In Re: RFC and RESCAP Liquidating Trust Litigation

Filing 5131

Omnibus Order Re: Rule 50(a) JMOL Motions in ResCap Liquidating Trust v. Home Loan Center, Inc., Case No. 14-cv-1716 (SRN/HB) (Written Opinion). Signed by Judge Susan Richard Nelson on 6/12/2019. (MJC)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

In Re: RFC and ResCap Liquidating Trust
Action

Case No. 13-cv-3451 (SRN/HB)

This document relates to:
ResCap Liquidating Trust v. Home Loan
Center, Inc., Case No. 14-cv-1716
(SRN/HB)

OMNIBUS ORDER RE: RULE 50(a)
JMOL MOTIONS

SUSAN RICHARD NELSON, United States District Judge
From October 15 to November 7, 2018, the parties tried this highly complex
contractual indemnification case to a jury. 1 The jury heard the testimony of 29 witnesses
(some live, others videotaped), including seven experts, and received over 75 exhibits; most
of this evidence was introduced by Plaintiff, the ResCap Liquidating Trust (hereinafter
“ResCap”). The Court entertained a multitude of oral arguments from counsel outside the
presence of the jury, primarily concerning evidentiary disputes, and issued numerous written
and oral decisions resolving those disputes. See, e.g., In re ResCap, 2018 WL 5257641 (D.
Minn. Oct. 22, 2018) (addressing “sole responsibility” causation argument and related
evidence).2 Ultimately, following approximately two-and-a-half hours of deliberation, the
jury rendered a $28.7 million verdict in favor of ResCap.
1

For purposes of this Order, the Court assumes familiarity with this litigation’s
extensive factual and procedural background.
2

Moreover, between the issuance of the Court’s 182-page summary judgment
decision on August 15, 2018 and the commencement of trial, the Court held five HLCspecific, in-person pre-trial conferences, and issued several written orders following those

Following the presentation of evidence, but before closing arguments, both parties also
moved for judgment as a matter of law on a number of issues. See Fed. R. Civ. P. 50(a). The
Court heard argument on these motions, and received briefing from both sides.3
Specifically, Defendant Home Loan Center (hereinafter “HLC”) moved for JMOL as
to ResCap’s “failure to prove a non-speculative allocation of the MBIA and FGIC
settlements.” (See HLC JMOL Br. [Doc. No. 4686]; ResCap Opp. Br. [Doc. No. 4699]; Trial
Tr. at 3330-49.)4
For its part, ResCap moved for JMOL as to (1) “the reasonableness and good faith of
RFC’s bankruptcy settlements” (see ResCap Reasonableness & Servicing Br. (“R&S Br.”)
[Doc. No. 4673] at 1-14; HLC 1st Opp. Br. [Doc. No. 4675] at 3-26; Trial Tr. at 2912-43,
2947-59); (2) “the allowance and allocation of servicing claims” (see ResCap R&S Br. at 14-

conferences. See, e.g., In re ResCap, 2018 WL 4469249 (D. Minn. Sept. 18, 2018)
(Seventh Amendment issue); In re ResCap, 2018 WL 4489684 (D. Minn. Sept. 19, 2018)
(Daubert ruling); In re ResCap, 2018 WL 4863597 (D. Minn. Oct. 8, 2018) (motions in
limine); In re ResCap, 2018 WL 4929393 (D. Minn. Oct. 11, 2018) (admissibility of
certain proofs of claim); In re ResCap, 2018 WL 4929394 (D. Minn. Oct. 11, 2018)
(admissibility of certain evidence available to RFC at the time of settlement).
3

The Court pauses to note that, given the demanding deadlines inherent in a trial of
this magnitude, counsel for both sides did an extraordinary job of briefing and arguing
these motions. The Court commends counsels’ diligence.
4

At the close of ResCap’s case, on October 30, HLC also (orally) moved for JMOL
on (i) ResCap’s alleged failure to allocate any damages to the Ambac and Syncora
settlements, and (ii) ResCap’s alleged failure to prove damages to a reasonable degree of
certainty. (See Trial Tr. at 2404-2422.) The Court denied those motions from the bench,
and will not discuss them further, other than to confirm that HLC has preserved its
appellate rights with respect to both motions. (See id. at 2422-23 (stating that “the Court
does not plan to issue a written order in response to this motion, but rather will simply
rule from the bench”); id. at 3260 (renewing motions at close of evidence); see also
Minute Entry for Oct. 30, 2018 [Doc. No. 4665].)
2

19; HLC 1st Opp. Br. at 29-33; Trial Tr. at 2925-27, 2943-46); (3) “causation” (see ResCap
Causation Br. [Doc. No. 4674]; HLC 1st Opp. Br. at 26-29; Trial Tr. at 2889-2912); (4) the
applicability of “the Client Guide [to] HLC’s at-issue loans” (see ResCap Client Guide Br.
[Doc. No. 4689]; HLC 2d Opp. Br. [Doc. No. 4687] at 3-36, 41-43; Trial Tr. at 3264-74,
3289-3313, 3324-30); (5) the relationship of the Assetwise Direct Criteria Agreement to the
Client Guide (see ResCap Assetwise Br. [Doc. No. 4690]; HLC 2d Opp. Br. at 36-41; Trial
Tr. at 3280-86, 3313-17); and (6) “HLC’s affirmative defense of equitable estoppel (and
waiver)” (see ResCap Estoppel Br. [Doc. No. 4691]; HLC 2d Opp. Br. at 44-52; Trial Tr. at
3274-80, 3317-24).
After carefully considering the parties’ arguments, the Court ruled from the bench, in
part on Monday November 5 and in part on Tuesday November 6. Specifically, the Court
denied HLC’s motion, and granted five of ResCap’s six motions; the Court only denied
ResCap’s motion “that the Client Guide governs HLC’s at-issue loans.” (See generally
Minute Entry for Nov. 5, 2018 [Doc. No. 4685] and Minute Entry for Nov. 6, 2018 [Doc. No.
4695].) Because the Court explained its reasoning from the bench at some length, the Court
does not feel compelled to issue an elaborate written decision at this juncture. However, for
the sake of a clear record, the Court will reprint those remarks in this Order, with additional
citations, edits, and footnoted addendums, as needed. The Court will address each motion in
turn.
I.

Legal Standard for a Rule 50(a) Motion
Fed. R. Civ. P. 50(a) provides that, “[i]f a party has been fully heard on an issue during

a jury trial and the court finds that a reasonable jury would not have a legally sufficient
3

evidentiary basis to find for the party on that issue,” “the court may resolve the issue against
the party . . . before the case is submitted to the jury.” When considering such a motion, a
court “must (1) resolve direct factual conflicts in favor of the nonmovant; (2) assume as true
all facts supporting the nonmovant which the evidence tended to prove; (3) give the
nonmovant the benefit of all reasonable inferences; and (4) deny the motion if the evidence
so viewed would allow reasonable jurors to differ as to the conclusions that could be drawn.”
Roberson v. AFC Enters., Inc., 602 F.3d 931, 933 (8th Cir. 2010) (quoting Larson ex rel.
Larson v. Miller, 76 F.3d 1446, 1452 (8th Cir. 1996) (en banc)). However, because a court
“may not accord a party the benefit of unreasonable inferences or those at war with the
undisputed facts,” and because a “reasonable inference” is only “one which may be drawn
from the evidence without resort to speculation,” a court may grant a party JMOL, and
thereby remove an issue from the jury’s province, if “the record contains no proof beyond
speculation to support” a jury finding for the non-movant on that issue. Sip-Top, Inc. v. Ekco
Grp., Inc., 86 F.3d 827, 830 (8th Cir. 1996) (cleaned up) (affirming grant of pre-verdict
JMOL); accord SL Montevideo Tech., Inc. v. Eaton Aerospace, LLC, 491 F.3d 350 (8th Cir.
2007) (same); Arabian Agric. Servs. Co. v. Chief Indus., Inc., 309 F.3d 479 (8th Cir. 2002)
(same); Fought v. Hayes Wheels Intern., Inc., 101 F.3d 1275 (8th Cir. 1996) (same); see also
Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1050 (8th Cir. 2000) (reversing a
district court for failing to grant JMOL and noting that JMOL “must be granted when a nonmovant’s case rests solely upon speculation and conjecture lacking in probative evidentiary
support”) (emphasis added).

4

Moreover, although “[d]etermining the credibility of a witness is the jury’s province,
whether the witness is lay or expert,” Stevenson v. Union Pac. R. Co., 354 F.3d 739, 745 (8th
Cir. 2004), a jury may generally not “disregard arbitrarily the unequivocal, uncontradicted,
and unimpeached testimony of an expert witness where . . . the testimony bears on technical
questions . . . beyond the competence of lay determination.” Quintana-Ruiz v. Hyundai Motor
Corp., 303 F.3d 62, 76-77 (1st Cir. 2002) (quoting Webster v. Offshore Food Serv., Inc., 434
F.2d 1191, 1193 (5th Cir. 1970)). “A jury in such a case must rely on expert testimony and
cannot substitute its own experience.” Id. at 77 (reversing district court for failing to grant
JMOL and remanding for judgment in favor of the moving party); see also Cruz-Vargas v.
R.J. Reynolds Tobacco Co., 348 F.3d 271 (1st Cir. 2003) (affirming grant of JMOL on similar
reasoning).
Finally, a “court’s prior decision on summary judgment [does] not control the outcome
of a Rule 50 motion.” St. Louis Convention & Visitor Comm’n v. National Football League,
154 F.3d 851, 861 (8th Cir. 1998). This is especially so where “[t]he Rule 50 motion was
made and considered after the court had had the benefit of over four weeks of trial,” alongside
“extensive legal arguments by the parties.” Id. (affirming grant of pre-verdict JMOL motion,
on issue where district court had previously denied summary judgment).
II.

HLC’s Allocation Motion
In this motion, HLC argued that, because the Monoline Insurer MBIA “brought and

settled claims against RFC for aiding and abetting GMAC Mortgage in fraudulently
inducing MBIA . . . to insure GMAC-sponsored trusts” (as evidenced by MBIA’s proof of
claim), and because ResCap’s “damages expert, Dr. Karl Snow, did not allocate any portion
5

of the MBIA . . . settlement to” this “non-indemnifiable claim,” HLC was entitled to JMOL
as to ResCap’s “failure to prove a non-speculative basis to allocate the MBIA . . . settlement
between indemnifiable and non-indemnifiable claims.” (HLC JMOL Br. at 2, 4, 6.)5
In response, ResCap argued that, not only did HLC fail to raise this issue at any point
during trial or during its cross-examination of ResCap’s relevant experts, but, under the
UnitedHealth Group allocation standard, RFC was under no obligation to allocate this
“immaterial” claim in order to articulate a “reasonably certain” measure of damages. (See
generally ResCap Opp. Br. (referencing UnitedHealth Grp. Inc. v. Exec. Risk Spec. Ins., 870
F.3d 856, 862 (8th Cir. 2017)).)
The Court denied HLC’s motion. (See generally Trial Tr. at 3356-57.) First, the only
support for HLC’s argument was a handful of sentences in MBIA’s proof of claim. (See
PX-79.) This evidence did not support HLC’s argument, though, because the Court had
already instructed the jury that they could not consider that proof of claim for the truth of
the matter asserted therein. (See, e.g., Trial Tr. at 1390.) Moreover, even if the proof of
claim was competent evidence upon which to base a JMOL motion, HLC’s argument still
failed because no evidence adduced at trial demonstrated that MBIA’s “aiding and abetting”
claim was material. Indeed, Mr. Donald Hawthorne (ResCap’s expert on the bankruptcy
settlements) was the only witness to testify about the materiality of claims that were settled

5

HLC’s brief advanced this argument with respect to both the MBIA and FGIC
settlements. However, because the FGIC proof of claim had not been introduced into
evidence at trial, and because HLC’s motion had no evidentiary basis without that proof
of claim, at oral argument HLC withdrew its JMOL motion with respect to the allocation
of the FGIC settlement. (See Trial Tr. at 3330.)
6

between RFC and MBIA during the bankruptcy, and he did not mention this claim nor was
there any cross examination of him asking why he did not mention this claim. (See
generally id. at 1609-1750, 1788-89 (Hawthorne).) Rather, Mr. Hawthorne only testified
about repurchase claims, recessionary claims (which encompassed both material breach
claims and fraud claims), and servicing claims, and how those claims should be allocated in
the context of this indemnification suit; Mr. Hawthorne was under no obligation to prove a
negative. Finally, not only was there no competent evidence to suggest that MBIA’s “aiding
and abetting” claim had value (or was even considered at the time of settlement), this issue
was not even raised with the Court once over the course of the four-week trial.
For these reasons, the Court denied HLC’s JMOL motion with respect to allocation.
III.

ResCap’s Reasonableness Motion
In this motion, ResCap argued that no reasonable juror could find that the

bankruptcy settlements were not entered into in good faith, and for a reasonable amount.
This was so because (1) ResCap’s reasonableness expert, Mr. Hawthorne, offered the only
expert testimony directly on point, and he explained at great length why the relevant
bankruptcy settlements were reasonable in light of RFC’s exposure, the strengths and
weaknesses of claims and defenses at the time, and comparative settlements; (2) all of the
expert witnesses who considered the bankruptcy settlements at the time found the
settlements reasonable; (3) the settlement negotiations took place under the auspices of a
federal bankruptcy judge as mediator and with the guidance of an independent Chief
Restructuring Officer; and (4) the settlement was only approved by the Bankruptcy Court
(and all parties to the bankruptcy proceeding) after the Bankruptcy Court (among other
7

parties) had rejected an earlier proposed settlement. (See generally ResCap’s R&S Br. at 314.)
By contrast, HLC argued that JMOL was inappropriate, primarily with respect to the
MBIA settlement, because (1) Mr. Hawthorne did not adequately justify why the MBIA
settlement, at a rate of 90% of expected future losses, was reasonable, when the companion
RMBS Trust settlement only settled for 17% of such expected losses; (2) various reports
suggested that RFC was not facing the high loan default rates required for a 90% settlement
rate; (3) MBIA’s material breach and fraud claims, which constituted at least part of the
claims RFC settled in bankruptcy, may not have been successful at trial; and (4) a report
from an expert not testifying in this case, Mr. Fischel, suggested that Mr. Hawthorne’s
touchstone settlement comparator (the Assured v. Flagstar case) was not a good
comparator. (See generally HLC 1st Opp. Br. at 13-26.) With respect to the RMBS Trust
settlement, HLC also argued that (1) its expert, Mr. Phillip Burnaman, called into question
the reliability of the RMBS Trust comparator settlements used by Mr. Hawthorne, and (2)
an April 2012 10-Q disclosure by RFC’s parent company, Ally Financial, suggested that
losses from lawsuits against RFC would be lower than what the settlement ultimately ended
up being. (See id. at 8-13.)
In a (comparatively) lengthy oral ruling, the Court granted ResCap’s motion. (See
Trial Tr. at 2973-84.) To begin, Minnesota law requires that a party seeking indemnity for a
settlement (here, ResCap) prove that the at-issue settlement was entered into in good faith,
and was reasonable and prudent. See Brownsdale Co-op Ass’n v. Home Ins. Co., 473 N.W.
2d 339, 342 (Minn. Ct. App. 1991). Minnesota jurisprudence on this question primarily
8

derives from the case of Miller v. Shugart and what is commonly known as a MillerShugart settlement. See Miller v. Shugart, 316 N.W.2d 729, 732-33 (Minn. 1982); see also
In re ResCap, 332 F. Supp. 3d 1101, 1155-58 (D. Minn. 2018) (providing background). In
such a case, a defendant settles a claim with a plaintiff for a stipulated sum, but conditions
the settlement on the plaintiff’s right to seek recovery only from the defendant’s insurer. Id.
Similarly here, RFC settled the RMBS Trust and Monoline Insurer claims against it for
stipulated “Allowed Claims,” on the condition that those Trusts and Monolines (by way of
the newly-formed ResCap Liquidating Trust) be permitted to seek contractual
indemnification from the mortgage lenders, or “insurers,” who sold RFC the underlying
defective loans, and whose breaches of the Client Guide’s representations and warranties
(“R&Ws”) contributed to RFC facing such claims. See generally In re ResCap, 332 F.
Supp. 3d at 1151-54 (describing the stringency of the Client Guide’s indemnification
provisions for breached R&Ws, which afforded RFC “considerable discretion” and “wideranging remedies” against the mortgage lenders that sold it loans).
As the Minnesota Supreme Court explained in Jorgensen v. Knutson, the MillerShugart “reasonableness requirement” exists “to discourage possible overreaching.” 662
N.W.2d 893, 905 (Minn. 2003). In other words, the specter of “collusion and fraud” in such
a setting triggers the requirement that the party seeking indemnification establish that the
settlement was reached at arm’s length, in good faith, and that the settlement was prudent
and reasonable. See Alton M. Johnson Co. v. M.A.I. Co., 463 N.W.2d 277, 280 (Minn. 1990)
(noting that, in a Miller-Shugart setting, “the exposed insured has no incentive to drive a

9

hard bargain”); Miller, 316 N.W.2d at 735 (similarly worrying that an insured may be “quite
willing to agree to anything as long as plaintiff promise[s] them full immunity”).
Given this policy concern, Minnesota law requires objective proof of good faith and
reasonableness. See Vetter v. Subotnik, 844 F. Supp. 1352, 1355 (D. Minn. 1992).6 An
objective analysis of good faith and reasonableness, in turn, requires an analysis of what the
parties knew or could have known at the time of the settlement; knowledge obtained years
later, of new facts or new law, cannot inform the reasonableness of the settlement at the
time it was made. See Miller, 316 N.W.2d at 735. Moreover, in evaluating objective indicia
of good faith and reasonableness, the fact finder must consider whether a reasonable,
prudent person would have entered into the settlement based upon (i) an analysis of the
defendant’s potential exposure at trial, (ii) the strengths and weaknesses of the claims and
defenses, both factually and legally, (iii) the risks of proceeding to trial, and (iv) the costs
and burdens of litigation. See id.; accord Jorgensen, 662 N.W.2d at 904-05 (listing these
factors, among others, and emphasizing that “reasonableness” is a multi-factor inquiry). The
issue is not whether there was a single correct or perfect settlement. Rather, Minnesota
precedent makes clear that the issue is whether the settlement for which a party seeks
indemnification fell within a reasonable range of potential recoveries. See Nelson v. Am.

6

HLC repeatedly argued that “reasonableness” is governed by an objective
standard, whereas “good faith” is governed by a subjective standard. (See, e.g., HLC 1st
Opp. Br. at 25-26.) Although no court has directly addressed this question in the context
of a Miller-Shugart settlement, a fair reading of the Minnesota case law on the subject
suggests that “reasonableness” and “good faith” are of a piece, rather than distinct
elements, and should both be governed by the objective standard articulated in Miller.
See, e.g., Brownsdale Co-op, 473 N.W.2d at 341-42 (treating “reasonableness” and “good
faith” as part of the same, objective inquiry).
10

Home Assur. Co., 824 F. Supp. 2d 909, 917 (D. Minn. 2011) (“[T]he stipulated $900,000
judgment amount would be recoverable as long as it fell without a reasonable range of
potential recoveries.”); cf. Jackson Nat. Life Ins. Co. v. Workman Sec. Corp., 803 F. Supp.
2d 1006, 1012 (D. Minn. 2011) (noting that “[t]he party seeking indemnification need only
show it could have been liable under the facts shown at trial, not whether [it] would
have been”).
Now, at the summary judgment stage of this case, ResCap moved for summary
judgment on this very issue. This Court denied that motion, citing the need for a full record
on such a fact-intensive inquiry. See In re ResCap, 332 F. Supp. 3d at 1157.7 At the close of
trial, however, the Court had before it a full factual record on which to consider ResCap’s
Rule 50 motion. That record contained the following uncontroverted evidence: First, the
bankruptcy settlements were entered into after a lengthy mediation conducted by a federal
bankruptcy judge, Judge James Peck. (See, e.g., Trial Tr. at 1603-04 (Hawthorne).) Second,
an independent Chief Restructuring Officer, Lewis Kruger, presided over the mediation and
ultimately approved the settlements. He testified at trial that his goal was to achieve “a
consensual deal that treated creditors fairly and established claims of creditors in a way that
was appropriate,” and emphasized that his decision to enter into the settlements was

7

In denying ResCap’s motion at summary judgment, the Court also relied on
evidence concerning “MBIA’s separate settlements with GMAC Mortgage and ResCap
LLC,” which purportedly supported the contention that “RFC settled with MBIA for
allowed claims that exceeded MBIA’s losses by over one billion dollars,” and were
accordingly “unreasonable.” Id. at 1156. However, the Court later excluded this evidence
as irrelevant, in light of certain federal bankruptcy law principles. See In re ResCap, 2018
WL 4929393 (disallowing the GMAC Mortgage and ResCap LLC proofs of claim as
evidence).
11

informed by his discussions with his advisors and with all of RFC’s principal creditor
constituencies. (See, e.g., id. at 1392-1407 (Kruger); see also id. at 1604 (Hawthorne)
(describing Kruger as a “well-respected experienced lawyer,” who “had been appointed by
the [bankruptcy court] and was looking out for the interest of all creditors”).) Third, RFC’s
expert in the bankruptcy case, Mr. Frank Sillman, testified that the settlements reached were
reasonable. (See, e.g., id. at 1416 (Sillman).) Fourth, the RMBS Trusts’ expert, Mr. Allen
Pfeiffer, testified that the settlements reached were reasonable. (See, e.g., id. at 1466-67
(Pfeiffer).) Fifth, all constituencies to RFC’s bankruptcy supported the settlements,
including parties such as the Creditors’ Committee that opposed the original RMBS Trust
settlement. (See id. at 1606-08 (Hawthorne)). For instance, Mr. John Dubel, the chairperson
of the Creditor’s Committee, testified that litigating these issues would have involved great
uncertainty and “numerous complex and novel issues of fact and law.” (See, e.g., ResCap’s
R&S Br. at 14 (citing excerpts from Mr. Dubel’s deposition, which were introduced into
evidence but ultimately not played before the jury in light of the Court’s oral decision on
this issue); see Trial Tr. at 2990-91 (providing context).) Sixth, the RMBS Trusts supported
the settlements. (See, e.g., id. at 1287 (Lipps).) Seventh, ResCap’s expert witness, Mr.
Hawthorne, an experienced RMBS litigator and an expert on RMBS litigation, testified that
the settlements were entered into in good faith and were reasonable. (See, e.g., id. at 1541;
see also supra at 13-15.) Eighth, the bankruptcy judge presiding over the bankruptcy in the

12

Southern District of New York, Judge Martin Glenn, approved the settlements, after having
rejected an earlier proposed settlement. (See, e.g., id. at 1608-09 (Hawthorne).)8
It was further undisputed that the factual evidence arising out of the settled litigation
was highly complex, involving analyses of over 100,000 loans and RFC’s accordant
exposure to many billions of dollars in damages. (See, e.g, id. at 1499, 1501-02, 1590-93
(Hawthorne).) As Ms. Tammy Hamzehpour, RFC’s general counsel, testified, RFC faced
“shockingly high” breach claims that exposed the company to tens of billions of dollars in
potential damages, plus years of litigation and expenses. (See, e.g., id. at 2849-51.) In fact,
RFC’s exposure – in excess of $42 billion – was also uncontroverted. (Id.)
Of all of these facts, Mr. Hawthorone’s lengthy expert testimony was arguably the
most important. Indeed, he was the only expert to testify at trial on reasonableness. As such,
it is worth considering how, exactly, he reached his conclusion that these settlements were
reasonable. In accordance with the multi-factor reasonableness framework detailed above,
Mr. Hawthorne employed a three-step methodology for evaluating the reasonableness of the
settlements – ranging from the MBIA settlement at 90% of expected losses to the RMBS
Trust settlement at 17% of expected losses. He first considered the exposure RFC faced

8

As the Court noted in its omnibus motion in limine decision, Judge Glenn’s order
approving the bankruptcy settlements is distinct from Judge Glenn’s finding that the
settlements were reasonable; the former was admissible for its legal effect (and as an
objective indicia of good faith), while the latter was inadmissible as hearsay. See In re
Rescap, 2018 WL 4863597, at *15. In reaching its decision here, the Court solely relied
on the fact that Judge Glenn approved the settlements, and that Mr. Hawthorne
considered that approval indicative of reasonableness and good faith. See also In re
Rescap, 2018 WL 4489685, at *16 (making similar point in the context of the Court’s
Daubert ruling).
13

were it to try these cases to verdict. (See, e.g., id. at 1499-1502.) He then evaluated, both
factually and legally, the strengths and weaknesses of the claims asserted against RFC by
both the RMBS Trusts and the Monoline Insurers, alongside RFC’s defenses to those
claims. (See, e.g., id. at 1511-62.) Finally, Mr. Hawthorne compared the at-issue settlements
to other, contemporaneous RMBS settlements. (See, e.g., id. at 1564-74.) Notably, Mr.
Hawthorne testified at length about a decision by Judge Jed Rakoff of the District Court in
the Southern District of New York, which Judge Rakoff issued only months prior to the atissue settlements. (See, e.g., id. at 1564-67 (describing Assured Guar. Mun. Corp. v.
Flagstar Bank, FSB, 920 F. Supp. 2d 475 (S.D.N.Y. 2013)).) That decision, Assured v.
Flagstar, was a case brought by a monoline insurer much like MBIA. Following a bench
trial, the monoline insurer in that case, Assured, obtained a judgment for 100 percent of its
losses, plus interest. (Id.) As Mr. Hawthorne testified, that an aggressive monoline insurer
had just been awarded 100 percent of its damages in a similar case just months before the
settlement would have been “very much on the minds” of counsel mediating the bankruptcy
settlements. (Id. at 1564.)
Mr. Hawthorne further testified about the range of settlement rates as among the
Monoline settlements and the RMBS Trust settlement in this case, and noted the differences
in litigation risk RFC faced as between those cases. (See, e.g., id. at 1575-82.) Importantly,
it was uncontroverted that MBIA had sued RFC in 2008, five years before the settlements
were reached. (See, e.g., id. at 1217-24 (Lipps).) In the MBIA case, 130 depositions had
been taken, more than a million pages of documents had been exchanged, and expert
disclosures had been issued. (See, e.g., id. at 1243-45 (Lipps).) Indeed, by 2012, MBIA was
14

actually out of pocket 98 percent of its damages, i.e., well over $1.2 billion. (See, e.g., id. at
1504 (Hawthorne).) Mr. Hawthorne compared that to the RMBS Trusts who, for varying
legal reasons, did not organize themselves or hire counsel until October of 2011, years after
MBIA commenced litigation. (See, e.g., id. at 1578-80 (describing the failure of the RMBS
Trusts to organize themselves for litigation as a “herding cats” problem); accord id. at 125052 (Lipps).) In fact, the RMBS Trusts never actually sued RFC. (Id.) Rather, the RMBS
Trusts only filed proofs of claim after RFC filed for bankruptcy. (Id.) Moreover, Mr.
Hawthorne testified, without serious rebuttal on cross-examination, that the Monolines had
additional legal rights available to them under the law and by virtue of their contracts,
including a contractual right of interest, all of which meaningfully changed the calculus of a
reasonable settlement as between the RMBS Trust claims and the Monoline Insurer claims.
(See, e.g., id. at 1504-07, 1588-89.) Further, Mr. Sillman, RFC’s expert in the bankruptcy
proceeding, testified as to the unique strength of the Monoline claims, and observed that it
was reasonable for Monoline claims to be settled for 80 to 100 percent of lifetime losses.
(See, e.g., id. at 1416.)
Mr. Hawthorne also provided uncontroverted, uncontested testimony about the
importance and complexity of the law on the relevant statute of limitations applicable to
such claims at the time of the settlements (see, e.g., Trial Tr. at 1547-54), and the legal
burden of proof on causation at the time of the settlements (see, e.g., id. at 1530-34, 154547). Both of these legal issues were highly relevant to his determination that RFC faced
potentially enormous liability from the Monoline claims, and arguably less significant
liability when it came to the RMBS Trusts.
15

The only witness to attempt to challenge Mr. Hawthorne’s testimony was Mr. Phillip
Burnaman, and even Mr. Burnaman only challenged Mr. Hawthorne with respect to the
RMBS Trust settlement (rather than the MBIA settlement, which made up the lion’s share
of HLC’s liability in this case). (See generally id. at 2459-2625.) However, Mr. Burnaman
expressly disqualified himself as an expert on reasonableness on at least three different
occasions. First, he testified, “I’m not offering an opinion on the reasonableness of this
settlement.” (Id. at 2600.) Second, he testified, “I didn’t fault Mr. Hawthorne on aspects of
the litigation risk and I didn’t undertake to review the litigation issues around this case
because it’s a very complicated subject.” (Id. at 2601.) Such an analysis “requires a legal
education,” Mr. Burnaman added, which he did not have. (Id.) Third, in response to the
question, “and you’re not here to challenge any of that discussion,” in reference to Mr.
Hawthorne’s discussion of the law relevant to the bankruptcy settlements, Mr. Burnaman
answered, “No. It’s a very complicated subject. I’m not a lawyer . . . there are different laws
in different states in different jurisdictions and I’m not expert enough to undertake to discuss
that.” (Id. at 2605-06.)
However, the reasonableness of these settlements could only be evaluated by
analyzing the exposure, the litigation risks, and the legal strength of the claims and defenses,
together. See Jorgensen, 662 N.W.2d at 905 (reversing lower court for “focusing solely” on
one factor when undertaking a reasonableness analysis). Mr. Burnaman expressly
disavowed the expertise to engage in that analysis. The Court set aside entirely Mr.
Burnaman’s credibility on the testimony he did offer on other comparator settlements
which, of course, Rule 50(a) required the Court to do. See Stevenson, 354 F.3d at 745.
16

Entirely setting aside his credibility nonetheless, the fact that Mr. Burnaman had so
disqualified himself made it so that his testimony was simply not probative of
reasonableness. Cf. Concord Boat Corp., 207 F.3d at 1050 (noting that JMOL “must be
granted when a non-movant’s case rests solely upon speculation and conjecture lacking in
probative evidentiary support”). If the other settlements to which Mr. Burnaman testified
were considered in the context of the changing law at the time, such as the law on causation
and the law on the statutes of limitations, one could then evaluate whether they were
comparable. But because Mr. Burnaman expressly disavowed such analysis, no reasonable
juror could conclude, one way or the other, whether those settlements were comparable or
not and therefore whether they were probative of the reasonableness of the RMBS Trust
settlement in this case.
The only other notable evidence to which HLC cited in opposition to ResCap’s
motion was evidence that more than a year prior to the settlements, Ally Financial, RFC’s
parent company, filed a disclosure with the SEC (a form 10-Q) that optimistically estimated
the company’s exposure at merely “zero to four billion dollars.” (See, e.g., HLC 1st Opp.
Br. at 12-13 (pointing out various points in testimony where this 10-Q was discussed and
observing that, only “two and a half weeks later,” “ResCap and RFC agreed to an $8.7
billion allowed claim settlement just for RFC’s liabilities”).)9 But such evidence in a

9

The Court notes that this $8.7 billion RMBS Trust settlement was rejected by the
Bankruptcy Court and various creditors (see Trial Tr. at 1258-59 (Lipps)), and that the
final RFC RMBS Trust settlement, which was one of the settlements RFC was actually
seeking indemnification for in this trial (along with the Monoline settlements), set RFC’s
liability at approximately $7.1 billion (id. at 1278).
17

vacuum, without the benefit of expert testimony as to the meaning or requirements of that
disclosure, was hardly sufficient to argue that, on that basis, a reasonable juror could
conclude that the settlements were unreasonable. See Larson, 76 F.3d at 1452 (noting that
“[a] mere scintilla of evidence is inadequate to support a verdict”).
HLC also challenged the credibility of Mr. Hawthorne’s explanations for the
differences in settlement rates, as between the 17% RMBS trust settlement rate and the 90%
MBIA settlement rate, but relied only on attorney argument that Mr. Hawthorne’s opinion
was not reliable.10 Of course, HLC was certainly correct that ResCap bore the burden of
proving good faith and reasonableness. And HLC was correct that, as a defendant, it had no
obligation to present expert testimony on reasonableness. (See, e.g., HLC 1st JMOL Opp.
Br. at 7-8 (collecting cases).) But it was equally true that the arguments of counsel are not
evidence and so counsel cannot testify as an expert and provide the analysis and the
connections necessary that can only be presented through expert testimony. See Wittenburg
v. Am. Express Fin. Advisors, Inc., 464 F.3d 831, 838 (8th Cir. 2006) (“[A]rguments of
counsel are not evidence.”). And perhaps more importantly, counsel could not invite the

10

For example, during cross-examination, HLC attempted to call into question Mr.
Hawthorne’s explanation for the difference between the high Monoline settlement rates
and the (comparatively lower) RMBS Trust settlement rate on grounds that the so-called
“herding cats problem” was not as much of a problem as Mr. Hawthorne and Mr. Lipps
contended. (See HLC 1st JMOL Opp. Br. at 17-18.) Similarly, during its cross of Mr.
Hawthorne, HLC asked questions about a report purportedly concluding that Flagstar did
not settle for 100% of expected losses (id. at 23-24), as well as read into evidence
documents suggesting that RFC’s estimated loan breach rates were too low to support a
90% settlement rate (id. at 15-17.) HLC apparently believed that, by tying together this
smorgasbord of (largely irrelevant) data points during its closing argument, a reasonable
juror could entirely ignore Mr. Hawthorne’s opinion and thereby find the bankruptcy
settlements unreasonable.
18

jury to “speculate,” particularly with regard to as complex an issue as the reasonableness of
a multi-billion-dollar RMBS settlement achieved through the federal bankruptcy process.
See Sip-Top, Inc., 86 F.3d at 830 (“When the record contains no proof beyond speculation
to support the verdict, judgment as a matter of law is appropriate.”).
Indeed, as at least one federal circuit has recognized in recent years, the general rule
that a jury verdict cannot be based solely on the jury’s rejection of the other side’s
uncontradicted testimony applies with particular force to expert testimony on matters
outside of lay competence. See Quintana-Ruiz, 303 F.3d 62; Cruz-Vargas, 348 F.3d 271.
That is, although jurors may decide what weight to give to the testimony of expert
witnesses, they may not “disregard arbitrarily the unequivocal, uncontradicted, and
unimpeached testimony of an expert witness where . . . the testimony bears on technical
questions . . . beyond the competence of lay determination.” Quintana-Ruiz, 303 F.3d at 7677. There was no doubt that, given the role of the legal landscape in 2013 in determining the
reasonableness of these settlements, i.e., the need to evaluate the strength and weaknesses of
these claims and defenses in the context of the law, this issue unquestionably required
expert testimony. Cf. Jorgensen, 662 N.W.2d at 905 (noting that an important consideration
in determining reasonableness is “expert testimony for both parties on issues of the likely
size of a jury award”). And as to the law at the time of the settlements, Mr. Hawthorne’s
testimony was uncontradicted and unimpeached.
To be sure, Rule 50(a) sets forth a strict standard. The Court may not grant a party’s
motion for JMOL unless no reasonable juror, taking all reasonable inferences in the light
most favorable to the opposing party, the nonmovant, could find against the moving party.
19

See Roberson, 602 F.3d at 933. Moreover, the Eighth Circuit is clear that this is an exacting
burden due to “the danger that the jury’s rightful province will be invaded when [JMOL] is
misused.” Bavlsik v. General Motors, LLC, 870 F.3d 800, 805 (8th Cir. 2017). And, again,
in determining whether to grant JMOL, a court must refrain from making credibility
assessments. See Stevenson, 354 F.3d at 745. As is evident from this ruling, the Court made
no credibility assessments in reaching its decision.
However, the Court found it noteworthy that this particular issue, i.e., the good faith
and reasonableness of a settlement in the context of an indemnity action, had almost always
been decided by a court as a matter of law on summary judgment, or by a court after an
evidentiary hearing. It had rarely, if ever, been considered by a jury. 11 Indeed, in the midst
of this trial, in a related case involving the exact settlements at issue here, one of the Court’s
colleagues, Judge Paul Magnuson, ruled at summary judgment that the settlements were
reasonable and entered into in good faith. See Residential Funding Co., LLC v. Universal
Am. Mortg. Co., LLC, No. 13-cv-3519 (PAM/HB), 2018 WL 4955237, at *5-6 (D. Minn.
Oct. 12, 2018).
Thus, the question before the Court was whether a reasonable juror, in the face of
this overwhelming, uncontroverted evidence of good faith and reasonableness, could find

11

The Court acknowledges that, a month before trial, it ruled that the Seventh
Amendment requires reasonableness to be tried before a jury in federal court, contra the
Minnesota law requiring this issue to be tried before a judge in state court. See In re
ResCap, 2018 WL 4469249. However, the fact that an issue is presented before a jury in
no way limits a federal court’s power to render JMOL under Rule 50(a), even if the issue
is one on which the Court previously denied summary judgment. See St. Louis Convention
& Visitor Comm’n, 154 F.3d at 861.
20

that these settlements approved by a United States Bankruptcy Judge were not entered into
in good faith and were not reasonable. To do so, this jury would have had to disagree with:
(1) every professional to consider the issue, (2) the experts on both sides of the bankruptcy,
Mr. Sillman and Mr. Pfeiffer, and (3) every constituency with an interest in the settlements,
including the Creditors’ Committee, the RMBS Trusts, and the only expert to opine on the
issue in this case, Mr. Hawthorne. In fact, no competent fact or expert witness has ever
opined that these settlements were entered into in bad faith and/or were not reasonable.12
The defense would have asked the jury to be the first to do so.
For these reasons, the Court granted ResCap’s motion as to reasonableness and good
faith.
IV.

ResCap’s Allocation of Servicing Claims Motion
In this motion, ResCap argued that no reasonable juror could find that it was

unreasonable “for a party in RFC’s position [in 2013] to settle [non-indemnifiable] servicing
claims for $96 million (in the RMBS Trust settlement) and de minimis or no value (in the
Monoline Settlement), after accounting for litigation risk.” (ResCap R&S Br. at 18.) In

12

The Court acknowledges that HLC intended to offer the testimony of at least one
expert, Professor George Triantis, in support of the conclusion that the bankruptcy
settlements were unreasonable. Professor Triantis based his conclusion on the
purportedly “skewed incentives” facing settling parties in a bankruptcy proceeding.
However, the Court excluded Professor Triantis’s testimony in its Daubert order. See In
re Rescap, 2018 WL 4489685, at *24-26. In so ruling, the Court observed that Professor
Triantis was “simply not qualified to opine about the reasonableness of the Settlements,”
in large part because he did not “assess the strengths and weaknesses of the underlying
claims and defenses in the Settlement” and “ha[d] no experience in the RMBS context.”
Id. at *25.
21

advancing this argument, ResCap again pointed to the (virtually uncontradicted) testimony
of Mr. Hawthorne, in which he explained why servicing claims lacked value, based on his
experience as a plaintiff-side RMBS litigator during the relevant time period. (See id. at 1416.) In particular, ResCap noted, Mr. Hawthorne focused on numerous legal difficulties
with RMBS servicing claims, such as a high burden of proof and a general lack of legal
support. (Id. at 15.) For instance, ResCap added, Mr. Hawthorne provided compelling
testimony about the importance of a September 2012 Assured v. Flagstar (pre-trial)
decision, in which Judge Rakoff allowed Assured’s RMBS servicing claim past summary
judgment but explicitly expressed “skepticism” that the claim could succeed at trial;
Assured declined to pursue this claim at trial in light of Judge Rakoff’s admonishment. (Id.
at 15 (quoting Assured Guar. Mun. Corp. v. Flagstar Bank, FSB, 892 F. Supp. 2d 596, 607
(S.D.N.Y. 2012)).)
For its part, HLC argued that a reasonable juror could find that ResCap failed to
allocate at least some (unidentified) portion of the Monoline settlements to servicing claims.
This was so, HLC contended, because the RMBS Trust settlement had allocated some value
to servicing claims (albeit only 1% of the total claim)13, because MBIA’s servicing claim
had survived a motion to dismiss, because MBIA had retained two expert witnesses on the
issue, and because Mr. Burnaman’s testimony showed why the RFC Servicer Guide set out

13

For a more thorough discussion of the allocation of servicing claims in the RMBS
Trust settlement, see In re ResCap, 2018 WL 4863597, at *22-23 (denying HLC’s motion
in limine no. 5). Notably, in its opposition brief, HLC did not contest the reasonableness
of the servicing allocation in the RMBS Trust settlement.
22

“objective criteria” that made a servicing claim against RFC more likely to succeed than
analogous claims against other “master servicers.” (See HLC’s 1st Opp. Br. at 30-33.)
The Court granted ResCap’s motion on this issue, too, for largely the same reasons
that it granted ResCap’s motion on reasonableness and good faith. (See generally Trial Tr.
at 2984-87.) Again, the Court focused on Mr. Hawthorne’s expert legal testimony as to why
servicing claims would have been extremely difficult to prove in 2013. First, Mr.
Hawthorne noted the prevailing law on loss causation at the time of the settlements and the
difficulty in establishing that a servicer breach caused losses to an RMBS Trust. (See, e.g.,
id. at 1530-32.) Second, he noted the discretion afforded to RFC as a “master servicer”
under the governing pooling and servicing agreements. (See, e.g., id. at 1781-82.) Third, he
noted the express limitations on RFC’s liability as a master servicer under those agreements.
(See, e.g., id. at 1529-30.) Finally, he noted that, under the pooling and servicing
agreements, a plaintiff would have had to show that the servicer was “grossly negligent” in
the performance of its duties in order to establish a servicing claim. (See, e.g., id. at 177276.) Mr. Hawthorne also emphasized the aforementioned 2012 Flagstar ruling, as well as
the fact that he knew of no case in which RMBS servicing claims had resulted in any
“appreciable recovery” for a plaintiff. (See, e.g., id. at 1534, 1564, 1776-78.)
In the face of this expert-driven evidence showing why it would have been
reasonable at the time of the bankruptcy settlements to attribute little-to-no value to
servicing claims, HLC offered effectively nothing in response. Again, Mr. Burnaman
disqualified himself as an expert on the reasonableness of the servicing claims. He
confirmed that he could not offer an opinion on the legal viability of the servicing claims
23

asserted by the RMBS Trusts and the Monolines because he was not a lawyer and was
accordingly not qualified to testify about the law on loss causation and the heightened
“gross negligence” burden of proof. (See, e.g., id. at 2533, 2536-37, 2612-14.) Indeed, Mr.
Burnaman conceded that he offered no opinion with respect to the litigation risk of
defending against such claims. (See, e.g., id. at 2600-01; but cf. In re Rescap, 2018 WL
4489685, at *21 (noting, in its Daubert Order, that “[w]hat is relevant to the
reasonableness of the Settlements is the parties’ expectation of possible recovery on
available claims, as discounted by the litigation risk”).)
As for the facts elicited by HLC on cross-examination, Mr. Kruger and Mr. Pfeiffer
both acknowledged RFC’s potential exposure on the servicing claims to be around $96
million after accounting for litigation risk, albeit solely in the context of the RMBS Trust
litigation. (See, e.g., Trial Tr. at 2391-92 (Kruger), id. at 1461-63 (Pfeiffer).) Moreover,
MBIA’s expert (whose report was referenced during Mr. Hawthorne’s cross but who did not
testify at this trial) apparently believed MBIA’s servicing claim was worth at least $76
million, albeit without connecting that amount to any alleged servicing defects. (See, e.g., id.
at 1645, 1657, 1662-63 (Hawthorne).) Finally, Mr. Burnaman testified that there were
written objective servicing criteria in the servicing and pooling agreements that governed
RFC’s role as master servicer, and that these criteria may have potentially subjected RFC to
a viable servicing claim. (See, e.g., id. at 2533, 2536-37, 2612-14.)
However, on these minimal facts alone, no reasonable juror could find that Mr.
Hawthorne’s de minimis Monoline Insurer servicing allocation was unreasonable. This was
especially so in light of the relevant inquiry, which was not, “is there any universe in which
24

MBIA potentially could have succeeded on its servicing claim against RFC?” But, rather,
“was it reasonable for a party in RFC’s position to settle servicing claims against it for de
minimis value in light of the litigation risk, and in the context of the law that governed the
claims at the time?” On this record, no reasonable juror could have answered the latter
question in the negative.
For these reasons, the Court granted ResCap’s motion as to the allocation of
servicing claims.
V.

ResCap’s Causation Motion
In this motion, ResCap argued that unrebutted fact and expert testimony showed that

it met its burden on causation, under the (fairly liberal) “contributing cause” standard
articulated in the Court’s summary judgment order. See In re ResCap, 332 F. Supp. 3d at
1164-65 (holding that, “to prevail on its contractual indemnity claim, [ResCap] must show
that the losses and liabilities for which they seek indemnity [i.e., the bankruptcy settlements]
have a cause and result relationship with, or a causal connection to, [HLC’s] breaches of
R&Ws or Events of Default. . . . This does not require [ResCap] to show that [HLC’s]
breaches were the sole cause of [the claims settled in bankruptcy] – it merely requires that
[ResCap] shows that [HLC’s] breaches were a contributing cause of those liabilities and
losses”) (cleaned up). In proving this claim, ResCap relied largely on the expert testimony
of its re-underwriting experts, Mr. Steven Butler and Mr. Richard Payne. According to
ResCap, this testimony showed that specific HLC loans breached specific Client Guide
R&Ws, which then caused RFC to breach specific R&Ws to the Trusts and Monolines,

25

which then caused the Trusts and Monolines to sue RFC for breach of contract. (See
generally ResCap Causation Br.)
In response, HLC only argued that (1) ResCap did not meet its burden of proof as to
two of the Monoline settlements (Ambac and Syncora), one of which (Ambac) ResCap was
not even seeking indemnification for in this lawsuit, and (2) ResCap did not show that either
the Trusts or Monolines actually brought claims over two of the specific HLC R&W
breaches relied upon by Mr. Payne in proving ResCap’s “chain of causation” (i.e., the
“representation regarding documentation programs” and the “representation regarding
proxy Mortgage Loan Schedules”). (See HLC’s 1st Opp. Br. at 26-28.)
The Court granted ResCap’s motion on this issue. (See generally Trial Tr. at 298790.) The uncontested, unconverted, and unimpeached factual and expert testimony
concerning causation conclusively established five facts. First, RFC, in its sole discretion,14
determined that 57 at-issue RMBS Trust loans and 38 at-issue Monoline loans involved
both HLC R&W breaches and RFC R&W breaches. (See, e.g., id. at 1831-832, 1857-60
(Payne).) Second, specific HLC R&W breaches directly caused specific RFC R&W
breaches. (See, e.g., ResCap Causation Br. at 2 (gathering numerous record citations).)
Third, the RMBS Trusts and Monolines asserted loan-level breach claims when they filed
claims against RFC in the bankruptcy. (See, e.g., id. at 6-7 (gathering numerous record
citations).) Fourth, professionals involved in the bankruptcy considered these loan-level

14

In its summary judgment decision, the Court held that the Client Guide “grant[ed]
RFC sole discretion to determine Events of Default in all circumstances,” and that no
evidence suggested that RFC exercised that discretion “dishonestly, maliciously, or
otherwise in subjective bad faith.” In re Rescap, 332 F. Supp. 3d at 1153, 1185.
26

breach claims to be a substantial source of RFC’s liability. (Id. (citing testimony from Mr.
Pfeiffer and Mr. Sillman).) Fifth, RFC incurred “loss and liabilities” when it settled those
loan-level breach claims, for which it now seeks indemnity under the terms of the Client
Guide.
HLC introduced no evidence to the contrary, fact or expert, and in its opposition to
ResCap’s JMOL motion, HLC pointed to only a few shards of evidence it claimed a
reasonable juror could rely on in finding that ResCap had not met its burden as to
causation.15
First, HLC argued that RFC had not proven that HLC’s breaches were a contributing
cause of two of the Monoline settlements, Ambac and Syncora. HLC based its argument
entirely on its criticism of the allocation modeling of Dr. Snow, i.e., that Dr. Snow’s breach
rate analysis across the Monoline settlements was flawed because he treated them as one
“global settlement,” rather than as multiple, individual settlements. However, that issue (i.e.,
the credibility of Dr. Snow, and the integrity of his sampling model) related only to
damages and allocation, both of which remained issues for the jury to decide.

15

This minimal evidentiary showing was unsurprising. HLC’s summary judgment
briefing on causation relied heavily on its expert, Professor Steven Schwarcz, and various
theories he advanced involving RFC R&W breaches that were purportedly “solely
caused” by RFC, and then settled for value in the bankruptcy. See In re Rescap, 332 F.
Supp. 3d at 1167-68 (declining to grant ResCap summary judgment on causation, largely
because of Professor Schwarcz’s theories). However, the Court excluded much of
Professor Schwarcz’s testimony in its October 22 “RFC sole responsibility” order, see In
re ResCap, 2018 WL 5257641, and HLC declined to put Schwarcz on the stand at trial
for any other purpose.
27

Second, HLC argued that a reasonable juror could find that ResCap had not proven
causation as to two discrete R&W categories: R&Ws regarding Mortgage Loan Schedules
based on “proxy data,” and R&Ws regarding documentation program representations.
As to Mortgage Loan Schedule R&Ws, there was no doubt that RFC made such
R&Ws to the Trusts and Monolines, and that breaches based on those R&Ws therefore
contributed to the bankruptcy settlements. (See, e.g., Trial Tr. at 1871 (Payne).) Rather,
HLC appeared to argue that the absence of the original data on the Mortgage Loan
Schedules was fatal to the success of those breach determinations. However, the Court
considered this issue in its Daubert ruling, and then again in its motion in limine ruling. In
both cases, the Court noted that basing an R&W breach on “proxy data” from a third-party
source was entirely permissible because it supplied the exact same data that was included in
the original schedules. See In re Rescap, 2018 WL 4489685, at *10 (Daubert ruling); In re
ResCap, 2018 WL 4863597, at *19-20 (motion in limine ruling).
As for the documentation program R&Ws, it appeared from expert submissions prior
to trial that HLC disagreed with Mr. Payne and Mr. Butler’s interpretation of those
representations. See, e.g., In re Rescap, 332 F. Supp. 3d at 1167-68 (overviewing HLC’s
then-argument over “documentation program R&Ws,” in which the parties disputed
whether such “pool-wide” RFC “documentation program R&Ws” were “functionally
equivalent to underwriting representations”). However, none of that evidence was
presented at trial through HLC’s witnesses. (Cf. supra n.15.) Accordingly, on this record,
there was no argument HLC could have made to the jury explaining how losses arising from

28

breaches of RFC’s “documentation program R&Ws” resulted in ResCap failing to meet its
burden on causation.
For these reasons, the Court granted ResCap’s motion as to causation.
VI.

ResCap’s Client Guide Motion
In this motion, ResCap argued that uncontroverted evidence demonstrated that the

Client Guide, and its accordant R&Ws and indemnification remedies, applied to all loans for
which ResCap was seeking indemnification, including so-called “bulk loans” and “pay option
ARM loans.” This was especially so because HLC’s corporate representative, Ms. Rebecca
Barton, effectively testified to that effect, and because “all parties agree[d] that HLC’s loans
were governed by R&Ws and remedies, and the only identified R&Ws or remedies [were]
those” found in the Client Guide. (See ResCap Client Guide Br. at 3-7.)
By contrast, HLC argued that a reasonable juror could find that RFC purchased “bulk
loans” and “pay option ARM loans” from HLC outside the Client Guide, largely because one
of its witnesses, former HLC Senior Vice President of Secondary Markets, Mr. Rian Furey,
explicitly testified as such, and “because RFC did not purchase bulk loans [and pay option
ARM loans, neither of which complied with the Client Guide’s “underwriting criteria”] under
any of the Client Guide’s three permitted methods for loans that do not comply with the Client
Guide in certain respects.” (See HLC 2d Opp. Br. at 7-11, 22-28, 30-31, 33-36.)
The Court denied ResCap’s motion. (See generally Trial Tr. at 3350-51.) Although
the Court acknowledged the overwhelming evidence suggesting that the Client Guide and its
R&Ws and remedies governed the sale of all loans purchased by RFC from HLC, including
the testimony of HLC witnesses Ms. Barton and Mr. James Svinth (Mr. Furey’s boss), Mr.
29

Furey’s testimony that, in his view, the Client Guide did not cover “bulk loans” and “pay
option ARM loans” created a factual dispute that only the jury could resolve. (See, e.g., id. at
3102-03, 3078-84 (bulk loans), 3091-93 (pay option ARM loans) (Furey).) Although
ResCap’s cross-examination of Mr. Furey certainly challenged Mr. Furey’s credibility (see
ResCap Client Guide Br. at 4), the Court could not consider that issue in reaching this ruling.
See Stevenson, 354 F.3d at 745. Moreover, given further inferences that could be drawn from
the evidence about the manner in which “bulk loans” and “pay option ARM loans” were
handled, such as the arguable failure of RFC to enter into a written variance with HLC when
purchasing bulk loans underwritten to other purchasers’ underwriting guidelines, a reasonable
juror could find that RFC purchased those two categories of loans outside the Client Guide,
and therefore without the accordant R&Ws and remedies at issue in this case.
For these reasons, the Court denied ResCap’s motion as to the applicability of the
Client Guide. Accord Watkins Inc. v. Chilkoot Distrib., Inc., 655 F.3d 802, 805 (8th Cir. 2011)
(holding that, under Minnesota law, “[o]rdinarily, the existence of a contract is a question of
fact to be determined by the jury”); Minn. Supply Co. v. Raymond Corp., 472 F.3d 524, 532
(8th Cir. 2006) (same).

30

VII.

ResCap’s Assetwise Direct Criteria Agreement Motion16

In this motion, ResCap argued that, regardless of what the Court held with respect to
“bulk loans” and “pay option ARM loans,” no reasonable juror could find that the R&Ws
listed in the Assetwise Direct Criteria Agreement (the “AW Agreement”) superseded the
Client Guide’s R&Ws. This was so because only one witness discussed the AW Agreement
based on personal experience (RFC’s former Sales Director, Ms. Renee Bangerter, who was
responsible for sending this agreement to HLC), and she testified that the AW Agreement’s
R&Ws merely supplemented, rather than superseded, the Client Guide’s R&Ws. (See
ResCap Assetwise Br. at 1-2.) Moreover, ResCap contended, even if the AW Agreement
R&Ws superseded the Client Guide R&Ws, that would not matter because “all 21
[Assetwise] loans identified by [ResCap’s re-undewriting expert, Mr. Payne] remain[ed] in
breach [under the AW Agreement’s R&Ws].” (See id. at 3 (identifying and discussing each
of these loans).)
For its part, HLC argued that a reasonable juror could find that the AW Agreement
superseded the Client Guide because the AW Agreement “contain[ed] no language
specifying that the Client Guide’s [R&Ws] appl[ied] in addition to those set forth in the

16

Unlike “bulk loans” and “pay option ARM loans,” the Court’s summary judgment
decision directly addressed HLC loans purchased using RFC’s “Assetwise system.” See
In re Rescap, 332 F. Supp. 3d at 1175-78. Although the Court ruled that the unrefuted
evidence showed that RFC did not “intend[] a blanket waiver of its remedies of the
provisions of the Client Guide when utilizing Assetwise” – because the Client Guide
“expressly anticipate[d] RFC’s use of Assetwise” and stated that the Guide’s R&Ws
would still apply “even if the parties used Assetwise,” id. at 1178 – the Court held that a
narrow triable issue of fact remained “as to whether the [Assetwise] Agreement
superseded the Client Guide” “with respect to the [R&Ws] for which HLC was
responsible,” id. at 1177 (emphasis added).
31

Agreement itself,” (HLC 2d Opp. Br. at 38), and because a companion document to the AW
Agreement, the “Assetwise Direct License Agreement,” contained an indemnity provision
that arguably replaced the Client Guide’s indemnification provision (id. at 40).
The Court granted ResCap’s motion. (See generally Trial Tr. at 3351-54.) First, only
Ms. Bangerter testified as to her contemporaneous understanding of the AW Agreement,
and she testified that the AW Agreement did not supersede the Client Guide; no other
witness provided substantial testimony on this issue. (See, e.g., id. at 647-650, 661-62.) For
instance, Ms. Bangerter testified that the “seven points,” or R&Ws, listed in the AW
Agreement “were not meant to replace the 20 to 30 pages of R&Ws in the Client Guide,”
and were merely “additional requirements.” (Id. at 650, 662 (cleaned up).) Bangerter could
also not “recall ever telling anyone at HLC that the AW Agreement modified the Client
Contract or Guide,” nor did she even “have the authority” to do so. (Id. at 648-49 (cleaned
up).) She further stated that no one “from HLC ever disagreed that Client Guide Section 4A
[concerning R&Ws] applied to their Assetwise loans.” (Id. at 683, 685 (cleaned up).) HLC
neither presented testimony to the contrary, nor even attempted to seriously call this portion
of Ms. Bangertner’s testimony into question on cross-examination.
Moreover, the text of the AW Agreement’s R&W section plainly required reference
to the Client Guide; no reasonable juror could read it as a stand-alone agreement. (See
ResCap’s Assetwise Br. at 2-3.) As Ms. Bangerter observed, the seven R&Ws in the AW
Agreement made little sense without cross-reference to the Client Guide’s R&W section.
(See, e.g., Trial Tr. at 681-83 (discussing this need with respect to the AW Agreement’s
R&Ws requiring “accurate calculation of income and assets” and “no fraud and
32

misrepresentation”).). Indeed, even HLC’s witness, Mr. Furey, testified that the R&Ws in
the AW Agreement were “somewhat vague,” and that “it would be fair to presume that all
seven refer to provisions in the Client Guide.” (Id. at 3176-77 (cleaned up).) Finally, even
under HLC’s AW Agreement theory, RFC had established R&W breaches for the 21
breaching loans identified by ResCap’s expert, Mr. Payne. (See ResCap’s Assetwise Br. at
3.)17
For these reasons, the Court granted ResCap’s motion as to Assetwise.
VIII. ResCap’s Equitable Estoppel (and Waiver) Motion
In this motion, ResCap argued that no reasonable juror could find that HLC had met
its burden of proving the affirmative defense of equitable estoppel. In other words, ResCap
contended, no reasonable juror could find that a “person of authority” at RFC induced HLC
to sell it loans on the understanding that such loans would not have to comply with the
Client Guide R&Ws and remedies. Not only did no RFC or HLC employee testify at trial
that anyone at RFC ever “agreed to abandon” those portions of the Guide in return for loan
sales, ResCap pointed out, the former traders HLC put on in support of its estoppel defense
(i.e., Mr. Furey and Mr. Smith) testified that they were not sure if the RFC employees with
whom they met even had the authority to make such a promise. (See ResCap’s Esoppel Br.
at 1-4).

17

Moreover, HLC’s argument concerning the AW Direct Licensing Agreement
missed the mark because no witness provided testimony about how that “companion”
agreement interacted with either the AW Agreement or the Client Guide. Hence, in the
face of Ms. Bangertner’s unequivocal testimony, a juror could only speculate that the
Licensing Agreement’s indemnity provision somehow superseded the Client Guide’s
indemnity provision.
33

In response, HLC argued that a reasonable juror could find that “RFC induced HLC
to sell more loans with the implicit understanding that they need not comply with the Client
Guide” R&Ws and remedies. (HLC 2d Opp. Br. at 46.) In making this argument, HLC
relied almost entirely on a February 2006 dinner meeting between RFC employees Ms.
Martha Forget and Mr. Alan Joseph and HLC traders Mr. Smith and Mr. Furey, three of
whom testified at trial (i.e., Forget, Smith, Furey). 18 At this meeting, Ms. Forget, on behalf
of RFC, agreed to buy “bulk loans” from HLC even though those loans were not
underwritten to the underwriting guidelines contained in RFC’s Client Guide; rather, they
were underwritten to competitor guidelines. (Id. at 47-50.) From this evidence, HLC argued,
a reasonable juror could infer that RFC made “representations and inducements” that it
would not enforce Client Guide R&Ws and remedies with respect to those loans, and that
HLC reasonably relied on those “representations and inducements” in selling RFC those
“bulk loans.” (Id.)
The Court granted ResCap's motion. (See generally Trial Tr. at 3354-56.) This
affirmative defense, on which HLC undoubtedly bore the burden of proof, operated as an
alternative to HLC’s argument that the Client Guide did not apply at all to “bulk loans” or
“pay option ARM loans.” As the Court suggested in its summary judgment decision, HLC’s
argument was that, even if the Client Guide technically applied to all loan sales, equity
demanded that RFC be estopped from enforcing the R&W and remedial provisions of the
Client Guide as to certain categories of loans. See In re ResCap, 332 F. Supp. 3d at 1174-75.

18

Mr. Joseph passed away before this litigation commenced.
34

This defense required proof that: (1) RFC made promises or inducements to HLC
concerning the relevant provisions of the Client Guide, (2) HLC reasonably relied upon
those promises, and (3) HLC would be harmed if estoppel was not applied. See id. at 1174
(citing Hyrda-Mac, Inc. v. Onan Corp., 450 N.W.2d 913, 919 (Minn. 1980)).
As to the first element, it was HLC’s affirmative burden to establish that RFC made
“promises or inducements” to HLC that, despite the presence of a voluminous written
contract that had governed the parties’ relationship for years, HLC could sell RFC loans, en
masse, that would not have to comply with a critical portion of that written contract, i.e., the
R&Ws and remedies. HLC’s only substantial evidence in support of this first element was a
February 2006 meeting and dinner, four years after the parties started doing business.
(Accord Sept. 14, 2018 Hr’g Tr. [Doc. No. 4470] at 13-14 (noting that HLC could support
this first element of estoppel with either “actual communications between . . . people with
the authority to be able to make th[e] decision [to buy loans outside the Client Guide]
between the two companies, or it could be an internal document reflecting that
communication”).) However, it was uncontroverted that no person at this meeting, either
from RFC or HLC, mentioned the Client Guide, much less discussed waiving any provision
of the Client Guide, including the at-issue R&Ws and remedies, in return for bulk loan
sales. (See ResCap Estoppel Br. at 1-3 (gathering record citations).) In fact, Mr. Furey and
Mr. Smith both agreed that, at this dinner, the parties only discussed whether RFC would
entertain purchasing “bulk loans” that had been originated for other program parameters or
underwriting guidelines, such as those of RFC’s competitor, Countrywide Financial. (See,
e.g., Trial Tr. at 3037-39 (Smith), 3148-49 (Furey).)
35

Thus, even drawing all inferences from this evidence in the light most favorable to
HLC, as the Court must, a reasonable juror could not infer that RFC affirmatively promised
or induced HLC to sell it bulk loans wholly outside the Client Guide. (Cf. Oct. 1, 2018
Order [Doc. No. 4497] at 7 (distinguishing between evidence concerning “generalized
variances from RFC’s underwriting criteria,” which would not support an estoppel defense,
and “evidence of a stated departure from the provisions and remedies of the Client Guide as
to specific HLC loans or bulk transactions, made by a person of authority at RFC,” which
would support an estoppel defense).)19 By extension, a reasonable juror could not infer that
RFC affirmatively waived its right to enforce the Client Guide’s remedies or R&Ws. By the
admission of HLC’s witnesses, the subject was simply never discussed. Setting aside any
credibility issues with HLC’s witnesses, the best that could be inferred from this February
2006 meeting and dinner was that no “meeting of the minds” occurred as to whether the
Client Guide’s R&Ws and/or remedies applied at all to those at-issue loans. However, that

19

The Court acknowledges that Minnesota case law suggests that a party to a
contract may support an estoppel defense with a counter party’s “silence[,] negative
omission to act when it was [their] duty to speak or act,” or suggestive “course of
conduct.” See, e.g., Pollard v. Southdale Gardens of Edina Condo. Ass’n, Inc., 698
N.W.2d 449, 454 (Minn. Ct. App. 2005); see also St. ex rel. Swanson v. 3M Co., 845
N.W.2d 808, 819 (Minn. 2014) (holding that, for a waiver defense, “intent to waive [a
contractual provision] may be inferred from conduct”). However, at trial, HLC
introduced no evidence, beyond mere speculation, from which a reasonable juror could
find that RFC’s “silent” “course of conduct” induced HLC to sell it loans outside the
Client Guide’s R&W and remedial provisions. As the Court noted above, it appears that
nobody, from either party, even considered this subject at the time of the loan sales. (See,
e.g., Trial Tr. at 3147-48 (Furey) (agreeing that the applicability of Client Guide R&Ws
never “became a question until this litigation was filed”) (cleaned up).)
36

question went to contract formation, which the Court had deemed a jury issue (see supra
Section VI), and not to equitable estoppel.
For these reasons, the Court granted ResCap’s motion as to estoppel.20
Dated: June 12, 2019

s/Susan Richard Nelson
SUSAN RICHARD NELSON
United States District Judge

20

After the Court’s oral ruling, the Court clarified that, given the Client Guide’s
explicit requirement of a written waiver, alongside the unique facts of this case, the Court
had treated HLC’s waiver and estoppel defenses as essentially one and the same, at least
with respect to “bulk loans” and “pay option ARM loans.” (See Trial Tr. at 3358-59;
accord In re ResCap, 332 F. Supp. 3d at 1174, 1177.) As such, to the extent a waiver
defense survived the Court's summary judgment order, the Court granted ResCap’s
motion with respect to that defense, too. (Cf. HLC 2d Opp. Br. at 50-52 (citing the same
evidence in support of both its waiver defense and its estoppel defense).)
37