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November 14, 2005.


The opinion of the court was delivered by: ROBERT CARTER, Senior District Judge


Two motions are to be resolved. First, LaSalle Bank National Association ("LaSalle")*fn1 moves for summary judgment on its claim of breach of warranty. Second, CAPCO American Securitization Corporation (and its associated business entity the Capital Company of America, LLC (collectively, "Capco"))*fn2 cross-move for summary judgment dismissing LaSalle's claim of breach. Capco has also requested leave to amend their answer, in the event that the court finds that two of their affirmative defenses to LaSalle's claim were unplead.


  With certain exceptions, the parties agree on the facts. What is in dispute is the meaning of several provisions in a contract.

  LaSalle agreed to purchase from Capco approximately $1.2-billion worth of mortgage loans, which were to be included in a Real Estate Mortgage Investment Conduit ("REMIC") Trust.*fn3 Compl. ¶ 1. On September 11, 1998, LaSalle, as trustee and administrator, (the "trustee") and Capco, as the mortgage loan seller (the "seller") (and several non party entities) executed a Pooling and Services Agreement ("PSA.")*fn4 The PSA bundled the purchased mortgage loans into one trust. One such mortgage transferred to the trust is central to this case. A mortgage dated June 16, 1998, in the initial amount of $3,303,000 (the "mortgage"), was held by Capco on a healthcare facility operated by Home and Living Centers, Inc. (the "borrower.") Id. ¶ 15. In the PSA, Capco warranted that it would provide "Uniform Commercial Code financing statements on all furniture, fixtures, equipment and . . . all other personal property to be used in the operation of the . . . [borrower's] healthcare facility. Id. ¶ 4 (quoting PSA § 2.03(b) (xlii)) (emphasis added).*fn5 The controversy in this case relates to the alleged deficiencies of this filing.

  Nearly four years after purchasing the mortgage, LaSalle learned that Capco's U.C.C. filing (the "filing") did not give them a security interest in the borrower's personal property.

  On March 8, 2002, the borrower filed a petition for voluntary bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. See Pet., In Re Health & Living Center, Inc., d/b/a Collins Health Care, No. 02-33575 (Bankr. W.D. Penn. March 8, 2002). Upon subsequent review of the mortgage filings the trustee discovered that the filing referred only to the borrower's real property. Id. On May 9, 2002, LaSalle notified Capco of the defective filing and of its claim of breach of warranty. Pl. Statement of Uncontroverted Facts, ¶ 34. Capco, upon learning that they were in breach of their warranties, was obliged either to cure any defect or to repurchase the mortgage at a price set by the agreement. PSA § 2.03(a). In response to LaSalle's notice of claim, Capco tendered a check for $25,000, which they claimed would cure the breach. Id. ¶ 37. LaSalle rejected the payment, which they considered an inadequate offer to settle their claim. Capco never repurchased the borrower's mortgage, despite the trustee's insistence. DISCUSSION

  On December 16, 2002, LaSalle filed a complaint, alleging that Capco's breach of warranty had caused them substantial injury. Compl. ¶ 38. Capco denied breaching any warranties. Answer ¶ 6. In the alternative, Capco claimed that since the value of LaSalle's damages is so low, their breach was not material. Id. Additionally, Capco argued that LaSalle had been in breach of the warranty to notify Capco of any defective mortgage filings, both before and after the closing date. Although Capco argued that they plead their affirmative defenses in their answer, they requested leave to amend their pleading in the event that the court finds otherwise. Def. Notice of Mot. ¶ 1.

  A. Capco's Motion for Leave to Amend Their Answer

  Without receiving court permission to amend their answer, any defenses not previously raised will be deemed waived, since the "failure to plead an affirmative defense in the answer results in the waiver of that defense and its exclusion from the case." United States ex. rel. Maritime Admin. v. Continental Illinois Nat'l Bank & Trust Co., 889 F.2d 1248, 1253 (2d Cir. 1989) (citations and internal quotations omitted).

  Rule 15(a), F.R. Civ. P. states that in most circumstances, "leave to amend should be freely given." However, in this case the lenient standard of Rule 15(a) F.R. Civ. P. must be balanced against the rule that a scheduling order "shall not be modified except upon a showing of good cause."*fn6 Rule 16(b), F.R. Civ. P. Capco has offered no excuse for their failure to raise these newly alleged affirmative defenses in their original answer, despite being given an extension of the filing date. Stipulation and Order, January 8, 2003. They have fallen well short of the showing of good cause warranting modification of the court's scheduling orders. See Groshowski v. Phoenix Constr., 318 F.3d 80, 86 (2d Cir. 2003). Furthermore, if the court granted Capco's request for leave to amend their answer, the interests of justice would clearly require allowing LaSalle to conduct further discovery related to the newly plead defenses. This would cause substantial delay and impair judicial efficiency. Additionally, reopening discovery at this stage would cause prejudice to LaSalle — beyond mere delay — since the costs of reopening discovery would be substantial. Accordingly, Capco's request is denied.

  B. Capco's Motion for Summary Judgment

  Section 2.03 of the PSA is entitled "Representations, Warranties and Covenants." It contains a provision that requires Capco, in the event that they breach the agreement, either to cure the breach or to repurchase the mortgage at a specified price. Capco argues that because LaSalle had not performed their obligations, they were relieved of their duty to perform, and thus did not breach any of their warranties. If LaSalle did not comply with the requirements of these two subsections, their claim fails, since their substantial performance of their obligations is an implied element of their cause of action against Capco.

  The essence of Capco's argument is that there can be no material dispute that LaSalle was in breach of two warranties they provided to give notice of the faulty filing. The duties that LaSalle allegedly did not perform are found within two subsections of the PSA. Capco claims that LaSalle failed to give them notice of the deficiency of the filing upon initial inspection of the mortgage file in 1999 (in violation of PSA § 2.02), and in 2002 (in violation of PSA § 2.03.) The meaning and interpretation of the notice provisions of the PSA ...

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