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 contains one count
claiming breach of contract (see id. ¶¶ 19–27), and alleging that “Fannie Mae’s
rejection of the funds proffered by [REO] was a breach of its obligations” under the
parties’ written agreement (id. ¶ 25).
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.) 1 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 factual
allegations in the complaint do not establish that a valid contract was formed, and thus
that REO has failed to state a claim for breach of contract as a matter of law.
Accordingly, this Court will GRANT Defendant’s motion to dismiss, and will
DISMISS the complaint without prejudice and with leave to amend. A separate 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
1
Page numbers throughout this memorandum opinion refer to those that the Court’s electronic filing
system assigns.
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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.
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§ 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
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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 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
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breach of the parties’ contract because “[t]he restriction on lender involvement . . . was
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
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relief can be granted.” Fed. R. Civ. P. 12(b)(6). To survive a Rule 12(b)(6) motion, a
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
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out in the complaint[,]” Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir.
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).
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This Court finds that the allegations in REO’s complaint do not support an
inference that the parties ever achieved “mutual assent” with respect to material
financing terms, and thus the complaint falls short of establishing that the Agreement is
an enforceable contract under District of Columbia law. See 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; see also Agreement § 14(p)(i)), 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.
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Because the counteroffer was never accepted, the court concluded that no contract was
ever formed. Id. at 730.
Similarly, if the allegations in the instant complaint are accepted as fact, Fannie
Mae introduced a new restriction on the manner of financing prior to its formal
execution of the contract, and this new restriction constituted a change in the material
terms of the Agreement. The complaint alleges that 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, had paid a nonrefundable deposit of $100,000, and 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), but prior to Fannie Mae’s
execution of the Agreement (id. ¶ 14; Agreement § 14(p)(i)), and given these alleged
facts, Fannie Mae’s financing restriction constituted a new material term of REO’s
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
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.
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acceptance—i.e., its execution and returning of the Agreement—was a counteroffer
rather than binding acceptance of REO’s proposed Agreement. 3
The complaint also lacks a sufficient factual basis for any conclusion that REO
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. 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—
3
REO’s complaint does not specifically identify the point in time in which, in REO’s judgment, Fannie
Mae assented to its proposed agreement such that a binding contract was formed; however, the
complaint attaches a complete copy of the Agreement, and that document contains a provision that
states that “this Agreement will not be effective unless and until Seller has delivered to Purchaser a
fully executed copy of the Agreement.” (Agreement § 14(p)(i).) Therefore, this Court construes the
complaint as alleging that a binding contract was formed on the date that Fannie Mae returned the fully
executed agreement—i.e., on December 15, 2010. (Compl. ¶ 14).
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REO’s payment did not manifest any such 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 give rise to
any inference 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 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 the complaint fails to assert facts from which a reasonable inference of
mutual assent could be drawn, and as a result, this Court cannot conclude that the
allegations of REO’s complaint suffice to support its contention that the parties formed
a binding contractual agreement. There can be no question that contract formation is an
essential element of a breach of contract action under District of Columbia law, see,
e.g., Tsintolas Realty Co. v. Mendez, 984 A.2d 181, 187 (D.C. 2009); consequently,
REO’s complaint fails to state a claim upon which relief can be granted within the
meaning of Rule 12(b)(6).
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IV. CONCLUSION
For the reasons stated above, the complaint’s allegations of fact are not sufficient
to support Plaintiff’s contention that REO and Fannie Mae formed an enforceable
contract for the sale of the foreclosed homes. Consequently, the complaint fails to state
a claim upon which relief can be granted as a matter of law. As the order
accompanying this Memorandum Opinion provides, Defendant’s motion to dismiss the
complaint pursuant to Rule 12(b)(6) will be GRANTED, and REO’s complaint will be
DISMISSED WITHOUT PREJUDICE.
Date: May 15, 2015 Ketanji Brown Jackson
KETANJI BROWN JACKSON
United States District Judge
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