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Deutsche Bank National Trust Co. v. Quicken Loans Inc.

United States District Court, S.D. New York

August 4, 2014

DEUTSCHE BANK NATIONAL TRUST COMPANY, solely as Trustee of the GSR Mortgage Loan Trust Plaintiff,
v.
QUICKEN LOANS INC., Defendant.

OPINION & ORDER

PAUL A. CROTTY, District Judge.

Plaintiff alleges that Defendant breached its contractual obligation to repurchase mortgage loans that it sold pursuant to materially false representations and warranties. Defendant moves to dismiss the Complaint on the grounds that it is time-barred, among other reasons. For the reasons set forth below, the motion is granted.

BACKGROUND

Plaintiff Deutsche Bank National Trust Company is a national banking association with its principal place of business in California, and is the trustee of the GSR Mortgage Loan Trust 2007-OA1. (Compl. ¶ 8.) Defendant Quicken Loans Inc. is a Michigan corporation that originated the mortgage loans at issue, which it initially sold to nonparty Goldman Sachs Mortgage Company pursuant to a Purchase Agreement dated June 1, 2006. ( Id. ¶¶ 10, 15; Sidman Decl. Ex. 2 (Purchase Agreement).)

In the 2006 Purchase Agreement, Defendant made a series of representations and warranties ("R&Ws") regarding the quality of the mortgage loans, such as their compliance with certain underwriting standards. ( See Purchase Agreement §§ 3.01, 3.02.) These R&Ws were made "as of" the closing and transfer dates set forth in subsequent Purchase Confirmation Letters. ( See id. §§ 2.01, 3.01.) Plaintiff alleges that those R&Ws were false when made. ( See Compl. ¶¶ 34, 73.)

The Purchase Agreement provides that if either the buyer or seller discovers a material breach of any of the R&Ws, the party discovering the breach must "give prompt written notice to the other." (Purchase Agreement § 3.03.) The seller then has 60 days either to cure the breach or to repurchase the loans, and an additional 15 days if the seller "is diligently pursuing a cure and the circumstances reasonably require" an extension. ( Id. ) The Purchase Agreement defines the accrual of a cause of action against Defendant as follows:

Any cause of action against [Quicken] relating to or arising out of the Material Breach of any representations and warranties made in Sections 3.01 and 3.02 shall accrue as to any Mortgage Loan upon (i) the earlier of discovery of such breach by [Quicken] or notice thereof by the Purchaser to [Quicken], (ii) failure by the [Quicken] to cure such Material Breach or repurchase such Mortgage Loan as specified above, and (iii) demand upon [Quicken] by the Purchaser for compliance with this Agreement.

( Id. ) The Purchase Agreement also provides that it is governed by New York law. ( Id. § 9.04.)

Pursuant to three transactions, each dated April 1, 2007, the mortgage loans and rights under the Purchase Agreement were sold to Plaintiff. ( See Compl. ¶¶ 17-18.) The mortgage loans were then securitized into a pool of residential mortgage-backed securities ("RMBS") in a transaction that closed on May 8, 2007. (Compl. ¶ 20.) The Complaint alleges that at an unspecified later date, an investor[1] retained two firms to conduct analyses of the mortgage loans, which revealed breaches of the R&Ws. ( Id. ¶¶ 35-44.)

On May 8, 2013, the Federal Housing Finance Agency ("FHFA") commenced this action "as conservator of" Freddie Mac and "on behalf of" Plaintiff by filing a summons with notice in New York Supreme Court. (Sidman Decl. Ex. 7.) These papers were served on Defendant on September 4, 2013. ( Id. ) Defendant removed the action to this Court on September 13, 2013. ( Id. Ex. 7.) Although FHFA filed the action in state court, Plaintiff appeared in this Court and filed the Complaint. FHFA apparently has ceased its pursuit of this action due to a contractual provision that precludes investors from pursuing claims unless certain conditions are satisfied. ( See Def.'s Mem. at 1 n.2; Pl.'s Opp'n at 13 n.10; Sidman Decl. Ex. 4 § 12.07.)[2]

Defendant contends that the six-year limitations period began to run on the dates indicated in the Purchase Confirmation Letters, the last of which was April 2, 2007, and accordingly that the action is time-barred. (Def.'s Mem. at 7.) Plaintiff disagrees, contending that pursuant to the Purchase Agreement's accrual provision, the period did not begin to run until -, when it first demanded compliance. Plaintiff also suggests that even if the accrual and notice-and-cure provisions were ignored, the action is still timely because it was filed exactly six years after the securitization transaction closed on May 8, 2007. ( See Pl.'s Opp'n at 9; Compl. ¶ 20.)

DISCUSSION

I. Legal Standards

A. Standard for a Motion ...


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