Deutsche Bank Nat'l Trust Co. v. Barclays Bank PLC

34 N.Y.3d 327

140 N.E.3d 511

117 N.Y.S.3d 137

DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee of the Securitized Asset Backed Receivables LLC Trust 2007- BR1 (SABR 2007-BR1), Appellant,

v.BARCLAYS BANK PLC, Respondent.

Deutsche Bank National Trust Company, as Trustee for HSI Asset Securitization Corporation Trust 2007-NC1, Appellant,

v.HSBC Bank USA, National Association, Respondent.

No. 84

Court of Appeals of New York.

November 25, 2019

OPINION OF THE COURT

FAHEY, J.

New York State is a national and international leader in commerce. As a result, large numbers of contracting parties in the United States include New York choice-of-law and forum selection clauses in their contracts.¹ This fact amplifies the effect of every decision made by this Court in the area of contract law.

Here, plaintiff asks us to apply a multi-factor analysis to determine that its causes of action accrued in New York for purposes of CPLR 202. We decline to apply such a test, and instead rely on our general rule that when an economic injury has occurred, the place of injury is usually where the plaintiff resides. We further conclude that plaintiff's causes of action accrued in California, and that its actions are untimely pursuant to CPLR 202.

I.

These appeals stem from two residential mortgage-backed securities (RMBS) transactions. As we explained in ACE Sec. Corp., Home Equity Loan Trust, Series 2006–SL2 v. DB Structured Prods., Inc., 25 N.Y.3d 581, 15 N.Y.S.3d 716, 36 N.E.3d 623 (2015) [hereinafter ACE ], an RMBS transaction involves the bundling of mortgage loans into a pool that is sold to an affiliated purchaser, which then places the loans into a trust for securitization purposes (see id. at 590, 36 N.E.3d 623 ; Nomura Home Equity Loan, Inc., Series 2006–FM2 v. Nomura Credit & Capital, Inc. , 30 N.Y.3d 572, 577–578, 69 N.Y.S.3d 520, 92 N.E.3d 743 [2017] ). The trust then issues certificates that are purchased by investors, or certificateholders (see ACE , 25 N.Y.3d at 590, 15 N.Y.S.3d 716, 36 N.E.3d 623 ). "The individual mortgage loans served as collateral for the certificates, which paid principal and interest to certificateholders from the cash flow generated by the mortgage loan pool; that is, certificateholders made money when the borrowers made payments on their loans" ( id. ). High default rates by borrowers led to the collapse of the subprime housing market, a primary factor in the ensuing precipitous market decline and recession.

In each of the two transactions at issue, plaintiff Deutsche Bank National Trust Company is the trustee for the RMBS trust. The relevant contracts in each transaction contained the familiar cure-or-repurchase provisions (see Nomura , 30 N.Y.3d at 579–581, 69 N.Y.S.3d 520, 92 N.E.3d 743 ; ACE , 25 N.Y.3d at 590, 15 N.Y.S.3d 716, 36 N.E.3d 623 ), and the contracts at issue in the Barclays action contained an "accrual clause" substantially similar to the one we addressed in Deutsche Bank Natl. Trust Co. v. Flagstar Capital Mkts., 32 N.Y.3d 139, 144–145, 112 N.E.3d 1219 (2018).

Plaintiff commenced the first action against defendant Barclays Bank PLC (Barclays), alleging breaches of the representations and warranties Barclays made about the underlying mortgage loans, on April 12, 2013, six years from the closing date of the RMBS transaction. Plaintiff commenced the second action against defendant HSBC Bank USA, National Association (HSBC), also alleging breach of the representations and warranties, on June 5, 2013, six years from the closing date of that transaction.

Defendants moved to dismiss the actions, contending, among other things, that they were untimely. Defendants argued that pursuant to CPLR 202, New York's borrowing statute, plaintiff's claims must be timely under both the laws of New York and of California, where plaintiff resides. The parties agree that if New York's six-year limitations period for breach of contract actions applies (see CPLR 213[2] ), plaintiff's actions are timely. California, however, has a four-year limitations period for breach of contract actions (see Cal Civ Proc Code § 337 ). Defendants argued that as a resident of California, plaintiff suffered economic injury in California, and therefore plaintiff's causes of action accrued in California for the purposes of CPLR 202. Plaintiff conceded that it was a resident of California. It argued, however, that instead of applying the general rule that an economic injury is suffered where the plaintiff resides to determine where the cause of action accrued, the court should apply a multi-factor analysis. Plaintiff asserted that because it was suing in a representative capacity on behalf of the trusts, it did not suffer real economic loss, and its residence was irrelevant, or at least not the primary consideration, for determining the place of accrual.

Supreme Court denied defendants' motions to dismiss to the extent those motions sought dismissal on statute of limitations grounds (see 2015 N.Y. Slip Op. 32252[U], 2015 WL 7625829 [Sup. Ct., N.Y. County 2015] ). It noted that other courts had rejected the plaintiff-residence rule for determining the place of accrual where the plaintiff is a trustee suing in a representative capacity (see id. at *3–4 ). Considering what it determined to be the relevant factors, the court observed that the trusts were created pursuant to New York law, and that the parties had chosen New York substantive law to govern their rights (see id. at *4–5 ). The court rejected defendants' arguments that other factors—such as where the mortgage notes were held and where the payment of state taxes was contemplated—pointed to California as the place of economic injury (see id. at *5–6 ).²

The Appellate Division unanimously reversed and granted defendants' motions to dismiss the complaints ( 156 A.D.3d 401, 66 N.Y.S.3d 472 [1st Dept. 2017] ). The Appellate Division concluded that it need not decide whether the plaintiff-residence rule or the multi-factor analysis proposed by plaintiff applied because even under a factor analysis, plaintiff's claims accrued in California (see id. at 402, 66 N.Y.S.3d 472 ). The Court reasoned that the mortgage loans were originated by California lenders and primarily encumbered real property located in California, the relevant agreements contemplated payment of state taxes, if any, in California, and the agreements stated that the mortgage notes may be held in California, but not New York (see id. at 402–403, 66 N.Y.S.3d 472 ). For these reasons, the Appellate Division concluded that the application of a multi-factor test pointed to California as the place of accrual ( id. ). The Appellate Division further concluded that plaintiff's actions were untimely under the California statute of limitations (see id. at 403–404, 66 N.Y.S.3d 472 ).

We granted plaintiff leave to appeal in both actions ( 32 N.Y.3d 904, 905, 84 N.Y.S.3d 859, 109 N.E.3d 1159 [2018] ).

There are two primary issues on this appeal. The first is where plaintiff's causes of action for breach of contract accrued for purposes of CPLR 202, and which test we should apply to answer that question. If we determine that California is the place of accrual, the second issue is whether plaintiff's causes of action are timely according to California's limitations period. We address each issue in turn.

II.

CPLR 202, New York's borrowing statute, provides:

"An action based upon a cause of action accruing without the state cannot be commenced after the expiration of the time limited by the laws of either the state or the place without the state where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply."

"In other words, ‘[w]hen a nonresident sues on a cause of action accruing outside New York, CPLR 202 requires the cause of action to be timely under the limitation periods of both New York and the jurisdiction where the cause of action accrued’ " ( 2138747 Ontario, Inc. v. Samsung C & T Corp. , 31 N.Y.3d 372, 377, 78 N.Y.S.3d 703, 103 N.E.3d 774 [2018], quoting Global Fin. Corp. v. Triarc Corp. , 93 N.Y.2d 525, 528, 693 N.Y.S.2d 479, 715 N.E.2d 482 [1999] ). It is undisputed that plaintiff is not a resident of New York and therefore that CPLR 202 applies unless plaintiff's causes of action accrued in New York. As noted, the parties agree that if plaintiff's causes of action accrued in New York, then CPLR 202 does not apply, and plaintiff's actions are timely as to both defendants.³

A.

We first consider what test should apply to determine the place of accrual under CPLR 202. Defendants argue that this Court should apply the plaintiff-residence rule, which states that "[w]hen an alleged injury is purely economic, the place of injury usually is where the plaintiff resides and sustains the economic impact of the loss" ( Global Fin. Corp. , 93 N.Y.2d at 529, 693 N.Y.S.2d 479, 715 N.E.2d 482 ). Defendants assert that this rule provides predictability and uniformity, and that abandoning it here in favor of a factor-based analysis would result in confusion and uncertainty.

Plaintiff agrees that its causes of action accrued in the place where the economic injury was sustained, but it argues that the plaintiff-residence rule should not apply to determine where the injury occurred where, as here, the plaintiff is suing in merely a representative capacity. Instead, plaintiff argues, the Court should employ a multi-factor analysis to determine where the economic injury was felt, similar to the factor test employed in Maiden v. Biehl, 582 F. Supp. 1209, 1217–1218 [S.D.N.Y.1984] ). Plaintiff contends that a factor test is a better fit for determining "who became poorer, and where ... they bec[a]me poorer" ( id. at 1218 ) when the plaintiff sues in a representative capacity.

In Maiden , the federal district court applied a multi-factor analysis to determine the place of accrual for purposes of CPLR 202 with respect to one of the plaintiffs'...