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LASALLE BANK NATIONAL v. NOMURA ASSET CAPITAL

September 28, 2001

LASALLE BANK NATIONAL ASSOCIATION, (FKA LASALLE NATIONAL BANK) AS TRUSTEE FOR CERTIFICATE HOLDERS OF ASSET SECURITIZATION CORPORATION COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1997-D5, PLAINTIFF,
V.
NOMURA ASSET CAPITAL CORPORATION AND ASSET SECURITIZATION CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Buchwald, United States District Judge.

MEMORANDUM AND ORDER

Plaintiff LaSalle Bank National Association ("LaSalle," or "plaintiff"), as trustee for the certificateholders of a Real Estate Mortgage Investment Conduit ("REMIC"), brings this action against Nomura Asset Capital Corporation ("Nomura") and Asset Securitization Corporation ("ASC") (collectively, "defendants"), both Delaware corporations, for breach of certain representations and warranties, and for attorney's fees. Before the Court is defendants' motion, pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, to dismiss plaintiff's complaint for lack of subject matter jurisdiction. For the reasons that follow, the motion is denied.

I. BACKGROUND

In August of 1997, Nomura originated and closed a $50 million loan to a newly-created single-purpose entity affiliated with the Doctor's Hospital of Hyde Park, HPCH, LLC ("HPCH") (the "hospital loan"). This loan was secured by the real property, equipment, and intangibles of the hospital, as well as an assignment of the operating lease of the hospital's operator, Doctor's Hospital of Hyde Park, Inc. (the "hospital operator"). First Am. Compl. ¶ 5. In connection with the hospital loan, Nomura obtained an appraisal dated August 1, 1997 which appraised the collateral of this loan to be $68,000,000, and allocated this among the several categories of Land, Buildings/Site Improvements, Equipment, and Intangibles. First Am. Compl. ¶ 6.

On October 24, 1997, Nomura sold and conveyed all title, rights, and obligations related to the hospital loan and 155 other fixed-rate mortgage loans (collectively, the "mortgage package") to ASC pursuant to a Mortgage Loan Purchase and Sale Agreement ("MLPSA"). First Am. Compl. ¶ 7; Defs.' Mem. at 4. The MLPSA specifically acknowledged that the sale of the mortgage package was made in connection with the formation of a REMIC trust*fn1 which named LaSalle as trustee. First Am. Compl. ¶ 7. In addition, Nomura made certain representations and warranties with regard to the hospital loan in the MLPSA. These included the representations that the fair market value of the real property was at least equal to 80% of the principal amount of the loan, that the hospital loan constituted a "qualified mortgage" under § 860G(a)(3) of the Internal Revenue Code of 1986*fn2, and that the loan was consummated in accordance with customary industry standards. First Am. Compl. ¶ 8. Under the MLPSA, Nomura must either cure any breach of these representations and warranties or repurchase the hospital loan. Id.

Also on October 27, 1997, ASC, LaSalle, and others entered into the Pooling and Servicing Agreement ("PSA"). In this agreement, ASC conveyed to LaSalle, as trustee, all the interest in the mortgage package it had just obtained from Nomura in the MLPSA. First Am. Compl. ¶ 9. In the PSA, ASC confirmed, inter alia, that Nomura's representations and warranties from the MLPSA were true as of October 24, 1997 and, in particular, that the hospital loan constituted a "qualified mortgage" pursuant to § 860G(a)(3). Id. Pursuant to the PSA, ASC must either cure any breach of these representations and warranties or repurchase the hospital loan. Id.

On April 17, 2000, the operator of the hospital filed for relief under Chapter 11 of the United States Bankruptcy Code, and the hospital was shut down the following day. First Am. Compl. ¶ 11. On May 31, 2000, the United States Bankruptcy Court for the Northern District of Illinois entered an order permitting the operator to reject its lease for the hospital with HPCH. Shortly thereafter, the hospital loan went into default when HPCH ceased making payments. First Am. Compl. ¶ 12.

The PSA provides that, if any of the loans comprising the mortgage package go into default, the "Special Servicer" shall "seek to maximize the timely and complete recovery of principal and interest" on that loan. PSA at § 3.01(a); First Am. Compl. ¶ 10. At the time the PSA was entered into, AMRESCO Management, Inc. was named as the Special Servicer, but, at present, AMRESCO Management, Inc.'s successor in interest, Lend Lease Asset Management, L.P. ("Lend Lease") is the Special Servicer. First Am. Compl. ¶ 10.

Because the hospital loan was in default, Lend Lease, as Special Servicer, reviewed the hospital loan file. Upon examination of the file, it determined that the hospital loan was not, in fact, a "qualified mortgage," because the appraised value of the real property securing the debt was less than 80% of the principal amount of the loan, and because the loan was not used to purchase, improve, or protect the real property. First Am. Compl. ¶ 13. Lend Lease then gave notice to ASC of this alleged breach and demanded that ASC repurchase the hospital loan, as provided in the PSA. Id. ASC, however, refused to do so. First Am. Compl. ¶ 14. In a letter dated August 4, 2000, both Nomura and ASC denied that any representation or warranty of either the MLPSA or the PSA was breached, and, therefore, refused to repurchase the hospital loan. First Am. Compl. ¶ 16. This litigation ensued.

II. DISCUSSION

Defendants assert that this Court lacks subject matter jurisdiction to hear this case, and move to dismiss on that ground. Defs.' Mem. at 10. Plaintiff maintains, on the other hand, that both federal-question jurisdiction and diversity jurisdiction exist. First Am. Compl. ¶ 4. Because we agree with plaintiff that there is complete diversity of the parties to this action, we deny defendants motion on that ground alone and do not consider the additional question of whether federal question jurisdiction lies in this case.

A. Motion to Dismiss Standard

For purposes of a motion to dismiss, we are required to accept as true the factual assertions in the complaint, see Zinermon v. Burch, 494 U.S. 113, 118, 110 S.Ct. 975, 108 L.Ed.2d 100 (1990); Charles W. v. Maul, 214 F.3d 350, 356 (2d Cir. 2000), and may grant the motion only where, viewing plaintiff's allegations in the light most favorable to him, "it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Harris v. City of New York, 186 F.3d 243, 247 (2d Cir. 1999). Moreover, at this stage of the proceedings, ...


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