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Phoenix Light SF Ltd. v. The Bank of New York Mellon

United States District Court, S.D. New York

September 7, 2017

PHOENIX LIGHT SF LIMITED, in its own right and on the right of Blue Heron Funding V Ltd., Blue Heron Funding VI Ltd., Blue Heron Funding VII Ltd., Blue Heron Funding IX Ltd., Kleros Preferred Funding V PLC, Silver Elms CDO PLC, Silver Elms CDO II Limited, C-BASS CBO XVII Ltd., and C-BASS CBO XIV Ltd., and each of BLUE HERON FUNDING V LTD., BLUE HERON FUNDING VI LTD., BLUE HERON FUNDING VII LTD., BLUE HERON FUNDING IX LTD., KLEROS PREFERRED FUNDING V PLC, SILVER ELMS CDO PLC, and SILVER ELMS CDO II LIMITED, in their own right, Plaintiffs,
v.
THE BANK OF NEW YORK MELLON, as Trustee, Defendant.

          OPINION & ORDER

          VALERIE CAPRONI, UNITED STATES DISTRICT JUDGE.

         This case represents another chapter in the saga of seemingly endless residential mortgage-back securities (“RMBS”) actions that have flooded this District. Although many RMBS cases appear to settle shortly after the motion-to-dismiss stage, this case has lived on, with Plaintiffs pressing claims against Defendant Bank of New York Mellon (“BNYM”) relative to twenty-one RMBS trusts (“Trusts”), down from twenty-seven trusts at issue in the initial complaint.

         At this stage, only the following claims remain: (1) violations of the Trustee Indenture Act (“TIA”), relative to three indenture Trusts (Count I); (2) breach of contract, relative to all Trusts (Count II); and (3) negligence, gross negligence, and negligent misrepresentation, relative to all Trusts (Counts IV and V); and breach of the covenant of good faith and fair dealing, relative to all Trusts.[1] BNYM moves for summary judgment on all claims as to twenty Trusts.[2]Dkt. 128. Plaintiffs cross-move for partial summary judgment as to seventeen Trusts. Dkts. 159, 180.[3] For the following reasons, BNYM's motion is GRANTED in part and DENIED in part, and Plaintiffs' cross-motion is DENIED in its entirety.

         BACKGROUND

         The Court assumes familiarity with RMBS in general, the RMBS securitization process, and the roles of the various entities (such as the sponsor, seller, servicer, and trustee) in the RMBS trusts. For those unfamiliar (or who would like a refresher), the Court directs readers to its earlier opinion in this case for background on those subjects. See, e.g., Phoenix Light I, 2015 WL 5710645.

         Of the twenty Trusts that are the subject of BNYM's motion, three are indentures: CWHEL 2005-H, ECR 2005-1, and NHEL 2006-1 (collectively, “Indenture Trusts”). Pooling and Service Agreements (“PSAs”) govern the other seventeen trusts (collectively, “PSA Trusts”), of which eleven were serviced by Countrywide (collectively, “Countrywide PSA Trusts”).[4] The balance of the PSA Trusts is comprised of: CBASS 2005-CB4, CBASS 2005-CB8, CBASS 2006-CB3 (collectively, the “CBASS Trusts”); OWNIT 2006-1; HELT 2005-FRE1; and FNLC 2005-2. BNYM is Indenture Trustee for the Indenture Trusts and Trustee for the PSA Trusts. See Fread Decl., ¶¶ 3-23, Exs. A-U.[5]

         The governing agreements (“GAs”) for the Trusts impose different obligations on the Trustee depending on whether the Trust experienced an “Event of Default.”[6] The GA describes, in considerable detail, what constitutes an “Event of Default.” See, e.g., Fread Decl., Ex. A (“CWALT 2006-OA10 PSA”) § 7.01(ii). Prior to an Event of Default, the Trustee has only the contractual duties specified in the GA, which include providing notice to all parties to the GA upon certain breaches of a representation or warranty. See Phoenix Light I, 2015 WL 5710645, at *2. After an Event of Default, however, the Trustee's obligations “come more closely to resemble those of an ordinary fiduciary . . . .” Royal Park Invs. SA/NV v. HSBC Bank USA, Nat'l Ass'n (“Royal Park I”), 109 F.Supp.3d 587, 597 (S.D.N.Y. 2015). In particular, if BNYM has knowledge of an Event of Default, it assumes the duty to act as a prudent person. Phoenix Light I, 2015 WL 5710645, at *2; see also Royal Park Investments SA/NV v. Bank of N.Y. Mellon (“Royal Park II”), No. 1:14-CV-6502-GHW, 2016 WL 899320, at *2 (S.D.N.Y. Mar. 2, 2016).

         Plaintiffs allege that BNYM breached its pre-Event of Default and post-Event of Default obligations under the GAs. Relative to BNYM's pre-Event of Default duties, Plaintiffs allege that BNYM failed promptly to give notice of breaches of representations or warranties and that BNYM failed to enforce repurchase obligations triggered by those breaches, among other things. TAC ¶ 385. Relative to BNYM's post-Event of Default duties, Plaintiffs allege that BNYM breached its duty to act prudently upon numerous Events of Default in the Trusts. TAC ¶ 385.

         I. BNYM's Pre-Event of Default Contractual Obligations

         The GAs provide that “upon discovery” of a breach of a representation or warranty in a mortgage loan that materially and adversely affects the interests of certificateholders, BNYM must give notice to “the other parties” to the contract. See Mot. 56.1 ¶ 40 (collecting contractual provisions); see also Hanchet Decl., Ex. O (same). Thus, for a notice obligation to arise, BNYM must “discover” a breach of a representation or warranty with respect to a loan in the trust, and that breach must “materially and adversely affect[]” the certificateholder interests in the loan in breach. Upon that occurrence, BNYM must promptly notify the other parties to the GA (i.e., the Sellers, Master Servicer, and Depositor).

         Plaintiffs also allege that BNYM had a duty to enforce repurchase obligations triggered by a breach of representation or warranty. For example, relative to the CWALT Trusts, if a breach is uncured, the Seller must either remove and substitute the mortgage loan that is in breach from the Trust, or repurchase that loan from the Trustee within 90 days of the Seller's discovery or written notice of a breach. See, e.g., CWALT 2006-OA10 PSA § 2.03(c); Mot. 56.1 ¶ 47 (citing contractual provisions).

         II. Trustee's Post-Event of Default Contractual Obligations

         BNYM has more expansive obligations upon the occurrence of a contractually-defined “Event of Default.” If an Event of Default occurs and is not cured, the Trustee is required to “exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.” See, e.g., CWALT 2006-OA10 PSA § 8.01.

         Although the GAs do not specifically provide that the Trustee must have knowledge of an Event of Default before it is subject to a prudent person duty, the parties do not dispute, and the Court previously held, that the Trustee's prudent-person duty arises after the Trustee has knowledge of an Event of Default. See Phoenix Light I, 2015 WL 5710645, at *2 (“If BNYM knows that there has been an Event of Default, then it ‘assumes the same duties as a common law trustee, ' including . . . exercising ‘the same degree of care and skill in their exercise . . . as a prudent person would exercise under the circumstances . . . .'”). The GAs define the circumstances in which the Trustee has “knowledge” of an Event of Default: some require the Trustee to receive written notice of an Event of Default; others provide that the Trustee has “knowledge” if the Trustee receives written notice or has actual knowledge of an Event of Default. See Hanchet Decl., Exs. E-G (collecting “knowledge” provisions under the GAs).

         A. It is Undisputed that an Event of Default Occurred in Five Trusts.

         The parties agree that an Event of Default occurred in five of the Trusts: the three CBASS Trusts, OWNIT 2006-1, and NHEL 2006-1 (collectively, the “Default Trusts”). Mot. 56.1 ¶¶ 18, 37. The GAs for these Trusts provide specific direction to the Trustee upon an Event of Default:

[T]he Trustee shall, at the direction of the Holders of each Class of Regular Certificates evidencing Percentage Interests aggregating not less than 51%, by notice then given in writing to the Servicer and the Trustee, terminate all of the rights and obligations of the Servicer as servicer under this Agreement.

Mot. 56.1 ¶¶ 25-26 (citing § 7.01(b) in the CBASS PSAs and the OWNIT 2006-1 PSA). Similarly, Section 5.02 of the NHEL 2006-1 Indenture provides, “If an Event of Default occurs and is continuing, . . . the Indenture Trustee may, and at the direction of Holders of Notes representing more than 50% of the Class Note Balance of the Outstanding Notes, shall, declare all the Notes to be immediately due and payable by a notice in writing to the Issuing Entity . . . .” Fread Decl., Ex. T (“NHEL 2006-1 Indenture”) § 5.02.

         In response to the Events of Default in the CBASS Trusts and OWNIT 2006-1, BNYM issued notices to the certificateholders pursuant to Section 7.01(b) (the “Notices”). Mot. 56.1 ¶¶ 27-30.[7] In those Notices, BNYM stated that there had been an Event of Default and that, pursuant to Section 7.01(b) of the PSA, if the Trustee received “appropriate written direction” from certificateholders totaling at least 51% of the certificate interests, the Trustee “shall terminate all of the rights and obligations” of the Servicer. Lundberg Decl. ¶¶ 18-21, Exs. C-F (CBASS and OWNIT Notices).

         Similarly, in response to the NHEL 2006-1 Event of Default, BNYM sent a Notice to NHEL 2006-1 certificateholders notifying them that there had been an Event of Default and that, pursuant to the Indenture, “the Indenture Trustee may, and at the direction of Holders of Notes representing more than 50% of the Class Note balance of the Outstanding Notes, shall, declare all the Notes to be immediately due and payable . . . . Noteholders should contact the Indenture Trustee . . . should they wish to direct the Indenture Trustee to accelerate the Notes . . . .” Mot. 56.1 ¶ 21; see also Lundberg Decl., ¶¶ 9-12, Ex. A (NHEL Notice). Plaintiffs do not dispute that BNYM sent a Notice relative to the NHEL 2006-1 Event of Default.

         It is undisputed that BNYM did not receive any certificateholder direction in response to the Notices in the Default Trusts. Mot. 56.1 ¶¶ 22, 35. Plaintiffs assert that BNYM did not take any action beyond issuing the above Notices and waiting for direction, and BNYM cites no evidence that controverts that assertion. See Opp. 3-5. Rather, BNYM argues that it was not required to act because BNYM “was not reasonably assured of receiving an indemnity and was not under an obligation to act.” Reply 8.

         B. Remaining Fifteen Trusts

         The remaining Trusts are comprised of: eleven Countrywide PSA Trusts; the ECR, CWHEL, and NHEL Indenture Trusts (collectively, the “Indenture Trusts”); and HELT 2007-FRE1. Relative to these fifteen Trusts, the parties dispute the existence vel non of an Event of Default and BNYM's knowledge of an Event of Default, if there was one. As discussed supra, the parties do not dispute that the Trustee's prudent person duty arises only upon both the occurrence of an Event of Default and the Trustee's knowledge of that Event of Default.

         Plaintiffs contend that these fifteen Trusts had Events of Default stemming from servicing defaults that were not cured within the contractually-specified cure period. Plaintiffs assert that Events of Default occurred when, inter alia: the servicer failed to deliver complete mortgage files; loans “languish[ed] for exceptionally long periods in foreclosure”; and cumulative losses exceeded thresholds specified in the PSA. Opp. 7-13. BNYM contends that to the extent that any of these events were servicer breaches, none ripened into an Event of Default. Reply 3-4, 7-8.

         Knowledge of an Event of Default is defined differently in different Trusts. The PSAs for the 11 Countrywide PSA Trusts provide, “the Trustee shall not be deemed to have knowledge of an Event of Default until a Responsible Officer of the Trustee shall have received written notice thereof.” See, e.g., CWALT 2006-OA10 PSA § 8.02(viii); see also Mot. 56.1 ¶ 10 (collecting contractual provisions); Hanchet Decl., Ex. F (same). For the other four Trusts (the three Indenture Trusts and HELT 2007-FRE1), the GAs provide that the Trustee shall not be deemed to have knowledge of an Event of Default “unless a Responsible Officer has actual knowledge thereof or unless written notice of such Event of Default is received by a Responsible Officer . . . .” See, e.g., Fread Decl., Ex. P (“ECR 2005-1 Indenture”) § 5.01; see also Mot. 56.1 ¶ 11 (collecting contractual provisions); Hanchet Decl., Ex. G (same).

         MOTIONS FOR SUMMARY JUDGMENT

         BNYM moves for summary judgment on all counts as to all but one of the Trusts, [8]arguing that BNYM did not breach any pre-Event of Default or post-Event of Default duties, that Plaintiffs' negligence-based claims are barred as a matter of law, and that BNYM did not violate the TIA. Plaintiffs cross-move for partial summary judgment, arguing that BNYM breached its post-Event of Default duties relative to the Countrywide PSA Trusts, the Default Trusts, and FNLC 2005-2. For the following reasons, Defendant's motions are GRANTED in part and DENIED in part, and Plaintiffs' motion is DENIED.

         DISCUSSION

         Summary judgment is appropriate when “the movant shows 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); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “A genuine dispute exists when the evidence is such that, if the party against whom summary judgment is sought is given the benefit of all permissible inferences and all credibility assessments, a rational factfinder could resolve all material factual issues in favor of that party.” SEC v. Sourlis, 851 F.3d 139, 144 (2d Cir. 2016) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). For contract-based claims, summary judgment is appropriate “where the language of the contract is unambiguous, and reasonable persons could not differ as to its meaning.” Fulton Cogeneration Assocs. v. Niagara Mohawk Power Corp., 84 F.3d 91, 98 (2d Cir. 1996) (internal marks and citations omitted).

         The non-moving party “must do more than simply show that there is some metaphysical doubt as to the material facts” and “may not rely on conclusory allegations or unsubstantiated speculation.” Jeffreys v. City of N.Y., 426 F.3d 549, 554 (2d Cir. 2005) (citations and internal quotation marks omitted). Rather, the nonmoving party must come forward with “specific facts showing that there is a genuine issue for trial.” Weinstock v. Columbia Univ., 224 F.3d 33, 41 (2d Cir. 2000) (quoting Anderson, 477 U.S. at 256). Where “the burden of proof at trial would fall on the nonmoving party, it ordinarily is sufficient for the movant to point to a lack of evidence to go to the trier of fact on an essential element of the non-movant's claim.” In re Lehman Bros. Sec. & ERISA Litig., 131 F.Supp.3d 241, 249 (S.D.N.Y. 2015). “Summary judgment is appropriate when there can be but one reasonable conclusion as to the verdict, i.e., it is quite clear what the truth is, and no rational factfinder could find in favor of the nonmovant.” Sourlis, 851 F.3d at 144 (citations and internal quotation marks omitted).

         BNYM'S MOTION FOR SUMMARY JUDGMENT

         BNYM moves for summary judgment as to all of Plaintiffs' claims. For the following reasons, BNYM's motion relative to the breach of contract and breach of implied covenant of good faith and fair dealing claim is granted in part and denied in part, BNYM's motion relative to the negligence-based claims is granted, and BNYM's motion relative to the TIA claims is granted in part and denied in part.

         I. BNYM's Pre-Event of Default Duties

         Plaintiffs allege that BNYM breached its pre-Event of Default contractual duty to investigate and provide notice of breaches of representations or warranties and to enforce Countrywide's repurchase obligations. TAC ¶ 385. In its opening brief, BNYM includes a section titled, “The Claims Relating to Underwriting-Related Breaches Fail, ” but makes arguments relative only to BNYM's alleged duties to investigate and to provide notice of a breach of representations or warranties. Mem. 20-21.[9] In response to Plaintiffs' argument that BNYM failed to investigate breaches of representation or warranties and that BNYM failed to enforce Countrywide's repurchase obligations, BNYM argues that it had no duty to do so absent certificateholder direction and adequate indemnity. Reply 10.

         The crux of BNYM's argument for summary judgment is that Plaintiffs have no evidence that BNYM discovered any specific underwriting breach, much less one that materially and adversely affected the interests of certificateholders in a mortgage loan. Because the Court concludes, for the reasons discussed infra, that BNYM did not “discover” a breach of any representation or warranty for sixteen Trusts, BNYM's motion is GRANTED as to those sixteen Trusts, but DENIED as to four Trusts: CWALT 2006-OA3, CWALT 2006-OA10, CWL 2005-BC1, and CWL 2006-9.

         A. BNYM's “Discovery” of Breaches of Representations or Warranties

         The GAs provide that any duty by the Trustee to provide notice of a breach of a representation or warranty is triggered by the Trustee's “discovery” of that breach:

Upon discovery by any of the parties hereto of a breach of a representation or warranty with respect to a Mortgage Loan made . . . that materially and adversely affects the interests of the Certificateholders in that Mortgage Loan, the party discovering such breach shall give prompt notice thereof to the other parties and the NIM Insurer.

See, e.g., CWALT 2006-OA10 PSA § 2.03(c).[10] Under the plain language of this provision, BNYM's obligation to provide “prompt notice” to “the other parties” arises only if it “discover[s]” a breach of a representation or warranty with respect to a loan and that breach “materially and adversely affects” the certificateholder interests in that loan. Id.

         The parties failed to brief the standard that governs BNYM's “discovery” of a breach of a representation or warranty: Does “discovery” require only “inquiry notice, ” which triggers BNYM's duty to investigate? Or does “discovery” require that BNYM had actual knowledge of breaches?[11] There is authority going both ways, [12] but this Court need not resolve which of the “discovery” standards governs. For sixteen of the Trusts, under either standard, Plaintiffs failed to adduce any evidence that BNYM discovered a breach of a representation or warranty. For the other four Trusts, there is a question of fact whether BNYM discovered loan- and Trust- specific breaches.

         Relative to the twelve Countrywide Trusts, Plaintiffs offer two types of evidence as proof that BNYM knew of breaches of representations or warranties.[13] For eight of those Trusts (CWALT 2006-OA6, CWALT 2006-OA11, CWL 2005-6, CWL 2005-IM3, CWL 2006-1, CWL 2006-14, CWL 2006-4, and CWHEL 2005-H), Plaintiffs rely on evidence of “pervasive breaches” at Countrywide. For the remaining four Trusts (CWALT 2006-OA3, CWALT 2006-OA10, CWL 2005-BC1, and CWL 2006-9), Plaintiffs cite evidence that BNYM received a letter in connection with each of those Trusts putting it on notice of breaches of representations or warranties relative to specific loans in the Trusts. For the following reasons, the Court GRANTS in part and DENIES in part BNYM's motion relative to Plaintiffs' claim of breaches of representations or warranties.

         1. Eight Countrywide Trusts: CWALT 2006-OA6, CWALT 2006-OA11, CWL 2005-6, CWL 2005-IM3, CWL 2006-1, CWL 2006-14, CWL 2006-4, and CWHEL 2005-H

         Relative to eight Countrywide Trusts, Plaintiffs rely on evidence of “pervasive breaches” at Countrywide to prove that BNYM discovered breaches of representations and warranties related to loans within those Trusts. For example, Plaintiffs cite evidence that BNYM knew of “systemic representation and warranty breaches across an enormous portfolio of Countrywide loans, ” “systemic fraud” at Countrywide, and that a BNYM employee noted that there was a “growing” number of repurchase requests. Opp. 23-24. Plaintiffs, however, adduce no evidence of BNYM's knowledge of any specific breach of any representation or warranty relative to any particular loan in any of these eight Countrywide Trusts.

         In Retirement Board of the Policemen's Annuity and Benefit Fund of the City of Chicago v. Bank of N.Y. Mellon (hereafter, “Retirement Board”), 775 F.3d 154 (2d Cir. 2014), in the context of deciding whether a putative class representative had class standing relative to RMBS trusts in which the plaintiff had not invested, the Second Circuit concluded that the plaintiffs' claims alleging violations of the TIA, breach of contract, breach of covenant of good faith, and breach of fiduciary duty arising out of RMBS trusts “must be proved loan-by-loan and trust-by-trust.” 775 F.3d at 162. In rejecting the plaintiffs' argument that generalized proof regarding widespread breaches by the loan originator could be used to establish Trustee liability, the Second Circuit explained:

[W]hether Countrywide breached its obligations under the governing agreements (thus triggering BNYM's duty to act) requires examining its conduct with respect to each trust. Whether it was obligated to repurchase a given loan requires examining which loans, in which trusts, were in breach of the representations and warranties. And whether a loan's documentation was deficient requires looking at individual loans and documents.

Id. Although Retirement Board arose in the context of determining class standing, the Second Circuit nevertheless made clear that to prevail on the merits of their RMBS claims, the plaintiffs cannot rely on generalized proof; rather, the plaintiffs must prove their claims that the Trustee breached its contractual obligations “loan-by-loan and trust-by-trust.” Id. at 162-63.

         Although allegations of the Trustee's generalized knowledge of breaches may be sufficient at the pleadings stage, see, e.g., Royal Park I, 109 F.Supp.3d at 601, by summary judgment or trial the plaintiffs must present evidence that proves a specific breach of a representation or warranty as to any loan or trust for which plaintiffs allege there was a breach. See Royal Park III, 2017 WL 945099, at *4 (“Courts in this District have dismissed theories of generalized wrongdoing after the pleading stage.”). For example, in U.S. Bank, Nat'l Ass'n v. UBS Real Estate Sec. Inc., the district court concluded that breaches needed to be proven “on an individualized loan-by-loan basis” because the court could not “determine whether the Trusts have proved that UBS received notice or otherwise discovered that a loan was in breach unless the loan is identified.” 205 F.Supp.3d 386, 424-25, 476 (S.D.N.Y. 2016).

         This Court joins other courts in this District in holding that Plaintiffs' lack of loan- or Trust-specific proof relative to BNYM's knowledge of any breach is fatal to their claims. See, e.g., Royal Park III, 2017 WL 945099, at *4 (rejecting on summary judgment plaintiffs' “pervasive breach” theory (collecting cases)); see also MASTR Adjustable Rate Mortg. Trust 2006-OA2 v. UBS Real Estate Secs. Inc. (“MASTR I”), No. 12-CV-7322 (PKC), 2015 WL 764665, at *10-12 (S.D.N.Y. Jan. 9. 2015) (plaintiff could not rely on a theory of pervasive breaches or generalized knowledge at summary judgment on claims alleging breach of representation or warranty).

         Plaintiffs argue that they need not adduce evidence of loan-specific breaches because Countrywide provided a representation and warranty that the “Mortgage Loans, individually and in the aggregate, conform in all material respects to the descriptions thereof in the Prospectus Supplement.” Opp. 22. This theory assumes too much. The PSAs make clear that any pre-Event of Default duty that BNYM had arose only when it discovered “a breach of a representation or warranty with respect to a Mortgage Loan.” Mot. 56.1 ¶ 43 (emphasis added). Along similar lines, the remedy provisions for a breach of a representation or warranty required the Seller to cure the breach, and if it could not or did not cure, to “remove such Mortgage Loan . . . from the Trust Fund and substitute in its place a Substitute Mortgage Loan” or “repurchase the affected Mortgage Loan or Mortgage Loans from the Trustee.” Mot. 56.1 ¶ 47 (emphasis added). Moreover, this remedy was the “sole remedy” available for this breach. See, e.g., CWALT 2006-OA10 PSA § 2.03(c). Taken together, these breach and remedy provisions make clear that breaches must be discovered (and remedied) relative to the particular mortgage loans in breach; as such, knowledge of “pervasive breaches” does not suffice. See MASTR I, 2015 WL 764665, at *11 (“the PSAs expressly provide[] that cure or repurchase are the ‘sole remedies, ' and, thus, they foreclose the ‘pervasive breach' theory”).[14]

         At summary judgment, Plaintiffs must prove that they have evidence to support their claims “loan-by-loan and trust-by-trust.” Ret. Bd., 775 F.3d at 162. Because Plaintiffs have not done so relative to CWALT 2006-OA6, CWALT 2006-OA11, CWL 2005-6, CWL 2005-IM3, CWL 2006-1, CWL 2006-14, CWL 2006-4, and CWHEL 2005-H, BNYM's motion related to pre-Event of Default duties is GRANTED relative to these eight Trusts.

         2. Remaining Four Countrywide Trusts: CWALT 2006-OA3, CWALT 2006-OA10, CWL 2005-BC1, and CWL 2006-9

         For the remaining four Trusts, Plaintiffs' proof, though scant, fares better. Plaintiffs cite evidence that BNYM received a letter relative to CWALT 2006-OA3, Fitzgerald Decl., Ex. 18 (“Baupost OA3 Letter”), and a letter relative to CWALT 2006-OA10, Fitzgerald Decl., Ex. 19 (“Baupost OA10 Letter”), from the Baupost Group, LLC (“Baupost”), a certificateholder in both of those trusts, stating that hundreds of loans in each of those Trusts did not comply with Countrywide's representations and warranties and that those breaches “materially and adversely affect[ed] the value of the interests of Certificateholders in those mortgage loans.” Baupost OA3 Letter at 1; Baupost OA10 Letter at 1. The Baupost Letters each attached appendices identifying each loan that was purportedly in breach of Countrywide's representations or warranties concerning loan-to-value ratios, appraisal values, and occupancy status.[15] Baupost OA3 Letter, Apps. A-B; Baupost OA10 Letter, Apps. A-B.

         Baupost subsequently assigned its interest in CWALT 2006-OA10 to Walnut Place. Walnut Place sent a follow-up letter to BNYM (“Walnut Place Letter”) noting that the Sellers had failed to repurchase the loans in breach and requesting BNYM to file suit against the Sellers to enforce the Sellers' repurchase obligations. Fitzgerald Decl., Ex. 64 at 1-2. Walnut Place offered to indemnify BNYM for any expenses incurred in doing so. Fitzgerald Decl., Ex. 64 at 2.

         BNYM forwarded the Baupost OA3 Letter to: Countrywide Home Loans, Inc., Park Granada LLC, Park Monaco, Inc., and Park Sienna, LLC (the Sellers to the Trust); CWALT, Inc. (the Depositor to the Trust), and BAC Home Loans Servicing, LP (the Servicer to the Trust). See Fitzgerald Decl., Ex. 66 (“Countrywide Letter”). Those entities responded that BNYM had not followed the proper procedure to notify Countrywide of any breach, because “Section 2.03 [of the PSA] . . . provides that a party may provide notice of a breach only upon its ‘discovery' of a breach-not upon an allegation of breach by a non-party certificateholder.” Countrywide Letter at 2. BNYM asserts that it forwarded the Baupost OA10 Letter to Countrywide, see Reply 9 (citing Fitzgerald Decl., Ex. 64), but the evidence that BNYM cites shows only an email chain among BNYM employees and attorneys at Mayer Brown, with the subject line ...


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