Sterling Federal Bank, F.S.B. et al v. DLJ Mortgage Capital, Inc et al
Filing
96
MEMORANDUM Opinion signed by the Honorable John F. Grady on 5/11/2011. Mailed notice(cdh, )
09-6904.111-RSK
May 11, 2011
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
STERLING FEDERAL BANK, F.S.B.,
)
)
Plaintiff,
)
)
v.
)
)
DLJ MORTGAGE CAPITAL, INC., BANK
)
OF AMERICA, N.A., SELECT PORTFOLIO )
SERVICING, INC. and THE BANK OF
)
NEW YORK MELLON CORP.,
)
)
Defendants.
)
No. 09 C 6904
MEMORANDUM OPINION
Before the court is defendant Bank of New York Mellon’s
(“BNYM”)
motion
to
dismiss
F.S.B.’s amended complaint.
plaintiff
Sterling
Federal
Bank,
For the reasons explained below we
deny defendant’s motion.
BACKGROUND
We will assume that the reader is familiar with our opinion
dismissing
Sterling’s
original
plaintiff’s allegations in detail.
complaint,
which
discussed
Sterling Federal Bank, F.S.B.
v. DLJ Mortgage Capital, Inc., No. 09 C 6904, 2010 WL 3324705 (N.D.
Ill. Aug. 20, 2010) (“Sterling I”).
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DISCUSSION
A.
Standard of Review
The purpose of a 12(b)(6) motion to dismiss is to test the
sufficiency of the complaint, not to resolve the case on the
merits.
5B Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 1356, at 354 (3d ed. 2004).
To survive
such a motion, “a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on
its face.’
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."
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570, 556 (2007)).
When evaluating
a motion to dismiss a complaint, the court must accept as true all
factual allegations in the complaint.
However,
we
need
not
accept
as
Iqbal, 129 S. Ct. at 1949.
true
its
legal
conclusions;
“[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.”
Id.
(citing Twombly, 550 U.S. at 555).
B.
Dismissal for Noncompliance with the No-Action Clause
In Sterling I, we dismissed Sterling’s claims against all the
defendants except BNYM because Sterling failed to comply with the
Pooling and Servicing Agreements’ (“PSAs”) no-action clauses:
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No Certificateholder shall have any right by virtue or by
availing itself of any provisions of this Agreement to
institute any suit or proceeding in equity or at law upon
or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trust
Administrator a written notice of an Event of Default and
of the continuance thereof, as provided herein, and
unless the Holders of Certificates evidencing not less
than 25% of the Voting Rights evidenced by the
Certificates shall also have made written request upon
the Trust Administrator to institute such action, suit or
proceeding in its own name as Trust Administrator
hereunder and shall have offered to the Trust
Administrator such reasonable indemnity as it may require
against the costs, expenses, and liabilities to be
incurred therein or thereby, and the Trust Administrator
for 60 days after its receipt of such notice, request and
offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding; it being
understood and intended, and being expressly covenanted
by
each
Certificateholder
with
every
other
Certificateholder and the Trust Administrator, that no
one or more Holders of Certificates shall have any right
in any manner whatever by virtue or by availing itself or
themselves of ay provisions of this Agreement to affect,
disturb or prejudice the rights of the Holders of any
other of the Certificates, or to obtain priority or
preference to any other such Holder or to enforce any
right under this Agreement, except in the manner herein
provided
and
for
the
common
benefit
of
all
Certificateholder.
(PSA (2002-24) § 12.07.)
We concluded that § 12.07 did not apply
to Sterling’s claims against BNYM because it would be “absurd” to
ask BNYM to sue itself.
Sterling I, 2010 WL 3324705, *4 (citing
Cruden v. Bank of New York, 957 F.2d 961, 968 (2d Cir. 1992) and
Peak Partners, LP v. Republic Bank, 191 Fed.Appx. 118, 2006 WL
2243040, *7 n.11 (3d Cir. Aug. 7, 2006)).
BNYM effectively
conceded that point, but it argued that we should nevertheless
enforce § 12.07's other requirements, “including the obligation to
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obtain the endorsement of ‘Holders of Certificates evidencing not
less than 25% of the Voting Rights evidenced by the Certificates.’”
Sterling I, 2010 WL 3324705, *4.
We rejected BNYM’s argument
because (1) BNYM did not cite any relevant authority to support it,
and (2) it was inconsistent with the holdings in Cruden and Peak
Partners.
Id.
In its motion to dismiss Sterling’s amended complaint, BNYM
rehashes its argument that we should enforce the no-action clause’s
other requirements, even if we excuse Sterling from formally
demanding that BNYM sue itself.
It is true, as BNYM points out,
that neither Cruden nor Peak Partners explicitly addressed whether
the no-action clauses in those cases should be enforced in the
piecemeal fashion that BNYM advocates here.
They simply held that
the clauses did not apply to the plaintiffs’ claims against the
trustees, and we agree.1
We see no basis, then, to reform the
contract to make the 25% voting-rights term (for example) a freestanding requirement applicable to suits against the trustee. (Cf.
PSA § 12.07 (Prohibiting suit “unless the Holders of Certificates
evidencing not less than 25% of the Voting Rights evidenced by the
Certificates shall also have made written request upon the Trust
Administrator to institute such action . . . .”).)
1/
If the parties
The Cruden court concluded that even though the no-action clause did
not apply to plaintiffs’ claims against the trustee, it was relevant to the
question of when their claims accrued. Cruden, 957 F.2d at 961. The court did
not, as BNYM seems to suggest, apply the no-action clause’s event-of-default
requirement to the plaintiffs’ claims against the trustees.
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had wanted to impose such a restriction on suits against the
trustee, they should have done so explicitly.
BNYM cites cases
that support severing invalid provisions from otherwise enforceable
contracts.
See, e.g., In re Balfour MacLaine Int’l, Ltd., 85 F.3d
68, 81 (2d Cir. 1996); see also PSA § 12.06 (requiring severance of
“invalid” provisions).
Those authorities are irrelevant.
action clause is not “invalid” as applied to BNYM.
The no-
It does not
apply to BNYM at all.
C.
Whether Sterling Has Properly Alleged Damages Caused by BNYM’s
Conduct
In support of their motion to dismiss Sterling’s original
complaint, the defendants argued that Sterling failed to allege
non-speculative damages.
Sterling’s theory, as the defendants
understood it, was that the defendants’ conduct diminished the
certificates’ “credit support,” making a payment default more
likely.
occurred.
this
But Sterling did not allege that such a default had
In its response to defendants’ motion Sterling avoided
argument,
and
instead
cited
“alternative
ways
in
which
defendants’ actions have caused concrete, present injuries.”
Sterling I, 2010 WL 3324705, *8.
We concluded that this was an
improper attempt to amend the complaint in a responsive pleading,
and dismissed Sterling’s claims against BNYM, without prejudice, on
that basis.
Id.
Sterling’s amended complaint spells out more
clearly its theory that BNYM’s actions prevented Sterling and other
certificateholders from protecting their interests before ratings
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agencies downgraded the securities.
(Am. Compl. ¶ 50.)
Sterling
further alleges that “[a]s a result of BNYM’s breaches, the
financial
obligations
owed
to
STERLING
and
other
Certificateholders, including payment of principal and interest was
[sic] delayed having not been paid according to the anticipated
schedule,
thereby
causing
Certificateholders.”
harm
(Id. at ¶ 53.)
to
STERLING
and
other
BNYM argues that Sterling’s
complaint fails to properly allege that BNYM’s actions caused
Sterling’s harm, citing cases decided by New York state courts.
See, e.g., US Pack Network Corp. v. Travelers Property Casualty,
840 N.Y.S.2d 35, 36 (N.Y. App. Div. 2007) (concluding on a motion
for summary judgment that the defendants’ breach did not cause
plaintiff’s damages); Leigh Management Associates v. Weinstein, 674
N.Y.S.2d 688, 689 (N.Y. App. Div. 1998) (“[P]laintiffs failed to
set forth how and in what manner the appellants’ preparation of the
limited-partnership tax returns, which are not challenged as being
inaccurate in any respect or causally linked to plaintiffs’ alleged
losses
resulting
from
misapplication
of
partnership
constituted malpractice or breach of contract.”).
assets,
The complaint
alleges that BNYM’s inaction contributed to Sterling’s damages.
Causation is a question of fact, and Sterling’s allegation is not
implausible.
We conclude that BNYM has adequately alleged damages
caused by BNYM’s conduct.
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D.
Sterling’s “Breach of Fiduciary Duty” Claim
In Count IV of its amended complaint Sterling has repled its
claim for breach of fiduciary duty.
We previously concluded that
Sterling had not properly alleged that BNYM owed it a fiduciary
duty, but nevertheless construed its complaint to allege that BNYM
breached its duty to perform non-discretionary ministerial tasks
with due care.
Sterling I, 2010 WL 3324705, *8.
In light of our
ruling, Sterling should have amended its claim to clarify that it
was relying on that tort. (Sterling’s argument that it is pleading
breach
of
fiduciary
ministerial
nonsensical.)
tasks
duty
with
and
due
breach
care
of
“in
the
duty
to
perform
the
alternative”
is
But we did not specifically require Sterling to
amend that portion of its complaint, and we do not think that
sending Sterling back to the drawing board to relabel Count IV
would serve any useful purpose.
See Bennett v. Schmidt, 153 F.3d
516, 518 (7th Cir.1998) (“Instead of lavishing attention on the
complaint until the plaintiff gets it just right, a district court
should keep the case moving.”). In its reply brief BNYM argues for
the first time that the PSAs relieve it of the “ministerial” duties
that Sterling seeks to enforce.
(BNYM Reply Mem. at 6-7.)
Sterling alleges that BNYM “knew or should have known” that the
information it was receiving from SPS, and passing along to
certificateholders and ratings agencies, was inaccurate.
Compl. ¶¶ 25-28, 36, 40, 48-49.)
(Am.
We do not read § 10.02(a)(v) to
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bar a tort claim based on BNYM’s willful blindness.
Am. Compl. at ¶¶ 51-52.)
at best.
(See, e.g.,
In any event, this issue is undeveloped
See Hess v. Reg-Ellen Machine Tool Corp., 423 F.3d 653,
665 (7th Cir. 2005) (arguments raised for the first time in a reply
brief are waived).
We are not satisfied, at this stage of the
case, that the PSAs foreclose Sterling’s claim for breach of the
duty to perform ministerial tasks with due care. Defendants motion
to dismiss Count IV is denied.
CONCLUSION
BNYM’s motion to dismiss (72) is denied. Sterling’s motion to
file supplemental authority (91) is denied as moot.
A status
hearing is set for May 18, 2011 at 10:30 a.m.
DATE:
May 11, 2011
ENTER:
___________________________________________
John F. Grady, United States District Judge
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