Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 1 of 20 Page ID #:1
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`
`Michael A. Taitelman, Esq. (CA SBN 156254)
`Steven B.F. Stiglitz, Esq. (CA SBN 222667)
`FREEDMAN + TAITELMAN, LLP
`1901 Avenue of the Stars, Suite 500
`Los Angeles, California 90067
`Telephone: (310) 201-0005
`Facsimile: (310) 201-0045
`E-mail:
`mtaitelman@ftllp.com
`
`
`sstiglitz@ftllp.com
`
`Attorneys for Plaintiff BM Real Estate
`Services, Inc. dba Priority Financial Network
`
`
`
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
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`BM REAL ESTATE SERVICES, INC.
`DBA PRIORITY FINANCIAL
`
`NETWORK, a California corporation,
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`
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`
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`Plaintiff,
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`
`-vs-
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`
`)
`ANGEL OAK MORTGAGE
`)
`SOLUTIONS LLC, a Delaware limited
`)
`liability company; and DOES 1 through
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`10, inclusive,
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`Case No. 2:20-cv-3974
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`COMPLAINT FOR:
`
`(1) BREACH OF CONTRACT
`(2) PROMISSORY ESTOPPEL
`(3) BREACH OF IMPLIED
`COVENANT OF GOOD
`FAITH AND FAIR
`DEALING
`(4) INTENTIONAL
`MISREPRESENTATION
`(5) NEGLIGENT
`MISREPRESENTATION
`DEMAND FOR JURY TRIAL
`
`
`
`))
`
`Defendants.
`
`
`
`
`Plaintiff BM Real Estate Services, Inc. dba Priority Financial Network
`(“Priority Financial”) as and for its complaint hereby alleges as follows against
`Defendant Angel Oak Mortgage Solutions LLC and DOES 1 through 10:
`INTRODUCTION
`1.
`Priority Financial is a mortgage banker with more than 20 years of
`experience funding loans for home purchases. To maximize the number of loans it
`can fund, Priority Financial partners with a number of larger financial institutions that
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`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 2 of 20 Page ID #:2
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`purchase the loans that Priority Financial originates. Defendant Angel Oak Mortgage
`Solutions LLC (“Angel Oak”) is one of those partners. Pursuant to a Mortgage Loan
`Purchase and Sale Agreement dated as of May 30, 2019 (the “LPA”), Angel Oak
`agreed to purchase various home mortgages that Priority Financial originated. During
`the nine (9) months that the LPA has been in effect, Angel Oak has purchased
`numerous Priority Financial-originated mortgages, which have a total face value of
`more than $26 million. In each and every transaction, Angel Oak took the same steps
`leading to the closing of its purchase of mortgages from Priority Financial. Those
`steps are described in detail in Angel Oak’s Seller Guide, and include sending a
`Conditional Loan Approval (which listed the exclusive conditions to closing) and then
`Clearing Conditions. Consistent with industry custom and practice and Angel Oak’s
`own Seller Guide, once Priority Financial closes a loan for which Angel Oak Cleared
`Conditions, Angel Oak is committed to purchase the associated mortgage at the price
`previously agreed price as long as there are no material differences from the
`underwriting approval.
`2. When the COVID-19 pandemic erupted and thereafter, Angel Oak
`repeatedly reaffirmed its commitment to purchase mortgage loans, including those at
`issue in this action, in mass emails to its loan originators, as well as specific emails to
`Priority Financial employees. For example, on March 19, 2020, at 2:09 p.m., Kevin
`McCarthy sent an email message to Anthony Vu of Priority Financial to state, “I am
`hearing we are going to honor current locks.” Concurrently, Dan Bayer sent an email
`message to Pete Roeske at Priority Financial to state, more equivocally, “Please send
`me you your current rate locked pipeline with AO – I will do my best to honor
`everything.” Despite those assurances, Angel Oak abandoned its obligations to
`Priority Financial and other similarly situated mortgage bankers, even as to loans for
`which Angel Oak already had Cleared Conditions and which Priority Financial
`already had funded by the beginning of March 2020. By lying and refusing to honor
`its obligations, Angel Oak distinguished itself from some other financial institutions
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`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 3 of 20 Page ID #:3
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`that kept their commitments to Priority Financial. In this action, Priority Financial
`seeks compensation for the losses that Angel Oak caused by its betrayal.
`THE PARTIES
`3.
`Priority Financial is a California corporation with its principal place of
`business in the State of California.
`4.
`On information and belief, Angel Oak is a Delaware limited liability
`company with its principal place of business located at 980 Hammond Drive, Suite
`850 Atlanta, GA 30328. Further, on information and belief, Angel Oak is privately
`held, and owned by members that are individuals who reside in states other than
`California. In advance of filing this lawsuit, Priority Financial attempted to confirm
`with Angel Oak that its members all reside in states other than California, but Angel
`Oak did not respond.
`5.
`Priority Financial is informed and believes, and on that basis alleges, that
`Defendants Does 1 through 10 (collectively "Doe Defendants"), inclusive, are
`corporations, companies, partnerships, proprietorships, unincorporated associations,
`and/or individuals whose identities and addresses are presently unknown to Priority
`Financial and are not presently capable of ascertainment. Priority Financial is
`informed and believes, and on that basis alleges, that the Doe Defendants at all times
`relative to this action were the agents, servants, partners, joint venturers and
`employees of Angel Oak and, in doing the acts alleged herein, were acting with the
`knowledge and consent of each of Angel Oak and the other Doe Defendants in this
`action. Plaintiff alleges on information and belief that there exists, and at all times
`herein mentioned existed, a unity of interest and ownership between Defendants, such
`that any individuality and separateness between them has ceased, and each are the
`alter ego of the other. Plaintiff alleges on information and belief that adherence to the
`fiction of the separate existence of any Defendant as an entity distinct from any other
`would permit an abuse of the corporate privilege and would sanction fraud and
`promote injustice.
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`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 4 of 20 Page ID #:4
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`JURISDICTION AND VENUE
`6.
`This Court has subject matter jurisdiction over this action pursuant to 28
`U.S.C. § 1332(a) in that the parties reside in different states and in that Priority
`Financial seeks far more than the $75,000 minimum for diversity jurisdiction.
`7.
`This Court has personal jurisdiction over Angel Oak in that Angel Oak
`conducts business in this judicial district and three of the five mortgage loans at issue
`relate to residential real property in California.
`8.
`Venue is proper in this Court pursuant to 28 U.S.C. § 1391 because a
`substantial part of the events giving rise to the causes of action occurred in this
`judicial district.
`FACTS COMMON TO ALL CLAIMS FOR RELIEF
`9.
`On or about May 30, 2019, Angel Oak and Priority Financial entered into
`the LPA. Pursuant to the LPA, Angel Oak agreed to purchase certain home mortgages
`from Priority Financial.
`10. Section 6.01 of the LPA, captioned, “Closing,” provides, in relevant part:
`Each closing shall be subject to each of the following
`conditions:
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`
`
`(a) No breach or default exists under this Agreement;
`(b) The Purchaser and the Seller shall have received, or the
`Purchaser's and the Seller's attorneys shall have received in
`escrow, all Closing Documents, duly executed
`(c) The Seller shall not have experienced any Material
`Adverse Change. For the purposes of this Section 6.01,
`"Material Adverse Change" shall mean, (i) a material
`adverse change in, or a material adverse effect upon, the
`operations, business, properties, condition (financial or
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`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 5 of 20 Page ID #:5
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`otherwise) or prospects of the Seller; (ii) a material
`impairment of the ability of the Seller to perform under this
`Agreement or any related agreements (the "Operative
`Agreements"); or (iii) a material adverse effect upon the
`legality, validity, binding effect or enforceability of any
`Operative Agreement against the Seller; and
`(d) All other terms and conditions of this Agreement shall
`have been complied with.
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`Subject to the foregoing conditions, the Purchaser shall
`pay to the Seller on the applicable Closing Date, the
`Purchase Price for the Mortgage Loans in the related
`Mortgage Loan Package pursuant to Section 3.01 of this
`Agreement, and the Seller shall deliver the Mortgage Loans
`to the Purchaser. (Emphasis added.)
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`11. Angel Oak also issued Priority Financial a copy of its Seller Guide,
`which lists procedures for correspondents, like Priority Financial, to sell mortgage
`loans to Angel Oak. Section 9 of the Seller Guide, entitled “Non-Delegated
`Correspondent Lending” describes the relationship between Priority Financial and
`Angel Oak with respect to the five (5) mortgage loans at issue in this action from the
`inception of underwriting through Priority Financial’s funding of the mortgage loan
`and submission for Purchase Review. In addition, pursuant to Section 5 of the Seller
`Guide, entitled “Loan Funding,” once the Mortgage File has been submitted for
`Purchase Review, Angel Oak commits to schedule a Purchase Review, and, if it does
`not find discrepancies, then Angel Oak commits to funding the purchase.
`12. Over the course of the first nine (9) months of the term of the LPA,
`Angel Oak purchased numerous home mortgages from Priority Financial, with a total
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`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 6 of 20 Page ID #:6
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`face value of more than $26 million. During that nine (9) month period, Angel Oak
`and Priority Financial established a course of dealing, which was consistent with the
`LPA and the Seller Guide.
`13.
`In the parties’ course of dealing, and as is set forth in the LPA and the
`Seller Guide, Angel Oak required Priority Financial to engage in, and complete, a
`rigorous underwriting process prior to funding a loan. Until March 2020, once a loan
`Cleared Conditions (meaning that Angel Oak issued a Conditional Approval form that
`did not include any items under the section entitled Client to Provide) and Priority
`Financial lent the funds to its customer, Angel Oak purchased all such loans from
`Priority Financial at the previously agreed price, without exception. This included
`instances when prevailing market interest rates increased materially from the time of
`the interest rate lock to the closing, which supports Priority Financial’s position that
`Angel Oak assumed the risk of deteriorating economic circumstances.
`14.
`In the case of the five (5) mortgage loans at issue, Priority Financial
`followed all the normal procedures. Section 9 of the Seller Guide (referenced above),
`has six subsections, labeled 9.1 through 9.6, each corresponding to a step in the loan
`approval and funding process. Priority Financial completed 9.1 (Submitting Loans for
`Review), 9.2 (Conditional Approval), and 9.3 (Clearing Conditions). Subsections 9.4
`(State Eligibility) and 9.5 (Scenario & Guideline Exceptions) were not applicable. As
`such, Priority Financial had performed all obligations required to arrive at Subsection
`9.6 (Submitting for Purchase). Priority Financial then submitted the Mortgage Files to
`Angel Oak for purchase review in accordance with Subsection 9.6.
`15. Next, pursuant to Section 5 of the Seller Guide, entitled “Loan Funding,”
`Angel Oak was obligated to schedule a Purchase Review. To date, Angel Oak has
`never identified any material differences found from the Angel Oak underwriting
`approval and the closed loan submission. As such, the next step in the process –
`according to Angel Oak’s own Seller Guide – is that Correspondent Lenders [here,
`Priority Financial] will receive an email notification to include the Funding
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`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 7 of 20 Page ID #:7
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`Schedule/Purchase Advice for execution. Then, “[u]pon receipt of the executed
`Purchase Advice, Angel Oak will wire funds to the Correspondent Lender . . . .”
`(Seller Guide, Section 5.3 at 7 (emphasis added). In sum, Angel Oak had no
`discretion to reject the five (5) mortgage loans that Priority Financial submitted for
`purchase because Priority Financial completed the entire prescribed process.
`16.
`In March 2020, after the COVID-19 pandemic impacted mortgage
`markets, Angel Oak abruptly changed this course of dealing by refusing to purchase
`five (5) loans that Priority Financial funded in March 2020 (after receiving
`Conditional Approval forms with no items in the “Client to Provide” section). The
`following chart summarizes the five loans at issue that Angel Oak has failed to
`purchase:
`Borrower
`1
`
`Date
`Loan
`Funded
`
`Date of
`Conditional
`Underwritin
`g Approval
`3/2/2020 2/28/2020
`
`Total
`Price
`
`Amount
`Due
`
`102.50
`0
`101.50
`0
`102.50
`0
`103.00
`0
`103.00
`0
`
`$2,706,00
`0
`$1,250,48
`0
`$2,562,50
`0
`$568,560
`
`$1,353,42
`0
`
`Angel Oak
`Loan Number
`
`Amount
`of Loan
`
`Client 1
`
`Client 2
`
`Client 3
`
`99200213928
`9
`99200113744
`7
`99200213984
`7
`Client 4 99200213942
`7
`99200213981
`4
`
`Client 5
`
`$1,314,00
`0
`
`$2,640,00
`0
`$1,232,00
`0
`$2,500,00
`0
`$552,000 3/16/202
`0
`3/19/202
`0
`
`3/9/2020 3/6/2020
`
`3/9/2020 Note 2
`
`3/5/2020
`
`3/9/3030
`
`
`1 The names of the Borrowers are not listed here to protect their privacy.
` Priority Financial underwrote this loan in Hawaii at Angel Oak’s request after Angel
`Oak’s Pre-Purchase Review.
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`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 8 of 20 Page ID #:8
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`17. As to each of these loans, an Angel Oak representative informed Priority
`Financial that the loan Cleared Conditions prior to Priority Financial closing the loan.
`In other words, the steps from Section 9.1 through 9.3 of the Seller Guide took place
`(and, as set forth above, Sections 9.4 and 9.5 are inapplicable). Priority Financial then
`submitted the loan for Purchase Review in accordance with Section 9.6, but, as set
`forth below, Angel Oak failed to perform its obligations thereafter.
`18. On March 25, 2020, at 2:58 p.m., Brent Houston (of Priority Financial’s
`affiliate AltLoan) wrote to Mike Fierman and two other Angel Oak representatives to
`respond to a message that Angel Oak had stopped funding loans. Mr. Houston stated,
`in relevant part: “Per our earlier message, please advise us on where we are regarding
`those loans previously CTC [clear to close],3 funded and delivered to your group. We
`have other investors still honoring locked, funded and delivered loans. Your group had
`previously committed to honor all locks with CTC'ed and funded on our warehouse
`line.” (Emphasis added). Mr. Fierman responded, “Confirmed. They are not doing
`any non [Qualified Mortgages].” Notably, Mr. Fierman did not deny the fact that his
`team had provided assurances that Angel Oak would purchase locked, funded and
`delivered loans. Priority Financial’s CEO Marc Shenkman then responded to the same
`e-mail chain, “Thank you for confirming that. I really want to know if you intend to
`purchase the loans on our warehouse line. We are willing to work with you but at this
`point we have no guidance or communication about your intentions. Right now we
`have 5 loans totaling $8,238,000 that are sitting on our warehouse line. All of these
`loans were given a clear to close prior to us funding.” Once again, Mr. Fierman did
`not deny the allegation that the loans were “given a clear to close” or that his group
`had “committed to honor all locks with CTC’d and funded.” Instead, Mr. Fierman
`referred only to changed circumstances that supposedly excused Angel Oak’s failure
`to perform, stating, in relevant part, “If I can survive this week I will do my best to
`
`3 The term “clear to close” is term of general industry applicability that, for purposes
`of the communication referenced above, is equivalent to the term Clearing Conditions
`in the Seller Guide.
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`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 9 of 20 Page ID #:9
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`work with you. As you know, the market has collapsed virtually over night.” This
`correspondence all confirms that Angel Oak has broken its promises and breached the
`LPA.
`19. Based on the LPA, industry norms, and the parties’ course of dealing,
`Angel Oak’s representations set forth above that the mortgage loans “Cleared
`Conditions” signified that Angel Oak would purchase each of the five (5) mortgages
`at issue at the previously agreed price upon Priority Financial funding each loan and
`upon receipt of the appropriate executed paperwork, assuming there were no
`discrepancies (which there were not). More specifically, Angel Oak had no discretion
`to reject the loan because Priority Financial was delivering funded loans on a non-
`delegated basis, and Angel Oak therefore had the sole discretion to approve to
`disapprove the credit risk prior to Priority Financial funding the loan. Mortgage
`lenders like Priority Financial choose non-delegated lender and therefore pay a higher
`delivery fee and obtain worse pricing specifically for the purpose of eliminating loan
`sale risk. Angel Oak is falsely treating the relationship as one involving a delegated
`lender, which is not applicable.
`20. Despite the foregoing contractual obligations and material
`representations, Angel Oak has failed to purchase five mortgage loans, totaling
`$8,238,000, that Priority Financial originated, that Angel Oak cleared to close, and
`that Priority Financial funded pursuant to the LPA. Here, the Purchase Price for the
`five (5) home mortgages at issue collectively totals to $8,440,960.
`21. Angel Oak informed Priority Financial of this decision on or about
`March 23, 2020, which was weeks after Angel Oak completed Clearing Conditions
`and weeks after Priority Financial funded the loans. Angel Oak’s position at the time
`was that it would not purchase the five (5) home mortgages at issue because of the
`change in economic circumstances caused by the COVID-19 pandemic.
`22. Angel Oak has never taken the position that the Mortgage File for any of
`the five (5) loans in dispute was defective in any way.
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`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 10 of 20 Page ID #:10
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`23.
`In refusing to purchase the five (5) home mortgages at issue, Angel Oak
`cited Section 2.01 of the LPA captioned “Loan Sale.” That section provides, in part:
`“The Seller agrees to sell and the Purchaser agrees to purchase on each Closing Date
`pursuant to this Agreement the Mortgage Loan(s) being sold by Seller as listed on
`each Assignment and Conveyance Agreement.”
`24. As an initial matter, the Assignment and Conveyance Agreement is not
`discussed in Angel Oak’s own Seller Guide, revealing that its issuance is not a
`required step in the process.
`25. Even more important, Angel Oak’s excuse twists the meaning of the LPA
`when it suggests that Angel Oak could not incur liability for failure to purchase a
`Mortgage Loan merely because the Mortgage Loan was not listed on the Assignment
`and Conveyance Agreement. Importantly, Section 6.01 of the LPA, captioned
`“Closing,” lists the conditions for closing, and does not list delivery of an Assignment
`and Conveyance Agreement as one of the conditions. Prior to listing those closing
`conditions, Section 6.01 of the LPA merely states that the Closing shall take place on
`the Closing Date listed in the Assignment and Conveyance Agreement. In other
`words, the LPA recognizes that the Assignment and Conveyance Agreement is a mere
`formality, not a document that is essential to the existence of an agreement by Angel
`Oak to purchase a Mortgage Loan. The Assignment and Conveyance Agreement is a
`boilerplate document that Angel Oak prepares to incorporate information from the
`Mortgage File and the previously-agreed price. The Assignment and Conveyance
`Agreement has to be issued after the loan funds only because it sets the precise
`purchase price that includes per diem interest (which cannot be known until the loan
`has funded), not because it reflects any new developments or negotiations from the
`underwriting process.
`26. Despite this straightforward process, Angel Oak is now contending that it
`has no obligation to purchase the five (5) home mortgages at issue because Angel Oak
`chose not to issue an Assignment and Conveyance Agreement for any of those
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`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 11 of 20 Page ID #:11
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`mortgages. In that twisted version, Angel Oak would be able to avoid purchasing a
`mortgage that it rigorously underwrote and agreed to purchase at a previously-set
`price simply because Angel Oak chose not to issue boilerplate paperwork for Priority
`Financial to execute.
`27. Simply put, the LPA does not provide Angel Oak with any discretion to
`accept or reject a loan once Angel Oak completes Clearing Conditions for the loan to
`close and Priority Financial provides the required documentation relating to its loan to
`the Borrower. Further, in the case of each of the five loans at issue, Angel Oak did, in
`fact, clear conditions for the loan to close, and Priority Financial did, in fact, fund the
`loan in reliance thereon, and Priority Financial did, in fact, provide the required
`documentation to Angel Oak.
`28. Priority Financial tapped its warehouse line of credit to fund the five (5)
`home mortgage loans at issue. This line of credit requires Priority Financial to repay
`the amounts it borrowed within 45 days. To satisfy its commitment to its warehouse
`lender, and solely as a result of Angel Oak’s unlawful refusal to purchase the five (5)
`home mortgage loans at issue, Priority Financial likely will be forced to sell these
`home mortgages at prevailing market rates, which almost certainly will entail a
`substantial discount to the purchase price set forth in the Lock Commitment.
`29.
`In addition, as a direct and proximate result of Angel Oak’s conduct,
`Priority Financial is informed and believes, and thereon alleges, that, Priority
`Financial will suffer harm to its credit, including its reputation with the lender on its
`warehouse line of credit, due to the illiquidity of the mortgages Angel Oak is refusing
`to purchase and Priority Financial’s resulting inability to repay its lender according to
`the terms of its warehouse line of credit. Such damages were foreseeable, are traced
`solely to the breach of the contract and/or are capable of exact computation, and are
`independent of any collateral enterprise entered into in contemplation of the contract.
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`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 12 of 20 Page ID #:12
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`COUNT I
`BREACH OF CONTRACT
`(Against Angel Oak and DOES 1-10)
`30. Plaintiff realleges and incorporates herein by reference paragraphs
`through 29 as though fully set forth herein.
`31. Angel Oak and Priority Financial entered into the LPA. Section 6.01 of
`the LPA obligated Angel Oak to pay Priority Financial the Purchase Price for each
`mortgage loan upon the satisfaction of the Closing Conditions.
`32. Priority Financial performed all its obligations under the LPA, except to
`the extent such obligations were excused by Angel Oak’s prior breaches. Priority
`Financial also completed all the steps set forth in the Seller Guide to trigger a
`Purchase Review, and, ultimately, to require Angel Oak’s purchase of the five (5)
`mortgage loans at issue.
`33. All of the Closing Conditions set forth in Section 6.01 of the LPA
`occurred as to each of the five (5) home mortgages at issue, except to the extent
`excused.
`34. Moreover, during the nine (9) months that the LPA has been in effect,
`Angel Oak has purchased numerous Priority Financial-originated mortgages, which
`have a total face value of more than $26 million. In each and every transaction, Angel
`Oak took the same steps leading to the closing. The course of conduct between the
`parties, as well as the industry norms set forth above, confirmed Angel Oak’s
`contractual obligation to purchase loans that Priority Financial funded after receiving
`a Conditional Approval form that did not include any items under the “Client to
`Provide” section, assuming Priority Financial closed the loan and submitted final
`documentation thereof without any discrepancies. All those events occurred.
`35. Angel Oak breached its obligation in Section 6.01 of the LPA to purchase
`each of the five (5) home mortgages at issue.
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`12
`COMPLAINT
`
`DocuSign Envelope ID: C30758E3-884D-4A65-A516-476DD3ECDC07
`
`

`

`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 13 of 20 Page ID #:13
`
`
`36. As a direct and proximate result of Angel Oak breaches, Priority
`Financial has suffered damages in the amount of the agreed-upon purchase price for
`the five (5) home mortgages at issue (which totals $8,440,960), less any amounts that
`Priority Financial ultimately is able to recover through its efforts to mitigate damages
`by selling the mortgages at prevailing market rates.
`37.
`In addition, as a direct and proximate result of Angel Oak’s breaches,
`Priority Financial is informed and believes, and thereon alleges, that, as a result of
`Angel Oak’s breaches, Priority Financial will suffer harm to its credit, including,
`without limitation, its reputation with the lender on its warehouse line of credit, due to
`the illiquidity of the mortgages Angel Oak is refusing to purchase and Priority
`Financial’s resulting inability to repay its lender according to the terms of its
`warehouse line of credit. Such damages were foreseeable, are traced solely to the
`breach of the contract and/or are capable of exact computation, and are independent of
`any collateral enterprise entered into in contemplation of the contract.
`COUNT II
`PROMISSORY ESTOPPEL
`(Against Angel Oak and DOES 1-10)
`38. Plaintiff realleges and incorporates herein by reference paragraphs
`through 37 as though fully set forth herein.
`39. Pursuant to the LPA, Angel Oak issued a Conditional Approval to
`Priority Financial as to each of the five (5) mortgage loans at issue, and none of those
`forms had any items under the “Client to Provide” section. According to industry
`norms and the parties’ course of dealing, that Conditional Approval clearly meant that
`Angel Oak was committing to purchase the associated home mortgages once Priority
`Financial closed the loans and submitted the associated paperwork, assuming there
`were no discrepancies.
`40. Priority Financial foreseeably, reasonably, and detrimentally relied on
`Angel Oak’s false representations (i.e. the representations contained in the Conditional
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`13
`COMPLAINT
`
`DocuSign Envelope ID: C30758E3-884D-4A65-A516-476DD3ECDC07
`
`

`

`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 14 of 20 Page ID #:14
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`Approvals for each the five (5) mortgage loans at issue that no “Client to Provide”
`conditions remained and the representations in the Seller Guide that Angel Oak
`therefore would purchase the mortgage loans by funding the five (5) home mortgage
`loans at issue, subject to Priority Financial submitting the required paperwork without
`any discrepancies).4
`41. As a direct and proximate result of Angel Oak conduct, Priority Financial
`has suffered damages in the amount of the agreed-upon purchase price for the five (5)
`home mortgages at issue (which totals $8,440,960), less any amounts that Priority
`Financial ultimately is able to recover through its efforts to mitigate damages by
`selling the mortgages at prevailing market rates.
`42.
`In addition, as a direct and proximate result of Angel Oak’s conduct,
`Priority Financial is informed and believes, and thereon alleges, that, as a result of
`Angel Oak’s breaches, Priority Financial will suffer harm to its credit, including,
`without limitation, its reputation with the lender on its warehouse line of credit, due to
`the illiquidity of the mortgages Angel Oak is refusing to purchase and Priority
`Financial’s resulting inability to repay its lender according to the terms of its
`warehouse line of credit. Such damages were foreseeable, are traced solely to the
`breach of the contract and/or are capable of exact computation, and are independent of
`any collateral enterprise entered into in contemplation of the contract.
`COUNT III
`BREACH OF COVENANT OF GOOD FAITH AND FAIR DEALING
`(Against Angel Oak and DOES 1-10)
`43. Plaintiff realleges and incorporates herein by reference paragraphs
`through 42 as though fully set forth herein.
`44. Angel Oak and Priority Financial entered into the LPA.
`
`
`4 Such reliance is reasonable because, among other reasons, Angel Oak and Priority
`Financial had developed a relationship of trust over the course of conducting tens of
`millions of dollars in business during their 9-month relationship that included more
`than $26 million in transactions.
`
`14
`COMPLAINT
`
`1 2 3 4 5 6 7 8 9
`
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`DocuSign Envelope ID: C30758E3-884D-4A65-A516-476DD3ECDC07
`
`

`

`Case 2:20-cv-03974 Document 1 Filed 04/30/20 Page 15 of 20 Page ID #:15
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`45. The LPA includes an implied covenant of good faith and fair dealing that
`obligates Angel Oak to act in good faith and deal fairly with Priority Financial. Angel
`Oak also is required to refrain from taking any deliberate act that would deprive
`Priority Financial of the benefits of the LPA. In particular, here, there was an
`agreement by Angel Oak not to purposefully refrain from issuing an Assignment and
`Conveyance Agreement setting forth the previously agreed terms for the purchase of
`the five (5) home mortgages at issue once Angel Oak completed Clearing Conditions
`and once Priority Financial closed those loans in reliance thereon. This covenant of
`good faith is based on the agreed-upon sharing of risk between the parties to the LPA,
`namely that Angel Oak would assume the risk of a deterioration in economic
`circumstances after a loan was properly funded, rather than force Priority Financial to
`endure such losses by blaming an external factor that was not caused, or even
`reasonably anticipated, by Priority Financial.
`46. Priority Financial performed all its obligations under the LPA, except to
`the extent such obligations were excused by Angel Oak’s prior breaches.
`47. All of the Closing Conditions set forth in Section 6.01 of the LPA
`occurred as to each of the five (5) home mortgages at issue, except to the extent Angel
`Oak purposefully and wrongfully prevented such conditions from occurring.
`48. Angel Oak breached it