The Bank of New York Mellon v. WMC Mortgage, LLC et al
MEMORANDUM OPINION & ORDER....The defendants' motion for partial summary judgment is denied. (Signed by Judge Denise L. Cote on 5/22/2015) (gr)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
THE BANK OF NEW YORK MELLON, solely as :
Trustee for GE-WMC Mortgage Securities :
WMC MORTGAGE, LLC, and GE MORTGAGE
Ian M. Dumain
Evelyn N. Fruchter
Boies, Schiller & Flexner LLP
333 Main St.
New York, NY 10503
For Defendant WMC Mortgage, LLC:
Stephen L. Ascher
Jenner & Block LLP
919 Third Ave.
New York, NY 10022
Paul M. Smith
Matthew S. Hellman
Jenner & Block LLP
1099 New York Ave., NW
Washington, DC 20001
Barbara S. Steiner
Megan B. Poetzel
Jenner & Block LLP
353 N. Clark St.
Chicago, IL 60654
OPINION & ORDER
For GE Mortgage Holding, LLC:
Greg A. Danilow
Weil, Gotshal & Manges LLP
767 Fifth Ave.
New York, NY 10153
DENISE COTE, District Judge:
This action involves a breach of contract claim brought by
Bank of New York Mellon (“BoNY”) as the trustee (“Trustee”) of a
residential mortgage backed securities (“RMBS”) trust.
Defendant WMC Mortgage, LLC (“WMC”), 1 the sponsor of the
securitization, originated or acquired the mortgage loans that
are the subject of this lawsuit and sold the loans to codefendant GE Mortgage Holdings, LLC (“GEMH”).
GEMH then sold
the loans to the depositor, GE-WMC Mortgage Securities, L.L.C.
(“GE Securities”), who placed the loans into the trust.
of the transfer of loans to the trust, the defendants made a
number of contractual representations regarding the underlying
The defendants and plaintiff have cross-moved for partial
summary judgment on two different sets of mortgage loans.
Opinion addresses the defendants’ motion for partial summary
Defendants argue that the plaintiff may not obtain
money damages for breaches of the contractual representations
made in connection with the underlying mortgage loans, which the
WMC Mortgage, LLC is the successor entity to WMC Mortgage Corp.
plaintiff seeks when the properties underlying these loans have
been foreclosed upon, because the contract limits the
plaintiff’s remedies to certain equitable remedies.
eighteen loans as exemplars for its legal theory, WMC has moved
for partial summary judgment.
For the following reasons, the
defendants’ motion for summary judgment is denied.
The following facts are undisputed.
The trust, GE-WMC
Mortgage Securities Trust 2006-I (“Trust”), contains 4,654
residential mortgage loans originated or acquired by WMC.
securitization of the loans placed into the Trust was
accomplished through the execution of three documents in August
First, WMC, the sponsor of the securitization, sold these
loans to GEMH on August 10, pursuant to a Mortgage Loan Purchase
GEMH then transferred the mortgage loans to
GE Securities, the depositor, pursuant to a second contract,
also dated August 10.
The depositor conveyed the mortgage loans
to the Trust, with BoNY as the Trustee, pursuant to a Pooling
and Servicing Agreement (“PSA”) dated as of August 1.
closing date for the PSA was August 21, 2006.
In the MLPA, WMC made more than 80 representations and
warranties (“R&Ws”) concerning the mortgage loans in the Trust.
The PSA grants the Trustee the right to enforce the R&Ws.
discovery or receipt of notice of a breach of the R&Ws, the PSA
requires the Trustee to notify WMC, who must then cure the
breach, “substitute for” the defective loan, or repurchase the
defective loan from the Trust within 90 days of receiving the
This remedy constitutes the “sole remedy . . .
available to the Trustee.”
The MLPA also requires WMC to cure, repurchase, or
substitute for a defective loan if it discovers a breach of the
The MLPA requires WMC to repurchase defective loans at a
“price equal to the Purchase Price.”
for calculating the Purchase Price.
The PSA includes a formula
According to this formula,
the Purchase Price of some loans where the underlying property
has been foreclosed upon will be zero.
Much like the PSA, the
MLPA provides that the obligations of WMC to cure, repurchase,
or substitute for a defective loan “constitute the sole remedies
of [the Trustee] against [WMC].”
The PSA establishes Litton Loan Servicing LP (“Litton”) as
the servicer for the Mortgage Loans.
Litton is also a party to
Litton, and Litton’s successor, Ocwen Loan Servicing
LLP (collectively “Servicer”), serviced the mortgage loans at
all relevant times.
Under the terms of the PSA, the Servicer
has the authority to do “any and all things in connection with
[the] servicing and administration which it may deem necessary
or desirable” and is “authorized and empowered by the Trustee to
. . . institute foreclosure proceedings . . . in the name of the
Trust Fund, on behalf of the Trustee and the
“[W]ith respect to any Mortgage Loan that
is Delinquent or in default, the Servicer may waive, modify or
vary any term of any Mortgage Loan . . . .”
Between 2007 and 2011, the Servicer foreclosed on and sold
the properties securing the eighteen mortgage loans that are at
issue in this motion.
WMC contends that the sale of these
properties precludes WMC from curing or repurchasing the
defective loans -- the “sole remedies” granted to BoNY in the
PSA and MLPA.
Summary judgment may not be granted unless all of the
submissions taken together “show[ ] that there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.”
Fed. R. Civ. P. 56(a).
moving party bears the burden of demonstrating the absence of a
material factual question, and in making this determination, the
court must view all facts in the light most favorable to the
Holcomb v. Iona Coll., 521 F.3d 130, 132 (2d
WMC’s motion for partial summary judgment presents
essentially one legal question: whether money damages can be
awarded in lieu of the equitable remedy described as the
contracts’ “sole remedy.”
This question has not been directly
addressed in the RMBS context by the New York Court of Appeals.
“Absent law from a state’s highest court, a federal court
sitting in diversity has to predict how the state court would
resolve an ambiguity in state law.”
Michalski v. Home Depot,
Inc., 225 F.3d 113, 116 (2d Cir. 2000).
In making this
prediction, the decisions from New York’s Appellate Division are
Under New York law, “[a] court may neither rewrite, under
the guise of interpretation, a term of the contract when the
term is clear and unambiguous, nor redraft a contract to accord
with its instinct for the dispensation of equity upon the facts
of a given case.”
Cruden v. Bank of New York, 957 F.2d 961, 976
(2d Cir. 1992) (citation omitted).
Nonetheless, while a
provision providing for equitable relief as the “sole remedy”
will generally foreclose alternative relief, “where the granting
of equitable relief appears to be impossible or impracticable,
equity may award damages in lieu of the desired equitable
Doyle v. Allstate Ins. Co., 1 N.Y.2d 439, 443 (1956).
Applying the Doyle principle in the RMBS context, courts
applying New York law have repeatedly held that money damages
may be awarded in lieu of repurchase even where equitable relief
is described as the “sole remedy.”
See, e.g., Resolution Trust
Corp. v. Key Fin. Servs., Inc., 280 F.3d 12, 18-19 & n.13 (1st
Cir. 2002); Ace Sec. Corp. Home Equity Loan Trust, Series 20076
HE3 ex rel. HSBC Bank USA, Nat’l Ass’n v. DB Structured Prods.,
Inc., 5 F. Supp. 3d 543, 553-56 (S.D.N.Y. 2014) (“Series 2007HE3”) (collecting cases); Nomura Asset Acceptance Corp. Alt.
Loan Trust v. Nomura Credit & Capital, Inc., No. 653390/2012,
2014 WL 2890341 (N.Y. Sup. Ct. June 26, 2014) (collecting
cases); ACE Secs. Corp. v. DB Structured Prods., Inc., 965
N.Y.S. 2d 844, 849-850 (N.Y. Sup. Ct. 2013) rev’d on other
grounds, ACE Secs. Corp. v. DB Structured Prods., Inc., 977
N.Y.S.2d 229 (App. Div. 1st Dep’t 2013), cert. granted, ACE
Secs. Corp. v. DB Structured Prods., Inc., 23 N.Y.3d 906 (2014).
To preclude money damages in lieu of the equitable remedy would
create a perverse incentive for an RMBS sponsor “to fill the
Trust with junk mortgages that would expeditiously default so
that they could be . . . [l]iquidated before a repurchase claim
ACE Secs. Corp., 965 N.Y.S. 2d at 850.
Defendants cite Rubinstein v. Rubinstein, 23 N.Y.2d 293
(1968), for the proposition that a sole remedy provision
necessarily precludes other relief.
In the course of
interpreting a contract that had a liquidated damages provision,
Rubinstein addressed the question of whether equitable relief
In determining that equitable relief was also
available, the New York Court of Appeals noted in dicta that
“[f]or there to be a complete bar to equitable relief there must
be something more, such as explicit language in the contract
that the liquidated damages provision was to be the sole
Id. at 298.
Rubinstein did not purport to address the
situation raised in Doyle -- where the contract provides for
equitable relief as the sole remedy, and that specified
equitable remedy is no longer available.
Finally, defendants contend that “the equities cannot
justify rewriting the contracts” to permit BoNY to recover money
This argument, however, is premised on the assumption
that the remedy of money damages in lieu of repurchase is
foreclosed by the contract language.
Because New York contract
law may permit recovery of money damages in the circumstances at
issue here, the plaintiff is not seeking to rewrite the contract
in order to obtain money damages.
The defendants’ motion for partial summary judgment is
New York, New York
May 22, 2015
United States District Judge
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