Ambac Assurance Corp. v. Countrywide Home Loans, Inc.

2018 NY Slip Op 33398(U)

AMBAC ASSURANCE CORPORATION and THE SEGREGATED ACCOUNT OFAMBAC ASSURANCE CORPORATION, Plaintiffs, v. COUNTRYWIDE HOME LOANS, INC., COUNTRYWIDE SECURITIES CORP.,COUNTRYWIDE FINANCIAL CORP., and BANK OF AMERICA CORP., Defendants.

Index No. 651612/2010

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART 3

RECEIVED: January 2, 2019

December 30, 2018

NYSCEF DOC. NO. 2010

Motion Seq. Nos. 048, 049, 050, 051, 052 and 54

Motion Dates 9/27/18 and 11/05/18

BRANSTEN, J.:

Plaintiff Ambac Assurance Corporation (Ambac), a monoline financial guaranty insurer, agreed to insure payments of principal and interest owed to the holders of residential mortgage-backed securities sponsored by defendants Countrywide Home Loans, Inc., Countrywide Securities Corp. and Countrywide Financial Corp. (collectively, Countrywide, or the Countrywide defendants). Between 2004 and 2006, Ambac insured 17 residential mortgage-backed securities (RMBS) transactions issued by Countrywide. These RMBS transactions were backed by more than 375,000 individual mortgage loans, which Countrywide had originated or acquired, and then put into securitization trusts. In exchange for substantial premiums, Ambac issued unconditional, irrevocable insurance policies, agreeing to insure certain payments to the investors.

In 2010, Ambac commenced this action against the Countrywide defendants, asserting claims including breach of contract and fraud arising from the 17 RMBS transactions. Ambac alleges that Countrywide fraudulently induced it to enter into the insurance agreements, and that Countrywide breached several contractual representations and warranties in the securitization transaction documents regarding Countrywide's underwriting practices in issuing mortgage loans to borrowers that comprised the securities.

Ambac also asserts successor-liability and alter ego claims against defendant Bank of America Corp. (BAC) to hold BAC jointly and severally liable for all damages arising from Countrywide's alleged wrongdoing.

Motion Sequence Nos. 048, 049, 050, 051, 052 and 54 are consolidated for disposition. In Motion Sequence No. 048, the Countrywide defendants move for an order of preclusion to bar Ambac from using statistical sampling to prove liability or damages for breach of contract.

In Motion Sequence No. 049, the Countrywide defendants move to strike Ambac's jury demand as to its first cause of action.

In Motion Sequence No. 050, the Countrywide defendants move for an order determining the loans at issue on Ambac's breach of contract claims.

In Motion Sequence No. 051, BAC moves to sever Ambac's contingent-liability claims for trial and postpone any trial until after a judgment is entered on the primary-liability claims.

In Motion Sequence No. 052, BAC moves to strike Ambac's jury demand for its claims against BAC.

In Motion Sequence No. 054, the Countrywide defendants move to dismiss, or in the alternative, for summary judgment dismissing Ambac's fraudulent inducement cause of action because damages in the fraud case are the damages as in the contract case.

For the reasons set forth below, all the motions are denied.

I. BACKGROUND

The factual background of this action has been fully set forth in previous decisions of this court and will only be repeated as necessary for clarification. For a comprehensive background see the Court of Appeals decision in Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 31 N.Y.3d 569, 575 (2018).

II. DISCUSSION

A. BAC's Motion to Sever Ambac's Contingent-Liability Claims (Motion Sequence No. 051)

In Motion Sequence No. 051, BAC moves to sever the primary- and successor-liability claims in this action, and to postpone a trial on the latter claims until the primary-liability claims have been resolved. The Countrywide defendants join in BAC's motion. See NYSCEF Doc. No 1908.

Ambac's six causes of action against the Countrywide defendants are premised on its allegations that the Countrywide defendants breached their contracts and made materially false or misleading statements between 2004 and 2006 concerning their mortgage origination practices and the characteristics of the loans that were sold in the 17 RMBS transactions that Ambac insured. See Second Amen. Comp., ¶¶ 7-15.

Ambac seeks to hold BAC liable on those six causes of action, on the theory that BAC "is jointly and severally liable for any and all damages resulting to Plaintiffs" from that alleged wrongdoing because (1) BAC is "Countrywide's successor in liability" as a result of a "de facto merger," between Countrywide and BAC, accomplished through a series of coordinated transactions that commenced in 2008; and (2) "Countrywide and Bank of America are alter egos of one another". See id. at ¶¶ 170-171. Specifically, Ambac alleges that BAC exercised dominion and control to compel Countrywide to (a)divest its assets in a manner that primarily benefitted BAC and its non-Countrywide subsidiaries to the detriment of Ambac and Countrywide's other contingent creditors; and (b) unreasonably refused to repurchase defective loans that Ambac submitted for repurchase. See id. at ¶¶ 174, 175.

In 2011, BAC moved to sever Ambac's successor-liability claims and consolidate them with the successor-liability claims in three other pending RMBS litigations. This court denied BAC's motion, reasoning that severing and consolidating the successor-liability claims would not promote judicial economy, and would cause significant prejudice to the monoline plaintiffs, either because they would be delayed in resolving their claims, or because they would be forced to change their litigation schedule and strategy. See November 2, 2011 Decision and Order, at 10-11 (NYSCEF Doc. No. 48).

The court determined that discovery on the successor-liability claims should move forward because Ambac, like the other monoline plaintiffs, "has significant interest in continuing and completing discovery in full, including its claims for successor liability." See id. This court held in abeyance the portion of BAC's motion to sever and consolidate trial of the successor-liability claims until the completion of summary judgment briefing. See id. at 13.

In May 2015, the parties filed summary judgment motions. BAC and the Countrywide defendants sought summary dismissal of all the respective claims against them. Ambac moved for partial summary judgment on both its primary- and contingent-liability claims. This court denied BAC's motion for summary judgment on Ambac's successor-liability claims, concluding that there were issues of fact regarding Ambac's de facto merger and other theories "that must be resolved at trial". See October 22, 2015 Decision and Order, at 28, 32, 35 (NYSCEF Doc. No. 1671). The First Department affirmed in relevant part, finding that there are genuine issues of fact with respect to Ambac's de facto merger and alter ego claims against BAC that could not be resolved on summary judgment. See Ambac Assur. Corp. v Countrywide Home Loans, Inc., 150 A.D.3d 490, 491-492 (1^st Dept. 2017).

In support of its motion to sever, BAC asserts that this litigation involves two distinct cases that have been proceeding in tandem through discovery and summary judgment. In one case, Ambac asserts contract and fraud-based claims against Countrywide, and the court will determine the accuracy of representations and warranties in 2004-2006 securitization contracts. In the other, Ambac asserts equity-based claims against BAC, in which the court will determine the fairness of two sets of 2008 asset sales and assess dealings in 2008 and later between a public bank holding company and its subsidiaries.

BAC contends that, because these two cases involve different time periods, transactions, legal theories, documents and witnesses, the court should sever them for trial. According to BAC, severance would conserve judicial and party resources by avoiding a potentially unnecessary trial on Ambac's contingent liability claims against BAC, since Ambac must first establish the critical prerequisites to these claims - a judgment on the primary-liability claims. Second, severance would promote judicial efficiency because there is no meaningful overlap between the contingent- and primary-liability claims. Third, if the court were to conclude that Ambac's contingent-liability claims must be tried to a jury, severance would avoid the potential for jury confusion and prejudice to BAC in simultaneously trying claims.

Under CPLR 603, the court has discretion "to order a severance of claims, or may order a separate trial of any claim, or of any separate issue." In exercising this discretion, the court's "major purpose [should be] . . . to avoid wasting judicial resources." See Mercado v. City of New York, 25 A.D.2d 75, 76 (1^st Dept 1966); see also 105 N.Y. Jurisprudence Trial § 208 (2d ed. 2018). A court may also order separate trials "to 1) avoid prejudice; 2) provide for convenience; or 3) . . . be economical." See Ricciuti v. New York City Tr. Auth., 796 F. Supp. 84, 86 (S.D.N.Y 1992). Severance is also appropriate to "avoid substantial prejudice. . . arising from potential juror confusion" Toscani v. One Bryant Park, LLC, 139 A.D.3d 644, 644 (1^st Dept 2016).

This discretion, however, must be exercised "sparingly," as severance "increases litigation and places an unnecessary burden on court facilities by requiring two separate trials instead of one." Shanley v. Callanan Indus., Inc. 54 N.Y.2d 52, 57 (1981). For this reason, the general rule is that all claims interposed in an action should be tried at once. See Williams v. Prop. Servs., 6 A.D.3d 255, 256 (1^st Dept 2004) (affirming denial of motion to sever into two separate actions because "[i]t is preferable to try related actions together, in order to avoid a waste of judicial resources"); New York Cent. Mut. Ins. Co. v. McGee, 87 A.D.3d 622, 624 (2d Dept 2011) ("Severance is inappropriate where the claims against the defendants involve common factual...