Nationwide Advantage Mortgage Co. v. GSF Mortgage Corp.

Citations: 827 F.3d 577; 2016 U.S. App. LEXIS 11699; 2016 WL 3513094Docket: No. 15-3361

Court: Court of Appeals for the Seventh Circuit; June 27, 2016; Federal Appellate Court

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NAMC, a subsidiary of Nationwide Mutual Insurance Company, filed a diversity lawsuit against GSF Mortgage Corporation in Wisconsin, alleging breach of contract, breach of fiduciary duty, fraud, and unjust enrichment. The district court granted summary judgment in favor of GSF, leading to an appeal. The dispute arose from a 2006 Correspondent Lender Purchase Agreement allowing GSF to sell mortgages to NAMC, governed by Iowa law. GSF utilized Fannie Mae's Desktop Originator System (DO) to assess mortgagor eligibility, requiring a sponsoring lender. NAMC served as a sponsor until it attempted to terminate the agreement in 2008 but failed to revoke its sponsorship until 2011, during which it incurred nearly $278,000 in fees to Fannie Mae for GSF's use of the system. NAMC sought damages for these fees, arguing GSF was unjustly enriched by its continued sponsorship. The court noted that the sponsorship was not part of the purchase agreement and attributed NAMC's failure to cancel its sponsorship to its own oversight, thus rejecting NAMC's unjust enrichment claim.

GSF claims it was unaware that Fannie Mae charged its sponsoring lender, NAMC, a fee for GSF’s use of the DO, a claim unchallenged by NAMC. NAMC, which received monthly invoices from Fannie Mae identifying GSF as a DO user, could have avoided liability for these fees by notifying Fannie Mae that it was not sponsoring GSF. Forcing GSF to pay damages based on fees it did not know its sponsor incurred would be unjust. NAMC justifies its oversight by stating the invoices used an ID number instead of GSF's name, but it was aware of the ID numbers for its sponsored mortgage companies and could have identified the source of the charges.

A dispute over choice of law has arisen regarding NAMC’s claim of unjust enrichment. The Correspondent Lender Purchase Agreement stipulates Iowa law governs disputes, but GSF argues that the claim regarding Fannie Mae's fees does not arise from the agreement, as it was executed prior to the downloads and discusses no such fees. Consequently, the choice of law provision does not apply. Furthermore, there is no substantial difference between Iowa and Wisconsin's laws on unjust enrichment, making a conflicts analysis unnecessary and favoring the application of Wisconsin law.

Both Iowa and Wisconsin require proof that the defendant is aware of the benefit received for a finding of unjust enrichment. In this case, GSF's refusal to reimburse NAMC for expenses it was unaware of is not unjust or inequitable, as GSF had no reason to expect such liability and might have altered its business arrangements had it known. Additionally, NAMC asserts GSF violated the Correspondent Lender Purchase Agreement by disclosing proprietary information, but the sponsorship fact is not proprietary, as NAMC’s name is widely recognized in the industry.

GSF selected NAMC from a list of sponsoring lenders on the DO system, with the proprietary DO reports belonging to Fannie Mae, not NAMC. NAMC cites paragraph 12 of the Correspondent Lender Purchase Agreement, which includes GSF's obligation to indemnify NAMC for claims and expenses incurred. However, NAMC omits critical examples from that paragraph indicating indemnification arises only from GSF's wrongful acts that could have been reasonably detected, such as violations of applicable law, breaches of the Agreement, or fraud. There is no evidence that GSF committed any of the specified wrongful acts. Additionally, the Agreement does not prohibit GSF from continuing to use NAMC as a sponsor after their relationship ended. NAMC's other arguments, including claims of agency and fiduciary duty, are undermined by the Agreement’s clear statement that the parties are independent contractors. The district court's judgment is affirmed.