TIB - The Independent Bankersbank v. Canyon Community Bank
Filing
19
MEMORANDUM OPINION AND ORDER granting 5 MOTION to Dismiss for Failure to State a Claim filed by Canyon Community Bank and granting plaintiff leave to replead. (Ordered by Chief Judge Sidney A Fitzwater on 1/15/2014) (Chief Judge Sidney A Fitzwater)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
TIB - THE INDEPENDENT
BANKERSBANK,
Plaintiff,
VS.
CANYON COMMUNITY BANK,
Defendant.
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§ Civil Action No. 3:13-CV-3913-D
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MEMORANDUM OPINION
AND ORDER
In this removed action alleging claims for breach of contract, negligent
misrepresentation, and unjust enrichment, defendant moves to dismiss under Fed. R. Civ. P.
12(b)(6), or for a more definite statement under Rule 12(e). For the following reasons, the
court grants the motion to dismiss and also grants plaintiff leave to replead.1
I
In 2002 plaintiff TIB - The Independent BankersBank (“TIB”) and defendant Canyon
Community Bank (“CCB”) entered into a Mortgage Loan Program Agreement (“2002
Agreement”).2 The 2002 Agreement was superseded by a Correspondent Bank Mortgage
1
Because the court is granting the motion to dismiss, it need not consider the
alternative motion for a more definite statement.
2
In deciding defendant’s Rule 12(b)(6) motion, the court construes plaintiff’s state
court petition in the light most favorable to plaintiff, accepts as true all well-pleaded factual
allegations, and draws all reasonable inferences in plaintiff’s favor. See, e.g., Lovick v.
Ritemoney Ltd., 378 F.3d 433, 437 (5th Cir. 2004).
Loan Agreement entered into in 2009 (“2009 Agreement”). Under the 2002 and 2009
Agreements (collectively, the “Agreement,” unless it is necessary to distinguish between the
two), TIB agreed to purchase from CCB various conventional, FHA, VA, and/or jumbo
residential mortgage loans, including the servicing rights of these loans. CCB agreed to
submit completed loan packages to TIB to assist it in marketing the loans to the secondary
market. CCB also agreed that it would “originate and process all Loans in accordance with
customary and prudent lending practices of financial institutions and in full compliance with
the requirements of” the Federal National Mortgage Association (“Fannie Mae”) and the
Federal Home Loan Mortgage Association (“Freddie Mac”). Pet. ¶ 6. TIB alleges that “[a]t
all times, the parties knew and intended for TIB to sell the loans to third party investors.”
Id. ¶ 5.
CCB warranted in the Agreement that, as of the time any loan package was submitted
to TIB, each loan conformed to the specifications “set forth by TIB and in applicable investor
and insurer regulations, rules, guides and handbooks for mortgage loans eligible for sale to,
insurance by or pooling to back securities issued or guaranteed by, said investors and
insurers.”3 Id. ¶ 9. CCB also agreed to indemnify TIB for any losses incurred as a result of
3
CCB further warranted:
[t]he Loan file contains each of the documents and instruments
required by applicable law or investor or insurer requirements
and/or specified to be included therein duly executed and in due
and proper form and each such document is genuine and in form
acceptable to the applicable investors and insurers and the
information contained therein is true, accurate and complete.
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any breach of warranty by CCB or of “[a]ny acts, errors or omissions of [CCB] . . . with
respect to the origination of any Loan . . . prior to the date of sale to TIB or thereafter in
connection with the performance of any of [CCB’s] obligations.” Id. ¶ 10 (quoting Ex. A at
6-7).
On January 21, 2005 TIB purchased a loan (“Loan B”)4 from CCB and, pursuant to
the Agreement, sold the loan to Fannie Mae. On January 17, 2008 TIB purchased a loan
(“Loan A”)5 from CCB and, pursuant to the Agreement, sold the loan to Freddie Mac. TIB
alleges that Loans A and B did not fully comply with Freddie Mac and Fannie Mae
guidelines, and, as a result, it was forced to indemnify Freddie Mac and Fannie Mae for their
respective losses on the loans.
On August 7, 2013 TIB demanded indemnification from CCB under the Agreement.
When CCB failed and refused, TIB sued CCB in state court on August 27, 2013, alleging
claims for breach of contract, negligent misrepresentation, and unjust enrichment. CCB
removed the case to this court and now seeks to dismiss TIB’s claims under Rule 12(b)(6),
The Loan was originated in accordance with the applicable
investor and insurer underwriting standards in effect at the time
of origination.
Pet. ¶ 9 (quoting Ex. A at 3-5).
4
Loan B is secured by property located on East Magee Road, Tucson, Arizona.
5
Loan A is secured by property located on West Crimson Ridge Drive, Tucson,
Arizona.
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or for a more definite statement under Rule 12(e).6
II
“In deciding a Rule 12(b)(6) motion to dismiss, the court evaluates the sufficiency of
[plaintiff’s] amended complaint by accepting all well-pleaded facts as true, viewing them in
the light most favorable to the plaintiff.” Bramlett v. Med. Protective Co. of Fort Wayne,
Ind., 855 F.Supp.2d 615, 618 (N.D. Tex. 2012) (Fitzwater, C.J.) (quoting In re Katrina Canal
Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007)) (internal quotation marks and alteration
omitted). To survive CCB’s motion to dismiss under Rule 12(b)(6), TIB must plead “enough
facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable for
the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility
standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer
possibility that a defendant has acted unlawfully.” Id.; see also Twombly, 550 U.S. at 555
(“Factual allegations must be enough to raise a right to relief above the speculative level[.]”).
“[W]here the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged—but it has not ‘shown’—‘that the
6
On December 27, 2013 CCB filed a notice advising the court that a case cited in both
parties’ briefing has been reversed. See ACE Sec. Corp. v. DB Structured Prods., Inc., 965
N.Y.S.2d 844 (N.Y. Sup. Ct. 2013), rev’d, ___ N.Y.S.2d ___, 2013 WL 6670379 (N.Y. App.
Div. Dec. 19, 2013) (per curiam). The court has not relied on this case in reaching this
decision.
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pleader is entitled to relief.’” Iqbal, 556 U.S. at 679 (quoting Rule 8(a)(2)) (alteration
omitted). Furthermore, under Rule 8(a)(2), a pleading must contain “a short and plain
statement of the claim showing that the pleader is entitled to relief.” Although “the pleading
standard Rule 8 announces does not require ‘detailed factual allegations,’” it demands more
than “‘labels and conclusions.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555).
And “‘a formulaic recitation of the elements of a cause of action will not do.’” Id. (quoting
Twombly, 550 U.S. at 555).
III
The court turns first to CCB’s motion to dismiss TIB’s breach of contract claim based
on the statute of limitations.
A
“‘Although dismissal under Rule 12(b)(6) is ordinarily determined by whether the
facts alleged in the complaint, if true, give rise to a cause of action, a claim may also be
dismissed if a successful affirmative defense appears clearly on the face of the pleadings.’”
Sivertson v. Clinton, 2011 WL 4100958, at *2 (N.D. Tex. Sept. 14, 2011) (Fitzwater, C.J.)
(quoting Clark v. Amoco Prod. Co., 794 F.2d 967, 970 (5th Cir. 1986)); see also White v.
Padgett, 475 F.2d 79, 82 (5th Cir. 1973) (holding that claim is “subject to dismissal under
Rule 12(b)(6) . . . when [an] affirmative defense clearly appears on the face of the
complaint.”). “In the usual case, this court is unable to grant dismissal under Rule 12(b)(6)
based on an affirmative defense because it rarely appears on the face of the complaint.”
Simon v. Telsco Indus. Emp. Benefit Plan, 2002 WL 628656, at *1 (N.D. Tex. Apr. 17, 2002)
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(Fitzwater, J.). Furthermore, “[i]t is well settled . . . that in order for a defendant to prevail
on the basis of limitations at the pleadings stage, the plaintiff must normally plead [it]self out
of court.” W. Fork Partners, L.P. v. Chesapeake Exploration, L.L.C., 2009 WL 2252505,
at *5 (N.D. Tex. July 29, 2009) (Fitzwater, C.J.) (quoting Funches v. City of Dallas, 1999
WL 261842, at *2 (N.D. Tex. Apr. 28, 1999) (Fitzwater, J.)) (alteration in original).
B
In its state court petition, TIB alleges that CCB breached the Agreement’s
representations and warranties with respect to Loans A and B and that TIB is entitled to
indemnification as a result. TIB asserts that, although CCB represented and warranted that
Loan A was originated in accordance with Freddie Mac underwriting standards in effect at
the time of origination and agreed to originate and process all loans in full compliance with
Freddie Mac requirements, Loan A failed to conform to Freddie Mac guidelines because the
borrower’s income was insufficient to support all of his financial obligations and his true
debt-to-income ratio was considered an unacceptable risk to Freddie Mac. TIB maintains
that, because CCB did not process or originate Loan A in accordance with Freddie Mac
requirements and underwriting standards, CCB breached the Agreement’s representations
and warranties with respect to Loan A, and TIB is entitled to indemnification. As to Loan
B, TIB alleges that, despite CCB’s representations to the contrary, Loan B did not comply
with Fannie Mae guidelines and was not processed in accordance with Fannie Mae
underwriting standards because certain information related to the appraisal was not provided
in the loan file (specifically, certain comparables were missing from the appraisal grid page).
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Thus TIB maintains that CCB breached the Agreement’s representations and warranties with
respect to Loan B, and that it is entitled to indemnification on this loan as well.
CCB moves to dismiss TIB’s breach of contract claim on the grounds that it is barred
by limitations. CCB posits that TIB alleges that CCB breached representations and
warranties that were made at or before the time TIB purchased the loans from CCB, and that,
on the face of the pleadings, the alleged breach of contract for the 2005 loan (Loan B)
occurred in or before January 2005, and the alleged breach of contract for the 2008 loan
(Loan A) occurred in or before January 2008. Relying on the four-year statute of limitations
for breach of contract claims, CCB maintains that TIB’s breach of contract claim is timebarred.7
TIB responds that its breach of contract claim arises from CCB’s breach of its duty
to indemnify TIB for losses incurred as a result of CCB’s warranty breaches, and because the
indemnity provisions in the Agreements are “damages indemnity agreements” under Texas
law, TIB’s claim for breach of these provisions did not accrue until TIB was forced to
reimburse Fannie Mae and Freddie Mac for losses associated with Loans A and B. TIB
maintains, that because it did not incur losses on Loans A and B until 2013, its breach of
7
The 2002 Agreement contains the following purported waiver of any applicable
statute of limitations: “The indemnity provided in this section shall remain in full force and
effect regardless of any . . . applicable statute of limitations which is expressly waived.” Pet.
Ex. B at 6. CCB argues that this waiver is void as against public policy because of its broad
and indefinite scope. TIB responds that, because its breach of contract is timely, the court
need not address waiver. Given the basis for the court’s decision, it declines to reach this
argument.
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contract claims are timely.
CCB replies that the Agreement was not intended to act as mortgage or loan insurance
and that TIB’s recharacterization of the Agreements as “an indemnity insurance agreement”
would allow the litigation of stale, decades-old loan closings and would eviscerate the
applicability of the statute of limitations to mortgage loan purchases. D. Reply 3. It posits
that the indemnification and repurchase provisions of the Agreement provide remedies, not
independent causes of action, for breaches of representations and warranties. CCB quotes
extensively from Nomura Asset Acceptance Corp. v. Nomura Credit & Capital, Inc., 2013
WL 2072817, at *8 (N.Y. Sup. Ct. May 10, 2013) (unpublished table decision), in which a
New York supreme court dismissed as time-barred a complaint alleging breach of contract
arising out of the defendant’s failure to repurchase allegedly defective loans from a pool of
home mortgage loans sold to the plaintiff. Id. at *9. The Nomura court reasoned that the
repurchase obligation was merely a remedy, not “a duty independent of the Mortgage
Representation breach of contract claims.” Id. at *8. It concluded that “[t]he statute of
limitations runs from the time of breach of the Mortgage Representations, not from the time
plaintiff elected to make demands for repurchase.” Id. CCB argues that the court should
follow the approach taken in Nomura, contending that it is “compelling and is consistent with
the Texas legal-injury rule standards.” D. Reply 6.
In a surreply, TIB argues that CCB committed an independent breach of the
Agreement each time it failed to abide by and fulfill its obligation to indemnify TIB. It
argues that Nomura is inapposite because, in that case, repurchase was the sole remedy
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available to the plaintiff. It therefore maintains that, because TIB seeks indemnity, not
repurchase, Nomura has no bearing on CCB’s motion to dismiss. TIB posits that CCB
committed an independent breach of the Agreement each time it failed to abide by and fulfill
its obligation to indemnify TIB, and that it would “def[y] common sense” to require TIB to
bring an indemnity suit before it had paid, or had incurred any obligation to pay, a third-party
investor. P. Surreply 8. Finally, TIB contends that the Agreement is not the equivalent of
a mortgage insurance policy because CCB does not bear the risk of loss on all loans that
default; it only bears the risk of loss on loans on which borrowers default due to false
representations and warranties made by CCB.
C
Under Texas law, a cause of action for contractual indemnification8 accrues either at
the time a judgment is rendered or at the time a judgment is paid, depending on the language
of the contract.9 Smith Int’l, Inc. v. Egle Grp., LLC, 490 F.3d 380, 388 (5th Cir. 2007); see
8
Texas also recognizes causes of action for common law indemnity and statutory
indemnity. Common law indemnity clearly does not apply because “common law indemnity
survives only in products liability actions to protect an innocent retailer in the chain of
distribution and in negligence actions to protect a defendant whose liability is purely
vicarious in nature.” Garza v. Ford Motor Co., ___ S.W.3d ___, 2013 WL 5925849, at *3
(Tex. App. Nov. 6, 2013, no pet. h.) (citing Affordable Power, L.P. v. Buckeye Ventures, Inc.,
347 S.W.3d 825, 833 (Tex. App. 2011, no pet)). And because TIB cites no statutory
provisions in support of its breach of contract claim, the court assumes that TIB likewise
does not intend to allege a statutory indemnity claim.
9
Whether the cause of action accrues at the time a judgment is rendered or at the time
the judgment is paid depends on the language of the indemnity clause. See Ingersoll-Rand
Co. v. Valero Energy Corp., 997 S.W.2d 203, 207 (Tex. 1999) (“To determine the correct
accrual date of an indemnity claim we look to the contract’s indemnity provision.”). “There
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also Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 134
(Tex. 2010) (“[A] claim based on a contract that provides indemnification from liability does
not accrue until the indemnitee’s liability becomes fixed and certain.”). “‘As such, an action
for indemnification or contribution does not accrue for limitations purposes until a plaintiff
recovers damages or settles its suit against a defendant.’” Am. Star Energy & Minerals Corp.
v. Stowers, 405 S.W.3d 905, 915 (Tex. App. 2013, no pet.) (citation omitted). TIB maintains
that it was forced to indemnify Freddie Mac and Fannie Mae in 2013. It is therefore unlikely
that its purported indemnification claim accrued prior to 2013.
Although the court concludes that TIB’s claim for contractual indemnification
probably did not accrue before 2013, this does not mean that TIB’s petition is sufficient to
avoid CCB’s limitations defense. TIB argues in its brief that its “claims arise from CCB’s
breach of its duty to indemnify TIB for losses incurred as a result of CCB’s warranty
breaches.” P. Resp. 2 (emphasis omitted). But TIB’s petition does not allege a breach of the
indemnification provisions of either the 2002 or the 2009 Agreement. Under the heading
“Breach of contract (breach of the representations and warranties in the contract),” TIB
pleads that “CCB breached the Agreement’s representations and warranties with respect to
are two types of indemnity agreements, those that indemnify against liabilities and those that
indemnify against damages.” Id. (citations omitted). Broad language that “holds the
indemnitee ‘harmless’ against ‘all claims’ and ‘liabilities’ evidences an agreement to
indemnify against liability.” Id. “Damages indemnity agreements, on the other hand, are not
as broad, and the indemnitee’s right to sue does not accrue ‘until the indemnitee has suffered
damage or injury by being compelled to pay the judgment or debt.’” Smith Int’l, Inc. v. Egle
Grp., LLC, 490 F.3d 380, 389 (5th Cir. 2007) (quoting Tubb v. Bartlett, 862 S.W.2d 740, 750
(Tex. App. 1993, writ denied) (emphasis omitted)).
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Loan A [and Loan B]. Based on CCB’s breach, TIB is entitled to indemnification for Loan
A [and Loan B].” Pet. ¶ 18. TIB also alleges that CCB breached its representation and
warranty that Loan A would conform to Freddie Mac guidelines and was originated in
accordance with Freddie Mac underwriting standards in effect at the time of the origination,
and that Loan B conformed to Fannie Mae guidelines and was originated in accordance with
Fannie Mae underwriting standards in effect at the time of origination. In other words, TIB
alleges that, in connection with Loans A and B, CCB “breached” the “representations and
warranties” in the 2002 and 2009 Agreements, and it seeks indemnity as a remedy for the
breach of these “representations and warranties.” TIB does not plead a contractual
indemnification claim in its petition (i.e., a claim that would not be time-barred on its face).
In its surreply, TIB requests that if the court is inclined to grant CCB’s motion to
dismiss, it be granted leave to amend to replead its allegations against CCB. Because the
court’s usual practice when granting a motion to dismiss is to permit a plaintiff at least one
opportunity to replead, the court will permit TIB to amend its complaint to plead a claim for
contractual indemnification. See In re Am. Airlines, Inc. Privacy Litig., 370 F.Supp.2d 552,
567-68 (N.D. Tex. 2005) (Fitzwater, J.) (“[D]istrict courts often afford plaintiffs at least one
opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the
defects are incurable or the plaintiffs advise the court that they are unwilling or unable to
amend in a manner that will avoid dismissal.”).
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IV
The court next considers CCB’s motion to dismiss TIB’s negligent misrepresentation
and unjust enrichment claims.
A
CCB argues that TIB’s unjust enrichment and negligent misrepresentation claims are
time-barred because the conduct at issue concerning these claims must have occurred at or
before the purchase of the loans in 2005 and 2008, meaning that the two-year statute of
limitations applicable to claims for both negligent misrepresentation and unjust enrichment
would have expired before TIB filed suit. CCB also maintains that the economic loss
doctrine precludes the claims. In support of its alternative motion for a more definite
statement—but not in its motion to dismiss—CCB contends that “Plaintiff’s allegations
provide virtually no information to support the unjust enrichment and negligent
misrepresentation causes of action.” D. Br. 9.
B
Although CCB challenges the sufficiency of TIB’s claims for unjust enrichment and
negligent misrepresentation in its motion for a more definite statement rather than in its
motion to dismiss, the court can raise this ground for dismissal sua sponte, if necessary,
because it is also allowing TIB to replead. See, e.g., Biggers v. BAC Home Loans Servicing,
LP, 767 F.Supp.2d 725, 733-34 n.7 (N.D. Tex. 2011) (Fitzwater, C.J.) (noting that district
court has authority to consider sufficiency of complaint and dismiss action on its own motion
as long as procedure employed is fair, raising ground for dismissal sua sponte, and
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concluding that procedure was fair because court was granting leave to replead).
Under Texas law, a claim for negligent misrepresentation consists of four elements:
(1) the defendant made a representation in the course of his business, or in a transaction in
which he has a pecuniary interest; (2) the defendant supplied false information for the
guidance of others in their business; (3) the defendant did not exercise reasonable care or
competence in obtaining or communicating the information; and (4) the plaintiff suffered
pecuniary loss by justifiably relying on the representation. Hurd v. BAC Home Loans
Servicing, LP, 880 F.Supp.2d 747, 762 (N.D. Tex. 2012) (Lynn, J.) (citing Gen. Elec. Capital
Corp. v. Posey, 415 F.3d 391, 395-96 (5th Cir. 2005)). In support of its negligent
misrepresentation claim, TIB alleges:
CCB, in the course of its business as delineated above, made
representations to TIB regarding the Loans, and in doing so,
supplied false information for the guidance of TIB in its
business. CCB did not exercise reasonable care or competence
in obtaining or communicating the information, and TIB
suffered pecuniary loss by justifiably relying on the
representations.
Pet. ¶ 26. TIB’s allegations track the elements of a negligent misrepresentation cause of
action but fail to plausibly allege any facts in support of such a claim. See Iqbal, 556 U.S.
at 678 (“‘a formulaic recitation of the elements of a cause of action will not do.’” (quoting
Twombly, 550 U.S. at 555)). The conclusory allegations are insufficient to state a plausible
claim for relief. Accordingly, the court dismisses this claim.
TIB’s unjust enrichment claim suffers from the same lack of detail. TIB alleges that
“CCB holds money that belongs to TIB in equity and good conscience. TIB pleads this cause
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of action in order to prevent the unjust enrichment of CCB.” Pet. ¶ 23. “[A] plaintiff’s
obligation to provide the grounds of his entitlement to relief requires more than labels and
conclusions[.]” Twombly, 550 U.S. at 555 (citation and internal quotation marks omitted).
TIB must plead “enough facts to state a claim to relief that is plausible on its face.” Id. at
570. The allegations in support of TIB’s unjust enrichment claim contain no facts from
which the court can plausibly infer that TIB is entitled to relief under a theory of unjust
enrichment.
V
TIB filed this case in state court, under the pleading standards that govern in that
forum. It has requested, and should be given, an opportunity to replead under the federal
pleading standards. See, e.g., Hoffman v. L&M Arts, 774 F.Supp.2d 826, 849 (N.D. Tex.
2011) (Fitzwater, C.J.) (granting similar relief in removed case). Accordingly, the court
grants TIB 30 days from the date this memorandum opinion and order is filed to file an
amended complaint.
*
*
*
For the reasons explained, CCB’s motion to dismiss is granted, and TIB is granted
leave to replead.
SO ORDERED.
January 15, 2014.
_________________________________
SIDNEY A. FITZWATER
CHIEF JUDGE
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