                            UNITED STATES DISTRICT COURT
                            FOR THE DISTRICT OF COLUMBIA

                                              )
REO ACQUISITION GROUP,                        )
                                              )
               Plaintiff,                     )
                                              )
               v.                             )       Civil Action No. 13-cv-1953 (KBJ)
                                              )
FEDERAL NATIONAL MORTGAGE                     )
ASSOCIATION,                                  )
                                              )
               Defendant.                     )
                                              )


                                 MEMORANDUM OPINION

       Plaintiff REO Acquisition Group (“REO”) is a real estate company based in

Lakeview Terrace, California that acquires, renovates, and resells residential properties.

REO alleges that it entered into a contract with Defendant Federal National Mortgage

Association (“Fannie Mae”) to purchase a pool of foreclosed residential properties, and

that it paid a $100,000 deposit as part of that transaction—a deposit that Fannie Mae

retained when the transaction fell through following a disagreement over the financing

terms. (Compl., ECF No. 1, ¶¶ 6, 14, 17.) REO’s complaint seeks a declaration from

this Court announcing that Fannie Mae breached the parties’ agreement and also an

order requiring Fannie Mae to return the deposit in full. (See id. at 6–7.) 1

       Before this Court at present is Fannie Mae’s motion to dismiss REO’s complaint.

(Def.’s Mot. to Dismiss (“Def.’s Mot.”), ECF No. 6.) Fannie Mae contends that REO

has failed to state a claim for breach of contract, and that the terms of the parties’



1
 Page numbers throughout this memorandum opinion refer to those that the Court’s electronic filing
system assigns.
agreement allow Fannie Mae to keep REO’s deposit. (See Def.’s Mem. in Supp. of

Def.’s Mot. (“Def.’s Br.”), ECF No. 6-1, at 1–2.) REO responds that Fannie Mae

breached the agreement when it rejected REO’s settlement funds on grounds not stated

in the contract, and that Fannie Mae must therefore return REO’s $100,000 deposit

under the terms of the agreement. (See Pls.’ Mem. in Opp’n to Def.’s Mot. (“Pls.’

Opp’n”), ECF No. 10, at 2, 9.) In so arguing, both parties assume that an enforceable

agreement between REO and Fannie Mae existed and that the instant dispute is over

whether that contract was breached; however, this Court concludes that the parties

never achieved an initial meeting of the minds with respect to certain material terms of

the agreement, and thus, that there is no valid contract to enforce. Accordingly, this

Court will DENY Defendant’s motion to dismiss, and will order the parties to submit

supplemental briefing regarding the appropriate disposition of REO’s $100,000 deposit.

An order consistent with this memorandum opinion will follow.

   I. BACKGROUND

             Factual Background

      REO’s complaint alleges the following facts. In November of 2010, REO

submitted to Fannie Mae a formal offer to purchase a pool of thirty-five foreclosed

homes, most of which were located in Arizona and California and all of which were

owned by Fannie Mae. (See Compl. ¶ 5.) Prior to submitting this formal purchase

proposal, REO had written to Fannie Mae’s Pool Sale Transaction Manager, Deidre

Rogers, to notify Fannie Mae that REO “intended to finance the project using a lender

that would take back a mortgage on the acquired properties to secure its loan.” (Id.

¶ 13; see also id. ¶ 7.) According to the complaint, REO sent this notification to Rogers

in late September of 2010, and Rogers responded by e-mail on October 1, advising REO


                                            2
that any lender “would be acceptable as long as they aligned themselves with the

mission of Fannie Mae and accepted” certain resale restrictions to be included in the

purchase agreement. (Id. ¶ 13.)

       REO sent Fannie Mae the proposed purchase agreement for the foreclosed

properties on November 16, 2010, along with a $100,000 deposit toward the proposed

purchase price. (Id. ¶¶ 5, 6; see also REO Pool Sale Agreement (“Agreement”), Ex. 1

to Compl., ECF No. 1-3.) Several provisions of the Agreement are relevant to the

instant case. For example, the Agreement specified that it would not take effect “unless

and until” Fannie Mae delivered a fully executed copy of the Agreement to REO.

(Agreement § 14(p)(i).) The Agreement also stipulated that, after submitting the

Agreement to Fannie Mae, REO would “not seek to modify” its terms until Fannie Mae

returned a fully executed copy of the contract. (Id. § 14(p)(ii).)

       With respect to financing, the Agreement specifically provided that Fannie Mae

would deliver a settlement statement to REO “identifying (i) the anticipated Closing

Date, (ii) the schedule of Properties, (iii) the cost of title insurance to be paid by

[Fannie Mae] . . . and (iv) all of the payments required to be made by [REO] to [Fannie

Mae] at Closing[.]” (Id. § 1; see also id. § 6(a).) The Agreement also specified that,

once REO received the settlement statement, REO would have no more than three

business days to “execute and return the Settlement Statement to [Fannie Mae]” and to

pay Fannie Mae or its escrow agent via “wire transfer of immediately available funds

. . . the Purchase Price, the Closing Cost for each Property and all other amounts

required to be paid by [REO] at Closing, as set forth on the Settlement Statement.” (Id.

§ 6(a).) In other words, within three days of receiving the settlement statement from




                                              3
Fannie Mae pursuant to the Agreement, REO would have to wire sufficient funds to

cover all outstanding transaction costs to Fannie Mae. The Agreement further stated

that REO had provided “evidence satisfactory to [Fannie Mae] . . . of [REO’s] ability to

pay the Purchase Price at Closing[,]” and that REO’s “obligation to purchase the

[properties] is not subject to any financing or other contingency.” (Id. § 2(c).) With

respect to REO’s $100,000 deposit, the Agreement provided that the deposit was “non-

refundable” (id. § 2(b)) unless Fannie Mae breached the Agreement, in which case “the

Deposit (less any escrow cancellation fees) [would] be returned” to REO (id. § 7(a)).

       On December 8, 2010, Rogers “advised [REO] by e-mail that it had been

awarded” the right to purchase the properties. (Compl. ¶ 7.) The e-mail did not include

an executed copy of the Agreement. (See id.; see also id. ¶¶ 9, 14.) It did, however,

include a settlement statement, which Rogers instructed REO to “sign and return”

before “pay[ing] the balance of the purchase price into escrow within 72 hours, by

December 13, 2010.” (Id. ¶ 7.) Also on December 8th, REO President Paula Heiberg

e-mailed Rogers telling her “that [REO] would execute and return the settlement

statement that day[,]” and “request[ing] that Fannie Mae return a fully executed copy of

the [Agreement] as soon as possible because [REO] needed a signed copy in order for

its investors to provide the settlement funds.” (Id. ¶ 9.)

       On December 9, 2010, REO’s lender called Fannie Mae’s escrow agent to

discuss arrangements for wiring the settlement funds. (Id. ¶ 10.) At that point, Fannie

Mae had not yet delivered a fully executed copy of the Agreement to REO. (See id.

¶ 14.) During the call, Fannie Mae’s escrow agent told REO’s lender that “Fannie Mae

would not accept the funds because Fannie Mae would not allow a lender to be involved




                                             4
in the transaction if it intended to take back a mortgage on the acquired properties in

order to secure its loan.” (Id. ¶ 10.) On December 10, 2010, REO and its lender called

Rogers at Fannie Mae to discuss funding. (Id. ¶ 11.) Rogers confirmed what Fannie

Mae’s escrow agent had said the previous day, namely that “Fannie Mae would not

allow [REO’s] lender to be involved in the pool sale transaction if it intended to take

back a mortgage on the acquired properties in order to secure the loan.” (Id.) REO

alleges that Fannie Mae’s position “was a surprise” given the parties’ prior

communication about lenders in September and October of 2010. (Id. ¶ 13.)

Nevertheless, over the course of the following week, from December 10th to 17th, REO

sought unsuccessfully to obtain new financing that would satisfy Fannie Mae. (Id.

¶ 15.)

         On December 15, 2010, while REO was still exploring financing options, Fannie

Mae returned a fully executed copy of the Agreement. (Id. ¶ 14.) On December 17,

2010, Rogers e-mailed REO warning that REO’s “failure to perform the terms of the

Agreement” with respect to wiring timely settlement funds to Fannie Mae’s account

“could have significant adverse consequences.” (Id. ¶ 16.) On December 21, 2010,

“counsel for Fannie Mae advised [REO] in writing that it was in default of the

Agreement because it had failed to deposit into escrow the funds required to settle the

pool purchases” and that Fannie Mae was “elect[ing] to terminate the Agreement and to

retain the $100,000 deposit that [REO] had paid.” (Id. ¶ 17.)

               Procedural History

         On December 6, 2013, REO filed the instant complaint in federal court. The

complaint alleges that Fannie Mae’s refusal to accept funds from REO’s lender was a

breach of the parties’ contract because “[t]he restriction on lender involvement . . . was


                                             5
not a term or condition of the Agreement.” (Id. ¶ 12; see also id. ¶ 25.) REO further

contends that, once Fannie Mae defaulted, the Agreement required Fannie Mae “to

refund the deposit paid by REO” but that Fannie Mae “has failed and refused to do so”

thereby committing “a further breach of the agreement[.]” (Id. ¶ 26.)

         On February 11, 2014, Fannie Mae filed a motion to dismiss REO’s complaint

for failure to state a claim upon which relief can be granted pursuant to Federal Rule of

Civil Procedure 12(b)(6). (See Def.’s Mot. at 2.) Fannie Mae asserts that the parties

entered into their Agreement on December 15, 2010—the date on which Fannie Mae

returned a fully executed copy of the Agreement to REO—and that, at that point, Fannie

Mae and its escrow agent had already “informed [REO] on December 9 and 10 that . . .

[REO] could not proceed with a lender that would take back a mortgage on the acquired

properties to secure its loan.” (Def.’s Br. at 6.) According to Fannie Mae, this

demonstrates that REO “full[y] underst[ood] . . . the restrictions on financing that were

being imposed by Fannie Mae in the contemplated transaction” at the time of

contracting. (Id. at 7.) Thus, Fannie Mae maintains that it was REO that breached the

parties’ Agreement when it failed to adhere to the agreed upon terms, and that Fannie

Mae is therefore entitled to retain REO’s deposit. (Id. at 5 (citing Agreement § 7(b)).)

In response, REO directs this Court’s attention to “[t]he [Agreement’s] plain and

unambiguous language[,]” which REO contends “did not prohibit [it] from using

secured financing” to complete the transaction. (Pls.’ Opp’n at 2.)

   II.      LEGAL STANDARD

         Federal Rule of Civil Procedure 12(b)(6) provides that a party may move to

dismiss a complaint against it on the grounds that it “fail[s] to state a claim upon which

relief can be granted.” Fed. R. Civ. P. 12(b)(6). To survive a Rule 12(b)(6) motion, a


                                             6
complaint must comply with Rule 8, which requires “a short and plain statement of the

claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a). This

requirement is meant to “‘give the defendant fair notice of what the . . . claim is and the

grounds upon which it rests[.]’” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555

(2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957) (alteration in original)).

       “Although ‘detailed factual allegations’ are not necessary to withstand a Rule

12(b)(6) motion to dismiss for failure to state a claim, a plaintiff must furnish ‘more

than labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of

action.’” Busby v. Capital One, N.A., 932 F. Supp. 2d 114, 133 (D.D.C. 2013) (quoting

Twombly, 550 U.S. at 555). In other words, the plaintiff must provide “more than an

unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009). “[M]ere conclusory statements” of misconduct are not enough to

make out a cause of action against a defendant. Id. Rather, a complaint must contain

sufficient factual allegations that, if true, “state a claim to relief that is plausible on its

face.” Twombly, 550 U.S. at 570. “A claim has facial plausibility when the plaintiff

pleads factual content that allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.

       In considering a motion to dismiss, “[t]he court must view the complaint in a

light most favorable to the plaintiff and must accept as true all reasonable factual

inferences drawn from well-pleaded factual allegations.” Busby, 932 F. Supp. 2d at

134. Although the Court must accept as true the facts in the complaint, it “need not

accept inferences drawn by plaintiffs if such inferences are unsupported by the facts set

out in the complaint[,]” Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir.




                                               7
1994), nor is the court “bound to accept as true a legal conclusion couched as a factual

allegation[,]” Papasan v. Allain, 478 U.S. 265, 286 (1986).

   III.      ANALYSIS

          Both parties frame the instant dispute as an exercise in contract interpretation

regarding payment terms. (See, e.g., Def.’s Br. at 5 (“The [Agreement] repeatedly

demonstrates the parties’ intention that the sale be accomplished by means of a quick

and simple payment of cash without any contingencies or complications[.]”); Pls.’

Opp’n at 2 (“The plain and unambiguous language of the . . . Agreement did not

prohibit REO from using secured financing to purchase the pool properties.”).)

However, “whether an enforceable contract exists” in the first place “is a question of

law[,]” and in this case, that question clearly precedes this Court’s consideration of how

the purported contract is best interpreted. Kramer Assocs., Inc. v. Ikam, Ltd., 888 A.2d

247, 251 (D.C. 2005) (quoting Rosenthal v. Nat’l Produce Co., 573 A.2d 365, 369 n.9

(D.C.1990)). Under the law of the District of Columbia, an enforceable contract

requires both the “‘intention of the parties to be bound’” and also “‘agreement as to all

material terms[.]’” Id. (emphasis added) (quoting Georgetown Entm’t Corp. v. District

of Columbia, 496 A.2d 587, 590 (1985)). Specifically, “there must be mutual assent of

each party to all the essential terms of the contract.” Malone v. Saxony Co-op.

Apartments, Inc., 763 A.2d 725, 729 (D.C. 2000) (“This mutuality of assent is often

referred to as a ‘meeting of the minds.’”). And such essential terms include terms

related to payment. See Queen v. Schultz, 747 F.3d 879, 884 (D.C. Cir. 2014) (citing

Rosenthal, 573 A.2d at 370).

          This Court finds that the parties in the instant case never achieved “mutual

assent” with respect to material financing terms, and thus that their Agreement is not an


                                                8
enforceable contract under District of Columbia law. Malone, 763 A.2d at 729.

Accepting the facts in the complaint as true, when REO submitted the proposed

Agreement to Fannie Mae, REO understood based on its prior communication with

Rogers that it would be allowed to finance the transaction using a lender that intended

to take back a mortgage on the properties as security. (See Compl. ¶ 13.) Fannie Mae

argues, and REO does not dispute, that by the time Fannie Mae signed and returned the

Agreement, Fannie Mae had already informed REO that such was not the case (see

Def.’s Br. at 1; Compl. ¶¶ 5–14), but it is well established in the District of Columbia

that purported acceptance of an offer does not create a valid contract if the accepting

party has altered the offer’s material terms. Malone, 763 A.2d at 728. Instead, “a

statement purporting to accept an offer which contains a new material term operates as

a counteroffer and must be accepted by the original offeror in order to form a binding

contract.” Id. (emphasis added).

      For example, in Malone v. Saxony Co-op. Apartments, Inc., a tenant in an

apartment building offered to purchase the unit adjacent to his own in order to combine

the two units. Id. at 728. The property manager agreed to the sale on the condition that

the construction necessary to join the units be completed within 30 days; however,

because this 30-day restriction was a new, material term, the District of Columbia Court

of Appeals held that the property manager’s purported acceptance was actually a

counteroffer that the tenant had to accept in order to form a binding contract. Id.

Because the counteroffer was never accepted, the court concluded that no contract was

ever formed. Id. at 730.




                                            9
       Similarly, in the instant case, Fannie Mae’s introduction of a new restriction on

the manner of financing constituted a change in the material terms of the Agreement.

According to the complaint, Fannie Mae indicated to REO that REO’s proposed

financing terms would be acceptable in October of 2010, prior to REO’s submission of

the proposed Agreement, and it was not until December 9, 2010—more than three

weeks after REO had submitted its offer to Fannie Mae—that Fannie Mae informed

REO that it would not allow REO’s lender to take back a mortgage on the properties,

contrary to its previous communication. (Compl. ¶¶ 10, 13.) 2 Fannie Mae’s

introduction of this financing restriction occurred after REO had submitted the

proposed Agreement and paid a nonrefundable deposit of $100,000, and also after REO

had notified Fannie Mae that it would execute and return the settlement statements and

pay the balance of the purchase price into escrow (id. ¶¶ 5–6, 9), and this Court has

little doubt that Fannie Mae’s financing restriction was a new material term of the

proposed contract, just like the 30-day condition in Malone. Therefore, just as in

Malone, the introduction of this new financing term meant that Fannie Mae’s purported

acceptance—i.e., its signing and returning the Agreement to REO—was a counteroffer

rather than binding acceptance of REO’s proposed Agreement.

       The complaint’s allegations also establish that REO never accepted Fannie Mae’s

counteroffer. “‘[A]cceptance of an offer is a manifestation of assent to the terms

thereof made by the offeree in a manner invited or required by the offer.’” Toledano v.


2
  The parties dispute the specific date on which REO actually submitted an executed (signed) copy of
the proposed Agreement to Fannie Mae. (Compare Pls.’ Opp’n at 3, n.2 (“[T]he Complaint, fairly
construed, supports the inference that [REO] executed the Agreement in connection with the
submission of its proposal to Fannie Mae in November 2010.”), with Def.’s Br. at 2 (alleging that REO
first submitted an executed copy of the Agreement to Fannie Mae on December 8, 2010).) Either way,
it is undisputed that REO’s offer was made prior to the alleged December 9th and 10th conversations
between REO and Fannie Mae regarding financing restrictions.


                                                 10
O’Connor, 501 F. Supp. 2d 127, 141 (D.D.C. 2007) (quoting Restatement (Second) of

Contracts § 50(1)); see also Malone, 763 A.2d at 728 (“[T]o form a contract the offeree

must convey to the offeror his acceptance of the offer.”). Under D.C. law, if the offer

does not “explicitly direct[] a particular method of acceptance, the offer can be

accepted in any reasonable manner[,]” Vaulx v. Cumis Ins. Soc’y, Inc., 407 A.2d 262,

265 (D.C. 1979); however, acceptance generally must be clear and unequivocal. See,

e.g., Malone, 763 A.2d at 728–29 (rejecting tenant’s argument that the inquiries

regarding the closing date that he made after the property manager introduced the 30-

day condition sufficed to establish acceptance of the counteroffer, because the tenant’s

“conduct d[id] not in any way indicate his unequivocal assent” to the new restriction);

see also id. at 730 (holding that the mutual assent required to form a binding contract

was absent due to the tenant’s failure to communicate sufficiently his agreement to the

new material term).

       Here, there is nothing in the complaint that indicates that REO expressed its

unequivocal assent to the new financing term contained in Fannie Mae’s counteroffer;

indeed, REO’s payment did not manifest this intention (REO had tendered the $100,000

deposit before the new term was introduced), and the complaint’s allegations regarding

REO’s post-counteroffer efforts to “obtain financing for the pool purchase on terms that

would satisfy the restrictions imposed by Fannie Mae” (Compl. ¶ 15) do not establish

that REO unequivocally accepted Fannie Mae’s new term. See Williston on Contracts

§ 6:10 (4th ed. 2014) (“[T]he offeree’s response, rather than signifying objectively an

assent to the proposed bargain, instead may signify to a reasonable offeror that an

acceptance is contemplated, but has yet to occur.”); see also id. (“[A] reply to an offer




                                            11
indicating that the offeree has attempted unsuccessfully to accept . . . does not meet the

requirement of unequivocality, and no contract is thereby concluded.”). Furthermore,

“[i]t is not enough that the parties think that they have made a contract; they must have

expressed their intentions in a manner that is capable of understanding.” Kramer

Assocs., 888 A.2d at 253 (emphasis added) (quoting Rosenthal, 573 A.2d at 369–70).

Finding no such expression in the allegations of REO’s complaint, this Court concludes

that REO did not assent to Fannie Mae’s new financing restriction, and thus the parties

never formed a binding contractual agreement.

   IV.      CONCLUSION

         For the reasons set forth above, the complaint’s allegations do not establish that

REO and Fannie Mae formed an enforceable contract for the sale of the foreclosed

homes. Consequently, the parties’ arguments regarding whether or not the contract was

breached and by whom are beside the point, and Defendant’s motion to dismiss will be

DENIED. The complaint’s core contention that REO is entitled to a refund of its

$100,000 deposit nevertheless remains. See, e.g., Kramer Assocs., 888 A.2d at 253–55

(returning $75,000 deposit under equitable doctrine of unjust enrichment after finding

that the parties had failed to form a binding contractual agreement). Therefore, in light

of this memorandum opinion and as set forth in the accompanying order, the parties

here will be required to submit supplemental briefing on the appropriate remedy with

respect to REO’s deposit.


Date: February 20, 2015                            Ketanji Brown Jackson
                                                   KETANJI BROWN JACKSON
                                                   United States District Judge




                                              12
