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MBIA Insurance Corp. v. Countrywide Home Loans, Inc.

Supreme Court, New York County

January 3, 2012

MBIA Insurance Corporation, Plaintiff,

For Plaintiff: Peter E. Calamari, Philippe Z. Selende, Sanford I. Weisburst and Manisha M. Sheth of Quinn Emanuel Urquhart & Sullivan, LLP;

For the Countrywide Defendants: Mark Holland, Sarah Heaton Concannon, Abigail K. Hemani, Larkin M. Morton, Paul F. Ware and Thomas M. Hefferon of Goodwin Proctor LLP; and David M. Wells and William E. Adams Jr. of Gunster, Yoakley & Stewart, P.A.; and

For Defendant Bank of America Corporation: Jonathan Rosenberg, Bradley J. Butwin, William J. Sushon and Asher L. Rivner of O'Melveny & Myers LLP.


Plaintiff MBIA Insurance Corporation's ("MBIA") moves pursuant to CPLR 3212 (e) for partial summary judgment against defendants Countrywide Home Loans, Inc. ("CHL"); Countrywide Securities Corporation ("CSC"), Countrywide Financial Corporation ("CFC") and Countrywide Home Loans Servicing, LP ("CHLS", and, with CHL, CSC and CFC, "Countrywide") collectively and CHL separately.

MBIA seeks judgment first that on its claim for fraud against Countrywide, MBIA need establish only that Countrywide's alleged misrepresentations induced MBIA to issue insurance policies on terms it would not have agreed to had MBIA known of the alleged misrepresentations, and that MBIA need not show a causal connection between Countrywide's alleged misrepresentations and MBIA's claims payments made pursuant to MBIA's insurance policies.

Second, MBIA seeks judgment on its claim against CHL for breach of the insurance agreement. Specifically, MBIA wants the court to declare that MBIA need establish only that CHL's alleged warranty breaches increased the risk of the insurance that MBIA provided, and that MBIA need not show a causal connection between CHL's alleged warranty breaches and MBIA's claims payments made pursuant to MBIA's insurance policies. Third, MBIA seeks judgment on its claim for CHL's breach of its alleged repurchase obligation under various transaction documents. Specifically, MBIA seeks judgment that it need establish only that a loan breached a representation or warranty in a way that materially affects MBIA's interests, and that MBIA need not show that the allegedly non-compliant loan was non-performing or that the non-performance was caused by Countrywide's breaches of representations and warranties in respect of that loan.

MBIA further seeks, pursuant to CPLR 3211 (b) to strike Countrywide's and Bank of America Corporation's ("BAC") Fourteenth and Fifteenth Affirmative Defenses, wherein Countrywide asserts that it was not the cause of any alleged injury, loss or damages suffered by MBIA (fourteenth) and that MBIA's claims are barred, in whole or in part, by superseding or intervening causes of any alleged damages, and that any damages MBIA did suffer result directly from causes other than Countrywide's alleged acts or omissions.

Countrywide opposes.


The facts of this matter have been discussed extensively in previous decisions of this court. Thus, only details necessary to this motion are referenced herein.

MBIA brought the instant action on September 30, 2008 against the Countrywide defendants. MBIA alleged, and alleges, that Countrywide fraudulently induced MBIA to insure the securitizations and that Countrywide breached the representations and warranties in the transaction documents. On August 24, 2009, MBIA filed an amended complaint (the "Amended Complaint").

This action stems out of fifteen residential mortgage-backed securitizations (the "Securitizations"). Each securitization is comprised of a group of mortgage loans ("Mortgage Loans"), originated or acquired by Countrywide. Countrywide sold or conveyed the Mortgage Loans Securitizations to trusts. The trusts, in turn, issued notes and certificates backed by the loans to investors. The investors were promised a return of principal with interest. Payments of interest and principal depended on an ongoing stream of principal and interest payments on the Mortgage Loans held by the trusts.

The rights and obligations of the parties to the Securitizations are set forth in contracts (the "Transaction Documents"). The Transaction Documents provide for the sale of the Mortgage Loans to the trusts (the "Purchase Agreements"); the servicing of the Mortgage Loans by CHL or CHLS (the "Sales and Servicing Agreement" or "SSA") and a Pooling and Servicing Agreement ("PSA") for closed-end second liens. Further, the trusts issued the Securitizations through an Indenture and sold the Securitizations pursuant to a Prospectus and Prospectus Supplement. The Transactions closed between September 2004 and May 2007.

MBIA, for premiums received, insured that payments to the Securitizations' investors would be made. For each Securitization, MBIA issued a Note or Certificate Guaranty Insurance Policy to the trusts that provided the terms for an MBIA-issued financial guaranty policy ("Insurance Policy"). Each Insurance Policy guarantees that should the payments received from the Mortgage Loans be insufficient to cover payments due under the Securities, MBIA would pay the shortfall. The terms of each Insurance Policy were stated in an Insurance Agreement ("Insurance Agreement").

The Insurance Agreements contain and incorporate representations and warranties regarding the individual loans that comprise the Securities. Countrywide asserts that the Insurance Agreements contain many of the provisions found in the other Transaction Documents. Countrywide's Memorandum of Law in Opposition to Plaintiff's Motion for Partial Summary Judgment and Motion to Strike Defenses ("Countrywide Opp. Memo."), p. 3. MBIA asserts that the representations and warranties in the Insurance Agreements were comprehensive, and that it relied upon those representations and warranties when evaluating the risk associated with insuring the Securitizations. Plaintiff's Memorandum of Law in Support of Motion for Partial Summary Judgment and Motion to Strike Defenses ("MBIA Memo."), p. 5.

MBIA states that the Insurance Agreements contain two types of representations and warranties, the "Transactional Warranties" and the "Loan-Level Warranties." MBIA Memo, pp. 6-7.

MBIA states that the Transactional Warranties contain a representation about the accuracy of the information provided to MBIA by Countrywide. Specifically, the Transactional Warranties state that "[n]either the Transaction Documents nor other material information relating to the Mortgage Loans... contains any statement or a material fact by the Master Servicer, the Sponsor or Depositor which was untrue or misleading in any material respect when made." Sheth Affirm., [1] Ex. 6, Insurance Agreement for HELOC securitization, § 2.01 (j); Ex. 7, Insurance Agreement for CES securitization, § 2.01 (j).

The Loan-Level Warranties are alleged to contain a "comprehensive array of representations and warranties by Countrywide about the characteristics of the underlying loan pools and of individual loans." MBIA Memo., p. 6. MBIA alleges that the representations and warranties consist of those made by Countrywide in other Transaction Documents, (id., citing Sheth Affirm., Ex. 8, Mortgage Loan Purchase Agreement ("MLPA"); Ex. 9, Sales and Servicing Agreement; Ex. 10, Pooling and Servicing Agreement), which are incorporated into the Insurance Agreement. Sheth Affirm., Ex. 6, § 2.01(l); Ex. 2 § 2.01(l); see also Ex. 6, §§ 2.04 (j), 2.07 (g).

Relevant to the pending motion, MBIA's Amended Complaint asserts: (1) fraud against CFC, CHL and CSC; (2) breach of the express representations and warranties in the Insurance Agreement by CHL and CHLS; (3) breach of the obligation to repurchase non-compliant mortgage loans by CHL; and (4) breach of the loan servicing covenants in the SSA's and PSA's by CHL and CSC.

MBIA moves for summary judgment that it need not establish a causal connection between Countrywide's alleged misrepresentations and MBIA's claim payments made pursuant to MBIA's issued insurance policies. MBIA also seeks judgment that MBIA's claim against Countrywide for breach of the repurchase obligations does not require a showing that a non-compliant loan is actually in default or that CHL's alleged misrepresentations were the actual cause of default of a particular loan.


I. Standard of Law

CPLR 3212(e) provides, in relevant part, that "summary judgment may be granted as to one or more causes of action, or part thereof, in favor of any one or more parties, to the extent warranted, on such terms as may be just."

The standards for summary judgment are well settled. The movant must tender evidence, by proof in admissible form, to establish the cause of action "sufficiently to warrant the court as a matter of law in directing judgment." CPLR 3212(b); Zuckerman v. City of New York, 49 N.Y.2d 557');">49 N.Y.2d 557, 562 (1980). "Failure to make such showing requires denial of the motion, regardless of the sufficiency of the opposing papers." Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 853 (1985). Once such proof has been offered, to defeat summary judgment "the opposing party must show facts sufficient to require a trial of any issue of fact." CPLR 3212(b); Zuckerman, 49 N.Y.2d at 562. MBIA here moves on legal issues.

CPLR 3211(b) states that "[a] party may move for judgment dismissing one or more defenses, on the ground that a defense is not stated or has no merit." When moving to dismiss an affirmative defense, the plaintiff bears the burden of demonstrating that the affirmative defense is without merit as a matter of law because it either does not apply under the factual circumstances of the case or fails to state a defense. Bank of America, N.A. v. 414 Midland Ave. Assocs., LLC, 78 A.D.3d 746, 748 (2nd Dep't 2010).

II. Arguments

A. MBIA's Claims for Fraud and Breach ...

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