Wells Fargo Funding v. Draper & Kramer Mortg. Corp.
| Decision Date | 14 April 2009 |
| Docket Number | No. 08 C 1806.,08 C 1806. |
| Citation | 608 F.Supp.2d 981 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | WELLS FARGO FUNDING, a Minnesota corporation, and Wells Fargo Bank, N.A., a national banking association, Plaintiffs, v. DRAPER & KRAMER MORTGAGE CORP., a Delaware corporation, Draper and Kramer, Incorporated, a Delaware corporation, and DKH, Inc., a Delaware corporation. |
Thomas M. Crawford, Daniel G. Litchfield, Kevin Allan Titus, Litchfield Cavo LLP, Chicago, IL, for Plaintiffs.
John Joseph Lydon, Nazia J. Hasan, Gomberg, Shafman, Gold & Ostler, P.C., Chicago, IL, for Draper & Kramer Mortgage Corp., a Delaware corporation, Draper and Kramer, Incorporated, a Delaware corporation, and DKH, Inc., a Delaware corporation.
On October 29, 2008, the parties memorialized on the record the terms of a settlement agreement that they had reached after an extended settlement conference. While there was to be a written document incorporating the terms on which they agreed in court, the parties explicitly agreed that there was a binding settlement agreement effective that day. (Transcript of Proceedings on 10/29/08, at 8-9)("Tr."). Now, despite having agreed to all of the material terms on the record, they disagree as to what they actually agreed to and, have filed cross motions to enforce their differing versions on the agreement. The parties consented to jurisdiction here on October 29, 2008.[27].
This case is among the many that have, and no doubt will continue, to come in the wake of the recent mortgage debacle. As Wells Fargo's Complaint reads, Wells Fargo, as buyer, and Draper & Kramer Mortgage Corp. ("DKMC"), as seller, entered into two purchasing agreements, one covering residential mortgage loans and the other home equity loans. The Residential Mortgage Loan Purchase Agreement ("Mortgage Agreement") expressly incorporated the Wells Fargo Funding Seller's Guide ("Seller's Guide"), and the Home Equity Loan/Home Equity Line Purchase Agreement ("Home Equity Agreement") incorporated the Wells Fargo Bank Home Equity Seller's Guide, making them part of the Agreements. The "Seller's Guides" are exhaustive lists of dozens of representations, warranties, covenants, and documentation requirements that DKMC, like others who dealt with Wells Fargo, were required to make regarding loans they sold to Wells Fargo.
Pursuant to the Mortgage Agreement, DKMC had the option to offer for sale to Wells Fargo loans meeting the conditions listed in the Seller's Guide. If DKMC failed to fulfill its obligation to deliver qualifying loans with sufficient documentation or breached any representations, warranties, and/or covenants made regarding any of the purchased loans, the terms of the Mortgage Agreement and Seller's Guide entitled Wells Fargo to demand that DKMC repurchase the loans and pay accrued interest, legal expenses, and other expenses that Wells Fargo might incur as a result of DKMC's default. DKMC also had to reimburse Wells Fargo for the price paid by Wells Fargo for the servicing rights with respect to each of the loans, and had to indemnify Wells Fargo for all costs and losses associated with such loans.
Wells Fargo and Draper & Kramer, Inc. ("DKI") entered into a Guaranty and Support Agreement (the "Guaranty"), in which DKI agreed to guarantee, inter alia, certain of DKMC's obligations to Wells Fargo, including payment and performance obligations under the Mortgage Agreement. DKI also made certain warranties and representations to Wells Fargo, including that every warranty, representation, and obligation made or undertaken by DKMC was true and correct. DKI also agreed to indemnify Wells Fargo for all costs and expenses, including attorneys' fees, incurred or paid by Wells Fargo in enforcing the Guaranty. The Guaranty provided that DKI's obligations were joint and several, absolute and unconditional, and independent of any obligations of DKMC.
The Home Equity Agreement between Wells Fargo and DKMC was similar to the Mortgage Agreement. It, too, incorporated a list of representations, warranties, covenants, and documentation requirements embodied in the Wells Fargo Bank Home Equity Seller's Guide. Through these documents, DKMC undertook the obligations it did in connection with the Mortgage Agreement and its accompanying Seller's Guide and subjected itself to the same liabilities. And, as with the Mortgage Agreement, Well Fargo got a guaranty of those Home Equity Agreement obligations, this time from DKH, Inc. ("DKH"), with basically the same terms as the ones from DKI.
As it turned out—at least according to Wells Fargo's complaint—DKMC dropped the ball regarding several loans, of both the mortgage and home equity variety, and the guarantors—DKI and DKH—refused to honor their guarantees. The parties ended up in litigation, but shortly thereafter, they negotiated a settlement agreement. That agreement encompasses fifteen specified loans. Mindful of the court's cautions in Lynch, Inc. v. Samata-Mason, Inc., 279 F.3d 487 (7th Cir.2002), regarding the problems of fallible memory and the need to memorialize the results of successful settlement conferences,1 I had counsel put the terms of their agreement on the record.
But when they later tried to draft the written agreement, they disagreed as to two key terms. First, whether, once DKMC made the $560,000 payment under the settlement agreement, Wells Fargo had agreed to release the guarantors from their guarantees on all outstanding loans that were not, and might never be, in default—not just the fifteen loans encompassed by the settlement agreement. And second, whether Wells Fargo agreed to allow DKMC to try to sell it future loans.
A settlement agreement, whether oral or written, is a contract, and thus its construction and enforcement are governed by basic contract principles. Laserage Tech. Corp. v. Laserage Laboratories Inc., 972 F.2d 799, 802 (7th Cir.1992), the most fundamental of which is that "`the primary object in construing a contract is to give effect to the intention of the parties involved.'" In re Doyle, 144 Ill.2d 451, 468, 163 Ill.Dec. 515, 581 N.E.2d 669 (1991). An agreement is binding if the parties agree on all material terms. Abbott Laboratories v. Alpha Therapeutic Corp., 164 F.3d 385, 387 (7th Cir.1999); Midland Hotel Corp. v. Reuben H. Donnelley Corp., 118 Ill.2d 306, 313-314, 113 Ill.Dec. 252, 515 N.E.2d 61 (1987). Oral settlement agreements are enforceable under Illinois law if "there is clearly an offer and acceptance of the compromise and a meeting of the minds as to the terms of the agreement." Dillard v. Starcon Intern., Inc., 483 F.3d 502, 507 (7th Cir. 2007).2 The essential terms must be "definite and certain" so that a court can ascertain the parties' agreement from the stated terms and provisions. Id.
Although it is a handy shorthand, the phrase, "meeting of the minds," is misleading if taken literally. See Laserage Technology Corp., 972 F.2d at 802. Today, there is no debate that the formation of a contract does not actually require that the parties come to a subjective and congruent understanding. There is common agreement that "no one will understand the true theory of contract or be able to discuss some fundamental questions intelligently until he has understood that all contracts are formal, that the making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs not on the parties having meant the same thing but on their having said the same thing." Holmes, The Path of the Law, 10 Harv. L.Rev. 457, 464 (1897). See also Dillard, 483 F.3d at 507; Navair, Inc. v. IFR Americas, Inc., 519 F.3d 1131, 1139 (10th Cir.2008)("Put another way, the inquiry will focus not on the question of whether the subjective minds of the parties have met, but on whether their outward expression of assent is sufficient to form a contract.").
Finally, "[l]anguage in a contract is not rendered ambiguous simply because the parties do not agree upon its meaning," Reynolds v. Coleman, 173 Ill.App.3d 585, 123 Ill.Dec. 259, 527 N.E.2d 897, 903 (1st Dist.1988), and "[w]hat the parties to a written contract may have understood as to the meaning of the language used is not admissible evidence." Saddler v. National Bank of Bloomington, 403 Ill. 218, 85 N.E.2d 733 (1949). Finally, a unilateral, or self-induced, mistake is insufficient to void a clear and unambiguous release.3
In some cases involving oral agreements, the statute of frauds can be a concern. But neither party raises it as an issue, Lynch, Inc., 279 F.3d at 490, and, in any event, the fact that their agreement was recorded in open court removes the statute as an issue. See Rose v. Mavrakis, 343 Ill.App.3d 1086, 1094, 278 Ill.Dec. 751, 799 N.E.2d 469, 476-477 (1st Dist.2003). See also Cloud Corp. v. Hasbro, Inc., 314 F.3d 289, 296 (7th Cir.2002)(where parties agree on what was said there is no statute of frauds issue); Consolidation Services, Inc. v. KeyBank Nat. Ass'n, 185 F.3d 817, 821 (7th Cir.1999).
There is no dispute that DKMC agreed to pay Wells Fargo a total of $560,000 in settlement of the litigation: $75,000 was to be paid within thirty days of the execution of the typed settlement agreement, which the parties envisioned would be prepared, but which they agreed was not a condition precedent to contract formation.4 The balance of $485,000 was to be paid in six, equal, bimonthly installments. DKI and DKH guaranteed DKMC's payment obligation under the settlement agreement. Counsel for DKMC and the guarantors, in enunciating on the record the terms of the settlement agreement, said that after payment of the $560,000, the...
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