Franklin Am. Mortg. Co. v. Univ. Nat'l Bank of Lawrence

• Decision Date: 06 December 2018
• Docket Number: No. 18-5035,18-5035
• Citation: 910 F.3d 270
• Parties: FRANKLIN AMERICAN MORTGAGE COMPANY, Plaintiff-Appellee, v. The UNIVERSITY NATIONAL BANK OF LAWRENCE, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

910 F.3d 270

FRANKLIN AMERICAN MORTGAGE COMPANY, Plaintiff-Appellee,

v.The UNIVERSITY NATIONAL BANK OF LAWRENCE, Defendant-Appellant.

No. 18-5035

United States Court of Appeals, Sixth Circuit.

Argued: October 18, 2018

Decided and Filed: December 6, 2018

ARGUED: Anthony V. Narula, AXS LAW GROUP, PLLC, Miami, Florida, for Appellant. Charles M. Cain, II, CAIN LAW FIRM, Franklin, Tennessee, for Appellee. ON BRIEF: Anthony V. Narula, AXS LAW GROUP, PLLC, Miami, Florida, for Appellant. Charles M. Cain, II, CAIN LAW FIRM, Franklin, Tennessee, for Appellee.

Before: MERRITT, COOK, and LARSEN, Circuit Judges.

LARSEN, J., delivered the opinion of the court in which COOK and MERRITT, JJ., joined. MERRITT, J. (pgs. 284–85), delivered a separate concurring opinion.

OPINION

LARSEN, Circuit Judge.

Franklin American Mortgage Company (FAMC) purchased two loans from the University National Bank of Lawrence (UNB) and promptly resold them to Wells Fargo. Years later, Wells Fargo discovered defects in UNB’s underwriting and demanded that FAMC repurchase the loans or indemnify Wells Fargo for its losses. FAMC similarly demanded that UNB indemnify FAMC for its payments to Wells Fargo in accordance with their agreement. UNB refused. The district court granted summary judgment to FAMC on its breach of contract claims against UNB. We now AFFIRM that judgment.

I.

FAMC and UNB entered into a Correspondent Loan Purchase Agreement (Agreement) in 2005, by which FAMC agreed to purchase mortgage loans from UNB. In exchange, UNB made certain representations and warranties about the loans it would sell, including that "[t]here [would be] no fact or circumstance with respect to the Mortgage Loan that would entitle" a subsequent purchaser "to demand repurchase of a Mortgage Loan" from FAMC. UNB also agreed to repurchase any mortgage loans if one of its representations or warranties turned out to be false or if a subsequent buyer required that FAMC repurchase the mortgage loan. Additionally, UNB promised to indemnify FAMC for "any and all losses" that FAMC incurred due to "[a]ny misrepresentation" or breach "of any of the ... representations, warranties, or obligations under this Agreement" by UNB.

The parties agreed that Tennessee law would govern the Agreement. FAMC and UNB later modified the original Agreement with a Delegated Underwriting Agreement (Modification) in which UNB agreed to perform the underwriting for loans it sold to FAMC.

At issue here are two loans UNB sold to FAMC—one sold in 2006 (the "Salvino Loan") and one sold in 2007 (the "Turner Loan"). Per the parties’ arrangement, UNB underwrote both loans. FAMC promptly resold both to Wells Fargo. In February and March 2010, Wells Fargo notified FAMC that it had identified defects in the underwriting for both loans, including missing documents and income miscalculations. After internal appeals in which FAMC disputed some of the defects and tried to resolve others, Wells Fargo demanded that FAMC repurchase the Salvino Loan and indemnify Wells Fargo for its losses arising from the Turner Loan.¹ FAMC did so in November 2010 (Salvino Loan) and August 2011 (Turner Loan), paying Wells Fargo a total of $231,225.33 for the two loans.

After satisfying its repurchase and indemnification obligations to Wells Fargo, FAMC invoked the Agreement to demand repurchase and indemnification from UNB. UNB refused to repurchase the Salvino Loan or indemnify FAMC for either. To cut its losses, FAMC resold the Salvino Loan to a third party for $42,278.48.

In 2013, FAMC filed a complaint alleging that UNB’s refusal to repurchase or indemnify had breached their Agreement. FAMC moved for summary judgment on its claims; UNB made a cross-motion for summary judgment on several affirmative defenses, including its claim that the statute of limitations had run. The district court granted summary judgment to FAMC, denied it to UNB, and awarded FAMC $188,858.71 in damages. UNB timely appealed.

II.

The primary issue in this appeal is whether the district court properly denied summary judgment to UNB on its statute of limitations defense (and, relatedly, whether the district court properly granted summary judgment to FAMC despite that defense). We review a district court’s summary judgment decision de novo, applying the same standards the district court used. Villegas v. Metro. Gov’t of Nashville , 709 F.3d 563, 568 (6th Cir. 2013). In other words, summary judgment is warranted only if "there is no genuine issue as to any material fact" and "the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; Villegas , 709 F.3d at 568. In evaluating the evidence presented by the parties, we "view[ ] the facts and all inferences to be drawn from the facts in the light most favorable to the party against whom summary judgment was entered." Villegas , 709 F.3d at 568.

UNB argues that FAMC’s breach of contract claims are time-barred because they accrued in 2006 and 2007, when FAMC purchased the loans from UNB. The claims accrued at this time, says UNB, because UNB made the allegedly false representations and warranties at the time of purchase. UNB further argues that the Agreement’s repurchase and indemnification provisions did not create any independent obligations accruing after the purchase date; these provisions instead simply provided alternative remedies for any breach of warranty. In support of its view, UNB points to a body of cases addressing this precise issue—mortgage repurchase provisions—under New York law. See, e.g. , ACE Sec. Corp. v. DB Structured Prods., Inc. , 25 N.Y.3d 581, 15 N.Y.S.3d 716, 36 N.E.3d 623, 626–31 (2015) (holding that claims for breach of contract accrued when the misrepresentations were made—the original purchase date—rather than on the date the seller refused to repurchase). UNB would have us apply the same reasoning under Tennessee law and hold that the causes of action here accrued in 2006 and 2007, when FAMC purchased the defective Salvino and Turner loans. This would mean that Kansas’ five-year statute of limitations barred FAMC’s 2013 complaint.²

FAMC argues in response that the causes of action accrued in 2010 and 2011, rather than in 2006 and 2007. FAMC reminds us that the New York cases are inapplicable to contracts governed by Tennessee law, and points to cases resolving related issues differently under Delaware, Missouri, and Minnesota law. See, e.g. , Bank of N.Y. Mellon v. WMC Mortg., LLC , 50 Misc.3d 229, 235, 17 N.Y.S.3d 613 (2015) (noting that Delaware and Minnesota courts have declined to follow New York’s approach to accrual-delaying provisions), aff’d as modified , 151 A.D.3d 72, 56 N.Y.S.3d 1 (2017) ; Citimortgage, Inc. v. Chi. Bancorp, Inc. , No. 4:14-cv-01278, 2016 WL 3346566, at *7–8 (E.D. Mo. June 16, 2016) (holding that the statute of limitations runs from the date of the repurchase demand), vacated in part , 2016 WL 3958594 (E.D. Mo. July 22, 2016). FAMC concedes that Tennessee has not addressed this precise question. Nevertheless, FAMC argues that under Tennessee law the repurchase and indemnification provisions created independent contractual obligations. Therefore, FAMC concludes, the causes of action for breach did not accrue until 2010 and 2011, when FAMC incurred its losses, and the 2013 complaint is timely regardless of whether the Tennessee or Kansas statute of limitations applies.

We are not convinced that Tennessee law would treat repurchase provisions any differently than New York law. FAMC has not identified any substantive differences between Tennessee and New York contract law that would lead to the conclusion that ACE Securities ’ reasoning should not apply to the repurchase provisions of the contract. But we affirm the result below nonetheless because FAMC also alleged breaches of the Agreement’s indemnification provision, which falls squarely into ACE Securities ’ exception for contractual agreements that "undertake a separate obligation, the breach of which does not arise until some future date." 15 N.Y.S.3d 716, 36 N.E.3d at 628.

In ACE Securities , the buyer of numerous mortgage loans demanded that the seller repurchase defective loans, as they had agreed. Id. 15 N.Y.S.3d 716, 36 N.E.3d at 626. When the seller refused, the buyer sued for damages. Id. 15 N.Y.S.3d 716, 36 N.E.3d at 626–27. The New York Court of Appeals agreed with the seller’s statute of limitations argument, holding that the breach of contract claims accrued when the misrepresentations were made—the original purchase date. Id. 15 N.Y.S.3d 716, 36 N.E.3d at 627–30. The court observed that "parties may contractually agree to undertake a separate obligation, the breach of which does not arise until some future date," but determined that the repurchase provision at issue there did not create such an obligation. Id. 15 N.Y.S.3d 716, 36 N.E.3d at 628. Rather, the repurchase clause was only a remedial provision. "The cure or repurchase obligation is an alternative remedy, or recourse, for the [buyer], but the underlying act the [buyer] complains of is the same: the quality of the loans and their conformity with the representations and warranties." Id. 15 N.Y.S.3d 716, 36 N.E.3d at 630 (emphasis in original).

The repurchase provision in this Agreement is similar in all material respects to the one analyzed in ACE Securities . Therefore, FAMC cannot assert a claim for breach of the repurchase protocol separate from the alleged breaches of the representations and warranties, and any such claim would have accrued on the date those representations and warranties were made—at purchase, in 2006 and 2007. Id. 15 N.Y.S.3d 716, 36 N.E.3d at 629. That conclusion does not end our inquiry, however, because FAMC also alleged breaches of the Agreement’s indemnification provision. Pursuant to the indemnification provision, UNB agreed that it would "indemnify [FAMC] and ... hold [FAMC], it[s] officers, directors, and shareholders harmless from and against any and all losses, liabilities, penalties,...