In Re: RFC and RESCAP Liquidating Trust Litigation

Filing 919

ORDER denying #519 DBSP's Motion to Dismiss the Second Amended Complaint. This document relates to: Residential Funding Company, LLC v. DB Structured Products, Inc., and MortgageIT, Inc., File No. 14-cv-0143. (Written Opinion) Signed by Judge Susan Richard Nelson on 09/29/2015. (SMD)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

In Re: RFC and RESCAP Liquidating Trust
Litigation

Consolidated Action
Civil File No. 13-3451 (SRN/JJK/HB)

This document relates to:
Residential Funding Company, LLC v. DB
Structured Products, Inc., and MortgageIT,
Inc., No. 14-cv-0143

MEMORANDUM OPINION AND ORDER
SUSAN RICHARD NELSON, United States District Judge
I.

INTRODUCTION
This matter is before the Court on Defendant DB Structured Products, Inc.’s (“DBSP”)

Motion to Dismiss the Second Amended Complaint. (Doc. No. 519.) DBSP contends that
certain claims RFC first asserted against DBSP in its Second Amended Complaint are barred by
the statute of limitations. For the reasons set forth below, DBSP’s motion is denied.
II.

BACKGROUND
A.

Procedural History

Plaintiff Residential Funding Company, LLC (“RFC”), served its original Complaint on
DBSP on December 16, 2013. (Case No. 14-cv-143 (ADM/TNL), Doc. No. 1, Notice of
Removal.) In its original Complaint, RFC alleged that it purchased thousands of loans from
Defendant MortgageIT, Inc. (“MortgageIT”), pursuant to a contract and that DBSP was liable for
MortgageIT’s breaches of that as MortgageIT’s successor in interest. (Case No. 14-cv-143, Doc.
No. 1-1 at 5, Compl.; Id., Compl. at 7, ¶ 13.)

Eight months later, on August 20, 2014, RFC filed its First Amended Complaint. (Case
No. 14-cv-143, Doc. No. 36, First Am. Compl.) There were two major changes in the First
Amended Complaint. RFC added MortgageIT as a defendant and alleged that DBSP was
MortgageIT’s alter ego. (Id. ¶¶ 14, 89-99.) On May 4, 2015, after this case had been
administratively consolidated with several other related cases into this proceeding, RFC filed a
Second Amended Complaint. (Case No. 13-cv-3451, Doc. No. 405, Second Am. Compl.) This
Second Amended Complaint is now the operative pleading. RFC has now added allegations
regarding DBSP’s direct sale of loans to RFC under a different agreement than the one that
governs RFC’s relationship with MortgageIT. (See, e.g., id., Second Am. Compl. ¶¶ 14, 17.)
On May 28, 2015, the parties stipulated to an extension of time for DBSP to respond to
RFC’s Second Amended Complaint, which the Court adopted (id., Doc. Nos. 491, 495), and on
June 8, 2015, DBSP filed its motion to dismiss the Second Amended Complaint (id., Doc.
No. 519).
B.

Allegations in the Second Amended Complaint Regarding DBSP’s Direct
Sales

In multiple previous opinions addressing other defendants’ motions to dismiss, this Court
has described the general background of this and other related cases in this consolidated
proceeding. (See generally Case No. 13-cv-3451, Doc. No. 529, Mem. Opinion and Order 3–5.)
The allegations in the Second Amended Complaint regarding DBSP’s direct sale of loans and
DBSP’s alleged liability to RFC are similar. RFC alleges that DBSP sold over 175 loans directly
to RFC under a “Seller Contract,” which it refers to as the “DBSP Contract.” (Second Am.
Compl. ¶ 17.) The DBSP Contract contains 10 pages of representations and warranties to which
DBSP’s loans were expected to adhere. (Id. ¶¶ 18, 24.) DBSP allegedly breached a number of
those representations and warranties. (Id. ¶ 39.) The DBSP Contract required repurchase of
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such allegedly defective loans and obligated DBSP to indemnify RFC for all losses and liabilities
caused by any breach by DBSP. (Id. ¶¶ 29, 34.) As a result of DBSP’s alleged breaches of the
representations in the DBSP Contract, RFC asserts that it has “incurred obligations, liabilities,
damages, and losses for which it is entitled to recovery from [DBSP].” (Id. ¶ 55.) Facing
numerous claims and lawsuits stemming from the defective loans DBSP and others sold to it,
RFC filed for bankruptcy on May 14, 2012. (Id. ¶ 58.) As noted above, RFC then brought this
lawsuit about a year and a half later in December 2013.
DBSP’s pending motion to dismiss asserts that RFC’s claims under the DBSP Contract
are time-barred, which implicates specific contract language that is properly before the Court.
Under Section 2.04 of the DBSP contract, one of the representations and warranties DBSP made
created a “continuing obligation” for DBSP “to notify RFC of any breach of its contractual
representations and warranties for mortgage loans which might adversely affect RFC’s interest in
the mortgage loans.” (Id. ¶ 20.) In relevant part, Section 2.04 reads:
It is understood and agreed that the representations and warranties set forth in this
Section 2.04 and Section 4 of the Reference Agreement shall survive the sale of
the Mortgage Loans and shall inure to the benefit of the Owner, notwithstanding
any restrictive or qualified endorsement or assignment. Upon discovery by either
the Company or the Owner of a breach of any of the representations and
warranties in this Section 2.04 or Section 4 of the Reference Agreement which
materially and adversely affects the interest of the owner in the related Mortgage
Loan, the party discovering such breach shall give prompt written notice to the
other.
(Id. ¶ 17, Ex. F, DBSP Contract § 2.04.)
III.

DISCUSSION
A.

Motion to Dismiss Standard

Because DBSP brings its motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil
Procedure, the Court must assume that the facts alleged in the Second Amended Complaint are

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true and construe all reasonable inferences from those facts in the light most favorable to RFC.
Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986). However, the Court need not accept as
true wholly conclusory allegations, see Hanten v. Sch. Dist. of Riverview Gardens, 183 F.3d 799,
805 (8th Cir. 1999), or legal conclusions RFC draws from the facts pled, Westcott v. City of
Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). In addition, the Court ordinarily does not consider
matters outside the pleadings on a motion to dismiss. See Fed. R. Civ. P. 12(d). The Court may,
however, consider exhibits attached to the relevant pleading and documents that are necessarily
embraced by that pleading, Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003),
and may also consider public records, Levy v. Ohl, 477 F.3d 988, 991 (8th Cir. 2007).
Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint “must contain
. . . a short and plain statement of the claim showing that the pleader is entitled to relief.” The
U.S. Supreme Court, in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v.
Twombly, 550 U.S. 544 (2007), clarified that this Rule does not require that a complaint contain
“detailed factual allegations,” but it does require that it contain facts with enough specificity “to
raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. In other words,
this standard “calls for enough fact[s] to raise a reasonable expectation that discovery will reveal
evidence of [the claim].” Id. at 556. “Threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements do not suffice.” Iqbal, 556 U.S. at 678 (citing
Twombly, 550 U.S. at 555). Thus, to survive a motion to dismiss, a complaint must contain
“enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570.
As noted above, DBSP’s motion to dismiss asserts that certain of RFC’s claims are
barred by the applicable statute of limitations. Ordinarily, whether an applicable statute of

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limitations bars a claim is an affirmative defense that a defendant must plead and prove. 1 Jessie
v. Potter, 516 F.3d 709, 713 n.2 (8th Cir. 2008). Thus, “[a]s a general rule, ‘the possible
existence of a statute of limitations defense is not ordinarily a ground for Rule 12(b)(6) dismissal
unless the complaint itself establishes the defense.’” Joyce v. Armstrong Teasdale, LLP, 635
F.3d 364, 367 (8th Cir. 2011) (quoting Jessie, 516 F.3d at 713 n.2); Hile v. Jimmy Johns
Highway 55, Golden Valley, 899 F. Supp. 2d. 843, 847 n.6 (D. Minn. 2012) (“The statute of
limitations is an affirmative defense that a defendant must plead and prove, Fed. R. Civ. P.
8(c)(1), and hence questions regarding timeliness generally must be resolved by a motion for
summary judgment rather than a motion to dismiss.”) (citing Jessie, 516 F.3d at 713 n.2).
B.

The Parties’ Arguments

DBSP raises the following arguments in support of its motion to dismiss. It contends that
RFC’s direct claims for breach of the DBSP Contract are untimely because RFC did not file its
Second Amended Claims until May 4, 2015, asserting direct claims for breach of the DBSP
Contract, for the first time, more than six years after DBSP sold loans to RFC under that
agreement on January 22, 2007. (Defs.’ Mem. 8–10.) Next, DBSP contends that RFC’s claims
under the DBSP contract cannot be saved by the relation-back doctrine because the claims RFC
asserts under the DBSP Contract do not arise out of the same conduct, transaction, or occurrence
that RFC alleged in its original Complaint and First Amended Complaint. (Id. at 10–12.) Third,
citing New York cases, DBSP contends that RFC’s claims under the DBSP Contract cannot be
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The parties do not dispute that the law of the State of New York applies to the statute-oflimitations dispute between RFC and DBSP for the claims arising under the DBSP Contract.
(Case No. 13-cv-3451, Doc. No. 521, Defs.’ Mem. of Law in Supp. of Mot. to Dismiss Second
Am. Compl. (“Defs.’ Mem.”) 8–9; Id., Doc. No. 576, Pl.’s Mem. of Law in Opp’n to Defs.’ Mot.
to Dismiss (“Pl.’s Opp’n”), passim (presenting no argument that New York law does not apply).)
under New York law, “[t]he statute of limitations is an affirmative defense which must be
pleaded and proved by the party invoking it. . . .” Paladino v. Time Warner Cable of New York
City, 793 N.Y.S.2d 63, 64 (N.Y. App. Div. 2005) (internal parenthetical citation omitted).
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rendered timely by the “continuing obligation” theory that depends on language in Section 2.04
of the DBSP Contract. (Id. at 12–17.) Finally, DBSP argues that, even if the Second Amended
Complaint adequately alleges a failure to notify claim, such a theory of recovery would not
revive RFC’s time-barred claims for breaches of representations and warranties that accrued at
the time the loans were sold under the DBSP Contract. (Id. at 17–18.)
RFC does not dispute that it asserted the direct claims for breach of the DBSP Contract
more than six years after DBSP sold loans to RFC under that agreement. Instead, RFC asserts
that its claims under the DBSP Contract are timely under the relation-back doctrine. (Id. at 7–
10.) And RFC contends that, just as this Court has concluded in other decisions applying
Minnesota law, when applying New York law, its “continuing obligation” theory renders its
claims timely for purposes of the motion to dismiss. (Pl.’s Opp’n 3–6.) Each of these reasons,
RFC argues, provides a sufficient basis to deny DBSP’s motion to dismiss.
C.

Analysis
1.

Relation Back

The parties dispute whether RFC’s claims under the DBSP Contract relate back to the
original Complaint in this action. As this Court’s prior opinions have explained, because RFC
filed for bankruptcy protection on May 14, 2012, under section 108(a) of the Bankruptcy Code,
the statute of limitations would be extended for two years for any claims that were not yet
expired by that date. (See Case No. 13-cv-3451, Doc. No. 529, Mem. Opinion and Order 25.)
Thus, contract claims subject to a six-year statute of limitations that concern loans sold on or
after May 14, 2006, 2 would be timely if asserted before May 14, 2014. Because RFC did not
amend its pleading to assert direct claims against DBSP under the DBSP Contract until after

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The DBSP Contract is dated January 22, 2007. (Second Am. Compl., Ex. F.)
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May 14, 2014, its claims would not be timely if those direct claims under the DBSP Contract do
not relate back to the original Complaint. If, however, RFC’s claims under the DBSP Contract
do relate back to the original Complaint, then those claims would fall within the limitations
period as extended by section 108(a) of the Bankruptcy Code, and they would not be barred by
the statute of limitations.
DBSP argues that RFC’s claims under the DBSP Contract do not relate back because
they do not arise out of the same conduct, transaction, or occurrence set out in the original
Complaint. (Defs.’ Mem. 10–12.) Relation-back is governed by Rule 15(c) of the Federal Rules
of Civil Procedure. In relevant part, Rule 15(c) provides that:
An amendment to a pleading relates back to the date of the original pleading
when:
....
(B) the amendment asserts a claim or defense that arose out of the conduct,
transaction, or occurrence set out—or attempted to be set out—in the
original pleading[.]
Fed. R. Civ. P. 15(c)(1)(B). Rule 15(c) is “liberally construed” because its purpose “is to permit
cases to be decided on their merits.” Alpern v. Utilicorp United, Inc., 84 F.3d 1525, 1543 (8th
Cir. 1996). An amended pleading asserts a claim that arises out of the same conduct, transaction,
or occurrence that is set out in the original pleading where “the amended complaint is related to
the general fact situation alleged in the original pleading.” Id. Whether an amended pleading
relates back to the date of the original pleading is within the district court’s discretion. Shea v.
Esensten, 208 F.3d 712, 720 (8th Cir. 2000).
DBSP cites several cases to support its argument that claims based on a separate contract
cannot relate back to an original pleading that asserts breaches of a different contract. (Defs.’
Mem. 10–12.) However, none of these cases involves circumstances similar to this case. See
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Dodd v. United States, 614 F.3d 512 (8th Cir. 2010) (concluding that an amended motion for
post-conviction relief under 28 U.S.C. § 2255 did not relate back to the original pro se motion
where new claims for relief presented in the amended motion did not arise out of the same
common core of operative facts as the claims originally raised); United States v. Craycraft, 167
F.3d 457 (8th Cir. 1999) (concluding that an amended motion for post-conviction relief under 28
U.S.C. § 2255 did not relate back to the original motion where the original pleading alleged
ineffective assistance of counsel based on a failure to file an appeal and the amended motion
alleged ineffective assistance based on a failure to pursue a downward departure and failure to
object to the type of drugs at issue); Ikeri v. Sallie Mae, Inc., Civil No. 13-1943 (DSD/JSM),
2014 WL 4071953, at *3–4 (D. Minn. Aug. 18, 2014) (concluding that a claim for breach of
contract that became the sole count in the action through an amended complaint filed after
expiration of the statute of limitations did not relate back to the date of the original pleading
because the contract claim involved a different plaintiff than the plaintiff who originally filed the
case, asserted an entirely different theory of relief than the case initially involved, and concerned
a different relationship between the new plaintiff and the defendant than was at issue in the
original pleading); Coronna v. County of Suffolk, No. 05-cv-6016, 2008 WL 2371421 (E.D.N.Y.
June 9, 2008) (refusing to allow an amended pleading to relate back to the date of the original
pleading where the original complaint alleged an assault by police officers on a public road and
the amended complaint alleged an assault by prison officials in a jail in a location more than 25
miles away).
Craycraft amply illustrates the inapplicability of these cases to the circumstances at issue
here. In Craycraft, a criminal defendant was convicted of conspiring to distribute
methamphetamine pursuant to a guilty plea. 167 F.3d at 453. As part of the plea agreement, the

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defendant anticipated that the government would file a motion for a downward departure from
the mandatory minimum sentence if the defendant cooperated with the government’s prosecution
of other defendants. Id. But the government never filed that motion, and instead sought to
enhance the defendant’s sentence based on a prior state court felony drug conviction. Id. One
year after he was sentenced, the defendant’s counsel moved to reduce his sentence based on
substantial assistance, but the district court denied that motion due to lack of supporting evidence
that the government proceeded in bad faith or with unconstitutional motive. Id. Several years
later, the defendant filed a pro se motion to vacate his sentence under 28 U.S.C. § 2255. Id. The
defendant later amended his claim on two separate occasions. Id. The district court denied his
motion, and in considering his appeal, the Eighth Circuit Court of Appeals found that his original
motion was timely filed, but his amendments to it were not. Id. at 456. In his original motion,
the defendant asserted that his counsel had been ineffective for failing to pursue a downward
departure for substantial assistance, failing to object to the characterization of methamphetamine,
and failing to raise challenges to his prior state conviction. Id. His amended motion added the
claim that “his counsel failed to file an appeal as instructed.” Id. In concluding that the amended
claim did not relate back to the original motion, the court of appeals explained that “[f]ailing to
file an appeal is a separate occurrence in both time and type from a failure to pursue a downward
departure or failure to object to the type of drugs at issue.” Id. at 457. It concluded: “[w]e
cannot say that his original petition would provide notice of such a different sort of theory.” Id.
Unlike the defendant’s change of course in Craycraft, RFC’s amended claim is not so “distinctly
separate,” id., from the claim set forth in RFC’s original Complaint. DBSP had notice of the fact
that RFC sought to recover for breaches of contractual representations and warranties relating to
the sale of thousands of loans from the outset of this litigation. RFC has merely added

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allegations in this case that clarify which contract applies to a subset of the loans that have been
at issue since this litigation began.
DBSP also cites In re Rationis Enterprises, Inc. of Panama, 45 F. Supp. 2d 365
(S.D.N.Y. 1999), in support of its argument that the Second Amended Complaint asserts claims
that involve a different transaction or different conduct. The facts and reasoning of In re
Rationis, however, are not persuasive here. In re Rationis was a so-called limitation proceeding
under 46 U.S.C. §§ 181 et seq. There, the maritime limitation proceeding involved the
submission of hundreds of claims by claimants that believed they were entitled to recover for
losses sustained following the sinking of a cargo vessel. The claimant in In re Rationis,
Washington, originally filed claims regarding three bills of lading within the one-year statutory
deadline. After the one-year statutory deadline for submitting such claims expired, Washington
sought to add another claim under a fourth bill of lading. The court concluded that each bill of
lading was a separate transaction. Id. at 367. The In re Rationis court noted that in an earlier
case, Farr Man Coffee, Inc. v. M.S. Jala Tapi, No. 87-cv-2223 (SWK), 1988 WL 3489 (S.D.N.Y.
Jan. 11, 1988), the court concluded that separate bills of lading were not separate transactions
within the meaning of Rule 15(c). The Farr Man court reasoned that this was the case because
all the claims submitted under separate bills of lading arose “from a single occurrence—the nondelivery of a number of bags of coffee to their designated recipient[.]” 1988 WL 3489, at *1. In
distinguishing Farr Man, the In re Rationis court did not explain how the general factual
background and legal theories forming the basis of claims under separate bills of lading arise out
of different conduct, occurrences, or transactions within the meaning of Rule 15(c). 45 F. Supp.
2d at 367. Instead, it reasoned that Farr Man involved “only two parties, rather than a limitation
proceeding with more than a thousand claimants.” 45 F. Supp. 2d at 367. And the In re Rationis

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court concluded that the fourth bill-of-lading claim was untimely because allowing such a claim
to be litigated would encourage the filing of similar post-deadline claims, thereby delaying the
proceedings. Id. at 367–68. Thus, the In re Rationis court determined that the amended claim
was untimely based on the nature of the particular limitation proceeding before it and a desire to
prevent undue delay. That reasoning says little about whether the conduct, transaction, or
occurrence set out in the direct claims against DBSP in the Second Amended Complaint in this
case arise out of “the same operative facts surrounding” the claims asserted in RFC’s original
Complaint. See Dodd, 614 F.3d at 516 (concluding that one claim in the defendant’s amended
motion under 28 U.S.C. § 2255 did relate back to a similar claim in the original motion because
both claims “refer[red] to the same operative facts”).
When RFC commenced this suit, the factual background and legal theories on which
RFC based its claims is nearly identical to the factual background and legal theories on which
RFC bases its amended claims in the Second Amended Complaint. In the original Complaint,
RFC alleged breaches of contractual representations and warranties found in the Client Guide in
connection with RFC’s purchase of thousands of loans from mortgage originators, including
DSBP’s co-defendant, MortageIT. DBSP’s liability was premised on its status as MortgageIT’s
successor, but the thrust of the lawsuit was essentially the same when this case started as it is
today. Through its Second Amended Complaint, RFC now seeks to recover directly from DBSP
for its own breaches of similar representations and warranties made in the DBSP Contract, rather
than as MortgageIT’s alter-ego or successor. This came about because the progress of this
lawsuit revealed that RFC bought some of the loans at issue directly from DBSP under a similar,
but separate contract. The DBSP Contract governs the same type of relationship that RFC made
the subject of this lawsuit from its outset. The discovery in this case that a subset of the loans at

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issue were sold pursuant to a separate contract than the one RFC originally identified is not
surprising given the reality of the industry in which this dispute arose. Accordingly, the
underlying facts and legal theory are sufficiently similar that DBSP can be said to have been on
notice of “general fact situation and legal theory upon which the amending party proceeds[.]”
Glover v. FDIC, 698 F.3d 139, 146 (3d Cir. 2012) (cited with approval in Ikeri, 2014 WL
4071953, at *4). Allowing the claims under the DBSP Contract to relate back to the date of the
original pleading in this case will not deprive DBSP of the notice that the statute of limitations is
intended to provide.
Liberally construing Rule 15(c)(1)(B), the Court concludes that the direct claims RFC
asserted against DBSP under the DBSP Contract in the Second Amended Complaint relate back
to the original Complaint, and the motion to dismiss is denied.
2.

Continuing Obligation

Because the Court has concluded that the direct claims against DBSP under the DBSP
Contract asserted in RFC’s Second Amended Complaint relate back to the original Complaint, it
need not reach the “continuing obligation” argument raised in the parties’ briefing. Similarly,
the Court need not address DBSP’s argument that even if the Second Amended Complaint
adequately alleges a failure-to-notify claim, such a theory of recovery would not revive RFC’s
time-barred claims for breaches of representations and warranties that accrued at the time the
loans were sold under the DBSP Contract.
IV.

CONCLUSION
Based on the foregoing, DBSP’s Motion to Dismiss the Second Amended Complaint

(Doc. No. 519), is DENIED.

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Dated: September 29, 2015
s/Susan Richard Nelson
SUSAN RICHARD NELSON
United States District Judge

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