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Bank of New York Mellon v. WMC Mortgage, LLC

Supreme Court of New York, First Department

May 11, 2017

The Bank of New York Mellon, etc., Plaintiff-Appellant,
v.
WMC Mortgage, LLC, etc., et al., Defendants-Respondents.

         Plaintiff appeals from the orders of the Supreme Court, New York County (Shirley Werner Kornreich, J.), entered September 18, 2015, which, to the extent appealed from as limited by the briefs, granted defendants' motions to dismiss the first, second, sixth, and seventh causes of action, the fourth cause of action insofar as it alleges that defendant J.P. Morgan Mortgage Acquisition Corp. breached its backstop repurchase obligation, and the fifth cause of action as against defendant JPMorgan Chase Bank, N.A.

          Quinn Emanuel Urquhart & Sullivan, LLP, New York (Philippe Z. Selendy, William B. Adams, Andrew R. Dunlap and Daniel P. Mach of counsel), for appellant.

          Jenner & Block LLP, Washington, D.C. (Matthew S. Hellman of the bar of District of Columbia, admitted pro hac vice, of counsel) and Jenner & Block LLP, New York (Stephen L. Ascher of counsel), for WMC Mortgage, LLC, respondent.

          Sullivan & Cromwell LLP, New York (Darrell S. Cafasso, Robert A. Sacks and Matthew L. Lippert of counsel), for J.P. Morgan Mortgage Acquisition Corporation and JPMorgan Chase Bank, N.A., respondents.

          Rolando T. Acosta, J.P. Richard T. Andrias Karla Moskowitz Judith J. Gische Troy K. Webber, JJ.

          MOSKOWITZ, J.

         This case is one of many commenced in the wake of the 2008 global financial crisis. As in many of the other cases that have come before us - including one nearly identical to this case [1] - the action is based upon the sale of residential mortgage-backed securities (RMBS).

         Under a Master Loan Sale and Interim Servicing Agreement (MLSA) dated July 1, 2005, defendant J.P. Morgan Mortgage Acquisition Corp. (JPMAC) bought from defendant WMC Mortgage Corp. (WMC), the originator, approximately 6, 510 residential mortgage loans with a total principal balance of approximately $1.275 billion [2]. JPMAC sold the securitized loans to the J.P. Morgan Mortgage Acquisition Trust, Series 2006-WMC2 (Trust) under a Pooling and Servicing Agreement (PSA) dated June 1, 2006; plaintiff Bank of New York Mellon (BNY), was the securities administrator for the Trust. In a transaction that closed on June 28, 2006, the Trust issued RMBS securities and sold them to investors (certificate holders) in the Trust.

         WMC and JPMAC made numerous representations and warranties (R & Ws) in the Mortgage Loan Sale and Interim Servicing Agreement (MLSA) and Pooling and Servicing Agreement (PSA) regarding the nature and quality of the loans. WMC and JPMAC also agreed to certain repurchase, indemnification, and notice obligations with respect to the Trust. First, as relevant here, the MLSA provided that when a party discovers a material breach of any R & W, that party shall give the other parties prompt written notice of the breach; the notified parties then have 60 days to cure the breach by repurchasing or substituting the defective loan and providing indemnification (the repurchase protocol). The MLSA further provided that a cause of action for repurchase did not accrue until after the purchaser made a demand for repurchase (the accrual provision).

         Second, section 2.03(a)(i) of the PSA restated the repurchase protocol, and provided, in pertinent part, that if a party discovers a breach by WMC of any R & W under the MLSA, the discovering party, or BNY or the Trustee, must try to "cause [WMC] to... cure such defect or breach within 90 days from the date [WMC] was notified of such missing document, defect or breach." Section 2.03(a)(I) further contained the so-called "backstop provision, " which obliged JPMAC to purchase defective loans if WMC did not do so. Specifically, section 2.03(a)(I) stated, "In the event that [WMC] shall fail to cure the applicable breach or repurchase of a Mortgage Loan in accordance with the [repurchase protocol], [JPMAC] shall do so." Third and finally, section 2.02 of the PSA provided that, should the servicer (defendant JPMorgan Chase Bank, N.A. [JPM Bank]), among others, discover any breach of WMC's R & Ws in the MLSA, it was to give prompt written notice to the other parties.

         On May 24, 2012, January 22, 2013, and October 31, 2013, certain certificate holders provided notice to BNY, JPMAC, and WMC of purported warranty breaches with respect to many of the loans in the Trust. Accordingly, by notices dated June 7, 2012, January 28, 2013, and November 5, 2013, BNY, in its capacity as securities administrator, notified WMC and JPMAC that over 1, 593 mortgage loans breached one or more of the R & Ws, and demanded that WMC or JPMAC repurchase the defective loans. Despite this demand, however, neither JPMAC nor WMC repurchased the loans.

         On November 1, 2013, BNY, in its capacity as securities administrator for the trust and on behalf of the certificate holders, commenced this "put back" action. As relevant to this appeal, BNY asserted claims seeking damages from WMC and JPMAC for breach of contract with respect to the R & Ws, and specific performance of the repurchase obligation. BNY also sought damages from WMC, JPMAC, and JPM Bank for breach of the PSA by failing to provide notice of defective loans.

         In March 2014, defendants moved to dismiss the complaint under CPLR 3211, arguing, among other things, that BNY's causes of action for breach of the repurchase obligations were untimely under this Court's decision in ACE Sec. Corp. v DB Structured Prods., Inc., (112 A.D.3d 522');">112 A.D.3d 522 [1st Dept 2013], affd 25 N.Y.3d 581');">25 N.Y.3d 581 [2015]) because they were filed more than six years after the PSA's June 28, 2006 closing date.

         The IAS court dismissed the action in its entirety. As to BNY's causes of action against WMC for breach of the MLSA by failing to repurchase defective loans (the first, second, sixth, and seventh causes of action), the IAS court dismissed these claims as untimely. The court also dismissed BNY's cause of action against JPMAC for breach of the "backstop" repurchase obligations under the PSA (the fourth cause of action) and against JPMAC and JPM Bank for failure to notify (the fifth cause of action) [3]. We now modify to ...


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