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
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 ...