Mycumortgage, LLC v. FSB

• Decision Date: 21 February 2019
• Docket Number: Case No. 3:18-cv-00091
• Parties: myCUmortgage, LLC, Plaintiff, v. CENLAR FSB, Defendant.
• Court: U.S. District Court — Southern District of Ohio

myCUmortgage, LLC, Plaintiff, v. CENLAR FSB, Defendant.

Case No. 3:18-cv-00091

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO WESTERN DIVISION AT DAYTON

February 21, 2019

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).

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 ofthe 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,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.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-of-law 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, 6Ohio 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 faithand 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...