Opinion ID: 8704066
Heading Depth: 3
Heading Rank: 3

Heading: Whether the Breach of Bailment Counterclaims Fail as a Matter of Law

Text: Next, BOA moves, in the alternative, to dismiss the breach of bailment Counterclaims (Counts 6 through 12) pursuant to Rule 12(b)(6) for failure to state a claim upon which relief may be granted. Counts 6 through 12 pertain to Colonial’s use of a standard financing form known as a “bailee letter” (the “Bailee Letter(s)”) when it transferred Participated Mortgage Loans to BOA under the Custodial Agreement. 21 (See Dkt. No. 25 at ¶ 31.). The FDIC maintains that the Bailee Letters either created a new agreement between Colonial and BOA that superseded the Custodial Agreement or the Letters modified the Agreement. Either way, the FDIC argues, BOA was obligated to abide by the terms of the Bailee Letters. (Id. at ¶ 32-33.). The provisions of the Bailee Letters are as follows: Pursuant to the terms and conditions set forth below, [Colonial] hereby deliver[s] to [BOA], as Custodian for [Ocala], with this letter, the [Participated Mortgage Loans] ... By taking physical possession of this Bailee Letter, the [Participated Mortgage Loans] and other loans documents, [BOA] hereby agrees and is bound: i. to hold in trust, as bailee for Colonial [ ], the [Loans] ..., subject to the direction and control of Colonial until [BOA’s] status as bailee is terminated ...; ii. to not release or deliver ... the [Loans] ... to [TBW] ... which release, delivery or other action could cause the security interest of [Colonial] to become unperfected or which could otherwise jeopardize the perfected security interest and/or title and ownership interest of [Colonial] in the Loan(s); iv. to return the [Loans] immediately to Colonial [ ] upon receipt of a written or telephonic request by Colonial ...; v. not to honor request or instructions from [TBW] relating to any [Loans] ...; vi. immediately upon [Ocala’s] acceptance or rejection of the Loan(s) for purchase, and in any event within forty-five (45) days after the date of delivery of this Bailee Letter to either (A) remit the [sales proceeds] to Colonial or (b) [SIC] return the [Loans] to Colonial; By your acceptance of the enclosed [Loans], you are bound by the terms, provisions and conditions of this Bailee Letter. We request that you acknowledge receipt of this Bailee Letter and the enclosed [Loans] by signing in the space provided at the bottom of this Bailee Letter and returning it to Colonial ... (but your failure to do so in no way compromises the terms, provisions and conditions of this Bailee Letter or nullifies your agreements resulting from your acceptance of the enclosed [Loans], as set forth in this Bailee Letter. (Dkt. No. 36, Myles Decl., at Ex. B; Dkt. No. 25 at ¶ 33.). The FDIC claims that the 4,808 Participated Mortgage Loans that are the subject of its Counterclaims were transferred to BOA pursuant to the above-listed terms of the Bailee Letters, yet Colonial never received payment for its ownership interest in those Loans. (Id. at ¶39.). As such, the FDIC asserts, BOA breached the terms of the bailment between the parties. BOA argues that Counts 6 through 12 must be dismissed because: (1) to the extent that the FDIC argues that the Bailee Letters modified, amended or superseded the Custodial Agreement, that argument fails as a matter of black-letter contract law; or (2) to the extent that the FDIC argues that the Custodial Agreement and Bailee Letters can be harmonized, that argument similarly fails because the Letters contradict material terms of the Custodial Agreement. (See Dkt. No. 36 at 22-23.).
BOA argues that the provisions of the Bailee Letters upon which the FDIC relies for its breach of bailment claims are inconsistent with the Custodial Agreement, and therefore each claim must be dismissed. BOA contends that the “broad structure and terms” of the Bailee Letters are inconsistent with Custodial Agreement because they read as though BOA’s custodial duties were owed only to Colonial, and not divided with a duty to TBW (as provided for in the Custodial Agreement). As an example of this, BOA points to the provisions of the Bailee Letters that require BOA to “hold in trust, as bailee for Colonial [], the Loans] ...” and prohibit BOA from releasing the Loans to TBW if “doing so would jeopardize the security interest of [Colonial],” and further prohibit BOA from “honoring] requests or instructions from [TBW] relating to any [Loans].... ” (See Dkt. No. 36 at 29 (quoting the Bailee Letter at ¶ 2(i),(ii), and (v).)). BOA argues that these terms directly contradict the Custodial Agreement, which require BOA to act as the Custodial Agent and Bailee for both Colonial and TBW, referring the Court to the provisions of the Custodial Agreement that state that BOA is appointed as “Custodian ... by each [Colonial] and [TBW] as its agent and bailee hereunder,” and further state that BOA “shall retain possession and custody [of the Loans] solely for the exclusive use and benefit of [Colonial] and [TBW],” and authorize BOA to act on the instructions of both Colonial and TBW. (Id. at 28-29 (quoting the Custodial Agreement, ¶¶ 2, 4B and 7).). According to BOA, these inconsistencies render the Bailee Letters unenforceable, noting that it is “hornbook law” that a party cannot unilaterally supersede or amend an agreement. BOA claims that Florida courts have rejected similar tactics by parties who attempted to modify governing contracts with unilateral form letters. (Id. (citing Gulf Power Co. v. Coalsales II, L.L.C., 661 F.Supp.2d 1270, 1279 (N.D.Fla.2009) and Newkirk Constr. Corp. v. Gulf Cnty., 366 So.2d 813, 815 (Fla.Dist. Ct.App.1979)).). BOA maintains that a recent district court decision from the Ninth Circuit, FDIC v. First Am. Title Ins. Co., No. SACV 10-0713 DOC (MLGx), 2011 WL 3737435 (C.D.Cal. Aug. 24, 2011), is directly on point. First American involved a loan transaction in which Indy-Mac Bank was the lender and First American Title Insurance Company (“First American”) was the closing agent. Id. at . The FDIC, as receiver for IndyMac Bank, sought to enforce negotiated Closing Instructions between the parties, and First American argued that a pre-printed Funding Letter that First American included with the closing documents served to modify the Closing Instructions. Id. In granting summary judgment for the FDIC, the district court held that the Funding Letter did not modify the Closing Instructions for several reasons. First, the court noted that nothing in the Funding Letter purported to modify the Instructions. Id. at -6 (stating that “[i]f First American were truly modifying [the] Closing Instructions, it would have specified exactly what provisions to which it did not agree and would have indicated so on the Closing Instructions document itself’) (emphasis in original). Second, the court noted that the Funding Letter was not supported by additional consideration to IndyMac for First American’s purported release from the Closing Instructions. Id. at . Lastly, the court rejected First American’s argument that merely by funding the loan, IndyMac performed under the Funding Letter and had thereby accepted its terms. Id. at . BOA argues that the same is true in this case. It asserts that the Bailee Letters, like the Funding Letter in First American, make no mention of any intent, much less “specific intent,” to modify the Custodial Agreement. (Dkt. No. 36 at 26.). Nor do the Bailee Letters offer any sort of additional consideration for the reduction of BOA’s or TBW’s rights under the Custodial Agreement. In addition, BOA argues, the FDIC does not allege in the Counterclaims that BOA ever signed, acknowledged, or even read the Bailee Letters. Therefore, BOA argues, this Court cannot enforce the terms of the Bailee Letters over the negotiated terms of the Custodial Agreement because to hold otherwise “would afford too little recognition to the other documents and the overall character of the transaction.” (Id. at 27 (quoting Pioneer Commercial Funding Corp. v. Am. Fin. Mortg. Corp., 579 Pa. 275, 296, 855 A.2d 818 (Pa.2004)).). Finally, BOA argues that the Custodial Agreement contains an integration clause that prohibits unilateral amendments ■ to the Agreement. (Id. at 24 (citing the Custodial Agreement at ¶ 17C).). In response, the FDIC argues that the Counterclaims allege factual allegations sufficient to state a claim that bailments existed between Colonial and BOA and that these bailments, established pursuant to the terms of the Bailee Letters, represent new, independent agreements between Colonial and BOA that are separate from the Custodial Agreement. (See Dkt. No. 41 at 10.). The FDIC maintains that the fact that BOA did not sign the Bailee Letters is not fatal to the enforceability of the agreements because Florida does not require a countersignature on a bailee letter in order to create a bailment. (Id. at 10 (citing Fla. Stat. Ann. § 679.3131, comment 9; 4 James J. White, Robert S. Summers, & Robert A. Hillman, Uniform Commercial Code § 31-8 (6th ed.).)). Instead, the FDIC argues, acceptance of the collateral documents constitutes assent to the terms of the bailee letter. Id. (citing Goldman Sachs Mortg. Co. v. Natixis Real Estate Capital, Inc., No. 0602359/2007, 2008 WL 1999522 (Trial Order) (N.Y.Sup. Ct. Apr. 30, 2008) (“The standard practice in the [mortgage warehouse lending industry] is not to require a countersignature on the bailee letter ... [the] acceptance of the collateral documents constitutes assent to the terms of the bailee letter ... ”).). Here, BOA accepted the terms of the Bailee Letters when it accepted the Loans under cover of the Letters, held them in trust, and then remitted payment to Colonial (until the alleged breach) once the Loans were sold to Ocala. (Id. at 13 (citing Counterclaims, ¶¶ 31, 36 and 42).). What is more, the FDIC argues, the Bailee Letters expressly stated that acceptance of the Loans transmitted under the Bailee Letter constituted acceptance, and failing to countersign the Letter “in no way ... nullifies [BOA’s] agreements resulting from [BOA’s] acceptance of the enclosed Note(s) ...” (Id. at 12 (citing Bailee Letter at p. 2).). The FDIC claims that this provision of the Bailee Letters is consistent with the use of bailee letters in the mortgage warehouse lending industry as a whole and is reflected in Florida’s statutes, which allow a mortgage warehouse lender who transfers mortgage notes to a custodian pursuant to a bailee letter to retain its perfected security interest in the notes, as long as the lender instructed the bailee to hold the collateral for the benefit of the lender. (Id. at 13 (citing Fla. Stat. Ann. § 679.3131(8), n. 9 (“Requiring [lenders] to obtain authenticated acknowledgments ... would be unduly burdensome and disruptive of established practices”)).). In the alternative, the FDIC argues that the Bailee Letters operated to modify the terms of the Custodial Agreement, and BOA’s acceptance of the Bailee Letters in the ordinary course of business without objection formed either “(i) an ‘agreement in writing’ that overrides the integration clause in the Custodial Agreement or (ii) an amendment of the Custodial Agreement through course of performance.” (Dkt. No. 41 at 28.). The Court concludes that the FDIC has alleged facts sufficient to state a plausible claim for breach of bailment. To create a bailment under Florida law, there must be: (1) the delivery of a bailor’s property to a bailee; (2) acceptance of the property by the bailee; and (3) an agreement, either express or implied, to use the property for a particular purpose and later redeliver it to the bailor. See Monroe Sys. for Bus., Inc. v. Intertrans Corp., 650 So.2d 72, 75-76 (Fla.Dist.Ct.App.1994); 46 AmJur. Proof of Facts 3d 361 (1998). Here, the FDIC alleges that: (1) Colonial delivered the Loans in question to BOA under cover of a Bailee Letter (Dkt. No. 25 at ¶ 31); (2) BOA accepted the Loans (Id. at ¶ 43); and (3) BOA agreed to hold the Loans, and within 45 days of delivery, to either remit payment for the Loans or return the Loans to Colonial (Id. at ¶ 33.). These factual allegations are sufficient to state a plausible claim that a separate, independent contract for bailment existed between the parties. Moreover, the Court is not persuaded that the terms of the Bailee Letters materially conflict with the terms of the Custodial Agreement. The Custodial Agreement unequivocally states that BOA’s duties with respect to TBW and Colonial are limited to the extent of each of TBW’s and Colonial’s respective ownership interests in the Loans. See, e.g., the Custodial Agreement at Fifth WHEREAS Clause (stating that BOA is authorized to act as TBW’s and Colonial’s custodial agent and bailee “to the extent of their respective ownership interests in [the] Participated Mortgage Loans”) (emphasis added); see also Id. at ¶ 4B (“... the Custodian shall retain possession and custody thereof solely for the exclusive use and benefit of [Colonial] and [TBW] (to the extent of their respective ownership interests in the Participated Mortgage Loans) as the agent and bailee of [Colonial] and [TBW], and for purposes of perfecting [Colonial’s] and [TBW’s] ownership interest in the [Loans] ----”) (emphasis added). 22 Similarly, the Bailee Letters acknowledge that Colonial has only a “participation” interest in the Loans. (See Bailee Letter, Introductory paragraph “[Colonial] owns a participation interest in the Loan(s) and the proceeds thereof ... ”). Accordingly, the Bailee Letters can be read to affect only Colonial’s participation interest in the Loans, thereby leaving unaffected TBW’s interest in the Loans and BOA’s obligations thereto under the Custodial Agreement. What is more, the Custodial Agreement gives Colonial the power to direct BOA’s actions towards the Loans on behalf of TBW. (See Custodial Agreement at ¶ 2 “[TBW] hereby irrevocably appoints [Colonial] as its attorney in fact and agent ... to take any action and give any direction hereunder on behalf of [TBW] with respect to [TBW’s] interest in any [Loan], and [BOA] shall be entitled to rely on [Colonial’s] directions and instructions on behalf of itself and [TBW]”). As such, Colonial’s use of the Bailee Letters can be read as entirely consistent with the terms of the Custodial Agreement. At a minimum, these provisions create an ambiguity that cannot be resolved on a motion to dismiss. See Novoneuron Inc. v. Addiction Research Inst., Inc., 326 Fed.Appx. 505, 508-509 (11th Cir.2009) (trial court erred in granting motion to dismiss for failure to state a claim when disputed contract was susceptible to two different interpretations, each one of which was reasonably inferred from the terms of the contract). Nor is the Court persuaded by BOA’s argument that Paragraph 17C of the Custodial Agreement bars the creation of a separate agreement. Paragraph 17C states: Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof including any prior custody agreements. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. (Custodial Agreement, ¶ 17C.)(emphasis added.). The plain language of this provision precludes only agreements made prior to, or contemporaneously with, the Custodial Agreement. Because the Bailee Letters were issued after the parties executed the Custodial Agreement, the first sentence of paragraph 17C is inapplicable to the present situation. Nor does the last sentence of paragraph 17C, which refers to “modified or amended,” necessarily bar the creation of an entirely new agreement. On the briefing before it, the Court is not persuaded that there was a meeting of the minds that this last sentence was meant to exclude an entirely new agreement between the parties in perpetuity. Likewise, BOA’s argument that the Bailee Letters did not create a binding agreement because they were not signed by BOA is unavailing. A countersignature on a bailee letter is not required to form a contract. See, e.g., Goldman Sachs Mortg. Co., 2008 WL 1999522 (a bailee’s failure to countersign a bailee letter does not make bailment unenforceable as a matter of law); Fla. Stat. Ann. § 679.3131, comment 9; 4 White, Summers, & Hillman, supra § 31-8. Instead, acceptance can be conveyed through performance or implied from the circumstances. See 8A Am. Jur.2d Bailments § 38 (2012); 8 C.J.S. Bailments § 25 (2012) (“If the contract is in writing, its enforceability is not affected by the fact that it is not signed[.]”). “A contract may be binding on a party despite the absence of a party’s signature. The object of a signature is to show mutuality or assent, but these facts may be shown in other ways, for example, by the acts or conduct of the parties.” Gateway Cable T.V., Inc. v. Vikoa Constr. Corp., 253 So.2d 461, 463 (Fla.Dist.Ct.App.1971). Indeed, the Bailee Letters themselves provide that BOA became “bound by the terms, provisions and conditions of the Bailee Letter” by its “acceptance of the [Participated Mortgage Loans].” (Dkt. No. 36, Myles Deck, Ex. B at p. 2.). Moreover, the cases cited by BOA do not support its motion. First, their applicability to the present situation is limited because they do not involve the use of bailee letters in the mortgage warehouse lending industry which, the FDIC correctly points out, receives special statutory treatment because of the nature of the industry. See, e.g., Fla. Stat. Ann. § 679.3131(8), n. 9 (noting that “[requiring [lenders] to obtain authenticated acknowledgments ... would be unduly burdensome and disruptive of established practices” in the warehouse lending industry). The cases are distinguishable in other ways as well. For example, BOA’s reliance on First American is misplaced. First, importantly, First American was decided on summary judgment. 2011 WL 3737435 at . The decision is replete with references to the fact that there was “no evidence” to support First American’s position that the agreement in question had been amended. Id. at . Here, the FDIC is not required to produce such evidence in order to defeat BOA’s motion to dismiss. Second, the question in First American was whether the existing contract between the parties — the closing instructions — had been modified by a later agreement — -the funding letter. Id. Here, the FDIC maintains that the Bailee Letters represent new, independent contracts between Colonial and BOA that are separate and distinct from the Custodial Agreement. As such, the First American court’s conclusion that the funding letter did not clearly evidence the parties’ intent to modify the closing instructions is inapplicable to the present situation. Likewise, Gulf Power Co. v. Coalsales II, LLC, 661 F.Supp.2d 1270 (N.D.Fla.2009) and Newkirk Constr. Corp. v. Gulf Cnty., 366 So.2d 813 (Fla. Dist.Ct.App.1979) are distinguishable on the same grounds. BOA refers this Court to a Pennsylvania case for the proposition that a bailee letter cannot supersede an existing agreement. (Dkt. No. 36 at 26-27 (citing Pioneer Commercial Funding Corp. v. Am. Fin. Mortg. Corp., 579 Pa. 275, 855 A.2d 818 (Pa. 2004)).). However, the Pioneer court merely made a passing reference to this issue and specifically limited its finding to “the circumstances presented” in that case. Pioneer, 579 Pa. at 296, 855 A.2d 818 (reversing and remanding for entry of judgment notwithstanding a jury verdict in favor of bank). And again, the issue was decided after the parties had the benefit of discovery. Id. Therefore, construing the Counterclaims in the FDIC’s favor as this Court must do in deciding BOA’s Rule 12(b)(6) Motion, this Court concludes that the FDIC has plausibly alleged the existence of a new contract pursuant to the Bailee Letters. See Sierra Equity Grp., Inc. v. White Oak Equity Partners, LLC, 650 F.Supp.2d 1213, 1228 (S.D.Fla.2009) (noting that whether the contract was accepted is a question of fact that cannot be resolved on a motion to dismiss).
Next, BOA argues that even if the Bailee Letters constitute valid, enforceable agreements between the parties, the individual bailment Counterclaims fail to state a claim upon which relief may be granted. BOA moves to dismiss Counts 6 and 7, alleging that the provisions of the Bailee Letters on which the FDIC bases these claims are inconsistent with the terms of the Custodial Agreement, and therefore, unenforceable. This argument fails for the reasons discussed in the previous section. BOA’s motion to dismiss Counts 6 and 7 is denied. In Counts 8 and 9, the FDIC alleges that, under the terms of the Bailee Letters, BOA was obligated to either remit to Colonial the proceeds for the sale of the Participated Mortgage Loans or to return the Loans to Colonial within 45 days of the initiation of the bailment. (See Dkt. No. 25 at ¶¶ 107, 112, and 113.). The FDIC alleges that more than 45 days have passed since the 4,808 Participated Mortgage Loans were transferred to BOA, and BOA has not returned the Loans, nor has it remitted the proceeds for the 4,808 Loans to Colonial, an amount that the FDIC alleges is approximately $898,873,958. (Id. at ¶ 108.). The FDIC alleges that this failure constitutes a breach of the bailment. (Id. at ¶ 109.). In moving to dismiss Counts 8 and 9, BOA mischaracterizes the claims as a demand that BOA “pay” the sale proceeds. (Dkt. No. 36 at 31-32.). It argues that neither the Custodial Agreement nor the Bailee Letters require BOA to “pay” for the Loans. The FDIC makes no such claim. To the contrary, the FDIC alleges that BOA breached the bailment by failing to either “remit”, ie., transmit, the sale proceeds to Colonial or return the Loans (with Colonial’s ownership interest intact) within the 45 day timeframe. (Dkt. No. 25 at ¶ 108.). The FDIC alleges that BOA’s failure to comply with this obligation under the Bailee Letters has damaged Colonial in the amount of nearly $1 billion. These allegations are sufficient to state a claim for relief. BOA also maintains that it returned the Loans to Colonial. (Dkt. No. 36 at 32-33.). This argument borders on farcical. As the FDIC correctly maintains, BOA did not “return” the Loans to Colonial in Colonial’s capacity as owner of the Loans, but sent them to Colonial’s Trust Department in Colonial’s capacity as custodian for Freddie Mac. What is more, BOA returned “qualitatively different [L]oans,” that are now “owned by Freddie Mac.” (Dkt. No. 41 at 36; Dkt. No. 25 at ¶ 38.). Again, the FDIC has alleged factual allegations that are sufficient to state a claim for relief. Accordingly, BOA’s motion to dismiss Counts 8 and 9 is denied. In Count 10, the FDIC alleges that BOA breached the bailment agreement by failing to subordinate its alleged interest in the Participated Mortgage Loans to Colonial’s interest. (Dkt. No. 25 at ¶¶ 118-120.). The FDIC alleges, that, “based in part on the allegations of BOA’s Amended Complaint, BOA has asserted alleged interest of its own which BOA claims to be superior to, rather than subordinate to, Colonial’s interest in the Participated Mortgage Loans.” (Id. at ¶ 119.). The FDIC asserts that by bringing these claims, BOA has breached the bailment. (Id. at ¶ 120.). BOA counters that it does not assert any interest in the Loans on its own behalf. (Dkt. No. 36 at 34.). Rather, it brings these claims in its representative capacity on behalf of Ocala, DB, and BNP. (Id.). Contrary to BOA’s assertion, the record is not clear that BOA is not asserting any interest of its own in the Loans. For instance, in its opposition to the FDIC’s motion to dismiss the Amended Complaint, BOA argues that it seeks to recover for losses incurred by Ocala, “including losses incurred by all investors in the Ocala facility and by BOA itself.” (Dkt. No. 35 at 18) (emphasis in original). BOA states further that it “sought an administrative remedy for Ocala and all parties with interests in Ocala assets, including Ocala’s investors and BOA itself.” (Id.) (emphasis in original). In addition, the proofs of claim state “[t]he tax ID number shown is for [BOA]. Many of the claims described in this proof of claim, however, are made by [BOA] in its capacity as Trustee on behalf of the secured parties with respect to [Ocala Notes].” (Dkt. No. 20 at Ex. A, n. 1.) (emphasis added). This statement indicates that at least some of the claims in the proofs of claim were brought by BOA on behalf of its own purported interest in the Loans. Accordingly, the FDIC has stated a plausible claim that BOA breached the bailment by failing to subordinate its interest in the Loans to that of Colonial. Count 10 will not be dismissed. In Counts 11 and 12, the FDIC alleges that BOA exercised its alleged rights with respect to the Participated Mortgage Loans without first receiving written authorization to do so from Colonial and, instead, acted pursuant to instructions from TBW. (Dkt. No. 25 at ¶¶ 123-126 and 130-131.). The FDIC asserts that these actions breached the terms of the bailment. (Id. at ¶¶ 127 and 132.). BOA counters that the requirement to seek written authorization from Colonial before acting and the prohibition from following TBW’s instructions are inconsistent with the terms of the Custodial Agreement and therefore cannot be the basis for a claim for relief. This argument fails for the reasons discussed above at Section IV. D.3.a. BOA’s motion to dismiss Counts 11 and 12 is denied.