First Mortg. Corp. v. United States

• Decision Date: 12 June 2020
• Docket Number: 2019-1798
• Citation: 961 F.3d 1331
• Parties: FIRST MORTGAGE CORPORATION, Plaintiff-Appellant v. UNITED STATES, Defendant-Appellee
• Court: U.S. Court of Appeals — Federal Circuit

961 F.3d 1331

FIRST MORTGAGE CORPORATION, Plaintiff-Appellant

v.UNITED STATES, Defendant-Appellee

2019-1798

United States Court of Appeals, Federal Circuit.

Decided: June 12, 2020

Tami D. Cowden, Greenberg Traurig, P.A, Las Vegas, NV, for plaintiff-appellant.

Vincent de Paul Phillips, Jr., Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, for defendant-appellee. Also represented by Joseph H. Hunt, Elizabeth Marie Hosford, Robert Edward Kirschman, Jr.

Before Lourie, Mayer, and Wallach, Circuit Judges.

Wallach, Circuit Judge.

Appellant First Mortgage Corporation ("FMC") filed a breach of contract action against the United States ("Government") in the U.S. Court of Federal Claims, alleging that the Government National Mortgage Association ("Ginnie Mae") had violated the terms of several guaranty agreements between FMC and Ginnie Mae in connection with Ginnie Mae's mortgage-backed securities ("MBS") program. J.A. 23–58 (Complaint). The Government moved to dismiss FMC's Complaint pursuant to Rule 12(b)(6) of the Rules of the U.S. Court of Federal Claims ("RCFC"). J.A. 382–465 (Motion to Dismiss). The Court of Federal Claims granted the Government's motion, concluding that FMC's breach of contract claims were precluded under the doctrine of res judicata. See First Mortg. Corp. v. United States , 142 Fed. Cl. 164, 176 (2019) ; J.A. 1 (Judgment).

FMC appeals. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3). We affirm.

BACKGROUND

I. Factual Background¹

A. Ginnie Mae's MBS Program

"[Ginnie Mae] is a corporation wholly owned and controlled by the U.S. Department of Housing and Urban Development (‘HUD’)." J.A. 26; see 12 U.S.C. § 1717(a)(2)(A) (creating Ginnie Mae as "a body corporate without capital stock" within HUD). Congress created Ginnie Mae to, inter alia, "provide stability in the secondary market for residential mortgages," 12 U.S.C. § 1716(1), and "promote access to mortgage credit ... by increasing the liquidity of mortgage investments and improving the distribution of investment capital available," id. § 1716(4) ; see J.A. 29. To this end, Ginnie Mae "is authorized, upon such terms and conditions as it may deem appropriate, to guarantee" MBS and administer the MBS program. 12 U.S.C. § 1721(g)(1) ; see J.A. 23–24.

Under the MBS program, Ginnie Mae "guarantee[s] the timely payment of principal of and interest on securities that are based on and backed by a trust or pool composed of mortgages which are insured or guaranteed by [certain Government agencies]." 24 C.F.R. § 320.1 ; see J.A. 23–24. Approved private lenders originate or acquire residential mortgage loans insured or guaranteed by certain Government agencies, pool and securitize those mortgages, and sell the securities to investors in the secondary mortgage market. J.A. 23–24, 28; see J.A. 60 (Guaranty Agreement) (providing for the "pool[ing] of mortgages securitized by the [i]ssuer and guaranteed by Ginnie Mae"). Ginnie Mae guarantees the "timely payment of principal and interest on those securities" to investors. J.A. 24. "[Ginnie Mae's] guaranty ... is backed by the full faith and credit of the United States." 24 C.F.R. § 320.1 ; see J.A. 60 (Guaranty Agreement) (providing that "the full faith and credit of the United States is pledged to the payment of all amounts which may be required to be paid under [an MBS program] guaranty by Ginnie Mae").

B. Ginnie Mae's Guaranty Agreements with FMC

FMC is a privately held corporation based in California. J.A. 3. From 1975 to 2015, FMC was "an originator and servicer of [G]overnment-guaranteed home mortgages and an issuer" of MBS in Ginnie Mae's MBS program. J.A. 24; see J.A. 27, 30. As of December 2014, FMC had serviced more than 31,000 mortgage loans, totaling more than $5.1 billion in unpaid principal, with "[m]ost" of those mortgages "securitized into [Ginnie Mae-guaranteed] [MBS]." J.A. 26. Pursuant to the MBS program, Ginnie Mae and FMC "entered into a great many Guaranty Agreements[.]" J.A. 30. The "terms of [these Guaranty Agreements] were prescribed by [Ginnie Mae]" and "substantially" the same, with Ginnie Mae's Issuer Guide "at all times ... an integral and material part of each Guaranty Agreement." J.A. 30; see J.A. 60–74 (Guaranty Agreement excerpts), 107–254 (Issuer Guide excerpts); see also 12 U.S.C. § 1721(g)(1) (authorizing Ginnie Mae to guarantee MBS "upon such terms and conditions as it may deem appropriate").

In exchange for Ginnie Mae's guaranty, FMC agreed to "conform with [Ginnie Mae's] servicing standards, procedures, methods, and practices," comply with "any applicable requirements contained in [the Ginnie Mae Issuer Guide]," and "establish and maintain books, files, and accounting records in accordance with [both]." J.A. 65; see 24 C.F.R. § 320.3(e) (providing "[e]thics and standards" for MBS issuers). The "cash flow from pooled mortgages," including "principal and interest" payments, were considered "[c]ustodial [f]unds" that had to "be deposited and maintained in custodial accounts[.]" J.A. 236. FMC was required to "establish and maintain a Central [Principal & Interest] Custodial Account with a commercial bank" or other financial institution, to be "used exclusively for funds relating to Ginnie Mae MBS program mortgage pools." J.A. 67; see J.A. 61. FMC was required to clear collection accounts "daily" into a custodial account, such as the Central Principal & Interest Custodial Account, "unless [FMC] use[d] [an Automated Clearing House] transfer, in which case the accounts [had to] be cleared every [forty-eight] hours." J.A. 68. FMC was also required to "maintain delinquency rates" on mortgage pools "below [specified] threshold levels." J.A. 252. To achieve this, FMC was allowed, per the Issuer Guide, "to repurchase a [mortgage] from a pool" if the mortgage had been "in a continuous period of default for [ninety] days or more," then re-pool the mortgage and re-sell the security if the default was subsequently cured. J.A. 251–52; see J.A. 160–61 (providing mortgage status requirements for pooling).

Under the Guaranty Agreements, FMC would be in "[i]mmediate default," "if Ginnie Mae, in its sole discretion, determine[d]" that "[a]ny unauthorized use of Custodial Funds" or "[a]ny submission of false reports, statements, or data or any act of dishonesty or breach of fiduciary duty to Ginnie Mae related to the MBS program" had occurred. J.A. 72–73 (Guaranty Agreement Section 10.01). In the event of default, "Ginnie Mae [could], in its sole discretion, but [was] not required to, confer and negotiate with [FMC] with respect to remedying and correcting the default." J.A. 73 (Guaranty Agreement Section 10.03). If an agreement was reached, it had to be "placed in written contractual form" as a supplement to the Guaranty Agreement. J.A. 73. In the absence of such an agreement, in "any event of default," Ginnie Mae could "automatically effect and complete the extinguishment of any redemption, equitable, legal, or other right, title, or interest of [FMC] in the [pooled] [m]ortgages," J.A. 73–74 (Guaranty Agreement Section 10.04), with all of FMC's "authority and power ... under [the Guaranty] Agreement, with respect to" any relevant securities and mortgages "automatically terminat[ing] and expir[ing]," J.A. 74 (Guaranty Agreement Section 10.05).

C. FMC's Default and Termination

In early 2015, Ginnie Mae "learned of certain actions by [FMC] that constitute[d] events of immediate default under the terms of the Guaranty Agreements," and, in March 2015, "undertook a compliance review ... of [FMC's] Ginnie Mae portfolio." J.A. 367 (Notice of Violation); see J.A. 37. In May 2015, Ginnie Mae served FMC with a Notice of Violation, stating that, during the compliance review, Ginnie Mae had "observed numerous instances where borrower payments were not moved to Ginnie Mae custodial accounts within [forty-eight] hours of receipt" and had found that FMC had "submitted false reports to Ginnie Mae" claiming that "[mortgages] were [ninety] days or more delinquent" when FMC "repurchased [them] from a pool," when, in fact, the "loans were not properly delinquent," both in breach of the Guaranty Agreements. J.A. 367.

Ginnie Mae explained that FMC was, accordingly, in default, and that "Ginnie Mae [was] entitled to terminate [FMC's] authority to act as a Ginnie Mae issuer" and to terminate and extinguish "any redemption, equitable, legal or other right, title[,] and interest of [FMC] in [Ginnie Mae-backed] mortgage pools[.]" J.A. 367; see J.A. 37. Rather than immediately terminate FMC from the MBS program, Ginnie Mae stated it would "forebear from immediately effectuating the termination and extinguishment" provided that FMC responded with a timely written response to the Notice of Violation, providing additional information and affirming FMC's "intent to comply with the conditions" as set by Ginnie Mae. J.A. 367; see J.A. 37–38. Ginnie Mae reserved the right to "tak[e] ... further remedial action against [FMC and its corporate officers]," "including, but not limited to, termination" of FMC from the MBS program. J.A. 369.

FMC timely responded. J.A. 371–76 (FMC Response); see J.A. 41–42. FMC expressed its intent to "fully remediate the issues the Notice [of Violation] describe[d]" and "to comply fully with [Ginnie Mae's] conditions ... in the Notice [of Violation]" and Guaranty Agreements. J.A. 371. With the assistance of external counsel, FMC undertook an internal investigation and provided the results to Ginnie Mae. J.A. 372. FMC noted that it was also "complying with requests from the [U.S.] Securities and Exchange Commission [ (‘SEC’) ] with respect to the SEC's investigation" into the same conduct. J.A. 372.

In June 2015, Ginnie Mae terminated FMC from its MBS program. J.A. 378–80 (Extinguishment Letter); see J.A. 42. Ginnie Mae explained that, "[s]ince [its Notice of Violation], [it] ha[d] engaged in further analysis of the events described in [the Notice of...