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Mastr Adjustable Rate Mortgages Trust 2006-Oa2 v. Ubs Real Estate Securities Inc.

United States District Court, S.D. New York

February 25, 2015

MASTR ADJUSTABLE RATE MORTGAGES TRUST 2006-OA2, MASTR ADJUSTABLE RATE MORTGAGES TRUST 2007-1 and MASTR ADJUSTABLE RATE MORTGAGES TRUST 2007-3, Plaintiffs,
v.
UBS REAL ESTATE SECURITIES INC., Defendant.

MEMORANDUM AND ORDER ON RECONSIDERATION

P. KEVIN CASTEL, District Judge.

Plaintiffs move for reconsideration of this Court's Memorandum and Order of January 9, 2015, which granted in part and denied in part the parties' motions for summary judgment (the "Summary Judgment Opinion"). (Docket # 249.) Familiarity with the Summary Judgment Opinion and the standards on a motion to reconsider is assumed.[1]

Plaintiff Trusts argue that this Court overlooked an April 1, 2013 memorandum endorsement of the late Judge Harold Baer on the use of sampling and should have permitted them to proceed with a theory of notice by "pervasive breach." In the event that the Court denies reconsideration, the Trusts seek to re-open expert discovery and postpone the May 11, 2015 trial. For reasons to be explained, the motions are denied.

A Brief Recap of the Case and the Court's Summary Judgment Opinion

To place matters in context, the Court begins with a review of certain basic principles governing the original disposition of the summary judgment motions and, hence, this motion for reconsideration. The Complaint in this action helpfully contains only one claim for relief styled: "Breach of Repurchase Obligations." It sounds in contract. The PSAs at issue are 62-pages of single-space text. They were negotiated by sophisticated parties and incorporate New York law. They are integrated agreements. Insofar as the summary judgment motions were concerned, neither side claimed ambiguity in the contractual provisions at issue. "It is well settled that a contract is to be construed in accordance with the parties' intent, which is generally discerned from the four corners of the document itself. Consequently, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms'." MHR Capital Partners LP v. Presstek, Inc., 12 N.Y.3d 640, 645 (2009) (citation omitted).

For convenience, the Court repeats two key provisions of the PSAs. Section 2.03 of the PSA unambiguously provides as follows:

It is understood and agreed that the obligation under this Agreement to cure, repurchase or replace any Mortgage Loan as to which a breach has occurred and is continuing shall constitute the sole remedies against the Transferor respecting such matters available to Certificateholders, the Master Servicer, the NIMs Insurer, the Depositor, the Trust Administrator or the Trustee on their behalf.

Section 2.03 also provides that:

Upon discovery by any Depositor, the Certificate Insurer, the Transferor the Master Servicer, the Trust Administrator of the Custodian of a breach of a representation or warranty made by the Transferor pursuant to this Section 2.03 that materially and adversely affects the interests of the Certificateholders or the Certificate Insurer in any Mortgage Loan, the party discovering such breach shall give prompt notice thereof to the other parties and the Trustee.

Notably, not all breaches that have been "discover[ed]" trigger the obligation to cure or repurchase.[2] The breach must "materially and adversely affect[ ] the interests of the Certificateholders or the Certificate Insurer in any Mortgage Loan...."[3] "[I]f the Transferor fails" to cure or repurchase, the "Trustee[s] shall enforce the obligations of the Transferor in accordance with this Section 2.03 to correct or cure any such breach...."

All breaches of a representation as to which UBS was placed on notice (4, 462 loans) and any other loans which were discovered by UBS to be in breach will be at issue at the trial commencing on May 11, 2015. In addition to "discovery" and breach, the plaintiffs must prove that the breach "materially and adversely affect[ed] the interests of the Certificateholders or the Certificate Insurer in any Mortgage Loan...."

Statistical Sampling

The Court first addresses the Trusts' arguments concerning expert sampling and its use in this case. To date, this Court has not ruled on the admissibility of any form of evidence at trial and no motion to do so is presently before the Court. The Trusts, in effect, urge that Judge Baer's memorandum endorsement, docketed in Assured Guaranty Municipal Corp. v. UBS Real Estate Securities Inc., 12 Civ. 1579 (HB), dictates how the summary judgment motion should have been decided.

In March 2013, the parties traded letter briefs on the use of sampling in both the Assured action and this action on certain issues, including the existence of breaches in the loans held by the Trusts. (Baldwin Dec. Exs. 5-7.) The Trusts argued that sampling would streamline the case while accurately identifying the extent of breach. On April 1, 2013, Judge Baer issued a handwritten ...


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