Ally Bank v. Lenox Financial Mortgage Corporation
Filing
44
ORDER denying 26 Motion to Dismiss (Written Opinion) Signed by Senior Judge David S. Doty on 3/2/2017. (DLO)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 16-2387(DSD/DTS)
Ally Bank,
Plaintiff,
v.
ORDER
Lenox Financial Mortgage Corporation,
Defendant.
Thomas M. Schehr, Esq., Jared D. Kemper, Esq. and Dykema
Gossett, PLLC, 4000 Wells Fargo Center, 90 South Seventh
Street, Minneapolis, MN, counsel for plaintiff.
W. Anders Folk, Esq., Sharon R. Markowitz, Esq. and Stinson
Leonard Street LLP, 150 South 5th Street, Suite 2300,
Minneapolis, MN, counsel for defendant.
This matter is before the court upon the motion to dismiss by
defendant Lenox Financial Mortgage Corporation.
Based on a review
of the file, record, and proceedings herein, and for the following
reasons, the motion is denied.
BACKGROUND
This contract dispute arises out of the sale of ten mortgage
loans by Lenox to plaintiff Ally Bank.1
Am. Compl. ¶ 1.
Lenox and
Ally entered into two agreements, the 2004 contract and the 2008
contract, under which Lenox sold Ally residential mortgage loans.
Id.
Nine of the loans were sold pursuant to the 2004 contract, and
1
Ally Bank was previously known as GMAC Bank.
one loan was sold under the 2008 contract.
84,
103,
122,
141,
160,
178,
197.
See id. ¶¶ 28, 47, 65,
Both
of
the
agreements
incorporated the terms of the GMAC Bank Correspondent Lending
Manual, which contained representations and warranties concerning
the nature and quality of the loans.2
Id. ¶¶ 12-13.
Under the
terms of the correspondent manual, Lenox represented, among other
things, that any loan sold to Ally would meet Ally’s, Fannie Mae’s,
and Freddie Mac’s underwriting requirements and would be based on
proper appraisals.
§
XIII.b.
The
Id. ¶¶ 14-16; id. Ex. 3, Correspondent Manual
correspondent
unacceptable appraisal practices.
§ VIII(9-1).
manual
enumerated
specific
See Am. Compl. ¶ 16; id. Ex. 3
Under the terms of the agreement, “[Ally] may give
[Lenox] written notice as to any loan purchased ..., which [Ally]
discovers and deems, in its sole discretion, to fail to conform
with each and every requirement, representation, and warranty of
the Correspondent Agreement and the Correspondent Manual.”
Compl. Ex. 3 § XIV.a.
Am.
On receipt of such notice, “[Lenox] shall
have ten (10) days ... to cure any defect.
If any such defect is
not cured within ten (10) days, [Lenox] shall repurchase the loan
.... Any repurchase must occur within ... fifteen (15) days of the
notice of defect ....”
Id.
Lenox also agreed to indemnify Ally
for all losses resulting from a defective loan.
2
See id. § XIV.b.
The correspondent manual was amended from time to time, but
Ally pleads that the versions incorporated into the 2004 and 2008
contracts were substantively the same. Id. ¶ 13 n.1.
2
Ally sold the loans to Fannie Mae and Freddie Mac, which later
demanded that Ally repurchase the loans for failure to meet their
underwriting requirements.3
Am. Compl. ¶¶ 28-214.
Ally alleges
that, among other defects, the loans failed to disclose material
liabilities and were based on unacceptable appraisal practices.
Id.
For example, according to Ally, the Holland loan was based on
an appraisal that “failed to disclose the property’s location near
a busy street, relied upon a comparable sale that could not be
located, [and] failed to consider that property values in the
surrounding neighborhood had declined 11% in the past year.”
Id.
¶ 31.
From 2012-2013, Ally either repurchased the loans from Fannie
Id. ¶¶ 28-214.
Mae or Freddie Mac or indemnified their losses.
Ally sent written demands to Lenox to repurchase the defective
loans or for indemnification.4
Id. ¶ 24.
On July 11, 2016, Ally
filed suit against Lenox and, on October 11, 2016, filed an amended
complaint.
Ally
indemnification.
asserts
claims
for
breach
of
contract
and
Lenox now moves to dismiss the complaint.
3
Fannie Mae’s and Freddie Mac’s repurchase demands were made
between 2012-2013.
4
Ally sent separate repurchase demands to Lenox for each
loan between 2012-2013.
3
DISCUSSION
I. Motion to Dismiss
A.
Standard of Review
To survive a motion to dismiss for failure to state a claim,
“‘a complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its face.’”
Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009)
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
“A claim
has facial plausibility when the plaintiff [has pleaded] factual
content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.”
Iqbal, 556
U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556
(2007)).
Although a complaint need not contain detailed factual
allegations, it must raise a right to relief above the speculative
level.
Twombly, 550 U.S. at 555.
“[L]abels and conclusions or a
formulaic recitation of the elements of a cause of action” are not
sufficient to state a claim.
Iqbal, 556 U.S. at 678 (citation and
internal quotation marks omitted).
The court does not consider matters outside the pleadings
under Rule 12(b)(6).
Fed. R. Civ. P. 12(d).
The court may,
however, consider matters of public record and materials that are
“necessarily embraced by the pleadings.”
Porous Media Corp. v.
Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999) (citation and
internal quotation marks omitted).
4
Here, the court properly
considers the 2004 and 2008 contracts and the correspondent manual.
II.
Personal Jurisdiction
Lenox first moves to dismiss the claims based on the 2004
contract for lack of personal jurisdiction.5
federal
jurisdiction
“has
the
burden
of
The party seeking
establishing
that
jurisdiction exists, and the burden may not be shifted to the party
challenging
jurisdiction.”
Scullin
Steel
Co.
v.
Nat'l
Ry.
Utilization Corp., 676 F.2d 309, 311 (8th Cir. 1982) (internal
quotation marks and citation omitted).
For motions to dismiss for
lack of personal jurisdiction, “in which no evidentiary hearing is
held, the plaintiff must present only a prima facie showing of ...
personal jurisdiction.” Delong Equip. Co. v. Wash. Mills Abrasive,
840 F.2d 843, 845 (11th Cir. 1988).
Moreover, “all pleadings and
affidavits are construed in the light most favorable to plaintiff,
and where doubts exist, they are resolved in the plaintiff's
favor.”
Hoffritz For Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55,
57 (2d Cir. 1985).
Lenox argues that the court has neither general nor specific
personal jurisdiction over it because it lacks sufficient contacts
with Minnesota.
The court need not assess Lenox’s contacts with
the State, however, because Lenox consented to jurisdiction by
registering an agent to receive service of process in Minnesota.
5
Lenox does not challenge the court’s jurisdiction over the
2008 contract claim in which Lenox consented to jurisdiction in
Minnesota.
5
Knowlton v. Allied Van Lines, Inc., 900 F.2d 1196, 1199 (8th Cir.
1990). “The whole purpose of requiring designation of an agent for
service is to make a non-resident suable in the local courts.
The
effect of such a designation can be limited to claims arising out
of in-state activities and some statutes are so limited, but the
Minnesota law contains no such limitation.”
Stat. § 303.13, subd. 1(1)).6
Id. (construing Minn.
Moreover, appointing an agent for
service of process “gives consent to the jurisdiction of Minnesota
courts for any cause of action, whether or not arising out of
activities within the state.
Such consent is a valid basis of
personal
resort
jurisdiction,
and
to
minimum-contacts
or
due-process analysis to justify the jurisdiction is unnecessary.”
Id. at 1200.
Lenox contends that Knowlton is inapplicable here because, in
that case, the plaintiff was a Minnesota resident suing a foreign
corporation, whereas Ally is not a Minnesota resident.
See id. at
1197-98.
The court is not persuaded that this distinction is
material.
The Knowlton court did not consider the plaintiff’s
residency in reaching its holding, but instead focused solely on
the fact that the foreign corporation had a registered agent in
Minnesota.
See id. at 1199-1200.
Knowlton, therefore, supports a
finding that Lenox consented to suit in Minnesota by registering an
6
Minn. Stat. § 303.13 states that “[a] foreign corporation
shall be subject to service of process ... (1) based on its
registered agent; or (2) as provided in section 5.25.”
6
agent for service of process.
Lenox next argues that Knowlton should be limited in light of
Daimler AG v. Bauman, 134. S. Ct. 746 (2014).
Supreme
Court
declined
to
“approve
the
In Daimler, the
exercise
of
general
jurisdiction in every State in which a corporation engages in a
substantial, continuous, and systematic course of business” because
it would not permit defendants to “structure their primary conduct
with some minimum assurance as to where that conduct will ...
render them liable.” Id. at 760-62 (internal quotation marks and
citation omitted).
Daimler, however, is inapplicable here.
The
Daimler court addressed the limits of general jurisdiction over a
foreign corporation, not the limits of a defendant’s capacity to
consent to personal jurisdiction.
See Perrigo Co. v. Merial Ltd.,
No. 8:14-403, 2015 WL 1538088, at *7 (D. Neb. Apr. 7, 2015)
(“[Daimler] does nothing to upset well-settled law regarding what
acts may operate to imply consent.”). Therefore, the court remains
bound by Knowlton.
Finally, Lenox, relying on Davis v. Farmers’ Co-Op. Equity
Co., 262 U.S. 312 (1923), argues that if Minn. Stat. § 303.13
broadly subjects foreign corporations to suit by non-Minnesota
residents, the court should find that it violates the Commerce
Clause.
that
In Davis, the Supreme Court held that a Minnesota statute
subjected
any
“foreign
corporation
having
an
agent
in
[Minnesota] for the solicitation of freight and passenger traffic”
7
to suit in Minnesota violated the Commerce Clause.
But Davis is limited to its facts.
Id. at 313-16.
Further, Lenox provides no
analysis as to whether or how § 303.13 places an unnecessary burden
on interstate commerce such that it violates the Commerce Clause.
See Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476
U.S. 573, 579 (1986) (“When ... a statute has only indirect effects
on interstate commerce and regulated evenhandedly, we have examined
whether the State’s interest is legitimate and whether the burden
on interstate commerce clearly exceeds the local benefits.”).
court will not blindly apply Davis under these circumstances.
The
As
a result, the court has personal jurisdiction over Lenox.
III. Venue
Lenox also argues that venue is improper.
Because venue is
proper where personal jurisdiction exists, venue is necessarily
proper in Minnesota.
Inc.,
946
F.2d
Dakota Indus., Inc. v. Dakota Sportswear,
1384,
1392
(8th
Cir.
1991)
(citing
28
U.S.C. § 1391(b)).
IV.
Statute of Limitations
Lenox next contends that the claims relating to the Raetchi
loan sold under the 2008 contract are time-barred.
The parties do
not dispute that the 2008 contract adopted Minnesota’s statute of
limitations, which requires that a breach of contract action be
commenced
within
§ 541.05(1).
six
years
of
its
accrual.
Minn.
Stat.
A cause of action accrues - and the statute of
8
limitations begins to run - “at the time of the alleged breach.”
Jacobson v. Bd. of Trs. of the Teachers Ret. Ass’n, 627 N.W.2d 106,
110 (Minn. Ct. App. 2001) (citing Penderson v. Am. Lutheran Church,
404 N.W.2d 887, 889 (Minn. Ct. App. 1987)).
When a claim is based on a breach of representations and
warranties, the claim accrues at the time of sale, even when the
plaintiff was not aware of the breach.
Residential Funding v.
Mortg. Outlet, Inc., No. 13-3447, 2014 WL 4954645, at *2 (D. Minn.
Oct. 1, 2014); Residential Funding Co. v. Embrace Home Loans, Inc.,
27 F. Supp. 3d 980, 983 (D. Minn. 2014).
Because Lenox sold the
Raetchi loan to Ally on December 29, 2009, Ally’s breach of
contract claim would be time-barred if it was based on a breach of
a representation or warranty.
But Ally’s claim is not based on
such a breach - it is based on a breach of Lenox’s obligation to
repurchase any defective loans or indemnify Ally.
See Am. Compl.
¶¶ 216-217 (“Lenox breached the Contract by failing to repurchase
the Loans or make Ally Bank whole following receipt of demands.”).
Lenox,
citing
New
York
law,
argues
that
a
breach
of
a
repurchase provision cannot serve as an independent breach of
contract.
See Ace Sec. Corp. Home Equity Loan Tr. v DB Structured
Prods., Inc., 5 F. Supp. 3d 543, 552 (S.D.N.Y. 2014) (“New York law
... does not recognize pre-suit remedial provisions as constituting
separate promises which can serve as the basis for independent
causes of action.”) (alteration in original) (internal quotation
9
marks and citations omitted).
authority
as
whether
the
There is, however, a split of
breach
constitutes a separate breach.
of
a
remedial
provision
is
See, e.g., Sun Tr. Morg., Inc. v.
Sharpe Mortg. Lending Servs. of Ga., Inc., No. 3:11CV576, 2011 WL
6178221, at *5 (E.D. Va. Dec. 12, 2011) (“[A] loan sellers’ failure
to repurchase non-conforming loans upon demand as required by
contract is an independent breach of contract ....”) (internal
quotation marks and citation omitted); Lehman Bros. Holdings, Inc.
v. Key Fin. Corp., 8:09-CV-6233-T-17EAJ, 2011 WL 1296731, at *11
(M.D. Fla. Mar. 31, 2011) (same). It appears that Minnesota courts
have not yet addressed this question.
In the absence of any
controlling law to the contrary, the court finds that Ally has
pleaded a timely claim that Lenox breached the repurchase provision
of their agreement.
See MSK EyEs Ltd. v. Wells Fargo Bank, N.A.,
546 F.3d 533, 540 (8th Cir. 2008) (holding that in order establish
a breach of contract claim under Minnesota law, a plaintiff must
show
formation
of
a
contract,
performance
of
any
conditions
precedent, a material breach by the defendant, and damages).
V.
Failure to State a Claim
Lenox
contends
that
Ally’s
breach
of
contract
and
indemnification claims, as to eight of the nine loans under the
2004 contract, must be dismissed because Ally does not allege that
Lenox intentionally and knowingly misrepresented the value of the
10
loans’ underlying property.7 As already discussed, Ally’s claim is
based on the theory that Lenox breached the repurchase provision of
the contract, not on a breach of warranty.
Even if Ally’s claim
were based on a breach of warranty, Lenox’s argument fails.
Lenox argues that in order for an opinion of appraised value
to give rise to a breach of contract or indemnification claim, a
plaintiff must plead that the defendant intentionally and knowingly
lied about the appraised value.
But Lenox fails to cite any legal
authority establishing that intent is ever a requirement for a
breach of contract or indemnification claim.
Unless the parties
have contracted otherwise, the law does not impose an intent
requirement for a breach of contract claim.
In addition to its lack of relevant legal authority, Lenox
fails to point to any contractual provision that limits a breach of
the representations and warranties to those instances in which
Lenox intentionally provided incorrect appraisals.
Indeed, the
correspondent manual appears to give Ally the right, in its “sole
discretion,” to declare a breach.
See Am. Compl. Ex. 3 § XIV.a.
There is no requirement that Ally first determine whether Lenox
intentionally provided erroneous appraisals.8
7
The eight loans are the Holland, Scott, Sumner (#1), Sumner
(#2), Sumner (#3), Sumner (#4), Sumner (#5), and Williams loans.
See ECF No. 33, at 19. Lenox does not argue that Ally fails to
state a claim as to either the Raetchi or Welch loans.
8
Lenox asserts, without citation, that the “sole discretion”
language was not used in the 2004 contract or correspondent manual.
11
Lenox argues that the “sole discretion” language only applies
to Ally’s right to demand repurchase and not its ability to declare
a breach because it is located in the repurchase provision.
The
“sole discretion” language, however, refers to Ally’s right to
declare that the loans “fail[ed] to conform with each and every
requirement, representation and warranty of the Correspondent
Agreement.”
Ally
Id.
has
adequately
pleaded
that
the
“sole
discretion”
language applies to its right to declare a breach, and its position
is supported by the correspondent manual’s language.
Compl. ¶ 18; id. Ex. 3 § XIV.a.
See Am.
To the extent Lenox offers a
differing interpretation, the court will not resolve the dispute on
a motion to dismiss.
CONCLUSION
Accordingly, IT IS HEREBY ORDERED that defendant’s motion to
dismiss [ECF No. 26] is denied.
Dated: March 2, 2017
s/David S. Doty
David S. Doty, Judge
United States District Court
Although the correspondent manual was amended from
Ally pleads that the versions incorporated into the
contracts were substantively the same.
Id. ¶ 13
extent Lenox’s argument creates a factual issue,
resolved on a motion to dismiss.
12
time to time,
2004 and 2008
n.1.
To the
it cannot be
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