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United Security Financial Corp. v. First Mariner Bank

United States District Court, D. Utah

August 2, 2017

UNITED SECURITY FINANCIAL CORPORATION, Plaintiff,
v.
FIRST MARINER BANK, et al. Defendants.

          MEMORANDUM DECISION AND ORDER

          Jill N. Parrish, United States District Court Judge

         Before the court are the following motions:

         1. Defendant/Counter-Plaintiff First Mariner Bank's (“First Mariner”) Motion for Summary Judgment on Plaintiff/Counter-Defendant United Security Financial Corporation's (“USF”) Claims for (1) Breach of Contract; (2) Quantum Meruit; (3) Intentional Interference with Prospective Economic Relations; and (4) Conversion of an Instrument; and, for Partial Summary Judgment on its Related Counterclaims for: (1) Breach of Contract; and (2) Unjust Enrichment [Docket 81];

         2. Defendant/Counter-Plaintiff First Mariner Bank's Motion to Exclude Testimony of Plaintiff/Counter-Defendant United Security Financial Corporation's Expert Christina Moore [Docket 82]; and

         3. USF's Motion for Permission to File Dispositive Motion to Amended Counterclaim of First Mariner Bank [Docket 99].

         As explained below, the court (1) GRANTS USF's Motion for Permission to File Dispositive Motion to Amended Counterclaim of First Mariner Bank; (2) GRANTS First Mariner's Motion for Summary Judgment on USF's claims for breach of contract, intentional interference with prospective economic relations, and conversion of an instrument under Oregon law, but DENIES First Mariner's Motion for Summary Judgment on USF's quantum meruit claim; (3) GRANTS First Mariner's Motion for Summary Judgment on its related counterclaim for breach of contract, but DENIES First Mariner's Motion for Summary Judgment on its counterclaim for unjust enrichment; and (4) GRANTS First Mariner's Motion to Exclude Expert Testimony.

         FACTS

         USF is a mortgage banking company. USF originates and funds mortgage loans. In addition to originating its own loans, USF also buys loans from other lenders. Using both the loans that it purchases and the loans it originates, USF packages loans together into pools, and sells them to investors.

         First Mariner is a full-service financial institution, providing a range of banking services including the origination of residential mortgage loans. First Mariner and USF entered into a Sales Agreement, dated March 16, 2011, wherein First Mariner agreed to sell a specific set of residential mortgage loans to USF. That transaction was completed without dispute.

         Following the initial loan sale transaction, USF and First Mariner discussed the possibility of entering into an overarching agreement known as a Pool Correspondent Lending Agreement (“PCLA”) to govern subsequent loan sale transactions between the parties. The parties' discussions were initially based on a draft version of a PCLA that USF had used with other lenders. This draft PCLA was stamped at the bottom “10/05/09 v1” and is referred to herein as the “March 2011 PCLA.” The parties exchanged red-lined versions of the March 2011 PCLA by email as they negotiated terms to which each would agree. Although a number of versions were exchanged, neither party has located or produced an executed copy of the March 2011 PCLA.

         As discussions progressed, First Mariner executed an Amendment to Sale Agreement (the “Amendment”) dated March 16, 2011. Although its title suggests that the Amendment related to the previously executed Sale Agreement of the same date, the Amendment instead stated that it “amends and supplements the Pool Correspondent Lending Agreement . . . executed between [the parties] dated March 16, 2011 . . . .” The Amendment modified the purportedly-executed PCLA by removing Section 5.03 and removing and replacing a definition in Section 1.21.

         As negotiations continued between the parties, the subject of pair off fees[1] became a point of contention. On April 7, 2011, Linda Weir, USF's production manager, sent an email to Joseph Grinder, a Senior Vice President in First Mariner's mortgage division, asking him to sign an Addendum to Pool Correspondent Lending Agreement (the “Pair Off Addendum”). The Pair Off Addendum sought to amend the March 2011 PCLA by adding Section 2.03 titled Pair Off Indemnification which provided as follows: “If [First Mariner] fails to meet any of its delivery deadlines and consequently USF is assessed any ‘pair off' fees, [First Mariner] will indemnify USF from any such fees.” Mr. Grinder refused to sign the Pair Off Addendum.

         In the months following the initial loan sale transaction in March 2011 and while negotiations regarding the PCLA were ongoing, First Mariner would periodically send lists of loans that were available for purchase to USF. If USF elected to purchase any of First Mariner's loans, USF would prepare and send a written Purchase Advice to First Mariner containing an offered purchase price and terms, including any applicable deductions for underwriting review or escrow shortages. First Mariner would review the Purchase Advices and could object to the offered purchase price and terms. Once a Purchase Advice was approved by First Mariner, USF would electronically wire funds to First Mariner, frequently bundling loan purchases into groups and making a single bulk payment. In making these payments to First Mariner, USF withheld certain amounts from those payments to pay pair off fees. Throughout the time of its relationship with First Mariner, USF incurred a total of $616, 593.00 in pair off fees owed to its investors. USF recouped $536, 730.45 of these pair off fees by withholding amounts from its wire payments to First Mariner.

         The Indemnification Agreement and the Robinson and Ross, Jr. Loans

         On or about September 1, 2011, USF and First Mariner entered into an Indemnification Agreement in connection with the sale of five particular loans from First Mariner to USF. The Indemnification Agreement required First Mariner to buy back from USF any of the five loans that became more than sixty (60) days delinquent within the first twenty-four (24) months. Among those loans was a loan made to a borrower by the name of Ginger Robinson (the “Robinson Loan”) and a loan made to a borrower by the name of James E. Ross, Jr. (the “Ross Loan”). USF alleges that the Robinson Loan became over sixty days delinquent in April 2013 and that the Ross Loan became over sixty days delinquent in June 2013. USF entered into a loan modification agreement in connection with the Robinson Loan on April 24, 2014. And USF entered into a loan modification agreement in connection with the Ross Loan on June 2, 2015. On August 27, 2015, USF notified First Mariner of the alleged 60-day delinquency of both loans, but First Mariner refused to buy them back.

         The Ulino Loan

         Sometime in June 2012, First Mariner sent to USF a list of loans available for purchase. Included in this list was a loan that First Mariner had originated with borrowers Christopher and Linda K. Ulino (the “Ulino Loan”). As was customary, First Mariner included the original note for the Ulino Loan to facilitate USF's review and underwriting process. The Ulino Loan note remained with USF for nearly a year, but USF never sent a Purchase Advice for the Ulino Loan. In March or April of 2013, the Ulinos contacted First Mariner requesting to refinance their loan. Because First Mariner was trying to sell the loan to USF, First Mariner initially delayed in consideration of the Ulinos' request to refinance their loan. However, First Mariner later decided to move forward with a refinance of the Ulino Loan and issued a payoff statement on May 22, 2013.

         That same week, First Mariner contacted USF to advise it that the Ulino Loan was being refinanced and was no longer available for purchase and requested that USF return the note evidencing the Ulino Loan. After First Mariner advised USF of the refinance, USF began the internal process of retrieving the note to return it to First Mariner. But USF did not return the note. Instead, USF sent a Purchase Advice to First Mariner on May 28, 2013, that included the Ulino Loan. First Mariner contacted USF by phone and by email to object to the May 28 Purchase Advice because it contained the Ulino Loan. Despite these discussions, on May 29, 2013, at 4:19 p.m. USF wired funds to First Mariner, including $255, 973.21 earmarked to purchase the Ulino Loan. First Mariner retained the funds earmarked for the purchase of the Ulino Loan and recorded a Certificate of Satisfaction of the Ulino Loan with the county recorder's office in Lane County, Oregon.

         The Lawsuit

         USF filed this action on December 23, 2013, in the Third Judicial District Court for Salt Lake County, Utah, seeking damages for breach of contract, quantum meruit, intentional interference with prospective business relations, and conversion of a note under Oregon law. First Mariner removed the action to this court on January 31, 2014. USF was subsequently granted leave to amend its complaint a number of times. Attached to each version of USF's complaint was a second version of a draft PCLA stamped at the bottom with “04/25/2011 v1” (the “April 2011 PCLA”). Section 2.03 of the April 2011 PCLA is titled “Pair Off Indemnification” and contains the same language that USF had presented to First Mariner in the Pair Off Addendum, providing that “[i]f [First Mariner] fails to meet any of its delivery deadlines and consequently USF is assessed any ‘pair off' fees, [First mariner] will indemnify USF from any such fees.”

         ANALYSIS

         I. USF'S Motion for Permission to File Dispositive Motion on Amended Counterclaim

         USF seeks permission to file a dispositive motion on First Mariner's amended counterclaim. USF argues that if it is not allowed to file a dispositive motion to the amended counterclaim, First Mariner would have an unfair advantage in the litigation. USF points out that if its motion is denied, it would be denied an opportunity to challenge the amended counterclaim prior to trial because the court granted First Mariner leave to file the amended counterclaim after the deadline to amend pleadings and after the dispositive motion deadline. Further, USF argues that allowing it to file a dispositive motion will assist the court and will not unfairly prejudice First Mariner in any way. First Mariner opposes the motion, arguing that it is untimely and that granting it would cause undue prejudice to First Mariner and frustrate the purpose of the court's scheduling order.

         Rule 16 of the Federal Rules of Civil Procedure requires the court to issue a scheduling order “limiting the time to . . . amend pleadings . . . and file motions.” The scheduling order “may be modified only for good cause and with the judge's consent.” Fed.R.Civ.P. 16(b)(4). The “good cause” standard of Rule 16 “requires the movant to show the scheduling deadlines cannot be met despite the movant's diligent efforts.” Gorsuch, Ltd., B.C. v. Wells Fargo Nat'l Bank Ass'n, 771 F.3d 1230, 1240 (10th Cir. 2014).

         First Mariner's original counterclaim asserted three causes of action-breach of contract, unjust enrichment, and detrimental reliance. [Docket 35]. On March 23, 2016, nearly seven months after the deadline for filing amended pleadings, First Mariner filed a Motion for Leave to File Amended Counterclaim seeking to add causes of action for negligent misrepresentation and fraud. [Docket 72]. First Mariner filed its Motion for Summary Judgment on August 31, 2016- the dispositive motion deadline-seeking summary judgment on its counterclaims for breach of contract and unjust enrichment. [Docket 81]. The court granted First Mariner's Motion for Leave to File Amended Counterclaim on November 15, 2016, [Docket 90], and First Mariner filed its amended counterclaim on November 22, 2016, [Docket 93]. The court held a hearing on First Mariner's Motion for Summary Judgment on January 17, 2017. At that hearing, the court asked First Mariner what effect, if any, the filing of the amended counterclaim had on the Summary Judgment Motion as it related to the counterclaims. First Mariner represented to the court that it had no effect because the amended counterclaim added claims that were not the subject of its Motion for Summary Judgment. USF did not dispute that representation. Two days after that hearing, USF filed its motion seeking permission to file a dispositive motion on the amended counterclaim. [Docket 99].

         First Mariner argues that USF's motion is untimely. First Mariner maintains that although the court did not grant it leave to file its amended counterclaim until after the dispositive motion deadline, USF has been on notice of the contents of the amended counterclaim since March 23, 2016, when First Mariner attached the proposed amended counterclaim as an exhibit to its Motion for Leave to File Amended Counterclaim. First Mariner argues that if USF anticipated the need for a dispositive motion on the claims that First Mariner sought to add in the amended counterclaim, USF should have raised that issue even before the court granted First Mariner leave to amend. But until the filing of the amended counterclaim, USF had no reason to request an extension of the dispositive motion deadline. Any motion filed before leave was granted and the amended counterclaim was filed would necessarily have been a contingent motion, and First Mariner has cited no case law requiring the filing of a contingent motion in such a circumstance. The court will not require litigants to make such a filing.

         Alternatively, First Mariner argues that USF should have brought its motion sometime during the almost-two months that passed between the filing of the amended counterclaim and the January 17 hearing. First Mariner maintains that failing to seek permission to file a dispositive motion until two days after the hearing demonstrates an undeniable lack of diligence on USF's part. USF responds that it was impossible for it to meet the deadline for filing a dispositive motion because the amended counterclaim was not filed until after that deadline. USF maintains that allowing it to file a dispositive motion to the amended counterclaim would further the interests of judicial economy because it could potentially resolve issues that are not in dispute and settle the rights of the parties without the time, trouble, and expense of trial. The court agrees with USF that it should be granted leave to file a dispositive motion, but only as to the two counts added in the amended counterclaim.

         USF seeks leave to file a dispositive motion directed to the entirety of the amended counterclaim, arguing that First Mariner's Motion for summary judgment on its original counterclaims for breach of contract and unjust enrichment is moot. “[I]t is well established that an amended [pleading] ordinarily supersedes the original and renders it of no legal effect.” Davis v. TXO Prod. Corp., 929 F.2d 1515, 1517 (10th Cir. 1991) (quoting Int'l Controls Corp. v. Vesco, 556 F.2d 665 (2d Cir. 1977)); see also 6 Federal Practice & Procedure § 1476 (3d ed.) (“A pleading that has been amended . . . supersedes the pleading it modifies . . . . Once an amended pleading is interposed, the original pleading no longer performs any function in the case . . . .”). USF argues that because First Mariner filed its amended counterclaim after it filed its summary judgment motion, the pleading to which the summary judgment motion was directed is no longer operative and the motion therefore necessarily fails.

         USF is correct that the original counterclaim has been superseded with the filing of an amended counterclaim, but the claims asserted in both the original and amended counterclaims remain intact and operative. See Marotta v. Cortez, No. CIVA 08CV02421CMACBS, 2008 WL 5044496, at *1 (D. Colo. Nov. 20, 2008) (explaining that causes of action alleged in the original pleading but not alleged in or incorporated into the amended pleading are waived); Small v. Young, No. 13-CV-01075-REB-CBS, 2013 WL 5862650, at *4 (D. Colo. Oct. 31, 2013) (same). Summary judgment motions are not directed at pleadings, but at claims. Fed.R.Civ.P. 56(a) (“A party may move for summary judgment, identifying each claim . . . on which summary judgment is sought.”). Because the claims on which First Mariner sought summary judgment are included in both the original counterclaim the amended counterclaim, the claims and evidence related to those claims were not affected by the filing of the amended counterclaim and First Mariner's motion is not moot.

         Because First Mariner's motion for summary judgment on its counterclaims for breach of contract and unjust enrichment are not moot, USF will not be given a second chance to make a dispositive motion on those claims. Additionally, USF will not be given an opportunity to make a dispositive motion on First Mariner's third counterclaim for detrimental reliance, which was also contained in First Mariner's original counterclaim. USF was aware of these claims and the evidence related to them and had the opportunity to make a dispositive motion regarding those claims prior to the dispositive motion deadline.

         Because the amended counterclaim added additional claims for negligent misrepresentation and fraud that had not previously been pleaded, neither party has had the opportunity to file a dispositive motion on the additional claims. Accordingly, both parties will be given the opportunity to file a dispositive motion as to First Mariner's counterclaims for negligent misrepresentation and fraud. Any such motion must be filed within twenty-one (21) days from the date of this order.

         II. First Mariner's Motions for Summary Judgment

         Under Federal Rule of Civil Procedure 56(a), “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” A dispute is genuine only if “a reasonable jury could find in favor of the nonmoving party on the issue.” Macon v. United Parcel Serv., Inc., 743 F.3d 708, 712 (10th Cir. 2014). “In making this determination, ‘we view the evidence and draw reasonable inferences therefrom in the light most ...


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