Homeward Residential, Inc. v. Sand Canyon Corp.

499 F.Supp.3d 18

HOMEWARD RESIDENTIAL, INC., solely in its capacity as Master Servicer for the Option One Mortgage Loan Trust 2006-2, for the benefit of the Trustee and the holders of Option One Mortgage Loan Trust 2006-2 Certificates, Plaintiff,

v.SAND CANYON CORPORATION f/k/a Option One Mortgage Corporation, Defendant.

12-CV-5067 (JMF), , 12-CV-7319 (JMF)

United States District Court, S.D. New York.

Signed November 9, 2020

Patrick L. Robson, Brian V. Otero, Stephen Roy Blacklocks, Hunton & Williams, LLP, Michael Bert Kruse, Hunton Andrews Kurth LLP, New York, NY, for Plaintiff.

Michael Calhoon, Vernon Anthony Andrew Cassin, III, Baker Botts LLP, Daniel T. Brown, Pro Hac Vice, Murphy & McGonigle PC, Richard P. Sobiecki, Office of the Attorney General for the District of Columbia, Washington, DC, Brian C. Kerr, Baker Botts L.L.P., Douglas W. Henkin, Dentons US LLP, Hannah Berkowitz, James K. Goldfarb, Soren Elliot Packer, Murphy & McGonigle, P.C., New York, NY, Evan A. Young, Baker Botts LLP, Austin, TX, for Defendant.

OPINION AND ORDER

JESSE M. FURMAN, United States District Judge:

These consolidated cases are two of many arising out of the 2008-2010 financial crisis and its effect on residential mortgage-backed securities or "RMBS." Plaintiff Homeward Residential, Inc. ("Homeward"), in its capacity as Master Servicer for two trusts (the "Trusts") and for the benefit of the trustees and beneficiaries of the Trusts, brings claims for breach of warranty and breach of contract against Sand Canyon Corporation ("Sand Canyon"), formerly known as Option One Mortgage Corporation ("Option One"). Now pending are cross-motions for summary judgment and to preclude expert testimony. Although the motions raise many complex issues, the Court need not and does not reach most of them because it agrees with Sand Canyon that, under New York law, Homeward's claims are time barred. Accordingly, and for the reasons discussed below, Sand Canyon's motion for summary judgment is granted.

BACKGROUND

For purposes of the present motions, the relevant facts in these cases are undisputed. Together, the two cases involve two RMBS transactions. As the New York Court of Appeals has explained (in an opinion that, as discussed below, is significant for this case),

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. The trust then issues certificates that are purchased by investors, or certificateholders. The individual mortgage loans serve[ ] as collateral for the certificates, which [pay] principal and interest to certificateholders from the cash flow generated by the mortgage loan pool; that is, certificateholders [make] money when the borrowers [make] payments on their loans.

Deutsche Bank Nat'l Tr. Co. v. Barclays Bank PLC , 34 N.Y.3d 327, 331-32, 117 N.Y.S.3d 137, 140 N.E.3d 511 (2019) (citations and internal quotation marks omitted). All was well and good until near the end of the aughts, when "[h]igh default rates by borrowers led to the collapse of the subprime housing market," which, in turn, helped cause a "precipitous market decline and recession." Id. at 332, 117 N.Y.S.3d 137, 140 N.E.3d 511. Not surprisingly, litigation followed, including many cases of the sort here, brought on behalf of trusts that purchased RMBS and alleging breaches of representations and warranties regarding the underlying mortgage loans. See, e.g. , Bakal v. U.S. Bank Nat'l Ass'n , 747 F. App'x 32, 34 (2d Cir. 2019) (summary order) (noting the "seemingly-endless stream of derivative actions brought by plaintiffs who lost money that had been invested in residential mortgage-back securities (‘RMBS’) when the housing market collapsed" (internal quotation marks omitted)); Phoenix Light SF Ltd. v. Bank of N.Y. Mellon , No. 14-CV-10104 (VEC), 2015 WL 5710645, at *1 & n.1 (S.D.N.Y. Sept. 29, 2015) (collecting cases).

The two RMBS transactions at issue in these cases occurred in 2006. To the extent relevant here, each transaction involved a pair of written agreements. First, in each instance, Sand Canyon entered into a Mortgage Loan Purchase Agreement ("MLPA") with its wholly owned subsidiary, Option One Mortgage Acceptance Corporation ("OOMAC"), pursuant to which Sand Canyon agreed to sell certain loans to OOMAC in exchange for more than $2 billion and — in its capacity as "Originator" — made certain representations and warranties regarding the loans. See ECF No. 375-1 ("Def.’s 56.1 Response"), ¶¶ 3-4, 34-36, 61; ECF No. 383 ("Pl.’s Counter-56.1 Response"), ¶ 17; Calhoon Decl., Ex. 1 ("06-2 MLPA"), §§ 3.01-.02; Calhoon Decl., Ex. 3 ("06-3 MLPA"), §§ 3.01-.02.¹ Second, in each transaction, OOMAC simultaneously entered into a Pooling and Servicing Agreement ("PSA"), pursuant to which it agreed to deposit the loans with the relevant Trust and to convey its rights under the MLPA to Wells Fargo Bank, N.A., ("Wells Fargo"), as Trustee for the Trust. See Calhoon Decl., Ex. 2 ("06-2 PSA"), §§ 2.01-.02, 2.07; Calhoon Decl., Ex. 4 ("06-3 PSA"), §§ 2.01-.02, 2.07; Def.’s 56.1 Response ¶¶ 3, 38-39. In exchange, OOMAC received Certificates representing ownership interests in the relevant Trust, which OOMAC then sold to investors (the "Certificateholders") in exchange for cash that it used to pay Sand Canyon for the loans it had obtained under the MLPA. See Def.’s 56.1 Response ¶ 3. The PSAs designated Sand Canyon as the "Master Servicer" and required it, in that role, to "enforce" — "for the benefit of the Trustee and the Certificateholders" — "the obligations ... of the Originator under the [relevant MLPA], including, without limitation, any obligation ... on account of a breach of a representation, warranty or covenant." 06-2 PSA § 3.02(b); 06-3 PSA § 3.02(b).²

In April 2008, Homeward (then known as American Home Mortgage Servicing Inc.) acquired certain assets from Sand Canyon and assumed the role of "Master Servicer" under each PSA. See Def.’s 56.1 Response ¶¶ 14-18. Not long after, the financial crisis struck and, like other RMBS trusts, the Trusts sustained large losses due to rising delinquency and default rates among the underlying mortgages. See ECF No. 24, ("Amended Compl."), ¶¶ 4-5. Eventually, Wells Fargo, as Trustee, authorized Homeward, as the Master Servicer, to sue Sand Canyon for breaches of the representations and warranties in the MLPAs. See Homeward Residential, Inc. v. Sand Canyon Corp. , No. 12-CV-5067 (JFK) (JLC), 2017 WL 4676806, at *2 (S.D.N.Y. Oct. 17, 2017). On May 31, 2012, Homeward filed the first of these two cases, relating to one of the two Trusts at issue. See ECF No. 1. It filed the second, relating to the other Trust, on September 28, 2012. See 12-CV-7319, ECF No. 1.³ Motion practice and discovery followed and, in 2019, the cases were reassigned to the undersigned and consolidated. See ECF No. 302. Thereafter, the parties filed cross-motions for summary judgment and motions to preclude expert testimony. See ECF Nos. 346, 350, 352, 356.

LEGAL STANDARDS

Summary judgment is appropriate where the admissible evidence and pleadings demonstrate "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 Johnson v. Killian , 680 F.3d 234, 236 (2d Cir. 2012) (per curiam). A dispute over an issue of material fact qualifies as genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; accord Roe v. City of Waterbury , 542 F.3d 31, 35 (2d Cir. 2008). The initial burden of establishing that no genuine factual dispute exists rests upon the party seeking summary judgment. See Chambers v. TRM Copy Ctrs. Corp. , 43 F.3d 29, 36 (2d Cir. 1994). If the moving party shows a prima facie entitlement to summary judgment, "the burden shifts to the nonmovant to point to record evidence creating a genuine issue of material fact." Salahuddin v. Goord , 467 F.3d 263, 273 (2d Cir. 2006).

In ruling on a motion for summary judgment, a court must view all evidence "in the light most favorable to the non-moving party," Overton v. N.Y. State Div. of Military & Naval Affairs , 373 F.3d 83, 89 (2d Cir. 2004), and must "resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought," Sec. Ins. Co. of Hartford v. Old Dominion Freight Line, Inc. , 391 F.3d 77, 83 (2d Cir. 2004). To defeat a motion for summary judgment, the non-moving party must advance more than a "scintilla of evidence," Anderson , 477 U.S. at 252, 106 S.Ct. 2505, and demonstrate more than "some metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The non-moving party "cannot defeat the motion by relying on the allegations in [its] pleading, or on conclusory statements, or on mere assertions that affidavits supporting the motion are not credible." Gottlieb v. County of Orange , 84 F.3d 511, 518 (2d Cir. 1996) (internal citation omitted). In the final analysis, Rule 56 "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

DISCUSSION

Sand Canyon argues that Homeward's claims are time barred. See Mem. Law Supp. Def.’s Mot. Summ. J. ("Def.’s Mem."), at 16-20; ECF No. 375 ("Def.’s Reply"), at 5-22.⁴ Although Homeward did not assume its role as Master Servicer until 2008, there is no dispute that its claims accrued when the transactions occurred in 2006 and that it filed each case more than five, but less...