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Greenwich Financial Services Distressed Mortgage Fund 3 LLC v. Countrywide Financial Corp.

April 20, 2010

GREENWICH FINANCIAL SERVICES DISTRESSED MORTGAGE FUND 3 LLC, AND QED LLC, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS-APPELLEES,
v.
COUNTRYWIDE FINANCIAL CORPORATION, COUNTRYWIDE HOMELOANS, INC., AND COUNTRYWIDE HOME LOANS SERVICING LP, DEFENDANTS-APPELLANTS.



SYLLABUS BY THE COURT

Plaintiffs-appellees, Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC, brought a putative class action against defendants-appellants, Countrywide Financial Corporation, Countrywide Home Loans, Inc., and Countrywide Home Loans Servicing LP in state court. Defendants-appellants removed the action to the United States District Court for the Southern District of New York. The district court (Richard J. Holwell, J.) granted plaintiffs-appellees' motion to remand, and defendants-appellants appeal. We conclude that we lack jurisdiction to hear the appeal.

APPEAL DISMISSED.

The opinion of the court was delivered by: Gerard E. Lynch, Circuit Judge

Argued: February 11, 2010

Before: LIVINGSTON AND LYNCH, Circuit Judges, and STANCEU, Judge.*fn1

This appeal requires us to decide when a provision of the Class Action Fairness Act of 2005 ("CAFA") bars appellate review of orders remanding securities class actions to state court.

Plaintiffs-appellees commenced this putative class action in New York State Supreme Court. The case was removed to the United States District Court for the Southern District of New York (Richard J. Holwell, J.). Plaintiffs-appellees moved to remand the case to state court for lack of subject matter jurisdiction. They argued that, while CAFA extended federal jurisdiction for most class actions meeting certain monetary and diversity requirements, it did not apply to this action because the statute exempted suits involving claims that "relate[d] to the rights, duties[,] . . . and obligations relating to or created by or pursuant to any security." 28 U.S.C. § 1332(d)(9)(C). Additionally, plaintiffs-appellees argued that no other basis for federal jurisdiction existed. The district court granted plaintiffs-appellees' motion to remand, and defendants-appellants appealed to this Court.

We construe the language of another provision of CAFA, 28 U.S.C. § 1453, which governs removal of class actions and appellate review of orders remanding such actions to state court. Like the parallel exception in the provision creating federal jurisdiction over class actions, § 1453(d)(3) exempts from appellate review orders remanding any class action that solely involves "a claim that relates to the rights, duties[,] . . . and obligations relating to or created by or pursuant to any security. . . ." We conclude that the present action falls within this provision. Accordingly, we do not have jurisdiction to hear this appeal and must dismiss it.

BACKGROUND

Defendants are affiliated corporations in the mortgage business. Defendant Countrywide Financial Corporation is a holding company, of which the other defendants are subsidiaries. One subsidiary, defendant Countrywide Home Loans, Inc., originates loans to individual consumers. The other subsidiary, defendant Countrywide Home Loans Servicing, LP, now known as BAC Home Loans Servicing, LP,("Countrywide Servicing"), services the loans originated by Countrywide Home Loans.

To raise money to lend to consumers, Countrywide Home Loans entered into a number of securitization transactions. In these transactions, Countrywide Home Loans sold its mortgages to specially created trusts, which received payment of interest and principal from mortgage borrowers. The trusts in turn sold certificates to investors. These securities entitled their owners to repayments of their principal, as well as interest payments. Because the trusts themselves lacked the capacity to administer the loans, they entered into agreements with Countrywide Servicing to administer the mortgages on their behalf. The terms of these securitization transactions, as well as the rights and duties of the parties to them, were laid out in contracts known as "pooling and servicing agreements" ("PSAs"). Countrywide Home Loans and Countrywide Servicing, as well as the trusts' trustee, The Bank of New York, and various other entities, were parties to the PSAs, but the certificate holders and Countrywide Financial were not.

In the summer of 2008, the attorneys general of seven states filed lawsuits accusing the Countrywide businesses ("Countrywide") of violating laws against predatory lending. The states alleged that Countrywide engaged in deceptive sales practices, charged unlawful fees, and made loans it had no reasonable basis to think could be repaid. Countrywide later agreed to a multistate settlement, according to which it was required to modify the terms of many of the mortgages owned by the trusts and administered by Countrywide Servicing on behalf of the trusts. Modifying the loans created the possibility that the homeowners would make smaller payments of interest and principal to the trusts, thereby decreasing the value of the certificates.

Plaintiffs are holders of certificates issued by the trusts. They filed this putative class action in New York State Supreme Court, seeking declaratory judgments that Countrywide Servicing is required under the terms of the PSAs to repurchase the modified loans from the trusts at a price equal to their unpaid principal plus any accrued interest. They cite language in the PSAs to the effect that "[Countrywide Servicing] may agree to a modification of any Mortgage Loan . . . if . . . [it] purchases the Modified Mortgage Loan from the Trust Fund. . . ."

Defendants promptly removed the action to the Southern District of New York. In their notice of removal, defendants cited two independent bases for federal jurisdiction. First, defendants claimed original diversity jurisdiction under CAFA, 28 U.S.C. § 1332(d)(2), which generally allows district courts to exercise jurisdiction over class actions based solely on state law provided that minimal diversity is present and the amount in controversy exceeds $5,000,000. Second, defendants asserted federal question jurisdiction under 28 U.S.C. § 1331, arguing that plaintiffs' state-law claim required the court to resolve a disputed, substantial question of federal law. Specifically, defendants claimed that Countrywide Servicing's duties under the PSAs were defined by the Housing and Economic Recovery Act of 2008 ("HERA"), which at 15 U.S.C. § 1639a provides a safe harbor for servicers of pooled mortgages who modify home loans meeting certain conditions. They argued that since the court ...


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