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U.S. Bank National Association v. Equity Bank

United States District Court, D. Minnesota

March 27, 2015

U.S. Bank National Association, Plaintiff,
v.
Equity Bank, Defendant.

Matthew S. Buckley, Esq., Alex P. Hontos, Esq., Seth J.S. Leventhal, Esq., Steven J. Wells, Esq., and Andrea Caron Wiltrout, Esq., Dorsey & Whitney LLP, counsel for Plaintiff.

Enza G. Boderone, Esq., Russell Koonin, Esq., and Philip R. Stein, Esq., Bilzin Sumberg Baena Price & Axelrod LLP; and Janine Wetzel Kimble, Esq., Jenny Gassman-Pines, Esq., and Erin Sindberg Porter, Esq., Greene Espel PLLP, counsel for Defendant.

MEMORANDUM OPINION AND ORDER

DONOVAN W. FRANK, District Judge.

INTRODUCTION

This matter is before the Court on cross-motions for summary judgment brought by Defendant Equity Bank (Doc. No. 120) and Plaintiff U.S. Bank National Association ("U.S. Bank") (Doc. No. 126). Also before the Court is Plaintiff's Motion to Exclude Expert Testimony (Doc. No. 124). For the reasons set forth below, the Court grants in part and denies in part Defendant's motion for summary judgment, grants in part and denies in part Plaintiff's motion for summary judgment, and denies Plaintiff's motion to exclude expert testimony.

BACKGROUND

I. Factual Background

On May 1, 2007, Plaintiff U.S. Bank, Defendant Equity Bank, Sedgwick County, Kansas, Shawnee County, Kansas, and UMB Bank, N.A., entered into a contractual agreement under which the State of Kansas was authorized to establish a local residential housing finance plan to issue revenue bonds, the proceeds from which would be used to purchase mortgage loans (the "Kansas Agreement"). (Doc. No. 158 ("Buckley Decl. I") ¶ 3, Ex. 1 (the "Kansas Agreement").) Under the Kansas Agreement, U.S. Bank, as authorized Master Servicer, was to purchase mortgage loans from Equity Bank that were approved as eligible Federal Home Loan Mortgage Corporation ("Freddie Mac") loans. ( See id. at 6, 19; Doc. No. 57 ("Am. Compl.") ¶ 8.) Pursuant to the Kansas Agreement, U.S. Bank purchased and then sold two loans originated by Equity Bank, Loan Nos. ****4736 and ****3994, to Freddie Mac. (Buckley Decl. I ¶ 3, Ex. 2 ("Huber Dep.") at 14-15; Doc. No. 137 ("Sahn Aff.") ¶ 3, Ex. B ("Sparks Dep.") at 52, 67-68; Doc. No. 160 ("Stein Aff.") ¶ 12, Ex. J ("Loan No. ****4736 Closing Documents"); Stein Aff. ¶ 18, Ex. P ("Loan No. ****3994 Underwriting and Transmittal Summary").)

On September 28, 2010, U.S. Bank and Equity Bank entered into a separate contractual agreement under which Equity Bank agreed to offer conventional mortgage loan sales to U.S. Bank (the "Correspondent Agreement"). (Doc. No. 143 ("Buckley Decl. II") ¶ 3, Ex. 6 (the "Correspondent Agreement").) Under the Correspondent Agreement, Equity Bank sold U.S. Bank over $12 million in loans between September 2010 and August 2012. (Am. Compl. ¶ 18.)

In May and June 2012, U.S. Bank demanded that Equity Bank repurchase Loan Nos. ****4736 and ****3994 sold to U.S. Bank under the Kansas Agreement because the underlying documentation for the loans allegedly did not meet applicable regulatory guidelines and contained errors and inconsistencies. ( Id. ¶ 14; Sahn Aff. ¶ 9, Ex. H ("Loan No. ****4736 Repurchase Demand"); Sahn Aff. ¶ 10, Ex. I ("Loan No. ****3994 Repurchase Demand").) Equity Bank refused to repurchase the loans on the grounds that U.S. Bank did not meet the prerequisites for the repurchase demand and did not provide sufficient documentation. (Am. Compl. ¶¶ 15-16.) Specifically, Equity Bank states that U.S. Bank's repurchase demand lacked foundation; that U.S. Bank had not yet repurchased the loans from Freddie Mac and thus did not own the loans that it demanded Equity Bank repurchase; and that U.S. Bank had not suffered any losses relating to the loans. ( Id.; Stein Aff. ¶ 4, Ex. B ("July 4, 2012 Letter from Equity Bank to U.S. Bank").)

According to Equity Bank, in August 2012, U.S. Bank unilaterally and improperly deducted the entire servicing-release premium owed to Equity Bank for loans purchased under the Correspondent Agreement as punishment for not repurchasing Loan Nos. ****4736 and ****3994 under the Kansas Agreement. (Am. Compl. ¶ 21; Huber Aff. ¶¶ 12-13.) U.S. Bank also notified Equity Bank that it would continue to deduct premiums owed to Equity Bank as a set-off on all remaining loans it had purchased from Equity Bank under the Correspondent Agreement. (Am. Compl. ¶ 24; Buckley Decl. II ¶ 3, Ex. 8 ("Romine Dep.") at 4.) U.S. Bank further informed Equity Bank that it would no longer honor the Correspondent Agreement going forward with regard to future loan sales by Equity Bank. (Am. Compl. ¶¶ 23, 30-31; Romine Dep. at 5-6.) U.S. Bank subsequently suspended and then terminated the Correspondent Agreement. (Romine Dep. at 5-6; Buckley Decl. II ¶ 3, Ex. 19 ("August 24, 2014 E-mail from U.S. Bank to Equity Bank").) Equity Bank alleges that U.S. Bank's rationale for its actions was "to punish Equity Bank for its refusal to repurchase the loans." (Am. Compl. ¶ 23.)

According to Equity Bank, in August 2012, U.S. Bank notified First Community Bank that it would discontinue doing business with First Community Bank because of First Community Bank's pending merger with Equity Bank. ( Id. ¶¶ 27-29, 31-32; Buckley Decl. II ¶ 3, Ex. 22 ("Elliott Dep.") at 8-9; Stein Aff. ¶ 6, Ex. D ("August 20, 2012 E-mail from U.S. Bank to First Community Bank").) Equity Bank alleges that U.S. Bank's intention was to further punish Equity Bank for its refusal to repurchase the loans under the Kansas Agreement. (Am. Compl. ¶ 30.) Equity Bank states that its business declined dramatically due to U.S. Bank's punitive actions. ( Id . ¶ 34.)

II. Procedural History

On August 17, 2012, U.S. Bank filed suit against Equity Bank in the District of Minnesota. (Doc. No. 1 ("Compl.").) One week later, on August 24, 2012, Equity Bank brought suit against U.S. Bank in the District of Kansas. (Doc. No. 1 (Case No. 12-cv-1311).) On November 15, 2012, the Kansas Court transferred Equity Bank's case to this District (Doc. No. 16 (Case No. 12-cv-1311)), and the two cases were subsequently consolidated in the above-entitled matter (Doc. No. 36).

On November 30, 2012, U.S. Bank filed an Amended Complaint against Equity Bank. (Doc. No. 26 ("Am. Compl.").) In its Amended Complaint, U.S. Bank asserts the following claims against Equity Bank: (I) breach of contract (by selling U.S. Bank loans that did not meet the specifications and requirements of the Kansas Agreement); (II) breach of contract (by failing to repurchase the loans on demand by U.S. Bank under the Kansas Agreement); (III) breach of contract (by failing to repurchase the loans and refusing to indemnify U.S. Bank for its losses from the repurchase demand under the Kansas Agreement); and (IV) contractual and common law indemnification. ( Id. ¶¶ 41-63.)

On June 7, 2013, Equity Bank filed an Amended Complaint asserting three claims against U.S. Bank. (Doc. No. 57 ("Am. Compl.").) First, Equity Bank seeks declaratory relief as to whether "U.S. Bank has the right to assert such repurchase demands, as to its ownership of the loans and its standing to pursue such claims against Equity Bank, and as to its right under the pertinent factual circumstances to enforce Equity Bank's representations and warranties related to loans"; and "whether some or all of U.S. Bank's demands are barred by the applicable statute of limitations." ( Id. ¶¶ 35-40.) Second, Equity Bank alleges breach of the Correspondent Agreement based on U.S. Bank's refusal to remit to Equity Bank a servicing-release premium payment on each loan sold. ( Id. ¶¶ 41-47.) Finally, Equity Bank alleges breach of the implied covenant of good faith and fair dealing under both the Kansas Agreement and the Correspondent Agreement for seeking to "punish Equity Bank... because of Equity Bank's good-faith dispute regarding the representations and warranties [of the loans] sold under the Kansas Agreement" and "force Equity Bank to repurchase [the] loans... by withholding funds under the Correspondent Agreement and ultimately terminating its relationship with Equity Bank and First Community Bank." ( Id. ¶¶ 48-58.)

On May 2, 2014, Equity Bank moved for summary judgment on all four claims. (Doc. No. 120.) On May 14, 2014, U.S. Bank moved for summary judgment on all three claims. (Doc. No. 126.) U.S. Bank also moved to exclude Equity Bank's expert testimony. (Doc. No. 124.)

DISCUSSION

I. Cross-Motions for Summary Judgment

A. Summary Judgment Standard

Summary judgment is appropriate 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." Fed.R.Civ.P. 56(a). Courts must view the evidence, and the inferences that may be reasonably drawn from the evidence, in the light most favorable to the nonmoving party. Weitz Co. v. Lloyd's of London, 574 F.3d 885, 892 (8th Cir. 2009). However, "[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed to secure the just, speedy, and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed.R.Civ.P. 1).

The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Enter. Bank v. Magna Bank, 92 F.3d 743, 747 (8th Cir. 1996). The nonmoving party must demonstrate the existence of specific facts in the record that create a genuine issue for trial. Krenik v. Cnty. of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995). A party opposing a properly supported motion for summary judgment "may not rest upon the mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986).

B. Equity Bank's Motion for Summary Judgment

1. Statute of Limitations

As a threshold matter, Equity Bank argues that U.S. Bank's claims are barred by Kansas's five-year statute of limitations for breach of contract actions. ( See Doc. No. 136 at 30-33.) Equity Bank first contends that the Kansas statute of limitations applies to U.S. Bank's claims pursuant to both the Kansas Agreement's choice-of-law provision and the Minnesota Uniform Conflict of Laws-Limitation Act. (Doc. No. 165 at 10-11.) Equity Bank next asserts that Kansas's five-year statute of limitations bars each of U.S. Bank's claims because both of the loans that form the basis of U.S. Bank's claims closed in 2007, more than five years before U.S. Bank filed this lawsuit. ( Id. )

U.S. Bank, on the other hand, argues that all counts in its Amended Complaint are timely. (Doc. No. 157 at 29.) Although U.S. Bank does not dispute that Kansas substantive law otherwise governs its claims pursuant to the terms of the Kansas Agreement, U.S. Bank argues that Minnesota's six-year statute of limitations applies pursuant to Minnesota choice-of-law rules, under which all of its claims are timely. ( Id. at 32-34.) Alternatively, U.S. Bank contends that if Kansas's five-year statute of limitations applies to its claims, then Counts II, III, and IV are timely because U.S. Bank filed suit against Equity Bank within months after Equity Bank failed to honor its contractual repurchase and indemnification obligations. ( Id. at 29-31.)

The Court first considers the applicable statute of limitations. "A federal court sitting in diversity applies the statute-of-limitation rules of the forum." See Great Plains Trust Co. v. Union P. R.R. Co., 492 F.3d 986, 992 (8th Cir. 2007) (citing Nettles v. Am. Tel. & Tel. Co., 55 F.3d 1358, 1362 (8th Cir. 1995)). Under the Minnesota Uniform Conflict of Laws-Limitation Act ("UCLLA"), "if a claim is substantively based... upon the law of one state, the limitation period of the state applies." Minn. Stat. § 541.31. Here, the governing ...


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