United States District Court, D. Columbia.
For REO ACQUISITION GROUP, LLC, Plaintiff: Andrew Kenneth Wible, Russell James Gaspar, COHEN MOHR, LLP, Washington, DC.
For FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendant: Deborah Brand Baum, LEAD ATTORNEY, Keith David Hudolin, PILLSBURY WINTHROP SHAW PITTMAN, LLP, Washington, DC.
KETANJI BROWN JACKSON, United States District Judge.
Plaintiff REO Acquisition Group (" REO" ) is a real estate company based in Lakeview Terrace, California that acquires, renovates, and resells residential properties. REO alleges that it entered into a contract with Defendant Federal National Mortgage Association (" Fannie Mae" ) to purchase a pool of foreclosed residential properties, and that it paid a $100,000 deposit as part of that transaction--a deposit that Fannie Mae retained when the transaction fell through following a disagreement over the financing terms. (Compl., ECF No. 1, ¶ ¶ 6, 14, 17.) REO's complaint seeks a declaration from this Court announcing that Fannie Mae breached the parties' agreement and also an order requiring Fannie Mae to return the deposit in full. ( See id. at 6-7.)
Before this Court at present is Fannie Mae's motion to dismiss REO's complaint. (Def.'s Mot. to Dismiss (" Def.'s Mot." ), ECF No. 6.) Fannie Mae contends that REO has failed to state a claim for breach of contract, and that the terms of the parties' agreement allow Fannie Mae to keep REO's deposit. ( See Def.'s Mem. in Supp. of Def.'s Mot. (" Def.'s Br." ), ECF No. 6-1, at 1-2.) REO responds that Fannie Mae breached the agreement when it rejected REO's settlement funds on grounds not stated in the contract, and that Fannie Mae must therefore return REO's $100,000 deposit under the terms of the agreement. ( See Pls.' Mem. in Opp'n to Def.'s Mot. (" Pls.' Opp'n" ), ECF No. 10, at 2, 9.) In so arguing, both parties assume that an enforceable agreement between REO and Fannie Mae existed and that the instant dispute is over whether that contract was breached; however, this Court concludes that the parties never achieved an initial meeting of the minds with respect to certain material terms of the agreement, and thus, that there is no valid contract to enforce. Accordingly, this Court will DENY Defendant's motion to dismiss, and will order the parties to submit supplemental briefing regarding the appropriate disposition of REO's $100,000 deposit. An order consistent with this memorandum opinion will follow.
REO's complaint alleges the following facts. In November of 2010, REO submitted to Fannie Mae a formal offer to purchase a pool of thirty-five foreclosed homes, most of which were located in Arizona and California and all of which were owned by Fannie Mae. ( See Compl. ¶ 5.) Prior to submitting this formal purchase proposal, REO had written to Fannie Mae's Pool Sale Transaction Manager, Deidre Rogers, to notify Fannie Mae that REO " intended to finance the project using a lender that would take back a mortgage on the acquired properties to secure its loan." ( Id. ¶ 13; see also id. ¶ 7.) According to the complaint, REO sent this notification to Rogers in late September of 2010, and Rogers responded by e-mail on October 1, advising REO that any lender " would be acceptable as long as they aligned themselves with the mission of Fannie Mae and accepted" certain resale restrictions to be included in the purchase agreement. ( Id. ¶ 13.)
REO sent Fannie Mae the proposed purchase agreement for the foreclosed properties on November 16, 2010, along with a $100,000 deposit toward the proposed purchase price. ( Id. ¶ ¶ 5, 6; see also REO Pool Sale Agreement (" Agreement" ), Ex. 1 to Compl., ECF No. 1-3.) Several provisions of the Agreement are relevant to the instant case. For example, the Agreement specified that it would not take effect " unless and until" Fannie Mae delivered a fully executed copy of the Agreement to REO. (Agreement § 14(p)(i).) The Agreement also stipulated that, after submitting the Agreement to Fannie Mae, REO would " not seek to modify" its terms until Fannie Mae returned a fully executed copy of the contract. ( Id. § 14(p)(ii).)
With respect to financing, the Agreement specifically provided that Fannie Mae would deliver a settlement statement to REO " identifying (i) the anticipated Closing Date, (ii) the schedule of Properties, (iii) the cost of title insurance to be paid by [Fannie Mae] . . . and (iv) all of the payments required to be made by [REO] to [Fannie Mae] at Closing[.]" ( Id. § 1; see also id. § 6(a).) The Agreement also specified that, once REO received the settlement statement, REO would have no more than three business days to " execute and return the Settlement Statement to [Fannie Mae]" and to pay Fannie Mae or its escrow agent via " wire transfer of immediately available funds . . . the Purchase Price, the Closing Cost for each Property and all other amounts required to be paid by [REO] at Closing, as set forth on the Settlement Statement." ( Id. § 6(a).) In other words, within three days of receiving the settlement statement from Fannie Mae pursuant to the Agreement, REO would have to wire sufficient funds to cover all outstanding transaction costs to Fannie Mae. The Agreement further stated that REO had provided " evidence satisfactory to [Fannie Mae] . . . of [REO's] ability to pay the Purchase Price at Closing[,]" and that REO's " obligation to purchase the [properties] is not subject to any financing or other contingency." ( Id. § 2(c).) With respect to REO's $100,000 deposit, the Agreement provided that the deposit was " non-refundable" ( id. § 2(b)) unless Fannie Mae breached the Agreement, in which case " the Deposit (less any escrow cancellation fees) [would] be returned" to REO ( id. § 7(a)).
On December 8, 2010, Rogers " advised [REO] by e-mail that it had been awarded" the right to purchase the properties. (Compl. ¶ 7.) The e-mail did not include an executed copy of the Agreement. ( See id.; see also id. ¶ ¶ 9, 14.) It did, however, include a settlement statement, which Rogers instructed REO to " sign and return" before " pay[ing] the balance of the purchase price into escrow within 72 hours, by December 13, 2010." ( Id. ¶ 7.) Also on December 8th, REO President Paula Heiberg e-mailed Rogers telling her " that [REO] would execute and return the settlement statement that day[,]" and " request[ing] that Fannie Mae return a fully executed copy of the [Agreement] as soon as possible because [REO] needed a signed copy in order for its investors to provide the settlement funds." ( Id. ¶ 9.)
On December 9, 2010, REO's lender called Fannie Mae's escrow agent to discuss arrangements for wiring the settlement funds. ( Id. ¶ 10.) At that point, Fannie Mae had not yet delivered a fully executed copy of the Agreement to REO. ( See id. ¶ 14.) During the call, Fannie Mae's escrow agent told REO's lender that " Fannie Mae would not accept the funds because Fannie Mae would not allow a lender to be involved in the transaction if it intended to take back a mortgage on the acquired properties in order to secure its loan." ( Id. ¶ 10.) On December 10, 2010, REO and its lender called Rogers at Fannie Mae to discuss funding. ( Id. ¶ 11.) Rogers confirmed what Fannie Mae's escrow agent had said the previous day, namely that " Fannie Mae would not allow [REO's] lender to be involved in the pool sale transaction if it intended to take back a mortgage on the acquired properties in order to secure the loan." ( Id.) REO alleges that Fannie Mae's position " was a surprise" given the parties' prior communication about lenders in September and October of 2010. ( Id. ¶ 13.) Nevertheless, over the course of the following week, from December 10th to 17th, REO sought unsuccessfully to obtain new financing that would satisfy Fannie Mae. ( Id. ¶ 15.)
On December 15, 2010, while REO was still exploring financing options, Fannie Mae returned a fully executed copy of the Agreement. ( Id. ¶ 14.) On December 17, 2010, Rogers e-mailed REO warning that REO's " failure to perform the terms of the Agreement" with respect to wiring timely settlement funds to Fannie Mae's account " could have significant adverse consequences." ( Id. ¶ 16.) On December 21, 2010, " counsel for Fannie Mae advised [REO] in writing that it was in default of the Agreement because it had failed to deposit into escrow the funds required to settle the pool purchases" and that Fannie Mae ...