Bank of America, National Association v. Wells Fargo Bank, N.A.

Filing 245

ORDER: Before the Court is Bank of America's second motion to compel responses to Subpoena Duces Tecum and Subpoenas Ad Testificandum by non-party Spring Hill Capital Partners, LLC [dkts. 193 and 204]. For the reasons stated below, the Court denies this motion. [For further details see order.] - Signed by the Honorable Susan E. Cox on 1/15/2015. Mailed notice (np, )

IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS
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Plaintiff,
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v.
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LASALLE COMMERCIAL MORTGAGE )
SECURITIES, INC., SERIES 2006-MF4 )
TRUST, acting by and through its Master )
and Special Servicer, MIDLAND LOAN
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SERVICES, a division of PNC Bank,
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National Association and whose Trustee is )
WELLS FARGO BANK, N.A..,
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Defendants.
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BANK OF AMERICA, NATIONAL
ASSOCIATION, as successor by merger
to LASALLE BANK NATIONAL
ASSOCIATION,

Case No: 12 C 9612

District Judge John Z. Lee
Magistrate Judge Susan E. Cox

LASALLE COMMERCIAL MORTGAGE
SECURITIES, INC., SERIES 2006-MF4
TRUST, acting by and through its Master
And Special Servicer, MIDLAND LOAN
SERVICES, a division of PNC Bank,
National Association, and whose Trustee
is WELLS FARGO BANK, N.A.,

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Plaintiff,
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v.
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BANK OF AMERICA, NATIONAL
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ASSOCIATION, as successor in interest to )
LaSalle Bank National Association,
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Defendant.
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Case No: 13 C 5605

District Judge John Z. Lee
Magistrate Judge Susan E. Cox

(Consolidated with Case No.
12 C 09612 for Purposes of Discovery)

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ORDER
Before the Court is Bank of America’s second motion to compel responses to Subpoena
Duces Tecum and Subpoenas Ad Testificandum by non-party Spring Hill Capital Partners, LLC
[dkts. 193 and 204]. For the reasons stated below, the Court denies this motion.
STATEMENT
The two cases which give rise to the instant motion arise out of a dispute concerning the
sale and securitization of mortgage loans. The movant, Bank of America “(BOA”), is the successor
in interest to LaSalle Bank National Association (“LaSalle”), which is alleged to have breached
various representations and warranties contained in a Mortgage Loan Purchase Agreement
(“MLPA”). Under this agreement, executed in December 2006, LaSalle Bank agreed to sell a pool
of residential mortgages loans to LaSalle Commercial Mortgage Securities (“LaSalle
Commercial’). These parties, along with Midland Loan Services (“Midland”), as the Master
Servicer for these loans, and Wells Fargo Bank, as Trustee of the LaSalle Commercial Mortgage
Trust 2006-MF4 (the “Trust”), had entered into a separate Pooling and Servicing Agreement
(“PSA”). In that agreement the mortgage loans were transferred to the Trust, which then issued
certificates to investors, thereby securitizing the mortgage loans.
Whether BOA breached its warranties and representations in 2006 (when the transaction
closed) is at the heart of the two pending actions: one, an action by BOA that it did not, in fact, do
so, and one by Midland, in its capacity as Master Servicer, in which it claims BOA breached the
MLPA and demands that BOA repurchase all of the loans. (This Second Amended Complaint is
the subject of a pending motion to dismiss.)
BOA previously served several subpoenas on Spring Hill Capital Partners, LLC, the only
certificate holder for the loans in question and, unlike Midland who is the named plaintiff by virtue
of its role as Master Servicer for the Trust, the party who will benefit if a material breach of the
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MLPA is established and BOA has to repurchase the loans. The Court previously sustained Spring
Hill’s objections to these subpoenas in an Order dated August 12, 2015. 1 BOA did not appeal this
Order. It did, however, seek clarification of the Order, asking the Court to enforce an agreement it
believed it had reached with Spring Hill about certain materials responsive to the subpoenas. The
Court, finding that any such offer had been vitiated by BOA’s motion to enforce the subpoenas,
orally denied that motion on September 24, 2014. 2
In the Court’s order denying BOA’s motion to enforce, the Court planted the seed for the
instant motion to compel. The Court held that the Second Amended Complaint, which alleges
material breaches of warranties and representatives made at the time of the closing, did not provide
a basis for discovery of information relating to Spring Hill’s investment and acquisition of the
certificates several years later with the proviso that “[t]he Court notes, however, that an answer and
affirmative defenses to the Second Amended Complaint have not been filed. That pleading may
give rise to additional bases for relevance not currently before the Court.” 3
BOA has asserted several affirmative defenses in its Answer which it contends give rise to
relevance for the long-sought after documents from Spring Hill. All of these defenses are the
subject of a motion to strike which is fully briefed and awaiting a decision by the District Judge.
Of course, if the District Judge rules that these defenses are proper, the information sought by
BOA from Spring Hill would be relevant. Ordinarily, discovery is not stayed when a party attacks
another party’s pleadings, for example during the pendency of a motion to dismiss. 4 It is a routine
matter for this Court to allow discovery to proceed against a party while its motion to dismiss is
under consideration so that discovery is not unnecessarily delayed. In this case, however, such a
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Dkt. 160.
Dkt. 197.
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Dkt. 160, p. 10.
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See, e.g. New England Carpenters Health & Welfare v Abbott Laboratories, Inc., No. 12 C 1662, 2013 WL 690613
(N.D. Ill. Feb. 20, 2013).
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result would not be in the interest of justice. For one thing, Spring Hill is not a party to this
litigation regardless of its interest in the outcome. To allow this subpoena to be enforced against
Spring Hill subjects it to a significant burden which, should the defenses be struck, it would not
otherwise have to bear. Moreover, there is no other outstanding discovery pending but for this
subpoena. Delaying its enforcement until after the motion to strike is decided will not delay either
the discovery or resolution of this case. For another, this Court’s review of the asserted defenses
and the case law supporting their applicability to this action suggests that Midland’s motion to
strike raises significant (and perhaps fatal challenges) to them.
To find the “contemporaneous ownership rule” defense validly pleaded here, the District
Judge must analogize this action to a shareholder’s derivative suit for it is only in that specific
context that courts have recognized the applicability of this doctrine. 5 But it is not Spring Hill, the
certificate holder that brings this action, it is Midland, the trustee, and it does so pursuant to
warranties and representations and specific remedies for breaches of those warranties and
representations which are carefully set forth in the documents governing the parties’ relationship.
This Court is unwilling to stretch this doctrine further in the context of a discovery motion.
Similarly, the applicability of the Bangor Punta doctrine, an equitable extension of a derivative
action, states that a plaintiff cannot bring a lawsuit if he acquired his shares at a fair price from
those who participated in the earlier alleged mismanagement and it is from those acts the damages
are derived. 6 For this Court, the application of this doctrine to facts in which Spring Hill is neither
the plaintiff, nor a shareholder, nor the purchaser of “shares” from any party involved in the
original transaction, is a reach, particularly, as we already have stated, in the context of a discovery

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Benson v. Am. Ultramar Ltd., No. 92 Civ. 4420 (KWM), 1996 WL 48601, *6 (S.D.N.Y Feb. 6, 1996); Mauck v.
Mading-Dugan Drug Co., 361 F.Sypp. 1314, 1318 (N.D. Ill. 1973). Indeed this appears to be well-settled law.
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Bangor Punta Operations, Inc. v. Bangor Aroostook R.R. Co., 417 U.S. 703, 713; Rock RiverSav. & Loan Ass’n v.
Am. States Ins. Co., 594 F.2d 633, 635 (7th Cir. 1979).

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dispute. Further the damages sought in this action do not derive from the Trustee’s
mismanagement but, rather, from alleged breaches of warranties and representatives to the Trustee
at the time the transaction closed.
At the heart of BOA’s argument regarding relevance is the notion that it is simply
inequitable to allow Spring Hill, which bought the certificates at a discounted price, to benefit from
the contractually bargained for remedies available under the operative documents if there was a
breach of warranties and representations. BOA wants to argue that if Spring Hill knew what it was
buying and bought it in spite of that knowledge, it should not be permitted to benefit from this
action. Accordingly, BOA wants to know the extent of Spring Hill’s awareness of its own risk
before the purchase. But this defense seems fundamentally at odds with the rights and remedies of
the parties to which BOA explicitly agreed when the transaction closed. These remedies are no less
applicable because the subsequent holder of the certificates acquired them knowing the breaches
may have occurred and bought them anyway. To so find seems to this Court to be re-writing the
parties written agreements (and the remedies contained therein) even though the parties must have
anticipated that the certificates from time to time would be sold. In any event, it is up to the
District Judge to find otherwise. We will not do so to resolve this discovery dispute in BOA’s
favor.
One argument we can put to rest without having to address the affirmative defenses before
the District Judge. We have carefully examined the testimony of Dr. Mason and do not find that he
in any way suggested that the right to recover here would be tempered by Spring Hill’s knowledge
of the alleged breaches, thus making the discovery sought here relevant. Dr. Mason made it clear
that the material adverse effect of any breach is determined at the time of securitization and not

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many years after the transaction closed. To find otherwise would be a gross distortion of his
testimony.
Accordingly, we deny BOA’s motion to obtain this discovery.
ENTER:
DATED: January 15, 2015

/s/ Susan E. Cox___________
Susan E. Cox
United States Magistrate Judge

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