In a November 21, 2013 Commercial Division decision by Justice Kornreich, the Court granted in part and denied in part Defendant’s motion to dismiss a Complaint pursuant to CPLR 3211. In this residential mortgage-backed security “put-back” action, Defendant J.P. Morgan Mortgage Acquisition Corporation (“JPMMAC”) purchased loans from Defendant WMC Mortgage, LLC (“WMC”) pursuant to a Mortgage Loan Sale and Interim Servicing Agreement (the “MLSA”). These loans were eventually transferred to a trust pursuant to a Pooling and Servicing Agreement (the “PSA”). Certificate holders of this trust compelled Plaintiff Bank of New York Mellon to commence this action to enforce a Repurchase Protocol set forth in both the MLSA and PSA. The Repurchase Protocol stated that when a loan in the trust failed to comply with one of many representations and warranties, the trust was entitled to a refund. Defendant moved to dismiss Plaintiff’s Complaint, which included eight causes of action for breaches of contract and sought attorneys’ fees from WMC.
As a threshold issue, the Court first held that damages were “capped” at the total repurchase price of the trust’s non-conforming loans. Though the parties disputed the amount of potential damages, the Court found the issue already settled by “this court and virtually all of the federal and state courts in New York” and therefore did “not merit further discussion.” The Court turned to two remaining issues: (1) whether JPMMAC’s representations and warranties in the PSA applied to the alleged breaches, and (2) whether Plaintiff could recover costs and attorneys’ fees from WMC.
First, JPMMAC argued that its representations and warranties in the PSA did not apply to Plaintiff’s alleged breaches because they were temporally-limited by language in the relevant subsection stating an “applicable time period.” In other words, JPMMAC argued it only represented certain facts about the loans to be true for a certain time. The Court rejected this argument. The actual representation stated: “The information set forth in the Mortgage Loan Schedule and the tape delivered . . . is true, correct and complete in all material respects.” It did not itself explicitly reference any temporal limitation. The Court further reasoned the accuracy of the loan tape could not change: “[e]ither the loan tape accurately reflected reality at origination, or it did not.” So it made no sense to interpret the representation as applying only to a certain period of time.
Second, WMC argued that Plaintiff was not entitled to costs and attorneys’ fees under an indemnity provision in the MLSA because the provision only covered third-party claims against Plaintiff, not Plaintiff’s first-party claims against WMC. The Court noted that the District of Minnesota “considered this very issue” and denied costs and fees, because the indemnity provision did not “unmistakably” cover first-party claims, and a trustee’s “put-back” suit is a first-party claim despite the fact that it was acting “at the behest” of the trust’s certificate holders. But the Court rejected this holding. WMC agreed in the provision to indemnify “other costs resulting from any claim relating to …a breach of [WMC's] representations in [the MLSA].” The Court found it “strain[ed] credulity” not to interpret this language to cover Plaintiff’s fees, which were “an expense related to WMC’s MLSA breaches.”
Bank of N.Y. Mellon v WMC Mtge., LLC, Sup Ct, New York County, November 21, 2013, Kornreich, J, Index No. 654464/2012.