direct 

authority to that effect.” Travelers Indemn. Co., 723 F.2d at 255. 
20

d. errors and omissions in the processing, origination or servicing of any 

Mortgage Loan prior to the applicable Transfer Date; 

e. compliance by Subservicer with instructions or requirements of 

Owner/Servicer in connection with this Agreement; and 

f. any claim, litigation or proceeding to which Subservicer is made a party 

as a result of its acting as, or status as, Subservicer of a Mortgage Loan, 

other than any such claim, litigation or proceeding (i) which is based on a 

misrepresentation, breach or error or omission on the part of Subservicer 

and (ii) with respect to which Subservicer must indemnify Owner/Servicer 

pursuant to this Agreement. 

(Doc. 1-2, PageID #43-44). 

 

The court in GMFS interpreted the exact indemnification language that is included 

in the indemnification provision at issue in this case. GMFS, 2019 WL 165711, at *5; 

(Doc. 1-2, PageID #43-44). In fact, the dispute included one of the same parties named 

here: Defendant Cenlar. Id. The court in GMFS stated that it could not “interpret Section 

8.3 to apply only to third-party indemnity claims without reading Section 8.3(c) out of the 

agreement” because “Section 8.3(c) ...oblige[d] GMFS to indemnify Cenlar against any 

loss ‘directly or indirectly resulting from or relating to ...any material breach by [GMFS] 

of a representation, warranty[,] or covenant of [GMFS] contained in this Agreement.” Id.

(alterations in original). The court noted that GMFS failed to explain “how Cenlar could 

have liability to a third-party ‘directly ... resulting from’ GMFS’s material breach of a 

‘representation warranty[,] or covenant’ in the agreement.” Id. In comparing the 

language to the indemnity provision in Traveler Indemn. Co., 594 F.3d at 255 and noting 

the mutual inclusion of the terms “indemnify” and “hold harmless,” the court ultimately 
21

concluded that Section 8.3 of the agreement included an intent to permit first-party 

indemnity claims through Section 8.3(c). Id. 

Here, Cenlar contends that Section 8.3(c) specifically contemplates first-party 

claims and that “Section 8.3(c) could only arise in connection with a first party claim.” 

(Doc. 16, PageID #415). In response, Plaintiff myCU argues that “[n]othing in Section 

8.3(c) limits the indemnification to a first-party claim or even mentions first-party 

claims.” (Doc. 20, PageID #438). Plaintiff myCU further states that Section 8.3(c) 

“clearly requires myCU to indemnify Cenlar and hold it harmless from any third-party 

claims or liabilities arising from a material breach by myCU of a representation, warranty 

or covenant.” (Doc. 20, PageID #438). 

In support of its contention, Plaintiff myCU provides an example of how Section 

8.3(c) would apply to third-party claims. (Doc. 20, PageID #439). Plaintiff myCU 

argues that its obligation under Section 6.1 of the Agreement is to cooperate and assist 

Cenlar and “execute and deliver all such papers, documents, and instruments...as may be 

necessary and appropriate.” (Doc. 20, PageID #439). Plaintiff myCU contends, 

hypothetically, that the failure to execute and deliver required papers would be a breach 

that requires Plaintiff myCU to indemnify and hold Cenlar harmless from any resulting 

loss or liability resulting or arising from the breach. (Doc. 20, PageID #439). This 

example, however, only illustrates that Section 8.3(c) “could lead to third-party claims 

against Cenlar” “arising directly or indirectly resulting from that breach.” (Doc. 20, 

PageID #439). The example does not demonstrate that, as a result of potential third-party 

claims, Section 8.3(c) excludes first-party claims. 
22

Based on the plain language of Section 8.3(c) and the arguments set forth by 

Plaintiff myCU and Cenlar, it appears that Section 8.3(c) could arguably apply to both 

first-party and third-party claims. (Doc. 1-2, PageID #43). And, as similarly determined 

by the court in GMFS, interpreting Section 8.3 of the Agreement to apply only to thirdparty claims would result in reading Section 8.3(c) out of the Agreement. GMFS, 2019 

WL 165711, at *5. Therefore, Plaintiff myCU’s motion to dismiss Cenlar’s counterclaim 

for indemnification is denied. 

IT IS THEREFORE RECOMMENDED THAT: 

Plaintiff myCUMortgage, LLC’s Partial Motion to Dismiss and for Judgment 

on the Pleadings (Doc. #13) be GRANTED, in part, and DENIED, in part, as 

set forth herein. 

February 21, 2019 s/Sharon L. Ovington 

 Sharon L. Ovington 

 United States Magistrate Judge

 
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NOTICE REGARDING OBJECTIONS 

Pursuant to Fed. R. Civ. P. 72(b), any party may serve and file specific, written 

objections to the proposed findings and recommendations within FOURTEEN days after 

being served with this Report and Recommendations. Such objections shall specify the 

portions of the Report objected to and shall be accompanied by a memorandum of law in 

support of the objections. If the Report and Recommendation is based in whole or in part 

upon matters occurring of record at an oral hearing, the objecting party shall promptly 

arrange for the transcription of the record, or such portions of it as all parties may agree 

upon or the Magistrate Judge deems sufficient, unless the assigned District Judge 

otherwise directs. A party may respond to another party’s objections within 

FOURTEEN days after being served with a copy thereof. 

Failure to make objections in accordance with this procedure may forfeit rights on 

appeal. See Thomas v. Arn, 474 U.S. 140 (1985); United States v. Walters, 638 F.2d 947, 

949-50 (6th Cir. 1981).