Bankers Insurance Company et al v. Countrywide Financial Corp. et al
Filing
43
ORDER denying 30 Motion to dismiss and Counts I and II are STAYED pending final disposition of the Article 77 Proceeding. The Court intends to proceed forward on Count III of the claim on the schedule already set forth unless the parties mutually agree to stay the entire case. Signed by Judge Elizabeth A. Kovachevich on 7/5/2012. (SN)
•
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
BANKERS INSURANCE COMPANY, et al.,
Plaintiffs,
v.
CaseNo.8:ll-CV-01630-T-17
COUNTRYWIDE FINANCIAL CORP., et al.,
Defendants.
/
ORDER DENYING DEFENDANT'S MOTION TO DISMISS AND STAYING COUNTS I
AND II.
This cause is before the Court after Plaintiffs, Bankers Insurance Company et
al. ("Bankers"), Amended Verified Certificateholder Derivative Complaint
("Amended Derivative Complaint"] (Doc. 9) filed on December 19, 2011; the sole
remaining Defendant, Bank of New York Mellon's ("BNYM"), Motion to Dismiss (Doc.
30) filed on March 29, 2012; Bankers', response thereto (Doc. 34) filed on April 19,
2012; and Bankers' Notice of Supplemental Authority (Doc. 42) filed on June 21,
2012. Defendant BNYM's Motion to Dismiss is DENIED, and Counts 1and II are
STAYED pending final disposition ofIn Re the Application ofthe Bank ofNew York
Mellon (N.Y. Sup. Ct. No. 651786/2011).
PROCEDURAL HISTORY
On July 22, 2011, Bankers filed a Complaint, individually, against
Countrywide Financial Corporation ("Countrywide Financial"), Countrywide
Securities Corporation ("Countrywide Securities"), Countrywide Capital Markets,
LLC ("Countrywide Capital"), Countrywide Home Loans, Inc. ("Countrywide Home"),
Countrywide Home Loans Servicing LP ("Countrywide Servicing"), CWABS, Inc.
("CWABS"), CWHEQ, Inc. ("CWHEQ") (collectively, "Countrywide," or "the
Countrywide Defendants"), and Bank of America Corp. ("Bank of America"), BAC
Home Loans Servicing, L.P. ("BAC Home"), NB Holdings Corp. ("NB Holdings")
(collectively, "Bank of America" or "Bankof America Defendants"). Doc. 1. Bankers
filed a Verified Certificateholder Derivative Complaint ("Derivative Complaint")
against BNYM on behalf of Alternative Loan Trust 2005-73CB, Alternative Loan
Trust 2005-J13, Alternative Loan Trust 2006-6CB, Alternative Loan Trust 2006-8TI,
Alternative Loan Trust 2007-21CB, CWABS Asset-Backed Certificates Trust 2005-
11, CWABS Asset-Backed Certificates Trust 2005-12, CWABS Asset-Backed
Certificates Trust 2005-16, CWABS Asset-Backed Certificates Trust 2006-11, and
CWMBS Mortgage Pass-Through Trust 2005-21 (collectively, the "Trusts"). Doc. 1.
On August 15, 2011, the United States Judicial Panel on Multidistrict Litigation
("MDL" Panel) ordered that Bankers' claims against Countrywide Defendants be
transferred to the United States District Court for the Central District of California.
Doc. 5. Additionally, the MDL Panel separated and remanded all claims against
BNYM so that only BNYM remains as a defendant before this Court at this time. Doc.
5.
On December 19, 2011, Bankers filed an Amended Derivative Complaint on
behalf of the Trusts with two (2) Counts alleging breaches of fiduciary duties and
the third count alleging a breach of contract claim against BNYM. Doc. 9. BNYM
moved to dismiss all counts in the Amended Derivative Complaint on March 29,
2012. Doc. 30. On March 19, 2012, Bankers filed the Plaintiffs' Response in
Opposition to the Bank of New York Mellon's Motion to Dismiss. Doc. 34. On May 29,
2012, BNYM filed a memorandum supporting the motion to dismiss (Doc. 41), and
Bankers subsequently filed a Notice of Supplemental Authority on June 21, 2012
(Doc. 42). Jurisdiction is proper pursuant to 28 U.S.C. § 1332, as there is diversity
among the parties and the amount in controversy exceeds $75,000.00.
FACTUAL BACKGROUND
I.
Parties
The Court accepts the following allegations, made by Bankers, as true for the
purposes of resolving the current motion. Bankers is a corporation under, and
subject to, the laws of the State of Florida and has a principal place of business in St.
Petersburg, Florida. Doc. 9 T[ 6. BNYM, whose principal place of business is New
York, New York, served as the Trustee of the Trusts in this case for the
Certificateholders. Id. at U 10.
II.
Bankers' Purchase of Countrywide Mortgage-Backed Securities and
the Mortgage Securitizations
Bankers purchased portions of twelve (12) tranches of the Certificates 200573CB 1A2, 2005-73CB 1A3, 2005-J13 1A4, 2006-6CB 1A2, 2006-8TI 1A4, 200721CB 1A5, 2005-11 AF3, 2005-12 2A4, 2005-13 3AV4, 2005-16 2AF3, 2006-11
1AF2, and 2005-21 A39 (the "Tranches"). Doc. 9 1f 38. A senior/subordinated
structure was used by the Trusts such that each tranche receives the credit
protection of the tranches subordinate to it, and junior tranches are also
subordinate to the senior tranches with regard to payment of principal and interest.
Id. at If 39. Bankers purchased all senior Certificates and currently owns the
aforementioned Tranches. Id.
Countrywide Home collateralized the Certificates with "sub-prime" residential
real estate mortgages and sold the Certificates to CWALT, CWMBS, and CWABS. Id.
at If 40. Bankers, and other Certificateholders, purchased tranches issued by
CWMBS, CWALT, and CWABS. Id. Countrywide Home (as the Seller), Countrywide
Servicing (as the Master Servicer), CWALT, CWMBS, and CWABS (as Issuer and
Depositor), and BNYM (as Trustee)) prepared, issued, and published Prospectuses
(Exhibits 1-11) and Prospectus Supplements (Exhibits 12-22) to assist in the sale of
the Certificates. Id. at If 41-42.
Additionally, CWALT, CWMBS, and CWABS (1) entered Pooling Services
Agreements ("PSA" or "PSAs") with Countrywide Home, Countrywide Servicing, and
BNYM (Exhibits 23-33), (2) created Trusts through the PSAs to hold the Certificates
for the Certificateholders, and BNYM, as Trustee, was to administer the Trusts, and
(3) secured primary mortgage guaranty insurance ("PMI") policies, pursuant to the
PSAs for loans that had a loan-to-value (LTV) ratio exceeding 80 percent (80%). Id.
at If 43. Bankers, as well as other Certificateholders, are third-party beneficiaries of
the PSAs. Id. at 47. Countrywide Home provided additional assurances, which
included that there were no material defaults, that each loan was underwritten in
compliance with Countrywide's guidelines, and that no "fraud, error,
misrepresentation, negligence, or similar occurrence" had taken place. Id. at 1f 48(af). Countrywide Home agreed that upon the breach of any representation or
warranty that materially or adversely affected the interests of Certificateholders,
Countrywide Home would cure the breach, repurchase the loan, or substitute a
replacement mortgage for the that loan. Id. at If 44 (citing Exhibit 12 at S-33).
Additionally, Countrywide Servicing was obligated to enforce the terms of the
PSAs that required Countrywide to cure, repurchase, or substitute loans in the event
of a breach. Id. at If 49 (citing Exhibit 23 at § 3.01). Countrywide Servicing was to
provide loan-level information on each of the loans to BNYM according to Schedule
VI of the PSAs. Id. at If 54 (citing Exhibit 23 at S-VI-1). Using the information
provided by Countrywide Servicing, BNYM was to provide credit-rating agencies
with notice of any uncured default. Id. at 1f 55 (citing Exhibit 23 at § 10.05). Bankers
alleges that Countrywide Home and Countrywide Servicing failed to cure or
repurchase loans in which a breach occurred. Id. at If^f 57-58. Furthermore, Bankers
claims that a reduction of funds available to Certificateholders occurred when
Countrywide Servicing did not use reasonable efforts to foreclose on defaulted
mortgage loans and improperly charged the over-collateralized accounts for losses
when they should have been covered by PMI or tendered to Countrywide Home. Id.
at 59.
III.
Allegations of Countrywide's Fraud
Bankers alleges a "massive fraud" by Countrywide Financial and certain officers
and affiliates against purchasers of MBSs. Id. at If 12. Countrywide Financial made
representations regarding its supposed conservative mortgage underwriting
standards, appraisals of the mortgaged properties, adherence to its underwriting
guidelines and credit analysis, LTV ratios of the mortgages, and other facts that were
material to investment decisions. Id. at If 14. Allegedly, Countrywide Financial
falsely represented that (1) the loans packaged into the Certificates were written in
compliance with Countrywide Financial's underwriting guidelines, (2) Countrywide
Financial evaluated borrowers' credit and ability to repay prior to approving any
loan, (3) exceptions to Countrywide Financial's underwriting guidelines were only
made when justified by "compensating factors," (4) almost every mortgaged
property was independently appraised and conformed to acceptable standards and
was the basis for the LTV ratio, (5) selected loans were not intended to adversely
affect the interests of the Certificateholders, (6) the AAA or other investment-grade
ratings of Certificates were accurate reflections of credit quality, and (7) the
Certificates' issuing trusts possessed good title to the underlying mortgage loans. Id.
at 1f 16. Bankers claims that Countrywide Financial had no intention of complying
with the representations and warranties made to investors. Id. at If 28. Bankers
asserts that, due to Countrywide Financial's deviation from its guidelines, loans
were approved when loan applications were missing vital documents, an appraisal
was invalid or incomplete, borrower fraud existed on the face of the application, or
borrower income information did not meet Countrywide Financial's stated
guidelines. Id. at 34.
IV.
Conduct of BNYM
Bankers alleges that BNYM knew that Countrywide Servicing did not enforce
Countrywide Home's obligations under the PSAs, did not use reasonable efforts to
foreclose upon defaulted mortgage loans, and did not provide BNYM with complete
information regarding the mortgage loans. Id. at 1f 61. Bankers also claims that
Countrywide Servicing responded to BNYM's demands with inaction that resulted in
an Event of Default under § 7.01(h) of the PSAs, or alternatively, if BNYM did not
make demands, that BNYM failed to meet its duties to Certificateholders. Id. at If 62.
BNYM knew from the PSAs that Countrywide Servicing had an obligation to protect
the interests of the Trusts and that failure to meet such obligations would harm the
Trusts. Id. at If 63-64. Bankers alleges that BNYM failed to complete nondiscretionary tasks of demandingthat Countrywide Servicing comply with
contractual servicing obligations, demanding that Countrywide Home repurchase
loans, and requesting and providing information to Certificateholders that BNYM
was able to request from Countrywide Servicing, which Countrywide Servicing was
required to provide. Id. at If 65.
Additionally, Bankers states that investors in the industry commonly rely on the
credit-rating agencies ratings when making decisions about securities within their
portfolios and that BNYM failed to notify the agencies when Certificates at issue had
delinquencies and defaults, the PMI insurer declined to cover many mortgage loans
because the loans had been procured through fraud, and that neither BNYM or
Countrywide Servicing had enforced their rights against the PMI insurer for denying
coverage of delinquent mortgages./d. at 1f 68. Bankers claims that as a result of this
conduct, the Certificates suffered drastic downgrades in ratings from the creditrating agencies. Id. at If 70. According to Bankers, BNYM knew that the Certificate
ratings were falsely maintained, that the underwriting and appraisal standards had
been abandoned, and that Countrywide Servicing did not enforce the obligations of
Countrywide Home. Id. at If 71. Bankers contends that had the Certificates been
downgraded earlier, and gradually, Bankers, and other Certificateholders, would
have sold the Certificates before any further decrease in value. Id. at U 70. Bankers
alleges that BNYM breached its duties in failing to act in good faith and by not
exercising its rights under the PSAs to give notice to Countrywide Servicing of non
performance, and in the event of continued non-performance for sixty (60) days,
failing to declare an Event of Default. Id. at If 74.
With regard to the alleged default, Bankers states that a group of
Certificateholders, holding at least 25% of the Voting Rights in Certificates issues by
the 115 trusts, gave notice of Countrywide Servicing's failure to meet the covenants
and agreements of the PSAs to Countrywide Servicing and BNYM. Id. at Tf 76. The
Notice listed a series of alleged failures that materially affected the rights of
Certificateholders. Id. at Tf 77. Bankers gave notice to Countrywide Servicing and
BNYM that if each of the failures to perform continued for sixty (60) days beyond
notification that each of the failures would be deemed an Event of Default under the
PSAs. Id. at Tf 78 (citing Exhibit 34). Bankers states that failures to perform
continued for sixty (60) days beyond the date of notice, which created an Event of
Default under the PSAs, and that BNYM had a duty to notify the Certificateholders of
the Event of Default. Id. at TfTf 79-80.
V.
The Article 77 Proceeding
BNYM announced on June 29, 2011, that it entered an $8.5 billion agreement
("Settlement Agreement") with Countrywide (and its successor by merger, Bank of
America Corporation) to settle claims belonging to the 530 trusts for which BNYM
serves as Trustee. Id. at Tf 81. The 530 trusts at issue in the Settlement Agreement
include the Certificates purchased by Bankers, and if the proposed Settlement
Agreement is approved, would eliminate claims BNYM could bring against
Countrywide, Bank of America, and their affiliates. Id. at Tf 83. Bankers also claims
8
that the Settlement Agreement was "negotiated in secret without the knowledge or
consent of Bankers." Id. Bankers states that the Settlement Agreement is not
reasonable and BNYM has breached its duty to Certificateholders by entering the
proposed Settlement Agreement. Id. at Tf 85. Before June 29, 2011, BNYM had not
notified Certificateholders or the credit-rating agencies of an Event of Default. Id. at
Tf 82. BNYM filed the Article 77 Proceeding to request approval of the potential
settlement on the same day the settlement was announced. Id. at 81.
STANDARD OF REVIEW
Federal Rule of Civil Procedure Rule 8(a)(2) requires that a plaintiffs
complaint provide "a short and plain statement of the claim showing that the
pleader is entitled to relief." However, "[w]hile a complaint attacked by a Rule
12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs
obligation to provide the grounds of his entitlement of relief requires more than
labels and conclusions, and a formulaic recitation of the elements of a cause of
action will not do." BellAtl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal
quotations and citations omitted).
Therefore, "to survive a motion to dismiss, a complaint must now contain
sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible
on its face.'" Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283,1289 (11th Cir. 2010)
(quoting Twombly, 550 U.S. at 570). Courts must follow a two-step approach when
considering a motion to dismiss: first, "eliminate any allegations in the complaint
that are merely legal conclusions;" and second, "where there are well-pleaded
factual allegations, 'assume their veracity and then determine whether they
plausibly give rise to an entitlement to relief."' Id. at 1290 (quoting Ashcroft v. Iqbal,
129 S. Ct. 1937,1950 (2009)). As such, the standard "does not require 'detailed
factual allegations,' but it demands more than an unadorned, the-defendantunlawfully-harmed-me accusation." Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550
U.S. at 555).
DISCUSSION
I.
Consideration of Matters outside of the Pleadings
Generally, in determining a motion to dismiss, the Court "dofes] not consider
anything beyond the face of the complaintand the documents attached thereto." Fin.
Sec. Assur., Inc. v. Stephens, Inc., 500 F.3d 1276,1284 (11th Cir. 2007)(citing Brooks
v. Blue Cross &BlueShield ofFla., Inc., 116 F.3d 1364,1368 (11th Cir. 2007).
However, there is an exception to this rule when the "plaintiff refers to a document
in its complaint, the document is central to its claim, its contents are not in dispute,
and the defendant attaches the document to its motion to dismiss." Id. (citing Harris
v. Ivax Corp., 182 F.3d 799,802 n. 2 (11th Cir. 1999); Brooks, 116 F.3d at 13681369). Further, the Court may consider a document outside the pleadings if it is "(1)
central to the plaintiffs claims and (2) its authenticity is not challenged." Speaker v.
U.S. Dep't ofHealth &Human Servs., 693 F.3d 1371,1379 (11th Cir. 2010)(quoting
SFM Holdings, Ltd. V. BancofAm. Sees., LLC, 600 F.3d 1334,1337 (11th Cir. 2010). In
such situations, the documents then become part of the pleadings. Nichols v. John
Hancock Life Ins. Co., 2009 WL 3019785 (N.D. Ala. Sept. 22, 2009). Additionally,"' a
court may take notice of another court's order... for the limited purpose of
recognizing the 'judicial act' that the order represents or the subject matter of the
10
litigation.'" Gibbs v. U.S., 2012 WL 1093719 (M.D. Fla. Mar. 31, 2012)(quoting U.S. v.
Jones, 29 F.3d 1549,1553 (11th Cir. 1994)).
Bankers' Amended Derivative Complaint (Doc. 9) attaches numerous exhibits
including published prospectuses ("Prospectuses"; Exhibits 1-11) and prospectus
supplements ("Prospectus Supplements"; Exhibits 12-22) regarding the sale of
Certificates of the Trusts, and PSAs for the Trusts (Exhibits 23-33), which, as
necessary, the Court will consider in deciding the motion to dismiss. See Fin. Sec.
Assur., Inc., 500 F.3d at 1284. Additionally, Bankers' response to BNYM's motion
contains documents from the Article 77 Proceeding in New York which include:
BNYM's "Memorandum of Law in Support of the Trustee's Motion Regarding the
Standard of Review and Scope of Discovery" (Doc. 34-1), Bankers' "Notice of
Intention to Appear and Object to Settlement" (Doc. 34-2), and a "Memorandum of
Law in Support of Order to Show Cause Why the Court Should Not Convert this
Special proceeding to a Plenary Action" (Doc. 34-3). The Court may consider these
documents, not for the truth of the matter asserted, but to determine the
representations and matters before the New York court in the Article 77 Proceeding.
See Gibbs, 2012 WL 1093719 at *2.
II.
Counts I and II are Stayed Pending a Decision in the Article 77
Proceeding
Count I of Bankers' Amended Derivative Complaint claims that BNYM breached
its fiduciary duty to Bankers and other Certificateholders by not investigating
Countrywide Servicing's non-performance of obligations under the PSAs, and by not
making demands on Countrywide Servicing and suing if the demands remained
unmet after having knowledge of a continuing Event of Default. Doc. 9 TfTf 98-100.
11
Count II of Bankers' Amended Derivative Complaint claims that BNYM breached
its fiduciary duty to Bankers and other Certificateholders by failing to enter into a
reasonable settlement agreement and not protecting the interests of
Certificateholders. Id. at If111. Bankers claims that BNYM did not act in the interests
of Certificateholders when it entered an agreement that would delay servicing
improvements and curing of Countrywide Servicing's breaches of the PSAs, tie
servicing improvements to judicial approval of the monetary aspect of the
settlement, and, and if not approved, would allow BNYM and Countrywide Servicing
to no longer be obligated to perform the servicing improvement obligations. Id. at
TfTf 112-113. Bankers asserts that BNYM acted in its own interest rather than the
best interest of the Certificateholders in a manner that would limit or eliminate
liability to Certificateholders. Id. at 114.
BNYM alleges that the Court should dismiss Counts I and II of Bankers' Amended
Derivative Complaint because the matters at issue are duplicative of those pending
in the Article 77 Proceeding and the Colorado River abstention doctrine should
apply. Doc. 30. Bankers disagrees and states that the Colorado Riverabstention
doctrine is inapplicable in the current case. Doc. 34.
A. The Colorado River Doctrine
The Supreme Court has stated that there is a "'virtually unflagging obligation of
the federal courts to exercise the jurisdiction given to them.'" Rambaran v. Park
Square Enters., Inc., 2008 WL 4371356, *2 (quoting Colorado River Water
Conservation Dist. v. U.S., 424 U.S. 800,817 (1976)). The doctrine provides that '"the
pendency of an action in the state court is no bar to proceedings concerning the
12
same matter in the Federal court.'" Colorado River, 424 U.S. at 817 (quoting
McClellan v. Carland, 217 U.S. 268, 282 (1910)). However, the doctrine allows for
abdication in "exceptional" circumstances. Id. at 813. The first step of the Colorado
River analysis is determining whether the "'federal and state proceedings involve
substantially the same parties and substantially the same issues.'" Rambaran, 2008
WL 4371356 at *2 (citing Ambrosia Coal&Constr. Co. v. Pages Morales, 368 F.3d
1320,1330 (11th Cir. 2004)).
Then, if the actions involve substantially the same issues and parties, Eleventh
Circuit courts must analyze the following six (6) factors to determine if abstention is
allowable: "(1) whether one of the courts has assumed jurisdiction over property,
(2) the inconvenience of the federal forum, (3) the potential for piecemeal litigation,
(4) the order in which the fora obtained jurisdiction, (5) whether state or federal
law will be applied, and (6) the adequacy of the state court to protect the parties'
rights." Id. at *3. Additionally, the policy matters of "whether the later filed litigation
is vexatious or reactive in nature," and "whether the concurrent cases involve a
federal statute that evinces a policy favoring abstention" will also allow for a federal
court to abstain. Id. Courts may also exercise discretion in deciding whether it is
appropriate to stay a proceeding. Id. at *2.
B. Counts I and II are Parallel to the Article 77 Proceeding
Proceedings are parallel when they "involve substantially the same parties
and substantially the same issues." Ambrosia Coal, 368 F.3d at 1330. However, the
question is "'not whether the suits are formally symmetrical, but whether there is a
substantial likelihood that the [state court] litigation will dispose of all claims
13
presented in the federal case." R.E. Loans, LLC v. Eagle Group Brokers, LLC, 2009 WL
837668, *3 (N.D. Fla. Mar. 3, 2009) (quoting TruServ Corp. v. Flegles, Inc., 419 F.3d
584, 592 (7th Cir. 2009)).
Substantially the same issues are involved in this case and the Article 77
Proceeding. Count I alleges that BNYM failed to investigate Countrywide Servicing's
non-performance of obligations within the PSAs, failed to demand that Countrywide
Serving enforce the obligations of Countrywide Home, and failed to sue if the
demands remained unmet. Doc. 9 Tflf 98-100. BNYM seeks a result in the Article 77
Proceeding that BNYM "acted within the bounds of reasonable discretion," within its
powers as Trustee, and in the best interests of the Trusts. Doc. 30 at 6, 9; Doc 31-2.
Additionally, Count II alleges that BNYM breached its fiduciary duty by entering into
an unreasonable and unfair agreement. Doc. 9 Tflll. Meanwhile, BNYM seeks
judicial approval of the Settlement Agreement and acknowledgement that BNYM
acted reasonably in its decision to enter the Settlement Agreement. Doc. 30 at 6.
Therefore, the same factual and legal issues are involved in the Article 77
Proceeding and in Count II. Where Counts 1and II, and the Article 77 Proceeding
involve the validity of BNYM's actions as Trustee and entrance into the Settlement
Agreement, the Colorado River doctrine is applicable. Ambrosia Coal, 368 F.3d at
1330-1331; see Rambaran, 2008 WL 4371356 at *3.
Substantially the same parties are involved in this case and the Article 77
Proceeding. BNYM initiated the Article 77 Proceeding in New York and is a
defendant in the current case. Bankers has intervened in the Article 77 Proceeding
(Doc. 34-2) and has filed the Complaint in the current case (Doc. 9). Although
14
Bankers asserts that it has merely "objected" as opposed to having "intervened," in
the Article 77 Proceeding, at this time, there is no documentation that Bankers will
not be allowed to participate in the Proceeding, which involves substantially the
same issues. Additionally, the Second Circuit has already allowed other investors,
who had similar claims and interests, to officially intervene in the Article 77
Proceeding. See BlackRock Fin. Mgmt. Inc. v. SegregatedAccount ofAmbac Assur.
Corp., 673 F.3d 169,174-175 (2d Cir. 2012). Additionally, cases need not "share
identical parties, issues, and requests for relief."Ambrosia Coal, 368 F.3d at 1329.
C. Exceptional Circumstances Exist to Warrant Staying Counts I and II
The next step in the Colorado River doctrine analysis is whether "exceptional
circumstances" to support abstention exist. Colorado River, 424 U.S. at 813. The
Eleventh Circuit notes six (6) factors to consider: "(1) whether one of the courts has
assumed jurisdiction over property, (2) the inconvenience of the federal forum, (3)
the potential for piecemeal litigation, (4) the order in which the fora obtained
jurisdiction, (5) whether state or federal law will be applied, and (6) the adequacy of
the state court to protect the parties' rights." Rambaran, 2008 WL 4371356 at *3.
The Supreme Court notes that "[n]o one factor is necessarily determinative" and
that "a carefully considered judgment taking into account both the obligations to
exercise jurisdiction and the combination of factors counseling against that exercise
is required." Colorado River, 424 U.S. 818-819. The decision "'does not rest on a
mechanical checklist but on a careful balancing of the important factors as they
apply in a given case, with the balance heavily weighted in favor of the exercise of
jurisdiction." Moorer v. Demopolis Waterworks and Sewer Bd., 374 F.3d 994, 997
15
(11th Cir. 2004)(quoting Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S.
1,16 (1983). The Court examines each of these six (6)factors.
1. Whether One of the Courts has Assumed Jurisdiction over the Property
Counts I and II do not involve property, therefore, this factor is neutral and
weighs against abstention.
2. The Inconvenience of the Federal Forum
BNYM states that the federal forum is less convenient because this Court does
not have New York's "specialized procedure for deciding cases of this nature." Doc.
30 at 11. However, BNYM has not contested venue with regard to Count III, which
BNYM would have to litigate in this Court. Therefore, this factor is neutral and
weighs against abstention.
3. The Potential for Piecemeal Litigation
As discussed previously, substantially the same matters are at issue in Counts I
and II and the Article 77 Proceeding, and the parties simply seek opposite outcomes.
Given that having the same factual claims in state and federal courts "causes
unnecessary inconvenience and expense and raises a distinct danger of duplicative,
piecemeal litigation," this factor weighs heavily in favor of abstention. Rivera v.
Healthcare Servs. Grp., Inc., 2010 WL 2553606, *2 (M.D. Fla. June 23, 2010).
4. The Order in Which the Fora Obtained Jurisdiction
The Amended Derivative Complaint with the Counts at issue was filed on
December 19, 2011, which is approximately six (6) months after BNYM initiated the
Article 77 Proceeding on June 29, 2011. This Court did not have jurisdiction over
Counts I and II until six (6) months after the initiation of the Article 77 Proceeding
16
and approximately four (4) months after Bankers filed its objection to the
Settlement Agreement in the Article 77 Proceeding on August 29, 2011. Therefore,
this factor weighs heavily in favor of abstention.
5. Whether State or Federal Law Will be Applied
The parties do not contest that New York law is to be applied in this case, which
weighs in favor of abstention as opposed to situations in which federal law applies
and the factor is weighed against abstention. See Lops v. Lops, 140 F.3d 927, 943
(11th Cir. 1998).
6. The Adequacy of the State Court to Protect the Parties' Rights
This factor weighs in favor of abstention. As previously discussed, Bankers has
objected in the Article 77 Proceeding with regard to the Settlement Agreement and
other beneficiaries have intervened in the proceeding with arguments substantially
similar to those of Bankers. See BlackRock, 673 F.3d at 174-175. In the event that
the Article 77 Proceeding does not resolve Counts I and II, Bankers may attempt to
raise outstanding issues with regard to Counts I and II after the Court lifts the stay.
7. Policy Matters Regarding Whether the Later Filed Claim was Vexatious
and Whether the Case Involves a Federal Statute Favoring Abstention
The Court does not have information by which it is able to determine that
Bankers' claims are "vexatious," nor is a federal statute involved. These policy
matters weigh against abstention.
8. Conclusion
The above factors weigh in favor of abstention under the Colorado River
doctrine. Accordingly, "'a stay, not a dismissal, is the proper procedural mechanism
for a district court to employ when deferring to a parallel state-court proceeding" as
17
it "'protects the rights of all the parties without imposing any additional costs or
burdens." Moorer, 374 F.3d at 998 (quoting LaDuke v. Burlington N. R. Co., 879 F.2d
1556,1561-1562 (7th Cir. 1989). Therefore, Counts I and II are stayed pending an
outcome in the Article 77 Proceeding.
III.
The Motion to Dismiss is Denied with Regard to Count III
Count III of Bankers' Amended Derivative Complaint alleges a breach of contract
claim against BNYM under the obligations of the PSAs for failure to notify
Certificateholders about an uncured Event of Default of which BNYM had actual
knowledge. Doc. 9 Tf 120. Section 7.01(ii) of the PSAs defines the Event of Default at
issue as:
any failure by the Master Servicer to observe or perform in any material respect
any other of the covenants or agreements on the part of the Master Servicer
contained in this Agreement, which failure materially affects the rights of
Certificateholders, that failure continues unremedied fora period of 60 days
after the date on which written notice of such failure shall have been given to the
Master Servicer by the Trustee or the Depositor, or the Master Servicer and the
Trustee by the Holders of Certificates evidencing not less than 25% of the Voting
Rights evidenced by the Certificates
PSA § 7.01(h). Additionally, the PSAs provide that "the Trustee shall not be deemed
to have knowledge of an Event of Default until a Responsible Officer of the Trustee
shall have received written notice thereof." Id. at § 8.02(viii). Bankers has pled that,
"[o]n October 18, 2010, a group of [Cjertificateholders (the "Institutional
Investors"), holding no less than 25% of the Voting Rights in [Cjertificates issued by
115 trusts, provided BNYM and Countrywide Servicing notice of Countrywide
Servicing's failure to observe and perform in material res[p]ects, the covenants and
agreements imposed on it by § 7.01(h) of the PSAs." Doc. 9 If 76. Bankers claims that
BNYM and Countrywide Servicing materially affected the rights of Certificateholders
18
by failing and refusing to comply with §§ 2.03, 2.03(c), 3.01, 3.11, 3.11(a), and 3.14
of the PSAs. Id. at Tf 77. Bankers notified BNYM and Countrywide Servicing that the
aforementioned failures were in violation of § 3.01 of the PSAs, that failures were
continuing, and if the failures continued for sixty (60) more days they would each
constitute an Event of Default under § 7.01(h) of the PSAs. Id. at 78. The Amended
Derivative Complaintstates that the failures continued for an additional sixty (60)
days from the date of notice, thereby creatingan Event of Default under § 7.01(h) of
the PSAs. Id. at 79.
BNYM claims that no Event of Default occurred because "the cure period
tolled during the negotiations that ultimately produced the Settlement Agreement."
Doc. 30 at 16. However, Bankers "need not anticipate affirmative defenses," but only
"state facts sufficient to indicate that a cause of action exists." Hammonds v. Buckeye
Cellulose Corp., 285 So.2d 7,11 (Fla. 1973). The allegations pled by Bankers are
"'enough to raise a right to relief above the speculative level... on the assumption
that all the allegations in the complaint are true (even if doubtful in fact).'" Am.
Dental Ass'n, 605 F.3d at 1289 (quoting Twombly, 550 U.S. at 555). Accordingly, it is
19
ORDERED that Defendant BNYM's Motion to Dismiss is DENIED, and Counts
I and II are STAYED pending final disposition of the Article 77 Proceeding. The
Court intends to proceed forward on Count III of the claim on the schedule already
set forth unless the parties mutually agree to stay the entire case.
*j
DONE AND ORDERED in Chambers at Tampa, Florida, this lP day ofJuly,
2012.
Copies to: All parties and counsel of record.
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