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FDIC v. BERNSTEIN

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK


January 10, 1992

FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER OF GUARDIAN BANK, N.A., Plaintiff, -against- LOUIS B. BERNSTEIN, et al., Defendants. IN THE MATTER OF THE APPLICATION OF MICHAEL H. SOROKA, AS INDEPENDENT RECEIVER OF THE NEW YORK GUARDIAN MORTGAGEE CORPORATION, ENFORCING THE AGREEMENT WITH FEDERAL NATIONAL MORTGAGE ASSOCIATION. FEDERAL NATIONAL MORTGAGE ASSOCIATION, Plaintiff, -against- MICHAEL H. SOROKA, individually and in his capacity as the Independent Receiver for The New York Guardian Mortgagee Corporation, and THE NEW YORK GUARDIAN MORTGAGEE CORPORATION, Defendants.

The opinion of the court was delivered by: MISHLER

Memorandum of Decision and Order

 MISHLER, District Judge

 Michael H. Soroka ("Soroka"), both individually and in his capacity as the Independent Receiver for the New York Guardian Mortgagee Corporation ("NYGMC"), moves this court for an order dismissing the complaint of the Federal National Mortgage Association ("FNMA") or, in the alternative, staying the FNMA action pending determination of the Application of Michael H. Soroka, as Independent Receiver of The New York Guardian Mortgagee Corporation, Enforcing the Agreement with FNMA (the "Receiver's Application"), filed with the court on February 13, 1991.

 The dual proceedings before this court involve, essentially, the interpretation of a portfolio servicing contract entered into between the Independent Receiver and FNMA on August 13, 1990. The operative facts relating to this issue are fully set forth in both FNMA's complaint and in the various affidavits filed in connection with the Receiver's Application and FNMA's Cross-Application.

 BACKGROUND

 NYGMC and FNMA were parties to a Mortgage Selling and Servicing Agreement dated December 29, 1982 (the "1982 Servicing Agreement") pursuant to which NYGMC agreed to service approximately $ 1 billion in mortgages owned or held by FNMA. As a servicer for the FNMA mortgage portfolio, NYGMC was responsible for collecting and remitting required payments from the borrowers, including taxes, insurance, interest and principal; maintaining records with respect to each mortgage; and otherwise assuring that the mortgages were being performed in accordance with their terms. (Carpenter Aff. 3).

 On June 21, 1989, the Office of the Comptroller of the Currency ("OCC") determined that Guardian Bank, N.A., an affiliate of NYGMC, was insolvent. The OCC immediately ordered Guardian Bank closed, took possession of its assets and appointed the Federal Deposit Insurance Corporation (the "FDIC") as the Receiver of Guardian Bank's assets. The next day, the FDIC commenced an action in this court against the Bank's officers and directors, alleging, inter alia, breaches of fiduciary duty, negligence, waste and violations of various state and federal statutes and regulations. The FDIC, through its agents, immediately took control of Guardian Bank's and NYGMC's files, including all the files relating to the portfolio of mortgages owned or held by FNMA and serviced by NYGMC pursuant to the Servicing Agreement.

 The appointment of the FDIC and commencement of the FDIC action raised grave concerns regarding NYGMC's ability to continue servicing the FNMA mortgage portfolio. (Carpenter Aff. 6). To protect itself and its customers, FNMA immediately took steps to transfer servicing responsibilities to a more stable servicing agent and to terminate the existing Servicing Agreement with NYGMC. Accordingly, on June 26, 1989, FNMA terminated the Servicing Agreement and NYGMC's right to service FNMA mortgages and participation interests. (Nichols Aff. Ex. A).

 FNMA and NYGMC immediately began negotiations to arrange for the orderly transfer of portfolio documents from NYGMC to FNMA. These discussions culminated in a verbal agreement, pursuant to which NYGMC agreed to transfer the servicing rights back to FNMA or its designee, in exchange for $ 8,799,187. *fn1" FNMA and NYGMC also agreed that any liabilities FNMA incurred due to NYGMC's servicing errors or deficiencies and any extraordinary charges and expenses FNMA incurred due to the transfer would be offset against the $ 8,799,187 payment and that offsets in excess of $ 8,799,187 would be owed to FNMA. The specific categories of offsets were to be memorialized later in a written agreement.

 The Midlantic Agreement

 FNMA soon approached Midlantic Home Mortgage Corporation ("Midlantic") about the possibility of Midlantic's taking over the mortgage servicing responsibilities of the FNMA portfolio. In October 1989, following four months of discussions, FNMA and Midlantic entered into an interim servicing agreement pursuant to which Midlantic agreed to take over servicing responsibilities from the period June 30, 1989 through December 1990 (the "Midlantic Agreement"). Midlantic demanded and the Midlantic Agreement provided for the payment of a one-time servicing fee of 50 basis points, over and above the normal servicing fee, to compensate Midlantic for taking over the management of the troubled FNMA portfolio. (Carpenter Aff. Ex. A, at 4). This fee, which amounted to approximately $ 4.5 million, was calculated based on the average principal balance outstanding at the end of each month of the Midlantic Agreement. Id.

 The Appointment of an Independent Receiver

 On July 11, 1989, defendant Michael H. Soroka was appointed by this court to serve as the Independent Receiver for NYGMC. Shortly after his appointment and as part of his responsibilities, Soroka began to negotiate a formal written agreement memorializing the terms of the June 1989 portfolio transfer between NYGMC and FNMA and settling all claims and obligations between the parties. A primary purpose of these negotiations was to limit NYGMC's potential exposure to liabilities. Towards that end, the parties engaged in regular discussions concerning the nature and identity of the offsets that were to be deducted from the $ 8,799,187 purchase price. Between August 1989 and August 1990, FNMA forwarded to Soroka a series of schedules which provided estimates for each "offset" category on an Account-by-Account basis. (Pearce Reply Aff. Ex. C). With respect to the offset entitled "Out-of-Pocket Transfer Expenses," FNMA's schedules consistently projected these expenses to be only $ 100,000. Although the negotiations endured for one full year, the estimated figures supplied by FNMA did not change. Date of FNMA Schedule Estimated Expenses August 31, 1989 $ 100,000 October 17, 1989 100,000 October 26, 1989 100,000 November 22, 1989 100,000 February 26, 1990 100,000 April 3, 1990 100,000 April 20, 1990 100,000 August 14, 1990 100,000 August 27, 1990 100,000

19920110

© 1992-2004 VersusLaw Inc.



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