JPMorgan Chase Bank, N.A. v. Classic Home Financial, Inc.

Case: 12-20363 Document: 00512465110 Page: 1 Date Filed: 12/09/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 12-20363 December 9, 2013
Lyle W. Cayce
JP MORGAN CHASE BANK, N.A., Clerk
Plaintiff - Appellee
v.
CLASSIC HOME FINANCIAL, INCORPORATED,
Defendant - Appellant
Appeal from the United States District Court
for the Southern District of Texas
U.S.D.C. No. 4:10-CV-1358
Before BARKSDALE, PRADO, and HAYNES, Circuit Judges.
PER CURIAM:*
Classic Home Financial, Inc. (“Classic”) appeals the district court’s grant
of summary judgment in favor of JPMorgan Chase Bank, N.A. (“JPMC”) on
JPMC’s claims for breach of contract, breach of warranties, representations,
and covenants, and breach of indemnification. Classic also appeals the district
court’s grant of JPMC’s motion to strike Classic’s demand for a jury trial. We
AFFIRM.
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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No. 12-20363
I. Background
JPMC and Classic executed a Correspondent Origination and Sales
Agreement (the “Agreement”) for the “origination, sale, and transfer of
conventional, FHA or VA residential mortgage loans.” Pursuant to the
Agreement, Classic represented and warranted that (i) all of the loans
purchased by JPMC were “insurable by private mortgage insurers” and “an
appropriate certificate or other evidence of such insurance will be issued by the
insurer,” and (ii) the appraisal prepared in connection with the mortgaged
property securing each loan provided an accurate estimate of the bona fide
market value of that property.
The Agreement obligated Classic to repurchase any loan sold to JPMC
at an agreed-upon repurchase price if: (i) Classic breached any of its
representations and warranties under the Agreement and failed to timely cure
the breach; or (ii) JPMC repurchased any loan that it had conveyed,
transferred, or assigned to a third party due to defects in the loan. The
Agreement also stated that Classic would indemnify JPMC for any breach
made by Classic. In addition, the Agreement provided that the enumerated
remedies—repurchase and indemnification—were “in addition to and not to
the exclusion of any and all rights and remedies available to [JPMC] at law or
in equity including specific performance.” Finally, the Agreement contained a
provision waiving both parties’ right to a jury trial for any action arising from
the Agreement.
JPMC purchased a number of mortgage loans from Classic under the
Agreement, including two loans—“Loan E” and “Loan F”—that are the subject
of this appeal. For Loan E, JPMC obtained mortgage insurance from PMI
Mortgage Insurance Co. (“PMI”). After completing a review of Loan E, PMI
rescinded the insurance policy, determining that the property appraisal did not
accurately reflect the value of the mortgaged property. JPMC conducted a
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review of Loan E and, after concuring with PMI’s findings, demanded that
Classic repurchase Loan E, but Classic failed to respond. JPMC subsequently
foreclosed and sold the property securing Loan E and then requested that
Classic compensate JPMC for the difference between Loan E’s repurchase price
and the amount obtained through liquidation, a sum sometimes referred to as
the “make whole” amount. Classic failed to respond.
After purchasing Loan F from Classic, JPMC sold it to the Federal Home
Loan Mortgage Corporation (“Freddie Mac”). Freddie Mac later requested that
JPMC repurchase the loan after it concluded that certain borrower information
was false. JPMC conducted a review of Loan F and, after concurring with
Freddie Mac’s findings, repurchased the loan. It demanded that Classic
repurchase Loan F, but Classic failed to respond. After filing this action, JPMC
foreclosed and sold the property securing Loan F; it then requested that Classic
compensate JPMC for the “make whole” amount.
JPMC sued Classic as to seven mortgage loans, including Loan E and
Loan F, that it purchased from Classic. After Classic answered and requested
a jury trial, JPMC moved for summary judgment and moved to strike Classic’s
jury trial demand. The district court granted summary judgment in favor of
JPMC on six of the seven mortgage loans, including Loan E and Loan F, and
granted JPMC’s motion to strike Classic’s demand for a jury trial. 1 Classic
appeals the grant of summary judgment as to Loan E and Loan F and the grant
of JPMC’s motion to strike Classic’s demand for a jury trial.
1 JPMC thereafter dismissed its claims with respect to the seventh loan.
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II. Standard of Review
We review a district court’s award of summary judgment de novo,
applying the same standard as the district court. Trinity Universal Ins. Co. v.
Emp’rs Mut. Cas. Co., 592 F.3d 687, 690 (5th Cir. 2010). Summary judgment
is appropriate when “there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
The evidence must be viewed in the light most favorable to the non-moving
party. United Fire & Cas. Co. v. Hixson Bros. Inc., 453 F.3d 283, 285 (5th Cir.
2006). We review rulings on evidentiary objections for abuse of discretion. See
McIntosh v. Partridge, 540 F.3d 315, 320 (5th Cir. 2008).
III. Discussion
Classic argues that the district court erred in granting summary
judgment to JPMC on Loan E and Loan F because it contends that the
Agreement limits JPMC to two remedies—repurchase or indemnification—
and neither are available here. 2 Importantly, however, the Agreement
specifically provided that repurchase and indemnification were “in addition to
and not to the exclusion of any and all rights and remedies available to [JPMC]
at law or in equity including specific performance.” JPMC was therefore
entitled to seek compensatory damages. See Totaro, Duffy, Cannova & Co.,
L.L.C. v. Lane, Middleton & Co., L.L.C., 921 A.2d 1100, 1107 (N.J. 2007) 3
(“Compensatory damages put the innocent party into the position he or she
2 Specifically, Classic argues that repurchase is not available because JPMC waived
its right to this remedy when it elected to foreclose and sell the properties securing Loan E
and Loan F. Further, Classic contends that indemnification is not applicable here because
JPMC is seeking to recover for its own losses and not for the losses of a third party for which
it is liable.
3 The Agreement provided that its terms and their interpretation would be governed
by the laws of the State of New Jersey without giving effect to its principles of conflicts of
law.
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would have achieved had the contract been completed. . . . Most often, courts
award compensatory damages in a breach of contract action.”).
Classic further argues that JPMC’s recovery of compensatory damages
on Loan E and Loan F is barred by the “election of remedies” doctrine because
JPMC chose to foreclose and sell the properties securing Loan E and Loan F.
“[E]lection of remedies . . . is an affirmative defense that must be pleaded.”
Jones v. Roadway Express, Inc., 936 F.2d 789, 790 (5th Cir. 1991) (internal
quotation marks and citation omitted); see Levy v. Mass. Accident Co., 11 A.2d
79, 81–82 (N.J. 1940) (election of remedies is an affirmative defense); see also
Fed. R. Civ. P. 8(c) (affirmative defenses must be pleaded). Failure to plead an
affirmative defense generally results in its waiver. See EEOC v. Serv. Temps
Inc., 679 F.3d 323, 334 n.30 (5th Cir. 2012); Vanhoy v. United States, 514 F.3d
447, 450 (5th Cir. 2008). Classic failed to plead “election of remedies” and it
has therefore waived this affirmative defense; accordingly, we need not decide
whether such a defense would have merit under these facts.
Finally, Classic argues that JPMC did not sustain its burden of proof to
establish that Classic breached the Agreement with respect to Loan E. In
support of its motion for summary judgment, JPMC relied on two documents:
(1) a letter from PMI rescinding the mortgage insurance for Loan E (the “PMI
Letter”), and (2) JPMC’s internal underwriting review of Loan E (the
“Underwriting Revew”) with an attached declaration of a business records
custodian.
In the PMI Letter, PMI stated that it was rescinding the mortgage
insurance policy for Loan E, because, inter alia, Loan E’s property appraisal
did not accurately reflect the value of the mortgaged property securing the
loan. Although Classic argued that this document contained hearsay, the
district court considered the PMI Letter not for the truth of the matters
asserted therein, but as evidence that JPMC had received notice both that the
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mortgage insurance policy was rescinded and that PMI had asserted that the
loan file on Loan E contained a number of misrepresentations. See Snyder v.
Whittaker Corp., 839 F.2d 1085, 1090 (5th Cir. 1988) (“[A] statement does not
fall under the hearsay rule if it was offered, not to prove the truth of the matter
asserted, but to prove that the statement was made.”); see also Fed. R. Evid.
801(c)(2).
In the Underwriting Review, JPMC similarly concluded that Loan E’s
property appraisal did not accurately reflect the value of the mortgaged
property securing the loan. The district court held that the Underwriting
Review was admissible as a business record. See Fed. R. Evid. 803(6). Classic
contends that the Underwriting Review is inadmissible double hearsay
because it completely relied on findings contained in the PMI Letter, an
unattached review appraisal conducted on JPMC’s behalf, and an unattached
retroactive appraisal conducted on PMI’s behalf. See Fed. R. Evid. 805; Wilson
v. Zapata Off-Shore Co., 939 F.2d 260, 271 (5th Cir. 1991) (“Double hearsay in
the context of a business record exists when the record is prepared by an
employee with information supplied by another person.”).
However, the Underwriting Review makes clear that, while it addressed
the findings contained in the unattached appraisals and the PMI Letter, JPMC
separately conducted its own fraud investigation and made independent
findings that did not rely on those documents. This investigation found that
the original appraisal had relied on comparable home sales from a different
neighborhood than the neighborhood where the mortgaged property securing
Loan E was located. It also found that the original appraisal had concluded
that the mortgaged property securing Loan E had increased $200,000 in value
in the span of one month due solely to “cosmetic updates and appliances” and
“TLC.” Based on these red flags, it concluded: “Value is not supported.” The
district court did not abuse its discretion, therefore, in overruling Classic’s
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“double hearsay objection” to admitting these statements from the independent
findings of JPMC’s fraud investigation under the business records exception.
See United States v. Gurr, 471 F.3d 144, 152 (D.C. Cir. 2006) (analyzing specific
statements within a report for double hearsay, while finding that “most of the
report appears to be admissible as . . . course-of-business observations under
the exception of Fed. R. Evid. 803(6)”). 4
AFFIRMED.
4 Because we affirm the district court’s grant of summary judgment in favor of JPMC,
we conclude that the challenge to the district court’s striking of the jury demand is moot.
Additionally, in its brief, Classic argued that the award of attorney’s fees “should be
reconsidered” “pending the outcome of this appeal.” Because we affirm in full and Classic
makes no other challenge to the fee award, we conclude that Classic is not entitled to relief
on this issue.
7