The Bank of New York Mellon v. WMC Mortgage, LLC et al

Filing 276

OPINION AND ORDER:For the reasons set forth in the Opinion And Order, GEMH'S March 17 motion for summary judgment is denied. (Signed by Judge Denise L. Cote on 7/30/2015) (gr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------- X
:
THE BANK OF NEW YORK MELLON, solely as :
Trustee for GE-WMC Mortgage Securities :
Trust 2006-1,
:
Plaintiff,
:
:
-v:
:
WMC MORTGAGE, LLC, and GE MORTGAGE
:
HOLDING, L.L.C.,
:
Defendants.
:
:
-------------------------------------- X

12cv7096 (DLC)
OPINION AND
ORDER

APPEARANCES
For Plaintiff:
Motty Shulman
Ian M. Dumain
Evelyn N. Fruchter
Marc Ayala
Boies, Schiller & Flexner LLP
333 Main St.
New York, NY 10503
For Defendant GE Mortgage Holding, LLC:
Greg A. Danilow
Stacy Nettleton
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

1

WMC Mortgage, LLC is the successor entity to WMC Mortgage Corp.

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.
(“the Depositor”), which placed the loans into the trust.

As

part of the transfer of loans to the trust, WMC made a number of
contractual representations regarding the underlying mortgage
loans.

In this lawsuit, the Trustee asserts that both

defendants are liable for the breaches of the contractual
representations.
GEMH moved for summary judgment on the ground that the
Trustee’s sole remedy for breaches of the contractual
representations at issue here is its claim against WMC.

The

primary legal issue raised by GEMH’s motion -- whether the
Trustee may seek the remedy of repurchase against GEMH -- has
already been addressed in an Opinion by the Honorable Katherine
B. Forrest, to whom this action was then assigned.

Bank of New

York Mellon v. WMC Mortgage, LLC, No. 12cv7096 (KBF) (S.D.N.Y.
Jan. 1, 2014) (“January 2014 Opinion”).

For the following

reasons, GEMH’s motion for summary judgment is denied.
BACKGROUND
The following facts are undisputed or taken in the light
most favorable to the non-moving party.

The RMBS industry was a

major economic force in 2006 when the securitization at issue in
2

this action occurred.

RMBS certificates are financial

instruments backed by hundreds or thousands of individual
residential mortgages.

The usual process for creating a

securitization may be summarized as follows:

First, originators

issue the mortgage loans, typically in accordance with the
originator’s underwriting guidelines.
sponsor.

Next, loans are sold to a

Sponsors purchase loans from originators or loan

aggregators, a transaction that is generally governed by a
Mortgage Loan Purchase Agreement which contains representations
and warranties.

The sponsor holds title to the loans before

they are transferred to the RMBS depositor.

Sponsors select

loans from among those on its books, place the selected loans
into groups for securitization, and sell them to depositors,
typically a sponsor’s affiliate.
Depositors are essentially shell corporations that exist
for one purpose: to purchase the loans from the sponsor and
deposit them in a trust.

The depositor establishes a trust and

deposits the loans into the trust in exchange for certificates.
The depositor also issues Registration Statements, Prospectus
Supplements, and other offering documents for the
securitization.

The RMBS trusts created by depositors are

typically established pursuant to a Pooling and Servicing
Agreement.

The trustee for each trust is generally responsible

for maintaining custody of operative documents related to the
3

mortgage loans, receiving the cash flows each month from the
entities servicing the loans, and allocating the cash flows to
the certificate-holders and others pursuant to the rules laid
out in the Pooling and Servicing Agreement.
Two aspects of the securitization here deserve particular
mention.

First, WMC, the sponsor of the securitization, also

originated many of the mortgage loans. 2

Second, instead of

transferring the loans directly to the Depositor, WMC
transferred the loans to its affiliate GEMH.

GEMH is described

in the transaction documents as the “mortgage loan seller.”

The

securitization accordingly involves two Mortgage Loan Purchase
Agreements, the first between WMC and GEMH, which is referred to
as the “Originator MLPA,” and the second between GEMH and the
Depositor, which is referred to as the “Seller MLPA.”
The trust, GE-WMC Mortgage Securities Trust 2006-I
(“Trust”), created by the securitization in this case, contains
4,654 residential mortgage loans originated or acquired by WMC.
The securitization of the loans placed into the Trust was
accomplished through the execution of three documents in August
2006.

First, WMC, the sponsor of the securitization, sold these

loans to GEMH on August 10, pursuant to the Originator MLPA.
The Prospectus Supplement represents that WMC reunderwrote
pursuant to its own underwriting guidelines any of the mortgage
loans in this securitization that it purchased from other
originators.
2

4

GEMH simultaneously transferred the mortgage loans to the
Depositor pursuant to the Seller MLPA, also dated August 10.
The Depositor conveyed the mortgage loans to the Trust, with
BoNY as the Trustee, pursuant to the Pooling and Servicing
Agreement, dated as of August 1 (“PSA”).
the PSA was August 21, 2006.

The closing date for

The Trustee is not a party to

either MLPA, but is a party to the PSA.
WMC and GEMH are the parties to the Originator MLPA.

In

Sections Five and Six of the Originator MLPA, WMC made over
eighty representations and warranties (“R&Ws”) to GEMH
concerning the quality of the loans.

WMC also assumed an

obligation to repurchase loans that do not conform to those
R&Ws.

Originator MLPA § 7(a) requires WMC, upon “its discovery

or receipt of notice” of a breach of the R&Ws, to “cure,”
“repurchase,” or “substitute for” the defective loan and states
that any repurchase will be made in a “manner consistent with
Section 2.03 of the [PSA].”
The Seller MLPA is a contract between GEMH and the
Depositor.

In Section Five of the Seller MLPA, GEMH made

fourteen additional R&Ws regarding GEMH’s ability to transfer
the mortgage loans and perform its obligations under the Seller
MLPA.

For example, GEMH represented and warranted that it “has

the full power and authority to hold each Mortgage Loan, to sell
each Mortgage Loan, and to execute, deliver, and perform, and to
5

enter into and consummate, all transactions contemplated by” the
Seller MLPA.

Although GEMH did not make additional R&Ws

regarding the quality of the mortgage loans in Section Six of
the Seller MLPA, GEMH “assign[ed] all of its rights under the
[Originator MLPA] including the representations and warranties
with respect to the Mortgage Loans and the repurchase
obligations of WMC contained therein.”
In Section Seven of the Seller MLPA, GEMH undertook a
repurchase obligation based on both the R&Ws made by GEMH in the
Seller MLPA as well as the R&Ws made by WMC in the Originator
MLPA.

This commitment is central to the Trustee’s claims here.

Seller MLPA § 7(a) states that:
Upon discovery by [GEMH], [the Depositor], or any
assignee, transferee or designee of [the Depositor]
. . . of a breach of any of the [R&Ws] contained in
Section Five of Six or the [Originator MLPA] . . . the
party discovering the breach shall give prompt written
notice to the other. Within ninety (90) days of its
discovery or its receipt of notice of . . . any such
breach of a [R&W] . . . [GEMH] shall . . . cure such
defect or breach[,] . . . repurchase the affected
Mortgage Loan . . . or . . . substitute [for] [the
affected loan].
(Emphasis added.) 3

Originator MLPA § 7(a) contains similar language regarding the
need for either discovery or notice of a breach of R&Ws in order
to trigger the repurchase obligation. It may be more difficult
for the Trustee to prove at trial that GEMH discovered the
breaches of the Originator’s R&Ws or had the requisite notice
than it will be to show that WMC discovered them.
3

6

Seller MLPA § 7(b) clarifies the limitations of GEMH’s
liability for breaches of the R&Ws contained in both MLPAs.
It lists the “sole” remedies available to the Depositor or
its assignee.

Seller MLPA § 7(b) provides:

It is understood and agreed that the obligations of
[GEMH] . . . to cure, . . . repurchase or substitute
for a defective Mortgage Loan constitute the sole
remedies of [the Depositor] against [GEMH] respecting
. . . a breach of the [R&Ws] contained in [the Seller
MLPA] or Sections Five or Six of [the Originator
MLPA].
(Emphasis added.)
The right to enforce the R&Ws contained in the Originator
and Seller MLPAs was ultimately transferred to the Trustee.

WMC

initially made the R&Ws contained in the Originator MLPA to
GEMH.

In the Seller MLPA, GEMH sold the mortgage loans to the

Depositor and, in Section Six of the Seller MLPA, transferred
its rights to enforce the R&Ws contained in the Originator MLPA
to the Depositor.

The Depositor subsequently assigned its right

to enforce the repurchase obligations under both MLPAs to the
Trustee in Section 2.01 of the PSA.

Section 2.01 provides:

[The Depositor] . . . does hereby transfer, assign,
set over and otherwise convey to the Trustee . . . all
the right, title and interest of [the Depositor],
including . . . the rights of [the Depositor] under
the Mortgage Loan Purchase Agreements including,
without limitation, [the Depositor’s] right in the
[R&Ws] and the repurchase obligations of [WMC] and
[GEMH] contained therein) . . . .
(Emphasis added.)

7

As noted, the PSA is the only contract at issue here to
which the Trustee is a party.

The Trustee accordingly derives

its rights and obligations through the PSA, including the
assignment of rights contained in PSA § 2.01.
PSA § 2.03 is entitled “Repurchase or Substitution of
Mortgage Loans by [WMC], [GEMH] or the Depositor.”
contains three subsections.

PSA § 2.03

The first, PSA § 2.03(a), describes

the process and mechanics by which a loan that is in breach of
the Originator’s R&Ws may be repurchased.

The second

subsection, PSA § 2.03(b), describes the obligations of the
servicer of the mortgage loans to cure defects in mortgage
loans.

The third, PSA § 2.03(c), describes in detail the

process by which a loan may be substituted.
It is a sentence in PSA § 2.03(a) on which GEMH principally
relies in bringing this motion.

The sentence states that WMC’s

obligations to cure, repurchase, or substitute for a loan as to
which a breach has occurred are the “sole” remedies available to
the Trustee.

In relevant part, PSA § 2.03(a) states:

Upon discovery or receipt of notice . . . of the
breach by [WMC] of any representation, warranty or
covenant under the related Mortgage Loan Purchase
Agreement in respect of any Mortgage Loan which
materially adversely affects the value of such
Mortgage Loan or the interest therein of the
Certificateholders, the Trustee shall promptly notify
[WMC] . . . of such defect, missing document or breach
and request that [WMC] deliver such missing document
or cure such defect or breach within 90 days from the
date [WMC] had knowledge or was notified of such
8

missing document, defect or breach, and if [WMC] does
not deliver such missing document or cure such defect
or breach in all material respects during such period,
the Trustee shall enforce the obligations of [WMC]
under the related Mortgage Loan Purchase Agreement to
repurchase such Mortgage Loan . . . within 90 days
. . ., if and to the extent that [GEMH] or [WMC] is
obligated to do so under the related Mortgage Loan
Purchase Agreement . . . . The Purchase Price for the
repurchased Mortgage Loan shall be deposited in the
Collection Account, and the Trustee . . . shall
release to the Originator the related Mortgage File
and shall request the Trustee to . . . execute and
deliver such instruments of transfer or assignment
. . . and the Trustee shall not have any further
responsibility with regard to such Mortgage File. In
lieu of repurchasing any such Mortgage Loan as
provided above, if so provided in the related Mortgage
Loan Purchase Agreement, [WMC] may cause such Mortgage
Loan to be removed from [the Trust] . . . and
substitute one or more Qualified Substitute Mortgage
Loans in the manner and subject to the limitations set
forth in Section 2.03(c). It is understood and agreed
that the obligation of [WMC] to cure or to repurchase
(or to substitute for) any Mortgage Loan . . . as to
which a breach described above has occurred and is
continuing shall . . . shall constitute the sole
remedy respecting such . . . breach available to the
Trustee on behalf of the Certificateholders.
(Emphasis added.)
PSA § 2.03(c) describes the mechanics of substituting for a
mortgage loan.

PSA § 2.03(c) refers repeatedly to GEMH’s

obligations, including with respect to breaches of the
Originator’s R&Ws.

One illustrative paragraph provides, in

relevant part:
Upon discovery . . . that any Mortgage Loan does not
constitute a “qualified mortgage” 4 . . . , the party
In the Originator MLPA, WMC represented and warranted that
“[e]ach Mortgage Loan constitutes a ‘qualified mortgage’ under
4

9

discovering such fact shall within two Business Days
give written notice thereof to the other parties. In
connection therewith, [WMC], [GEMH] or [the Depositor]
shall repurchase . . . the affected Mortgage Loan
within 90 days of the earlier of discovery or receipt
of such notice with respect to such affected Mortgage
Loan. Such repurchase or substitution shall be made
by [WMC]. Any such repurchase or substitution shall
be made in the same manner as set forth in Section
2.03(a). The Trustee shall reconvey to [the
Depositor], [GEMH] or [WMC], as the case may be, the
Mortgage Loan to be released pursuant hereto in the
same manner, and on the same terms and conditions, as
it would a Mortgage Loan repurchased for breach of a
representation or warranty.
(Emphasis added.)
Through the MLPAs and the PSA, the loans originated or
acquired by WMC were bundled and placed into a trust in order to
securitize them.

The offering documents for the securitization

included a Prospectus, dated August 9, 2006, and a Prospectus
Supplement dated August 10, 2006.

The Prospectus and Prospectus

Supplement describe the structure of the securitization and
risks for investors.
Two provisions of the Prospectus are of particular
relevance here.

The first provision is entitled

“Representations by or on Behalf of Mortgage Loan Sellers;
Remedies for Breach of Representation.”

(“Prospectus Passage”).

The Prospectus Passage states, inter alia, that “[e]ach mortgage
loan seller . . . will have made representations and warranties
Section 860G(a)(3)(A) of the [Internal Revenue] Code and
Treasury Regulation Section l.860G-2(a)(l).”
10

in respect of the mortgage loans sold by that mortgage loan
seller.”

(The Prospectus Supplement identifies GEMH as the

mortgage loan seller.)

The Prospectus Passage then lists seven

R&Ws that “will be made by . . . each mortgage loan seller.”
The seven R&Ws overlap with the R&Ws made in the Originator
MLPA.

The Prospectus Passage further describes the repurchase

obligation twice:
In the event of a breach of any representation or
warranty made by a mortgage loan seller, the mortgage
loan seller will be obligated to cure the breach or
repurchase or replace the affected mortgage loan
. . . .
The servicer, . . . or the trustee, will promptly
notify the relevant mortgage loan seller of any breach
of any [R&W] . . . . If the mortgage loan seller
cannot cure a breach . . . then the mortgage loan
seller will be obligated to repurchase the affected
mortgage loan from the trustee . . . . This
repurchase or substitution obligation will constitute
the sole remedy available to the holders of securities
or the trustee for a breach of representation by a
mortgage loan seller.
(Emphasis added.)
A later section of the Prospectus, entitled
“Representations and Warranties; Repurchases,” again describes
the mortgage loan sellers’ R&Ws and repurchase obligations.
This section also provides additional information regarding the
mortgage loan sellers’ right to substitute rather than
repurchase, stating:
[T]he mortgage loan seller will make [R&Ws] as of a
specified date, covering, by way of example, [matters
related to the type and quality of loan].
11

Upon a breach of any representation . . . the
depositor will be obligated to cause the mortgage loan
seller to cure . . ., repurchase the mortgage asset
. . . or substitute for that mortgage asset . . . .
If the depositor discovers or receives notice of
any breach of the [R&Ws] . . . the mortgage loan
seller may be permitted . . . to remove the mortgage
asset from the trust fund, rather than repurchase the
mortgage asset . . . .
The section also notes that: “The obligation to repurchase, or
. . . to substitute mortgage loans constitutes the sole remedy
available to the securityholder or the trustee for any breach of
the representations.”
The Prospectus Supplement was issued the day after the
Prospectus and provides additional clarity for investors.

As

already noted, it identifies the mortgage loan seller as GEMH.
In its opening summary, the Prospectus Supplement describes the
remedies for breaches of the R&Ws, stating: “[WMC] will make
certain [R&Ws] with respect to each mortgage loan. . . .

Upon

discovery of a breach of such [R&Ws], [WMC] will be obligated to
. . . repurchase . . . such mortgage loan.”

This paragraph does

not make any specific reference to GEMH, but directs the reader
to the Prospectus Passage.
The Prospectus Supplement later provides a more detailed
description of the PSA.

The Prospectus Supplement’s description

of the PSA’s remedies for breaches of R&Ws again describes WMC’s
repurchase obligations without specific reference to GEMH, but
refers the reader to the Prospectus Passage.
12

The Prospectus Supplement also describes possible risks for
investors.

The Prospectus Supplement cautions investors that

“[GEMH] and [WMC] each will have made various representations
and warranties related to the mortgage loans. . . .

[GEMH] and

[WMC] may not be able to repurchase defective mortgage loans;
collections on the mortgage loans may be delayed or reduced if
[GEMH] or [WMC] becomes insolvent.”

The Prospectus Supplement

further states that “[i]f [GEMH] or [WMC] fails to cure a
material breach of its [R&Ws] . . . then [GEMH] or [WMC] would
be required to repurchase, or substitute for, the defective
mortgage loan.”
The Trustee sent at least four letters demanding the
repurchase of loans that breached the R&Ws contained in the
Originator MLPA. 5
2009 to WMC. 6

The Trustee first sent a letter in September

The Trustee sent three additional repurchase

requests to both GEMH and WMC on May 21, August 20, and August
21, 2012.

Additional repurchase requests were also sent to GEMH for
breaches of the R&Ws GEMH independently made in the Seller MLPA.
5

A repurchase request was also sent by letter to the Trustee on
March 17, 2008. WMC is copied on the letter. The letter was
sent by an employee at Litton Loan Servicing, the servicer of
the mortgage loans, at the direction of an entity called “CBass.” There is no indication in the evidence submitted that
the Trustee took any additional steps after receiving this
letter.
6

13

GEMH brings this motion for summary judgment on the ground
that PSA § 2.03(a), which describes the Trustee’s “sole remedy”
for breaches of the R&Ws as being against WMC, precludes the
Trustee from pursuing a remedy against GEMH for a breach of the
R&Ws made by WMC in the Originator MLPA.

This argument was the

subject of a motion pursuant to Federal Rule of Civil Procedure
12(c).

In denying GEMH’s motion, the January 2014 Opinion

concluded that the Originator MPLA, Seller MLPA, and PSA must be
read together.

The January 2014 Opinion further noted that

GEMH’s interpretation of the PSA was “in tension” with the MLPAs
and “the PSA itself -- specifically the assignment of rights by
[the Depositor] in Section 2.01, the title of Section 2.03, the
reference to [GEMH’s] repurchase obligations respecting the
loans in Section 2.03(a), and the subsequent references to
[GEMH’s] repurchase obligations in Section 2.03(c).”

The

January 2014 Opinion concluded that “[f]or the purposes of the
instant motion,” PSA § 2.03(a) was ambiguous and “[t]he Court is
thus unable to resolve as a matter of law whether [PSA §
2.03(a)] limits [the Trustee’s] remedy for breach of these
[R&Ws] to WMC alone, especially in light of the other
transaction documents and PSA provisions.”
In the instant motion for summary judgment, GEMH again
argues that the PSA unambiguously precludes the Trustee’s claims
against GEMH based on breaches of the Originator’s R&Ws, and
14

also argues that, even if the PSA is ambiguous, all extrinsic
evidence supports GEMH’s interpretation of PSA § 2.03(a).

GEMH

cites to the deposition testimony of a number of BoNY employees
purporting to show BoNY’s understanding of the PSA at the time
it was executed, and attaches repurchase request letters to show
that BoNY’s ordinary practice was to send repurchase requests to
WMC only.

In opposition, the Trustee attaches repurchase

request letters that were sent to both GEMH and WMC, and the
Prospectus Supplement.
DISCUSSION
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).

The

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
non-moving party.

Holcomb v. Iona Coll., 521 F.3d 130, 132 (2d

Cir. 2008).
Under New York law, “agreements are to be construed in
accordance with the parties’ intent,” “the best evidence” of
which “is what they say in their writing.”

In re World Trade

Ctr. Disaster Site Litig., 754 F.3d 114, 122 (2d Cir. 2014)
(citation omitted).

“[A]ll writings which form part of a single

15

transaction and are designed to effectuate the same purpose
[must] be read together, even though they . . . were not all
between the same parties.”

This Is Me, Inc. v. Taylor, 157 F.3d

139, 143 (2d Cir. 1998) (citation omitted).

“The court should

read the integrated contract as a whole to ensure that undue
emphasis is not placed upon particular words and phrases, and to
safeguard against adopting an interpretation that would render
any individual provision superfluous.”

Law Debenture Trust Co.

of New York v. Maverick Tube Corp., 595 F.3d 458, 468 (2d Cir.
2010) (citation omitted).
“A contract is unambiguous when the contractual language
has a definite and precise meaning about which there is no
reasonable basis for a difference of opinion.”

Keiler v.

Harlequin Enterprises Ltd., 751 F.3d 64, 69 (2d Cir. 2014).

“By

contrast, ambiguity exists where a contract’s term could
objectively suggest more than one meaning to one familiar with
the customs and terminology of the particular trade or
business.”
of law.”

Id.

“Whether a contract is ambiguous is a question

Id.

If a contract is found ambiguous and “the intent of the
parties cannot be determined from the contractual language
itself, the ambiguity presents a question of fact” to be
resolved at trial.
Cir. 2006).

Hoyt v. Andreucci, 433 F.3d 320, 331 (2d

If a contract is unambiguous, by contrast, its
16

meaning is “a question of law for the court to decide.”

JA

Apparel Corp. v. Abboud, 568 F.3d 390, 397 (2d Cir. 2009).
“Although a determination that a contract is ambiguous
ordinarily requires denial of summary judgment, the court may
nonetheless grant summary judgment where the extrinsic evidence
illuminating the parties’ intended meaning of the contract is so
one-sided that no reasonable person could decide to the
contrary.”

New York Marine & Gen. Ins. Co. v. Lafarge N. Am.,

Inc., 599 F.3d 102, 115 (2d Cir. 2010) (citation omitted).
“Similarly, summary judgment may be granted despite any
ambiguities in the contract where there is no extrinsic evidence
that would support a resolution of the ambiguities in favor of
the nonmoving party’s case.”

Id. (citation omitted).

GEMH’s motion for summary judgment presents essentially two
legal questions: first, whether PSA § 2.03(a) unambiguously
limits the Trustee’s remedies to repurchase by WMC; and second,
if PSA § 2.03(a) is ambiguous, whether GEMH has met its burden
in showing that no reasonable person could reject GEMH’s
interpretation of the PSA.

Each will be addressed in turn.

I. PSA § 2.03(a) Is Ambiguous.
GEMH identifies one sentence in PSA § 2.03(a) as the
critical language limiting the Trustee’s remedies: “It is
understood and agreed that the obligation of [WMC] to cure or to
repurchase (or to substitute for) any Mortgage Loan [that
17

breaches the R&Ws] . . . shall constitute the sole remedy
respecting such . . . breach available to the Trustee on behalf
of the Certificateholders.”

(Emphasis added.) (“Key Sentence”)

GEMH asserts that the Key Sentence is properly interpreted as
“unambiguously” limiting the Trustee’s remedies for breaches of
the R&Ws contained in the Originator MLPA to repurchase by WMC.
The question of whether PSA § 2.03(a) is ambiguous, however, has
already been addressed in this action, and the Court will not
revisit the issue.

As the January 2014 Opinion determined, PSA

§ 2.03(a) -- when placed in the context of the entire PSA and
transaction as a whole -- is ambiguous.
II. GEMH Has Not Met Its Burden for Summary Judgment.
Turning to GEMH’s second argument, GEMH has not submitted
sufficient evidence to meet the exacting standard imposed on the
interpretation of an ambiguous contract through summary
judgment.

Seller MLPA § 7(a) imposes the obligation on GEMH to

repurchase loans that breach WMC’s R&Ws.

Under ordinary

precepts of contract interpretation, the negation of an express
obligation contained in a contract should be clear.

The Key

Sentence in PSA § 2.03(a) does not provide that clarity and
neither does any of the extrinsic on which GEMH relies.
Moreover, GEMH’s interpretation of the Key Sentence fails
to accomplish a basic tenet of contract interpretation: to give
independent force and effect to each provision of the three
18

critical documents responsible for placing the loans into the
RMBS trust.

Interpreting PSA § 2.03(a) to preclude a repurchase

remedy against GEMH fails to give independent force and effect
to not only Seller MLPA § 7(a) (where GEMH explicitly undertook
an obligation to repurchase loans that breach WMC’s R&Ws), but
also the title of PSA § 2.03 (which is “Repurchase or
Substitution of Mortgage Loans by [WMC], [GEMH] or the
Depositor”), and PSA § 2.03(c) (which describes GEMH’s
repurchase obligations).

It is also in tension with the

descriptions in the Prospectus of GEMH’s duties as the mortgage
loan seller.
A more holistic reading of PSA § 2.03(a) that gives force
and effect to all provisions contained in the three transaction
documents is available.

Section 2.03(a) addresses the mechanics

of managing the repurchase of the loan when the Originator’s
R&Ws have been breached.

It acknowledges that a breach of those

R&Ws may trigger a repurchase of the loan by either GEMH or WMC.
It then explains that the purchase price shall be paid into a
“Collection Account” and that the loan file will be released to
WMC.

It adds that, in lieu of a repurchase by GEMH or WMC, the

action must be for specific performance and not damages.

It is

only after the details of the repurchase process are set out
that the Key Sentence appears.

It indicates that “the

obligation of WMC” (in the event that its R&Ws are breached) is
19

limited to the duties to cure, repurchase, or substitute.

The

sentence thus serves to underscore in the PSA, the only contract
to which the Trustee is a party, what was already stated the
Originator MLPA: that, if an action is pursued against WMC, the
action must be for specific performance and not damages.
Because PSA § 2.03(a) is ambiguous and GEMH has failed to
meet its burden on summary judgment, the proper interpretation
of PSA § 2.03(a) is a question reserved for trial.

It is

sufficient at this stage to note that GEMH’s interpretation is
in direct tension with other provisions in the transaction
documents, and an interpretation that provides independent force
and effect to each provision is available.
CONCLUSION
GEMH’s March 17 motion for summary judgment is denied.
Dated:

New York, New York
July 30, 2015
__________________________________
DENISE COTE
United States District Judge

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