                             UNPUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT


                             No. 10-2245


DORAL BANK PR,

                 Plaintiff - Appellant,

           v.

FEDERAL HOME LOAN MORTGAGE CORPORATION,

                 Defendant - Appellee.



Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.     Anthony J. Trenga,
District Judge. (1:09-cv-01420-AJT-JFA)


Argued:   December 8, 2011                 Decided:   April 10, 2012


Before DUNCAN, DAVIS, and WYNN, Circuit Judges.


Affirmed by unpublished opinion. Judge Wynn wrote the majority
opinion, in which Judge Duncan concurred.  Judge Davis wrote a
dissenting opinion.


ARGUED: Charles Andrew Patrizia, PAUL HASTINGS LLP, Washington,
D.C., for Appellant.     William G. Ballaine, LANDMAN, CORSI,
BALLAINE & FORD, PC, New York, New York, for Appellee.        ON
BRIEF: Stephen B. Kinnaird, James E. Anklam, Igor V. Timofeyev,
PAUL HASTINGS LLP, Washington, D.C., for Appellant.    Kenton W.
Hambrick, Associate General Counsel, FEDERAL HOME LOAN MORTGAGE
CORPORATION, McLean, Virginia; Mark S. Landman, LANDMAN, CORSI,
BALLAINE & FORD, PC, New York, New York, for Appellee.
Unpublished opinions are not binding precedent in this circuit.




                                2
WYNN, Circuit Judge:

       Under an Interim Servicing Agreement (“ISA”) Doral Bank PR

(“Doral”) agreed to take over the servicing of a portfolio of

mortgages (“portfolio”) owned by the Federal Home Loan Mortgage

Corporation      (“Freddie      Mac”).          However,    because     the     existing

servicer of the portfolio brought court actions that restrained

Freddie Mac from transferring the portfolio to Doral, Freddie

Mac terminated the ISA.            Thereafter, Doral brought this action

alleging     that     Freddie    Mac   breached      the    ISA   by,    among      other

things, failing to pay to Doral, pursuant to a provision in the

ISA,    an   amount     equivalent     to       twenty-four     months     of    Doral’s

anticipated service compensation fees under the ISA.

       Upon consideration of cross-motions for summary judgment,

the district court agreed with Freddie Mac that Doral’s damages

were limited to its actual damages in the amount of $124,588.

The district court therefore denied Doral’s claim for twenty-

four    months   of    service    compensation        fees      reasoning       that,   in

light   of   Doral’s     forecast      of   evidence       on   damages,      the   ISA’s

provision for liquidated damages amounted to an unenforceable

penalty.     For the reasons below, we affirm.




                                            3
                                                I.

        Freddie Mac engages pre-approved lenders (“servicers”) to

service its portfolio of mortgages. 1                      The servicer performs day-

to-day activities such as collecting payments from borrowers,

accounting for and remitting borrowers’ principal and interest

payments         to    Freddie   Mac,     and       maintaining      tax    and    insurance

escrows      to       pay   borrowers’    taxes      and     insurance.       Since     1986,

Doral, a commercial bank organized and operating under the laws

of   the     Commonwealth        of     Puerto       Rico,    has    been     a    qualified

servicer of Freddie Mac’s mortgages.

        This      matter      arose      in    2008,       when     Freddie       Mac   began

implementing its plans to terminate its servicing relationship

with R&G Mortgage Corporation and R-G Premier Bank of Puerto

Rico (collectively, “R&G”).                   On July 9, 2008, Freddie Mac and

Doral initiated negotiations for Doral to step in for R&G and

serve       as    Freddie      Mac’s     “interim       servicer”      on     a    portfolio

comprising approximately 46,000 Freddie Mac loans with a total

value of over $3.8 billion, which, up to that point in time, had

been serviced by R&G.                 Accordingly, on July 11, 2008, Freddie

Mac officially informed R&G that it was being terminated as its

servicer of this portfolio.                   On that same date, Freddie Mac and


        1
       Freddie Mac is a corporate instrumentality of the United
States chartered by Congress in 1970. See 12 U.S.C. §§ 1451-59.



                                                4
Doral entered into the ISA under the terms of which Doral agreed

to be its interim servicer of the same portfolio.

       The terms of the ISA indicate two dates relevant to this

appeal.     First, in the opening paragraph of the ISA, the terms

indicate that the ISA was “effective” July 11, 2008.                   J.A. 30.

Second, in Section 2.6 of the ISA, “Effective Date” is defined

as:

       The effective date for commencement of the servicing
       of the Mortgages (“Effective Date”) by the Interim
       Servicer [Doral] shall be a date that Freddie Mac
       determines and communicates to the Interim Servicer
       that Interim Servicer will be servicing the Interim
       Portfolio.   The Effective Date, when possible, will
       correspond to a date when Interim Servicer obtains the
       files for the Mortgages.

Id.    at   33.     Additionally,        the    ISA    defined     the   “Interim

Portfolio” as “[t]he portfolio of Freddie Mac loans that were

once serviced by a terminated servicer.”               Id.   at 30.

       On July 11 and 12, 2008, a Freddie Mac team met with Doral

representatives.      The Freddie Mac team advised Doral to have

personnel ready on Monday, July 14, 2008 to go with Freddie Mac

personnel    to   R&G’s   offices   to       discuss   a   plan   to   initiate   a

transfer to Doral of the loans R&G was servicing for Freddie

Mac.      On July 14, 2008, Freddie Mac representatives, led by

Russell McKoy, Freddie Mac’s file recovery team leader, went to

R&G’s main offices to meet with R&G management.                        Although a

Doral representative accompanied Freddie Mac employees, he was


                                         5
told    by     a Freddie         Mac     representative       to    wait    outside,      while

Freddie Mac spoke with R&G.                      Consequently, Doral did not join

Freddie Mac and R&G for these discussions.

       On July 15, 2008, Freddie Mac returned to R&G’s offices,

and during the course of the meeting, Doral representatives were

invited        to    join.          At    this    meeting,        R&G’s     representatives

indicated they would not be able to provide data on the R&G

loans       that    day    and     requested      that      Freddie   Mac     give       R&G   an

additional day to compile the servicing files and the mortgage

notes to give to Doral.

       Later        that     day,      Freddie       Mac    was    served    an    ex     parte

temporary restraining order (“TRO”) issued by the U.S. District

Court for the District of Puerto Rico, prohibiting Freddie Mac

from        terminating      its     servicing        agreement     with     R&G   and     from

transferring         the     portfolio. 2            That   same    day,     Freddie      Mac’s

associate          general    counsel       spoke      by    telephone      with     a    Doral

attorney and a senior Doral executive, advising that all efforts

to transfer servicing were on hold because a TRO had been issued

against Freddie Mac.                On July 17, 2008, Freddie Mac sent formal

notification,         which      confirmed       that,      because    of    the   TRO,        the


        2
       On July 14, 2008, unbeknownst to Freddie Mac, R&G filed an
action under seal in the U.S. District Court for the District of
Puerto Rico to obtain the ex parte TRO. See R&G Mortg. Corp. v.
Fed. Home Loan Mortg. Corp., 584 F.3d 1, 6 (1st Cir. 2009).



                                                 6
transferring of the Interim Portfolio from R&G to Doral was on

hold.        Notably, at no time were any R&G loan files, documents,

or   electronic       data    transferred       from   R&G    to    Doral   during      the

five-day period spanning from July 11 through July 15, 2008.

        On    July     22,    2008,   the       district      court    converted        the

scheduled       July     23     preliminary       injunction        hearing      into     a

settlement conference.            Ultimately, Freddie Mac and R&G entered

into    a     settlement      agreement,    signed       by   the     district    court,

allowing R&G to continue to service Freddie Mac mortgages until

R&G could sell its servicing rights to a qualified third-party

buyer.       See R&G Mortg. Corp. v. Fed. Home Loan Mortg. Corp., 584

F.3d 1, 6 (1st Cir. 2009).            Because of these events, Freddie Mac

never transferred the R&G portfolio to Doral.

        On August 14, 2008, Doral wrote to R&G, informing R&G that

it   would     move    to     intervene    in    R&G’s     pending     action    against

Freddie Mac unless it was given a copy of the TRO.                          R&G refused

this request via e-mail, explaining that paperwork in the case

was under seal.          “The e-mail advised that Doral’s [ISA] was not

directly at issue in the litigation but that, insofar as that

agreement pertained to R&G’s portfolio of Freddie Mac mortgages,

the TRO rendered Doral ‘unable to perform.’”                        Id.     Thereafter,

Doral attempted to intervene in the R&G action.                       Doral based its

attempted intervention on its alleged contractual rights under



                                            7
the ISA.        Doral’s intervention motion was denied, and the denial

was affirmed on appeal.           Id. at 12-13.

     In early August 2008, Freddie Mac asked Doral to provide it

with the costs incurred by Doral under the ISA; and on August 5,

2008,    Doral     transmitted      to   Freddie        Mac   its    costs       incurred

figures, which totaled $124,588.                 On or about August 13, 2008,

Freddie Mac formally informed Doral that the R&G loans would not

be transferred to Doral for interim servicing under the ISA.

Thereafter, Freddie Mac offered to reimburse Doral for its costs

under    the     ISA   in   the    amount       of   $124,588,      as    well    as   an

additional sum equivalent to forty percent of Doral’s costs.

     Doral, in turn, claimed that it was entitled to twenty-four

months     of    service    compensation         fees    under      the   ISA,     which

provided at Section 1.1 that:

        Interim Servicer [Doral] agrees to provide servicing
        for such Interim Portfolio until such time as Freddie
        Mac determines to transfer servicing of such Interim
        Portfolio.      Unless  the    Interim  Portfolio   is
        transferred pursuant to court order or the Interim
        Servicers eleibility [sic] to sell mortgages to or
        service mortgages for Freddie Mac is suspended or
        terminated pursuant to section 1.3 [of the ISA], the
        length of interim servicing will not be less than 24
        months.   If the length of interim servicing is less
        than 24 months, then Freddie Mac will pay to Interim
        Servicer   the  total  of   24   months of   servicing
        compensation fee minus the number of months already
        billed by Interim Servicer. Freddie Mac shall not be
        responsible for this fee if it is ordered by court to
        transfer the Interim Portfolio from the Interim
        Servicer before the expiration of 24 months or if
        Freddie Mac terminates or suspends the eligibility of


                                            8
       the Interim Servicer to sell mortgages to or service
       mortgages for Freddie Mac pursuant to section 1.3.

J.A. 30.         In response, Freddie Mac rejected Doral’s claim for

damages under Section 1.1, arguing that the “Effective Date”

provision        under    Section     2.6—i.e.,           the     “effective       date   for

commencement        of     the     servicing        of      the     Mortgages”—had        not

occurred.          Specifically,           Freddie        Mac     maintained       that   the

obligations and liabilities in Section 1.1 were not triggered

because Freddie Mac never “determine[d] and communicate[d] to

[Doral]      that        [Doral]     w[ould]         be     servicing        the     Interim

Portfolio,” as required by Section 2.6.                     J.A. 33.

       On   December       29,     2009,    Doral     brought       an     action    in   the

Eastern District of Virginia alleging that Freddie Mac either

partially or totally breached the ISA “by failing to pay Doral

the servicing compensation fees due to Doral” for twenty-four

months.      Doral also asked for a declaration of the respective

rights      of   Doral     and     Freddie    Mac.          J.A.    27.      Freddie      Mac

responded by moving to dismiss Doral’s complaint, pursuant to

Federal Rule of Civil Procedure 12(b)(6), for failure to state a

claim upon which relief could be granted.                           The district court

denied Freddie Mac’s motion, concluding that it was unable to

determine the parties’ contractual intent from the face of the

ISA,     that     discovery         regarding        the        circumstances       of    the

transaction        was    appropriate,        and     that        custom    and     practice


                                              9
evidence     might     be    relevant       to     understanding              the    parties’

obligations under the ISA.

       Following     discovery,      Doral        filed       an    amended         complaint,

which left unchanged its contractual claims but amended certain

factual allegations.              After Freddie Mac answered the amended

complaint, the parties filed cross-motions for summary judgment

on    both   liability      and    damages.        The     district       court       granted

summary judgment in favor of Doral as to its liability claims

for breach of contract and as to its damage claims to the extent

of    $124,588,      but    denied       claims     as     to      all    other        damages

(including,     specifically,        servicing       fees,         ancillary        fees,   and

“on hold” costs).          Freddie Mac’s motion for summary judgment was

denied as to liability but granted as to all damages other than

the amount of $124,588.              Doral’s claim for declaratory relief

was dismissed.       Doral appealed.



                                           II.

       This Court reviews the district court’s decision granting

summary judgment de novo.             See Cont’l Airlines, Inc. v. United

Airlines, Inc., 277 F.3d 499, 508 (4th Cir. 2002).                                    Summary

judgment is appropriate if “the pleadings, depositions, answers

to    interrogatories,        and    admissions          on     file,     together          with

affidavits, if any, show that there is no genuine issue as to

any   material     fact     and   that    the     moving      party      is    entitled      to

                                           10
judgment as a matter of law.”                    Fed. R. Civ. P. Rule 56(c).

Summary judgment is appropriate only if there are no material

facts in dispute and the moving party is entitled to judgment as

a matter of law.          See Celotex Corp. v. Catrett, 477 U.S. 317,

322 (1986) (citing Fed. R. Civ. P. 56(c)).

      Doral argues on appeal that the district court erred by

misreading ISA Section 2.6 to require a separate communication

of an “Effective Date” and by failing to find—if such a separate

communication     was    required—that          such     communication      was    given.

We disagree.      As further explained below, we conclude that: (1)

the   ISA   unambiguously       creates—as        the    district       court    found—an

“Effective      Date”     under     Section        2.6     for   the      purposes     of

commencement of the interim servicing rights and obligations of

Doral and Freddie Mac, which is separate and distinct from the

ISA’s    “effective       date”     for        other     contractual      obligations,

including, for example, rights and obligations during the pre-

servicing period (e.g., Freddie Mac’s obligations to reimburse

Doral    for   actual    expenses        incurred      during    this    pre-servicing

period under Section 2.5(c) of the ISA); and (2) irrespective of

whether Freddie Mac “determined and communicated” to Doral by

words,   acts,    or    deeds     that    the    interim     servicing      period     had

commenced under Section 2.6—and thus irrespective of whether the

Effective      Date     provision        was    triggered—we       agree        with   the

district court that Doral’s forecast of damages under Section

                                           11
1.1, which is over 87 times greater than Doral’s actual damages,

fails       to    provide   a    reasonable      forecast    of     Doral’s   loss.

Accordingly, we conclude, as the district court concluded, that

the liquidated damages established by Section 1.1 are properly

characterized as an unenforceable penalty.



                                         A.

       Initially, Doral argues that the “Effective Date” provision

under Section 2.6 has no meaning which is separate and distinct

from the July 11, 2008 effective date clause on the face of the

ISA.       We disagree.

       “If the terms of the contract are clear and unambiguous,

then       we    must   afford   those   terms    their     plain    and   ordinary

meaning; however, if the terms are vague or ambiguous, then we

may consider extrinsic evidence to interpret those provisions.” 3

Providence Square Assocs., L.L.C. v. G.D.F., Inc., 211 F.3d 846,


       3
       ISA Section 2.26 provides that the ISA is “governed by and
construed in accordance with the law of the United States.
Insofar as there may be no applicable precedent, then Virginia
laws are deemed reflective of the federal law.”         J.A. 40.
Neither the validity nor the interpretation of the ISA’s choice
of law provision is at issue on appeal.      We note that, under
federal common law, contracts are interpreted under “standard
principles of contract law-more precisely, the core principles
of the common law of contract that are in force in most states.”
S & O Liquidating P’ship v. C.I.R., 291 F.3d 454, 459 (7th Cir.
2002) (quoting United States v. Nat. Steel Corp., 75 F.3d 1146,
1150 (7th Cir. 1996)).



                                         12
850 (4th Cir. 2000) (citing Shoup v. Shoup, 31 Va. App. 621, 525

S.E.2d 61, 63-64 (2000)).

     The first step for a court asked to grant summary
     judgment based on a contract’s interpretation is,
     therefore, to determine whether, as a matter of law,
     the contract is ambiguous or unambiguous on its face.
     If a court properly determines that the contract is
     unambiguous on the dispositive issue, it may then
     properly interpret the contract as a matter of law and
     grant summary judgment because no interpretive facts
     are in genuine issue.

Goodman v. Resolution Trust Corp., 7 F.3d 1123, 1126 (4th Cir.

1993) (citation omitted).               An unambiguous contract should be

construed by the Court as a matter of law, without reference to

extrinsic evidence.          See World-Wide Rights Ltd. P’ship v. Combe

Inc.,   955    F.2d     242,      245    (4th      Cir.     1992).      The   proper

interpretation of a clear and unambiguous contract is that which

assigns the plain and ordinary meaning to the contract terms.

See Providence Square Assocs., 211 F.3d at 850.

     Under    Section       2.6   of    the    ISA,   the    “effective    date   for

commencement    of    the    servicing        of   Mortgages    (Effective    Date)”

would be determined and communicated by Freddie Mac.                       J.A. 33.

Although the ISA was “effective” July 11, 2008, the date on

which it was signed, ISA Section 2.6 specifically provides for

the establishment of a separate “Effective Date” on which Doral

would actually commence servicing the R&G loans for Freddie Mac

and begin to earn servicing compensation fees.                       As the district

court pointed out in its Memorandum Opinion, “the role that the

                                          13
‘effective date’ under Section 2.6 plays with respect to certain

rights, duties and obligations on the part of Doral, apart from

Section     1.1,    makes     clear       that      the      parties    contemplated        the

‘effective date’ as a date communicated to Doral as the start of

its    obligations        with   respect         to    the     servicing      of   the    loan

portfolio.”        J.A. 1532

       We   agree    with     the       district       court     that      Section    2.6    is

unambiguous,       and    that     the    only        reasonable       interpretation        of

Section 2.6–and the ISA as a whole—is that the parties intended

the    “Effective     Date”      to     “be     a     date    that     Freddie     Mac   would

communicate to Doral as the date when Doral would begin its

servicing obligations.”             Id.       It was “not just the date on which

Freddie Mac [told] Doral that it will at some point be the

interim servicer.”           Id.        Because we find that the language of

the ISA and Section 2.6 in particular, is clear and unambiguous,

we must disregard extrinsic evidence.                           See Providence Square

Assocs., 211 F.3d at 850.



                                               B.

       Next, Doral contends that, even if this Court upholds the

district court’s interpretation that a separate “Effective Date”

communication       from    Freddie        Mac      to    Doral      was   required      under

Section 2.6 of the ISA, this Court should nevertheless conclude

that   Freddie      Mac    did     in    fact       determine     and      communicate      the

                                               14
Effective    Date    to     Doral.     Doral     further      contends     that    such

communication       triggered    the       parties’    rights     and    obligations

under,     among    other    provisions,        Section    1.1,    which    includes

Freddie Mac’s obligation to pay Doral an amount equivalent to

twenty-four months of service compensation fees in the event of

early termination.           Doral argues on appeal that the district

court’s finding that there were genuine issues of material fact

“concerning        whether     Freddie      Mac,      through     word     or     deed,

‘communicated’ a date that would serve as the ‘Effective Date’

for the purposes of [ISA Section] 2.6,” J.A. 1532-33, cannot be

reconciled with Freddie Mac’s actions and statements after July

11, 2008, when the ISA became effective. 4                We disagree.

      Indeed, as explained below, the district court’s relevant

conclusion of law—namely, that Freddie Mac’s potential liability

to   pay   liquidated       damages   to    Doral     under   Section    1.1      is   an

unenforceable penalty—may be reconciled both with circumstances


      4
        According   to   Doral,   Freddie  Mac   determined  and
communicated the Effective Date for the purposes of Section 1.1:
(1) as early as July 11, 2008, when the ISA was executed; or (2)
no later than July 14, 2008, when Doral was told to appear with
Freddie Mac at the offices of R&G to begin the process of
transferring the portfolio; or (3) in no event later than July
15, 2008, when Doral continued to meet with Freddie Mac and plan
for the transfer of the portfolio from R&G to Doral.          As
explained, resolution of Doral’s factual allegations is not
material to the legal conclusion of the district court, as well
as our holding today, that the liquidated damages established by
Section 1.1 are an unenforceable penalty.



                                           15
where Freddie Mac determined and communicated the Effective Date

to Doral, as well as with circumstances where no such Effective

Date was determined or communicated by Freddie Mac.                     Given that

the district court concluded, as we conclude today, that the

liquidated damages established by Section 1.1 are, as a matter

of    law,    an    unenforceable    penalty,       it   follows    that   whether

Freddie Mac did, as a matter of fact, determine and communicate

the   Effective      Date   to   Doral   is   not    material      to   either   the

district court’s legal conclusions and our holding today.

      Thus, regardless of Doral’s contentions, there is no need

to address the merits of Doral’s arguments of whether Freddie

Mac communicated to Doral an Effective Date.                       Even assuming,

arguendo—as        the   district   court     assumed—that      the     twenty-four

month servicing fee provision of Section 1.1 was triggered, we

find—as the district court found—that, as a matter of law, the

provision would amount to an unenforceable penalty.



                                         1.

      As a threshold matter, Doral contends the district court

erred in concluding that Section 1.1 of the ISA is a liquidated

damage       provision,     which     is      subject,      under       appropriate

circumstances, to characterization as an unenforceable penalty.

Instead, Doral asks this Court to construe Section 1.1 as a



                                         16
provision     establishing,      among    other     things,    an    “alternative

performance contract.”         We decline to do so. 5

     “[T]he    primary       objective    of   an   alternative      contract   is

performance,     and    it    thus    looks    to   a   continuation      of    the

relationship between the parties, rather than its termination,

whereas a liquidated damages provision provides for an agreed

result   to    follow    from     nonperformance.”            24    Williston    on

Contracts § 65:7 (4th ed.); see also In the Matter of Cmty. Med.

Ctr., 623 F.2d 864, 867 (3rd Cir. 1980) (explaining that, in an

alternative      performance         contract,      “either        one   of     two

performances may be given by the promisor and received by the

promisee as the agreed exchange for the return performance by

the promisee”).

     5
        The dissent’s characterization of Section 1.1 as an
alternative performance provision that must be enforced if the
“Effective Date” was communicated to Doral is misplaced. To the
extent that Freddie Mac did communicate the “Effective Date,”
under the ISA’s express terms, Doral is specifically precluded
from recovering 24 months of damages.      Section 1.1 provides:
“Freddie Mac shall not be responsible for this [24-month damage]
fee if [Freddie Mac] is ordered by [a] court to transfer the
Interim Portfolio from [Doral] before the expiration of 24
months.” Here, of course, Freddie Mac’s decision was not based
on an economic calculus—as the dissent suggests—but rather a TRO
(issued by the United States District Court for the District of
Puerto Rico) prohibiting Freddie Mac from terminating its
servicing agreement with R&G and transferring the portfolio to
Doral. See R&G Mortg. Corp., 584 F.3d at 6. As a consequence,
the dissent’s characterization of Section 1.1 as an alternative
performance   provision  does  not   change   the  outcome  and,
therefore, this matter was properly resolved by the district
court on summary judgment.



                                         17
      Here, Section 1.1 of the ISA cannot reasonably be construed

as   a    provision         that     “looks           to     a     continuation          of        the

relationship.”        By its terms, this provision would apply only if

Freddie   Mac      were     to   terminate           the     ISA       by    transferring          the

Interim     Portfolio        away        from        Doral       after        commencement         of

servicing but before it has had an opportunity to service the

loans for the full twenty-four month period.                                      Rather than an

alternative performance provision, we agree with the district

court’s finding that Section 1.1 plainly reflects the parties’

advance agreement to a liquidated sum that Freddie Mac would owe

to   Doral,      under     certain       conditions,             for    its       termination       of

Doral’s   servicing         of     the    portfolio           before         expiration       of    a

twenty-four        month    term     under       the        ISA.            See    Williston        on

Contracts § 65:7 (“[O]ne of the principal characteristics of a

stipulated       damages     provision          is     that       it    is    agreed    upon       in

advance     by     the     parties       as      a     remedy          for    breach.          This

characteristic provides the basis on which a liquidated damages

provision     is    distinguishable             from       provisions         for    alternative

performance of a contract, which are otherwise similar.”) 6



      6
        Doral also asserts that Section 1.1 is simply a
“contractual option.” According to Doral, the ISA thus provides
for an option allowing Freddie Mac’s early termination of the
contract without breach subject to its payment of compensation
to Doral pursuant to Section 1.1. The district court, however,
declined to interpret Section 1.1 as a contractual option.   We
(Continued)
                                                18
                                       2.

      Next,   in   the     alternative,      Doral     asserts   that   even    if

Section 1.1 is a liquidated damages clause, the district court

erred by finding this provision to be an unenforceable penalty.

Doral argues that in granting summary judgment to Freddie Mac,

the district court erred by requiring Doral to present detailed

support for its damage estimates.            We disagree.

      We review the district court’s “determination de novo as to

whether   a   contractual      provision     is   an   unenforceable    penalty,

unconscionable,       or   void   on   account    of   public    policy.”       NML

Capital v. Republic of Argentina, 621 F.3d 230, 236 (2d. Cir.

2010) (internal citations omitted); see also Midwest Oilseeds,

Inc. v. Limagrain Genetics Corp., 387 F.3d 705, 715 (8th Cir.

2004) (“[T]he question whether a contract provision is a valid

liquidated damages provision or an unenforceable penalty is a

question of law for the court.” (citation omitted)); Colorado

Interstate Corp. v. CIT Group/Equip. Finan., Inc., 993 F.2d 743,

751   (10th    Cir.    1993)      (“[T]he    determination       of   whether    a

contractual provision is an unenforceable penalty is a matter of

law.” (citation omitted)); see also Scarborough v. Ridgeway, 726

F.2d 132, 135 (4th Cir. 1984) (“[I]nterpretation of a written



agree, as the language of Section 1.1 does not support Doral’s
contention.



                                        19
contract   is   a   question    of    law       subject     to   de    novo     appellate

review.” (citation omitted)). 7

       “To recover damages in any case, a plaintiff must prove

with   reasonable    certainty       the    amount     of    his      damages    and   the

cause from which they resulted.”                Parkridge Phase Two Assocs. v.

Lockheed Martin Corp., 172 F.3d 44, 1999 WL 44173, *2 (4th Cir.

1999) (unpublished) (citing Hale v. Fawcett, 214 Va. 583, 202

S.E.2d 923, 925 (Va. 1974)).

       Damages for breach by either party may be liquidated
       in the agreement but only at an amount that is
       reasonable in the light of the anticipated or actual
       loss caused by the breach and the difficulties of
       proof of loss.     A term fixing unreasonably large
       liquidated damages is unenforceable on grounds of
       public policy as a penalty.

Restatement     (Second)   of    Contracts         §   356. 8      If    a    liquidated

damages provision is intended to punish a party for breach, the


       7
        Virginia law also treats the question of whether a
contractual provision is an unenforceable penalty as a matter of
law. See Teachers’ Ret. Sys. v. Am. Title Guar. Corp., 1996 WL
1065475, *2 (Va. Cir. Ct. 1996) (“Because this particular clause
calls for damages in excess of Plaintiff's actual damages, I
find that, as a matter of law, it constitutes an unenforceable
penalty.”); cf. Perez v. Capital One Bank, 522 S.E.2d 874, 875-
76 (Va. 1999) (“[W]hen the damages caused by the breach are
prone to definite measurement or when the stipulated amount
would grossly exceed actual damages, courts of law usually
construe such a provision as an unenforceable penalty.”
(citation omitted)).
       8
        Federal courts use the Restatement of Contracts in
determining federal common law of contracts. In re Peanut Crop
Ins. Litig., 524 F.3d 458, 470 (4th Cir. 2008) (“The Restatement
of Contracts reflects many of the contract principles of federal
(Continued)
                                           20
provision is unenforceable.                Id. at § 356, cmt. a; see also

Comstock Potomac Yard, L.C. v. Balfour Beatty Const., LLC, 694

F. Supp. 2d 468, 484 (E.D.Va. 2010) (“Under Virginia law, a

clause for liquidated damages ‘will be construed as a penalty

when       the     damage    resulting     from   a    breach    of       contract   is

susceptible         of   definite    measurement,      or   where     the   stipulated

amount would be grossly in excess of actual damages.’”                        (quoting

Brooks v. Bankson, 248 Va. 197, 208, 445 S.E.2d 473 (1994)); see

also WRH Mortg., Inc. v. S.A.S. Assocs., 214 F.3d 528, 534 (4th

Cir.       2000)     (“[C]ontract       provisions     calling      for     breach   of

contract damages grossly in excess of actual damages generally

are    unenforceable          as    penalties     or   forfeitures.”         (citation

omitted)).

       Here, Doral’s forecast of evidence of its damages pursuant

to Section 1.1 consisted of a model that it created to calculate

its    anticipated          servicing     compensation      fees. 9         The    model

multiplied the per-loan servicing fee, as specified in Exhibit C

to the ISA, by the number of loans in the portfolio, with an




common law.” (quoting Long Island Sav. Bank,                          FSB   v.    United
States, 503 F.3d 1234, 1245 (Fed. Cir. 2007))).
       9
       During negotiations with Freddie Mac, Doral instructed its
then-Senior Vice President of Investor Relations, Roberto Reyna,
to create a model projecting revenue, expenses, and profits
associated with servicing the Interim Portfolio for two years.



                                           21
assumption of an annual thirteen percent decrease in the number

of loans in the portfolio from year one to year two.                     Doral

asserts that the sum of this formula, $10,876,954, encompasses

the agreed damages under Section 1.1 for twenty-four months.

Bearing in mind that Doral’s actual damages, as calculated by

Doral, total a mere $124,588, Doral’s model mandates damages

that are 87.3 times greater than Doral’s own estimate of its

actual damages.         Notably, only five days elapsed between the

execution of the ISA and the date of a TRO that prohibited

Freddie Mac from transferring the portfolio to Doral.                 Moreover,

given that the servicing had not yet begun, the Section 1.1

penalties were in their most extreme form (e.g., as compared to

a hypothetical termination of the ISA after twenty-one months of

servicing, which under Section 1.1 would have required Freddie

Mac to pay Doral for only three months of servicing fees).

     Furthermore, it appears from the record that Doral seeks an

award   without     a     reduction       based   on   its   estimated   costs

associated   with   servicing       the    loan   portfolio.    The   district

court pointed out that “incurred but unrecovered out of pocket

costs can be determined and in fact, Doral makes such a claim in

the amount of $124,588.”        J.A. 1538.        We agree with the district

court that Doral’s forecast of its damages under Section 1.1,

which   would     award     Doral     twenty-four      months   of    servicing



                                          22
compensation fees without any reduction for Doral’s costs and

expenses, amounts to an unenforceable penalty.

       Thus, even if Section 1.1 is applied, and it is assumed

that the “Effective Date” in Section 2.6 was triggered by the

acts    and   deeds   of   Freddie   Mac,   Doral’s     forecast   of   damages

pursuant to Doral’s own model posits that Doral would reap a

windfall exceeding $10 million in damages without any deduction

for    expenses. 10    Any   such    recovery   would    be   grossly   out   of

proportion to Doral’s actual incurred costs of $124,588, and far

in excess of what it might have reasonably expected to earn if

it had actually incurred the significant cost of servicing more

than 46,000 loans for a period of twenty-four months.                   In sum,

Doral has failed to present a reasonable forecast of the loss

caused by the breach.         See Kraft Foods N. Am., Inc. v. Banner

Eng’g Sales, Inc., 446 F. Supp. 2d 551, 573 (E.D.Va. 2006).




       10
         In addition to expenses of $124,588 that Doral actually
incurred in preparing to service the loan portfolio, it contends
that it is entitled to service compensation fees of $10,876,954
for the twenty-four month period under the ISA, ancillary fees
it would have earned from late and back check fees of $3,776,376
and the expense of remaining on hold after the TRO per Freddie
Mac’s request.     Similar to its holding that the model was
inadequate, the district court found Doral’s figures with
regards to these claims to be speculative and unsupported by the
facts in the record.



                                       23
                              III.

     For the foregoing reasons, we affirm summary judgment as to

Doral’s breach of contract claim and damages entered in favor of

Doral in the amount of $124,588.

                                                        AFFIRMED




                               24
DAVIS, Circuit Judge, dissenting:

     The    majority       holds    that     §   1.1     of     the    parties’      Interim

Servicing    Agreement        (“ISA”)      constitutes        a   liquidated         damages

clause, and that the payment Freddie Mac agreed to make pursuant

to that clause is an unenforceable penalty. My examination of

the record persuades me, however, that Freddie Mac could satisfy

its obligations under the ISA with any of several alternative

means of performance. Accordingly, when viewed in light of the

full scope of the parties’ interests and incentives, § 1.1 is

enforceable. Because § 1.1 is enforceable and because (as the

district court concluded) there exists a genuine dispute as to

whether Freddie Mac “determine[d] and communicate[d]” to Doral

that Doral would be servicing the portfolio, I would vacate the

judgment    and    remand     the    case    for    a    trial        on   that    question.

Respectfully, therefore, I dissent.



                                            I.

     I   begin     by    briefly     describing         the   context       in    which    the

parties entered negotiations with each other. Sometime prior to

2008,    Freddie        Mac   contracted         with     R&G     Financial         Mortgage

Corporation       (together        with     affiliated        entities,           “R&G”)   to

service approximately 46,000 mortgage loans with a face value of

$3.8 billion, secured by property located mostly in Puerto Rico.

Pursuant to that agreement, R&G agreed to assume what is known

                                            25
as the portfolio’s “recourse obligation”: in the event any of

the loans in the portfolio were to default (or if some other

“triggering event” were to occur), R&G would absorb the loss by

repurchasing the delinquent loans and repaying Freddie Mac the

associated value. In 2008, Freddie Mac itself calculated the

value of the recourse obligation as $106 million; at any given

time    the   entity      assuming     the    recourse      obligation       carried   an

estimated      liability         of   $106     million     on   its     books.    R&G’s

compensation for servicing the portfolio’s loans and bearing the

recourse obligation was set at a percentage of the borrower’s

monthly interest payments.

       In mid-2008, with the nationwide mortgage crisis coming to

a head, R&G faced serious financial difficulties. Freddie Mac,

as the owner of the debt, worried that an R&G collapse would

create two problems: (1) the portfolio would be left without a

servicer      and   (2)    the    $106   million        recourse    obligation    would

revert to Freddie Mac. To ensure continuity in the servicing of

the portfolio and prevent the recourse obligation from reverting

to Freddie Mac, Freddie Mac began working to terminate R&G as

servicer      of    the    portfolio         and   to    find      another    qualified

servicer. One of the banks Freddie Mac approached to take R&G’s

place was Doral, a large bank with numerous branches in Puerto

Rico.



                                             26
       Doral found the opportunity worth pursuing: as servicer, it

would   not     only    collect     servicing     fees       but   also   would       have

substantial      “cross-selling”       opportunities,          i.e.,    opportunities

to    sell    other    banking      services    to    the     huge     number    of     new

customers who would pass through Doral’s bank branches to make

their monthly payments. (Apparently, borrowers in Puerto Rico

customarily make mortgage payments in person at banks, at least

at rates substantially higher than in the mainland U.S.) Doral

was concerned, however, that an increasing number of loans in

the    portfolio       would   default,     and      so     recourse    loomed     as    a

particularly unsavory risk. Doral determined that the risk of

assuming the recourse obligation would only be worthwhile if

Freddie Mac would allow Doral to collect a greater percentage of

the portfolio’s revenue than apparently is typical.

       Freddie   Mac     thought     the   premium         Doral   demanded     was     too

high, but it desperately needed a servicer, and Doral -- a large

financial institution with a substantial presence in Puerto Rico

and over ten years of experience servicing Freddie Mac mortgages

-- fit the bill. Thus, the parties agreed that Doral would be an

“interim” servicer: it would service the loans but would not

carry     the    recourse        obligation.         The     recourse     obligation,

meanwhile, would revert to Freddie Mac. But Freddie Mac was also

wary of the risk that more and more borrowers would default,

forcing      Freddie    Mac    to   swallow     losses      potentially     over      $100

                                           27
million. Thus, Freddie Mac, in exchange for allowing Doral to

forgo the recourse obligation, demanded the ability to transfer

the portfolio to a “permanent” servicer, i.e., one willing to

accept the recourse obligation, at any time, so long as it gave

Doral 30 days’ notice.

       Doral was willing to accept Freddie Mac’s condition, but

not without imposing its own condition. Freddie Mac was asking

Doral to rapidly ramp up its operations to service a huge number

of loans, all in a matter of days. Doral was incurring far too

many    up-front    costs   to    give       Freddie     Mac   carte    blanche     to

terminate the ISA at will. If Freddie Mac were to terminate the

ISA quickly, Doral’s up-front expenditures would be for naught.

As Doral’s General Counsel explained, Doral “did not want to be

a stopgap,” allowing Freddie Mac to “shop around the portfolio”

while Doral did “all the setup,” only to have to “fire a lot of

people” once Freddie Mac found a permanent servicer. J.A. 376.

An early termination by Freddie Mac would also prevent Doral

from “cross-selling” its other banking services -- a benefit

that was crucial to making the ISA worthwhile for Doral in the

first place.

       Thus, the parties’ risk-allocation calculus came down to

the    following:    Freddie     Mac       wanted   to   retain   the       right   to

transfer   the     portfolio     to    a    permanent     servicer     as    soon   as

possible, in order to minimize the time during which it would

                                           28
carry the recourse obligation. Accordingly, it proposed a month-

to-month arrangement. Doral wanted to service the portfolio as

long as possible in order to maximize its servicing fees and

cross-selling      opportunities.        The      question      was       how   long   Doral

would need to service the portfolio in order to make entering

the ISA economically worthwhile.

      Doral instructed its then-Senior Vice President of Investor

Relations, Roberto Reyna, to create a model projecting revenue

and   expenses     associated         with   servicing         the    portfolio.       Reyna

determined that only with a guaranteed two-year servicing term

would    Freddie    Mac’s   proposal         be    economically        advantageous       to

Doral.    Doral    saw    the    two-year         term    as    an    essential,       non-

negotiable      requirement      of    entering      the   ISA.       A    two-year     deal

would give Doral time to recoup the costs it would expend to

service   the     loan,   and,    perhaps         even   more    important,        give   it

sufficient time to cross-sell its other banking services and

thereby potentially make a profit. Doral estimated that over the

course of the 24-month interim servicing term it would receive

$10,876,954 in service compensation fees. It does not appear to

have estimated the revenue it would generate from cross-selling

to the portfolio’s borrowers.

      The compromise the parties reached was memorialized in §

1.1. Doral agreed to service the portfolio, and be compensated

with a per-month, per-mortgage fee, “until such time as Freddie

                                             29
Mac determines to transfer servicing” to a permanent servicer.

J.A.    30,    45.    The      parties    also      agreed   that,     unless     (a)    “the

Interim Portfolio is transferred pursuant to a court order,” or

(b)    Doral’s       eligibility         to   sell    or     service       mortgages    were

suspended or terminated, “the length of the interim servicing

will not be less than 24 months.” J.A. 30. In the crucial term

at    issue,    which      I    will   call    the    “early    transfer       provision,”

Freddie Mac agreed that, “[i]f the length of interim servicing

is less than 24 months, then Freddie Mac will pay to Interim

Servicer the total of 24 months of servicing compensation fee

minus the number of months already billed by Interim Servicer.”

Id.

       This carefully negotiated early-transfer provision struck a

compromise       between        Doral’s       and    Freddie       Mac’s    concerns:      it

allowed Freddie Mac the flexibility to transfer the portfolio,

at any time, to a permanent servicer (and thereby take the $106

million       recourse      obligation        liability      off    its     books),     while

ensuring that Doral would either (1) have 24 months to service

the loans, collect servicing fees, and cross-sell other banking

services, or (2) lose the cross-selling opportunities but still

collect the servicing fees it would have received.

       None    of    the       early-transfer        language      would     be   relevant,

however, if the ISA never went into effect. According to § 2.6,



                                               30
the “Effective Date” for “commencement of the servicing of the

Mortgages” was agreed to be the following:

      a date that Freddie Mac determines and communicates to
      the Interim Servicer that Interim Servicer will be
      servicing the Interim Portfolio. The Effective Date,
      when possible, will correspond to a date when Interim
      Servicer obtains the files for the Mortgages.

J.A. 33 (emphases added). Once the requisite “determin[ation]

and communicat[ion]” were made, Doral’s obligation to service

the   loans     would     commence,    along     with   its     right    to   collect

servicing fees.



                                           II.

      The primary question in this appeal is whether § 1.1 of the

ISA     is   (1)     an    alternative-performance         provision,         (2)   an

enforceable liquidated damages clause, or (3) an unenforceable

penalty. In holding that § 1.1 is an unenforceable penalty, the

majority,     in    my    view,     oversteps    its    role    and   undermines    a

carefully negotiated compromise among sophisticated parties. I

would    hold      that   §   1.1     is   enforceable     as    an     alternative-

performance provision. The second question presented, which the

majority does not reach (and as to which Freddie Mac has not

filed a cross-appeal), is whether a reasonable jury could find

that Freddie Mac “determine[d] and communicate[d]” to Doral that

Doral “will be servicing the Interim Portfolio.”



                                           31
                                                A.

       The     first    component        of    whether     §    1.1   is      enforceable     is

whether it is an alternative-performance clause or a liquidated

damages clause. An alternative-performance provision is one in

which “either one of the two alternative performances is to be

given by the promisor and received by the promisee as the agreed

exchange.”       11-58    Corbin         on    Contracts       §   58:18.      A    liquidated

damages clause is one that fixes an amount of damages to be paid

in the event of “breach.” Restatement (Second) of Contracts §

356    (1981).     If     ISA       §    1.1    is    an       alternative         performance

provision, it is enforceable according to its terms. 24 Richard

A. Lord, Williston on Contracts § 65:7 (4th ed. 2002). If it is

a liquidated damages provision, it still is enforceable, but

only if the liquidated amount is “reasonable in the light of the

anticipated       or     actual         loss   caused      by      the     breach    and     the

difficulties       of     proof         of     loss.”      Restatement          (Second)      of

Contracts § 356.

       To determine whether a contract provides for alternative

performances or liquidated damages, we look to “the substance of

the agreement.” Id. § 356, cmt. c. As the majority correctly

notes,    one     distinction           between      alternative         performances        and

liquidated       damages       is       whether      the    provision          “looks   to     a

continuation       of    the    relationship         between       the     parties,     rather

than     its    termination,”            or    instead     serves        as    a    stipulated

                                                32
calculation of damages by the parties “as a remedy for breach.”

Williston   §    65:7      (emphasis   added);      see    also   11-58       Joseph    M.

Perillo ed., Corbin on Contracts § 58.1 (a liquidated damages

provision “determine[s] in advance what damages will be assessed

in the event of a breach”). In addition, crucial factors in

assessing the distinction between these two types of contractual

provisions include “[1] whether the promisor had a ‘true option’

on which alternative to perform, [2] whether the money payment

is equivalent to performance of the option, and [3] the relative

values of the performances.” 14 Williston on Contracts § 42:10;

see also Restatement (Second) of Contracts § 356 cmt. c (“In

determining         whether    a   contract      is       one     for        alternative

performances,        the   relative    value   of    the    alternatives         may    be

decisive.”).        For    a   contractual     provision          to     be    one     for

alternative performance, at the time the parties entered the

contract there must have been “a reasonable relationship between

the alternatives.” 14 Williston on Contracts § 42:10. That is,

the promisor must have “conceived [it to be] possible that at

the time fixed for performance, either alternative might prove

the more desirable.” Id.

     The fact that “one of the alternative performances is the

payment   of    a    liquidated    sum   of    money”      does    not       necessarily

transform   an      alternative-performance         clause      into     a    liquidated

damages clause. 11-58 Corbin on Contracts § 58:18; see also 24

                                         33
Williston on Contracts § 65:7, at 263 (The fact that “one of the

alternative performances is the payment of a fixed sum of money”

does   not     “alone    .    .    .    make       the     contract   one   for   single

performance with a liquidated damage provision for a breach.”).

Indeed,   “most       instances        of    alternative      contracts     involve   the

payment of money as an alternative to actual conduct in carrying

out the terms of an agreement.” Matter of Cmty. Med. Ctr., 623

F.2d    864,    867     (3d   Cir.          1980).    An    alternative     performance

provision will not be enforced, however, if it is a “disguised”

penalty. Restatement (Second) of Contracts § 356 cmt. c.

                                              B.

       Doral   argues     §   1.1       is    a    proper     alternative-performance

clause because it allowed Freddie Mac to perform its obligations

under the ISA in either of two ways: (1) keeping the portfolio

with Doral for the entire 24-month period, at the cost of having

to bear the potential $106 million default risk for the entire

24 months, while compensating Doral with monthly servicing fees,

or (2) transferring the portfolio to a permanent servicer at

some point during the 24 months, relieving Freddie Mac of the

$106   million    default         risk,      and     compensating     Doral   with    the

equivalent of the servicing fees Doral would have earned during

the remainder of the 24 months. I agree. In my view, Freddie Mac

had a true option on which alternative to perform, as the values

of the two options were reasonably equivalent and either option

                                              34
could have proven to be the more desirable one depending on

extrinsic factors. 11

     There is no dispute that if Freddie Mac were to transfer

the portfolio early (i.e., if it chose the second option), it
     11
        The majority declines to explain why it believes Freddie
Mac did not have a true choice between two plausibly desirable
options. Instead, my good colleagues apparently believe that,
assuming § 1.1 is enforceable, the express exception in § 1.1,
which would apply if Freddie Mac had been “ordered by court to
transfer the Interim Portfolio from the Interim Servicer before
the expiration of 24 months,” J.A. 30, excused Freddie Mac from
making the early-transfer payment. The majority asserts that “of
course” the Puerto Rico court’s temporary restraining order
constitutes such a court order. Maj. Op. at 17 n.5. But Freddie
Mac does not argue on appeal that the “ordered-by-court”
exception excused its performance under § 1.1. Rather, its
argument related to § 1.1 is entirely and solely that (1) § 1.1
does not apply because there was no “determin[ation]” and
“communicat[ion]” under § 2.6, or, alternatively, (2) § 1.1 is
unenforceable. Moreover, although Freddie Mac raised in the
district court the argument now relied on by the majority, the
district court easily (and correctly, in my view) rejected it:

     While Freddie Mac admits that no such court order to
     transfer the loan portfolio was ever issued because R
     & G never transferred the files to Doral in the first
     place, Freddie Mac contends the TRO should be
     considered the same as a court order transferring the
     files away from Doral. This argument fails as a matter
     of law . . . . [A]s Freddie Mac concedes, the TRO did
     not transfer the portfolio from Doral. This Court will
     not assume that the TRO is the same as an order
     transferring the portfolio for the purposes of Section
     1.1. In this regard, it is impossible to determine
     what the district court issuing the TRO would have
     done had the portfolio, in fact, already been
     transferred to Doral.

Doral Bank PR v. Federal Home Loan Mortgage Corp., 2010 WL
3984667, *5 (E.D. Va. Oct. 7, 2010)(emphasis added). Therefore,
the majority’s reliance on the “ordered-by-court” exception to
avoid the requisite economic analysis is misplaced.



                               35
would     end    up   spending    more   money    on     the    servicing     of   the

portfolio than it would have otherwise. For example, if it were

to transfer after 10 months, it would still owe Doral 14 months’

worth of servicing fees but would also have to pay 14 months of

servicing fees to the new permanent servicer. But, crucially, an

early     transfer     would     not   necessarily     be      more   expensive    to

Freddie Mac when one considers, as one should, the $106 million

recourse        obligation.      Every   month     the      recourse       obligation

remained on Freddie Mac’s books, the company faced the risk that

borrowers with many millions of dollars in loans would default,

and Freddie Mac would bear the full brunt of those losses. This

risk was palpable in mid-2008, just as the proverbial housing

bubble was beginning to burst. At any given time during Doral’s

24-month interim servicing term, Freddie Mac could rationally

have decided that invoking the early transfer clause in § 1.1

would be in its best interests, even if doing so would mean

essentially paying double servicing fees during the remainder of

the 24 months.

      When viewed in these terms, I conclude that Freddie Mac had

a “true option” to elect either to leave the portfolio with

Doral for the full 24 months or to transfer it to a permanent

servicer earlier. When one compares “the relative values of the

performances,” it is clear that the “money payment” pursuant to

§   1.1   (the    value   of   remaining      servicing     fees)     is   reasonably

                                         36
equivalent to “performance of the option” (leaving the portfolio

with Doral while retaining the recourse obligation), precisely

because it was in Freddie Mac’s interest to unload the recourse

obligation as soon as possible.

        The majority places apparently dispositive weight on three

facts: (1) that the early-transfer payment turned out to be 87.3

times    larger      than     what     the    majority       sees     as    Doral’s     “actual

damages,” i.e., the money Doral expended to prepare to service

the 46,000 loans in the portfolio; (2) that the early transfer

payment was to be the full amount Freddie Mac would have paid

Doral    in    servicing       fees,        with    no    deduction      for     the   expenses

Doral would have incurred if it had continued to service the

loans    (and       would   save       if    Freddie      Mac   were       to    transfer      the

portfolio       early);     and      (3)     that    §    1.1   “would       apply      only    if

Freddie       Mac    were   to    terminate         the    ISA”     by     transferring        the

portfolio to a permanent servicer, thereby ending the parties’

contractual relationship. Maj. Op. at 17-18. But these facts do

not render § 1.1 unenforceable, for the following reasons.

      First, the ratio between the expenses Doral incurred in

preparing to service the portfolio and the servicing fees it

would    have       collected     over       the    24    months    is     not    relevant      to

whether Freddie         Mac      had    a    true    option       between       two    plausibly

beneficial options. It is true $10.9 million is much larger than

the   $124,588        Doral      actually      expended.        But      when    Freddie       Mac

                                               37
arguably    transferred           the    portfolio             back    to       R&G    (“arguably”

because    there        is    a    genuine             dispute        whether         Freddie      Mac

determined and communicated that Doral would be servicing the

portfolio, see infra), Freddie Mac benefited by avoiding any

more time carrying the $106 million recourse obligation. The

question whether § 1.1 provides for alternative performances is

assessed from Freddie Mac’s perspective, because Freddie Mac was

the “promisor” with respect to the early transfer payment. See

14   Williston     on      Contracts         §    42:10       (looking          to    whether      “the

promisor had a ‘true option’ on which alternative to perform”);

11-58 Corbin on Contracts § 58:18 (describing an alternative-

performance contract as one in which “either one of the two

alternative      performances           is   to        be    given    by    the       promisor      and

received by the promisee as the agreed exchange”). The amount

Doral expended on preparations is immaterial to the relative

attractiveness        to      Freddie        Mac,           the     promisor,         of    the     two

alternative ways it could discharge its obligations under the

ISA.

       Second,   even        if   the    relative            benefit       of    the    options      to

Doral   were     relevant,        Doral          would       not    necessarily            have   been

better off with an early transfer. While an early transfer would

allow   Doral    to     collect      its         servicing          fees    without        incurring

expenses    from        actually        servicing             the     portfolio,           an     early

transfer would also have stripped Doral of the potentially very

                                                  38
significant cross-selling opportunities it would have had during

the remainder of the 24 months. Freddie Mac does not dispute

that a substantial portion of the borrowers in the portfolio

were not existing Doral customers, and that Doral’s new cross-

selling opportunities would have led to new business for Doral.

Indeed, the influx of new customers would have increased Doral’s

mortgage servicing business by nearly one-third. Thus, to the

extent the majority insists on considering the relative benefit

of the options to Doral, the relevant comparison is not between

the   $124,588    in   preparation       expenses     and    the   $10.9     million

early-transfer payment. Rather, it is between (1) the expenses

Doral would have incurred during a particular portion of the 24

months,   and    (2)   the    revenue    Doral     would    have   received      from

cross-selling     during     those   months.       There    is   every   reason    to

believe the parties saw the value of these two items as roughly

equivalent.      Therefore,     viewed    not      only     from   Freddie       Mac’s

perspective      but   from    Doral’s        as   well,    Freddie      Mac’s    two

alternative means of performance were reasonably equivalent.

      Third, the ISA expressly grants Freddie Mac the option to

transfer the portfolio to a permanent servicer within the 24

months. A liquidated damages clause stipulates damages in the

event of a “breach” by one of the parties. Restatement (Second)

of Contracts § 356. Because the ISA expressly allows Freddie Mac

to transfer the portfolio early, an early transfer would not

                                         39
constitute a breach. This is so even though, as the majority

notes,     Freddie      Mac’s   invocation    of   its   early-transfer      option

would      essentially      terminate   “the       relationship      between      the

parties.” Maj. Op. at 17 (quoting Williston § 65:7). While the

continuation of a contractual relationship can help demonstrate

that a particular performance is a true alternative rather than

liquidated       damages,   see,   e.g.,     Cmty.   Med.   Ctr.,    623   F.2d    at

865, 12 such a continuation is not necessary. See, e.g., River

East Plaza, LLC v. Variable Annuity Life Ins. Co., 498 F.3d 718,

724     (7th     Cir.   2007)    (interpreting       a   contract    as    one    for

alternative performance even though the promisor’s election of

one     option     effectively     terminated      the    parties’    contractual

relationship) 13; Las Vegas Sands Corp. v. Ace Gaming, LLC, 713 F.


      12
        In Community Medical Center, the contract at issue was
for the provision of information technology services to the
Center. 623 F.2d at 865. The Center agreed to either (a) pay
InfoMed, the IT company, on a monthly basis for the services it
provided, which were around $3,400 on average, or (b) pay a
minimum monthly fee of $1,500. Id. at 866. The Third Circuit
held that the $1,500 minimum monthly fee was a true alternative
performance, in part because the fee “look[ed] more to a
continuance of the relationship between Info Med and the debtor
rather than termination.” Id. at 867. The court did not,
however, indicate that the continuance of the relationship was a
necessary condition to finding the contract to be one for
alternative performances.
      13
        In River East, a development company (River East), took
out a $12 million loan to build a large retail store. 498 F.3d
at 719. The loan agreement included a “yield maintenance
prepayment clause,” which provided that, in the event River East
chose to pre-pay the loan, it would have to pay back not only
(Continued)
                                        40
Supp.   2d    427    (D.N.J.       2010)    (upholding    as       an    alternative-

performance     contract       a       trademark-licensing         agreement       that

provided for the contract to continue until the year 2086, but

permitted     early     termination        with    the   condition         that     the

terminating party would nevertheless pay the licensing fees due

until the 14th anniversary of the contract plus an additional

one-year “termination fee”).

     For     these    reasons,     I    would   hold   that    §   1.1    is   a   true

alternative-performance provision that must be enforced if the




the principal but also the return the lender would have received
if it had invested the remaining balance in Treasuries over the
remaining years on the loan. Id. River East pre-paid and tried
to   avoid  paying   the   pre-payment  amount,  calling  it  an
unenforceable “penalty.” The Seventh Circuit rejected that
argument, and conducted a detailed analysis of the “relative
value of the alternatives” from the perspective of the parties
at the time they negotiated the loan agreement. Id. at 722-23
(applying    Restatement (Second) of Contracts § 356). Because
River East could achieve a substantial benefit by pre-paying,
even though it would also have to pay the pre-payment penalty,
the court concluded that River East had a true choice between
two options; the eventual relative value of the two alternatives
(and   thereby   River   East’s  eventual  decision  whether  to
refinance) would depend entirely on whether interest rates
increased or decreased. The clause was not one whose “sole
purpose is to secure performance of the contract.” Id. at 723.
Therefore, the alternative-performance clause was enforceable
according to its terms, notwithstanding the fact that it
operated to terminate the parties’ relationship.



                                           41
condition     precedent    (the   determination    and    communication     from

Freddie Mac) occurred. 14

                                        C.

      Because I would hold that the early-transfer provision in §

1.1   is    enforceable,   I   simply     highlight   the   district   court’s

treatment of the issue of whether the parties’ obligations under

the   ISA     became   effective.        The   district     court   concluded,

correctly in my view, that there was a genuine dispute on this

issue. 15 Manifestly, a reasonable jury could reasonably find that

Freddie     Mac   “determine[d]    and    communicate[d]”     to    Doral   that



      14
        In the alternative, even if § 1.1 is analyzed as a
liquidated damages clause, it would be enforceable for largely
the same reasons. Under federal common law, a liquidated damages
provision is enforceable if, at the time of contracting, (1)
“the harm that would be caused by a breach is difficult to
estimate” and (2) the liquidated amount is “a reasonable
forecast of the loss that may be caused by the breach.” DJ Mfg.
Corp. v. United States, 86 F.3d 1130, 1133 (Fed. Cir. 1996); see
also O’Brian v. Langley School, 507 S.E.2d 363, 365 (Va. 1998)
(applying the same test under Virginia law). As discussed, one
aspect of the harm to Doral of an early transfer was the loss of
cross-selling opportunities, the precise value of which was very
difficult to calculate. Moreover, the early-transfer payment was
a reasonable forecast of the value of those opportunities.
Although § 1.1 does not deduct the amount Doral would have
expended over the remaining months, it is reasonable to conclude
that the parties considered Doral’s servicing expenses as
roughly equivalent to the value of Doral’s cross-selling
opportunities. Therefore, in my view, even construed as a
liquidated damages clause, § 1.1 is enforceable.
      15
        I agree with the majority that the “Effective Date”
described in § 2.6 is distinct from the effective date clause on
the face of the ISA.



                                        42
Doral would “be servicing the Interim Portfolio.” Accordingly, I

would remand this case for trial.

       As the majority explains, on Friday, July 11, 2008, Freddie

Mac instructed Doral to come to the R&G offices to facilitate

transfer of loan files to Doral on the following Monday. That

same day, a Freddie Mac team arrived in Puerto Rico intending to

terminate R&G’s eligibility to sell loans to, and service loans

for,   Freddie     Mac.     Freddie   Mac     also   instructed    Doral’s     Vice

President of Mortgage Servicing to prepare for the transfer of

certain physical mortgage files from R&G and to have personnel,

information technology support, and transportation support ready

by Monday morning. Over the weekend (July 12-13), Freddie Mac’s

representatives in Puerto Rico worked together with Doral staff

at Doral’s headquarters to set in place the necessary elements

of servicing. Freddie Mac provided Doral with electronic files

containing information about the loans in the Interim Portfolio,

including detailed personal and financial information about the

mortgage     borrowers.     Furthermore,       Freddie   Mac’s    representative

told Doral on Saturday, July 12, that Freddie Mac anticipated

obtaining the R&G files in three calendar days.

       On   the   morning    of   July   14,    representatives     of   the    two

companies met at Doral’s offices in San Juan to discuss, as

Freddie Mac characterized it, the “anticipated initiation of the

transfer of R&G’s files (including data) to Doral.” J.A. 143. In

                                         43
addition, Freddie Mac provided Doral with an electronic copy of

the “trial balance data,” the loan data for the 46,132 Freddie

Mac mortgage loans then constituting the Interim Portfolio. J.A.

208,    1848-59.      According     to    Doral,    upon    receiving     this   data,

together with the loan data received over the weekend, Doral had

all the information it needed to begin servicing the portfolio

by     sending      welcome     letters      to     borrowers,     accepting     loan

payments, performing reconciliations, and making remittances to

Freddie      Mac.     Furthermore,       Freddie    Mac’s    internal     documents,

created prior to the evening of July 15, indicate that Freddie

Mac had “already assigned the servicing” to Doral and refer to

Doral as “the Interim Servicer.” J.A. 275-78, 534-36.

       Based on this evidence, a reasonable jury could conclude

that Freddie Mac had “determine[d]” to transfer the servicing

rights       to   Doral,      and   had    effectively       “communicated”      that

determination         to   Doral.   Only    after    the    temporary     restraining

order enjoined Freddie Mac from transferring the portfolio to

Doral did Freddie Mac show any intention other than that Doral

imminently would become the interim servicer, and should make

every effort to prepare to begin servicing the portfolio.



                                           III.

       For    these    reasons,     I    would    vacate    the   grant   of   summary

judgment to Freddie Mac and remand this action for trial.

                                            44
