UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
) REO ACQUISITION GROUP, ) ) Plaintiff, ) ) v. ) Civil Action No. 13-cv-1953 (KBJ) ) FEDERAL NATIONAL MORTGAGE ) ASSOCIATION, ) ) Defendant. ) )
MEMORANDUM OPINION
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.) 1
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’
1 Page numbers throughout this memorandum opinion refer to those that the Court’s electronic filing system assigns. 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 Pl.’s Mem. in Opp’n to Def.’s Mot. (“Pl.’s
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.
I. BACKGROUND
Factual Background
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
2 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
3 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
4 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 was “elect[ing] to terminate the Agreement and to
retain the $100,000 deposit that [REO] had paid.” (Id. ¶ 17.)
Procedural History
On December 6, 2013, REO filed the instant complaint in federal court. The
complaint alleges that Fannie Mae’s refusal to accept funds from REO’s lender was a
breach of the parties’ contract because “[t]he restriction on lender involvement . . . was
5 not a term or condition of the Agreement.” (Id. ¶ 12; see also id. ¶ 25.) REO further
contends that, once Fannie Mae defaulted, the Agreement required Fannie Mae “to
refund the deposit paid by REO” but that Fannie Mae “has failed and refused to do so”
thereby committing “a further breach of the agreement[.]” (Id. ¶ 26.)
On February 11, 2014, Fannie Mae filed a motion to dismiss REO’s complaint
for failure to state a claim upon which relief can be granted pursuant to Federal Rule of
Civil Procedure 12(b)(6). (See Def.’s Mot. at 2.) Fannie Mae asserts that the parties
entered into their Agreement on December 15, 2010—the date on which Fannie Mae
returned a fully executed copy of the Agreement to REO—and that, at that point, Fannie
Mae and its escrow agent had already “informed [REO] on December 9 and 10 that . . .
[REO] could not proceed with a lender that would take back a mortgage on the acquired
properties to secure its loan.” (Def.’s Br. at 6.) According to Fannie Mae, this
demonstrates that REO “full[y] underst[ood] . . . the restrictions on financing that were
being imposed by Fannie Mae in the contemplated transaction” at the time of
contracting. (Id. at 7.) Thus, Fannie Mae maintains that it was REO that breached the
parties’ Agreement when it failed to adhere to the agreed upon terms, and that Fannie
Mae is therefore entitled to retain REO’s deposit. (Id. at 5 (citing Agreement § 7(b)).)
In response, REO directs this Court’s attention to “[t]he [Agreement’s] plain and
unambiguous language[,]” which REO contends “did not prohibit [it] from using
secured financing” to complete the transaction. (Pl.’s Opp’n at 2.)
II. LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(6) provides that a party may move to
dismiss a complaint against it on the grounds that it “fail[s] to state a claim upon which
relief can be granted.” Fed. R. Civ. P. 12(b)(6). To survive a Rule 12(b)(6) motion, a
6 complaint must comply with Rule 8, which requires “a short and plain statement of the
claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a). This
requirement is meant to “‘give the defendant fair notice of what the . . . claim is and the
grounds upon which it rests[.]’” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555
(2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957) (alteration in original)).
“Although ‘detailed factual allegations’ are not necessary to withstand a Rule
12(b)(6) motion to dismiss for failure to state a claim, a plaintiff must furnish ‘more
than labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of
action.’” Busby v. Capital One, N.A., 932 F. Supp. 2d 114, 133 (D.D.C. 2013) (quoting
Twombly, 550 U.S. at 555). In other words, the plaintiff must provide “more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). “[M]ere conclusory statements” of misconduct are not enough to
make out a cause of action against a defendant. Id. Rather, a complaint must contain
sufficient factual allegations that, if true, “state a claim to relief that is plausible on its
face.” Twombly, 550 U.S. at 570. “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.
In considering a motion to dismiss, “[t]he court must view the complaint in a
light most favorable to the plaintiff and must accept as true all reasonable factual
inferences drawn from well-pleaded factual allegations.” Busby, 932 F. Supp. 2d at
134. Although the Court must accept as true the facts in the complaint, it “need not
accept inferences drawn by plaintiffs if such inferences are unsupported by the facts set
out in the complaint[,]” Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir.
7 1994), nor is the court “bound to accept as true a legal conclusion couched as a factual
allegation[,]” Papasan v. Allain, 478 U.S. 265, 286 (1986).
III. ANALYSIS
Both parties frame the instant dispute as an exercise in contract interpretation
regarding payment terms. (See, e.g., Def.’s Br. at 5 (“The [Agreement] repeatedly
demonstrates the parties’ intention that the sale be accomplished by means of a quick
and simple payment of cash without any contingencies or complications[.]”); Pl.’s
Opp’n at 2 (“The plain and unambiguous language of the . . . Agreement did not
prohibit REO from using secured financing to purchase the pool properties.”).)
However, “whether an enforceable contract exists” in the first place “is a question of
law[,]” and in this case, that question clearly precedes this Court’s consideration of how
the purported contract is best interpreted. Kramer Assocs., Inc. v. Ikam, Ltd., 888 A.2d
247, 251 (D.C. 2005) (quoting Rosenthal v. Nat’l Produce Co., 573 A.2d 365, 369 n.9
(D.C.1990)). Under the law of the District of Columbia, an enforceable contract
requires both the “‘intention of the parties to be bound’” and also “‘agreement as to all
material terms[.]’” Id. (emphasis added) (quoting Georgetown Entm’t Corp. v. District
of Columbia, 496 A.2d 587, 590 (1985)). Specifically, “there must be mutual assent of
each party to all the essential terms of the contract.” Malone v. Saxony Co-op.
Apartments, Inc., 763 A.2d 725, 729 (D.C. 2000) (“This mutuality of assent is often
referred to as a ‘meeting of the minds.’”). And such essential terms include terms
related to payment. See Queen v. Schultz, 747 F.3d 879, 884 (D.C. Cir. 2014) (citing
Rosenthal, 573 A.2d at 370).
This Court finds that the parties in the instant case never achieved “mutual
assent” with respect to material financing terms, and thus that their Agreement is not an
8 enforceable contract under District of Columbia law. Malone, 763 A.2d at 729.
Accepting the facts in the complaint as true, when REO submitted the proposed
Agreement to Fannie Mae, REO understood based on its prior communication with
Rogers that it would be allowed to finance the transaction using a lender that intended
to take back a mortgage on the properties as security. (See Compl. ¶ 13.) Fannie Mae
argues, and REO does not dispute, that by the time Fannie Mae signed and returned the
Agreement, Fannie Mae had already informed REO that such was not the case (see
Def.’s Br. at 1; Compl. ¶¶ 5–14), but it is well established in the District of Columbia
that purported acceptance of an offer does not create a valid contract if the accepting
party has altered the offer’s material terms. Malone, 763 A.2d at 728. Instead, “a
statement purporting to accept an offer which contains a new material term operates as
a counteroffer and must be accepted by the original offeror in order to form a binding
contract.” Id. (emphasis added).
For example, in Malone v. Saxony Co-op. Apartments, Inc., a tenant in an
apartment building offered to purchase the unit adjacent to his own in order to combine
the two units. Id. at 728. The property manager agreed to the sale on the condition that
the construction necessary to join the units be completed within 30 days; however,
because this 30-day restriction was a new, material term, the District of Columbia Court
of Appeals held that the property manager’s purported acceptance was actually a
counteroffer that the tenant had to accept in order to form a binding contract. Id.
Because the counteroffer was never accepted, the court concluded that no contract was
ever formed. Id. at 730.
9 Similarly, in the instant case, Fannie Mae’s introduction of a new restriction on
the manner of financing constituted a change in the material terms of the Agreement.
According to the complaint, Fannie Mae indicated to REO that REO’s proposed
financing terms would be acceptable in October of 2010, prior to REO’s submission of
the proposed Agreement, and it was not until December 9, 2010—more than three
weeks after REO had submitted its offer to Fannie Mae—that Fannie Mae informed
REO that it would not allow REO’s lender to take back a mortgage on the properties,
contrary to its previous communication. (Compl. ¶¶ 10, 13.) 2 Fannie Mae’s
introduction of this financing restriction occurred after REO had submitted the
proposed Agreement and paid a nonrefundable deposit of $100,000, and also after REO
had notified Fannie Mae that it would execute and return the settlement statements and
pay the balance of the purchase price into escrow (id. ¶¶ 5–6, 9), and this Court has
little doubt that Fannie Mae’s financing restriction was a new material term of the
proposed contract, just like the 30-day condition in Malone. Therefore, just as in
Malone, the introduction of this new financing term meant that Fannie Mae’s purported
acceptance—i.e., its signing and returning the Agreement to REO—was a counteroffer
rather than binding acceptance of REO’s proposed Agreement.
The complaint’s allegations also establish that REO never accepted Fannie Mae’s
counteroffer. “‘[A]cceptance of an offer is a manifestation of assent to the terms
thereof made by the offeree in a manner invited or required by the offer.’” Toledano v.
2 The parties dispute the specific date on which REO actually submitted an executed (signed) copy of the proposed Agreement to Fannie Mae. (Compare Pl.’s Opp’n at 3, n.2 (“[T]he Complaint, fairly construed, supports the inference that [REO] executed the Agreement in connection with the submission of its proposal to Fannie Mae in November 2010.”), with Def.’s Br. at 2 (alleging that REO first submitted an executed copy of the Agreement to Fannie Mae on December 8, 2010).) Either way, it is undisputed that REO’s offer was made prior to the alleged December 9th and 10th conversations between REO and Fannie Mae regarding financing restrictions.
10 O’Connor, 501 F. Supp. 2d 127, 141 (D.D.C. 2007) (quoting Restatement (Second) of
Contracts § 50(1)); see also Malone, 763 A.2d at 728 (“[T]o form a contract the offeree
must convey to the offeror his acceptance of the offer.”). Under D.C. law, if the offer
does not “explicitly direct[] a particular method of acceptance, the offer can be
accepted in any reasonable manner[,]” Vaulx v. Cumis Ins. Soc’y, Inc., 407 A.2d 262,
265 (D.C. 1979); however, acceptance generally must be clear and unequivocal. See,
e.g., Malone, 763 A.2d at 728–29 (rejecting tenant’s argument that the inquiries
regarding the closing date that he made after the property manager introduced the 30-
day condition sufficed to establish acceptance of the counteroffer, because the tenant’s
“conduct d[id] not in any way indicate his unequivocal assent” to the new restriction);
see also id. at 730 (holding that the mutual assent required to form a binding contract
was absent due to the tenant’s failure to communicate sufficiently his agreement to the
new material term).
Here, there is nothing in the complaint that indicates that REO expressed its
unequivocal assent to the new financing term contained in Fannie Mae’s counteroffer;
indeed, REO’s payment did not manifest this intention (REO had tendered the $100,000
deposit before the new term was introduced), and the complaint’s allegations regarding
REO’s post-counteroffer efforts to “obtain financing for the pool purchase on terms that
would satisfy the restrictions imposed by Fannie Mae” (Compl. ¶ 15) do not establish
that REO unequivocally accepted Fannie Mae’s new term. See Williston on Contracts
§ 6:10 (4th ed. 2014) (“[T]he offeree’s response, rather than signifying objectively an
assent to the proposed bargain, instead may signify to a reasonable offeror that an
acceptance is contemplated, but has yet to occur.”); see also id. (“[A] reply to an offer
11 indicating that the offeree has attempted unsuccessfully to accept . . . does not meet the
requirement of unequivocality, and no contract is thereby concluded.”). Furthermore,
“[i]t is not enough that the parties think that they have made a contract; they must have
expressed their intentions in a manner that is capable of understanding.” Kramer
Assocs., 888 A.2d at 253 (emphasis added) (quoting Rosenthal, 573 A.2d at 369–70).
Finding no such expression in the allegations of REO’s complaint, this Court concludes
that REO did not assent to Fannie Mae’s new financing restriction, and thus the parties
never formed a binding contractual agreement.
IV. CONCLUSION
For the reasons set forth above, the complaint’s allegations do not establish that
REO and Fannie Mae formed an enforceable contract for the sale of the foreclosed
homes. Consequently, the parties’ arguments regarding whether or not the contract was
breached and by whom are beside the point, and Defendant’s motion to dismiss will be
DENIED. The complaint’s core contention that REO is entitled to a refund of its
$100,000 deposit nevertheless remains. See, e.g., Kramer Assocs., 888 A.2d at 253–55
(returning $75,000 deposit under equitable doctrine of unjust enrichment after finding
that the parties had failed to form a binding contractual agreement). Therefore, in light
of this memorandum opinion and as set forth in the accompanying order, the parties
here will be required to submit supplemental briefing on the appropriate remedy with
respect to REO’s deposit.
Date: February 20, 2015 Ketanji Brown Jackson KETANJI BROWN JACKSON United States District Judge