# Bellwether Enterprise Real Estate Capital v. Jaye

> District Court, E.D. Louisiana · June 10, 2020

URL: https://www.frixlaw.com/law-library/cases/10185594

## Case

- **Court:** District Court, E.D. Louisiana
- **Decided:** June 10, 2020
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10185594

## How later opinions describe it (automated extraction)

- reversing trial court for failing to consider the reasonableness of stipulated damages provision in arms-length transaction between construction company and parish government
- declining to enforce stipulated damages provision and remanding for presentation of evidence of actual damages

## Opinion text

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

BELLWETHER ENTERPRISE REAL ESTATE CAPITAL CIVIL ACTION

v. NO. 19-10351
c/w 19-130581

CHRISTOPHER JAYE, ET AL. SECTION “F”

ORDER AND REASONS
Before the Court are cross-motions for summary judgment. For
the reasons that follow, the motions of Christopher Jaye, Kristi
Morgan, and Mirus New Orleans are GRANTED and the motion of
Bellwether Enterprise Real Estate Capital is DENIED.
Background
This contract dispute arises from a project to build
affordable housing in New Orleans East and concerns, principally,
a stipulated damages provision in a contract between borrowers and
their lender. The borrowers say the provision is unenforceable
under a Louisiana law allowing courts to modify stipulated damages
that are “so manifestly unreasonable as to be contrary to public
policy.” LA. CIV. CODE art. 2012. The Court agrees.

1 This Order applies to both consolidated cases.
Christopher Jaye and Kristi Morgan own a real estate
development company called Mirus New Orleans. That company owns
the Village of Versailles project——the first affordable housing

development built in New Orleans East after Hurricane Katrina.
To fund the Village of Versailles project, Jaye, Morgan, and
Mirus obtained a $31,552,100 commercial mortgage loan from
Bellwether. The loan is insured by the United States Department of
Housing and Urban Development and memorialized in a mortgage note
and a building loan agreement. Under the building loan agreement,
Bellwether disbursed loan proceeds upon receipt of “draw requests”
from Mirus. After funding each draw, Bellwether sold GNMA mortgage-
backed securities in the amount of the draw to Lancaster Pollard,

an investment company.
Pivotal to the project was one date——August 31, 2018. By then,
two events should have occurred: completion of construction and
final endorsement. Final endorsement is when HUD approves a loan
for insurance; to ensure that it occurred on time, and as a
condition of the loan, Jaye, Morgan, and Mirus entered into an
extension-fee agreement with Bellwether. That agreement required
the borrowers to pay Bellwether a monthly “extension fee” if final
endorsement did not occur by August 31, 2018:
1. Extension Fees. (a) Obligor agrees that in the
event that Final Endorsement has not occurred on or
before August 31, 2018, Obligor shall be liable and
obligated to pay to Lender a monthly extension fee (the
“Extension Fee”) equal to (i) 1/8th of one percent
(0.125%) of the original face amount of the FHA Mortgage
Note for each “monthly Period” (as defined below) or
portion thereof, commencing on September 1, 2018 and
continuing through November 31, 2018 then increasing to
(ii) 1/4th of one percent (0.25%) of the original face
amount of the FHA Mortgage Note for each Monthly Period
or portion thereof, commencing on December 1, 2018 and
continuing until Final Endorsement. In the event that
Final Endorsement shall not theretofore have occurred,
Obligor shall be obligated to pay each such monthly
Extension Fee in advance, fifteen (15) days prior to the
commencement of the applicable Monthly Period; provided
that Lender shall refund the last such monthly Extension
Fee to Obligor in the event that Final Endorsement shall
occur prior to the commencement of the applicable
Monthly Period. Thereafter, there shall be no refund of
the monthly Extension Fee. As used herein [sic] “Monthly
Period” shall mean a period starting on the first day of
a month and ending on the last day of that month.
This extension-fee agreement, Bellwether maintains,
compensates it for the losses it would suffer if final endorsement
did not occur by August 31, 2018. Those losses would allegedly
result from Bellwether’s trade agreement with its investor,
Lancaster Pollard. Under that trade agreement, Bellwether had to
pay Lancaster Pollard a fee of $39,440.13——which equates to 0.125%
of the delivery amount of the $31,552,100 loan——for each month
final endorsement was delayed.
Delay ensued. The parties dispute the reason: Bellwether
points to a lawsuit the general contractor brought against Mirus
and others; the borrowers highlight Bellwether’s alleged
negligence in impeding the selection of a project management agent.
Whatever the reason for the delay, it is undisputed that the
general contractor on the project, Broadmoor, LLC, sued Mirus,
Bellwether, and others in September 2018. See Eastern District of

Louisiana Civil Action No. 18-9064. And it is undisputed that
Broadmoor’s lawsuit complicated the final-endorsement process; the
Federal Housing Administration Multifamily Program Closing Guide
(HUD Guide), which governs the closing of HUD-insured loans,
illustrates how.
Section 1.17(A) of the HUD Guide contemplates delays caused
by disputes between a borrower and a contractor, like the
litigation involving Mirus and Broadmoor:
A. Disputes. Occasionally, Borrower and the general
contractor may have disputes regarding change orders,
the quality or cost of the construction work, or the
timing of payments therefore [sic]. This may delay
final closing. If Borrower and the general contractor
enter into arbitration, litigation, or both, the delay
may be excessive. It may be impossible to reach
agreement in order to complete final closing. Such
delays may cause Lender and Borrower to ask HUD to
finally endorse the Note even without the full
participation of the general contractor, because the
cost of continuing to incur extension or other fees
and Lender’s need to convert the underlying financing
of the mortgage loan to permanent status.
Section. 1.17(B) of the HUD Guide contains a procedure for
final endorsement despite such litigation:
B. Closing Without General Contractor. If both the HUB
Director and HUD Closing Attorney, each in his or her
own discretion, agree, the parties may proceed to
final closing without the participation of the general
contractor if the following conditions are met:
1. Cost certification must have been satisfactorily
completed by all parties required [sic] subject to
this requirement.
2. The remaining mortgage loan proceeds must be placed
in escrow pending the outcome of the dispute.
3. The title company must issue affirmative title
insurance coverage over any liens that are in place
related to the dispute.
4. There must be a mechanism in place for eventual
resolution of the dispute or termination of the
escrow that is satisfactory to HUD, such as
litigation that does not involve HUD.
So, for the loan to proceed to final endorsement despite the
Broadmoor litigation, all of the requirements set out in Section
1.17(B) had to be met. The parties dispute whether those conditions
could have been met, but they agree that final endorsement did not
occur by way of Section 1.17(B).
The Broadmoor litigation settled in March 2019, and final
endorsement occurred around the same time.
As that dispute resolved, another emerged. Because final
endorsement did not occur by August 31, 2018, Bellwether invoked
the extension-fee agreement and demanded fees from Jaye, Morgan,
and Mirus. Bellwether said the borrowers owed $39,441 per period
for the monthly periods beginning on September 1 and October 1 and
$78,881 per period for the monthly periods beginning on November
1, December 1, January 1, February 1, and March 1. Bellwether
received a fraction of what it claimed: the borrowers made just
two $39,441 payments, for the monthly periods beginning September
1 and October 1. The borrowers declined to pay the $354,965 in

extension fees that allegedly accrued during the monthly periods
from November 1 to March 1. So Bellwether sued.
In its one-count complaint, filed in May 2019, Bellwether
alleged that Jaye and Morgan breached the extension-fee agreement
by failing to pay $354,965 in extension fees. For reasons
unexplained, Bellwether did not sue Mirus——the company owned by
Jaye and Morgan and also bound by the extension-fee agreement. But
Mirus soon entered the fray.

In October 2019, Mirus filed a separate suit against
Bellwether; it too arose from the extension-fee agreement. See
Eastern District of Louisiana Civil Action No. 19-13058. Mirus
sued Bellwether for: (1) breach of contract; (2) a declaratory
judgment that the extension-fee agreement is unenforceable; (3)
payment of a thing not owed; and (4) negligence.
For its contract claim, Mirus alleged that Bellwether

breached implied obligations arising from the extension-fee
agreement by “unreasonably and wrongfully delay[ing]” final
endorsement. Mirus said it gave Bellwether everything it needed to
proceed to final endorsement by August 31, 2018, but Bellwether
failed to do so.
Mirus based its negligence claim on similar allegations——that
Bellwether “unreasonably impede[d] Mirus’ selection of management”
and “unreasonably cause[d] rescission of and delaying HUD’s

approval” of project management.
For its declaratory-judgment claim, Mirus alleged that the
extension-fee agreement is unenforceable because (a) it provides
for “liquidated penalty damages" that are “manifestly
unreasonable” under Civil Code Article 2012, and (b) Bellwether
failed to place Mirus in default.

Finally, for its claim for payment of a thing not owed, under
Civil Code Article 2299, Mirus alleged that Bellwether is “bound
to restore” the payments Mirus made under the allegedly
unenforceable extension-fee agreement.
Meanwhile, in the original lawsuit, Jaye and Morgan
counterclaimed against Bellwether for breach of contract and a
declaratory judgment that the extension-fee agreement is
unenforceable. The contract and declaratory-judgment counterclaims
mirrored the claims Mirus brought in Eastern District of Louisiana

Civil Action No. 19-13058.
In both lawsuits, Bellwether moved to dismiss for failure to
state a claim. See FED. R. CIV. P. 12(b)(6). The Court denied the
motions, in part, and held that: (1) Jaye, Morgan, and Mirus stated
a claim that Bellwether breached its Civil Code Article 1772-
derived obligation not to prevent the suspensive condition of final
endorsement from occurring; (2) Jaye, Morgan, and Mirus stated a
claim for a declaratory judgment that the extension-fee agreement

is unenforceable because it imposes damages “manifestly
unreasonable” within the meaning of Civil Code Article 2012; (3)
Mirus stated a claim for payment of a thing not owed under Civil
Code Article 2299; and (4) Mirus stated a negligence claim. See
Order and Reasons of 12/11/19.
Bellwether’s Rule 12 motions revealed the legal and factual
overlap between the lawsuits. Based on that overlap, the Court
consolidated the lawsuits in November 2019. See Order and Reasons
of 11/19/19. The Court concluded that the lawsuits arose from the

same commercial mortgage loan and turned, principally, on the same
legal question: Is the extension-fee agreement enforceable?
Now, the borrowers move for partial summary judgment against
Bellwether, and Bellwether moves for summary judgment against the
borrowers.

I.
Summary judgment is proper if the record discloses no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law. FED. R. CIV. P. 56(a). A dispute is
“genuine” if “the evidence is such that a reasonable jury could
return a verdict for the non-moving party.” Anderson v. Liberty
Lobby, 477 U.S. 242, 248 (1986). A fact is “material” if it “might
affect the outcome of the suit.” Id. at 248.

If the non-movant will bear the burden of proof at trial, the
movant “may merely point to an absence of evidence, thus shifting
to the non-movant the burden of demonstrating by competent summary
judgment proof that there is an issue of material fact warranting
trial.” In re La. Crawfish Producers, 852 F.3d 456, 462 (5th Cir.
2017) (citation omitted).
The Court emphasizes that the mere argued existence of a

factual dispute does not defeat an otherwise properly supported
motion. See Anderson, 477 U.S. at 248. Nor do “[u]nsubstantiated
assertions, improbable inferences, and unsupported speculation[.]”
Brown v. City of Houston, Tex., 337 F.3d 539, 541 (5th Cir. 2003).
Ultimately, to avoid summary judgment, the non-movant “must go
beyond the pleadings and come forward with specific facts
indicating a genuine issue for trial.” LeMaire v. La. Dep’t of
Transp. & Dev., 480 F.3d 383, 387 (5th Cir. 2007).
In deciding whether a fact issue exists, the Court views the

facts and draws all reasonable inferences in the light most
favorable to the non-movant. See Midwest Feeders, Inc. v. Bank of
Franklin, 886 F.3d 507, 513 (5th Cir. 2018). The Court “resolve[s]
factual controversies in favor of the nonmoving party,” but “only
where there is an actual controversy, that is, when both parties
have submitted evidence of contradictory facts.” Antoine v. First
Student, Inc., 713 F.3d 824, 830 (5th Cir. 2013) (citation
omitted).

On cross-motions for summary judgment, the Court views each
motion separately and asks, as to each, whether the movant has met
the Rule 56(a) standard. See Shaw Constructors v. ICF Kaiser
Engr’s, Inc., 395 F.3d 533, 538-39 (5th Cir. 2004) (citing 10A
Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, FEDERAL
PRACTICE AND PROCEDURE § 2720 (3d ed. 1998)).

II.
Jurisdiction is based on diversity, so the Court applies the
substantive law of the forum, Louisiana. See Boyett v. Redland
Ins. Co., 741 F.3d 604, 607 (5th Cir. 2014) (citing Erie R.R. Co.
v. Tompkins, 304 U.S. 64 (1938)). Because Louisiana choice-of-law
rules are substantive, they apply here. See Weber v. PACT XPP

Tech., AG, 811 F.3d 758, 770 (5th Cir. 2016) (citing Klaxon Co. v.
Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941)). Louisiana’s
choice-of-law rules require the Court to honor a contractual
choice-of-law provision, except to the extent the law chosen
“contravenes the public policy of the state” whose law would
otherwise apply. LA. CIV. CODE art. 3540.
Section 5(d) of the extension-fee agreement contains a
choice-of-law provision; it calls for the application of Louisiana
contract-interpretation law. Neither side contends that the
application of Louisiana law “contravenes the public policy of the
state” whose law would otherwise apply. LA. CIV. CODE art. 3540. So

the Court honors the parties’ choice, applies Louisiana law, and
turns to the cross-motions for summary judgment.
III.
For the first cross-motion, Bellwether moves for summary

judgment: (A) dismissing the claims the borrowers bring against
it; and (B) awarding it damages on its claims for breach of
contract against the borrowers. The Court considers dismissal
before damages.
A.
In the first part of its two-part motion, Bellwether seeks
summary judgment dismissing the claims of Jaye, Morgan, and Mirus.
Those claims are: (1) a claim for a declaratory judgment that the

extension-fee agreement is unenforceable; (2) a claim for payment
of a thing not owed; (3) a claim for breach of implied obligations
arising from the extension-fee agreement; and (4) a claim for
negligence.2 The Court considers each in turn.

2 Jaye and Morgan originally asserted counterclaims for:
breach of contract; breach of the duty of good faith and fair
dealing; violations of the Louisiana Unfair Trade Practices and
Consumer Protection Law, LA. REV. STAT. §§ 51:1401 — 51:1430; a
declaratory judgment; and attorney’s fees. The Court dismissed the
1.
The first claim Bellwether challenges is the one for a
declaratory judgment that the extension-fee agreement is

unenforceable as a matter of Louisiana law.
The Declaratory Judgment Act allows a federal court, “[i]n a
case of actual controversy within its jurisdiction,” to “declare
the rights and other legal relations of any interested party
seeking such a declaration, whether or not further relief is or
could be sought.” 28 U.S.C. § 2201.

Invoking the Declaratory Judgment Act, the borrowers request
a judgment declaring the stipulated damages provision of the
extension-fee agreement unenforceable. Bellwether moves for
summary judgment, contending the provision is enforceable for
three reasons: (1) it is not a stipulated damages provision at
all; (2) even if it were, it is enforceable as the product of arms-
length negotiations between sophisticated parties; and (3) it
“reasonably approximates” Bellwether’s damages in the event of
breach.

attorney-fee counterclaim on the pleadings, and Jaye and Morgan
dropped their claims for breach of the duty of good faith and fair
dealing and violation of the Louisiana Unfair Trade Practices and
Consumer Protection law when they filed an amended answer that did
not assert them. See King v. Dogan, 31 F.3d 344, 346 (5th Cir.
1994) (citing Boelens v. Redman Homes, Inc., 759 F.2d 504, 508
(5th Cir. 1985)). So the Court need not address Bellwether’s
arguments for dismissal of these claims.
Bellwether’s arguments center on the Louisiana law of
stipulated damages. At first glance, that law appears clear: The
Civil Code creates a general rule respecting stipulated damages

provisions, LA. CIV. CODE art. 2005, and an exception allowing
judicial modification of them, LA. CIV. CODE art. 2012. The general
rule permits parties to “stipulate damages to be recovered in case
of nonperformance, defective performance, or delay in
performance[.]” LA. CIV. CODE art. 2005. The exception allows a
court to modify a stipulated damages provision if it is “so
manifestly unreasonable as to be contrary to public policy.” La.
Civ. Code art. 2012. Simple enough.
But the case literature proves complicated. One line of cases

calls for closer consideration of stipulated damages provisions
and urges courts to ask whether such provisions “reasonably
approximate” the obligee’s loss in the event of a breach. See,
e.g., Keiser v. Catholic Diocese of Shreveport, Inc., 38,797, p.
9 (La. App. 2d Cir. 8/18/04); 880 So. 2d 230, 236.3 Another line,

3 The cases composing this line are more numerous and of more
recent vintage. See Prof'l Fluid Servs., LLC v. Norsk Bronnservice
AS, 2017-920, p. 6 (La. App. 3d Cir. 4/25/18); 245 So. 3d 47, 52,
writ denied, 2018-0869 (La. 10/29/18); 254 So. 3d 120; Plaquemines
Parish Gov’t v. River/Road Constr., Inc., 2001-2222, p. 18 (La.
App. 4th Cir. 8/28/02); 828 So. 2d 16, 28; Mobley v. Mobley,
37,364, p. 4-6 (La. App. 2d Cir. 8/20/03); 852 So. 2d 1136, 1139-
40; Carney v. Boles, 25,905, p. 6-7 (La. App. 2d Cir. 9/21/94);
643 So. 2d 339, 343-44; Philippi v. Viguerie, 606 So. 2d 577, 579-
however, cautions courts against comparing the stipulated amount
with the obligee’s expected damages. See, e.g., American
Totalisator Co. v. Fair Grounds Corp., 3 F.3d 810, 815 (5th Cir.
1993).4 The parties dispute which line controls.

The first line coheres with Civil Code Article 2012, which
allows a court to modify stipulated damages that are “so manifestly
unreasonable as to be contrary to public policy.” LA. CIV. CODE art.
2012. Of course, a court cannot decide if a stipulated damages
provision is “manifestly unreasonable” without comparing the
stipulated amount to the obligee’s expected or actual damages. See
Saul Litvinoff, 6 LA. CIV. L. TREATISE, Law Of Obligations § 13.18
(2d ed.). The Court has not found, and Bellwether has not

identified, another means of gauging the reasonableness of a
stipulated damages provision.

80 (La. Ct. App. 5th Cir. 1992); Am. Leasing Co. of Monroe, Inc.
v. Lannon E. Miller & Son, 469 So. 2d 325, 328-29 (La. Ct. App. 2d
Cir. 1985); John Jay Esthetic Salon, Inc. v. Woods, 377 So. 2d
1363, 1367 (La. Ct. App. 4th Cir. 1979); Preis v. Daily, --- So.
3d ---; 2019-700, (La. App. 3d Cir. 3/25/20); 2020 WL 1457687, at
*4-7; Util. Constructors, Inc. v. Perez, No. 15-4675, 2016 WL
5801363, at *5-6 (E.D. La. Oct. 5, 2015).
4 See also Pembroke v. Gulf Oil Corp., 454 F.2d 606, 611 (5th
Cir. 1971); Ball Marketing, Inc. v. Sooner Refining Co., 422 So.
2d 582, 585-86 (La. Ct. App. 3d Cir. 1982); Maloney v. Oak
Builders, Inc., 235 So. 2d 386, 390 (La. 1970); Lama v. Manale, 50
So. 2d 15, 17 (La. 1950).
Instead, Bellwether urges the Court to apply the all-
deference, all-the-time approach from the second line of cases.
See, e.g., Lama v. Manale, 50 So. 2d 15, 17-18 (La. 1950). Courts

cannot consider the reasonableness of stipulated damages
provisions, these authorities instruct, because “parties to a
contract generally have the unqualified right to stipulate for any
amount of liquidated damages in the event of a breach.” Pembroke
v. Gulf Oil Corp., 454 F.2d 606, 611 (5th Cir. 1971) (emphasis
added).
But that is not the law. See, e.g., Plaquemines Parish Gov’t
v. River/Road Const., Inc., 2001-2222, p. 18-19 (La. App. 4th Cir.
8/28/02); 828 So. 2d 16, 28-29 (reversing trial court for failing

to analyze the reasonableness of a stipulated damages provision);
Am. Leasing Co. of Monroe,, 469 So. at 329 (“When a stipulated
damages provision is enforced, the court must determine the
reasonableness of the amount[.]”) (emphasis added).
What is more, this hands-off approach clashes with the Civil
Code: The cases applying the approach purport to preclude the
reasonableness analysis the Civil Code plainly permits. Compare
Pembroke, 454 F.2d at 611 (declaring, without citation, it “well
settled” that parties enjoy the “unqualified right to stipulate

for any amount of liquidated damages”) with LA. CIV. CODE art. 2012
(allowing judicial modification of stipulated damages provisions
that are “so manifestly unreasonable as to be contrary to public
policy”) and Revision Comment (c) (1984) to LA. CIV. CODE art. 2005
(“A stipulated damages clause is given effect if the court deems
it to be a true approximation of actual damages.”) (emphasis

added).
The hands-off approach also ignores relevant scholarship. For
example, a professor of the Louisiana State University Law Center,
writing in 1983, considered it “clear from the jurisprudence that
the parties must have made a good faith effort to reasonably
estimate the probable loss that a breach would cause.” Ronald L.
Hersbergen, Unconscionability: The Approach of the Louisiana Civil
Code, 43 LA. L. REV. 1315, 1419 (1983). The late Professor Saul

Litvinoff concurred; he explained that courts must modify
stipulated damages provisions that are “manifestly unreasonable”
in light of the obligee’s expected or actual damages:
[T]he basic principle of no modification of the
stipulated damages must yield when such damages are
manifestly unreasonable. It should be clear that whether
or not such damages are unreasonable is a determination
that will result from contrasting the evaluation
contained in the pertinent clause with an evaluation of
the real loss sustained by the aggrieved obligee.
Litvinoff, 6 LA. CIV. L. TREATISE, at § 13.18 (emphasis added).
Because the text of the Civil Code supports the first line of
authority and cast doubt on the second, the Court applies the first
line. From that line, three principles emerge.
First, the aim of a stipulated damages provision is “to fix
the measure of damages in advance and to constrain the timely
performance of the principal obligation.” James Const. Grp.,

L.L.C. v. State ex. Rel. Dept. of Transp. & Dev., 2007-0225, p. 12
(La. App. 1st Cir. 11/2/07); 977 So. 2d 989, 997. And stipulated
damages provisions cannot “serve as a vehicle to recover punitive,
as opposed to compensatory[,] damages.” Philippi v. Viguerie, 606
So. 2d 577, 579 (La. Ct. App. 5th Cir. 1992); see also Litvinoff,
6 LA. CIV. L. TREATISE, at § 13.17 (“[P]arties may not avail
themselves of a stipulated damages clause as a subterfuge to allow
either one or both of them the recovery of damages that are
punitive rather than compensatory.”).

Second, stipulated damages “should reasonably approximate the
obligee’s loss in the event of a breach[.]” Keiser, 880 So. 2d at
236 (citing Am. Leasing Co. of Monroe, 469 So. 2d at 325. To decide
if a stipulated damages provision is reasonable, the Court asks
“whether the parties attempted to approximate the actual damages
in confecting the agreement.” Keiser, 880 So. 2d at 236. The
provision is enforceable if they did and unenforceable if they did
not. Id.
Third, the stipulated amount is presumed reasonable, and the

party that says otherwise must rebut the presumption. James Const.
Grp., 977 So. 2d at 998. To do so, the party must show that the
provision is “so manifestly unreasonable as to be contrary to
public policy.” LA. CIV. CODE art. 2012.

With these principles in mind, the Court turns to Bellwether’s
arguments for dismissal of the borrowers’ claims for a declaratory
judgment that the extension-fee agreement is unenforceable.
First, Bellwether contends that Civil Code Article 2012 does
not even apply. So, Bellwether says, the Court need not subject
the extension-fee agreement to any scrutiny. That is because,
according to Bellwether, the extension-fee agreement does not

provide for “stipulated damages”; it merely grants Bellwether “the
option” to grant the borrowers an extension in exchange for the
payment of monthly fee. The Court disagrees.
To start, Bellwether’s argument misreads the extension-fee
agreement. That agreement does not give Bellwether “the option” to
extend the deadline for achieving final endorsement in exchange
for a fee; it makes the borrowers “liable and obligated to pay to
[Bellwether] a monthly extension fee” for each month final
endorsement was delayed beyond August 31, 2018. It therefore

requires the borrowers to pay an extension fee, even if Bellwether
refuses to grant an extension.
What is more, Bellwether’s argument fails to consider the
text of the Civil Code. Article 2005 permits parties to “stipulate
the damages to be recovered in case of nonperformance, defective
performance, or delay in performance of an obligation.” That is
exactly what the parties did here; they agreed that the borrowers
would pay Bellwether fixed monthly sums for each month final

endorsement was delayed beyond August 31, 2018. Those sums
supposedly supplied the measure of Bellwether’s damages in the
event the borrowers breached their obligation to timely achieve
final endorsement. So the extension-fee agreement is an attempt to
“stipulate . . . damages” within the meaning of Civil Code Article
2005 and is therefore subject to Civil Code Article 2012. Having
rejected Bellwether’s first argument, the Court turns to its
second.
For its second argument, Bellwether says that the extension-

fee agreement is enforceable as the product of “arms-length
negotiations between sophisticated parties.” In so arguing,
Bellwether invites the Court to hold that Civil Code Article 2012
applies only when there are disparities in bargaining power. The
Court declines the invitation.
Civil Code Article 2012 is not as limited as Bellwether says.
Article 2012 is clear: Before a court modifies a stipulated damages
provision, it must find that the stipulated damages “are so
manifestly unreasonable as to be contrary to public policy.” LA.

CIV. CODE art. 2012. A court need not also find a gap in bargaining
power. See, e.g., Plaquemines Parish Gov’t, 828 So. 2d at 29
(reversing trial court for failing to consider the reasonableness
of stipulated damages provision in arms-length transaction between
construction company and parish government); Philippi, 606 So. 2d

at 580 (affirming trial court’s modification of stipulated damages
provision in contract between “sophisticated businessmen with
equal bargaining power”). Accordingly, Bellwether’s second
argument lacks merit, and the Court turns to its third.
For its third argument, Bellwether contends that the
stipulated damages provision is enforceable, as a matter of law,
because the stipulated amount “reasonably approximates” the
damages Bellwether would suffer if final endorsement was delayed.
According to Bellwether, the stipulated amount——0.125% of the

mortgage note ($39,441) each month for the first three months of
delay and 0.25% of the mortgage note ($78,881) each month
thereafter——approximates: (a) the amounts it was contractually
obligated to pay its investor, Lancaster Pollard, due to the delay;
plus (b) unspecified “additional costs” Bellwether would incur in
“managing” and “servicing” the loan during the delay. To evaluate
Bellwether’s argument, the Court turns first to the contract
between Bellwether and Lancaster Pollard.
That contract was styled a “trade agreement” and signed on

May 26, 2016——just thirty-six days before Bellwether and the
borrowers entered into the extension-fee agreement. Under the
trade agreement, Bellwether agreed to sell mortgage-backed
securities to Lancaster Pollard. Bellwether promised to deliver
the securities by January 31, 2019, “the last day of the month in

which the twenty-ninth (29th) monthly anniversary of the Initial
GNMA CLC occurs[.]” Bellwether could extend that delivery date by
paying Lancaster Pollard a monthly fee of 0.125% of the $31,522,100
delivery amount, or $39,440.13. And it did so: Bellwether made
three $39,440.13 payments——on January 1, 2019, February 2, 2019,
and March 1, 2019——for a total of $118,320.39. So the delay in
final endorsement cost Bellwether $118,320.39, plus “additional
costs” for “managing” and “servicing” the loan. Bellwether appears
to contend that the stipulated damages provision of the extension-
fee agreement “reasonably approximates” these amounts.5 The Court
disagrees.

First, consider the chasm between the stipulated amounts and
the amount Bellwether was contractually obliged to pay Lancaster

5 Bellwether does not apply the “reasonably approximate”
standard that springs from the case literature. Bellwether instead
says that “the Extension Fee compensates Bellwether for actual
costs it incurs as a result of delays in the Final Endorsement
date.” But the “actual costs” are unstated. Bellwether adds that
the extension-fee arrangement is “commonplace . . . in the
commercial lending industry.” That is not the standard, though;
“commonplace” or not, the stipulated amount should “reasonably
approximate” Bellwether’s actual damages. There must be some “fit”
between the figures, and Bellwether’s wayward contentions do not
help the Court find it.
Pollard. For the months of January, February, and March 2019, the
stipulated amount is $78,881 per month——double Bellwether’s
monthly payment obligation to Lancaster Pollard. And the total

stipulated amount——$433,847——is more than triple the amount
Bellwether was contractually obliged to pay Lancaster Pollard.
These figures are multiples of Bellwether’s actual damages——not
“reasonable approximations” of them.6
Second, consider the timing of Bellwether’s contractual
obligation to pay Lancaster Pollard. Until January 1, 2019,
Bellwether owed no payments to Lancaster Pollard. By then, however,
the stipulated damages provision required the borrowers to pay
Bellwether $197,204. So the stipulated damages provision required

the borrowers to pay Bellwether nearly $200,000 when Bellwether’s
actual damages were $0.
Third, consider the formulaic fee structure of the extension-
fee agreement. It requires the borrowers to pay Bellwether 0.125%
of the mortgage note ($39,441) each month for the first three
months of delay and 0.25% of the mortgage note ($78,881) each month
thereafter. Why does the stipulated amount double after the third

6 Stipulated damages may of course “exceed, to some degree[,]”
the obligee’s “reasonably approximate[d]” actual damages. Am.
Leasing Co. of Monroe, 469 So. 2d at 329. But the Court has not
found, and Bellwether has not invoked, any authority allowing
stipulated damages of double or triple the obligee’s anticipated
damages.
month of delay? Bellwether provides no satisfactory answer. Its
trade agreement with Lancaster Pollard is of little help; nothing
in it supports a finding that Bellwether’s actual damages somehow

doubled beginning in December 2019.
Bellwether has not met its Rule 56(a) burden. On the contrary,
the facts and law raised in connection with Bellwether’s motion
show that the stipulated damages provision of the extension-fee
agreement is unenforceable as a matter of Louisiana law because it
is “so manifestly unreasonable as to be contrary to public policy.”
LA. CIV. CODE art. 2012. As explained, the stipulated amounts do not
“reasonably approximate” Bellwether’s actual damages in the event
of breach. Keiser, 880 So. 2d at 236. And it is plain that the

parties did not even “attempt[] to approximate” those damages in
confecting the stipulated damages provision. Id.; Am. Leasing Co.
of Monroe, Inc., 469 So. 2d at 329 (demanding a determination of
whether the parties “truly attempted to reasonably approximate
actual damages” in confecting the provision); Mobley, 852 So. 2d
at 1140 (same). To be sure, the stipulated amounts “do not bear
any reasonable relation,” Carney, 643 So. 2d at 343, to
Bellwether’s actual damages——damages Bellwether knew with
reasonable certainty at the time of contracting. A provision with
these characteristics is not compensatory; it is punitive.
Accordingly, the Court finds that the stipulated damages
provision of the extension-fee agreement is unenforceable, and the
Court denies Bellwether’s motion for summary judgment on the
borrowers’ declaratory-judgment claims.7

2.
Bellwether next moves for summary judgment on Mirus’ claim
for payment of a thing not owed.
In Louisiana, “[a] person who has received a payment or a
thing not owed to him is bound to restore it to the person from

whom he received it.” LA. CIV. CODE art. 2299. “A thing is not owed
when it is paid or delivered for the discharge of an obligation
that does not exist.” LA. CIV. CODE art. 2300.
Mirus sued Bellwether under Civil Code Article 2299 to recoup
the money it paid under the stipulated damages provision of the
extension-fee agreement. Because the stipulated damages provision

7 Critically, Bellwether does not argue——as a fallback
position should the Court find against it——that the Court should
modify the stipulated amount to a sum that reasonably approximates
its anticipated losses. So the Court does not consider whether it
should reduce the stipulated amount rather than declare the entire
stipulated damages provision unenforceable. See, e.g., Carney, 643
So. 2d at 344(reducing stipulated sums); Philippi, 606 So. 2d at
580(affirming trial court’s reduction of stipulated sums); John
Jay Esthetic, 377 So. 2d at 1368 (declining to enforce stipulated
damages provision and remanding for presentation of evidence of
actual damages).
is unenforceable, Mirus reasons, the payments were not “owed,” and
Bellwether is “bound to restore” them. LA. CIV. CODE art. 2299.

Bellwether disagrees. It says it is entitled to summary
judgment on this claim for the same reason it is entitled to
summary judgment on the declaratory-judgment claim: the stipulated
damages provision is enforceable as a matter of law. Because the
Court has rejected that argument, the Court rejects this one, too.
The provision is not enforceable, and Bellwether cannot show that
Mirus actually “owed” payments under the unenforceable provision.
LA. CIV. CODE art. 2299; see also Bell South Telecomm., LLC v. City
of Orleans, 31 F. Supp. 3d 819, 831 (E.D. La. 2014) (payment made
to city in compliance with an ordinance was never “owed” because

ordinance was unenforceable from the start). The Court therefore
denies Bellwether’s motion for summary judgment on Mirus’ Civil
Code Article 2299 claim.
3.
Bellwether next moves for summary judgment on the borrowers’
claims that it breached implied obligations arising from the
extension-fee agreement under Civil Code Article 1772.

Under Louisiana law, a breach-of-contract claim has three
elements: “‘(1) the obligor’s undertaking an obligation to
perform, (2) the obligor failed to perform the obligation (the
breach), and (3) the failure to perform resulted in damages to the
obligee.’” IberiaBank v. Broussard, 907 F.3d 826, 835 (5th Cir.
2018) (quoting Favrot v. Favrot, 1108-09, pp. 14-15 (La. App. 4th
Cir. 2011); 68 So. 3d 1099, 1108-1109).

An obligation is “conditional” if it depends on an “uncertain
event.” LA. CIV. CODE art. 1767. It is “suspensive” if it “may not
be enforced until the uncertain event occurs.” Id. Louisiana law
regards a suspensive condition as “fulfilled” when “it is not
fulfilled because of the fault of a party with an interest contrary
to the fulfillment.” LA. CIV. CODE art. 1772.

Civil Code Article 1772 embraces a “frustration” or
“prevention of performance” principle: One contracting party has
an implied obligation not to do anything that prevents the other
from performing his obligation. Orleans Parish Sch. Bd. v.
Lexington Ins. Co., 2012-1686, p. 16 (La. App. 4 Cir. 6/5/13); 118
So. 3d 1203, 1216 (citing In re Crutcher-Tufts Res., Inc., 504
F.3d 535, 542 (5th Cir. 2007)). The principle flows from “the
premise [that] one should not be able to take advantage of his own
wrongful act.” Gibbs Const. Co. v. Thomas, 500 So. 2d 764, 766
(La. 1987). It applies to both obligor and obligee. LA. CIV. CODE
art. 1772 cmt. a.

If the obligee’s fault prevents a suspensive condition from
becoming “fulfilled,” the obligor may sue for damages. See LA. CIV.
CODE art. 1772 cmt. c; 5 LA. CIV. L. TREATISE, Law of Obligations §
5.9 (2d ed.). The obligee conceptually has breached his implied
contractual obligation. See LA. CIV. CODE art. 2054; Certain
Underwriters at Lloyd’s, London v. Sea-Lar Mgmt., Inc., 2000-1512,

p. 8 (La. App. 4 Cir. 5/9/01); 787 So. 2d 1069, 1076.
Here, the borrowers sued Bellwether for breaching implied
obligations arising from the extension fee agreement by
“unreasonably and wrongfully delay[ing]” final endorsement.
Bellwether says it is entitled to summary judgment because it did
not cause the delay; the Broadmoor litigation did.

The Broadmoor litigation complicated the final endorsement
process, Bellwether explains, because the HUD Guide contains only
a narrow procedure for closing without the general contractor’s
participation. Bellwether says that it asked Mirus if Mirus “wanted
to use that procedure,” but Mirus failed to respond.
The borrowers rejoin that fact issues preclude summary
judgment, and the Court agrees. On this record, it is impossible
to assign blame for the delay in final endorsement. The borrowers
point to facts——taken as true and viewed in their favor——sufficient

to support a finding that Bellwether caused, at least in part, the
delay.
The borrowers’ theory finds support in the declaration of
Kristi Morgan. Morgan attests that: (1) following a call with a
Bellwether employee in July 2017, it became “apparent” that
Bellwether encouraged HUD to rescind its approval of Syncromatic
Management, LLC as the management agent for the project,
necessitating the selection of a replacement and delaying final

endorsement; (2) Bellwether wrongly withheld money from payments
owed to the general contractor, Broadmoor, for builders risk
insurance, contributing to the filing of the Broadmoor litigation;
(3) Bellwether failed to pay “undisputed invoice amounts,”
stripping Mirus of the funds it needed to pay Broadmoor’s draw
request and sparking the Broadmoor litigation; and (4) Bellwether
“was not cooperative in establishing [the] escrow” needed to
proceed to final endorsement during a contractor dispute, in
accordance with Section 1.17(B)(2) of the HUD Guide.

A jury could find that any of these acts amounts to a breach
of Bellwether’s Civil Code Article 1772-derived obligation not to
take any action to prevent the suspensive condition of final
endorsement from occurring. See, e.g., Gibbs Const. Co., 500 So.
2d at 766; Orleans Parish Sch. Bd., 118 So. 3d at 1216. The Court
therefore denies Bellwether’s motion for summary judgment on the
borrowers’ breach-of-contract claims.
4.
Bellwether next moves for summary judgment dismissing Mirus’

claim that it negligently delayed final endorsement.
The source of negligence liability in Louisiana is Civil Code
Article 2315, which instructs that “[e]very act whatever of man
that causes damage to another obliges him by whose fault it

happened to repair it.” LA. CIV. CODE art. 2315. Courts use a duty-
risk approach to decide whether to impose negligence
liability. Lemann v. Essen Lane Daiquiris, Inc., 2005-1095, p. 7
(La. 3/10/06); 923 So. 2d 627, 632.
To recover under that approach, the plaintiff must prove five
elements: (1) the defendant had a duty to conform its conduct to
a specific standard; (2) the defendant’s conduct failed to conform
to that standard; (3) the defendant's substandard conduct was
cause-in-fact of the plaintiff’s injuries; (4) the defendant's

substandard conduct was a legal cause of the plaintiff’s injuries;
and (5) actual damages. Audler v. CBC Innovis, Inc., 519 F.3d 239,
249 (5th Cir. 2008) (citing Lemann, 923 So. 2d at 633).
Bellwether contends that is entitled to summary judgment
because Mirus cannot prove damages caused by Bellwether’s alleged
negligence. The Court disagrees.

Consider, again, the declaration of Kristi Morgan. Morgan
attests that, as a result of the Bellwether-engineered rescission
of Syncromatic as project management agent, Mirus incurred
$360,206.97 in “management and lease up fees,” plus unspecified
“expenses for staff time.” Whether these fees and expenses were
caused by Bellwether’s negligence is a factual dispute for the
jury. The Morgan declaration aside, many of the same genuine
disputes of material fact that precluded summary judgment on the

breach-of-contract claims preclude summary judgment on this claim.
The Court therefore denies Bellwether’s motion for summary
judgment on Mirus’ negligence claim.
Having denied the first component of Bellwether’s motion for
summary judgment——dismissal of the borrowers’ claims——the Court
turns to the second: Bellwether’s request for an award of damages
on its claims for breach of contract.

B.
In the second part of its two-part motion, Bellwether seeks
summary judgment awarding it damages on its claims for breach of
contract. But the Court has held that the stipulated damages
provision of the extension-fee agreement is unenforceable. See §
III(A)(1), supra. So Bellwether cannot recover damages against the
borrowers for breaching the unenforceable stipulated damages
provision. The Court therefore denies this component of
Bellwether’s motion for summary judgment.
IV.
For the second cross-motion, Jaye and Morgan move for partial
summary judgment: (A) declaring the stipulated damages provision

of the extension-fee agreement unenforceable as a matter of
Louisiana law; and (B) dismissing Bellwether’s breach-of-contract
claims.
A.
First, Jaye and Morgan ask the Court to hold that the
stipulated damages provision is unenforceable. The Court has so
held. See § III(A)(1), supra. Accordingly, for the reasons given
in § III(A)(1) of this Order and Reasons, the Court grants Jaye
and Morgan’s motion for partial summary judgment on the

enforceability of the stipulated damages provision.
B.
Second, Jaye and Morgan move for summary judgment dismissing
Bellwether’s claims for breach of contract. Bellwether sued Jaye
and Morgan for breaching portions of the extension-fee agreement
that this Court held unenforceable in § III(A)(1) of this Order
and Reasons. Because the stipulated damages provision of the
extension-fee agreement is unenforceable as a matter of Louisiana
law, Bellwether cannot succeed on its claims against Jaye and

Morgan for breach of that provision. See, e.g., Ramos v. Liberty
Bank and Trust Co., 2018-0612, p. 2 (La. App. 4th Cir. 12/19/18);
262 So. 3d 917, 918 (breach-of-contract claim requires an
enforceable contract).

Bellwether contends, however, that summary judgment is
inappropriate, even if the Court concludes (as it has) that the
stipulated damages provision is unenforceable. Bellwether says it
still has claims against Jaye and Morgan for breaching the
principal obligation of the extension-fee agreement——the
obligation to proceed to final endorsement by August 31, 2018.
It is of course true, as Bellwether says, that “[n]ullity of

the stipulated damages clause does not render the principal
obligation null.” LA. CIV. CODE art. 2006. But Bellwether did not
sue the borrowers for breaching the “principal obligation” of the
extension-fee agreement; it sued them for breaching the stipulated
damages provision only. The Court declines to deny summary judgment
on the basis of a hypothetical claim Bellwether has not brought.8

8 Because the amendment deadline expired long ago, Rule 16(b)
would govern any request to amend. See Innova Hosp. San Antonio,
Ltd. P'ship v. Blue Cross & Blue Shield of Ga., Inc., 892 F.3d
719, 735 (5th Cir. 2018). The “more liberal standard of Rule 15(a)”
would not apply until Bellwether showed “good cause to modify the
scheduling order[.]” S&W Enters., L.L.C. v. SouthTrust Bank of
Ala., NA, 315 F.3d 533, 536 (5th Cir. 2003). Bellwether has not
moved for leave to amend its complaint out of time, and its summary
judgment papers do not contain the facts the Court needs to make
an informed good-cause determination. See Innova Hosp., 892 F.3d
at 735 (calling for consideration of four factors in deciding
whether to allow an untimely amendment). Consequently, the Court
takes no position on the question whether Bellwether can make the
Accordingly, the Court grants Jaye and Morgan’s motion for
partial summary judgment dismissing the breach-of-contract claims
Bellwether brings against them.

V.
For the third and final cross-motion, Mirus moves for partial
summary judgment: (A) declaring the stipulated damages provision
of the extension-fee agreement unenforceable as a matter of

Louisiana law; and (B) ordering Bellwether to “restore” to Mirus
the $78,882 in fees that Mirus paid Bellwether under the stipulated
damages provision.
A.
First, Mirus moves for summary judgment declaring the
stipulated damages provision of the extension-fee agreement
unenforceable as a matter of Louisiana law. The Court has held
that the provision is unenforceable. See § III(A)(1), supra. So,

for the reasons given in § III(A)(1) of this Order and Reasons,
the Court grants Mirus’ motion for partial summary judgment on the
enforceability of the stipulated damages provision.

showing required to amend its complaint out of time to assert the
claims it references in § IV of its brief in opposition to Jaye
and Morgan’s motion for partial summary judgment.
B.
Second, Mirus moves for summary judgment on its effort to
recoup, under Civil Code Article 2299, the money it paid Bellwether

under the stipulated damages provision of the extension-fee
agreement. Because that provision is unenforceable, Mirus reasons,
the payments were not “owed,” and Bellwether is “bound to restore”
them. LA. CIV. CODE art. 2299. Bellwether counters that, even if the
provision is unenforceable, Bellwether need not “restore” the
payments because Mirus made them voluntarily and with “full
knowledge of the relevant facts[.]” The Court disagrees.
Bellwether invokes the voluntary payment doctrine, which
holds that “‘voluntary payments made with full knowledge of all

the facts and not under duress may not subsequently be recovered,
even though the amount so paid is not actually owed.’” Carter v.
Montgomery Ward & Co., 413 So. 2d 309, 314 (La. Ct. App. 3d Cir.
1982) (quoting Whitehall Oil Co. v. Boagni, 217 So. 2d 707, 713-
14 (La. Ct. App. 3d Cir. 1968) (Tate, J., dissenting)). But the
1996 amendment to Civil Code Article 2299 suggests that the
doctrine does not apply to claims for payment of a thing not owed.
See Revision Comment (b) (1996) to LA. CIV. CODE art. 2299 (“[T]he
person who receives a thing or a payment not owed, whether
knowingly or through error, must restore it to the person from
whom he received it.”). And the Fifth Circuit, invoking Revision

Comment (b), has instructed that “[t]he right to reimbursement
conferred by [A]rticle 2299 exists regardless of whether such
payment was made knowingly or through error.” Am. Intern. Specialty
Lines Ins. Co. v. Canal Indem. Co., 352 F.3d 254, 273 (5th Cir.

2003). So too here.
Because Mirus’ right to reimbursement of the $78,882 in
extension fees that it paid Bellwether under the unenforceable
stipulated damages provision “exists regardless of whether such
payment was made knowingly or through error,” the voluntary payment
doctrine poses no impediment to Mirus’ claim for payment of a thing
not owed under Civil Code Article 2299.9 Am. Intern. Specialty
Lines, 352 F.3d at 273.

Accordingly, because the stipulated damages provision of the
extension-fee agreement is unenforceable, the $78,882 in extension
fees that Mirus paid were not “owed” to Bellwether, and Bellwether
is “bound to restore” them to Mirus. LA. CIV. CODE art. 2299. The
Court therefore grants Mirus’ motion for partial summary judgment
on its claim for payment of a thing not owed.

9 The Fifth Circuit’s nonprecedential opinion in Sanders v.
Washington Mut. Home Loans, Inc. ex rel Washington Mut. Bank, 248
F. App’x 513 (5th Cir. 2007) (per curiam), is not to the contrary.
The plaintiffs there——unlike the borrowers here——asserted no
causes of action under Civil Code Article 2299. See id. at 517.
VI.
Accordingly, for the foregoing reasons, IT IS ORDERED: that
Bellwether’s motion for summary judgment is DENIED, Jaye and
Morgan’s motion for partial summary judgment is GRANTED, and Mirus’
motion for partial summary judgment is GRANTED.

New Orleans, Louisiana, June 10, 2020

MARTIN . Cy BRLDMAN
UNITED STATES DISTRICT JUDGE

36

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10185594. Public record. Not legal advice.