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Bank of New York Mellon v. Wmc Mortgage, LLC

United States District Court, S.D. New York

May 22, 2015

THE BANK OF NEW YORK MELLON, solely as Trustee for GE-WMC Mortgage Securities Trust 2006-1, Plaintiff,
v.
WMC MORTGAGE, LLC, and GE MORTGAGE HOLDING, L.L.C., Defendants.

Motty Shulman, Ian M. Dumain, Evelyn N. Fruchter, Marc Ayala, Boies, Schiller & Flexner LLP, New York, NY, for Plaintiff.

Stephen L. Ascher, Jenner & Block LLP, New York, NY, for Defendant WMC Mortgage, LLC.

Paul M. Smith, Matthew S. Hellman, Jenner & Block LLP, Washington, DC., Barbara S. Steiner, Megan B. Poetzel, Jenner & Block LLP, Chicago, IL, Greg A. Danilow, Stacy Nettleton, Weil, Gotshal & Manges LLP, New York, NY, for GE Mortgage Holding, LLC.

MEMORANDUM OPINION & ORDER

DENISE COTE, District Judge.

This action involves a breach of contract claim brought by Bank of New York Mellon ("BoNY") as the trustee ("Trustee") of a residential mortgage backed securities ("RMBS") trust. Defendant WMC Mortgage, LLC ("WMC"), [1] the sponsor of the securitization, originated or acquired the mortgage loans that are the subject of this lawsuit and sold the loans to codefendant GE Mortgage Holdings, LLC ("GEMH"). GEMH then sold the loans to the depositor, GE-WMC Mortgage Securities, L.L.C. ("GE Securities"), who placed the loans into the trust. As part of the transfer of loans to the trust, the defendants made a number of contractual representations regarding the underlying mortgage loans.

The defendants and plaintiff have cross-moved for partial summary judgment on two different sets of mortgage loans. This Opinion addresses the defendants' motion for partial summary judgment. Defendants argue that the plaintiff may not obtain money damages for breaches of the contractual representations made in connection with the underlying mortgage loans, which the plaintiff seeks when the properties underlying these loans have been foreclosed upon, because the contract limits the plaintiff's remedies to certain equitable remedies. Using eighteen loans as exemplars for its legal theory, WMC has moved for partial summary judgment. For the following reasons, the defendants' motion for summary judgment is denied.

BACKGROUND

The following facts are undisputed. The trust, GE-WMC Mortgage Securities Trust 2006-I ("Trust"), contains 4, 654 residential mortgage loans originated or acquired by WMC. The securitization of the loans placed into the Trust was accomplished through the execution of three documents in August 2006. First, WMC, the sponsor of the securitization, sold these loans to GEMH on August 10, pursuant to a Mortgage Loan Purchase Agreement ("MLPA"). GEMH then transferred the mortgage loans to GE Securities, the depositor, pursuant to a second contract, also dated August 10. The depositor conveyed the mortgage loans to the Trust, with BoNY as the Trustee, pursuant to a Pooling and Servicing Agreement ("PSA") dated as of August 1. The closing date for the PSA was August 21, 2006.

In the MLPA, WMC made more than 80 representations and warranties ("R&Ws") concerning the mortgage loans in the Trust. The PSA grants the Trustee the right to enforce the R&Ws. Upon discovery or receipt of notice of a breach of the R&Ws, the PSA requires the Trustee to notify WMC, who must then cure the breach, "substitute for" the defective loan, or repurchase the defective loan from the Trust within 90 days of receiving the notice. This remedy constitutes the "sole remedy... available to the Trustee."

The MLPA also requires WMC to cure, repurchase, or substitute for a defective loan if it discovers a breach of the R&Ws. The MLPA requires WMC to repurchase defective loans at a "price equal to the Purchase Price." The PSA includes a formula for calculating the Purchase Price. According to this formula, the Purchase Price of some loans where the underlying property has been foreclosed upon will be zero. Much like the PSA, the MLPA provides that the obligations of WMC to cure, repurchase, or substitute for a defective loan "constitute the sole remedies of [the Trustee] against [WMC]."

The PSA establishes Litton Loan Servicing LP ("Litton") as the servicer for the Mortgage Loans. Litton is also a party to the PSA. Litton, and Litton's successor, Ocwen Loan Servicing LLP (collectively "Servicer"), serviced the mortgage loans at all relevant times. Under the terms of the PSA, the Servicer has the authority to do "any and all things in connection with [the] servicing and administration which it may deem necessary or desirable" and is "authorized and empowered by the Trustee to... institute foreclosure proceedings... in the name of the Trust Fund, on behalf of the Trustee and the Certificateholders." "[W]ith respect to any Mortgage Loan that is Delinquent or in default, the Servicer may waive, modify or vary any term of any Mortgage Loan...."

Between 2007 and 2011, the Servicer foreclosed on and sold the properties securing the eighteen mortgage loans that are at issue in this motion. WMC contends that the sale of these properties precludes WMC from curing or repurchasing the defective loans - the "sole remedies" granted to BoNY in the PSA and MLPA.

DISCUSSION

Summary judgment may not be granted unless all of the submissions taken together "show[ ] that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The moving party bears the burden of demonstrating the absence of a material factual question, and in making this determination, the court must view all facts in the ...


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