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Wells Fargo Bank N.A. v. Sovereign Bank, N.A.

United States District Court, S.D. New York

September 8, 2014

WELLS FARGO BANK N.A., as Trustee for the Certificateholders of Sovereign Commercial Mortgage Securities Trust, 2007 C-1, Commercial Mortgage Pass-Through Certificates, Series 2007-C1, acting by and through WATERSTONE ASSET MANAGEMENT, LLC, as Sub-Special Servicer, Plaintiff,
v.
SOVEREIGN BANK, N.A., Defendant

Page 395

For Wells Fargo Bank N.A., as Trustee for the Certificateholders of Sovereign Commercial Mortgage Securities Trust, 2007-C1, Commercial Mortgage Pass-Through Certificates, Series 2007-C1, acting by and through WATERSTONE ASSET MANAGEMENT, LLC, as Sub-Special Servicer, Plaintiff (1:13-cv-01222-NRB): Paul D. Snyder, LEAD ATTORNEY, PRO HAC VICE, Snyder Law Firm LLC, Leawood, KS; Bradley C. Mirakian, Karen E. Snyder, PRO HAC VICE, Snyder Law Firm LLC, Leawood, KS; Timothy James Pastore, Duval & Stachenfeld LLP, New York, NY.

For Sovereign Bank, N.A., Defendant (1:13-cv-01222-NRB): Robert J. Malatak, Annie P. Kubic, Stephen J. Grable, Hahn & Hessen LLP, New York, NY.

For Wells Fargo Bank N.A., as Trustee for the Certificateholders of Sovereign Commercial Mortgage Securities Trust, 2007-C1, Commercial Mortgage Pass-Through Certificates, Series 2007-C1, acting by and through WATERSTONE ASSET MANAGEMENT, LLC, as Sub-Special Servicer, Counter Defendant (1:13-cv-01222-NRB): Paul D. Snyder, LEAD ATTORNEY, Bradley C. Mirakian, Karen E. Snyder, Snyder Law Firm LLC, Leawood, KS; Timothy James Pastore, Duval & Stachenfeld LLP, New York, NY.

For Sovereign Bank, N.A., Counter Claimant (1:13-cv-01222-NRB): Robert J. Malatak, LEAD ATTORNEY, Annie P. Kubic, Hahn & Hessen LLP, New York, NY.

For Wells Fargo Bank N.A., as trustee for the Certificateholders of Sovereign Commercial Mortgage Securities Trust, 2007-C1, Commercial Mortgage Pass through Certificates, Series 2007-C1, acting by and through Waterstone Asset Management, L.L.C. as Sub-Special Servicer, Plaintiff (1:13-cv-04313-NRB): Bradley C. Mirakian, Paul D. Snyder, PRO HAC VICE, Snyder Law Firm LLC, Leawood, KS; Timothy James Pastore, Duval & Stachenfeld LLP, New York, NY.

For Sovereign Bank, N.A., Defendant (1:13-cv-04313-NRB): Robert Jerome Malatak, LEAD ATTORNEY, Annie P Kubic, Stephen J Grable, Hahn & Hessen LLP, New York, NY.

Page 396

MEMORANDUM AND ORDER

NAOMI REICE BUCHWALD, UNITED STATES DISTRICT JUDGE.

Plaintiff Wells Fargo Bank, N.A. (" Wells" or " plaintiff" ), as Trustee of the Sovereign Commercial Mortgage Securities Trust, 2007-C1, Commercial Mortgage Pass-Through Certificates, Series 2007-C1 (the " Trust" ), acting by and through the Trust's Sub-Special Servicer, Waterstone Asset Management, LLC (" Waterstone" ), brings two related actions for breach of contract and breach of warranty against defendant Sovereign Bank, N.A. (" Sovereign" or " defendant" ).[1] Both actions arise out of a commercial mortgage-backed securities (" CMBS" ) transaction involving two hundred and sixty-four mortgage loans worth over $1 billion. The first action -- 13 Civ. 1222 (the " Enco Loan Action" ) -- pertains to one loan, while the second -- 13 Civ. 4313 (the " Five Loans Action" ) -- pertains to five. Plaintiff seeks the repurchase of these loans as a remedy for the various alleged breaches relating to them.

Presently before the Court are defendant's motion to dismiss and for summary judgment, and plaintiff's motions to amend the complaints to add additional claims. Oral argument was held on the motions on August 14, 2014.[2] For the reasons set forth below, we grant defendant's motion to dismiss and for summary judgment and deny plaintiff's motions to amend.

BACKGROUND[3]

I. The CMBS Transaction

In this CMBS transaction, defendant sold two hundred and sixty-four loans to Morgan Stanley Capital I, Inc. (" Morgan Stanley" ) pursuant to a Mortgage Loan Purchase Agreement (the " MLPA" ). The MLPA -- entered into by Sovereign as Seller and Morgan Stanley as Purchaser -- was executed on June 8, 2007 and had a closing date of June 21, 2007. Once the loans were sold to Morgan Stanley, they were pooled into a trust (the " Trust" ) and sold and assigned to Wells, as Trustee, pursuant

Page 397

to a Pooling and Service Agreement (the " PSA" ). PSA § 2.01. The PSA, which was executed on June 1, 2007 and had a closing date of June 21, 2007, was entered into by, among others, Sovereign (as Special Servicer), Morgan Stanley (as Depositor), and Wells (as Trustee, Paying Agent, and Custodian). As the governing documents in the CMBS transaction, the MLPA and PSA are the operative contracts at issue in these cases.

II. Disclosure of Second Mortgage Loans

Once the Trust was created, shares of the mortgage loan pool were sold to investors as certificates. In evaluating whether to purchase these certificates, which were divided into different classes, the investors -- known as certificateholders -- had access to not only the MLPA and PSA, but also a Confidential Offering Memorandum (" COM" ) prepared by Sovereign and Morgan Stanley. See COM at iv. The COM contained extensive information about the offered certificates as well as the mortgage loans underlying them.

Among the information disclosed in the COM were details about certain mortgage loans whose properties secured second mortgages not held by the Trust. This information was disclosed in several places in the COM,[4] most notably for present purposes the Mortgage Loan Schedule attached to the COM. Footnote 5 of the Mortgage Loan Schedule provides the following data about the six mortgage loans at issue in this litigation:

With respect to Mortgage Loan No. 60 [(the " Caroline Arms Loan" )], 6457 Fort Caroline Road, the Borrower has $1,025,000 of additional secured subordinate financing.
With respect to Mortgage Loan No. 69 [(the " Linden Loan" )], 1975 Linden Boulevard, the Borrower has $120,000 of additional secured subordinate financing. . . .
With respect to Mortgage Loan No. 124 [(the " Magnolia Terrace Loan" )], 509 Magnolia Drive, the Borrower has a subordinate second lien in the amount of $475,000 held by the Housing Finance Authority of Leon County, Florida. . . .
With respect to Mortgage Loan No. 226 [(the " Enco Loan" )], 1720 East Tiffany Drive, the Borrower has $170,000 of secured financing in the form of a second lien, which is payable to Sovereign Bank.
With respect to Mortgage Loan No. 252 [(the " Grand Loan" )], 69-53/57 Grand Avenue, the Mortgaged Property also secures two secured subordinate mortgages, one in the amount of $460,000 and $370,000, respectively.
With respect to Mortgage Loan No. 4 [(the " Marina Palms Loan" )], The Marina Palms Apartments, the Borrower has mezzanine financing in the amount of $3,000,000.

COM Ex. A-1, n. 5.[5]

The MLPA and PSA also contain copies of the Mortgage Loan ...


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